Saturday, May 22, 2010

Bangkok Burning

I wrote a month ago about Thailand expressing my concerns over its future. Well, stuff happened fast. We all saw the 2 month siege in prime areas in Bangkok. Class antagonism was thick in the air denied, of course, by those on top. "Class? What class? We are Thais. We love each other!. Sure.

My latest column on this topic is here:

Sunday, May 09, 2010

History Repeats Itself

Karl Marx was a man of great soundbites. One of his classic ones was this: History Repeats Itself. First as Tragedy, second as Farce.

It takes a novelist of history tales to drive home the point of how foolish this entire US war policy in Afghanistan is.

Read it here.

Wednesday, April 21, 2010

My Latest Take on the Thailand crisis

Monday, April 05, 2010

Burial Grounds of Empires

Yes I know i may sound like a broken record, but this is no laughing matter. Soldiers are dying, frankly unnecessarily, in Afghanistan while its head of state is fighting to the last soldier -- of the West which he despises -- while he steals money directly from US taxpayers, by far the largest providers of cash and while his brother, the opium king, is selling it to addicts in mostly higher income addicts who are, as you guessed it, mainly westerners, which Karzai also despises.

What to do? The report here cannot be more clear. Kabul has got the West by the balls.

Karl Marx, of all people, would be laughing behind his stupid beard. Afterall it was he who uttered those immortal words: "History repeats itself first as tragedy second as farce."

The US foray in Afghanistan is a farce. But actually it's worse. People, soldiers, innocent civilians, enemies, are dying everyday. But the enemies are dying at a slower rate than the "Good Guys".

This movie can only end in a farcical tragedy.

Saturday, April 03, 2010

Quagmire in Afghanistan

Not many pundits were using that Q word 2 years ago. There is no need to thump my chest and say I did so even earlier. This is a national disaster of which bravado is misplaced. Now the Q word has become common.

Today's column in the NY Times by Bob Herbert is a powerful reminder how American presidents have not learned much from the disastrous Vietnam. Read here.

The reasons are various. One had to be the way they were "educated" where history courses are seldom part of the Liberal Arts requirement. You have heard me say this on many occasions already.

The most popular course at the top universities is Economics. How well that has served national interests? Well, quite apart from the recent financial crisis aided and abetted by the "smartest" crew on Wall Street mostly educated at the top schools, just look at how the "best and the brightest" have also helped their nation to become indebted to the Communist Party of China!

Herbert's column neglected to touch on a very pertinent issue in the mindset of Karzai. In his recent diatribe against the US and the "West", he used the P word, as in Puppet, to describe how the West was treating his regime. And he resented that. As part of his defiant "show you" exercises, he invited Iran's dictator to go to Kabul during which meeting both of them verbally attacked the "West", a short hand for Washington.

The US still didn't get it. Karzai was not actually wrong about the Puppet regime that he was. The US wants to fight the war and change Afghanistan to its image. Karzai was always meant to be the acceptable proxy of Washington's proxy. DC would not appoint some one who does not share its vision. To put differently, US wanted its own man running Kabul.

Of course that means the man in Kabul is effectively a puppet.

The problem for Washington in Kabul, and in the old Saigon, is to ignore something totally fundamental. Karzai's interests are not necessarily the same as those of USA.

US wants a democratic regime and to defeat Al Qaeda and the Taliban. Karzai has no desire to see a truly democratic society which may de throne him and to jeopardize the financial interests of himself, his brother and his extended family.

Karzai is an Afghan first and foremost carrying with him all the cultural and emotional "baggage" of millennium. How the US elite think they could miraculously change that baggage to their liking is indeed a sign of hubris and bad education.

So the US is mired in a quagmire supporting a regime that in fact despise the US and is perfectly willing to fight the war to the last US soldiers while the ruling family enriches itself on US taxpayers' largess and on the ignorance of Washington leaders with all its IVY League education.

A recent study shows close to half of the top leaders in Washington have a Harvard degree and close to 80% have at least one IVY League + Stanford + Berkeley degree. Very sad.

Friday, April 02, 2010

Afghan War "movie" is getting from bad to worse

Well, the inevitable happened. Karzai is now attacking the "West", mainly its principal patron, the US, because he is being depicted in the "West" as corrupt and that he managed to "steal" the last election declaring him the winner.

He has the balls to do that because he knows he has got USA on a noose: Washington wants to win the war more than he does.

Why does Washington want to hang on to this corrupt man as ally is evidence of how fundamentally wrong the US war policy in Afghanistan has always been -- propping up a corrupt dictator suddenly handed billions to fight an enemy who does not need the same fortunes to die. The war policy itself corrupts. An impoverished country with a life style and a culture mired in medieval times is suddenly given billions to spend with the purse string controlled by a handful of unelected leaders with their own ancient tribal agendas is a recipe for disaster.

The US couldn't even field an effective police force in Afghanistan, let alone an army, to fight is due to the same reason why the US failed in Vietnam. Your local ally government has no credibility among the people in whose name those government rule.

But as I have been saying like a broken record, US leaders do not read history and therefore, as the famous saying goes, are doomed to repeat the same mistakes.

Karzai's obvious despise for the "West" and for the US is recorded here.

Wednesday, March 31, 2010

Elite Education in the US of A

Something is very wrong with how the American elite gets educated by all those top ranked universities when famous alumni who went on to become leaders make the same stupid mistakes over and over again. Read this well-written op ed here by one of the most informed writers on the Muslim world on Afghanistan that is so vivid and heart wrenching you want to throw your computer out of the window.

Moral Quagmire in Afghanistan

So Prez Obama was just in Kabul days ago pressing Prez Karzai to crack down on corruption knowing full well his brother is a drug king. Guess what? Nothing is done. On the contrary US officials are saying, as they did in Vietnam, such drug runners are essential to the war's effort. Really? Didn't work then, wouldn't work now.

Read Prez Kabul's de facto response here to Obama's visit.

Monday, March 29, 2010

Bad Movie in Kabul

So Obama wants Karzai to crack down on corruption in Afghanistan? Read the lead story on Obama's unannounced trip to Kabul prior to touch down in this paper here.

I would be more appreciative if we had been spared of this embarrassing display of tiresome PR to placate the uninformed back home in good old US of A.

Asking Karzai to crack down on corruption is about the same as asking Don Corleone is tame mafia crimes in Brooklyn in Coppola's immortal movie Godfather.

Is there anyone in this world who keeps up with the news who still does not know Karzai's brother is the number one opium overlord in Afghanistan? Furthermore, have we not read that none other than the US military has pleaded with Washington not to crack down on that business because they need local tribal support?

Ok. To give "face" to Obama Karzai will do something about crimes. What is likely to happen is for his henchmen to crack down on all his brother's competition eliminating (and I don't mean just economically) those who do not submit to Karzai bro's orders. There will be relative peace because after the crackdown there will be just one monopoly of crimes standing that goes all the way to the palace of Kabul where the president sits.

Mr Obama, please spare us the theatrics. Get your troops out and let the Afghans deal with each other. What do your want to betray your own core values to defend opium and crime bosses? Is that worth losing thousands of American soldiers and civilians and suspending one's basic beliefs about drugs and violent crimes/

Sunday, March 21, 2010

Afghan Policce & US Folly

Interesting article from Newsweek here.

US has spent $6 billion since 2002 on training up a police force of 98,000. An effective force is a central part of Obama's exit strategy. US experts admit less than 12% of the force is "effective". What does that mean? Not able to even catch thieves and police the streets "effectively". We are not talking about going to the mountains to catch Al Qaeda fighters, for chrissake.

Let's do the math. $6 billion on 98,000 police = $61,200 per head. Per capita income is $800. Al Qaeda or the Taliban don't have that kind of money let alone spend only on the "police" force. Yet these enemies have been able to hold off the mighty US military.

What does that tell you? To me it is senseless to fight in a country where your supposed allies are not motivated even if you show a fortune on them. They are mostly likely laughing their head off at your naivete and stupidity and are crying all the way to the bank. Cynical? Read the latest on how the US is helping the opium business in Afghanistan.

In case you have been avoiding the news for sometime, the opium business is monopolized by the brother of the president of Afghanistan, the "ally" on whom the US effort depends.

So, how could you motivate the police when everyone and his brother in law knows the US is in bed with the opium king?

Yoiu tell me.

Opium and USA

If you are caught with heroine and opium on US soil, you can look forward to many years in jail. It's a big federal crime. When it comes to foreign wars, beginning with the Vietnam War, USA abandoned all pretense to the values the nation had held dear.

During that war, the Americans not only tolerated opium cultivation they created a US run airline, called Air America, to transport opium from difficult hills up country to facilitate distribution on behalf of those hill tribes the failing US military wanted to win over to help fight the communists. Never mind the opium would end up in Los Angeles or New York. In war all is "fair" right?

But of course what the US did in Vietnam was illegal, but who cares, right? In the end the war failed to win hearts and minds.

Now, we are seeing the same tiresome movie. The US military is now openly in support of opium trade again. We are condemned to watch this B movie all over again. Never mind what the US used to stand for: the rule of law, respect for humane values and all that. They read well in textbooks. It's sad to see the decline of moral values in the USA.

You want to win hearts and minds in Afghanistan? Imagine you are a young Afghan. You grow up watching GI's supporting opium in your own backyards. You then get a scholarship to Yale. Would you have much respect for Washington leaders telling the world how to behave? I doubt it.

Read this heart wrenching report on the US involvement in Afghan opium trade here.

Friday, March 19, 2010

The "Mountain" has moved

In the classic Kurusawa movie "Ren", a rising warlord patiently watched the action of the dominant warlord of all warlords (WOAW) before he pounced. Finally he saw the opportunity when WOAW moved the bulk of his troops out of his impregnable fortress to attack the patient usurper. He uttered those simple words to his generals: "The Mountain has moved".

It's so zen. Mountains do not move. When they move it means the center of gravity, gravitas, the solidness has become "light" and vulnerable. In the movie the WOAW lost. It had lost its mind, it had lost its strategy, it had lost its "gravity".

This is how I read this article (here) about Applied Materials, the Rolls Royce of semi conductors in Silicon Valley is building in China its largest ever plant, and the largest of such plants with not only cutting edge technology of today, but putting down deep roots in China the platform for tomorrow's technology. This exercise is headed by one of the most important techies in the entire semi conductor business.

I do not argue that US companies should not invest abroad. They should indeed do so. However, what been happening is nothing short of moving the "Mountain". It's hollowing out of the core of what once made USA great.

Applied Materials and many other cutting edge firms are saying by their action they have "seen" the future, and it is in China. This is still a country of limited intellectual and political liberties, right? Yet, they see the future there?

Should that raise several red flags in the US of A? Do we see, hear serious debates and then actions to remedy the situation?

The issue is not really even about China. It is about the US of A. Why has it become what it has become, a place that a firm like Applied Materials no longer sees the company future in the nation's future?

We do know a lot of about some of the structural problems. Many blame China's "slave" labor wages attracting investments.

Relative wages play a part, but only up to a point. Go to MIT, Caltech, Berkeley or Princeton and visit their PhD programs in physics, electrical engineering, math and their cousins and you meet more Asian, particularly Chinese, students than "locals".

The "best and the brightest" young Americans all want to become investment banks and consultants. Money, do we not know, is galactic. Engineering? Physics? Too hard, too boring. No money. Civil Engineering? Who in their right minds want to work on building better roads, airports or dams?

The proverbial message is no longer just on that wall. It is not even a message anymore.

The story of Applied Materials in China is yet another floodgate being lifted. Another dyke widened.

The balance of global power, both soft and hard, is shifting so rapidly away from the US it pains to see the amount of low quality political debates in the main US media, especially on Fox News, where repeated assertions of USA being number 1 has become substitutes for intelligent analyses; that only the Democrats or anyone who is not Republican could fail to see that USA is a country blessed personally by God.

If anyone needs to be reminded how regressive USA can become, just read the latest on textbook changes in Texas as mandated by backward looking Republican stalwarts.

Long gone are the days of traditional Republicanism: fiscally conservative, culturally liberal and enlightened. The Rockefellers were Exhibit A.

Hubris and ignorance are lethal ingredients in all the falls of empires in the past. USA has an oversupply of both right now among its ruling elite in the Congress, in the media and in State politics.

China may have its cyclical comeuppance in another asset bubble that would take the market cap of its stock markets down a few pegs, but the underlying structural change is as amazing as the head in the sands of the Republican Party, the party which should be promoting growth and technology, but now spending its energy on backward looking rhetoric.

The final paragraph of the article is not a journalist trick to overstate in order to impress. Any frequent travelers to China who have talked to the young and the bright could recognize that voice.

Friday, February 26, 2010

China - The Mother of All Black Swans

This presentation here is too good not to be widely read.

Thursday, February 25, 2010

Casino Greece

I am lured back from my "sabbatical" to this blog by the more revelation of how "credit-default swaps" derivative products designed to help Greece to "hide" its true indebtedness have come to bite its bottom. Read the full report here.

The following excerpts deserve a few of your minutes:

..."These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.

“It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich....

...But even before that issue became apparent, a little-known company backed by Goldman, JP Morgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust.

Last September, the company, the Markit Group of London, introduced the iTraxx SovX Western Europe index, which is based on such swaps and let traders gamble on Greece shortly before the crisis. Such derivatives have assumed an outsize role in Europe’s debt crisis, as traders focus on their daily gyrations....

...there is fierce debate over what exactly is behind Greece’s recent troubles. Some traders say swaps have made the problem worse, while others say Greece’s deteriorating finances are to blame.

So who or what's to blame? Swaps or Greek fiscal irresponsibility?

The primary problem has to be the latter. If Greece had been fiscally strong, no "hi-tech" derivatives could produce a financial calamity. Those CDS prices would not have gone haywire creating a momentum of their own.

What is not clear to most outside the financial business is how that industry has morphed into a hydra-headed weapon of destruction if you are on the wrong side of the trade.

And the mathematical complexity of those WMD is simply beyond most mortals. Not just WMD, the global financial game itself is beyond the knowledge of most politicians and legislators who are, in theory, there to protect the stability of the society which elected them.

Unless you understand this point, you cannot understand how Wall Street has been able to run circles around Washington in the current financial crisis getting away with the metaphorical murder.

Of course Wall Street has been and is still aided by its intellectual allies in Larry Summers, Geithner and Bernanke who have a natural tendency to think like Wall Streeters.

However, even they, without spent any meaningful time in the trenches on Wall Street, trading day in day out, playing with billions, making and losing in seconds, don't really appreciate how quickly Wall Street can spot an opportunity faster than you can say: "Can you explain this to me, please, slowly?"

two cases in point. When Wall Street understood Washington got scared by the prospect of Great Depression V2.0, the honchos immediately got Washington DC to grant them a banking license to gain access to zero cost funds plus federal guarantees on loans.

With these two de facto cost less blank checks, Wall Street quickly amassed financial assets priced for Armaggeddon. Any surprise their 2009 profits and bonuses were off the chart? They played DC for fools.

Take Greece. Of course the good folks at Goldman Sachs knew what they were doing selling derivates to Greece to postpone its inevitable days of reckoning. Of course they didn't want to hold any Greek papers unless they could quickly off load them to someone else. So Wall Street did two things: they helped create a market for those instruments by financing a new company, Markit in London, to produce sovereign risk indices: iTraxx Sovereign Index.

With that Index and its sub-indices covering Western Europe, Asia and so forth Wall Street created, out of thin air, derivative products that bet on movements of those products. Hence a giant Sovereign Risk Casino came into existence.

Wall Street could then hedge against whatever positions they may have held in whatever sovereign papers in their own accounts. Or for that matter bet against any sovereign risk on a net basis.

Goldman Sachs, according to earlier reports, also sold back to the Greece Central Bank, some of the Greek papers they were holding.

It is not far fetched that Wall Street has been running and managing a global casino for some years. Goldman Sachs and others have been not merely financial intermediaries taught in universities, they are principals themselves by holding positions for their own accounts.

If Uncle Sam had come to its rescue, that global casino's ownership and management would have looked very different today.

But politicians in general and Washington in particular don't understand modern finance. Wall Street has successfully led them to believe the world needs this "casino" and only they, the same crew, can manage it, thank you.

One can be cynical and say politicians are only too ready to be corrupted without knowing how to make an honest living let alone a living on Wall Street, and Wall Street is only too willing and able to lead them by their nose. But is that cynicism too far-fetched?

Back to my sabbatical, friends.

Thursday, February 18, 2010

Summing Up and a Sabbatical

Just about a year ago on March 1 I started this blog.

I said: "...There is much confusion and unhappiness all around regarding what is being done to bail out overpaid financial "geniuses" who got us into where we are.

Perhaps some straightforward thinking is in order devoid of patronizing and obfuscating technical terms preferred by those who run our system.

This blog hopes to contribute to that effort so that we, those who pay taxes and mortgages on time, may know what to do to make the system a little better in the future.

Towards this end all of us need to be a little more vigilant of future misdeeds committed by those we usually consider as our leaders or pillars of society: bank presidents, Treasury Secretaries, Central Bankers and elected officials.

Perhaps our vigilance will result in advance warnings before the next perfect storm could ever gather sufficient force to engulf us all as this one is doing right now"...

These days It is rare to find anyone who is not aware of how Wall Street went over board, how Washington DC has failed to put in rudimentary checks and balances reigning in Wall Street in exchange for a blank check; and how, as a politician, Obama has been self-destructing as a man whose promised changes one can no longer believe so readily.

After Obama compared multi-million dollar wages and bonuses paid to Wall Street leaders with those of baseball players, one can say for a high degree of certainty that Obama is essentially a "Chicago School" convert. Only alumni of that "Cathedral" could compare Wall Street pays with those of sports. Obama, as it turned out, ain't what many thought he was when they cast their vote for him as FDR V2.0. He is turning out to be "just another" politician.

Paul Krugman said it well, "Oh My God". He also said in conclusion: "He is clueless". To which I sadly concur.

The weight of money in influencing how public policies are formed in Washington, DC, indeed in so many other countries of varying degrees of political liberty, is perhaps the trend of the 21st Century.

If you detect a touch of helplessness and futility in what I have been trying to do, you are not wrong.

Here is what has happened:

The Great Depression V2.0 has been averted by the Fed and other major Central Banks printing money. However, due to the blanket no-question-asked way of doing so, a base is formed for another bubble down the road.

The unevenness with which public money has been spent lays bare how strong interest groups representing numerically small number of people, but numerically large sums of money, have managed to capture Washington DC.

USA is supposedly a true democracy. But in my view it is moving ever closer to a Third World Crony Capitalist model once dismissed in the land as corrupt and "Third World" with a barely disguised pinch of racist superiority. "We in the West don't do this sort of thing". "That" could only happen in "Asia".

Sure, mate. Whatever you wish to believe it's fine with me. We still live in the free world and we are all entitled to our opinions however stupid and wrong they maybe.

I am going to take time off to focus on other things including writing columns for publications, something I used to do far more regularly before I began this blog. lists most of my articles.

I want to add to that list. To do so, I will blog less frequently. So, it is not "adios", rather it is "hasta luego". See you soon.

Every now and then I could write something if I am so moved. But I shall not be writing everyday here. I hope you are not too disappointed.

If I publish something, I will alert you on this blog. So, check back every now and then.

Thanks to you all for being my regular readers. Until next time, keep well and keep alert for volatility in financial and other markets.


Tuesday, February 16, 2010

Goldman Sachs and Global Financial Stability

An intriguing thought proposed by Simon Johnson at MIT:

"A rogue trader could destabilize a firm, such as Barings, and a rogue firm such as Goldman Sachs"?

Johnson's argument is well worth your time:

Goldman Goes Rogue – Special European Audit To Follow
Posted: 14 Feb 2010 06:22 PM PST

At 9:30pm on Sunday, September 21, 2008, Goldman Sachs was saved from imminent collapse by the announcement that the Federal Reserve would allow it to become a bank holding company – implying unfettered access to borrowing from the Fed and other forms of implicit government support, all of which subsequently proved most beneficial.

Officials allowed Goldman to make such an unprecedented conversion in the name of global financial stability.

(The blow-by-blow account is in Andrew Ross Sorkin’s Too Big To Fail; this is confirmed in all substantial detail by Hank Paulson’s memoir.)

We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November.

These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets. When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.

A single rogue trader can bring down a bank – remember the case of Barings. But a single rogue bank can bring down the world’s financial system.

Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.

But the affair is now out of Ben Bernanke’s hands, and quite far from people who are easily swayed by the White House. It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues. Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients.

This audit should focus on ten sets of questions.

1) Which eurozone governments have worked with Goldman, and on what basis, over the past decade? All actions prior to and after the introduction of the euro need to be thoroughly reexamined.

2) What transactions has Goldman facilitated and how has that affected the reporting of European government debt? (Under the Maastricht Treaty, eurozone government debt is not supposed to exceed 60 percent of GDP.)

3) In the case of Greece, the accusation is that Goldman deliberately and in a premeditated manner conspired to hide the true degree of government debt. Is this true, and to what extent has Goldman helped other countries engage in similar transactions, e.g., countries now seeking entry to the eurozone?

4) What is the full extent of Greek and other government liabilities, if these are accounted for properly? Without this reckoning, it is impossible to design a proper level of European Union (or any other) support for weaker eurozone countries.

5) Are there non-eurozone countries that have also been aided and abetted by Goldman in this fashion? For example, are the UK and Switzerland implicated – and thus endangered?

6) Has Goldman extolled the virtues of government debt in Greece, or other countries, while at the same time helping to deceive investors on the true risks inherent in those debts? What were Goldman’s own holdings of these securities?

7) Is there evidence that Goldman has structured similar transactions for the private sector – enabling companies to conceal the level of their true indebtedness? Have securities issued by such firms also been endorsed by Goldman to the buying public?

8) Were Goldman’s US-based supervisors aware of Goldman’s activities in Greece and other eurozone countries? Did they condone activities that undermine the integrity of the European Union?

9) Where was the European Central Bank while all of this was happening? Has the ECB become dangerously enraptured with the new Wall Street and its “techniques”?

10) Did any responsible official really think that what Goldman was constructing was really some sort of productivity-enhancing financial innovation – as opposed to a sophisticated form of scam?...

...If the Federal Reserve were an effective supervisor, it would have the political will sufficient to determine that Goldman Sachs has not been acting in accordance with its banking license. But any meaningful action from this direction seems unlikely.

Instead, Goldman will probably be blacklisted from working with eurozone governments for the foreseeable future; as was the case with Salomon Brothers 20 years ago, Goldman may be on its way to be banned from some government securities markets altogether.

If it is to be allowed back into this arena, it will have to address the inherent conflicts of interest between advising a government on how to put (deceptive levels of) lipstick on a pig and cajoling investors into buying livestock at inflated prices.

And the US government, at the highest levels, has to ask a fundamental question: For how long does it wish to be intimately associated with Goldman Sachs and this kind of destabilizing action? What is the priority here - a sustainable recovery and a viable financial system, or one particular set of investment bankers?

To preserve Goldman, on incredibly generous terms, in the name of saving the financial system was and is hard to defend – but that is where we are. To allow the current government-backed (massive) Goldman to behave recklessly and with complete disregard to the basic tenets of international financial stability is utterly indefensible.

The credibility of the Federal Reserve, already at an all-time low, has just suffered another crippling blow; the ECB is also now in the line of fire. Goldman Sachs has a lot to answer for.

By Simon Johnson

How likely would any of the above 10 items be taken up by EU authorities? Good question.

Monday, February 15, 2010

Global Banking Compensation

Absent is Goldman Sach's Lloyd Blankfein compensation because it would be outside of the box on the left hand side. He reportedly took home over $80 millions versus "only" $19.7 millions by Jamie Dimon. Obama still didn't get it that these guys were grossly overpaid compared to the "market".

Greek Offensive

When your back is up against the wall the best defense is often a good offense. This is exactly what the besieged Greek Prime Minister is doing. Blame your domestic trouble on foreigners, even if they are in fact your fellow members of the same eurozone club, the club Greek begged to join as a symbol of its "developed" status when in fact it was and is still run like a banana republic.

What is Mr. Prime Minister doing?

FT reports:

..."In a harshly worded speech to the cabinet the day after the summit, which was televised live, Mr Papandreou claimed Greece was being used as a “laboratory animal” in a test of strength between the eurozone and financial markets.

“The EU’s own credibility is being tested,” he warned. “It must correct the mistakes it made over Greece, so it will be especially strict with us.”

Analysts said the speech was intended to rally trade unionists, who are threatening to increase strike action, as well as the governing Socialist party’s hardline faction"...

This is another example of how the bank is held hostage by a borrower of billions unable to pay. The bank needs him more to survive and the borrower can then play the bank like a fiddle.

That "harshly" worded speech was clearly intended also to shift national anger towards outsiders.

Greece will not wage war. But often in the past governments waged wars to divert domestic attention to somebody else. Today the Greek government is doing exactly that.

So predictable. So tragic.

The Greek Economy - A Glance

From the CIA FactB Book 2009:

- Greece violated the EU's Growth and Stability Pact budget deficit criteria of no more than 3% of GDP from 2001 to 2006, but finally met that criteria in 2007-08, before exceeding it again in 2009 by 12.7%. Public debt, inflation, and unemployment are above the euro-zone average; debt and unemployment rose in 2009,
- GDP - real growth rate: -2.5% (2009 est.)
- nvestment (gross fixed): 15.6% of GDP (2009 est.)
- Budget: revenues: $108.7 billion expenditures: $145.2 billion (2009 est.)
- Public debt:108.1% of GDP (2009 est.) 97.4% of GDP (2008 est.)
- Exports: $18.64 billion (2009 est.) $29.14 billion (2008 est.)
- Imports: $61.47 billion (2009 est.) $93.91 billion (2008 est.)
- Reserves of foreign exchange and gold: $NA (31 December 2009 est.) $3.473 billion (31 December 2008 est.)
- Debt - external: $552.8 billion (30 June 2009 est.) $504.6 billion (31 December 2008 est.)
- The public sector accounting for about 40% of GDP

You don't need a PhD in economics from MIT to conclude Greece is flat broke.
Wny is it broke? There can only be one answer: years of mismanagement by the "leaders" of the country voters kept electing to public office.

Sunday, February 14, 2010

What is a "Free Lunch" Greek style?

The Germans without whose help Greece will fall further down a deep hole have this to say, reported by the FT:

..."The mood in the German Bundestag is strongly opposed to any significant financial package.

“We have a big problem,” said Hans-Peter Friedrich, deputy leader of the largest Christian Democrat-Christian Social Union group in the parliament. “Four years ago we increased our pension age to 67. In Greece it is 55. We cannot persuade our people that we will give the Greeks money to finance their state spending when they have not carried out their most urgent reforms"...

55 is the age of retirement or when the pension is collectible? If this ain't a "free lunch", I don't know what else it could be.

So, any wonder Greece is going broke? How to fix it is not an economic issue. You can see it is deeply political.
Once folks are used to "free lunches" they expect that to be their right. Who promised them initially? You don't need a PhD from Oxford to figure that one out.

Greece vs European Union

Fingers are pointing this and that and every which way. They might as well be daggers. What a pathetic scene.

The FT reports: "Greek Prime Minister Mr Papandreou blamed the European Commission for failing to crack down on the previous conservative government’s “criminal record” in falsifying statistics. “This has undermined the responsibility of the European institutions with international markets,” he said".

Ah, so a domestic issue of lousy governance is a foreign responsibility?

You can bet your bottom dollar, or euro, that if indeed foreign authorities had taken a strongly worded public position there would have been a major uproar about violation of sovereignty.

Will stronger members of EU help out? In particular Germany, the largest of them all?

FT reports: "Mr. Papandreou's outburst is likely to infuriate the very leaders whose help Mr Papandreou needs. It came as it emerged there would be no more talk of financial assistance until Athens had persuaded the EU that it had a sustainable austerity programme in place.

Germany is insisting Athens bears initial responsibility for restoring confidence in Greece. Angela Merkel, German chancellor, resisted French efforts to come up with an explicit bail-out package at Thursday’s summit of EU leaders in Brussels"....

What would constitute a "sustainable austerity programme"?

Good question. The Greek government has just announced a series of measures: higher taxes on more people, no cash transactions of over 1500 euros after jan 1, 2011, higher VAT taxes, capital gains taxes and cut in earnings of public servants.

Ummm. Good luck. Expect social turmoil, if you asked me.

The economy has been in recession.

FT reports : "...a deepening slump which has been worse than reported, with the fourth quarter of last year seeing another turn for the worse – raising more doubts over whether it can meet its targets of cutting public-sector deficits. Greek gross domestic product contracted by 0.8 per cent in the final three months of last year, by far the sharpest decline reported so far by a eurozone country.

That followed declines of 1 per cent, 0.3 per cent and 0.5 per cent in the first, second and third quarters of the year.

Previous estimates had shown falls of 0.5 per cent, 0.1 per cent and 0.4 per cent. The pace at which Greek GDP dropped last year could also cast doubt on the government’s prediction that GDP will fall by just 0.3 per cent in 2010"...

Given this background and the history of free lunches, the history of a "shadow" market where cash transactions have been a normal fact of life to get around punishing taxes that have been misspent by incompetent and wasteful governments, no one would want to pay higher taxes.

Students of economic development are usually forced to read dense, mathematical economic models. I have always thought that's silly.

No economy can prosper without quality public governance. Countries are poor not because the leaders do not understand mathematics or economic models. They do and they don't care. Most economic problems are created by corrupt leaders.

Greece is yet another example of how those leaders have led the country down to a dead end. To revive it would take herculean effort -- not by leaders who are on top, but by the people who have to pay the price.

Now, people are willing to suffer, even die, if they believe in a just cause. Unfortunately, leaders, or the ruling elites, of declining economies have long lost their legitimacy as trustworthy. It will take a miracle for the Greek people, or for that matter, for the Argentinian people, or name any African people to voluntarily agree to an austerity program when they do not have trust in their leaders. In those poor countries "austerity" measures are usually enforced by force. Many people have died in protestations.

This is going to be a real Greek drama. Watch your headlines. I smell big trouble. Even blood.

Wall Street & "hidden" Sovereign debts

The real story not told by the scary headlines about Wall Street "hiding" Sovereign debt to help borrowers to report legally but not truthfully is how ignorant the various regulatory authorities are about modern financial tools.

The first layer story is about Wall Street designing derivative products that allow borrowers, including governments around the world, to legally report less than what it should.

Sovereign can legally make its debts "go away" because there are insufficient reporting requirements with respect to derivatives. Contingent liabilities appear to belong in a parallel and uncharted universe.

So, should we be upset now to realize Greece, among others, is in far more serious indebtedness than we knew of? That there is now at a minimum a meaningful risk that some major financial blowout may happen? We thought we had seen the worst, yes? So, whom should we blame?

We cannot really blame Wall Street since it had done nothing illegal, right?

So, do we blame government officials?

Well, not quite, since they are not as qualified and smart as those who run around them in circles, namely, their former smarter classmates who went on to work on Wall Street to maximize their incomes and wealth while the more publicly spirited blokes went on to work for the government, namely, to become "public servants" of you and me. We cannot realistically blame people for being dumb. They are what they are. Besides public servants are downright "cheap" compared to what their bankers receive as wages or bonuses.

Perhaps we should blame ourselves. We don't want to pay taxes but we expect public servants to be as savvy as Wall Street bankers. More than that, my recent postings tried to show, we, the taxpayers, expect free lunches wanting the government to foot all kinds of bills, but we pay the officials a pittance.

In Singapore, public servants are paid as well as most senior private sector jobs. And if they are then caught with a greasy palm, they end in a long jail sentence.

In the United States Senators, Congressmen can be "bought" with a pittance by lobbyists. When the government was deep in ideological navel gazing, as in the last Bush Administration, not even smart public servants dared to take a harsh look at funny business on Wall Street let alone propose new regulations to enforce more transparent reporting.

So, while the world is horrified by what Greece had managed to get away with hiding its debts with the help of, yes you guess it, Goldman Sachs, let's think about the deeper problem of how to regulate Wall Street without strangling it.

The full report of how Goldman Sachs helped Greece is here.

The "Cradle of Western Civilization"

Simon Johnson says: "...Greece is well down the path to becoming regarded more like Argentina – a country that struggles over many decades (and whose leaders frequently rail against the world) and for which episodes of reasonable prosperity and new economic models are punctuated by gut-wrenching crises, most of which do not shake the world.

Will the EU save Greece? Much will depend on how bad the situation could become in other “related” (in the eyes of the financial markets) places"...


Argentina was once one of the five richest countries on this planet ahead of France even. Now, through a mind boggling history of serially mindless, cynical, corrupt, incompetent governments the country is now just another Exhibit A of a mismanaged Third World banana republic.

Sad. Argentina was at one point as advanced as a continental European country. It has produced as many Nobel prize winners as Spain, winning the first among all Latin American countries. The country's name, Argentina, was derived from the world silver in French: Argent, now commonly used in French to mean money.

Greece. Ah the Glory that was once Greece: Aristotle, Plato, Homer, Acropolis, that Greek myths and plays, the art, the architecture, and of course the thoughts behind the big D for Democracy that defined the concept of the West is now another tiresome exhibit of a nation badly governed serially run by cynical, incompetent, corrupt politicians who are only good at promising free lunches to a people grown up expecting "manas" from heavens without having to work for it.

As the West continues to expect "government" to do this and that for them, the West will no doubt continue to decline relative to those peoples elsewhere who, after years of painful lessons, know you cannot get rich without working your ass off, day in day out, without handouts.

Yes, many such countries' leaders are also corrupt, but the saving grace is their national economic development policy is growth oriented and not protectionists and not based on handouts.

Saturday, February 13, 2010

The Greek "tragedy" or farce in PIGS

PIGS in current economic jargon stands for Portugal, Italy, Greece and Spain. Why lump them together? Lots of debt.

So what's wrong with that? Well, if you owe enough money and if cannot pay the creditors, something has to give. As a footnote, many argue PIGS may sound good, but the acronym misses out Ireland. PIGS should really be PIIGS. OK, PIGS does sound better, so let's go with the convention.

Why is PIGS now a hot topic? The immediate answer is Greece. The larger issue is Debt in general, now especially in the West.

The case in point is the particularly odorous case of Greece the government of which has been lying to the world through creative accounting and selective reporting for some years (6 is the figure used) about the true sizes of its national deficits.

Right now EuroZone governments, mainly Germany and France, the two largest economies in Europe, are scrambling to find a solution to the Greek "problem".

The problem arose from essentially 2 sources, reducible to one.

1) EuroZone imposes strict quantitative limits on how much deficits (ergo national debt) a member country can run up.

If these limits are breached, the government in question must remedy the deficit situation. Ergo, cut, cut and more cuts to bring the deficits down to statutory limits. A grace period is given, but clearly specified.

2) Government spends more money than it should to placate social and economic demands (I want what "they" have and I want them NOW) and to "buy" off political opponents or to "solidify" domestic allies. In short, many folks outside the government want a free lunch. Irresponsible government officials gladly oblige. They don't have the leadership and the spine to say NO.

This second reason is now a Western phenomenon. The US is a prime example of that.

Ironically those Asian "third world" economies, themselves lectured at and battered by too much debt a while back had swallowed hard, tightened belts and now have by and large sterling national balance sheets. Thailand, Malaysia, not to mention Singapore, Hong Kong, Korea and of course China. All have abundant (some say too much) reserves, trade surpluses and high savings rate.

Greece, among others, has been living a good life on borrowed funds and the time to pay up has come.

What to do? Good question.

EU cannot really afford to let Greece get off the Euro as speculators are betting on. Recorded shorts on Euro has never been so high. Once Greece went, then like the Lehman Brothers case, the "signal" is that all weak Euro economices, the PIIGS, will have to leave the Euro. That means a total collapse of the European Union each going back to one's own national currency. IT would be a godsend to currency speculators.

I am sure the German Bundesbank and France are loath to bail out Greece, but what's the alternative? Switzerland is the second largest creditor to Greece.

I think these 3 countries will have to do what the Western countries have been doing for decades to African countries: just forgive the debt Greece owes. Or print more money to buy off the debt.

Who are the major creditors: See this chart

If you have 10 minutes the following 2 clips are worth your time: Stiglitz, Spanish official vs a sarcastic, no holds barred hedge fund manager on Greece.

Friday, February 12, 2010

Whither US interest rates?

Is there a global bond bubble or are we blinded by old habits?

The author of "The Black Swam" recently said on TV that it was "100%" certain bond prices would collapse. Interesting statement from someone whose punch line in that famous book was about the unpredictability of the future. The book was published before the Wall Street bailout and the author became famous precisely he was warning about the uncertain future in the middle of a huge bubble no one saw bursting.

The case for a bubble is straightforward: just look at all the money printed by the major economies, including China, to save the world from Great Depression 2.0.

Yet, interest rates are close to zero. Long bonds have barely moved.

Paul Krugman argues strenously that those, like me, are blinded by simplistic quantity theory of money: more money printed, all others being equal, results in higher inflation.

Krugman believes we are more like Japan in the "lost decade" of the eighties where zero cost money didn't do much, if anything. Economy was stagnant because Japan found itself in a liquidity trap where easy money was irrelevant, What the world needed then and now is more stimulus, forcibly pulling the world economy out of a deep ditch.

To support his argument, there is indeed excess capacity all over the major economies. Stories of mega ultra modern factories in China abound. Savings rates in the US have been moving up, meaning folks are not spending. No wonders. A large number of Americans, save a handful on Wall Street, are flat broke.

Feeble private demand and excess capacity do not an inflation make. Hence, there is no bond bubble, if you follow this logic.

So, what gives?

Niall Ferguson, a fabulous English writer, a celebrity multi-millionaire talking-head on TV and a respectable historian, now a professor at Harvard B School, is not an economist. In fact, definitely he is not one of my favorite economists either.

However, sometimes it pays to listen to someone with a historical perspective even though Krugman, the Nobel winner and august professor at Princeton, has only contempt for Ferguson, the "fake" economist properly schooled only in historiography.

Trained as an economist myself, I am among the first to admit economists do not always have the correct answers on economic issues even if they speak with the air of authority honed by years of precision, mathematical logic.

This is why I want you to think about this particular excerpt by Ferguson here:

..."For the world’s biggest economy, the US, the day of reckoning still seems reassuringly remote. The worse things get in the eurozone, the more the US dollar rallies as nervous investors park their cash in the “safe haven” of American government debt. This effect may persist for some months, just as the dollar and Treasuries rallied in the depths of the banking panic in late 2008.

Yet even a casual look at the fiscal position of the federal government (not to mention the states) makes a nonsense of the phrase “safe haven”. US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.

Even according to the White House’s new budget projections, the gross federal debt in public hands will exceed 100 per cent of GDP in just two years’ time. This year, like last year, the federal deficit will be around 10 per cent of GDP. The long-run projections of the Congressional Budget Office suggest that the US will never again run a balanced budget. That’s right, never.

Read the entire article here. It provokes thought, if nothing else.

Thursday, February 11, 2010

Don't you just love Goldman Sachs?

..."Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit...

...the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

...At some point Greece will have to pay up for its swap transactions, and that will impact its deficit. The bond maturities range between 10 and 15 years. Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005"...

Source: Read Der Spiegel here

This is Beijing calling Sigmund, are you home?

..."A 20-year-old factory worker who joined a banned political party because he was unhappy with one-party rule in China was jailed for 18 months yesterday.

A court in Shenzhen found Xue Mingkai guilty of subversion of state power because he joined the United States-based China Democracy Party last April, his mother Wang Shuqing said"...

Source: The Standard, Hong Kong (here).

C'mon guys. The Chinese Communist has over 70 million members, larger than all but 18 countries on this planet. The party is larger than the entire population of England (62 millions), or France (65.5 millions) or Spain (46 millions). It is almost 10 times the population of Israel. That's men, women and child.

The 70 million party members do not include the military which is put at 3 million.

So what's this China Democracy Party? Is there anyone outside the paranoid Chinese Communist Party who seriously believes that this tiny group of people would constitute a threat so lethal that the political system in China would collapse?

Why are Chinese leaders so nervous, if not manic or are they manic-depressive?

How big is that little party that so scares Beijing? It has been put at between 15-200 members (tops) around the world.

So this 20 years old factory worker goes to jail because he has paid maybe 4 USD party membership fee and has attended a few meetings?

By that standard, the Republican Party in the US should all be in maximum security prison since they plot on an hourly basis to put Obama in the political dog house and are, so far, not doing a bad job either.

So what's with the CCP, the world's largest communist party that is more capitalistic than any society I can think and yet almost as retentive as that ruling party in Burma!

A severe case of insecurity? But about what? Uncle Sigmund, where are you? China needs you.

Wednesday, February 10, 2010

Hank Paulson being contrite?

He actually thinks investment bankers are overpaid. Read this.

Tuesday, February 09, 2010

The geek who made Avatar possible

No, it's not James Cameron, "King of the world", but this man you never heard of in this article here.

Monday, February 08, 2010

What is the market price of Democracy?

It is sad to note how the weight of money is affecting democratic outcomes.

Here is a report of how Wall Street is now throwing its weight around, as if it had not done enough of late:

..."If the Democratic Party has a stronghold on Wall Street, it is JPMorgan Chase.

Its chief executive, Jamie Dimon, is a friend of President Obama’s from Chicago, a frequent White House guest and a big Democratic donor. Its vice chairman, William M. Daley, a former Clinton administration cabinet official and Obama transition adviser, comes from Chicago’s Democratic dynasty.

But this year Chase’s political action committee is sending the Democrats a pointed message. While it has contributed to some individual Democrats and state organizations, it has rebuffed solicitations from the national Democratic House and Senate campaign committees. Instead, it gave $30,000 to their Republican counterparts"...

Source: NY Times, February 08, 2010

The message is clear. If the Democratic President, Obama, intends to get tough with Wall Street, watch out, we the Wall Street will vote for your political opponents with our money.

It is a sad fact of life that it costs a fortune to run a national campaign. Any candidate with national aspirations has to cozy up to the monied class. Wall Street has the single largest concentration of wealth in USA now.

So, politicians are to blame, solely?

Yesterday, I relayed a poll showing most Americans, Republicans and Democrats, blame politicians for excessive spending. I said politicians want to spend because such spending benefits someone or some organizations in their own home state

So, my question to those voters who blame politicians is this: why do you keep voting for big spenders?

Here is a living example of how spending became excessive with the voters essentially wanting the cake and eating it too!

..."Last week, after nine months, the Senate finally approved Martha Johnson to head the General Services Administration, which runs government buildings and purchases supplies. It’s an essentially nonpolitical position, and nobody questioned Ms. Johnson’s qualifications: she was approved by a vote of 94 to 2. But Senator Christopher Bond, Republican of Missouri, had put a “hold” on her appointment to pressure the government into approving a building project in Kansas City.

This dubious achievement may have inspired Senator Richard Shelby, Republican of Alabama. In any case, Mr. Shelby has now placed a hold on all outstanding Obama administration nominations — about 70 high-level government positions — until his state gets a tanker contract and a counterterrorism center"...

Source: NY Times here.

Voters want to see the Federal Government spend money in their own state, obviously. They reward their Congressional and Senate representatives when they bring back the "pork" benefiting their own local economies. In reality only the contractors and real estate folks will benefit from new constructions.

However, the same voters do not want to follow their own logic. This very same logic is on the minds of voters in all other states who want to see the Federal Government spend more money in their states.

Classic conflict between what is good for one individual is not necessarily good for the whole.

You may be cynical and call this Democracy for Sale. But the real question is why don't the majority voters who do not benefit from "pork" vote the bastards out? Instead they prefer to blame "politicians" who are what they are only because they got voted in by the same complainers!!!

I have no answer. Do you?

Sunday, February 07, 2010

What are American taxpayers thinking?

Latest poll (read here) has some interesting and revealing statistics about what Americans are thinking.

Overwhelming numbers (83%) don't mind paying taxes but believe politicians unwilling to cut spending. Over 91% of Americans believe politicians are responsible for excessive spending. Only 11% believe government spends money wisely.

Yet, politicians pass bills to spend money because they are effectively pressured by parts of their constituencies to spend that money. Those who successfully lobby their representatives in the Congress are among the voters.

What is so obviously clear is the Congress that spends money is largely influenced by a relatively small part of the population who have the means to lobby and to make politicians sign into law bills the interested parties desire.

Therefore we see the discrepancy between what most voters think is the fault of the politicians and whom the politicians really listen to -- the powerful lobbies representing serious economic interests.

Voters should not blame politicians. They should vote for those poorly financed in their campaign who want to institute "change you can believe" -- like Obama! Ha!

Friday, February 05, 2010

Goldman Sachs the un-fall-able?

One would have thought the issue of whether US bailout saved Goldman Sachs from collapse had long been answered in the affirmative. But no, the official position at that august Wall Street firm is still Nyet. Nein. Non. No.

..." Gerry Corrigan, a senior executive at Goldman and former head of the New York Fed, suggested that Goldman Sachs has an impeccable approach to risk management and seemed to imply that the firm was not in trouble in fall 2008. When pressed on why Goldman requested and was granted a banking license – and access to the Fed’s discount window – in September 2008, he fell back slightly, “There is no question whatsoever that when you look at totality of the steps that were taken by central banks and government, particularly in 2008, that Goldman Sachs was a beneficiary of this"...

Why is this so hard for Goldman to admit?"...
wrote Simon Johnson at MIT, former chief economist at the IMF.

Good question.


Wall Street Dominoes Falling?

World Headlines read:

!) BofA and ex-chiefs face fraud lawsuits

Source: FT here

2) Cuomo Sues Bank of America, Even as It Settles With S.E.C.


Note: Why did Ken Lewis, ex CEO of BofA, settle a $150 million penalty with SEC if the bank hadn't done anything wrong?

While the media continues to vent anger against executives, I am still waiting for those honorable men and women of the press to wake up to the fiduciary responsibility of the Bank of America's Board of Directors who had the ultimate responsibility to make sure the bank's senior executives were doing the right thing.

Funny none has been hauled out to public scrutiny. Not at B of A, not at Goldman Sachs. Not at anywhere. Strange.

Global Warning, a figment of imagination?

Why Is Princeton so Rich?

Harvard may have the world's largest endowment, despite its 30% or more drop in its portfolio value, Princeton still has the highest endowment per student and the 4th largest in the world.

How did Princeton do it? It is a tiny university with under 8000 students in total compared to nearly 20,000 at Harvard and over 12000 at Yale?

Well, the legend is that the Admissions Office looks for brains and looks in addition to other criteria such as whether they are monied "legacy" kids whose parents and their parents have always attended Princeton.

Princeton's T.L.C. machinery is by any standard, especially by how other colleges discharge their duty of "in loco parentis" is only "deficient" against a $1500 a night Riokan in Kyoto where attendants serve their customers on hands and knees, making sure their boarders would experience a life-changing sejour at the centuries old "onsen" .

Princetonians, not exactly a low IQ crowd, despite obligatory grumbling about food and unresponsive Administration while at college -- like all undergrads anywhere -- would leave college knowing they had been spoiled rotten. They know in their heart of hearts they had been pampered at an intensity not since their infant days of suckling on their wet nurses' supple breasts.

One mother of a lovely Princeton co-ed told me in all seriousness that she "knew" for a fact that Princeton looked out for looks among its pool of applications for it was the unspoken policy there to encourage mating among the students. That was when her daughter was just a freshman. I thought it was a barely subtle comment by a proud mother of her daughter's good looks.

Fast forward 10 years she is marrying her classmate this Fall. I just received the invitation. It will be a cast of thousands at one of the poshest locations in NYC. Her future husband: a hedge fund manager -- of course.

What's the alleged reason behind getting good looking students? Well, elementary. First the presumption that Princeton graduates will do well financially -- a simple fact of life.

So, if students marry one another at a high percentage, then the Princeton Development Office needs only to make one phone solicitation to bag two checks, one from the wife, the other from the husband, 2 happy alumni.

How true is this folklore?

Don't take my word. This is straight from the horse's mouth:

..."Early in her undergraduate days at Princeton, Allison Slater Tate ’96 heard the rumor — the one that says 75 percent of Princeton alumni marry other Princeton alumni. Or was it 50? Or 90? No one (including University and Alumni Association officials) really knows.

Whatever the figure, as she went into her senior year, Tate didn’t think she would be another statistic. But she didn’t refrain from sharing the marriage rumor with prospective students as she led them through Prospect Garden on an Orange Key tour...

..."Dating at Princeton was so abysmal,” Tate says. “I’d heard the rumor, but I didn’t see it happening for me.”

That was before she met Trey Tate ’96 at the end of their senior year

...For the Tates, the 75 percent statistic isn’t hard to believe. Among their closest friends are married couples Paul Hanson ’96 and Oona Miller Hanson ’97, Ben Pecht ’96 and Banks Staples Pecht ’96, Tom Flummerfelt ’96 and Dahlia Fetouh ’96, Jennifer Hubbard ’96 and Frank Winslow ’96, and Dave Digilio ’96 and Kim Sladkin Digilio ’95. Among the Sladkin siblings, the number climbs to 100 percent — Kim’s two sisters, Colleen ’91 and Cheryl ’93, also married Princeton alumni..."


OK, you may ask, legitimately: Are these kids on average really better looking than those at its peers colleges? Yale? Brown- which recently hit the headlines having bagged Emma Watson, the Harry Porter girl? The highest paid actress in 2009, by the way?

What is the evidence?

Well, don't just believe what you read. Come Spring, spend a day walking around the beautiful campus. Pedestrian friendly. Not big. Decide for yourself whether by visual inspection Princeton guys and gals have a higher incidence of "looks" than other campuses before you choose the college of your dream to attend.

The Giving Rate among Princeton Alumni at nearly 70% is the highest in the nation, way way ahead of Harvard and Yale, both below 50%.

Princeton has shown the way to boost its endowment, why didn't the others follow? Just asking.

Thursday, February 04, 2010

Showtime for Obama

President Obama, shaken by the Massachusetts upset in which the most liberal "blue" state in the union sending an unknown Republican to the Senate, is now taking a number of "I am a new man" steps across the board.

He finally is taking a strong stand in facing down Wall Street promising very tough regulatory measures. He obviously didn't appreciate sufficiently that his voters across the nation had been terribly angry at his velvet glove treatment of Wall Street allowing them to use zero cost, Federal guaranteed money to play the market and won big and then paying themselves silly in bonuses.

Who can blame them if Obama and his Wall Street friendly cabinet hadn't put in conditions before handing out those blank checks? You can accuse Wall Street of political insensitivity, which by the way is not illegal, but you can't blame them for driving a container truck through those loopholes the Obama presidency has provided for them.

You can however definitely blame Team Obama for ignoring the nearly ear-spliting protests by folks across the land that they had first dropped the ball in not putting in appropriate controls and then turning a deaf ear to those who were telling them they should do so quickly before the billions got lost in the shuffle. Now, the billions had all been legitimately "laundered" as if were so long after the final bailout checks had been mailed.

Better late than never you say? So, now it is High Noon on Wall Street? Can Obama really finish this game of chicken? Gary Cooper managed to shoot the villain in the movie. What can Obama really do now?

Paul Volcker, long ostracized by Obama's team, is now back in vogue. Is it too late? Wall Street folks are already telling the press this: you can hand down Volcker rules Friday, by Monday we will figure out how to get around them.

The mainland Chinese working under a heavy Visible Hand for decades have a famous saying: Policies from top, we have counter policies from bottom. Wall Street and mainland Chinese have lots in common.

Now, Obama is even playing tough with China on seemingly a full court press.

Having rejected Dalai Lama's request to visit before Obama's China trip, a first presidential rejection ever, he is now making a widely publicized point of seeing him. As if deliberately to pick a bigger fight he is loudly upgrading Taiwan's weapon system and has sent Hilary Clinton to wage a PR war against Chinese hackers. Of course they are official hackers to have access to powerful computers. China has high quality IT institutes to groom hackers. These institutes are directly under the military or national security departments.

Obama had shown weakness by first acceding to China's pressure not to see the Dalai Lama. He should have stood up to them in the first place.

The China US relationship is importantly influenced by the indebtedness of the US to China, the largest single lender. Obama should have done what any large debtor should do -- since now I owe you, the bank, so much, you need me more than I need you. So, I dare you to "punish" me. Ha. Instead, Tim Geithner went to Peking University and promised the students (!) they could have faith in US credit. The only response, and a proper one, was laughter by the students. The fact that Obama continues to place stock with that incompetent man is mindboggling.

Re hacking.

The proper response is to keep quiet and to wage a powerful counter hacking war. Here, the US has been playing catch up for decades. A famous Newsweek cover story a few years back documented how Chinese hackers had infiltrated the Pentagon servers for years and had been downloading files for at least a decade if not more, like you and I having access to George Soros's private ATM machine. It was a painful article to read because it showed how clueless the brass had been at the Pentagon.

If cyperspace security is so important to national security, then Washington should mobilize Silicon Valley to stand firm to commercial blackmail. Those firms have been selling just about every security related hard and software to China hurrying the country to become a top IT country at accelerated speed.

So far the profit motive of Californian IT companies has been dismally shameful. They would rather hang onto this market even if that meant cutting away from their own country's national security.

The question remains. Can Obama/Clinton playing rough with China leveraging off Google's problem lead to any where or is it yet another path to nowhere.

There are consequences of doing too much of "nowhere" exercises. If one day your enemies figured out your pattern of behavior, you will lose credibility in future policy initiatives, and pretty soon, backed into a corner, both sides can easily miscalculate with disastrous consequences.

Oh, just to make your day, you must be aware by reading today's headlines that US troops are now directly involved in open military clashes with Al Queda and their sympathizers in Pakistan.

The US is now fighting in 3 fronts: Iraq, Afghanistan and in Pakistan. The war is spreading. Have a good day.

Tuesday, February 02, 2010

The Fall of Pax Americana

The American "empire", yes I know America does not believe it ever was though it has always behaved like one since WWII, has to be the shortest on record. It has set a record in being the world's shortest superpower.

How did it get that way is the stuff of volumes. Throughout history, the demise of an empire was always preceded by the degradation of the nation's balance sheets.

In America's case the decay followed a familiar pattern of past empires: expensive overseas wars got too large relative to the productive capacity of the country.

Like fallen empires in the past, USA is now deeply in debt and has been for sometime.

Now, it is even in debt to its principal strategic competitor: China, a country ruled sternly by a communist party that proudly puts into its Constitution the guiding principles of Marx, Lenin and Mao.

You don't need an economics PhD from MIT to know that just as in a person, a nation cannot keep on borrowing to finance its many needs, especially capital-destroying wars, without having one day to pay for it one way or another. The de-leveraging process will be long and painful. When it happens to an empire, well, the empire will be no more.

The British Empire upon which the sun once upon a time never set collapsed after WWII because it had exhausted its moral and financial resources: morally because de-colonization became the dominant value of civilized nations under the United Nations charter heralding in a new world order.

Financially the "motherland" could no longer keep its far flung empire under its Sterling standards that was the glue of its global empire. It was borrowing mainly from the United States.

When the UK and France were trying to re establish their Middle East influence in their clumsy attempt to invade Egypt to recapture the Suez Canal, President Eisenhower, the largest creditor to the UK and France just picked up the phone and told these two former imperial powers to stop it. The two debtors promptly obliged.

The creditor in one stroke ended forever the British Empire. Ho Chi Minh finished off the French empire once and for all in Dien Bien Phu in Vietnam.

We are witnessing a similar, though not exactly identical process, unfolding right in front of us.

I recently posted a hart showing how US debt/GDP, one indicator of a country's leverage, has been going up like a rocket.

The geopolitical implications, too, are clear. You certainly don't need a PhD in politics from Harvard to understand them.

Here is a telling excerpt from today's NY Times:

..."as Mr. Obama’s chief economic adviser, Lawrence H. Summers, used to ask before he entered government a year ago, “How long can the world’s biggest borrower remain the world’s biggest power?”

The Chinese leadership, which is lending much of the money to finance the American government’s spending, and which asked pointed questions about Mr. Obama’s budget when members visited Washington last summer, says it thinks the long-term answer to Mr. Summers’s question is self-evident. The Europeans will also tell you that this is a big worry about the next decade"...

The British didn't want to tell itself its imperial days were over until the new empire, America, led by Dwight Eisenhower, told London to get out of the Middle East. How come his words counted so much? Elementary. UK was borrowing to maintain its military strengths abroad. America was its largest supplier of credit.

The Chinese communists, men from violent struggles who understand only too well that power comes from the gun barrel and it takes real not borrowed money to produce guns (not to mention butter) know America is well on its way to the exit door.

The Obama budget, as is clear from this report here, is a confirmation of the ending of Pax Americana.

The country, barring a miracle, has little wriggle room in its national budget for the next decade because the deficits are going to remain in the stratosphere.

There is a way to reduce debt. Higher taxes, higher savings, less private consumption, less government spending, domestic or overseas.

America can, like a phoenix, rise again, in theory. It's been pointed out by any number of thoughtful analysts that America has to do some serious "nation building" at home as a prerequisite to regain its superpower status, one that until recently had not been called into question.

Unless you can rebuild your own nation, you just don't have the resources to do much abroad. Build up your productive capacity, strengthen your national balance sheet, and then, we can discuss once again your global "responsibility" -- one day.

Monday, February 01, 2010

Obama is in serious trouble.

At the beginning of 2009 nearly 70% of Americans approved of Obama with 13% disapprove. It's been downhill ever since. Now the country is split down the middle, 48% pro, 46% against.

See the chart here and note the trend.

Sunday, January 31, 2010

A Nation in Debt

Obama did an about-turn in spending after the Massachusetts voters sent a Republican to fill Ted Kennedy's seat. Exit polls show unease about the way Obama was spending money that would increase the role of the government in the economy and at the same time vastly increase the nation's debt. It was an ambiguous message since voters were also worried about unemployment that remains stubbornly high.

So Obama is now freezing his spending in some areas while maintaining the growth in others:

..."Exempted from the cuts, however, are national security, veterans programs, Medicare, Medicaid and Social Security — the most expensive and fastest-growing areas of the budget. By filling in the details behind the freeze, the administration hopes to show critics that it used a scalpel rather than an ax to keep spending for the targeted domestic agencies to $447 billion annually through 2013, saving $10 billion in the coming fiscal year"...

Source: NY Times

Anyone following the fiscal conditions of the US would or should be shaking his/her head at this "scalpel" exercise which is purely window dressing.

Why? Because the larger picture shows fine tuning the spending will not affect meaningfully the overall indebtedness of the nation.

To seriously de-leverage the nation would have to mean substantial cuts (by an axe, not scalpel) and higher taxes. Increasing taxes in the minds of US politicians has always been considered an act of political suicide.

So much so even when the nation went to war, the politicians refused to ask the nation to make an economic sacrifice. It is a curious mindset since the same leaders are asking their young people, the nation's future, to make the ultimate sacrifice by going to war to die for their country.

The economic consequence of war without raising taxes necessarily results in high national debt. It happened during the Vietnam war because LBJ wanted guns and his Great Society Programs fully funded -- by debt. This continued under Richard Nixon.

The 8 years of supposedly fiscally conservative Republican government under George Bush went over the fiscal cliff influenced by crackpot ideologue economists such as Arthur Laffer, among others. Bush believed in fighting wars (Iraq and Afghanistan) and cutting taxes at the same time. In fact most tax benefits accrued only to the very rich, his financial base of his political supporters.

By the time this Obama went into office, the indebtedness of USA was already off the chart:

But the government was not the only guilty party. Why? Take a look at household debt and national savings. The chart below marks clearly how the mentality of "instant gratification" of the American consumers has been a factor in the nation's high indebtedness.

Put simply, the consumers apparently believe in having a great life style NOW even if that meant going into debt. Put it another way, the American people have been living a great life even though they could not afford it -- without hocking their children's future to the bankers.

This larger picture paints a disturbing narrative.

Politicians are quick in sending citizens to battlefields to die without the honesty to ask their fellow citizens to pay for the wars. Even the "Yes We can" Obama bragged about his several tax cuts in his State of Union speech while Iraq and Afghanistan continue to drain the country's coffers. Perhaps we should change his slogan to "No, You Can't".

Citizens are so used to living the good life as the "pursuit of happiness" was so fixated in their minds as a God given right enshrined in the US Declaration of Independence that "saving for the raining days" as an idea has become Un-American!

But do the American people really believe that or perhaps they had gotten so lied to by their leaders that you can have both guns and butters -- followed by inevitable inflation cutting down their debt in real terms -- that they decided to go along for the ride?

During WWII the people in America, indeed everywhere, understood instinctively the need to tighten belt to finance that war. Why didn't their leaders after WWII decide to behave as if voters were self-centered, stupid and selfish who wouldn't give up some comfort to fight for a national cause?

Is it really the profligate US consumer the root of the fiscal problem or cowardly politicians who couldn't inspire the people to make the fiscal sacrifice. It is rather a small price to pay for "national security" if indeed the foreign wars were essential to that security.

Many would argue none of the wars after 1945 were essential. David Halberstam's heart wrenching account of the war in Korea "The Coldest Winter" showed how the ego and the madness of MacArthur's desire to take war to China that created the larger Korean conflict.

The Vietnam War was essential to national security? Even Robert (Mac the Knife) McNamara admitted it was unnecessary. Again Halberstam's "Best and the Brightest" is a classic in showing the hubris of the ruling elite. That war was unpopular. Neither LBJ nor Nixon had the spine to ask for a tax increase.

The Iraq invasion under George Bush because Saddam Hussein "possessed" weapons of mass destruction that would destroy Manhattan turned out to be just as ridiculous as the late Secretary of State Dean Rusk telling the Senate back then: "We are in Vietnam, Senators, because we don't want to fight one day in Los Angeles a billion Red Chinese armed with nuclear weapons".

OK, even if that might have been a possibility, and not a figment of over ripe imagination, you should have raised taxes to finance that war.

How ironic the billion Red Chinese are now the single largest creditor to the profligate American ruling elite, mostly educated at those universities elite families around the world want to send their own children to school? You know where they are. The three most prominent ones are located in Cambridge, Mass., New Haven and New Jersey.

The 20 Century was American.

Unless the American ruling elite stops its propensity to wage wars without asking for necessary but relatively small financial sacrifice from the people whose children must bear the life-n-death burden of actually fighting the country's supposed mortal enemies, then the 21st century will surely by default belong to someone else who has a stronger balance sheet.

That would be a result more of the US behaving fiscally irresponsibly than the other country being smarter, more creative, freer than the US.

The charts here contain a serious story of "national security". 

Saturday, January 30, 2010

Economic Recovery in the US?

Everybody, including Obama in his State of Union speech, talked about the biggest "recovery" since 2003 because during the last quarter in 2009 real GDP grew by 5.7%, higher than expected. Time to start pouring champagne? Not so fast. Devil is in the details, of course.

According to the Chicago Federal Reserve National Activity Index which tracks 85 economic indicators lumped into four categories: production and income (P&I); employment, unemployment, and hours (EU&H); personal consumption and housing (C&H); and sales, orders, and inventories (SO&I). The graph below explains how these categories performed in the second half of 2009. courtesy of Mish's Global Economic Trend Analysis, the growth was more inventory replenishment than recovery across the board.

Here are the chart and the numbers:

the chart suggests a big rebound last summer, but right now economy has hit a wall.

The table with numbers are downright discouraging. 4th quarter shows no meaningful growth whatsoever in the 4 categories nor in the overall index CFNAI, the Chicago Fed National Activity Index:

Eventually we are going to get out of this recession nicely...but not just yet.

Friday, January 29, 2010

Hope in Afghanisan

If President Karzai is serious about his intention to work out a compromise with the Taliban, then there is hope that the war could end much more nicely than I had feared. Reaching out to the Taiban is the only way out of the quagmire. Devil remains in the details of a possible truce. That truce has to include the Taliban as part of a governing coalition with meaningful power. Here is the latest news:

..."Afghanistan’s president declared Thursday that reaching out to the Taliban’s leaders should be a centerpiece of efforts to end the eight-year-old war there, setting in motion a delicate diplomatic process that will carry great risks for both Afghanistan and the United States.

Speaking to an international conference here on Afghanistan, President Hamid Karzai said “reconciliation” was one of his top priorities. “We must reach out to all of our countrymen, especially our disenchanted brothers,” he said...

Source: NY Times

Wednesday, January 27, 2010

Obama and Goldman Sachs

Even Tom Friedman, the "World is Flat" author who normally is only interested in global issues, is pissed off at Wall Street, in particular, Goldman Sachs. However, if you read between the lines, he was really pissed off at Obama who had not put in appropriate preconditions to save those guys before billions were being handed to the "too big to fail" fellows:

...."President Obama is so much better when he takes a heated, knotty issue, like civil rights or banking reform, and talks to the country like adults. He is so much better at making us smarter than angrier. Going to war with the banks for a quick political sugar high after an electoral loss will just work against him and us. It will spook the banks into lending even less and slow the recovery even more.

That said, part of me can’t blame the president. The behavior of some leading Wall Street banks, particularly Goldman Sachs, has been utterly selfish. U.S. taxpayers saved Goldman by saving one of its big counterparties, A.I.G. By any fair calculation, the U.S. Treasury should own a slice of Goldman today.....

The above excerpt is from his column today here.

Tim Geithner, AIG, Goldman Sachs

Tim Geithner's inconsistent narrative on why AIG was allowed to pay off 100% to some of its creditors including prominently Goldman Sachs is getting more and more negative reaction across the nation.

Here is a very good line of enquiry on this issue, courtesy of a fellow blogger, Mish, on his Mish's Global Economic Trend Analysis. I can't say it better:

...'Please consider The Question Geithner Can’t Escape: Why Pay Off AIG’s Partners?

The latest political clamor over AIG, poised to combust next Wednesday at a House hearing on backdoor payments to banks that made risky deals with the company, centers on the Federal Reserve’s effort to conceal details of those payments. But senior officials, including Treasury Secretary Timothy Geithner, have so far evaded a key question: Why were AIG’s trading partners fully paid with taxpayer money instead of being told to take a loss?

“They chose to pay some people off entirely,” Bill Black, an economics and law professor at the University of Missouri and a leading critic of the government’s bailout managers, said in an interview. “They have never given a coherent explanation of why those particular folks. Under their own logic, there was no reason to pay off these parties at 100 cents on the dollar.”

In November, bailout inspector general Neil Barofsky quoted Geithner as stating that AIG’s bank counterparties — including Goldman Sachs, Merrill Lynch and 10 foreign firms — were not at direct risk if the troubled company defaulted on its debts. “The direct effects of that failure would not have been particularly significant,” Geithner reaffirmed last month during testimony on Capitol Hill.

In May, however, Geithner suggested that AIG could not have negotiated lower payments to its trading partners without endangering the health of the whole financial system.

“We have no option now to selectively diminish the value of those claims without taking risks that you would have a default,” he told Sen. Chris Dodd (D-Conn.). Rep. Jo Ann Emerson (R-Mo.) was told that “you can’t selectively allow the institutions to default on particular types of creditors without risk that the whole thing comes unwound.”

So which explanation is true: Were AIG’s creditors hedged against the risk of a default — as Goldman has argued — or not? And if the banks had already mitigated the risk of losing their deals with AIG, why didn’t that allow Geithner’s Fed to negotiate a cut in repayments?"....

I have been saying for some time that Tim Geithner has to be fired. I very much that would happen. And that's one reason why Obama's presidency is in deep trouble for it seems the President still does not understand how unfair and shady his entire Wall Street bailout package had been executed.

Obama's Credibility Gap

Bob Herbert's column on this subject is excellent in capturing what's wrong with Obama's presidency. Read it here.

Readers' comments following the article show how much Obama has alienated his base. Readers of the NY Times are overwhelmingly Democrats.

In the following link you see how much Obama has even alienated the high profile public intellectuals who have been supporting him before he became president. Read that here and follow the links in it to get the full picture of those writings.

Miracles do happen in politics in that unpredictable events occur, such as the political earthquake in Massachusetts no one foresaw until just a few days before it happened.

Obama needs a miracle to save his presidency. His latest spending freeze proposal is an act of panic as many in the States correctly see. And dismissed as a PR exercise.

He is trying to do a "Clintonesque" triangulation by moving towards the Republic positions: spend less, cut taxes, etc. Well, we know how that ended with the Bush Administration: ballooning deficits among others.

Obama has failed utterly to lead. He failed to convince the nation why he had to increase spending to save the country. Instead he let Geithner/Summers go to the talk shows without appreciating the fact that these two have long become "hate figures" to the nation.

He failed utterly to allocate Federal bailout money fairly by focusing on saving banks "too big to fail" allowing a few Wall Street firms which the government had saved from collapse handing out on a silver platter to the smart traders at Goldman and JPMorganChase to make huge trading profits using risk free and zero cost taxpayers money.

He should have long ago asked for resignations of Wall Street tycoons BEFORE his government was handing out blank checks. He should have told them they were not victims of the bubble bursting but had been accessories to creating that firestorm. Instead, he bought the Wall Street's ridiculous argument that without them as copilots the economy would die.

He should have temporarily taken over those firms as he had done so with AIG, Freddy and Fanny with a team of good administrators to clean house. Instead he recruited the same tiresome insiders to run those firms.

Any wonder why voters in Massachusetts sent him a message telling him he was doing a lousy job by electing, for heavens sake, an unknown who has racist inclinations?

Yet Obama is still saying Geithner/Summers/Bernanke are doing a fine job.

Barring a miracle, Obama's presidency is fast becoming a lame duck and will be voted out before you know it.

Sad. So much for "change you can believe in".