Blackened, Blue, Bewildered

Finally, I can sit at my keyboard with minimal pain from surgery.  Also, my head is clearer than when I wrote my last entry.

This is a two subject piece but they are related as I’ve come out of surgery pretty beaten up, dark, angry purple bruises on both legs and staples holding the pacemaker “wound” together on my chest, with limited range of my right arm, essentially a metaphor for how I feel about the election.

We all now know that if it were not for the arcane Electoral College method of electing the president, Clinton was the clear winner.  So Trump was right in saying beforehand (haven’t heard it after the election from him, wonder why?) that the system is rigged.  Can you imagine if the results were exactly opposite, Trump winning the popular but losing the EC?  Instead of the relatively peaceful protests we’ve seen spontaneously erupting around the country, we’d have Trump’s heavily armed militia in the streets.  Revolution and bloodshed.  So, in a way, for the safety of our citizens at least short term, this outcome has that one benefit.

Long term, it’s a different deal.  There are so many issues where an unrestrained Trump presidency can wreck the future of this country and the world, that it would be senseless to detail them all here. 

First, though, as much as I thought Trump’s candidacy was a joke during the initial months of the primaries, I took it quite seriously later, my fear growing in direct relation to his Teflon ability to say anything and, what used to matter, our 4^th estate -- the Press -- having little effect to act as a foil.  If I was in a prolonged coma and came out of it to hear a presidential candidate talk about shooting someone on 5^th Ave. with no consequences, grabbing women by their pussies, etc., I would have thought the Press would have been able to eviscerate that candidate long ago.

But cyber bullying was the factor in this campaign which made it unique.  Facebook and Twitter had more to do with the outcome of this election than all the newspapers and TV news media combined. Trump’s attention span is ideally suited to 140 character tweets and his reality TV personality gave him entrée to TV coverage whenever he wanted it, gratis.  And in spite of his racist overtone, he did carry a persuasive populist message, the forgotten plight of the white middle class male.  Whether he can make good on promises to that minority group is highly unlikely, especially with his tax cut proposals which will benefit his own economic class most.  (I don’t believe in trickle down prosperity. The “wealth effect” is to make the wealthy wealthier.)

So based mostly on anecdotal evidence, I thought Trump had a better chance than the polls reflected.  I grew up only a couple of miles from his neighborhood in Queens, NY and we’re almost the same age.  Although more than 50 years have passed since I’ve lived there, if I close my eyes when Trump speaks I hear street talk I’m familiar with.  Between his celebrity status and his strong appeal to the middle class, people were willing to overlook the big picture and especially loved the way he took down the ruling oligarchy (including the now vestigial Press and traditional mass media).  And given the unpredictability of what people do in the privacy of the voting booth (perhaps ashamed to be backing Trump publicly, but will pull the lever for him privately), I went into surgery thinking that this election was a tossup, especially with the FBI making unprecedented statements to Congress and Wiki Leak’s one sided email revelations, so ripe for Trump’s conspiracy campaign (imagine if the RNC’s emails were similarly exposed). 

Thus, nothing about election night truly surprised me.  In fact I called the outcome at 9.20 PM, turned off the TV and went to bed with the residual effects of anesthesia still in my system.  I woke up in pain throughout the night but refused to look at the TV or phone to confirm “my call.”  The next morning my heart sank, in spite of being prepared for the outcome.

So here’s the existential dilemma: how does one, as a citizen of a country he/she loves, support its new leader, while having complete disdain for that leader, his policies, his narcissistic disorders, and fearing the damage he and his administration might do?

While I could go into a long litany of all the specific issues, I’m trying to look at this from 50,000 feet so they don’t overwhelm. To me, I see a world undergoing turbulent change, hastened by a technology revolution.   The industry I came from – publishing --is just one example of the incredible forces of creative destruction that technology has fostered.  More books are being published (including e-books) using far less labor than in the past.  The majority of book titles are now printed on demand.  Warehouses are not needed for those and the process is completely automated.  The whole landscape has changed.  Robots now make the majority of heavy industry products.  This trend is only accelerating.  Capital finds the most efficient venues for its deployment.

Anyone who believes that Trump can simply bring back manufacturing jobs like we once had is self-deluded, abetted by the master manipulator himself, Donald Trump, who told the victims of disintermediation what they wanted to hear…….that things would return to the way they were. 

I do believe there is a path to expanding jobs and prosperity for the forgotten middle class, but it means abandoning the past and embracing the future.  America’s export is intellectual capital and technology.  Our educational system needs to reflect those realities and build our industries with those as a foundation.  Let the manufacturing of goods that require handwork reside in low cost labor countries, such as those which made Trump’s hats.

Going further up from a 50,000 foot overview you see a planet whose delicate atmosphere which protects us from the sun’s ultraviolet light and governs the balance of glaciers, oceans, and climate – all under siege.  Can we afford to aid climate denial forces in our society, simply because it is the easy, short term answer to some of our economic ills?  Here again is both a threat and an opportunity, an opportunity to develop the alternative energy and mass transportation industries, a win-win situation, jobs and a healthier environment for future generations.  America has to lead other countries in this effort. 

We seem to be at a Malthusian tipping point in the history of the world.  Population is growing exponentially but while Malthus was concerned about the food supply keeping pace, little could he foresee the other factor, now a bigger part of the equation of whether humanity can survive changes to the environment itself because of our addiction to fossil fuels.  

So these are just some of the big picture things I’m concerned about.  I want to support my President but I fear that progressives will have to fight tooth and nail, hoping the country can hang on for four years.

If I’m around then, it will because of incredible medical technology, the kind that allowed me to survive my fourth pacemaker implantation with the removal of existing leads being the most dangerous part of the operation.  New leads then had to be implanted, these being MRI compliant which my old leads were not.  As I age, an MRI is inevitable.  First they had to connect me to a temporary pacemaker as I am 100% dependent on the ventricle pacing by threading leads through each of my legs and then to a temporary pacemaker during the operation. Then they opened my chest to remove the existing pacemaker and begin the long arduous task of removing the existing leads, an operation of great delicacy to not injure the heart.  Unfortunately, a small part of the lead in the atrium broke off and the surgeon felt it was just too dangerous to go after that last piece and thus I lost the MRI compliant feature.  Overall the operation went well and now I’m trying to rest and rehabilitate,

I’m grateful to family and friends who expressed so much care and particularly to my wife, Ann, who stayed with me in the hospital room, sleeping on an uncomfortable cot, and watched over things for me, shaving my chest, stomach and legs and helping me take the first of two antiseptic showers before the operation.   I can’t say enough positive things about the nurses at the University of Miami Hospital.  To me they are as important as the surgeon, maybe more so.

Thus, I am slowly getting back to form, but to a political landscape that has been shaped by fear and intolerance.  I have low expectations that Mr. Trump can suddenly function as the leader we all need to help us coalesce as a nation.  His narcissistic personality must be fed and that is going to be a constant obstruction to doing the right thing, such as selecting Cabinet members who are NOT just yes people or those connected to his business interests or family.  Can one imagine Sarah Palin, a climate change denier as Secretary of the Interior as rumored?  He’s already appointed a denier, Myron Ebell, as the head of the EPA transition team.   

My good friend, Artie, reminded me of H.L. Mencken’s prophetic quote from nearly 100 years ago:  “As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people.  On some great and glorious day, the plain folks of the land will reach their heart's desire at last, and the White House will be occupied by a downright fool and a complete moron.  Perhaps that time has come.

Nonetheless I’m desperately trying to end this with something positive:  Trump is now going to become OUR President and I for one will try to give his administration a chance to do some of the right things for the nation as a whole.

After I wrote the preceding though, I read David Remnick’s incredible article from the November 9 issue of The New Yorker, “An American Tragedy,” perhaps the most important of the many I’ve read.  Highly commended.  

Lazy Hazy Days

It’s our usual time for what I call the vacation (being on our boat in Connecticut) from the vacation (being retired and living in Florida).  Our life here is very different from that of being in our home, living in a couple hundred of square feet on the water, and in the locale of my working days.  Everything must have its own place and must be secure when we run the boat, which with each passing year is less and less.  When a boat is a home (even for a few months) it becomes more of a challenge to secure for running and to deal with the umbilical cords to the dock, the power lines, the water line, the lines that hold us secure enough so our fixed satellite dish does not stray from its southwest target.  And then what we did as a younger couple on the water takes energy and sometimes daring, wares in precious short supply as we age.  And finally, we’ve been to most ports worthwhile visiting on the Long Island, Block Island, Vineyard, and Nantucket Sounds, and we are happily content at our dock or at our mooring off the Norwalk Islands.

Missing from our boating life here, though has been a small boat, one to take us on a cocktail cruise in (diet coke for me, the Captain), together or with friends, on placid twilight evenings. Recently we were able to buy such a boat – a fairly new one, so it’s likely that we’ll be out on the water more often now.  That is how it should be.  Naturally, we are happy to share it with our son, Jonathan, who has practically grown up on boats.  He’ll help keep it standing tall.

But, aside from our usual routines, the shopping and provisioning, meeting friends for lunch or dinner, my early morning walk in Shorefront Park which adjoins our marina (marveling at the rebuilding going on there and the raising of homes still in the aftermath of super storm, Sandy), there is the endless working on the boat and, for me, some writing (working on some short stories).  I also have my “summer reading” list.  Along with reading short stories by John Updike and Alice Munro, I squeeze in a novel here and there and my most recent read, Solar, by Ian McEwan, certainly classifies as “summer reading,” not literature at the level of what I read before by McEwan,  Saturday, but, still an engrossingly, compulsively readable novel.

I was curious about how the author would handle, in fiction, a subject that has interested me ever since I was exposed to it in high school: solar energy.  At a high school science fair, GE put on a demonstration of solar energy using a small model car on stage, shining spotlights on its roof and miraculously the small car moved across the stage.  I was hooked.  If I had more of a scientific bent, perhaps I would have gone into the field.  Mind you, this was the late 1950s.

So while the technology has been around, we’ve been slow to use it to partially solve our energy needs.  The State of Connecticut sponsored a rebate program in the early 1980s in the wake of the gas crisis, for installing solar powered hot water and we were one of the first houses to line up for it.  It was the most basic of systems, direct heat transfer, a pump circulating a liquid that quickly absorbed heat and then transferred it through a number of coils in a special hot water heater which had an electrical back up heater when the sun didn’t shine.  There was no battery storage of energy.  But it worked!  And by timing our hot water usage we squeezed everything we could out of the sun before reverting to electrical back up.

It’s disheartening we haven’t more rapidly developed this technology to make much more widespread use of solar energy, especially now with battery storage of energy becoming much more efficient.  It’s one of the reasons I admire Elon Musk’s vision, huge garages with solar panels on top, powering his Tesla tethered automobiles.  Even the rooftops of Manhattan could be outfitted, but instead the luxury buildings there have pools and cabanas.  Where are our priorities?

Ian McEwan’s Solar deals with the weighty subject of global warming and the solar solution through one of the most despicable protagonists I have ever encountered, a Noble Prize winner who is a compulsive liar, over eater, sexaholic, and criminal.  One can hardly cheer for his success but McEwan’s novel  makes interesting reading as a satire of everything Michael Beard – our prodigiously plump, reprehensible physicist who can’t save himself but sees himself saving the world -- comes in contact with.  No sense going into the plot in detail as it is readily available on line.  But if you are up to some beach reading, and like McEwan as I do, it’s worth the time.  Some of the novel is very funny, so it is a change of pace for McEwan, as Straight Man was for Richard Russo, although the latter overshadows McEwan’s work for sheer hilarity. 

But Solar is about a serious subject, and one can only wonder why as a nation we haven’t made it a greater priority for solving our energy needs.

Low Tide Shorefront Park

High Tide Shorefront Park

Another Mission Accomplished Moment

It is more than embarrassing. It could be politically devastating, the Obama administration caught in the cross hairs of political posturing as reported by the Washington Post, Solyndra docs: Politics infused energy programs. These documents show "Obama's May 2010 stop at Solyndra's headquarters was closely managed political theater....Meant to create jobs and cut reliance on foreign oil, Obama's green-technology program was infused with politics at every level."

Am I disappointed that Solyndra was allowed to get so out of hand? -- yes, but not surprised. There are parallels to the "Bush moment" in 2003 after Iraq had been invaded, when he arrived on the decks of an aircraft carrier in a fighter plane, dressed as a fighter pilot, to declare "Mission Accomplished!" -- the navy personnel cheering him on. It doesn't get any more of a political show than that. But, they call it "politics" for a reason.

The worst aspect of these parallel moments is no mission was accomplished. The Iraq war, slogged on while thousands more Americans were killed, tens of thousands injured, not to mention a multiple number of Iraqis maimed or killed. And, when it is said and done, more than a trillion dollars will have been spent on the Iraq war. No mission accomplished there.

While Solyndra did not cost lives, and will not cost the American taxpayer anything remotely resembling the Iraq war, it also epitomizes a failed mission -- a serious detour in the attempt to achieve a modicum of energy independence, and to create jobs. Simply put, the Obama administration misspent valuable political capital on its "mission accomplished" moment.

So, while I understand the political posturing, and do not think Solyndra is out of character with what we have long become inured to, I am dismayed that Obama's first term is being squandered without serious progress in energy independence.

Obama made an interesting remark during his 60 minutes interview: "Don't judge me against the Almighty; judge me against the alternative." Obama choose hope and change as his mantra, a nice thought but unrealistic in Washington. So he is saddled with the sweeping generalization of his "promise" and it is probably why he is so despised by his adversaries. But when I think of the alternatives it makes me hope that he will change.

In the meantime we enter that dreaded season leading up to the presidential election. This year dinosauric Super PACs will be allowed to roam free in the Jurassic political park, organizations that can raise unlimited sums from anyone, including corporations and unions. Be prepared for an unprecedented level of vitriol in this election, with a constant barrage of negative political ads. Even if nothing else comes from the Solyndra debacle, it will feed the PAC beast.

Substance and Talking Points

I try to set aside Sunday mornings for catching up on some newspaper reading and to watch political shows such as Meet the Press, keeping my eyes on the page/computer and my ears on the TV, drifting back and forth depending on what I'm reading or hearing. This week's Barrons', which I've read forever it seems (now online, having forsaken the print version), had a remarkably to the point article by Doug Kass, founder and President of Seabreeze Partners, and well-known "short-seller" which echoes some of what I've written about the subject of the growing abyss between the haves and the have not's and its impact on the misery of the middle class. Kass' term for this misery is "Screwflation" (combing inflation with the screwing of the middle class). Here are some of his bullet points although its best to read the entire article:

* While...corporate profits will soon attain a new peak, median real wages have made little recent progress....Moreover...an unprecedented four years of declining home prices have further weakened the confidence and purchasing power of the middle-class screwees.

* Unemployment has exacerbated screwflation's impact on all but the wealthiest Americans.

* Because there are few areas of the domestic economy that can replace the prerecession strength in real estate, a recovery in jobs will be more difficult than in previous cycles. Work related to real estate accounted for nearly 40% of U.S. job growth in 2001-06–almost all of it middle-class.

* Back in 1980, the richest 1% of Americans captured 9% of national income. Today, the richest 1% receive about a quarter of national income.

* [The] rise [ of commodity prices] falls more heavily on low- and middle-income families, who spend most of their money on the necessities of life. Add rising health care, education and other costs to commodity prices, and the result is a poor foundation for growth.

* Difficult fiscal decision...must be made this summer in Washington. The needs to accelerate job growth and to control the federal deficit seem irreconcilable.

* A shallow and fragile domestic economic recovery may be exposed to and be vulnerable to the need to cut spending–but drastic spending cuts will jeopardize the shallow recovery in jobs. Not moving on deficit reduction holds its own risks, of U.S. dollar weakness, soaring interest rates and higher unemployment....Partisanship already makes a real solution less likely.

Kass concludes with some excellent suggestions, but with Washington in gridlock, even on such major issues of raising the debt ceiling, and in the throes of pre-Presidential election rhetoric (see Meet the Press discussion below), one can't be terribly optimistic about implementing them:

* Policies that could help quickly include: extending the payroll-tax cut initiated by the Obama administration; reducing income taxes for the middle class; providing federal funds for infrastructure spending; creating incentives for businesses to make new capital investments; allowing tax-free repatriation of U.S. corporate earnings made abroad, if they are earmarked for the creation of American jobs; the launch of an energy plan that taps domestic resources; and the use of federal-housing financing to slow foreclosures and distressed sales.

While reading that article of substance, I was watching Meet the Press, particularly David Gregory's interview with Debbie Wasserman Schultz, the Democratic National Committee Chair and Reince Priebus, the Republican National Committee Chair. Talk about talking points galore. Here is the entire transcript.

Gregory immediately baits the debate with so called "facts:"

MR. GREGORY: All right. Well, let's talk more, let's talk more about the economy in some more detail. This is the president's standing in terms of handling the economy in the public's eye, and it's pretty negative right now. Sixty percent almost, 59 percent, disapprove of the president's handling of the economy . And there are facts that back that up that are difficult for this administration and for the Democrats: unemployment's up 25 percent since Inauguration Day for President Obama ; the debt's up 35 percent, over $14 trillion; a gallon of gas up over 100 percent, with gas $3.75, higher than that in certain parts of the country . Why should Americans trust Democratic governance right now on the economy , and particularly the president's?

The numbers might be correct but one has to wonder about the "cause" of the "effect." Naturally, both Schultz and Priebus jump on their talking points:

REP. SCHULTZ: ...when President Obama took office, the month before he was inaugurated, the economy was bleeding 750,000 jobs a month, David , and we were not headed in the right direction. Now, I know we -- and President Obama has said we have a long way to go . We'd like the pace of recovery to, to, to be picked up. But we have definitely begun to turn the economy around. You, you fast-forward two and a half years later now, and the economy has created 2.1 million private sector jobs, a million of those jobs just in the last six months. We've had 15 straight months of job growth .

Priebus has his talking points:

MR. PRIEBUS: David , the chairwoman's living in fantasyland. We know that the facts are the facts, and we can't get away from that. And Barack Obama is defenseless to the truth on what's going on in the American economy . We have lost as -- two and a half million jobs since Barack Obama 's been president. And of that two and half million jobs, almost 45 percent of those people have been out of work for six months. That number, that number rivals the Great Depression .

Back and forth, your talking points vs. mine. It is a sign of the silly season of an impending election, with the danger that the increasing polarity will result in a stalemate that leaves our economy on the edge of a cliff once again.

But, can they both be "right?" The Bureau of Labor Statistics' Employment, Hours, and Earnings from the Current Employment Statistics survey (National) 2001 -- 2011 confirm that, indeed, we've lost about 2.5 million jobs since Obama was inaugurated, and we've gained almost 1 million jobs in the last six months. But the BLS also shows about 4.4 million non-farm jobs lost in the 12 months before Obama took office. How's that for a talking point?

One can play with all these statistics any which way to "prove" a point of view. The fact of the matter is we had tremendous job growth in the three plus years before the collapse of the economy (and almost the collapse of our entire economic system) in 2008, but those jobs "created" were heavily real estate and construction related during a housing run-up which we now know was merely a chimera. These are jobs that would not have come into existence without the frothy, nothing-down, exotic mortgage real estate market and the complicity of the investment banks and Washington to get those deals done. We simply "borrowed" from the future. Now, those jobs our out of the system with no prospects of returning soon. It is going to be very difficult to have robust job creation if, as Doug Kass suggests, real estate represents 40% job growth without solving our foreclosure and distressed sales issues which is now on such an enormous scale.

And how fair is it to "mark" a President's starting point for job creation as the date of his inauguration? The economy is a leviathan which cannot be turned on a dime. And, by the time Obama was making some headway, he lost control of Congress. Now we have such a polarized government, it is a wonder that any jobs are being created.

And, really, what control does the President have on world oil prices? We could have an army of rigs in the Gulf of Mexico and it wouldn't make much difference in prices as it is a world market for oil. The US cannot effect prices much by creating marginally more supply. Now, controlling the speculative aspect of prices may be a different matter, but financial regulation is habitually resisted by Obama's adversaries.

Agreed, we should have a national energy policy, but for it to have any teeth it will mean some hardship. In Europe, gas is twice the price as it is here. People learn to drive smaller cars, take mass transit, etc. No one would agree to that here so a national energy policy is simply kicked down the road, by both parties.

Finally, the deficit. Does anyone really think that if McCain was elected it would be much different today? President George Bush's 2001 and 2003 tax cuts have been big contributors as well as funding for the wars in Afghanistan and Iraq. Granted, President Obama's 2009 stimulus bill is also in the mix. But that was enacted when the Federal Reserve no longer could cut interest rates (they were already effectively at zero) and there was general agreement that the economy was still in crisis and without a stimulus, it would slip off the cliff again. And one one argues the bill failed to create jobs as intended. No Republicans voted for the act and now that they control Congress, one has to wonder what they will vote for or block. We know the talking points, and Kass makes substantive suggestions, but can Congress even function any longer?

Engineering Failures and World-Wide Consequences

The similarities between the BP oil spill disaster in the Gulf of Mexico and the ongoing nuclear Fukushima Daiichi crisis in Japan are striking.

Both were unimaginable before they happened. Both the nuclear facility and the oil rig had what was thought to be containment and shut down protection, as well as redundancy features, in the event of a serious accident. In each case, these systems failed. The response to each event was similar, a series of improvisational Hail Mary attempts to mitigate the damage, resembling a disaster movie in slow motion. Each catastrophe has long term consequences to the earth's ecosystem and human health, way beyond the immediate geographic area of its origin. The lack of contingency planning in Gulf crisis is evident again in the Japan disaster.

Surely, given the facts of Chernobyl and Three Mile Island there are commonalities with Fukushima Daiichi. No doubt the first line of defense in the construction of a nuclear facility or a deep water drilling rig has to be containment and redundancy features and bulletproof regulatory oversight, first at the national level, but perhaps with international participation as well. Too bad the UN is not a more effective institution. It needs to be in this area.

Any country that constructs these engineering marvels, for drilling oil in the deepest of oceans, or generating nuclear power, facilities that have world-wide consequences when they fail, should be required by the world community to maintain a national task force with readily available and deployable equipment to deal with catastrophic failure (rather than totally relying on the company responsible such as Tokyo Electric Power or BP). How much time was lost in dealing with Fukushima Daiichi when the tsunami destroyed its redundant pumps and power generating equipment?

Perhaps this may be oversimplification, but if we have the technology to create these engineering leviathans, we should also have the resources for a nuclear (and deep water drilling rig) immediate response task force, a small army trained for this once in a generation disaster, with the necessary deployable equipment (such as generators that could have been airlifted immediately to the Fukushima Daiichi site allowing the resumption of core cooling systems). We only need the universal will. Meanwhile, we all helplessly watch this terrible disaster unfolding in Japan.

.

Out of the Frying Pan

The last entry fondly described our summer home, a boat. One of the motivations for having this “home” is to leave Florida during the hot, hurricane prone season, and be in Connecticut where there are normally cool evenings, especially on the water. So, we drove 1,250 miles to our boat and to the worst heat wave in almost ten years, reaching 100 F during the peak of the afternoon. Florida was 15 degrees cooler!

I remember several years ago when we were at our mooring overnight, astonished to watch the lights slowly dim and disappear on the shore, the last widespread blackout in the Northeast. Anticipating a repeat in this heat wave, I began to prep the boat for departure to our mooring if there was a similar loss of power.

First thing was to check our fresh water pump to access the 100 gallons of water we carry. Air was trapped in the system and the pump would not self prime, so that will need rebuilding or replacement. As a work around I cleaned out an ice container to hold fresh water for an overnight.

The generator, which is needed for systems on the boat, started up but slowly died as it overheated – probably the impeller needs replacement. Consequently the prospect of leaving the dock for an overnight faded as well. We got through the worst of the afternoon with no power problems, but as the sun set so did the power on the dock. There were lights on across the river, but not on our side. We heard everything would be back on in about four hours. OK, we can run our refrigeration off our batteries, and luckily, we had just cooked dinner so we had something to eat and we hunkered down. But in four hours we heard it would be at least several more. For the first time since our early boating years, when we were much younger and adventuresome, we tried to sleep in the 90 degree heat, the windows open, inviting a breeze that failed to visit. It was not only a hot night, it was silently still. One tiny DC fan circulated the stale air and until 4.00 am we revisited our boating past. I will have to reread my last entry to remind myself why we still do this!

Meanwhile, on more important matters, the AP just reported New cap, ships could contain Gulf leak by Monday. If this is feasible, it might be the first good news on this disaster, although I fear the damage to the Gulf will linger for generations. Lessons to be learned? Perhaps the same ones from the financial crisis: regulations are necessary as well oversight. And, the final lesson: drilling our way to energy independence is a myth. For decades we have talked about making the development of alternative energy sources a priority. The time is now.

It's from an old familiar score

When I watched President Obama’s speech from the Oval Office Tuesday night, my expectations where heightened for a President finally laying out concrete steps and a timetable for the promised land of energy independence through a phasing in of natural gas, nuclear, and alternative energy sources. When he turned to the topic, my hopes which I’ve expressed frequently here were dashed. Just more presidential rhetoric. As Sammy Cahn and Jule Styne expressed so eloquently…

It seems to me I've heard that song before
It's from an old familiar score
I know it well, that melody…..
I know each word because I've heard that song before

But it took the genius of Jon Stewart to put this into perspective, Nixon, Ford, Carter, Reagan, Bush, Clinton, Bush II all mincing the same words. No wonder I had the sickening sense that I heard this song before. Why do we lack the national will to put these words into action?

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
An Energy-Independent Future
http://www.thedailyshow.com/
Daily Show Full Episodes Political Humor Tea Party

\
.

Perfect Storm

It is Memorial Day weekend, one of profound sadness, for the service men and women who gave their lives for our country, and now what seems like a deathwatch for the fragile ecology of the Gulf of Mexico.

The latest failure on the part of BP to stop the oil leak in the Gulf via a “top kill,” one that was said to have a 60-70% probability of succeeding, now seems like just another attempt to string along an anxious nation until the “permanent fix” of drilling an intercept relief well is supposed to be concluded in August.

Now there is a new stop gap “plan,” which involves cutting off the damaged riser and capping it with a containment valve. Per BP: "We're confident the job will work but obviously we can't guarantee success," pretty much what was said of the top kill method. So we can all hope that this is not just more media hype and cutting the damaged riser does not just release more oil. One cynically gets the sense, watching all of these improvised attempts, that we’ve seen this movie before, Mickey Rooney and Judy Garland (the Government and BP) saying “Hey kids, let’s put on a show!”

Here’s the “perfect storm” scenario: NOAA’s forecast that the impending hurricane season being nearly as active as the one in 2005 and the possible impact on the rescue and cleanup activity by the armada of ships and platforms and miles and miles of containment booms in the Gulf.

It is speculation as to how a Katrina might further spread oil inland or even suck up and deposit surface oil in its torrential rain-making machine, but one thing is clear: clean up efforts and relief well drilling would be profoundly effected. The combination of the spill and an active hurricane season is an environmental catastrophe of even more untold proportions. And it bears noting that early season named storms are more likely to form nearby, particularly in the Gulf and the Caribbean.

The only potential “good” to come from this might be our country’s willingness to make the sacrifices we made in fighting wars, pulling together as a nation and declaring energy independence via alternative energy. I am not some Pollyanna thinking that we can suddenly drive our energy needs via alternative means. We need better technology, an improved infrastructure, and be willing to pay a steep tax on fossil fuels to support such efforts.

But that is what it is all about: the national willpower to achieve this objective and to save our environment as well. President Kennedy declared that we would put a man on the moon in ten years at the beginning of the 1960’s; we can do the same for alternative energy today. Since we seemed doomed to forever plan using a rear view mirror, this might be the only good that can come from this disaster.

.

Volcker, Stiglitz, Hussman….

Here’s some positive news from or about people who can help point us in the right direction. First there was the big news that Paul Volcker will finally take a key role in addressing economic reform, particularly with the reinstatement of some of the key features from the Glass-Steagall Act. Joseph Stiglitz touches upon that need as well as other issues in an extract from his new book, Freefall; Free Markets and the Sinking of the Global Economy in a piece entitled “Why we have to change capitalism”

We now know the true source of recent bank bonuses: “free money” profits: According to Stiglitz, “the alacrity with which all the major investment banks decided to become ‘commercial banks’ in the fall of 2008 was alarming – they saw the gifts coming from the federal government, and evidently, they believed that their risk-taking behaviour would not be much circumscribed. They now had access to the Fed window, so they could borrow at almost a zero interest rate; they knew that they were protected by a new safety net; but they could continue their high-stakes trading unabated. This should be viewed as totally unacceptable.” Also, Stiglitz puts the bailouts in the context of the bigger picture: “the failures in our financial system are emblematic of broader failures in our economic system, and the failures of our economic system reflect deeper problems in our society. We began the bailouts without a clear sense of what kind of financial system we wanted at the end, and the result has been shaped by the same political forces that got us into the mess. And yet, there was hope that change was possible. Not only possible, but necessary.” As a consequence he argues for “a new financial system that will do what human beings need a financial system to do.”

Meanwhile, the Financial Times carried an excellent piece on Paul Volcker now that he is again front-and-center, Man in the News: Paul Volcker. For too long now Volcker inexplicably had been pushed off the center stage. Last March, as the market was in complete free fall, my tongue-in-cheek piece about “the new era of the 177K” asked, “Where is Paul Volcker to lead the way back to the 401K?”. Per the Financial Times: “this week the towering former Fed chief stood by Barack Obama’s side as the president embraced what he dubbed the “Volcker rule” banning proprietary trading – over the reservations of some of his most senior economic advisers.”
.
Then, John Hussman, the economist who runs his own mutual funds, and each Monday blogs about his views, published, today, a lengthy, carefully reasoned Blueprint for Financial Reform.
This is an extraordinarily detailed eight point plan/proposal and rather than giving the bullet points here, go to the link. It deserves careful consideration by our elected officials. Needless to say, he sides with Volcker. Hussman for Chairman of the Federal Reserve or bring back Volcker?
.
I've argued that in addition to financial reform, the main economic focus must be job creation: “a true recovery requires jobs, jobs, jobs – and how are they going to be created – by banks trading energy futures? What happened to the commitment to the infrastructure? Our roads, utilities, and public transportation are falling apart. Alternative energy seems DOA. Aren’t these the areas our financial recourses should be focused on, ones that will create jobs, in construction, technology, and finance, and can lead a true economic recovery we can pass on with pride to future generations?”

Green shoots first, then…..

.

Well Worth Noting…

Two interesting articles, one an interview with Richard Koo, a former economist with the Federal Reserve Bank of New York and now chief economist of Nomura Research Institute, which appeared in this week’s Barron’s Magazine, A Japanese Rx for the West: Keep Spending and the weekly commentary of the economist and mutual fund manager John Hussman, Timothy Geithner Meets Vladimir Lenin

Koo’s views might seem to be counterintuitive – government needs to increase deficit spending on a three to five year plan while the private sector is repairing its balance sheet. Japan failed to recognize the dangers of “a balance sheet recession” and the USA could make the same mistake. I would agree, provided spending is focused on our infrastructure or alternative energy, or on myriad other public projects that resonate in our economy, creating jobs while fixing our roads and public transportation, encouraging energy independence, reducing greenhouse gases, and improving our educational system. Such investments are aimed at Main Street, not Wall Street. I would imagine Koo would be the first to note that bailouts of irresponsible investment bankers do not constitute the kind of government borrowing he means.

Koo contends that while the private sector repairs its balance sheet, writing down debt on devalued assets, it is imperative for the Federal government to borrow because even if interest rates are zero, the public sector cannot be induced to borrow: “The only way the government can turn this economy around is to do the opposite of the private sector -- borrow the money the private sector saved and spend it, which means fiscal stimulus. That's what saved Japan from entering a Great Depression.”

In effect we can’t make businesses borrow by giving capital to the banking system which only encourages more reckless economic behavior – it has to be spent elsewhere, and what better place than our infrastructure and energy independence?

John Hussman, meanwhile, writes about the very kind of borrowing we must eschew, especially as it is being done without our elected constituency’s input: the Treasury’s recent announcement that it would provide Fannie Mae and Freddie Mac UNLIMITED financial support for the next three years, reminding us that it was Vladimir Lenin who said: “The best way to destroy the capitalist system is to debauch the currency.”

As Hussman notes, “in a single, coordinated stroke, the Treasury and the Federal Reserve have encroached on spending powers that are enumerated for the Congress alone.” And perhaps worse, “…homeowners who have been diligently making their payments will keep their homes, and homeowners who took out mortgages they couldn't afford will keep their homes as well with no adverse consequence to the lenders – since the underlying loans are now owned largely by the Fed, and the Treasury has pledged its unlimited support. Why pay one's debts if it becomes optional, and the Treasury stands to absorb unlimited losses at public expense?”

.

Headline Tedium

Bailouts, bonuses and Madoff. Are we getting tired yet of the endless litany of related headlines such as the Wall Street Journal’s recent “Bank Bonus Tab: $33 Billion; Nine Lenders That Got U.S. Aid Paid at Least $1 Million Each to 5,000 Employees”?

The rock star of these “fab” financial “leaders” is Andrew Hall who makes a bundle for himself trading energy contracts for Citigroup's energy-trading unit Phibro LLC, with compensation approaching $100 million for 2008. It is interesting to read Sunday’s New York Time’s front page article on his activities and compensation. No doubt he is a talented individual and I suppose if Citigroup didn’t want his operation’s expertise in “taking advantage of unusual spreads between the spot price of oil and the price of an oil futures contract,” other firms would be lining up to pay his price. That is the American way. We know how to lavish money on our superstars, whether from the media or sports, or in this case, dice-rolling trading moguls.

The Times refers to his compensation as “his cut of profits from a characteristically aggressive year of bets in the oil market.” It also says “the company, for example, often wagers that the price of oil will rise so fast during a particular period, say six months, that it can make money by storing oil in supertankers and floating it until the price goes up. “ Finally, “right before the first Gulf War, Phibro placed an elaborate bet that the price of oil would spike and then go down faster than others were anticipating. The company earned more than $300 million from the gamble.” I emphasize bets, wagers, and gamble, as these words cut to the heart of the matter. Arbitrage and hedging can be a means of controlling risk or it can magnify risk to the point of endangering the entire financial system. Is this what our banks should be doing: betting, gambling and waging? Heads they win, tails the taxpayer loses? I have to wonder what the consequences would have been if Mr. Hall’s trades had gone disastrously against Citigroup. Would he have been personally at risk for the same $100 million he “earned” being on the right side? Do we want our banks, the bedrock of our financial system engaging in such activities – aren’t these the domain of the individual entrepreneur and private capital? To what extent does such “trading” create spikes such as $147 for a barrel of crude oil while there is a glut of the commodity?

Then there is the continuing rhetoric about having to reward the financial superstars that got us into this mess in the first place, or they will “walk.” I like Warren Buffet’s homey comments on this topic so I quote from his 2006 letter to his Berkshire Hathaway shareholders. Although this is aimed at CEO pay in general, which is also absurdly high in many (but not all) corporations, it applies to our banks and other financial service firms as well:

“CEO perks at one company are quickly copied elsewhere. ‘All the other kids have one’ may seem a thought too juvenile to use as a rationale in the boardroom. But consultants employ precisely this argument, phrased more elegantly of course, when they make recommendations to comp committees. Irrational and excessive comp practices will not be materially changed by disclosure or by ‘independent’ comp committee members….Compensation reform will only occur if the largest institutional shareholders – it would only take a few – demand a fresh look at the whole system. The consultants’ present drill of deftly selecting ‘peer’ companies to compare with their clients will only perpetuate present excesses.”

Another mind-boggling headline “Picowers Rebut Suit Tied to Madoff Fraud” is from Saturday’s Wall Street Journal. and The New York Times version of the same “Big Investor Counters Charges in Madoff Case.” According to the Madoff bankruptcy trustee, Irving Picard, Picower’s accounts posted gains of more than 100 percent a dozen times between 1996 and 2007, with one gaining 950 percent, but this counter suit contends the latter was “only” 37.6 percent and none of his accounts earned more than 100 percent “in any single year.” But the $5.1 billion Picower withdrew over the years may have represented a return greatly exceeding any reasonable return during the same period. How a knowledgeable investor (presumably Picower qualifies) could believe that Madoff can “guarantee” steady returns of 10 to 12 percent a year and be satisfied by the statements received from Madoff to bear out those returns is beyond me. I still think the “idea” of creating a new reality TV show, something we seem to be better at than regulating financial Ponzi schemes (either private or government sponsored) might be just the ticket to fund the innocent victims of Madoff.

On the eve of President Obama’s inauguration, I had written the following: “The winners in this economy were not only the capitalists, the real creators of jobs due to hard work and innovation, but the even bigger winners: the financial masters of the universe who learned to leverage financial instruments with the blessings of a government that nurtured the thievery of the public good through deregulation, ineptitude, and political amorality. This gave rise to a whole generation of pseudo capitalists, people who “cashed in” on the system, bankers and brokers and “financial engineers” who dreamt up lethal structures based on leverage and then selling those instruments to an unsuspecting public, a public that entrusted the government to be vigilant so the likes of a Bernie Madoff could not prosper for untold years. Until we revere the real innovators of capitalism, the entrepreneurs who actually create things, ideas, jobs, and our financial system will continue to seize up. That is the challenge for the Obama administration – a new economic morality.”

I haven’t changed my view and I fear that while we bail out banks, insurance companies and their like, leaving present compensation practices in place, we just continue to perpetuate financial risk taking, swinging for the fences, making “bets and wagers” that will just dig us into a deeper future hole. As the headlines attest, the “challenge” remains. A true recovery requires jobs, jobs, jobs – and how are they going to be created – by banks trading energy futures? What happened to the commitment to the infrastructure? Our roads, utilities, and public transportation are falling apart. Alternative energy seems DOA. Aren’t these the areas our financial recourses should be focused on, ones that will create jobs, in construction, technology, and finance, and can lead a true economic recovery we can pass on with pride to future generations?