Sunday, December 14, 2008

Ethics and the Science of Cutting Costs

With the cuts that are coming at the state and local levels, can you blame them for doing this?
Faced with painful choices about who will suffer most from looming budget cuts, Alexandria officials have taken the unusual step of paying a professional ethicist to help them grapple with the moral issues involved.

Just a few of the vexing decisions his advice helped Alexandria policymakers confront in recent weeks: They took apartments being built for the mentally ill and temporarily turned them into housing for the disabled. They cut a parenting counselor for jailed minors with kids but preserved aid for belligerent preschoolers. They scaled back drug prevention but kept the methadone pills available to ease the cravings of withdrawal.

"It is very uncomfortable to admit you're going to have to say no. It's very uncomfortable to make decisions that, quite frankly, are going to make some people's lives go worse," said Michael A. Gillette, an ethicist who helped mental health officials in Alexandria write guidelines for prioritizing assistance when there's not enough money to go around. At the urging of top city officials, Gillette also pushed more than 100 other senior and mid-level managers to wrestle with the ethics of shrinking government.
It's hard to conceive of a government bureaucrat taking the necessary steps to formulate an ethical approach to reducing costs, staff and open positions. How do you maintain your ethics while acknowledging that someone who can least afford to be "downsized" is actually the only person who should be let go because of their skill set or the future needs of the department?

The government has been great about hiring veterans and the disabled, and no reasonable person could oppose that policy--those who defend us and those with great need, I have no quarrel moving them to the front of any line. Well, what if you have a perfectly healthy, single, well-educated person in your department who has all of the technical skills necessary for the future of your agency? Do you keep that person and let a disabled veteran with a family who is older or has fewer skill sets? How do you wrestle with that?

The city of Alexandria went to an ethicist. What a burden that must be for them. Many, many good people are faced with awful, no-win choices ahead.

Saturday, December 13, 2008

Ecuador Moves Towards Economic Isolation

It's probably not a huge story when a poor South American country defaults on its foreign debt. The case of Ecuador is interesting in that it is being done as a protest against a former regime:
Ecuador is to default officially on billions of dollars of foreign debt it considers "illegitimate", says President Rafael Correa.

Mr Correa said he had given the order not to approve a debt interest payment due on Monday, describing the international lenders as "monsters".

The president said the some of Ecuador's $10bn debt was contracted illegally by a previous administration.

It is the first debt default by a country in Latin America since 2001 [Argentina].
Ecuador's problems stem from oil--it's an exporter that is suffering from the price drop. We cannot think of only ourselves at this time--the restructuring of American society along greener and more fuel efficient lines is going to impact poor oil exporting countries like Ecuador, Nigeria, and Venezuela in ways we cannot imagine. The idea the Venezuela, for example, will turn into Saudi Arabia is ridiculous. Venezuela is closer to Ecuador and being broke than it is to Saudi Arabia, especially if oil prices continue to fall.
"We'll present a proposal to restructure the debt in order to resolve this problem as fast as possible," added the US-trained economist and ally of left-wing Venezuelan President Hugo Chavez.

His decision follows a government audit in November which recommended that Ecuador default on almost 40% of the $10bn foreign debt, accusing former officials and bankers of profiting irresponsibly from bond deals.

The country's foreign debt amounts to about a fifth of its Gross Domestic Product, or GDP.

In the past, Mr Correa has vowed to put money he has earmarked for spending on public programmes - ahead of paying foreign debt.

Correspondents say Ecuador's decision to effectively cut itself off from outside financing could lead to a budget shortfall, especially if the price of oil - the country's main revenue earner - continues to fall.

Oil is Ecuador's main source of income and accounts for 40% of the national budget.
I would opine that this another thing we had better get a handle on, and, by that I mean, the leftist movements in Latin America. We don't want a repeat of the 1980s and we don't want to be an isolated and resented partner. We need every single ally, and Latin America should be our natural ally against any other kind of influence. Want to counter the rise of a unified Europe?

Well, if the United States had more allies in South America, and I'm thinking of Brazil in particular, that would certainly help.

Thursday, December 11, 2008

Relax, it's only $380 Million Dollars

 Calm down, peasants...
A prominent attorney was ordered jailed without bail Thursday after a federal prosecutor estimated losses of $380 million in an alleged hedge fund fraud.

Magistrate Judge Douglas Eaton denied bail for Marc Dreier, whom prosecutor Jonathan Streeter called a "Houdini of impersonation."

Streeter said Dreier was "in a desperate situation and the only way out of the desperate situation is to flee."

None of the little people were hurt here, you see...

The scandal has stunned Dreier LLP, a mid-size law firm that has represented celebrities, including retired football star Michael Strahan and former News Corp. publishing executive Judith Regan.

Dreier LLP partner Joel Chernov said in court papers that many lawyers have left the firm, rent is overdue and BlackBerry service is being terminated. He says $27 million appears to be missing from the firm's escrow accounts.

Dreier also is charged in Toronto with impersonation in connection with the attempted sale of $45 million of notes to a hedge fund.

Streeter cited "over $380 million actual loss."

"There's a large amount of money completely unaccounted for," said Streeter, who did not elaborate further.

This is the era of worthless paper money, where countless millions and billions of paper assets have evaporated into nothing, driven into larger and larger piles of nothing at all by greed, incompetence, and a fundamental lack of oversight. It reflects the culmination of a failed idea--the self-regulating market. I'm sad to see it die like this. I thought it would take hold and thrive. It has not.

Any country where a man can steal $380 million is a banana republic.

The Mortgage Industry is Running Around Out of Control

What the dickens is this about?

Some time after Sharren McGarry went to work as a mortgage consultant at Wachovia's Stuart, Fla., branch in July 2007, she and her colleagues were directed to market a mortgage called the "Pick A Pay" loan.  Sales commissions on the product were double the rates for conventional mortgages, and she was required to make sure nearly half the loans she sold were "Pick A Pay," she said.

These "pay option" adjustable-rate mortgages gave borrowers a choice of payments each month. They also carried a feature that came as a nasty surprise to some borrowers, called "negative amortization." If the homeowner opted to pay less than the full monthly amount, the difference was tacked onto the principal. When the loan automatically "recasted" in five or 10 years, the owner would be locked into a new, much higher, set monthly payment.

While McGarry balked at selling these pay-option ARMs, other lenders and mortgage brokers were happy to sell the loans and pocket the higher commissions.

Now, as the housing recession deepens, a coming wave of payment shocks threatens to bring another surge in defaults and foreclosures as these mortgages "recast" to higher monthly payments over the next two years.

"The next wave (of foreclosures) is coming next year and in 2010, and that is primarily due to these pay-option ARMS and the five-year, adjustable-rate hybrid ARMS that are coming up for reset," said William Longbrake, retired vice chairman of Washington Mutual. The giant Seattle-based bank, which collapsed this year under the weight of its bad mortgage loans, was one of the biggest originators of pay-option ARMs during the lending boom.

So, while everyone knew there was a problem, and while everyone realized that consumers were vulnerable to predatory lending practices, and also while everyone was trying to find ways to fix the problem, mortgage industry employees were running around like chickens with their heads cut off, planting the next bomb that is going to explode in our faces.

They greedily pocketed the money they made--money that further inflates a bubble which is tremendously unhealthy for the economy. If the economy rebounds in 2009, a wave of foreclosures and defaults on loans in 2010 will march us back to the brink. The industry needs to be gutted and restructured, and introduced to some serious regulatory guidelines. No one should be setting up loans that cause instant default when the real "terms" kick in after a few years.

The ENTIRE industry needs to be locked down and placed under heavy regulation. ANY loan that creates a balloon payment or unsustainable monthy payment that locks in after a set period of time does NOTHING to solve the problems that homeowners are facing. These loans are landmines that are waiting to be stepped on.

Wednesday, December 10, 2008

No, the Japanese Example Does Not Inform Our Situation

Amity Shlaes keeps trying to sell the idea that FDR made the Depression worse and that government spending to stimulate the economy is entirely bad. The historical record is mixed on this—the Second World War staved off a disaster in 1939 and some government spending, especially on defense and infrastructure, is necessary to grease the skids for American industry.  

Here, she draws a ridiculous comparison to Japan’s attempts to invest in infrastructure and stave off disaster after the collapse of the Nikkei in the late 1990s:

The spending yielded painfully little for the rest of the economy. The Nikkei stayed down. The country’s standard of living failed to keep pace with the rest of the world’s. The average Japanese’s purchasing power had been moving closer to that of the average American, Ronald Utt of the Heritage Foundation has noted. But in the 1990s the Japanese saw few advances. The gap between America and Japan widened again.

“The construction state is in some respects akin to the military-industrial complex in cold-war America (or the Soviet Union), sucking in the country’s wealth, consuming it inefficiently, growing like a cancer and bequeathing both fiscal crisis and environmental devastation,” commented Gavan McCormack, a professor at the Australian National University. The stimulus plans had the opposite effect of what was expected. Appalled at the country’s new deficits, Japanese consumers closed their wallets.

Worst, though, was the failure on jobs. Unemployment fell in many nations in the 1990s. In Japan, the ’90s were a lost decade: The unemployment rate more than doubled and surpassed the U.S. rate — an unthinkable occurrence just a few years earlier.

Even today, Japan is having trouble climbing out of its cement pit. At its high, in the mid-1990s, infrastructure spending accounted for 6 percent of its gross domestic product, double what the United States allocated for infrastructure in the ’90s and still higher than what politicians are considering spending today. In estimates of national debt, the world’s second-largest national economy is near the top of the list, perched between Lebanon and Jamaica. Last year, Japan’s public debt was far greater than the size of its economy, a burden that makes its demographic challenges more difficult to address.

What lessons should the United States take away? It is wrong to assume that construction will guarantee a two-fer for the economy — shining structures and redemptive growth. The private sector is often better than politicians at guessing what the market needs. And infrastructure projects demand so much political energy that there’s too little energy left over for everything else. Congress might want to remember all this as it debates infrastructure funding in the coming months. An edifice complex seems more likely to petrify a country than to move it forward.

Now, there’s nothing there worth debating, really. Japan’s economic collapse was due to an asset price bubble that lasted for practically the entire decade of the 1990s. The situation that the US faces is entirely dissimilar and is driven largely by credit default swaps. It is true that American “assets” became overpriced for a time, but not to the extent of Japan’s and so our “bubble” became more driven by the massive reselling of packaged debt than it did the actual prices of US homes.

Shlaes wants to argue that Japan was wrong to invest in infrastructure and that the government wasted money—sound like Ronald Reagan on acid to you? If so, you’re not alone. There’s no question that infrastructure needs to be improved in this country. In Japan, a much smaller country with a radically different style of infrastructure, the investments didn’t so much as solve their economic problems as it laid the groundwork for better use of land and resources in Japan.

As for jobs, well, that’s a public policy debacle if there ever was one. By destroying labor unions and allowing companies to outsource and hire illegal immigrants, they all but guaranteed that the economic benefits of jobs created by infrastructure spending would keep many Americans out of the labor market. If we restore living wages and dedicate ourelves to building a repaired health care system, you will see the working class in this country begin to reach a point where they can send their kids to college, and they will do exactly that. That’s how you grow an economy AND build a larger middle class.

Schlaes is never going to understand America if she continues to hold partisan ideology over her eyes. You can’t go all-bad, all-good and try to pick one slice of ideology over the other.

Tuesday, December 9, 2008

Abusing Your Power But Not Breaking the Law?

Autumn Leaves by Norman Rogers

Either tone down the language or spell out what Bush's FCC Chairman did and didn't do:

A year-long Congressional investigation of Federal Communications Commission Chairman Kevin J. Martin found "egregious abuses of power," though it was unclear whether the nation's top telecommunications regulator broke any rules or laws during his leadership.

The report released today on the probe, titled "Deception and Distrust" and led by Reps. John D. Dingell (D-Mich.), Chairman of the Committee on Energy and Commerce, and Bart Stupak (D-Mich.), Chairman of the Subcommittee on Oversight and Investigations, found Martin suppressed information and manipulated data to serve his agenda.

"Any of these findings, individually, are cause for concern," said Dingell. "Together, the findings suggest that, in recent years, the FCC has operated in a dysfunctional manner and Commission business has suffered as a result. It is my hope that the new FCC Chairman will find this report instructive and that it will prove useful in helping the Commission avoid making the same mistakes."

Unless you spell out what he did that was illegal or unethical, there isn't much to go on here and the document takes on a partisan slant. Virtually every Bush appointee has behaved in a predictable fashion, if you come at the issue as a raging liberal--now tell us how it impacted the lives of average Americans. We all know that the Bush and Democrat-Congress era FCC has been a disaster for consumers--those are YOUR airwaves, by the way, but no one seems to remember that when they're letting the telecom companies write the laws--so spell it out.

What happens at the FCC is wonkish, at best. Does anyone pay attention? Probably not.

Mortgage Fraud Explained From The Inside

Here's another great example of how they did it--as in, how a handful of crooks gamed the mortgage industry and helped bring our economy to its knees...
Orson Benn, once a vice president at the nation's largest subprime lender, spent three years during the height of the housing boom tutoring Florida mortgage brokers in the art of fraud.

From his office in New York, he taught them how to doctor credit reports, coached them to inflate income on loan applications, and helped them invent phantom jobs for borrowers.

When trouble arose -- one broker got caught, another got cold feet -- Benn called his trusted fixer in Miami to remove the problem and get the loan approved: Yvette Valdes.

The 48-year-old Valdes was a key figure in helping Benn tap into one of the country's most lucrative mortgage markets during his run with Argent Mortgage, The Miami Herald found.

Benn and several associates were convicted of racketeering this year, but Valdes still sells mortgages from a nondescript storefront in Homestead.
Creating all those fraudulent mortgages that people couldn't pay back wasn't the entire story--we now know what Credit Default Swaps and lack of regulation had to do with it--but it is typical that we are getting such a simple, plain and basic example of how it was done. Typical in that if there was a layer of oversight or regulation designed to prevent it, the damage done could have been mitigated.

We cannot be naive enough to think a crook wouldn't find a way to steal--but that doesn't mean we should absolve these people of their crimes. It was too easy to steal. It was too easy to game the system. The barn door wasn't shut, in other words. Well, the barn door needs to be shut from now on, and more attention needs to be paid to the mortgage industry to lock down the bad practices that were used to rip off the consumers and, ultimately, the entire country.

CNN Cuts Science

What kind of a world is this? They fire Miles O’Brien and they keep that unfunny bag of nuts Jeanne Moos?
CNN, the Cable News Network, announced yesterday that it will cut its entire science, technology, and environment news staff, including Miles O’Brien, its chief technology and environment correspondent, as well as six executive producers. Mediabistro’s TVNewser broke the story.

“We want to integrate environmental, science and technology reporting into the general editorial structure rather than have a stand alone unit,” said CNN spokesperson Barbara Levin. “Now that the bulk of our environmental coverage is being offered through the Planet in Peril franchise, which is produced by the Anderson Cooper 360 program, there is no need for a separate unit.”

A source at the network, who asked not to be named, said the move is a strategic and structural business decision to cut staff, unrelated to the current economic downturn. Financially, “CNN is doing very, very well,” the source said, and none of the health and medical news staff has been cut. Yet the big question, of course, is whether or not the reorganization will decrease the overall amount of CNN’s science, technology, and environment coverage. CNN says no, but it’s hard to imagine that it won’t-Anderson Cooper or not, fewer people is fewer people.
Cutting reporters does not save a news-gathering organization money. It further degrades the product they’re selling to the public. When the product itself—the news content—suffers because of less and less content, the news organization becomes a self-fulfilling prophecy of failure.

Sunday, December 7, 2008

This is How We Ended Up In Vietnam

The news media are intimidated by politicians who are smarter and more talented than they are—this is because the news media is supposed to be the top of the intellectual food chain, handing down “wisdom” and “knowledge.”
All told, of Obama’s top 35 appointments so far, 22 have degrees from an Ivy League school, MIT, Stanford, the University of Chicago or one of the top British universities. For the other slots, the president-elect made do with graduates of Georgetown and the Universities of Michigan, Virginia and North Carolina.

While Obama’s picks have been lauded for their ethnic and ideological mix, they lack diversity in one regard: They are almost exclusively products of the nation’s elite institutions and generally share a more intellectual outlook than is often the norm in government. Their erudition has already begun to set a new tone in the capital, cheering Obama’s supporters and serving as a clarion call to other academics. Yale law professor Dan Kahan said several of his colleagues are for the first time considering leaving their perches for Washington.
With regards to my Vietnam analogy, let’s be brutally honest: there’s very little chance Obama could be that stupid as to get us into another Vietnam. Stranger things have happened, but, that being said, bringing in the eggheads and the Poindexters from the Ivy League was what got us the whiz kids and the bean counters who helped LBJ get us into Vietnam. Is Obama that stupid? Let’s pray that he is not.

The GAO Weighs in on the Auto Industry Bailout

That was quick…

In addition to causing potential job losses at auto manufacturers, failure of the domestic auto industry would likely adversely affect other sectors. Officials from the Big 3 have requested, and Congress is considering, immediate federal financial assistance. This testimony discusses principles that can serve as a framework for considering the desirability, nature, scope, and conditions of federal financial assistance. Should Congress decide to provide financial assistance, we also discuss how these principles could be applied in these circumstances. The testimony is based on GAO’s extensive body of work on previous federal rescue efforts that dates back to the 1970s.

There have long been close ties between the auto industry and Congress. The recent decision by the Republican Party to essentially bail on Detroit stems from the fact that they can’t carry Michigan as a state in the Presidential race and the fact that lobbying money is going more towards Democrats than Republicans. I think that’s a mistake—Republicans should try to compete in Michigan under the banner “Democrats—aren’t they the ones who screwed up Michigan, Dawg?” If that doesn’t work, there’s always my old stand-by—“Conservatism is Cool Beans.”

The GAO also says:

If Congress determines that a legislative solution is in the national interest, a two-pronged approach could be appropriate in these circumstances. Specifically, Congress could 1) authorize immediate, but temporary, financial assistance to the auto manufacturing industry and 2) concurrently establish a board to approve, disburse, and oversee the use of these initial funds and provide any additional federal funds and continued oversight. This board could also oversee any structural reforms of the companies. Among other responsibilities, Congress could give the board authority to establish and implement eligibility criteria for potential borrowers and to implement procedures and controls in order to protect the government’s interests.

If one dollar of assistance goes overseas to prop up their job-killing policies, then the automakers should then be directed to simply file for bankruptcy protection. If they engage in positive and meaningful reform of their business model, and I would describe that as expanding efforts to make cars that run on alternative energy, then repaying those loans shouldn’t be a problem. The taxpayers should never “give” money but should “loan” money. Please pay us back with a smidgen of interest, sir.

Saturday, December 6, 2008

Britain's Independent Music Industry Collapses

The company responsible for distributing music for 400 Independent music labels in Great Britain went bankrupt on Wednesday of this past week:

The independent labels trade body Association Of Independent Music (AIM) held an emergency meeting yesterday (December 4) to discuss the bankruptcy of distribution company Pinnacle Entertainment.

As NME.COM previously reported, Pinnacle - which worked with over 400 indie labels including Rough Trade and One Little Indian - was declared bankrupt on December 3.

The company had distributed records by the likes of Morrissey, The Libertines and The Strokes.

Pinnacle describes itself thusly:

As the UK’s biggest independent distributor, Pinnacle Entertainment enjoys a unique position in the market place. Having exclusive responsibility for the sales and distribution of over 400 records labels and some of the most cutting edge DVD and software labels, Pinnacle excels in handling an enormous range of music from Katie Melua, Morrissey, Moloko, The Strokes, The Libertines, Midlake, Feeder and Tricky to classic artists such as Black Sabbath, Gary Numan, The Kinks, The Pretenders, Frank Zappa, Echo & The Bunnymen, The Small Faces, Tom Waits & Richard Thompson. The company is split into a number of divisions including Pinnacle Records, Pinnacle Software, Pinnacle Vision.

Purely from a business perspective, what happens in the British music industry isn’t that important—the music industry worldwide is in serious decline because they can’t collect the right amount of money to compensate the artists for what they make. The digital distribution of music has eliminated the need for the traditional structure of the music business. Bloated artist contracts should become a thing of the past for all but a decaying and aging few. 

Instead of getting an advance on royalties to make music, one simply needs a Mac, ProTools, and the time and effort. Once you eliminate the need for an expensive recording studio, you come to distribution and publicity—and the blogs and chat rooms and word of mouth can pick up the slack there. What a band then has to do is play live (if that’s their thing) and tour, and if a band can scale that back to a low cost effort, no more record company.

The question remains—can a group of young people make enough money to live on for five or six years doing it that way? If so, goodbye labels.

Friday, December 5, 2008

An Army of Soldiers, Not so Much Linguists

It doesn’t make sense to train an army made up solely of linguists. I believe that military training should emphasize actual combat skills and job skills so that we have as many deployable and valuable troops as possible.

To speak and understand the language of a country takes an immersion in the language and a great deal of training; it’s unrealistic to suggest otherwise. We’re not sending our military into your country to speak to you; we’re sending them there with a specific mission, but it would be nice if we had enough people trained to serve as linguists:

It’s widely understood that if U.S. troops spoke the languages of the foreign populations they encounter in battle zones, military operations would be more effective and efficient. But creating a large pool of troops proficient in the languages they are most likely to encounter has proved enormously difficult.

A recent bipartisan report by the House Armed Services Committee’s panel on oversight and investigations concludes the military services have a long way to go to develop the language abilities needed in today’s conflicts. What’s more, the services’ efforts to improve skills are hampered by a public education system that fails to inculcate the importance of language and cultural studies in an increasingly globalized world.

“The Department of Defense and the services are trying to enhance these skills, but they’ve inherited a national problem that slows them down considerably,” said Rep. Vic Snyder, D-Ark., chairman of the oversight subcommittee.

According to the report, “The nation, as a whole, lacks an educational infrastructure than can produce the dramatically increased numbers of highly proficient individuals needed, not only for national security, but also for economic competitiveness.”

The problem with that line of thinking is, what languages are we talking about?

Here are the top ten countries that the US exports to:

Canada … US$211.9 billion (up 31.7% from 2002)
Mexico … $120.4 billion (up 23.5%)
Japan … $55.5 billion (up 7.8%)
China … $41.9 billion (up 89.6%)
United Kingdom …$38.6 billion (up 16.3%)
Germany … $34.2 billion (up 28.6%)
South Korea … $27.8 billion (up 23%)
Netherlands … $26.5 billion (up 44.8%)
France … $22.4 billion (up 17.9%)
Taiwan … $22.1 billion (up 20.1%)

Now, how many of these countries have we been to war with? How many are we likely to go to war with? With the exception of China, and even then, is that even a serious possibility? We have desperately needed linguists in these key areas over the last ten years: Serbo-Croatian, Arabic, Urdu, Pashto, and Persian.

If you look at the most glaring need, which is probably the Arabic language, you’ll see that there isn’t really any of the necessary infrastructure in the public schools to teach Arabic. And, in the larger sense, you’ll see that there’s virtually no economic incentive to do so. We buy oil from the Middle East; we are not culturally engaged with the Middle East.

There are vast numbers of Hispanic Americans, so the services do not need Spanish linguists (in fact, there are so many native speakers, it is one area where we are in good shape). We don’t need to speak Arabic to pay too much for their oil. And they have figured out that they can simply import labor to make up for any knowledge gaps.

The article goes on to point the finger at Paul Wolfowitz, and with good reason:

The report lauded the Defense Department’s wide-ranging goals to boost foreign language skills and cultural literacy within the services and among outside educators. But it also noted that the department’s internal efforts have fallen short of expectations.

Despite a 2004 directive from then-Defense Deputy Secretary Paul Wolfowitz to establish strategic guidance to transform language and cultural capabilities, the department still lacks a clear understanding of what its language-related operational requirements actually are in the field. Similarly, Defense does not have a process for identifying emerging requirements.

In 2005, the department issued the “Defense Language Transformation Roadmap,” which outlined four goals: achieve a foundation of language and cultural expertise within the services; create the capacity to “surge” skilled linguists and cultural experts when necessary; establish a cadre of advanced language specialists; and develop a process for tracking the career progression of language professionals.

But the roadmap did not include long-term strategic goals and funding priorities, which congressional staffers and auditors with the Government Accountability Office say are necessary.

What Wolfowitz failed to understand is that the military is not a meet-and-greet, touchy-feely operation. Linguists should be highly skilled and trained because they have a specialty. It would be impossible to make every member of the military a linguist; by the same token, those who have proficiency in language training would likely be at an economic level where they would not choose to enlist in the military.

Creating special categories of soldiers is one answer. Recruiting experienced linguists, firewalling them from exposure to classified material, and letting them interpret blindly what they’re handed allows more native speakers to come in. Retaining trained soldiers is next to impossible when you’re in the fifth year of an endless war.