Sunday, September 27, 2009

Too Big to Fail? Too Large to Exist.

A year after the fall of Lehman Brothers and the beginning of the
current Economic Crisis, we are still at square one with respect
to reforming the "Too Big To Fail" banks.

Thanks to forced mergers and acquisitions
( Bank of America /Merrill Lynch, Wells Fargo/ Wachovia,
and JP Morgan Chase/ Washington Mutual) the degree
of concentration of the nation's largest banks is
greater than before the crisis.

Neil Barofsky, the TARP administrator, has said that
due to concentration, " we may be in a far more
dangerous situation today than we were a year ago."

And Mark Zandi , the Chief Economist of Moody's , the
securities rating firm, says "There is an oligopoly of
banks - and the oligopoly has tightened".

And Thomas Hoening, the President of the Federal Reserve
Bank of Kansas City, has said:

" If we hesitate to make needed changes, we will
perpetuate an oligarchy of financial interests that will fail
to serve the best interests of business, the consumer, and
the U.S. economy .."

Oligopoly? Think monopoly control exercised by a few.
And Oligarchy? Think of a political monopoly exercised
by a few.

And when the oligopolists are also the oligarchs, that's
a recipe for disaster.

But all the signs are there. The Oligopolists have already
returned to business as usual - running the Casino as
if nothing happened, and getting ready to pay record

And with Oligarchic control of the political and regulatory
system, they have nothing to fear from new regulation.

No restrictions on pay. No restrictions on leverage.
And unlimited access to the discount window or
another bailout if things go wrong. And neither
the Obama Administration nor any other
government is willing to take them on.

The recent G-20 summit notwithstanding -
the oligarchs have almost nothing to fear.

After all, they own almost all of these governments.

But the people may have the last laugh. Because the
next time there's a Lehman Brothers situation, there
should be NO bailout.

Let them fail. Pay off the depositors and let the rest go.

In my opinion, only another disaster will force reform.

The lesson of Lehman Brothers has not been learned.

95 and Counting

This is becoming so common it hardly raises eyebrows any longer.

On Friday, the FDIC closed the 95th local bank to fail in the current economic crisis.

According to Saturday's New York Times:

Atlanta-based Georgian Bank was closed by regulators on Friday, marking the 95th U.S. bank failure of the year as the credit crunch continues claiming victims.

Georgian Bank had $2 billion in assets and $2 billion in deposits as of July 24, according to the Federal Deposit Insurance Corp.

Columbia, S.C.-based First Citizens Bank and Trust Company Inc. has agreed to assume the failed bank's deposits, the FDIC said in a statement.

The FDIC estimated that the cost of the bank's failure to the federal deposit insurance fund will be $892 million.

Georgian Bank was also the second-largest local bank in the
Metro Atlanta area and the 26th local bank to fail in the
State of Georgia since January.

The trend is ominous. And equally disturbing is the reason
for all of these failures.
The banks are largely failing because of
their exposure to Commercial Real Estate.

Commercial Real Estate? Wait a minute. Did these guys lose
their minds and start investing in New York office buildings
and California shopping malls?

Not quite. It's a little bit closer to home than that.

The failed local banks made loans to the little guy - the local
developer of a strip center, or the the local builder of a small
condominium project.

And when "the economy" caught the little guys, the bank went
down with them.

And we can expect more of this. The FDIC's insurance fund - the
funds it relies on to seize, conserve, and sell off failed banks - is
down to $10.2 billion, its lowest level since 1982. And should the
present trend continue, the FDIC will require another $70 billion
by 2013.

It should be noted, though, that these figures do not
include the loan-loss reserves - $26.3 billion - set aside
to pay off depositors.

But this is troubling. Once the failed-bank count passes 100, we
will have experienced the largest number of failed local
institutions since the Savings and Loan Crisis of the late 1980's.
And there appears to be no end in sight.

In my opinion, the problem is not "Small Enough to Fail" but
"Too Small to Succeed".

These institutions can't "securitize" their loans - sell them off to
an investor. They don't have access to the Fed's discount window.
They didn't get TARP funds. There's no Troubled Asset Lending
Facility for their portfolio.

And that's a big reason for the credit crunch on Main Street.
While The "Too Big to Fail" institutions are back to business
as usual - running The Wall Street Casino, speculating for their
own account, paying big bonuses to traders and arbitrageurs -
their Main Street colleagues are not.

With a large "overhang" of problem loans - they can't make
new ones.

That means no credit for even the most credit-worthy local
merchant or consumer. And when you consider that Main Street
small business creates 80% of America's jobs, it's easy to see how
a problem with local banking can create a problem with
employment as well.

It's a problem that the Administration will have to address
sooner rather than later.

Stay tuned for developments.

Sunday, September 20, 2009

Committing Politics: Barack Obama and David Paterson.

A chill wind blew through the Governor's Mansion in Albany NY this week.

In what some observers view as a unprecedented move, President
Barack Obama has taken the very unusual step of asking Governor
David Paterson of New York,an African-American Democrat, to step aside
from the upcoming 2010 New York Governor's race.

From today's New York Times:

" The move against a sitting Democratic governor represents
an extraordinary intervention into a state political race by the
President, given that Gov. Paterson is one of only two sitting
African-American governors in the nation.

" But President Obama' s team and other party leaders
have grown increasingly worried that the governor's
unpopularitycould drag down Democratic members of
Congress, as well as the Democratic-controlled legislature,
in next fall's elections "

It's also a very poorly-kept secret in both Albany and
Washington that
current New York Attorney General
Andrew Cuomo is both ambitious
and eager to parlay his
very high-profile prosecutorial campaign against

the Banksters into higher office.

It's also a fact that Mr. Cuomo is far better connected in
Washington than Governor Paterson. And Gov. Paterson's
relative lack of charisma and reputation for indecisiveness
doesn't help his cause either.

The almost comedic flap over Secretary of Sate Hilary Clinton's
New York Senate seat pretty much sealed Paterson's fate.

But Obama's intervention in state politics is unprecedented?

Oh, please.

First of all, a sitting President of either party is that Party's
de facto political chief. And selecting and evaluating candidates
for nationally significant elected office is one of a President's
most important political duties.

And the governorships of key states like New York and California
certainly qualify in that regard.

And if in the political opinion of the President and
his advisers, an incumbent has to go to make way for a
more attractive candidate, the unpleasant task of "firing" that
elected official falls to the President.

And it seems that that is exactly what has happened.

Now, in the normal course of things, if the "fired" elected
official is not being dismissed for scandal or wrongdoing,
another, less politically sensitive job will be quietly
arranged. No doubt such an offer is being prepared for
Paterson. If so, Paterson's "resistance" to stepping aside
is only pro forma - he'll no doubt take an Administration job,
say Assistant HUD Secretary, if offered.

Because the alternative would be politically unthinkable.

Without significant White House and national party backing,
Paterson would be a dead duck in a Gubernatorial race
against the Republican front-runner, Rudy Guiliani.

Major-state gubernatorial and Senate races are hugely expensive ;
and one of Paterson's admittedly major shortcomings is his lack of
skill at fund-raising.

Attorney General Cuomo, the son of former New York Governor
Mario Cuomo, is on the other hand well-connected nationally,
a prodigious fund-raiser , and charismatic and telegenic as well.

He's also taking a lot of heat off the Administration by going after
the banksters. Should he score a major conviction or guilty plea
before the election, he'll be a shoo-in for the Governor's mansion -
and he'll also earn the Administration's gratitude for doing something
they were reluctant to do in the first place.

Against all this, Paterson should realize he doesn't stand a chance.

I predict that after some ritual resistance, he'll
announce he won't run for Governor in 2010, endorse Cuomo,
and be rewarded for his loyalty with a job in Washington after
the election.

That's how politics is played at the highest levels.

And there's nothing wrong with this. Changing circumstances
sometimes mean a personnel change is necessary - in politics
as well as other areas of life.

And in this case, having the decision taken at the highest level
is entirely proper. Political management is an essential part
of a President's job - maybe the most essential part.

And Obama has played this one well.

The Power behind The Throne - the DPJ and Ichiro Ozawa

On August 30, the Asian political world was rocked by the unexpected landslide
electoral victory of the Democratic Party of Japan (DPJ).

Many observers worldwide were concerned about the DPJ's ability to
either form a cabinet or govern - it lacked ties to the all-powerful bureaucracy,
it had few connections to Japan's corporate and financial elites, and its
ranks were swollen with political newcomers.

Of its 308 deputies in the Lower House of the Diet, fully-two-thirds had
never held electoral office before. In many nations, this would be a recipe
for continuing instability. But not in Japan.

Instead, the DPJ has rolled out a credible, experienced cabinet in
double-quick time - to 71% public approval, according to Asahi Shimbun.
Moreover, the cabinet appears to have the right blend of experienced hands and
eager newcomers.

The credit for this auspicious start can be given to the DPJ's
Secretary-General - Japan's legendary "Shadow Shogun",
Ichiro Ozawa.

In American terms, Ozawa could best be described as Richard Nixon,
Lyndon Johnson, and Dick Cheney all rolled into one.

A 42- year veteran of Japanese electoral politics, Mr. Ozawa first
gained notoriety as the "enforcer" for LDP Prime Minister
Kakeui Tanaka in the late 60' and early 70's.

A devoted student of Niccolo Machiavelli - about whom he wrote a book -
he quickly realized that real power could most effectively be wielded
behind the scenes in Japan's unique one-party government. With a
passion for intrigue and a talent for both cultivating friends and
punishing enemies, Ozawa quickly rose in the LDP ranks.

But, as Machiavelli points out, when you make powerful friends,
you also make powerful enemies. And many senior LDP grandees
resented having to go hat in hand to the much-younger Mr. Ozawa
for this favor or that.

But Ozawa wasn't worried. Realizing that while it is pleasant to
be loved, it is more useful to be feared, he quietly increased
his power and influence while remaining out of the limelight.

But it all came to a head in the early 1990's, when the
leaders of the LDP decided to rid themselves of Ozawa
once and for all. The bursting of Japan's economic "bubble"
and continuing government paralysis meant that a scapegoat
had to be found - and the LDP decided to set Ozawa up as
the fall guy.

But they underestimated him. In a dramatic display of factional
discipline, Ozawa promptly led his followers out of the LDP altogether
to the tiny New Freedom Party, causing the LDP to fall from power
for the first time since 1955. But Ozawa's triumph was short-lived.

Without contacts and broad-based public support, The New Freedom
Party quickly folded. And sweeping back to power, The LDP promptly
rewrote the electoral rules to prevent such challenges again.

But Ozawa was unfazed,. In 1996, operating in the shadows
as usual, he helped get the fledgling DPJ off the ground. And, staying
behind the scenes, he declined formal office in the DPJ except for
short stints as general secretary during the campaigns of 2005 and 2008,
when the DPJ gained control of the Diet's Upper House.

But on August 30, Ozawa's sixteen-year campaign finally bore the results
he had been waiting for. A broadly-based DPJ swept to power, reflecting
public disgust with the LDP's "pork and influence-peddling as usual"

And Ozawa is firmly in command of the show this time. As DPJ
Secretary-General, he is in charge of raising and disbursing funds,
vetting cadidates for office, and along with Prime Minister Hatoyama,
making the final decisions on policy.

Plus, his experience is invaluable in mentoring a new generation of elected
officials. Ozawa will make sure that the new DPJ deputies get all the right
connections and meet all the right people. And with 140 personally-loyal
DPJ deputies in the Lower House (almost all of whom he personally groomed
and selected), he commands the largest political following of his career.

But the biggest reason for Ichiro Ozawa's success and endurance in power
isn't his belief in Machiavelli - it's his belief that elections should matter.
It's his belief that political parties need to present clear, well-defined policy
choices to an electorate. And, it's also his belief that new blood and new ideas
are essential for both political and national progress.

If Japan goes on to develop an enduring two-party system of government,
which to The Thinking Nationalist is the hallmark of political maturity,
it will owe a huge debt to the "Shadow Shogun".

Friday, September 18, 2009

Of Tires and Tariffs

President Barack Obama has just fired his first shot in the Trade Wars.

Acting upon a recommendation by the US International Trade Commission,
The President has imposed a three-year term of punitive tariffs on Chinese tire
imports - a 35% tariff beginning in January, 30% the year after that, and 25% in 2012.

The action is a response to a tripling of tire imports from China between
2004 and 2008, and a quadrupling of tire imports overall in the same period.

The complaint was originally brought by the United Steelworkers
(which represents unionized tire workers) in 2008, but the
Bush Administration twice declined to take any action.

China, as usual, was quick to respond - but instead of blasting the US action
across the pages of Xinhua, the response was confined to a relatively mild
press release from the Ministry of Commerce (you can read that release

In most instances, The Thinking Nationalist is in favor of Free Trade -
nations that trade with each other don't go to war against each other.

But, free trade also requires other conditions that don't necessarily
apply in today's world - that markets are perfectly competitive, that
exchange rates are not manipulated, that technology is not transferred
across borders, that there are no economies of scale, and that governments
don't subsidize or regulate imports or exports.

And exactly none of these conditions apply in today's global tire market.
Rather, the global tire market is characterized by a relatively small number
of producers, with enormous economies of scale, who compete in an imperfectly
competitive market that is manipulated by governments almost everywhere.

And almost none of these players are American. Firestone - at one time
an iconicAmerican tire brand - is now a wholly-owned subsidiary of Japan's
Bridgestone Tire, itself a pre-eminent global brand.

And B.F.Goodrich and Uniroyal, two other famous American tire brands,
are both product lines of Michelin, the world-renowned French manufacturer.
Continental Tire - an OEM supplier to Ford - is a German company.
Dunlop Tire, a major premium manufacturer, is of course, British.

And all of these companies manufacture around the world. Michelin alone
has plants in 40 countries - and Michelin plants in fifteen of those countries
export to the United States.

Of all the well-known players, only Goodyear remains principally American -
and almost all of its future growth and expansion is targeted overseas. The
last two plants it built were located in Mexico.

Given these facts - that the principal tire players in the US market are
both foreign-owned and located overseas in the first place, why should we
discriminate against China?

In my opinion, we shouldn't. Because what we would be doing is penalizing
China for competing too effectively in the United States against Japan, France,
and Germany. And the last time I checked, those countries weren't exactly
open to US exports of almost anything, let alone tires.

And this isn't even the whole story. China, which is eager to build up
a competitive domestic tire industry across all market segments, competes
in the US principally in the "value" portion of the market - the store brands
sold by discounters and warehouse clubs.

At the time the Chinese import "surge" began in 2004, China's share of the
US market overall was 5%, with a 17% share in the "value" segment. This
is hardly a threat to the major players in the "value" tire market - which
in order of market share, are South Korea, Mexico, China, Taiwan, and Brazil.
In 2004, China was in fifth place, but today it is still behind value market leader
South Korea and NAFTA-protected Mexico.

It should be noted that US manufacturers are largely absent from this market .
US name-branded value tires are mostly manufactured in Mexico. And those
US vendors affected by the tariff - such as Cooper Tire - will simply shift
production to Mexico or Korea , where Cooper also has plants and production

This doesn't sound to me like creating or saving US jobs. More like a political
payoff to a powerful union. If President Obama were serious about creating
or preserving a US tire industry, he would impose tariffs on all foreign
producers and require that foreign manufacturers manufacture a certain
percentage of their sales here.

But that might violate WTO rules. But WTO or not, quotas, tariff and
non-tariff barriers, and domestic production and employment requirements are
imposed on US companies moving overseas. And most US companies are
fine with that.

They aren't interested in developing true overseas markets. That takes time
and money, and hurts the short-term bottom line. But when the object is
just to remove the American worker from the "global" supply chain,
that's OK.

As long as the burden of competition is borne by the American worker and not
by transnational corporations, there's no WTO rule against that. Both foreign
governments and the shareholders will love you.

"Free Trade" shouldn't mean wholesale abandonment of an entire industry.
If we want a domestic tire industry with domestic manufacturers employing
US workers, we should say so - and act accordingly. In other words,
we should act the same way the Japanese, the Europeans, and the Chinese do,
by imposing tariffs, quotas, non-tariff barriers, and domestic employment
regulations. Without fear or favor towards any one nation.

Above all, we should not do what we are about to do - which is to take jobs
from Chinese workers and give them to Korean or Mexican workers.

I don't see how that creates jobs here. But maybe withdrawing from NAFTA or
the WTO might.

That would be change we could believe in.

Sunday, September 13, 2009

Norman Borlaug: The Man Who Fed The World

Dr. Norman Borlaug, world-renowned agronomist and winner of the
1970 Nobel Peace Prize
, passed away in Dallas Saturday at the age of 95.

More than any other man in history, his work enabled Third World countries
such as Mexico, India, and Pakistan to finally achieve self-sufficiency in food
grains, achieving what many observers called "The Green Revolution".

The Green Revolution not only freed many poor nations from the eternal
specter of famine, it also enabled them to take the first steps on the road
to industrialization, becoming not just self-sufficient in food but in other
products as well.

In the words of his biographer Leon Hesser, he was "The Man Who Fed The World".

As is often the case with men who make a difference, he sprang from
the humblest of beginnings. Born into a tiny farming community in
Northeast Iowa, he attended a proverbial one-room schoolhouse
until high school. Working on the family farm as a boy, he became curious
as to why certain varieties of crops fared better than others under
different conditions.

Encouraged by his relatives and teachers to get a formal education,
he enrolled at the University of Minnesota, graduating in 1937 with
a Ph.d. in Plant Pathology.

Stints as an agricultural extension agent and a biochemist for Dupont led to
the fellowship at the Rockefeller Foundation that would change the course of
Agricultural History.

Drought and war-induced shortages had led to famine in Mexico.
Tasked to assist the Mexican Government in alleviating the situation, the
Foundation sent young Dr. Borlaug and his team to investigate.

What they found was discouraging. Drought and disease had so ravaged
Mexican wheat and corn crops that the farmers could barely feed themselves,
let alone the rest of the population. Infrastructure was poor, and commercial
fertilizer almost non-existent.

Even so, Dr. Borlaug and his team set immediately to work.

The first problem that had to be overcome was to combat "rust",a
fungal infection. By crossing native Mexican wheat strains with rust-resistant
varieties from the United States, Dr. Borlaug's efforts to boost yields began to
gradually show results.

His next step was to adapt different varieties of wheat and
corn for different conditions; temperature, altitude, length of day
and growing season. Poor infrastructure meant that food crops
had to be grown in as many different areas as possible. Spreading
out the work geographically also meant that adaptations that succeeded
in one place might be quickly tried elsewhere.

By the early 1950's, his Mexican work had consistently doubled grain harvests.
But, the improved wheat strains weren't without problems. Improved yields now
meant that the plant heads were too heavy for their stalks, which made them
keel over and die. Plus, they required heavy irrigation and fertilization - scarce
commodities in a poor country. So, Borlaug came up with the idea of further
crossing his new varieties with "dwarf" wheat - which had firmer stalks
and required less irrigation and fertilizer.

This was the key innovation that made him famous.

By 1960, Dr. Borlaug's Mexican work had come to the attention of
India and Pakistan. Taking his Mexico-developed methods to Asia,
within five years he had made India virtually self-sufficient in cereals.
Turning his attention next to rice, he found that many of his techniques
and methods with wheat also worked with rice cultivation. China in
particular was quick to adopt his teaching. Even before the normalization
of relations between the US and China, Dr. Borlaug was in China, teaching
his methods and training local agronomists.

But he didn't quit there. As a Professor of Agronomy at Texas A&M
University, he was more likely to be found in a Third World country
researching and teaching than in College Station.
He was doing field work in rural Mexico, following up on progress,
when word reached him he had won the Nobel Prize.

And he continued to work right up until his death, focusing on farmer-friendly
policy recommendations for poverty-stricken nations in Africa and Latin America.

In the words of former President Jimmy Carter:

" Norman Borlaug's scientific achievements not only saved hundreds
of millions of lives but made him one of the 100 most influential men of
the twentieth century".

And many of the other developments of our time - the rise of China
and India as industrial and scientific powers, the rise of Brazil as a
world leader in grain production, and the banishment of famine in many
corners of the globe would not have been possible but for the work of this
humble Son of Iowa.

Norman Borlaug not only helped Feed the World - he also helped shape it.

Thursday, September 10, 2009

Of Dogs and Cats

Submitted by a Reader - enjoy. TTN.

Excerpts from a Dog's Diary...

8:00 am - Breakfast! My favorite thing!
9:30 am - A car ride! My favorite thing!
9:40 am - A walk in the park! My favorite thing!

10:30 am - Got rubbed and petted! My favorite thing!
12:00 PM - Lunch! My favorite thing!
1:00 PM - Played in the yard! My favorite thing!

3:00 PM - Wagged my tail! My favorite thing!
5:00 PM - Dinner! My favorite thing!
7:00 PM - Got to play ball! My favorite thing!
8:00 PM - Wow! Watched TV with my

people! My favorite thing!
11:00 PM - Sleeping on the bed! My favorite thing!

Excerpts from a Cat's Diary...

Day 983 of my captivity...

My captors continue to taunt me with bizarre little dangling objects. They dine lavishly on fresh meat, while the other inmates and I are fed hash or some sort of dry nuggets.

Although I make my contempt for the rations perfectly clear, I nevertheless must eat something in order to keep up my strength.

The only thing that keeps me going is my dream of escape. In an attempt to disgust them, I once again vomit on the carpet.

Today I decapitated a mouse and dropped its headless body at their feet. I had hoped this would strike fear into their hearts, since it clearly demonstrates what I am capable of. However, they merely made condescending comments about what a 'good little hunter' I am. Bastards.

There was some sort of assembly of their accomplices tonight. I was placed in solitary confinement for the duration of the event. However, I could hear the noises and smell the food. I overheard that my confinement was due to the power of 'allergies.' I must learn what this means and how to use it to my advantage.

Today I was almost successful in an attempt to assassinate one of my tormentors by weaving around his feet as he was walking. I must try this again tomorrow -- but at the top of the stairs.

I am convinced that the other prisoners here are flunkies and snitches. The dog receives special privileges. He is regularly released - and seems to be more than willing to return. He is obviously retarded.

The bird has got to be an informant. I observe him communicating with the guards regularly. I am certain that he reports my every move. My captors have arranged protective custody for him in an elevated cell, so he is safe. For now...

Tuesday, September 8, 2009

Herding Cats

Today, something a bit different.

The Thinking Nationalist has now been appointed the "leader" of a group of
five special individuals - the "Lineshack Lane Cats".

This aggregation of unique feline personalities came to us courtesy of
our neighbors who moved out suddenly two weeks ago, leaving their
former pets behind.

Now, pet abandonment is a growing problem in this troubled economy.
Unlike humans, pets can have a really hard time fending for themselves
once domesticated.

There's no unemployment insurance for laid-off pets.

As these feline characters had, in my opinion, done an excellent job
in keeping the whole neighborhood free of pests such as mice,
large insects and above all the pigeons, The Thinking Nationalist
decided to step in and help.

First, I found some old pie tins and bowls in the cupboard. They
would make nice food dishes. Next, I covered up the patio
work table with an old paint drop cloth, and put the old
patio chair cushions underneath, making a nice shelter
from the Las Vegas summer heat. Finally, it was off to the
grocery store for the all-important $3 bag of Purina Cat

I then put out the food and some water, and waited.

One by one, at first singly and then all at once, the
cats fell upon their new-found treasure, feeding as if
they hadn't eaten in weeks (which was probably the case).

As they gradually came to associate my presence with
food and water, they became both friendlier and noticeably
fatter, which led to some unusual occurrences.

When I would go out to the street to get in my car, two
of them would follow me, as if to make sure I too wasn't going to
"leave" them. So to provide some reassurance, I opened the door
and they promptly hopped in. As I happened to be going to the
grocery store I let them ride along, and when I came out with
the groceries they promptly found two special items - the Cat
Chow and some canned tuna, which they immediately pulled out
of the bag.

These aren't dumb cats. Not by any stretch of the imagination.

As the days went on, I gradually got to know some of them a little better.

Here's the lineup of the "crew":

First, the "Furball". The largest and most dominant cat, this jet-black
longhair is literally All Fur, which sticks so straight up and is so
unkempt it's hard to discern where his body ends and tail begins.

He resembles nothing so much as a giant black porcupine, with a
perfectly round face framing a huge pair of piercing, lemon-yellow eyes.

Next comes "Scrappy" - the smallest of all the cats, what this little
black-and white shorthair lacks in size he makes up for in sheer
chutzpah. He's the first one to the side door at feeding time,
yesterday elbowing Furball away with a huge swipe across the snout.

Scrappy has also taken upon himself the task of "Quarterdeck
Watch" - noticing when The Thinking Nationalist comes and goes,
and appropriating to himself a prime spot under the shaded table
for this purpose.

Next is "Stripey", a large and somewhat lethargic gray-green
striped tabby , easily the friendliest of all the cats. He'll follow
me out to the street to ride in the car, sometimes accompanied
by Scrappy. I'll sometimes let him ride with me to the store,
and he rides "shotgun" as well as any dog.

I just have to be careful I'm not buying any salmon or snapper
for our dinner.

Rounding out this "crew" of five are two part-timers.
First, the Siamese - a medium sized Seal Point with a bushy tail.
He's fortunate that he actually has a home - he lives across the street.

But, as he shares his home with a mean, short-tempered Chihuahua,
he spends a lot of time over here - usually under the table with
Scrappy. That there's also free food and water here doesn't hurt

Last but not least is "Junior" - a slender, orange shorthair tabby, with
a very loud voice. He also belongs to someone else, as he's been neutered
and declawed, and sometimes we don't see him for a few days. But when
he is here, the others have given him the job of notifying me when the food
bowls are empty - and he keeps yowling until I emerge at the patio door
with Cat Chow and water.

As of right now, we have a routine. Promptly at 6:30, either Junior or Scrappy
will come around to the bedroom window and either scratch the window
or meow. Reveille. Time to shake loose. Go to the kitchen, get the Cat chow
and water, start the coffee, serve breakfast. Usually, all five will be lined up at
the door.

After breakfast, the Furball, the Siamese and Junior usually leave. Since the
Furball disappears daily until well after five, I suspect he has a day job.
Scrappy takes up his duty station under the table right by the door.
And Stripey retires for the day to the chaise lounge, from where he
keeps a watchful eye on things. He knows the First Rule of feline
survival - never let yourself get out of sight of a full food bowl !

Beats trapping pigeons or mice any day.

But, except for feeding time, getting them together is impossible.
I wasted a can of sardines trying to get them to sit still for a group
photo. And if I try to step out the door with the camera, they scatter.

I just have to get used to it - I can't herd them.

But they sure can herd me.

Sunday, September 6, 2009

The Banksters: From Predators to Parasites to Scavengers

An article in The Sunday New York Times caught my eye today.

At first, I couldn't believe what I was reading. It sounded too much like a parody
from The Onion that somehow made its way to the front page of the Times'
business section.

But it's real. From the Times :

After the mortgage business imploded last year, Wall Street investment
banks began searching for another big idea to make money. They think they
may have found one.

" The bankers plan to buy “life settlements,” life insurance policies that ill
and elderly people sell for cash — $400,000 for a $1 million policy,
say, depending on the life expectancy of the insured person. Then they plan
to “securitize” these policies, in Wall Street jargon, by packaging hundreds or
thousands together into bonds.

" They will then resell those bonds to investors, like big pension funds, who will
receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return — though if people
live longer than expected, investors could get poor returns or even lose money.

Either way, Wall Street would profit by pocketing sizable fees for creating the bonds,reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated. " The idea is still in the planning stages. But already “our phones have been ringing off the hook with inquiries,” says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse. "

Wow - now that's innovation. Buying Grandma's life insurance and betting
against her life expectancy.
But to The Thinking Nationalist, something
like this was bound to happen sooner or later.

It's an opportunity that has basically been created by the stinginess of the
life insurance industry, when it comes to cash surrender values of traditional
whole-life insurance policies. However, there are reasons for that stinginess;
first. a significant portion of life policies actually lapse before the
insureds die, and also the fact that many policies convert after a number of
years to "paid up" - no more premiums - paying off either on a sliding scale
or at full face value should the insured outlive the actuarial assumptions.

And it's not a new idea. Twenty years ago, there was a market for "viatical"
settlements for insured young men afflicted with AIDS. Investors would buy
the insurance policies of these individuals for, say, 30-40% of face value,
continue to pay the premiums, and then collect the full face value when the
insureds died of what was then a short-duration terminal illness.

The economics of those arrangements changed, though, when the development
of modern antivirals changed HIV infection from a fatal illness to a relatively
"manageable" chronic condition. People started to outlive the investor's
calculations, and the market went away.

But the idea didn't go away entirely. It's not well known, but for many years
people with certain types of high-value life insurance policies have been quietly
selling them for cash, depending on age and life expectancy, for up to
45% of face value. There are even a few brokers in retiree- heavy parts
of the country who make this a specialty. But for obvious reasons, it's been
kept quiet - both legally and ethically, it's a "gray" area for many people.

But if the Banksters get their way, that may all be about to change.

Credit Suisse isn't the only one involved. Deutsche Bank already has
a formal program to match insureds with willing investors. But it's
everyone's favorite Bankster group - you guessed it, Goldman Sachs -
that's planning on taking this to a new level.

First, they've already created a tradable Viatical Index for these types of
securities, based on different actuarial assumptions of age mix
and expected illnesses and death rates. The structuring of
different classes and tranches of "viatical pools" will not be
far behind. And with their computing and mathematical prowess,
creating the necessary hedging Derivatives will shortly follow.

And for rating these securities? Moody's and S&P are working
on that right now. All the building blocks for an "assembly line"
- buying policies, putting them into pools, rating and structuring securities,
and marketing them to institutional investors are being put into place.

And with $26 Trillion in life insurance in force in the United States,
even a small slice of that - say, a twentieth - is a big enough market
to keep the Banksters happy.

Just think of the public policy implications. If the Securitized Life Settlement
industry becomes large, you won't have to be a rocket scientist to think about
where Wall Street will be on Health Care Reform. How about medical research?
Won't be a lot of money going to Biotech if this becomes big - in fact, I could
see shorting the Biotech sector as a hedging tool. And the derivatives would
be mind-boggling; depending on who in the pool died this week ,
and what they died of, Goldman may need to be, say, Long Alzheimer's
and Short Kidney disease this week, or vice versa.

However you slice it (and these pools will be sliced and diced
finer than Grandma's famous potato salad), this is serious money for
all kinds of serious players. Think of the tie-ups. Death Panels?
Maybe we can hire Blackwater for that. And how about the
Health Insurance industry?. Buy SLS bonds, and then
denial and cancellation really makes money. And think
of all the new advertising campaigns: "Eat More Red Meat!"
"Over 65? Medical Experts say Exercise is Bad for You!"
and the topper: "Don't Smoke? START NOW!"

The possibilities are limited only by the fevered imaginations of
ghoulish minds. And there are plenty of those on Wall Street.

More importantly, the advent of Securitized Life Settlements
completes an important 25-year transition for Wall Street.

Twenty-Five years ago, the Banksters were Predators.
Like lean and hungry wolves, the likes of Drexel Burnham Lambert
devoured the fat, slow-moving sheep of Corporate America.

After all, sheep made products and employed Americans in
America at good wages. Their low stock prices and slow,traditional
ways made them vulnerable.

But the sheep adapted to predation. By selling off or shuttering
those operations that the wolves found useless, and shipping the
rest to China or Mexico, they gradually put themselves out of
reach of the Predators.

So, ten years ago, the Banksters adapted, by evolving into Parasites.
First, they removed all the legal and regulatory restrictions
to Parasitism. Next, they recruited the nation's brightest
and best-connected minds into new careers as Parasites.
Talented young people who might otherwise have become Doctors,
Scientists, or Entrepreneurs now became Ticks (investment bankers),
Tapeworms (securities lawyers), and Maggots (analysts and traders).

And the well-paid young Parasites set to work with a vengeance.
Soon, all the remaining sheep were infected with all manner of parasite-borne
illnesses - including indebtedness, rent-seeking, and speculation -
on a scale that hadn't been seen for generations.

And soon, the flock could stand no more. Hobbled by parasite-induced
outsourcing and offshoring, bellies distended by bankruptcy, with great
open sores from unemployment and foreclosure all over their bodies,
the infected flock finally began to fall sick and die.

Which prepared Wall Street for its final evolution. Ticks, Tapeworms
and Maggots now became Hyenas and Jackals, ready for the great
Carrion Feast.

And the Hyenas and Jackals approached the Shepherd, Obama, and
said to him: "Don't cry for your old sheep. They were sick and
unproductive. They overpaid and overvalued their people. You need new sheep.
Chinese sheep, Indian sheep. Mexican sheep. Hardy. Disease-resistant.
Smart. And they don't eat much and their employees are all in China, India
or Mexico. And that keeps jobs scarce, wages low, and benefits non-existent.
You need that to be a competitive Shepherd. Don't Worry - Be Happy.
It's for the best. Trust us - we're Wall Street. We know what we're doing."

Yes, it's an old tale. When the herd dies, the Vultures circle. But I wouldn't call
the Banksters vultures.

That would be an insult to proud and tough birds who do necessary work.

Friday, September 4, 2009

Japan's Great Electoral Earthquake

An unprecedented Earthquake hit Japan on Sunday, August 30.

In a stunning blow to Japan's ruling Liberal Democratic Party, the little-known
Democratic Party of Japan swept to power, winning 308 out of 480 seats in the
lower house of the Japanese Diet (Parliament).

Americans may not realize how stunning a change this is. Founded in 1996,
the DPJ had been regarded as a mildly left-wing group of younger former
Liberal Democratic members of Parliament and disaffected Socialists - more of
a loose faction than a true political party.

Arrayed against them was Japan's mighty Liberal Democratic Party.
One of the longest-ruling political parties on earth, it had enjoyed almost
unbroken single-party rule in the world's second-largest economy since
1955. Only a short-lived coalition government in 1993 interrupted that
streak - and the electoral "defects" that had permitted this momentary lapse
were quickly rectified the following year.

Another advantage enjoyed by the LDP was its unusual symbiotic relationship
with Japan's vaunted civil service. Unlike most other democracies, the
Japanese Civil Service didn't just execute policy - for the most part it
created policy, issuing "guidance" to the elected Government on just how
legislation should be negotiated through Parliament and how they intended
to carry it out.

Carefully selected from Japan's most elite universities, many with
advanced degrees from the West's most elite institutions, they were a true
Mandarinate - elite technocrats wisely guiding the less-experienced
elected government in the name of the Greater Good.

And the influence of the mandarinate didn't just stop there. Its influence
also extended to Japan Inc. - the interlocking directorates of Japan's largest
corporations and financial institutions, whose boards and executive suites were
filled with civil-service alumni.

With all of these built-in institutional advantages, the LDP should not have lost.

But underneath the surface, a tectonic shift was brewing.

The Japanese economy had never recovered from the bursting of its
"property bubble" twenty years ago. Enormous budget deficits -
currently running at an astounding 170% of nominal GDP , had failed to
stimulate the economy. And although inflation and interest rates were low,
they were largely held in check by high taxes and pervasive regulation.

And the result of all this? Not economic disaster, but a slow, stagnating decline.
Little opportunity for Japan's college graduates in an economy that
was once the envy of the world. A population both aging in absolute terms
and declining in absolute numbers. Large-scale layoffs in a society that once
prided itself on "lifetime employment".

And most shockingly, a noticeable decline in innovation and technological
advancement when compared with other advanced industrial nations.

In any other society, that wouldn't have led to just electoral change -
it might have led to revolution. But not in Japan.

For the Japanese are a patient people. And steeped in both Confucian ethic
and an emphasis on harmony and consensus, they stoically endured both
the bungling of the LDP and the clumsiness of the bureaucracy for almost
twenty years. But then, the dam broke.

First, there was a financial scandal in the award of public construction
contracts. Not one implicated politician or bureaucrat lost his position
or felt obliged to resign. Then, the Social Welfare Ministry "lost"
the pension records of some 53 million retired workers, causing huge
problems. No one took the blame for that either. And finally, the people
noticed that while their standards of living had either remained static
or declined, those of their corporate, political or bureaucratic masters
had not. That was the final straw.

In response, the LDP began to shuffle the deck, including changing
Prime Ministers three times in one year - a move that led some in the news
media to begin comparing Japan to Italy - that other paragon of political stability.

"Government of the Month" became a staple of humorists.

So it wasn't surprising that when the earthquake came, it struck with
devastating force. LDP Prime Minister Taro Aso not only led his party to defeat
but lost his "safe" lower house seat in the process. So did the Finance Minister.
So did the Minister of Public Works. So did the Minister of Energy.
So indeed did all but two current cabinet members. And in almost all
cases, they were replaced by much younger unknowns.

This wasn't just a change of political parties - this was a change of regime.

To be sure, Prime Minister Aso did the right thing. He not only resigned
as Prime Minister but from the party leadership as well, taking full
responsibility for the unprecedented debacle. Incoming Prime
Minister-designate Yukio Hatoyama - scion of a political family,
whose grandfather was Japan's first LDP Prime Minister -
graciously accepted victory, making all the right comments that while change
would happen, much that the Japanese people valued would remain the same.

As he and the DPJ begin the task of forming a government, we at
The Thinking Nationalist will be watching. In a further post, we'll take a
look at some of the unique challenges he and his party will face.

But there are lessons that can be drawn from this episode.

First Lesson: Rotation in Office is Good. Politicians become entrenched
by becoming representatives of favor-seeking special interests instead of
representatives of a constituency. Parliamentary systems can make
entrenchment even easier with safe seats and assigned constituencies.
While the LDP became famous for moving its key players from seat to seat
so as to deflect challenges, that's not what I mean by "rotation in office".

I'm talking about the kind of rotation in office that comes from term limits.

Second Lesson: If Rotation in Office is good, Rotation in Power is even better.
Periodic peaceful transitions of power between major parties is a good thing.
Every so often, major political parties anywhere needs to spend some time
in opposition - to sharpen their message, re-define their policies, and to
above all permit new people the opportunity to participate.

Sharpened messages, new ideas, and new faces are the only sure way back to power.

Third Lesson: In democracies, bureaucracies work for the elected officials,
not the other way around. No matter how well-intentioned, "legislative capture"
by an unelected civil service always eventually ends badly - for the
"captured" legislature or politicians. Mr. Hatoyama's innovative proposal to
slot scores of Lower House members into policy-making positions in
the various ministries will help restore some long-overdue oversight
and accountability.

Finally, politicians everywhere need to remember that in a democracy, there
is no such thing as a permanent franchise in office. Rather, what you have is
a revocable tenancy - that can very easily be terminated by the voters, for any
or no reason. Do a good job for the folks who hired you - the voters -
and you may get to keep your job. But if you screw up, you'll be replaced -

Come to think about it, that's about the only guarantee there is in politics.

Wednesday, September 2, 2009

The Dalai Lama, China and Taiwan: Uncomfortable Questions.

His Holiness The Dalai Lama
is once again in the news.

On a weeklong visit to Taiwan (his first), the Dalai Lama arrived Sunday in
Kaohsiung, at the
southern tip of the island, to comfort victims and survivors of
Typhoon Manikot which has
devastated the islands southern provinces.

Almost six hundred lives were lost, with thousands made homeless and
property damage
running into the hundreds of millions of dollars.

For the most part, the regions' inhabitants welcomed the visit. Taiwan
is heavily Buddhist, and people turned out by the tens of thousands just
to get a glimpse of His Holiness as he both met with victims individually
and led mass prayer services in Kaohsiung's main soccer stadium.

And as always, the visit set off the usual round of ritual denunciation and
denial, by both governments.

The Dalai Lama stuck to his usual low-key style. Emphasizing the pastoral
and sacerdotal nature of his visit, The Dalai Lama politely declined any political
comment other than a few generalized remarks about democracy, and chose
rather to highlight the pastoral basis of his journey.

The Taiwan government, including the officials of the ruling KMT, discreetly
stayed away. No comment was made in the official KMT press, except to take a
few swipes at the opposition Democratic Progressive Party for upsetting
business as usual by inviting His Holiness in the first place.

And the Chinese government, after issuing its ritual, boilerplate denunciation
of The Dalai Lama as a "splittist", quickly downplayed the whole thing.
A few planned technical conferences between the two governments were
quietly postponed or rescheduled. The resumption of direct air services between
the two sides, which began on Monday, was moved to the back pages
of the paper with little fanfare.

Both the Taiwan and Mainland governments went out of their way to
emphasize "Business As Usual". Which is not surprising, because
authorities on both sides of the Taiwan straits have far bigger fish
to fry.

And a world-respected religious leader, if sufficiently prodded, might
well ask uncomfortable questions both Governments would prefer
not to answer.

Questions and scrutiny are not helpful for "business as usual".

The Chinese government wants the question of "autonomy" for
minority regions of the country to quietly go away. And Tibet is
not the only area of China seeking more autonomy for its native
peoples - Xinjiang and Inner Mongolia are also restless. The
Dalai Lama knows this.

And the KMT government of Taiwan has steadily been seeking
greater closeness with the mainland, to the disquiet of a great many of
its inhabitants. Less well known is the fact that the political split in Taiwan
runs largely along ethnic lines - the KMT is largely Han Chinese, while
the DPP and other minor parties draw their strength from the native,
pre-1949 ethnic Taiwanese population. The Dalai Lama knows this as well.

And uncomfortable questions about minority rights and ethnic autonomy
- in both China and Taiwan - are not useful to the powers that be.
Not while both Governments are working very closely with their respective
Corporate and Financial sectors to extract maximum economic benefit
from each other.

Taiwan seeks greater access to Mainland markets, investment opportunity,
and capital. Mainland China seeks greater access to Taiwanese scientific,
technical and managerial expertise. Both sides are well aware that greater
economic, scientific and commercial ties may make eventual political
reunification a fait accompli.

Which is why they don't want questions asked. At least not right now.
That might get in the way of a deal here, an accommodation there,
that benefits private elites on both sides.

The Dalai Lama knows all this too. But he's got a weapon as well - something
that neither government can buy, co-opt or capture.

It's called Moral Example. It's a belief that there's more to life than
the almighty pursuit of the dollar or renminbi. And the best part is
that he doesn't even have to preach it - he proclaims the power of
his Example just by showing up.

No wonder the Chinese government fears him. And, if his Example
and ideas were to catch on with more of the world's peoples,
more governments, (including possibly our own), might fear or
despise him as well.

A religious leader asking questions about autonomy,
individual rights, happiness, the nature of man, and the nature of
just and accountable governance is always a threat to an Established Order.
Because these are the very questions no government really wants asked,
lest the answers destroy them.

That might really cause problems for "Business As Usual".

But, if those questions ever did get answered, well, that might result in
Change a lot of folks everywhere could Believe In.

Political Leaders everywhere, are you listening?