Category: Government

Colbert Good, Keynes Not So Smart

Another hugely interesting article from Patrice Ayme

Patrice is a good friend of this Blog so it pleases me very much to point you towards a recent article on Patrice’s own Blog. Here’s the abstract:

Obama is well on his way to become one of the most unaccomplished presidents of the USA, ever. This is made worse, because we are at a crucial juncture of history, and the USA is in leadership position. When the car is travelling fast, and the leader is asleep at the wheel, it will not just end in the ditch.

The little smoke and mirrors Obama threw up, will be easily reversed by the republicans, as planned. So, in the end, Obama will turn up as just an extension of Bush, without the smirk… nor the originality. By choosing the same ideological, Goldman Sachs team, that implemented plutocracy under Clinton, Obama asked those who put the car in the ditch, to get it out, not understanding that they were still drunk in their quest to selfish profit.

This story presently unfolding has been seen before; it was Great Depression II, the great depression of the 1930s. It was the stall after the deliberately engineered bubble of the 1920s.

The West got out of it by massive state enforced job programs, started under president Hoover (Hoover dam, Empire State building, etc,) and pursued by FD Roosevelt (Grand Coulee dam, etc.) and Hitler (Autobahn system, copied by Eisenhower in the 1950s, and everybody else since).

Millions got employed directly by the government and the massive mobilization of WWII did the rest, followed by the GI Bill in 1945. Europe had massive state organized and financed economic activity, led by the US Marshall plan (Marshall was the US chief of staff during WWII, and Secretary of State of Truman). Europe, traumatized by what had happened also made important institutional changes, oriented towards welfare, such as free health care. Sully’s plan of circa 1600 for a “Very Christian Council of Europe” was also implemented.

(Labeling used on aid packages.)

The Marshall Plan (officially the European Recovery Program,ERP) was the primary program of the USA for rebuilding and creating a stronger economic foundation for the countries of Europe (1947–51). Efforts focused on modernizing European industrial and business practices using high-efficiency American models (themselves learned from French industrialists to implement American production of the 75mm gun, the mainstay of French artillery in WWI).

All this help and investment, in the USA and Europe, was paid bymarginal tax rates on income as high as 90% in the USA (under US president Ike).

Right, now, instead, the richest Americans pay the lowest tax rate (15%), and wealth has not been so concentrated in a century (a century ago, great spaces and freedom were another form of wealth, at least in the USA, which have now disappeared).

Starting in 1996, a succession of ever larger bubbles, following part of Keynes’s ideas, has injected more and more money in the economy, money which came neither from savings nor production, but mostly borrowed from aliens, and, increasingly, the Chinese.

Robert Reich (UC Berkeley), who lost to Robert Rubin (Goldman Sachs) the debate on the economic strategy to pursue in the Clinton administration, wrote an essay in the New York Times, “How to End The Great Recession”, reflecting the approach that wealth needs to be redistributed. Reich mentioned what I have long observed: the real (inflation adjusted) median income has been going down for thirty years now. This is worse than what happened during Great Depression II. So this is Great Depression III, not just another recession.

I approve of Reich’s anti plutocratic approach, of course. As he says: “The Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity.”… However, this is not the whole story.Redistribution is good, however production is necessary.Keynes, as we will see, is about throwing money to the people, as the Roman emperors invented. That is not about meaningful employment.

Obama’s ineptitude is not all his fault. The economic advice he got, even from his opponents, has been terrible. For example, Krugman, whom I approve a lot of, wanted, like Romer (the ex-chair of economic advisers) a bigger stimulus. And so did I.

But stimulating what? How? To which aim? Most of Obama’s stimulus was wasted on short term alleviation of long term structural defects, exactly the sort of trap one does not want to fall into (French socialists fell into that very trap in the recent past, with the result that the income tax started to fully go to paying the interest on the French national debt).

The USA stimulus ought to have targeted to jump start a big energy infrastructure first, followed by a massively innovative scientific industry, modeled after the military industrial complex (the only thing the USA does really well nowadays, besides plenty of hot air). Instead, the debate in economic theory has been pretty much Keynes (somewhat of a neo-stupid, see below) versus Hayek (a pro-plutocratic neo-fascist who influenced the Chicago school’s meta principle that GREED, AND ONLY GREED, MAKES GOOD).

However, the military-industrial complex of the USA, by now, by far, the most competitive part of its economy, is not run according to Hayek, or Keynes. It is run along the lines defined by Jean Baptiste Colbert. That ought to be a hint, but no main stream American economist has picked it up.

American economists in good standing do not know who Colbert was, perhaps because he thrived when Indians were outnumbering European colonists in North America, and studying history is not as important than learning sports, and to learn to agree with one’s peers, in American schools.

Colbert started his career, and this is overlooked, overlooking the military, at the grand old age of 21. Colbert branched off into economy and finance much later, after helping to send the hyper rich “superintendent of finances”, Fouquet, to jail, for life.

The American economist Paul Kennedy, in a book about The Rise And Fall Of The Great Powers, basically expounded, as his theory, what was pretty much Colbert’s theory and practice(unsurprisingly, Kennedy does not talk about Colbert too much, and got rewarded with a prize for his depth and originality).

Colbert had perfectly understood that Great Power status necessitated a Great Economy. Thus Colbertism could be viewed as the highest form of militarism. Just like the USA is itself the highest form of militarism which ever was. Notice the rapprochement. Not to make fun of it: the position of Europe and the USA is unstable, just as the entire world economy, society and military situations are all simultaneously unstable, and military superiority is what keeps thing together, right now (unfortunately it is courting defeat in Afghanistan).

Colbert was actually following the model implemented, with spectacular success, by Henri IV and his economy and finance minister, Sully, a protestant military engineer, around 1600 CE, with state financed canals, silk factories and free markets.

Why are great powers great powers? Because they have achieved a technological superiority gradient, and have enough numbers to sit on top of it. Numbers are not everything: the Mongols carved the world’s largest empire in a few years, and with 200,000 warriors. “Technology” here is meant in the full etymological sense: any specialized discourse.

If we want to keep a superior lifestyle in the empire of the West, and a stable planet, it is high time to recover such a gradient, which is, basically, an intelligence gradient. Thus it is high time to redistribute the sort of economy which makes the military industrial complex of the USA so superior, namely COLBERTISM MODERNIZED.

***

The full article is here

Well worth reading.

By Paul Handover

Deregulation – an expert’s view.

Once again, not everything is as it seems!

Focus warning! This is a longer piece that usual but also a more important piece than usual. Please find the time to read it and explore the links. Thank you.

Many, many years ago I lived in Tamarama Bay, just East of Sydney,

Australia. It was a very short walk to Bronte Beach which was much better experience than the famous Bondi Beach about half a mile North of where we lived.

Thus when I saw the name Bronte Capital it caught my eye because of old resonances from the word “Bronte”.

OK, to the point!

John Hempton is a principle at Bronte Capital, an Australian fund manager. John is no slouch having been in his past a Chief Analyst for the New Zealand Treasury and Executive Assistant to the CEO of ANZ Bank in New Zealand. John’s CV is here.

Bronte Capital have a Blog – well who doesn’t – and it was a link to that Blog from Naked Capitalism that caused me to read a recent article from John about deregulation.

Despite me not understanding many of the technical aspects, it struck me with some force, so much so that I wanted to reproduce chunks of it on Learning from Dogs. John was gracious enough to give me written permission to so do! Thanks John.

The article is called A Deregulation Conundrum.

John opens by writing:

I have just read Daniel Amman’s excellent biography of Marc Rich – the oil trader notoriously pardoned by Bill Clinton. I don’t want to get into the politics and ethics of the pardon other than to note that few things in it are black-and-white when you finished reading the book.

and a couple of paragraphs later explains that Marc Rich has a rather appropriate surname – well this is how John writes:

Marc Rich exploited price fixing/import/export controls to make simply unbelievable profits trading oil. Marc Rich & Co (the Swiss vehicle) was started with just over $1 million in capital and a couple of years later was making in excess of $200 million in profit. This level of profitability exceeds – by far – any other trading operation I have ever seen – and was probably the most profitable trading operation in history. Marc Rich & Co (since renamed Glencore) is possibly the most valuable business in Switzerland within the lifetime of its founder.

Just stop here for a moment.

This man, Rich, goes from one million dollars in capital to two hundred million dollars in profits in 2 years, give or take! Read on:

A typical Marc Rich & Co trade involved Iran (under the Shah), Israel, Communist Albania and Fascist Spain. The Shah needed a path to export oil probably produced in excess of OPEC quotas and one which was unaudited and hence could be skimmed to support the Shah’s personal fortune. Israel – a pariah state in the Middle East – wanted oil. Spain had rising oil demand and limited foreign currency but was happy to buy oil (slightly) on the cheap. Spain however did not recognise Israel and hence would not buy oil from Israel – so it needed to be washed through a third country. Albania openly traded with both Israel and Spain. Oh, and there is an old oil pipeline which goes from Iran through Israel to the sea.

So what is the deal? The Shah sells his non-quota oil down the pipeline through Israel and skims his take of the proceeds. Israel skim their take of the oil. Someone doing lading and unlading in Albania gets their take and hence make it – from the Spanish perspective – Albanian, not Israeli oil. The Spanish ask few questions. The margins are mouth-watering – and they all come from giving people what they really want rather than what they say they want. We know what the Shah wanted (folding stuff). We know what Israel wanted (oil). We know what Spain wanted (cheap oil). Who cares that Spain was publicly spouting anti-Israel rhetoric. [Similar trades allowed South Africa to break the anti-Apartheid trade embargoes.]

John explains:

It also helped that Marc Rich & Co was a (highly) multilingual firm. Rich is fluent in Spanish (it is the language he talks to his children in). He speaks English, German, Yiddish and presumably Hebrew. His business partner (Pincus Green – pardoned the same day as Rich) speaks Farsi amongst many other languages. They could do this deal because they could negotiate it and – deep in their heart they hold the Ayn Rand view that trade is a moral virtue and hence they do not need to be concerned with other morality. [The only line that matters is the law – and then it might not be the law of his adopted country – Switzerland – rather than the United States where he was resident.]

My italics, by the way. Just stay with me for a short while longer to ‘get’ John’s important message. Here’s John again:

The regulatory regime for domestic American oil was also perverse. Old oil (meaning wells drilled before the first oil crisis) received one price. New oil (wells drilled after the crisis) received a higher price. Squeeze oil (oil that was extracted from wells that ran less than 10 barrels per day) received a higher price still. The oil could be chemically identical and the price difference over $20 per barrel. Obviously a trader with a method (any method) of changing the oil source could make a fortune. Again I am not commenting on legality or morality. That was just plain fact. Ayn Rand applies – you give a value and you receive a value.

What all this regulation did was that it allowed people to make simply grotesque profits by thwarting regulation. The regulation thus worked less well and it was socially unfair. Pincus Green was good at negotiating in Farsi. He was astoundingly brave going to Iran immediately after the Shah fell. He was good at organising shipping. He worked really hard – but he did not invent something that changed the world and he wound up a billionaire. Traders make money by intermediating real business solutions – but these were real business solutions to problems made by legislation. Bad regulation, moral indignation about “trading with the enemy” or “trading with Israel” or with racists in South Africa made people with Ayn Rand morals exceedingly wealthy because you could arbitrage your way around any of these regulations.

OK, you are probably getting the drift of this important article from John. If any of this ruffles your hair, then read it all – it’s a very important message. This is what John is saying:

As a plea then I want a debate about the right form of regulation – a regulation that controls agency problems but does not allow arbitrage opportunities to people with “Ayn Rand morals”.

We are not going to get that from the current Tea Party Republicans. They simply argue that regulation (they say but do not mean all regulation) impinges on “freedom” (something that is clearly a good but hard to define). However many of the same people want planning regulations to ban a mosque in downtown New York because it is an insult to the victims of 9/11 (and banning mosques is not a restriction on “freedom”).

If that is the level of debate we are not going to get good re-regulation – we are just going to get pandering to whichever lobby group manages to garner most support. And that is a real risk because we will leave agency problems in place (they benefit the rich and powerful) and we will introduce the same sort of (dumb) regulation that made Marc Rich and Pincus Green astoundingly wealthy. That sort of regulation also benefits the rich and powerful – especially those with “Ayn Rand morals”. [The rich and powerful – if you have not noticed – are good lobbyists. Unless we are careful many amongst them will get their way.]

You didn’t rush those last three paragraphs, did you?

John concludes thus:

I don’t know how to do this well – but I thought I would state the obvious. The most obvious things that need regulation are things with a government guarantee (implicit or explicit). If you have an implicit guarantee (as we now know almost all large financial institutions have) then regulation really matters. If there are large agency problems (small shareholders, large management) then regulation should be deliberately biased to put power in the hands of shareholders not managers (eg banning staggered board elections).

Likewise other agency problems should be strongly policed and the regulation should be of the form that allows that policing. When Elliot Spitzer found that Marsh – a large insurance broker – was participating in bid rigging against schools buying insurance that was shocking – and is precisely the sort of thing in financial markets that should be policed strongly. But it took Elliot considerable effort to find and prove his case. The rules should be established so that sort of behaviour is really difficult to hide.

And I do not think that I need to explain to anyone how much mortgage brokers contributed to the crisis by (a) deliberately misleading borrowers about conditions on their mortgage and (b) participating in the faking of borrowers income/assets/education level when they on-sold the loans to Wall Street. Agency problems were at the core of the crisis.

On the other side if there is no agency problem then deregulation should remain the order of the day. Trade restrictions create arbitrageurs – and the arbitrageurs ensure the trade restrictions don’t work anyway.

There are obviously going to be extensions to this rough rule – and this post is really to garner discussion. But for a start I expect agents who benefit from their agency (and the abuse of their agency) to join the Tea Party.

It is difficult to get policy right. And when and if the policy is got right we are in for a very long fight to implement it.

I take my hat off to Mr John Hempton. He’s in the ‘finance’ industry, probably doing well, and yet he has the courage to hold a mirror up to the desperately immoral happenings going on around him.

It’s a real pleasure and honour to publish this Post.

Let me close with a short piece from the Sydney Morning Herald of the 2nd January, 2010.

john-hempton — John Hempton ... blog locally, act globally. Photo: Domino Postiglione

WHEN John Hempton started a blog as he recovered from pneumonia, he did not expect to send shockwaves through the finance industry.

But that is exactly what the 42-year-old fund manager did through his Bronte Capital blog. His exposé of an unrelated US hedge fund would eventually lead to $426 million in investments being frozen and authorities seizing control of the Albury fund manager Trio Capital shortly before Christmas.

Fabulous! I salute you, Sir.

By Paul Handover

Statistical impressions!

Or as I would prefer to call it: Lies, Damn Lies and Statistics!

From time to time, I have mentioned David Kauders of Kauders Portfolio Services

I was a client for many years but had to terminate that client relationship when residence in the USA became highly likely! Very happy with the service and advice provided – extremely so! (I have no relationship at any level with that firm now!).

Anyway, David publishes what he calls Contrary View from time to time. His latest is reproduced with his permission.

No. 074 9th August 2010 A statistical impression

Over the last few weeks a number of graphs have appeared showing how the economy has apparently picked up to where it was before the credit crunch started. Such graphs invariably show a ‘U’ shaped curve demonstrating perfect recovery. This is the impression easily formed by a glance at such a graph, but it is the wrong assumption to make.

National Statistics reports Gross Domestic Product (GDP) as two different measures, both estimates showing a decline in GDP. Here are the latest figures (estimated), taken from their website last week:

3rd Qtr 2008 Index 102.6

2nd Qtr 2010 Index 99.0

This GDP index shows a permanent loss of output.

Detailed figures are also available (Table 1.02 of the UK economic accounts) and on the same estimating basis, seasonally adjusted, report:

3rd Qtr 2008 GDP £340,780 million

2nd Qtr 2010 GDP £328,766 million

No matter how you look at these figures, there has been a permanent loss of output of just over 3.5% in this period.

This loss of output means less work, so debts are more difficult to service. Why do the press produce graphs showing an apparently perfect recovery? The answer is that the graphs are taken from the National Statistics press release, for example on 23rd July 2010. The graph that is offered is a rate of change, not the level of output, and may simply have been copied without consideration of the impression formed.

The graph mentioned in the text. Ed.

http://www.contraryview.co.uk, published by Kauders Portfolio Management

WARNING: The firm can only be responsible for action taken on our advice given personally and specifically to be suitable for each individual. Statements on this site do not, on their own, constitute advice. Please note that UK regulatory requirements prevent us commenting on your existing investments or giving specific advice, unless you first sign one of our portfolio service agreements.

As I mentioned in a comment to a regular reader of Learning from Dogs:

To me, sufficiently old to have watched Governments for some decades now, the most striking thing about the present circumstances is the terrible decline in political integrity.

By Paul Handover

Are today’s friends tomorrow’s enemies?

Sometimes looking down the other end of the telescope reveals more, much more!

Afghanistan_War — Afghanistan - where is it leading?

Now that coalition forces have just recently suffered their deadliest month yet in the conflict in Afghanistan, it now has become more crucial than ever to rethink the strategy of the United States and its allies in the region. Currently, the cornerstone of this strategy rests upon two key factors – winning over the local peoples of the region, and training local forces to carry the burden when, and if, coalition forces leave the region.

At least on the exterior, these goals in Afghanistan do make some sense. The only possible way to succeed via a continued military occupation of Afghanistan is to attain and bank on the support of the local peoples. Also, if western powers are ever to withdraw from the region, local forces will have to be able to maintain whatever structure these forces leave in their wake.

However, while this strategy is not completely outlandish and does show some merit on the part of military strategists in that they are leaning more towards localized models that entail comprehension of diverse local factors, the question still must be asked – is this strategy actually possible to carry out and have the sought-after effects in the region? Can the United States and its allies actually win over the peoples of Afghanistan and western Pakistan, and can these same powers possibly train forces that will remain peacekeepers in the years to come?

Despite the fact that I admire the intentions of the military’s current strategy in this region, I do not think that their plan is in fact possible. It seems to me that rather we are fighting an unwinnable war to win over a people that we do not and cannot understand, and that by funding the Afghani security forces of today, we are inevitably funding our enemy of tomorrow, just as our nation has mistakenly done so many times in the past in this very region.

I cannot foretell the future. Nor can anyone else. However, I can comment on what is likely to occur. And, in constructing such a model, two of the most important subjects to understand are history and praxeology, or human behavior.

An attempt by the United States to make Afghanistan a stable, western-friendly state is by no means a new happening. The date of the beginnings of our intervention in the region could be debated, but a decent starting point is the late 1970’s when President Carter put forth the Carter Doctrine, which stated that the United States would defend its interests in the Middle East.

This doctrine just barely preceded the Soviet invasion of Afghanistan, and it was this invasion that saw the beginnings of American forces, at this point being mostly CIA and other such agencies, which were attempting to hamper the Soviet forces by funding the Afghani resistance.

Now, there is no room here for a history of American involvement in Afghanistan. However, what must be noted is that during the 1980’s and 1990’s, a pattern developed in the Middle East – the United States would fund a group in the hope of combating some common enemy, and then in later years the group funded with American taxpayer money would inevitably end up turning against the United States.

A few prominent examples of this are Al Qaeda, who received $6 billion from the United States from 1989 to 1992, the Afghani Taliban, who was receiving US foreign aid up to the very minute American forces entered their country (and continues to receive US foreign aid through Pakistani backchannels) and Saddam Hussein, who received chemical weapons from the US during the Iraq-Iran War of the 1980’s, weapons he later used to kill American soldiers.

This, though briefly put, is the history, or the “what.” So now must come an examination of the “why,” or the element of praxeology. For obviously, our attempts to forge friendships in the region in the past have failed. Our friends have become our enemies, in fact our worst enemies.

There are several possible explanations for why this occurs. However, mine is quite simple – we do not understand these people, we do not understand this region, we do not understand Islamic culture, and, to be quite blunt, we never will. It is not a wrongdoing by the West to look at the Middle East through Western eyes. Rather, it is the only way that a westerner possibly can look at the Middle East.

On top of this extremely problematic misunderstanding of the Middle East by Western peoples then comes another layer of problems, these being the base problems of intervention in any context, amplified by the extreme foreignness and instability of the Middle East as a whole. The consequences of intervention in any scenario are so unpredictable, so many, and so far-reaching that no one can possibly intervene and successfully fulfil their objectives without in the process creating a dozen new problems. This is seen with the federal government intervening in states in their own country – how much greater then are the problems when intervening in a region like the Middle East?

All this now brings us back to the point on considering the future. As I mentioned previously, I cannot say what the future holds. However, I can make an educated guess. And, based on analyses of both history and human behavior, it is safe to say that by both indirectly and directly funding the training of a new military force in Afghanistan, we very likely are creating our enemy of tomorrow. For when these people that we are now training realize that the United States is not leaving, that they are not in fact a free state, that they have become a part of the American empire, and that if they want to live culturally independent of western influence they will have to forcibly remove Western elements within their borders, it seems extremely probable that they will do exactly that.

To say that we are creating a force that will do what we expect it to do in the future is a wish at best. The reality is that we do not and cannot understand what is truly a foreign mindset, and our best course of action would be to distance ourselves from what is and will be for many years of region of perpetual conflict.

By Elliot Engstrom

More bending!

More on those revised US GDP figures

On the 2nd August there was a Post that highlighted the way that officialdom was changing figures that painted a very different picture to that promoted at the time the figures were released.

I linked to a recent article from Karl Denninger showing how previous US GDP figures had been significantly revised downwards.

Well Karl has now published a smart chart showing what happened in a way that makes it very easy to understand.

The chart is below, but please support Karl by going to the article which is here.

Do read the original article at Karl’s Blog site simply because he sets out in his usual clear (and forthright) manner just what this all means. And it isn’t just affecting the US – this ripples across the pond!

Finally, another perspective on this issue is here – with the same implications being presented. It’s gloomy ahead!

By Paul Handover

The Verdict!

A nearly 30-year old film has real relevance for today!

Those of you that read yesterday’s Post right through to the end will have picked up on the fact that after completing that article last Friday, Jean and I watched the movie The Verdict.

Amazingly, this powerful film was released on the 8th December 1982.

So why the connection between the film and the Post written yesterday?

Well yesterday I wrote about two recent examples of, at best, a terrible lack of integrity, or, at worst, blatant examples of powerful institutions lying to us. It troubled me greatly and I found no adequate way of closing the Post expressing my troubles in a succinct and fitting way. Stay with me for a few moments.

In the film The Verdict, Paul Newman plays Frank Galvin – here’s the synopsis from the IMDb website:

Frank Galvin is a down-on-his luck lawyer, reduced to drinking and ambulance chasing. Former associate Mickey Morrissey reminds him of his obligations in a medical malpractice suit that he himself served to Galvin on a silver platter: all parties willing to settle out of court. Blundering his way through the preliminaries, he suddenly realizes that perhaps after all the case should go to court: to punish the guilty, to get a decent settlement for his clients, and to restore his standing as a lawyer.

As one might have guessed, Galvin wins the case against all the odds, which doesn’t in any way reduce the power of the film. Newman was brilliant.

verdict — Tackling a medical malpractice case that could revive his once glorious career, attorney Frank Galvin (Paul Newman) questions a key witness, Dr. Thompson (Joe Seneca), in the compelling courtroom drama The Verdict.

At the end of the hearing Galvin rises to give his summation. Technically the case appears utterly lost to his side. Galvin slowly stands, hesitantly looks as his notes, cast the sheet aside and reluctantly addresses the jury.

You know, so much of the time we’re just lost.

We say, “Please, God, tell us what is right; tell us what is true.” And there is no justice: the rich win, the poor are powerless. We become tired of hearing people lie.

And after a time, we become dead… a little dead. We think of ourselves as victims… and we become victims. We become… we become weak. We doubt ourselves, we doubt our beliefs. We doubt our institutions. And we doubt the law.

But today you are the law. You ARE the law. Not some book… not the lawyers… not the, a marble statue… or the trappings of the court. See those are just symbols of our desire to be just. They are… they are, in fact, a prayer: a fervent and a frightened prayer. In my religion, they say, “Act as if ye had faith… and faith will be given to you.” IF… if we are to have faith in justice, we need only to believe in ourselves. And ACT with justice. See, I believe there is justice in our hearts.

Now go back and read my Post of yesterday. Read of the Citi executives paying token fines for lying to investors. Read of the allegation that the 2009 data set in the US GDP report was a “bald-faced lie”.

Now read again, aloud to yourself if you can, the first few sentences of Galvin’s summation. Here they are again (my emphasis).

You know, so much of the time we’re just lost.

We say, “Please, God, tell us what is right; tell us what is true.” And there is no justice: the rich win, the poor are powerless. We become tired of hearing people lie.

I firmly believe that this is where millions of ordinary, hard-working, caring citizens of many countries have arrived today because of the lack of integrity, the lack of honesty and the lack of grace shown by so many in positions of power and privilege.

But do not despair because if we do that, then all is lost. No, believe in the power of good men. Back to the summation from the film:

In my religion, they say, “Act as if ye had faith… and faith will be given to you.” IF… if we are to have faith in justice, we need only to believe in ourselves. And ACT with justice. See, I believe there is justice in our hearts.

Exactly!

By Paul Handover

Of the people, for the people – huh!

It’s enough to make one weep!

Lincoln_GettysburgAddress — Gettysburg Address

Just a couple of items from disparate sources came together last Friday to demonstrate just how possibly corrupt it has been over the last so many years! But there is a golden lining to this stuff.

That is the ever increasing spread and reach of all forms of digital communications, from the humble email through to Wikileaks, is making it increasingly difficult for those that wish to cheat and lie their way through their lives, at the expense of others, to do so without detection.

Anyway, back to the theme of the Post.

The first item is from here (thanks to Naked Capitalism for the link):

Under the article title of – The Wages of Sin: Former Citi Execs Pay Token Fines for Lying to Investors

A news story today provides further confirmation of the rule by the banking classes in the US, with only token gestures to the rule of law.
(and after an in-depth review closes with:)
The message seems pretty clear. Sarbox [Sarbanes-Oxley Act. Ed]was intended to curtail phony corporate accounting in the wake of Enron. But why resort to complicated transactions like the energy company’s famed Raptors when Citi shows that mere lying will produce the same results with much less fuss?

The second from Karl Denninger, from which closes with these words are offered: GDP Report: Liar Liar Pants on Fire:

All three years of the revision period were revised down. Again, if a mistake or inaccuracy (as opposed to intentional falsehood) is responsible for errors, one would expect them to be normally distributed – that is, some would be positive, some negative. This is obviously not the case.

Is there any good news in the report? Well, yes – there was a material uptick in non-residential fixed investment, centered around equipment and software. How much of this is a normal replacement cycle (deferred last year) and how much signifies real expansion is an open question and one not easily answered. However, I wouldn’t call this particularly “robust”, despite the pump monkey characterization this morning in the media.

The drops in some of the previously-published numbers were, however, simply stunning. For example, PCE (personal consumption) was previously reported for Q1/2010 as 2.13. The revision is 1.33, a thirty percent downward revision. That’s not an error, it was a falsehood.

Worse was the services false report. The previous reported number for Q1/2010 was 0.69. Revised was 0.03, a downward revision of ninety-five percent.

The services revision backward was truly sickening – the entirety of 2009 was negative with the exception of the fourth quarter, where all but the first was previously reported positive, and the changes were ridiculous. First quarter was revised down from -0.13% to -0.75%, second from +0.09% to -0.79%, and so on. Again, that’s not an error, it’s a lie.

Needless to say when I get all my graph source data updated, it’s going to look worse than it did – including my “government ponzi support” graph, one of my favorites.

The futures are diving on the report, as well they should. Not because it’s bad – but because the entirety of the 2009 data set was a bald-faced lie.

Frankly, I’m much less interested in what is happening to Western economies – my views have been regularly reported on Learning from Dogs.

What appals me is how far we seem from those famous words in the Gettysburg Address given by President Abraham Lincoln on the afternoon of Thursday, November 19, 1863 (my emphasis):

It is rather for us to be here dedicated to the great task remaining before us—that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion—that we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth.

P.S. As it happens, after finishing this article last Friday, Jean and I watched the film The Verdict in the evening. The words used by the lawyer Frank Galvin (Paul Newman) in his summation struck me so powerfully that I have made them a separate Post for tomorrow.
By Paul Handover

Unintended Consequences

A modern Greek tragedy – that could have been foreseen.

As I tried to point out in a recent Learning From Dogs post, foreign policy is an extremely complicated thing. This sounds self-evident, but it’s amazing the extent to which certain officials think they can control events occurring around the world.

I like to characterize US foreign policy in the Middle East as throwing rocks at a hornet’s nest, and then expecting to be

able to control the hornets when they emerge. The consequences of intervention are so many, so widespread, so complicated, and so unforeseen that no one can hope to be able to manage them, without inevitably intervening even more and thus fueling even more unintended consequences. (You can see a strong parallel between the overconfidence of government officials in the area of foreign policy and their attitude in areas of attempted economic control. But, that’s a separate discussion.)

Thanks to the wonderful (in my opinion) people at WikiLeaks, we have been able to see a much more realistic picture of the war in Afghanistan than has so far been available. CNN reports on one element of these reports that is none other than one of these most unintended of consequences — some of the most advanced military technology in our country’s arsenal falling into the hands of…well we’re not really sure who. CNN reports:

When unmanned aircraft crash in Afghanistan, scavenger hunters frequently aren’t far behind, U.S. military incident reports published by WikiLeaks suggest.

On several occasions, military units sent to recover the aircraft — known as tactical unmanned aerial vehicles — have arrived to find the aircraft stripped of valuable parts.

In April 2007, a parachute deployed on one that had maintenance issues, one report says. Troops sent to recover the aircraft couldn’t reach it until the next day, when they discovered it was missing some of its electronic components and its payload.

Is this a surprise? For me, no!

For those who oversimplify foreign policy to international powers moving on a chess board, yes. Government officials often forget that at the end of the day we are not dealing simply with “the Taliban” or “Al Qaeda” — we are dealing with individual human beings.

And while the Taliban and Al Qaeda as groups may seem predictable, individual human beings are essentially the most advanced supercomputers ever to exist on this planet. To think that one can predict the actions of human beings on the other side of the world, especially human beings whose culture and background one hardly understandings, is nothing but the highest form of hubris.

And, just like in Greek tragedy, the hubris comes just before the fall, when it turns out that the prideful character did not have everything under control, and in fact is the victim of consequences that he was too prideful to foresee or even consider as a possibility.

By Elliot Engstrom

Realism as an argument against war

Let’s be real about Realism.

Usually when I talk with supporters of America’s current wars in the Middle East, those who discover that I am vehemently opposed to an American presence in the region find me to be naïve. In their minds, I just do not understand realism or how power politics actually functions. My anti-war sentiments are the idealistic notions of an inexperienced youth who thinks that everyone should just get along.

The great irony here is that when followed to its logical end, the realist school of internationalist relations which so

many use to justify the American presence all over the world is in fact one of the greatest arguments against our current foreign policy. I do not argue against America’s wars in Iraq, Afghanistan, and Pakistan because I think that we would all just get along if these wars ceased to happen. I argue against these wars because I come from a perspective that sees the people we are fighting as human beings with the same base motivations as myself, and when these people see their livelihood threatened, they take the best course of action that they can find, which unfortunately often involves siding with whatever group holds the most regional power.

The great mistake in logic made by many advocates of an interventionist foreign policy is to merely think of the world in terms of the international stage. Such people look at the world in terms of what Iran, Al Qaeda, Russia, China, OPEC, or other entities have done or might do, rather than considering actions based on their effects on individuals, and what these individuals are likely to do in response.

The Two-sided Coin of the World Cup

Football’s World Cup – a review

It is probably a bit non-PC [PC = politically correct, Ed] to say anything negative about the World Cup, but I sense that the importance of being PC is beginning to wane; not that it ever bothered me anyway.

Let’s look at the positives, since almost everything has some positives somewhere; Stalin, Hitler, Pol Pot and the North Korean regime being obvious exceptions.

They built world-class stadia on time.
The foreign visitors who were there generally got to venues on time and the matches all started on time.
Inside the stadia (despite the obvious occasional sillinesses for which we can blame FIFA), everything went tickety-boo. According to some pundits, the atmosphere was “the best ever”, despite (or because of?) the hideous vuvuzela.
There was no major crime wave, no terrorism, no significant disasters of any kind.
The South Africans were reportedly very hospitable.
Opposing fans celebrated together; the England fans totally restored their reputations; reports of drunken English mobs were distinguishable by their absence. (they probably couldn’t afford to get there.)
South Africa took pride in its ability to put on the World Cup, which many had suspected it incapable of.
For a month the nation forgot all its problems; most people had a big party, even if the South African team (and Africa in general) was made to realize the enduring gulf between its standard of football and that of the other continents.

So, all’s well that ends well, then? Unfortunately not ….

The country paid around 10 billion rand to put the event on, three times more than original estimates. Where did all the money go?
The country is left with giant stadia that may never again be filled, the so-called “white-elephants” typical of almost all these major events. Apparently even the wondrous “Birds-nest” stadium in Beijing used for the opening ceremony of the Olympics has only been used once since 2008.
Only half the number of expected foreign tourists came, as the organisers over-priced everything. Organisers claim the extra income generated will pay for the costs, but nobody believes them …..
Preparations for the World Cup provided jobs, but those workers are now back on the street. The ordinary people of South Africa benefited little from the event, except in terms of “national pride”.

And there of course is an interesting animal; “national pride”. In a grown-up world, you’d have hoped that national pride would be best achieved through one of the following:

the building of suitable housing for the population
the setting-up of an affordable and accessible national health system (fat chance, even the USA hasn’t got that!!)
the diminution and ending of corruption
the creation of a fair society
the development of the economy to provide jobs and create wealth to allow ordinary people to live decently and comfortably

Any of these and other things could be seen as deserving of “national pride”, but the ability to put on at vast expense a four-week jamboree that mostly benefited the political elite, other nations, FIFA and the international television networks is a dubious contender for “pride”.

But of course it depends which side of the coin you are looking at. For some, all the expense justifies the “putting of South Africa on the map.” The politicians as usual will have been the most happy; four weeks in the spotlight strutting about on the world stage, loads of media coverage, hundreds of journalists hanging on their every word …

As for the real ethos behind the World Cup, the bits that don’t hit the glitzy headlines, two in particular struck me as symbolic of Man’s capacity for self-delusion; Africa’s attitude to its poor and the obscene power of international non-governmental monopolies such as FIFA.

These have been variously described in excellent articles written by proper journalists. The first example is from Globalpost. I find it pretty depressing.

Green Point Stadium, Cape Town: In Cape Town, Green Point Stadium is covered in a sheath of woven fiberglass so that it glows at night like a floating bowl. But its location on six city blocks in a prime real estate area has also created controversy. In 2006, the city’s government published a study that found the stadium’s location offered the least amount of economic gain to Cape Town’s resident. In fact, repairs to several older stadiums in the surrounding area could have led to savings that could have paid for 250,000 new homes for the city’s poor, according to researchers.

But FIFA wanted a stadium that would sit between South Africa’s iconic Table Mountain and Robben Island, according to reports, causing the football federation’s president, Sepp Blatter, to come under fire.

“I really think that we’re going into Green Point because Sepp Blatter says: ‘I like Green Point,’ not because it is the best thing for South Africans,” Cape Town’s then-mayor, Helen Zille, said in 2006.

Sepp Blatter will take his $2 BILLION profit away with him to some lush office somewhere, while the ordinary residents of Cape Town pick up their lives as before. How long “national pride” will sustain them is a moot point.

Roadside waterseller in Gabon, West Africa

The Marketing Bonanza: If you’ve been to Africa and driven around a bit, you’ll know that there are street traders everywhere. These are desperately poor people who will try to flog you anything and everything. They wander up and down lines of cars carrying their pathetic wares. In the ferocious midday heat women often carry large heavy buckets full of water bottles on their heads. Many do this all day every day to earn a pittance.

But of course, like beggars in the big city, they don’t really create the right “image” and “ambiance” for a major international event with its glitz and invasion of well-off foreigners. So, as reported in “The Guardian” they were simply banned whenever the authorities considered it appropriate. So much for the World Cup “improving the lives of ordinary Africans”.

But not just anyone will be allowed to participate in what President Jacob Zuma calls “the greatest marketing opportunity of our time“. Informal traders – a significant part of the working poor – are subject to a verbatim “exclusion zone” from the bonanza in the fan parks, fan walks and stadiums. For them, the World Cup may as well be happening on another continent.

I have personal experience of something similar in Gabon. When the wife of President Bongo died, the whole country was ordered to do a week’s mourning. Street trading was banned. This of course did not affect the elite, but for many of the rest it meant the difference between eating and going hungry. When a few daring and desperate people dared to try to sell their pitiful produce in some locations the police confiscated it and trashed their stands.

And FIFA? It is reported to have made $2 BILLION in tax-free profits. Who controls this money? Why is it tax-free? How will it be spent? To whom is FIFA really accountable? Ah, to national Football Associations? You mean like the British one, which pays £6 million per annum to a failed manager, which is three times more than the German Coach gets?

These vast sums swilling about leave a nasty taste in the mouth. Of course, any organisation’s primary concern is usually to its own self-aggrandizement, so nothing new there. Even the European Union refuses to get its accounts signed off properly, so what faith the common man can have in the honesty of these vast international organisations is questionable.

Well, the World Cup has come and gone and it provided much entertainment for those watching the games. The long-term legacy for the ordinary people of South Africa (43% of whom live on less than $2 per day) is another matter, so forgive me if my rejoicing is muted.

PS The Vuvuzuela …. nothing to me more clearly illustrates Man’s stupidity. The sound output of this instrument is 113db, which can apparently become harmful to the hearing after only 90 seconds. Those in the stadia (including the players, by the way – did anyone ask THEM what they felt?) were subject to nearly TWO HOURS of continuous multiple vuvuzuelae. Many of those people will have had their hearing IRREPARABLY DAMAGED. This will only become clearer to them in LATER YEARS.

For me it is a symbol of our stupidity. All the above health risks are clear and known. Did FIFA ban the damned thing? OF COURSE NOT!! That would have diminished the “local colour” so vital for the international media, which gives Blatter his $2 billion profit. Who gives a damn about ordinary people’s hearing? I doubt whether Sepp Blatter exposed himself overmuch to the bloody things, though he seems pretty deaf already. Once again, for a transient thrill or benefit we do ourselves lasting damage, no different from the way we often treat the planet of course.

By Chris Snuggs

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No. 074 9th August 2010 A statistical impression

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