Wednesday, July 31, 2002

The New American Imperium

The United States is beginning to act like Rome during the later part of the Republican era when consuls and dictators culminating in Julius Caesar extended Roman rule from Britain to Persia. No longer satisfied with our role of first among equals within the ranks of democratic, first-world countries, we are militarily and, perhaps, politically prepared to project an American hegemony half way around the world to Baghdad.

No informed person can say that the threat of terrorism against the United States isn’t real. The Al-Quaida strike against the World Trade Center, Pentagon, and (probably) the White House or Capitol Building last September was an indelible lesson for all of us. However, we must weigh the speculative gains and costs of attempting to kill the hydra of terrorism by striking at Saddam Hussein. First, is the question of whether killing or capturing Saddam Hussein and installing a puppet regime in Iraq is a proper objective for an advanced, multi-ethnic, multi-cultural democracy to undertake. Second, is the calculus of potential threats that may be unleashed if we act against Iraq versus those that may be fostered if we don’t.

The likely increase in oil prices and the widespread economic fallout from that rise must be considered. Even if in the United States the economic impact of a restriction in supply can be moderated by releases from the strategic petroleum reserve, the rest of the world will suffer heavily. A worldwide economic downturn is not out of the question. Inflation may escalate in this country, as oil prices drive up the costs gasoline, heating oil, diesel fuel, jet fuel and that of thousands of synthetic goods essential to the functioning of our technological world. Interest rates may also increase both as a natural result of the Federal Reserve Bank attempting to rein in inflation and as the uncertainty and fear consequent upon the prospect of war frighten investors.

If it became clear that we were committed to an attack upon Iraq, wouldn’t it be more likely that Saddam Hussein would explore and escalate all possibilities of massive terrorist attacks upon the United States. Citizens in large cities; those using mass transit including buses and trains as well as the airlines, people in malls, stores, sporting events, and restaurants; children in school, those using large bridges either going into cities or while driving on the interstate highway system, and others would be at risk. On the other hand, we are already at risk to an unknown degree. It is hard to know how much terrorist activities in the United States would be expanded if supported by a desperate and cruel Iraqi dictator. No matter what precautions are taken, a determined terrorist organization can sow death and fear in a civilian population. Israel's bitter experience with Hamas and other Palestinian paramilitary groups demonstrates the impossibility of deflecting all terrorist actions.

Another significant cost difficult to quantify is the certain loss of much of the sense of comfort and trust that some Muslim countries and peoples have felt for the United States. Despite the anger and suspicion of many throughout the Islamic world, there have been historic alliances and ties with countries as diverse as Egypt, Saudi Arabia, Turkey, Jordan and Pakistan. We will strain and, almost certainly, degrade those ties if we attack Iraq, especially without a convincing case for Saddam Hussein's authorship of the September 11th attacks or his continuing development of a credible and targeted threat against this country. Such a case must be based on more than hearsay, anonymous paid informants, or rumors of bogey men. And no matter how good the case, the Arab street will rise in anger and hatred. We are already only somewhat less reviled than Israel, our peculiar client state.

Finally, the costs involved in maintaining a powerful strike force and extensive garrison troops will weigh heavily upon taxpayers. If we intend to change regimes by force, we must be prepared to build nations from the rubble. Nation-building is expensive in both blood and treasure. The political costs involved in maintaining such an imperial state include a cult of the leader, restriction of individual and political liberties as police powers expand, and an enhanced political role for the military and its suppliers and beneficiaries.

If we choose not to force Saddam Hussein out of Iraq, what other options do we have to reduce the threat of terrorism growing out of the Middle East? We could attempt to force Saddam to comply with extensive inspections by blockading Iraq and only allowing food, medical, and related relief supplies into the country under supervised conditions. That would be a difficult undertaking politically, militarily, and financially. It would also require a coordinated attempt to control all international financial transactions coming from and going into Iraqi. Worse, it would not completely choke off the export of terror.

Another possibility would be to reverse our current one-sided support for Israel and push for a comprehensive peace in the region. Our support for a viable Palestinian state with secure borders for both it and Israel, guarantees of peace between the parties that would probably require American peace-keeping troops, abandonment of Israeli settlements in the West Bank, the giving up of the so-called "right of return" by long-term Palestinian refugees from Israel, and some form of joint rule over Jerusalem would be the major aspects of a final peace deal.

The economic and military costs of supporting the development of a Palestinian state would be significant, but far less than that of war with Iraq. The potential benefits to us of being perceived as working toward peace, freedom, and economic revival in Palestine would be enormous. The opposition of the Israeli-American conservative axis to a US role in forging a lasting peace in the region would be extreme and, perhaps, overwhelming. The central question here is for whose benefit is the foreign policy of the United States conducted?

Despite demographic explanations, Rome fell due to rot at the top and the disaffection of its citizens. As the power of the emperor grew and the organs of the Republican state withered, there was a disconnect between the leadership and the people. The people lost a sense of involvement and investment in the state. The later-imperial legions were composed of foreign mercinaries who ended up as the deciding voice in who became the next emperor and how long he reigned. The people became a voiceless mob pacified with distribution of free grain and frequent gladiatorial combats. Rome fell into corruption, anarchy, and weakness.

All comparisons are necessarily biased and partial. The US is not Rome. Nor are we faced with an imperial government, yet. But we are faced with difficult choices over how we will conduct our foreign policy and protect our citizens and our democracy. Unless we consider those choices and their likely consequences with clear eyes, we may pay a greater price for victory over Saddam Hussein than we ever imagined.

Tuesday, July 30, 2002

A Recipe for Economic Disaster

Despite recent gains, the stock market stands about where it did five years ago. Individuals and pension funds have lost nearly ten trillion dollars in the value of their investments. State and local governments faced with deficits due to business and consumer spending cutbacks, restrictions in federal Medicaid and other payments, increases in unemployment and welfare costs, and increased costs for homeland security are laying off workers, scaling back construction and other state projects, raising taxes and fees, and reducing the safety net for the poor.

Other than the stock market, the other pillar of personal wealth in this country has been the tremendous appreciation in home prices. But faced with a net loss of 15-20% in personal wealth over the last two years, potential home buyers will be reluctant or unable to take on the huge mortgage debt necessary to purchase a home in today’s market. If housing prices stagnate or contract, millions of homeowners will feel the pinch. Net household wealth and purchasing power will plummet, leading to a far more severe recession than we have seen so far.

The huge tax cut for the wealthy pushed through Congress during the early days of the Bush administration has eradicated the surplus built up during the Clinton years. Foreign investment in the U.S. has been cut back severely by the crisis in confidence surrounding Wall Street and the prospects of deep deficit spending by the federal government.

Add to this mix the estimated $65 billion cost of the President’s war against Saddam Hussein, the associated burden of sharply higher oil prices, and the intangible fear factor associated with the increased risk of terrorist reprisals, and you have all the ingredients for economic disaster.

Friday, July 26, 2002

Fear In the Classroom

Are we living in a police state when first-grade schoolchildren are frightened by huge, wolf like German Shepherds sniffing at them for drugs? Imagine that you are, perhaps three-feet tall, weigh less than 50 pounds, and maybe you’re unfamiliar with or afraid of dogs. Imagine then that your principal and your teacher who you trust allow them in to your classroom to sniff up and down each row. These beasts, with fangs and lolling red tongues, stalking up and down coming toward you.

Was the possibility of finding marijuana or even cocaine on a drug-using student worth the damage done to the children in those classrooms in Wagner, South Dakota? What are we giving up in the name of Homeland Security?

Wednesday, July 24, 2002

Congress Fiddles While the Economy Burns

Politicians and businessmen of all stripes have been attempting to convince us that the daily drum beat of corruption revelations have been the work of a few bad apples. So now the banks, Citigroup and J.P. Morgan Chase, have been implicated in setting up loans to Enron that were disguised in such a way as to appear as earnings. It appears that the banks were attempting to franchise these stealth loans to other corporations interested in artificially inflating their earnings.

It’s not the crooked CEOs, analysts, bankers, and other insiders that have lost their savings here. It is the bulk of Americans who believed the mantra that the stock market was the best investment for their futures and their retirement savings. The losses here are gigantic. Many average citizens have lost the majority of their life savings. The effect on their lifestyles, security, and trust in the system is incalculable. This tremendous loss of wealth will have cascading effects throughout the economy. Spending on housing, automobiles, appliances, home furnishings, entertainment, travel will suffer stiff declines. Unemployment will climb substantially. As home prices plunge, Americans will lose the other major pillar of personal wealth creation over the last twenty years.

So why is it that the United States Senate can’t even muster the character and conscience to regulate the unfettered granting of stock options that have corrupted American corporate leadership and pillaged the savings and pensions of tens of millions of Americans? Perhaps the answer could be found in looking at the campaign contributions and lobbying activities of thousands of American companies and at the voting records and behind the scenes deal making of most of our elected representatives.

In the Old Testament Isaac sells his birth right to Jacob for a mess of pottage. Apparently, Americans have sold theirs for a 300 dollar tax refund and a mess of platitudes.

Tuesday, July 23, 2002

Bush Knew of Large Losses Before Stock Sale at Harken

George Bush filed a late Form 4 reporting the June 22, 1990, sale of 212,140 shares (about two-thirds of his stake) of Harken Energy Corporation on March 4, 1991. An SEC investigation of possible insider trading infractions found that Bush had a “relatively limited role in Harken management” and that: “The vast majority of the second quarter loss of $23.2 million was unknown to management, let alone to Bush” at the time of his stock sale.

However, a careful analysis of company documents makes it clear that Bush knew that Harken was in a serious financial crisis months before his sale of Harken stock. In an April 20 letter to the Board of Directors, President of Harken Mikel Faulkner announces that the Bank of Boston’s enforcement of provisions in its loan agreement with Harken “...greatly intensifies our current liquidity problem and mandates the infusion of equity into the company.” He mentioned the prospect of “technical default” by the end of the year. At the May 11 meeting of the Board of Directors, Bush was provided with the minutes of the May 8, 1990, meeting of the Executive Committee of the Board of Directors where a plan to pursue a public stock offering in order to raise much-needed capital was abandoned due to restrictive loan covenants from major lenders to Harken.

At the May 17 meeting of a Special Committee of the Board of Directors , Bush was present when another director Michael Eisenson discussed Harken’s “non-compliance” with the terms of its loans from Bank of Boston and First City Bank..." and "...reviewed negotiations with those banks for an extension and waiver....” of provisions of Harken’s loan from them.

The next day Bruce Huff, Senior Vice President of Harken, sent a letter to members of the Special Committee including Bush emphasizing the need for immediate approval of an alternative means of raising capital for the company and refinancing its loans. He points out that: “Failure to secure immediate financing will have material negative impact to trade credit and operations.” Furthermore he stresses that: “The proposal will satisfy the immediate cash needs of the Company, which begin to mature May 20, 1990.”

A few days later on May 25 the agenda for the full board of director’s meeting includes an item: “Avoid default under existing bank lines” and another: “Identify appropriate ‘crisis issues’ regarding the Bank of Boston.” Clearly, George Bush was aware that Harken Energy was in deep financial trouble.

The same agenda outlines a time line for public reporting of company operations and finances including a “News release regarding rights offering related write down.” scheduled for June 30, and an item: “Develop an analysis of the accounting rules related to the potential recognition of a write down of assets resulting from the rights offering.” This rights offering was a Byzantine method of offering shareholders rights or warrants to buy additional Harken stock while “spinning off” subsidiary companies and “writing down” or forgiving loans to other subsidiary companies in return for other concessions.

The key concept here is that by May 25th the Board of Harken Energy knew that there would have to be a substantial “write down” or decrease in previously reported assets in order to secure immediate additional capital from major shareholders and extension of bank lines of credit.

On June 11, 1990, George Bush chaired a meeting of Harken’s Audit Committee. During that meeting Richard Ellis of Arthur Anderson, who was the company auditor, “...stressed the fact that there was a potential right [sic] down that might occur in one or more of the subsidiaries..." and "...that adjustment could be potentially significant.” During the same meeting there was a detailed discussion “concerning the appropriateness of the quarterly financial reporting.”
It was not until August 20, 1990, nearly two months after Bush sold the bulk of his shares at Harken that the details of the write down of assets and extraordinary losses for the second quarter of the year were made public.

Despite the SEC’s determination that there was insufficient evidence to bring charges of insider trading against George Bush, it is clear that he had insider knowledge of Harken’s precarious financial condition prior to selling approximately two-thirds of his shares on June 22, 1990. Any prudent investor would have predicted that the release of such information would have resulted in a significant drop in the share price. The fact that shares dropped by 20% but recovered within two days may have helped Bush avoid a formal charge of insider trading, but can’t protect him from the charge that he used his insider knowledge of the desperate state of Harken Company finances to avoid potentially disastrous losses by selling most of his stake before the news became public.

Sunday, July 21, 2002

Americans Don’t Like the Truth

“Democracy is a device that ensures we shall be governed no better than we deserve.”
--George Bernard Shaw (1856 - 1950)

You just can’t trust anybody nowadays it seems. You see, after serious dieting and exercising these last few months, I got back down to my college weight. So when the new Ralph Lauren 34-30 relaxed fit jeans I bought at Costco were too big for me, I took them back and went to the Gap where I was thrilled to discover that I could handily fit into their “Standard Fit” 32-30 jeans.

After enjoying my new, slimmer self for a couple of weeks, I remembered that I had a pair of vintage black 32-30 Levi’s at the bottom of my jeans pile. I pulled them on and was dismayed to discover that they were really tight. I could barely button and zip them up. No way could I wear them around town.

Puzzled why the Levi’s didn’t fit, I took a tape measure to the inside of the waistband and discovered that they were, indeed, 32 inches in girth. Suspecting now the truth about my new Gap jeans, I measured the waist at, exactly, 34 inches.

My wife informs me that this so-called “size inflation” has been a major factor for several years in women’s clothing. It allows a hefty female to say that she wears a size six when she is actually wearing a size ten. This shading of the truth has permeated American society from advertising which focuses on the superficial “flash” of a car or breakfast cereal, to education where students who accomplish little are rewarded with smiley faces, good grades, and undeserved promotions, to business where so-called superstar performers are given huge salaries and option packages, power and perks, as they cook the books and drive corporations into bankruptcy.

Just as they don’t like to look at how their hot dogs or breakfast sausages get put together, Americans don’t like to look too closely at their politicians or their businessmen. We tend to look at the superficial surfaces of things -- the sizzle rather than the steak.

So when companies and their pet analysts are reporting unbelievable earnings and prospects , we just go on buying their stock. And when politicians tell us that they’re going to fix the accounting and regulatory loopholes that have defrauded tens of millions of investors, we listen enthralled while they blather on CNN. Just don’t look too closely into the back halls of Congress where this next mess of breakfast sausage is being prepared. You just might get a case of indigestion.

Saturday, July 20, 2002

Have You No Shame?

The New York Times reports that TechNet, a coalition of investors, CEO’s, and executives, especially in the area of technology, is pressuring Congress not to regulate the granting of incentive stock options. This despite the fact that the runaway granting of options to top corporate executives contributed to the recent implosion of many large and small companies resulting in large losses to investors.

A stock option is the right to buy company stock in the future at a favorable pre-set price. If the price of the stock goes up, the holder can cash in or exercise options to buy company stock and resell it for a profit. If the stock goes down, he can simply let the option expire at no loss to himself. There is no risk for the employee or out-of-pocket expense for the company. It’s a great way to reward senior employees without actually spending money up front. Options on viable, growing companies are capital assets, frequently worth a great deal of money.

Up to now it was common for many companies, especially technology, bio-technology, and related companies to issue options as a means of recruiting, rewarding, and retaining key employees. The employees need only pay taxes on the options that they exercise. If the stocks purchased are held for a specified period, the profit made from the exercise of the options and the sale of the stocks purchased with them is taxed at the favorable capital gains rate of 20% instead of the top federal income tax rate of 38.6%. So, not only do highly-compensated employees receive valuable options on top of their generous salaries, they also receive an additional 18.6% increase in the take-home value of their options courtesy of the federal tax code and the rest of us not-so-favored workers who pay a higher tax rate on their ordinary income.

Companies who issue options usually end up issuing more stock or using company funds to buy back stock in order to enable employees to exercise those options. In effect, options are IOU’s on shareholder value. The net result of printing more stock certificates is to increase the total number of shares of the company. When you increase shares without adding to the underlying value of a company’s assets, you are diluting the value of each share held by investors, most of whom paid full market price for their shares.

Companies usually do not inform their shareholders of specific option grants as part of executive compensation, nor their true effect on corporate balance sheets, often reporting options in the notes buried at the end of annual reports. Further, the great majority of option-granting corporations, do not deduct the current value of the options they grant from their current income, which distorts their apparent profits by making them appear larger than they actually are.

The corruption, malfeasance, and distortion of corporate balance sheets perpetrated in large part by top corporate executives attempting to artificially inflate the value of their options and stocks resulted in a widespread loss of confidence in the markets. Even after the trillions in dollars of losses flowing out of this loss of confidence, TechNet has apparently twisted enough arms on Capitol Hill to prevent regulation of corporate stock options.

As John McCain said recently on the floor of the Senate, “The fix is in.” I wonder when the time will come when the average American investor or citizen is going to have his or her interests considered? Or is that too much to ask?

Friday, July 19, 2002

Four Year’s Value Up in Smoke (and Mirrors)

It’s not just the bad guys or the politicians. It’s not just the big corporate types, the banks and investment companies, we’re all gonna suffer now.

Just look at a graph of the Dow, S&P 500, or NASDAQ from the perspective of five or ten years. Investors have lost the value of approximately four years appreciation in their stocks. More than half of Americans own stock now, either directly or through retirement plan of some sort. We’ve been kicked in the ribs. Think what effect the loss of seven trillion dollars from savings, investment availability, purchasing power, and – most of all –confidence will have on the economy.

Add to that fear the continuing shadow of terrorism that hangs over the mind and news of this country 24/7. And to those, the prospect of an administration that is planning to pursue a policy of gunboat diplomacy in Iraq at unknown cost in military and civilian lives and political and individual fear and confusion.

What have we got to face? A damn big Hydra with many heads. Too bad there's no Hercules in sight.

Thursday, July 18, 2002

Why Should We Play When the Game Is Rigged?
(An unpublished Letter to the New York Times, January 18, 2002)

Although the current Enron scandal is an exceptionally egregious example, systemic corruption among individual companies and analysts casts doubt upon the efficient, open, and equitable functioning of the financial markets. My own ill-starred seven-month experience as an individual investor may not be typical but it demonstrates that both technical and fundamental analysis of individual companies and the market as a whole are insufficient as guides to investment when they are undermined by insider trading, mutual back scratching between companies and the analysts that cover them, overly generous stock options to company officers that dilute the value of investor equity, large block trading by institutional investors that create volatile price movements in opposition to underlying fundamentals, and self-serving exaggerations and untruths by company spokesmen.

As an individual investor with a small stake, I started trading in individual stocks last February through my newly-opened Datak account. Prior to any investment, I carefully investigated company fundamentals and the apparent outlook for the market segment I was considering. I read analyst' s reports. I studied charting. All to no avail. My initial orientation to so-called value investing resulted in sustained losses. Even though the underlying fundamentals determining the "value" of the stock seemed good, the market seemed to move irrationally in the opposite direction. There was always an analyst or several touting the value of a particular stock, telling why it was undervalued and a good candidate for outperforming the market.

Even more disconcerting was a near-disastrous purchase of Aremissoft (AREM) the Belgian health-care software company. Based on fabrications and exaggerations by company management and reports by a supposedly independent analyst, I purchased stock in the company in May. The very next day, the New York Times and The Street reported apparent irregularities in the reporting of company revenue. Trading was halted by the exchange. It was only a matter of luck that I happened to be online when it started again, and I was able to sell the stock before it plummeted in value. Now the former top officers of the company are fugitives from an SEC inquiry and lawsuit.

Even one of my most successful purchases -- that of ImClone (IMCL) -- a biotech company engaged in the development of anti-cancer drugs, would have turned out disastrously if I had held it for a few months longer. It turns out that company and analyst predictions about early FDA approval of its supposedly blockbuster drug for the treatment of colon cancer exaggerated the actual state of affairs. The value of the stock has since plummeted.

Monitoring of large-block institutional purchases revealed that the value of stocks was driven more by the arcane intricacies of program trading and the inscrutable reasoning of fund managers than any so-called "rational" considerations. This apparent irrationality taken together with the venality of various insiders and their hangers-on, renders the equities markets a dark and dangerous playground for the individual investor.

I was lucky to break even after seven months of hard work and anxiety. Unfortunately, millions of other investors have not done even that well. Unless far more stringent regulations and monitoring of company insiders and analysts are instituted, it would seem that it would be more rational for the small investor to seek a safer harbor.

Tuesday, July 16, 2002

Chicken Little in Reverse

Once upon a time Chicken Little’s brother Backward Chicken, who was mayor of Chicken Land, was walking down Ceiling Street when a piece of the sky fell down and hit him on the head. Of course, because he was Backward Chicken he didn’t say anything to anyone, insisting to himself that all was well in Chicken Land.

Then Loosey Goosey came up to say that a piece of the sky had fallen right in front of him. Backward Chicken looked right past Loosey Goosey, saying that if anything the sky was fundamentally stronger than ever and that all it needed was a little air brushing. Just then Foxy Loxy ran up rubbing his head moaning that he had been clobbered by a piece of falling sky. Backward Chicken just looked right past Foxy Loxy, saying that he was certainly mistaken, that it couldn’t have been a piece of the sky and, in fact, that it probably wasn’t all that serious anyway. He said that by simply talking louder and threatening dire punishment the citizens of Chicken Land could make sure that no piece of sky would fall down again.

So that is what Backward Chicken and all the citizens of Chicken Land did until the sky fell down and crushed them all.
Is It Time for Bushgate Yet?

Why is it that Bill Clinton’s mutually consenting sexual escapades with Monica Lewinsky and small-time failed real-estate venture in Whitewater caused a conservative furor that spawned the assignment of pit-bull Independent Counsel Kenneth Starr and impeachment by the House of Representatives? Yet what appears to be a snake pit of less-than-timely accounting and sweetheart deals at Harken Energy, mutual back scratching between George W. Bush and other investors in the Texas Rangers baseball team and city officials in Arlington, Texas, a half million dollars of Enron contributions to Bush’s successful campaigns for governor of Texas followed by the appointment of a bakers dozen of former Enron executives to senior positions within the Bush Administration and Enron’s special access to Vice-President Cheney’s energy policy development task force, and the unprecedented investment of at least $450 million of University of Texas endowment funds with Bush associates and campaign contributors who stood to collect huge fees while he was governor of Texas have hardly rippled the political waters? (See Paul Krugman’sand Nicholas Kristof’s columns in the July 16, 2002, New York Times and Martin Peretz’s column in the 7-15-02 edition of The New Republic Online.)

The details that are leaking out of this murky swamp become more lurid every day.
Outrage of the Day

The U.S. Navy is preparing to deploy low frequency active sonar designed to detect potential enemy submarines in two war ships. In previous tests near the Bahamas, nearly 20 whales beached themselves immediately after the tests. Seven of them died. Autopsies showed massive damage to their brains and inner ears. Previous tests of related sonar systems resulted in similar damage to dolphins and whales. When the Navy released its environmental impact statement in January of 2001, it did not address the potential for both long-term and short-term impact on marine mammals.

Despite the vehement protests of environmental groups, the national Marine Fisheries Service is prepared to issue a permit for such use by the Navy. Given the extreme power and range of LFA sonar and its potential for lethal effects on marine mammals, the Navy’s promise to use it outside the 12-mile limit off the U.S. coastline and to make a visual survey of an area prior to using the sonar, is tragically inadequate.

Is our need for security so great, that we are willing to kill and maim untold numbers of whales and dolphins? Is this another example where a governmental agency's claimed need for "security" overrides all other considerations?

Sunday, July 14, 2002

Is it time for a politics of class in America?

There was a time when the rich felt an obligation to consider the needs of the poor. Men like Roosevelt and Rockefeller worked to feed the hungry, provide for the needs of the old and sick, strengthen the schools, and offer wider access to a college education. Apparently, those times are over.

The unfolding scandal of corporate greed that has defrauded investors, gutted the retirement accounts of huge numbers of citizens, driven up interest rates, and resulted in thousands of layoffs is not just the work of a few criminals. It is the result of an arrogant insider culture that rewards misrepresentation and lies. It grows out of a society where wealth and power feel that they can take whatever and as much as they want without fear of punishment or shame.

The rich have over reached themselves. They have exercised their power to re-distribute huge amounts of wealth to themselves by insulating themselves from progressive taxation and an inheritance tax. In essence, they have conspired to create an hereditary upper class where multi-millionaires live apart from the rest of us, send their children to elite private schools, starve the public schools by supporting voucher programs, buy elections by spending their own money and that of like-minded wealthy contributors, opposed reasonable reforms and oversight in public agencies such as the IRS and the SEC, manipulated public opinion through advertising and their control of the media, despoiled the environment, and stolen or misused public resources such as timber, crude oil, broadcast airwaves, water, etc.

Perhaps it is time for a coalition of those who have suffered from these policies such as the poor, senior citizens, the average investor, liberals, progressives, etc. We need to get beyond divisive interest-group politics such as abortion, gay rights, affirmative action, multiculturalism, and school vouchers. The issue here is far more fundamental. Money and power go together in America. If we wish to retain a real democracy with respect for and consideration of the needs of all Americans, we need to weigh the underlying interests of the great majority as opposed to that of a small and selfish minority.

Saturday, July 13, 2002

A House Divided Against Itself Cannot Stand - Lincoln

Yesterday, I went shopping for jeans at the new mall here in Durham, North Carolina. I couldn’t believe that they cost 40 dollars a pair at the Gap. That’s nine times as much as a pair of Levi’s cost back in 1965. At that time the minimum wage was $1.25 per hour. The current minimum wage is $5.15. That’s only a little more than four times what it was back in 1965. Yet the consumer price index is nearly six times as high as it was then. How can an average wage-earner keep up?

When I started teaching junior high school back in 1972, my annual salary was $7200. We bought our first new car, a Subaru wagon, that year for twenty-five hundred dollars even. A teacher starting work in that same district this year would make about four and a half times that much. But a Subaru Legacy wagon runs about $20,000 now. That’s about an eightfold increase. How could a beginning teacher afford an equivalent new car nowadays?

A similar level of price increases outstripping wages holds in many other areas. Have you been to the doctor or dentist lately? Can you imagine paying their bills without insurance? What about paying for a name-brand prescription drug? Have you needed a plumber or electrician? How about a lawyer? Whether it’s movie or sports tickets, trips to theme parks, or car insurance, costs have skyrocketed while wages, especially at the lower end of the spectrum have stagnated.

According to the Social Security Administration real wages after deducting for inflation have increased an average of less than one percent a year since 1972. Productivity per worker has increased at a rate slightly in excess of one percent during the same period. In other words, the average worker is being paid less per unit of production than he was being paid in 1972.

CEOs of top corporations are now making 541 times as much as line workers. Only a few decades ago their average salary was only 40 times that of line workers. Is such an increase fair? Is anyone worth that much? Last year’s tax cuts put a few hundred dollars into the pockets of the working-class while pouring thousands and tens of thousands into the hands of the wealthy. The phased-out repeal of the “death tax” or estate tax will allow them to pass on millions to their heirs while the rest of us pay increased taxes to make up for the loss in revenue.

The gap between the incomes and assets of the upper and working classes in America has become so great that it can be said that America has become a land of separate cultures and classes where the upper class in its gated communities, mansions, and resorts lives a life totally insulated and apart from the gritty struggle that many of us face to make ends meet.

America society already displays unfortunate similarities to those of third-world countries composed of a relatively small elite and an impoverished and politically disenfanchised lower class with little chance of working its way out of debt and into a middle class lifestyle. The hopelessness and frustration that would accompany the further transformation of our economy into such a polarized state would result in anger, violence, and repression beyond anything we have yet experienced.

Wednesday, July 10, 2002

Is It Time for the “D” Word?

The President has spoken. Apparently, the markets haven’t listened. They continue to plunge.

Over the last three years we have seen the NASDAQ rise by more than 75 percent above and then sink more than 50 percent below where it stood in July of 1999. The Dow is approximately 50 percent below where it stood in 1999. Most other equity indexes show somewhat lesser but extremely heavy losses as well.

The combined loss of shareholder value between then and now is staggering. If the value of all outstanding stock of the 30 Dow Jones Industrials is 1.6 trillion dollars, then a 50 percent loss of share price stocks alone represents an 800+ billion dollar loss of value for shareholders. Investor losses in NASDAQ Composite stocks are of similar magnitude. Many investors who purchased tech shares during the height of the boom have lost 85 cents on each dollar invested. Mutual funds, 401(k) accounts, and pension funds are swimming in red ink. As people lose large chunks of their net worth, they become more frightened and less willing or able to make purchases.

The rate of growth in unemployment has reached levels equivalent to those found during the recession of 1991. Thirty percent more individuals are looking for work now than was the case a year ago. Corporate investment is stagnating.

Foreign investors are pulling money out of U.S. markets. The value of the dollar is sinking rapidly. The daily drum beat of corporate scandals including accounting fraud, improper insider loans, gargantuan option giveaways to greedy corporate insiders resulting in diluted stock values, the corruption of stock analysts who withhold and distort information and evaluations of company prospects, etc., continues to weaken our faith in the transparency and fairness of the marketplace.

In the end, it all comes down to confidence and trust. Unless investors, corporations, and individuals believe that the game is fair they will withhold their participation and the entire economy will collapse.

It’s time for more than talk. Immediate judicial action must be initiated to hold malefactors responsible for their actions. Appropriate and severe penalties should be administered in a timely fashion. Congress, the President, the exchanges, the accounting industry, and the boards and executives of corporations need to act decisively and without delay.

Not long ago we were talking about a “new” economy that had transcended the business cycle of boom and bust. Is it possible that we’re also wrong about the possibility of depression in this country?

Monday, July 08, 2002

Smallpox Vaccinations Suggest US Plan to Attack Iraq

The federal government recently announced that it planned to vaccinate approximately half a million health-care workers against smallpox. Vaccination will protect these so-called “first responders” in case they must treat smallpox victims infected during a terrorist attack. In addition, the government is manufacturing and stockpiling enough vaccine to immunize the entire country.

Why all this expense, bother, and risk of death or serious side effects? (Before vaccinations were halted in the early 70's, approximately one in a million recipients died from reactions to the vaccine). Clearly, it is because the Bush administration fears that Saddam Hussein, who is believed likely to have stores of weaponized smallpox virus, will unleash a bio-terror attack against the United States if we invade Iraq.

President Bush and other members of his administration have made increasingly direct threats against Iraqi leader Saddam Hussein. At the President’s direction, the Pentagon has prepared detailed invasion plans. These plans envision unilateral or nearly unilateral action by US forces, due to the reluctance of our allies to join us in an unprovoked attack on Iraq. Such an attack could conceivably result in hundreds or thousands of American and tens or even hundreds of thousands of Iraqi casualties. Costs could run well up into the tens of billions.

Without question, the Iraqi dictator is a dangerous man. There are indications that he has continued to develop weapons of mass destruction during the last few years without the oversight of UN weapons inspections. However, it is hard to believe that we have no other options to defuse that threat than total war.

The question for us as a nation is whether we intend to pursue a unilateral first-strike policy against any or all nations that we decide are “dangerous.” A related and equally important decision is whether we are prepared to live in a garrison state, as the self-annointed police force for the world. Such a position, where we act outside the boundaries of the United Nations and without the advice and consent of allies and other countries, will result in a crushing burden of taxes to maintain military preparedness and technological superiority, resentment by those nations and peoples who feel oppressed by our policies and power, a chronic state of insecurity as the target of attempted terrorist or military strikes, and the continual erosion of civil liberties -- indeed the very heart of our democracy -- as we attempt to counter real and perceived threats to our security.

Thursday, July 04, 2002

Congressional debate over the estate tax shows how terribly misled the American public has been about its economic impact. Remember, only millionaries pay estate tax; ordinary Americans do not.

Whether we believe government’s budget should be larger or smaller, the money has to come from somewhere. Eliminating estate tax is not a tax cut – it just shifts the tax burden so that more is paid by working people’s income taxes, and less from multimillionaires.

The estimated cost of repeal, for the first full decade, is $750 billion. Census figures show America has about 100 million households. Thus, estate tax repeal means every American household will pay on average $750 per year to the superrich.

More than any other nation, America was built by individual achievement, not by hereditary aristocracy. Income taxes take money from the pockets of ordinary people, but estate tax only affects children of millionaires. Are our hard-earned dollars better spent for national security, health care and education, or for bigger yachts for the elite?

President Bush somehow convinced America’s middle class that they were better off by allowing multimillionaires’ children to enjoy larger trust funds. If the real issue is family farms and businesses, then just exempt them (as Democrats have proposed), and let the tax continue on the superrich. Treasury Department figures for 1998 show that fewer than 1,500 decedents in the whole country left mainly family businesses or farms. Simply exempting them would cost a small fraction of the total, and save the great majority of Americans from huge subsidies to multimillionaries.
Homeland Insecurity Day

As the citizens of Washington, DC, are herded together inside a double line of fencing to watch tonight's celebration of our freedoms as Americans, we might take a few minutes to think about how things have changed over the last ten months in this country:

Anthrax Panics

Dirty Bomb Scares

Shoe Bombers

Airline Security Delays, Searches, and Fees

Potassium Iodide Pills Distributed to Ward Off Radiation Sickness

Anti-Terrorist Legislation That Permits Extensive Surveillance of American Citizens


U.S. Threats to Invade Iraq

Detention of American Citizens Without Formal Charges, the Right to Counsel, Bail, etc.

A Deepening Recession for Job Seekers

Worries That There Won’t Be Enough Smallpox Vaccine

A Plummeting Stock Market

The Revelation of Widespread Venality, Corruption and Coverups in Many Large and Small Corporations’ Draining 100's of Billions from Stock and Bondholders

The Passage of Massive Tax Cuts for the Wealthy That Have Turned the Federal Budget Surplus Into Deep Deficits Far into the Future

Cuts in Medicare Payments to Doctors and Hospitals That Have Turned Medicare Into a Shabby, Welfare-like Program with Many Providers Refusing to Accept New Patients

And the list goes on....

Are these things all just unfortunate accidents, bad timing, the result of the unreasonable hatred of America by fringe-group Islamic extremists? Have our attitudes, policies, behaviors both here and abroad had an effect?

Wednesday, July 03, 2002

Is President Bush guilty of insider trading? Did he offer Enron various forms of payback for its over half a million dollars in contributions to his Texas gubernatorial races? See Paul Krugman’s July 2 column “Everyone is Outraged” in the July 2, 2002, New York Times for details. Why is it that Enron and other energy companies had privileged and secret input into Dick Cheney’s development of a national energy policy that promised increased profits for them while despoiling our wilderness areas and dumping even more pollution into the air we breathe? Why is it that a substantial number of former Enron executives were offered important positions in the Bush Administration?
Individual investors and pension funds have lost hundreds of billions of dollars as confidence in the integrity of corporate accounting and the marketplace have plummeted. Yet corporate insiders have apparently taken billions in profits from insider trading schemes and stock options whose value was temporarily inflated by misrepresenting the true state of company finances. All this was done under the noses of Bush administration regulators and a Congress who refused to impose strict oversight over the marketplace, despite warnings of real and potential abuses from prominent businessmen and public leaders.
It’s time for all of us to demand a higher level of ethics and performance in our politicians and officials at all levels of government.

Monday, July 01, 2002

What ever happened to fairness, prudence, public service, and ethics in America? Corporate accounting scandals, conflicts of interests among stock analysts and brokers, and insider trading leach money out of your 401K. Global warming, daily ozone alerts, and de-funding of toxic waste cleanup threaten our health. Massive tax cuts targeted toward the wealthy leave Social Security and Medicare facing insolvency and benefit cuts, while education, health care, and other critical needs are ignored. Our one-sided support of the oppressive and brutal colonial occupation of the West Bank by Israel results in pervasive resentment of the United States among Moslems leading to the horror of the World Trade Center attack and the subsequent erosion of our civil liberties including suspension of habeas corpus, federal monitoring of e-mails and other Internet activities, intrusive searches and delays at airports and bridges and tunnels, and frequent terrorism threat alerts that unsettle the entire country. Our Congressmen and Senators are, for the most part, millionaires who make laws that benefit themselves and large corporate, interest-group, and wealthy individual donors.
Wake up America. While we’re watching football, movies, and MTV, our country, our freedom, and our security are being stolen from beneath our noses.