Three, Two, One ... Bailout

Three, Two, One … Bailout
by Mort Malkin

Did you notice how through 2007 and most of 2008, the government was telling us that the fundamentals were sound and the economy was strong. The pronouncement was repeated even though we owed hundreds of billions to various countries around the world such as China, Japan, Malaysia, Saudi Arabia, and the United Arab Emirates, and our balance of payments was in deep scarlet Recession? Don’t be a Chicken Little.

Suddenly, when the stock markets dropped so precipitously, president Bush changed his tune. We were in serious financial straits he said, and Secretary of the Treasury Paulson needed taxpayer money to bail out our financial institutions (private banks). Bear Sterns was first — it had more debts than worthless assets. Then, in rapid order Lehman Bros failed, AIG needed rescue, and Merrill Lynch had to sell new stock at a discount to Singapore to raise money. Yet, all through 2007 and most of 2008, real estate sales were down and property values were declining, even as sub prime mortgages were still being written in an unintelligible language and packages of them were being sold to investors by calling them collateralized debt obligations (CDOs). But, the fundaments were sound. Even the rating agencies Standard & Poor’s and Moody’s called the CDOs investment grade.

Secretary Paulson (he, recently the CEO of Goldman Sachs) asked Congress to give him $700 billion, but don’t ask what he would do with it. The people’s reaction (over 90% of us) to giving away $700 billion to Wall Street was outrage. Members of The House of Representatives, all up for re-election, heard from constituents. Congress said to Paulson “Whoa, we’re not going to give you a blank check.” The $700 billion was voted down. So, the White House wordsmiths got busy and called it a “rescue” instead of a “bailout.” Paulson added concern for deposits that were insured for only $100,000 and a few words for homeowners who were having their homes foreclosed. He assembled a meeting with the banking industry and drafted a new bill. Being a “can do” guy he didn’t meet with any academic economists, especially not Nobel Laureate Paul Krugman of Princeton. The administration demanded partial ownership of each bank, but the stock the government would receive was only a token percentage of what could be bought openly on the stock exchange for the same money.

The complexity of the financial crisis goes way beyond sub prime adjustable mortgages, bubbled evaluations of real estate, rating agency “investment” inflation, and bundling of mortgages as CDOs. In 1999 the Gramm-Leach-Bliley Act [the same Phil Gramm who earlier in 2008 said we Americans were all complainers] erased any real regulations from/for the financial system. Banks could do most anything — savings banks could sell stocks & bonds, investment banks could create derivatives, not only CDOs but also tranches, credit default swaps, and probably some we haven’t heard about yet. For the $700 billion, Paulson was not demanding regulation of the financial “industry,” nor was he going to say anything when the Wall Street firms such as AIG continued to pay executive salaries in the millions, continued to pay stockholder dividends, and held fancy parties disguised as meetings at elite (expensive) resorts.

Just before Thanksgiving, two groups thought to get in on the handout. Citibank “needed” $25 billion to survive, and General Motors had only enough money to get through 2008. Paulson, with the president behind him and the vice president behind the president, said the two industries were entirely different. He was right. Citi makes only paper and financial legalese. The car companies (Ford and Chrysler decided to get in on the act) at least makes cars. Yet, the CEOs of the big three automakers had to go through a grilling by Congress, including why they didn’t drive hybrid autos from Detroit to Washington instead of taking corporate jets. We also may note that the three combined CEO salaries are about $80 million. None of the grillees offered to quit or serve without pay. A sensitive majority in Congress refused them any money until they came back with plans for improvement over the status quo. Citibank was something else. Paulson considered CitiGroup too big & too important to fail, and CEO Vikram Pandit never was called before anyone. But, he did the right thing — he fired 10,000 underlings at Citicorp.

What to do — other than to throw money by the hundreds of billions of our money at Wall Street?
• We can start by repealing the Gramm-Leach-Bliley Act and re-regulating all “investment vehicles.” Even Greenspan now says it was a mistake to deregulate derivatives. While we are at it, we can regulate hedge funds, and private equity funds.
• The CEO (and CFO and COO and anyone else who makes more than a million dollars a year) of any investment house that sustains losses must give back all the money. All CEOs and other mucky-mucks must be limited to salaries of $250,000 so they will qualify for Obama’s middle class tax cuts.
• All the people who got rich by selling mortgages and derivatives and collecting commissions at every repackaging have to give back the ill gotten money.
• All adjustable mortgages are forbidden. Three of five subprime mortgages were sold to individuals and families who qualified for long term, fixed rate mortgages anyway. So much for blaming the homeowners for the crisis.
• For the $700 billion the government can buy the subprime mortgages — Merrill sold a package of its sub prime mortgages to Singapore at about 22¢ on the dollar. Its a good model.

After we thusly straighten out Wall Street, we must raise the minimum wage, extend unemployment insurance limits, and have the federal and state Employment Agencies actually find jobs for people instead of just handing out checks. Then, we can attack health care reform. It all shouldn’t take more than a few months. Finally, we can tend to important things such as art and poetry.

The Oil Giant Turns Green??

by Mort Malkin

T. Boone Pickens has been on television as much as any candidate for public office. And he, at age 80! First, there were paid advertisements on the networks. Then, he went on the late night political humor shows, ostensibly to hawk his book “The First Billion Is The Hardest.” Poor guy, with the current financial crisis, he must need the money.

Lately, he’s not talking about his book, He’s doing a typical bait & switch job. First, he blesses wind power — who can be against a clean, renewable energy source? He has his basic facts straight. There’s enough wind fom Texas to Montana and the Dakotas to power the entire nation. But, T. Boone Pickens puts wind decades away. In the interim he wants to use natural gas, a genuine fossil fuel. Interviewed on “Face The Nation,” he reveled in the glories of natural gas: it is (relatively) clean burning; it can replace diesel fuel for 18-wheelers; it is plentiful in the US. Cars can be run on batteries and even photovoltaics, but big rigs, the 18-wheelers, need diesel fuel or, in Pickens’ scheme, they can be converted to run on natural gas.

In the interests of full disclosure -- offered by the Gadfly Revelry & Research gang on behalf of T. Boone Pickens -- he is the CEO of BP Capital, a hedge fund. He is also based in Texas with an office in Dallas and a ranch in the panhandle. Gas extraction companies are already mining natural gas around Fort Worth. Then, he has an interest in water from the Ogallala aquifer that runs under his ranch. Neither does he tell about how, like oil, the easily-obtainable large pools of gas were taken years ago. The “plentiful” natural gas he is so enthusiastic about lies a mile deep in the earth in many tiny crevices and pockets, which were thought not worth the trouble to drill for it. Enter Halliburton, the gas & oil technology experts. In the 90s, when Dick Cheney was CEO, Halliburton developed the proprietary technology of hydraulic fracturing of the bedrock and the chemistry to bring up the dispersed natural gas in quantity. The mini-pockets of gas are widespread around the nation: the Barnett shale in Texas, deposits in the Rocky Mountains, and the Marcellus shale of northeast Pennsylvania and nearby New York, for starters.

Boone, no country bumpkin, also knows, but isn’t telling, that each gas well takes at least a million gallons of water in the drilling process. Also, various chemicals must be added to lubricate the whole works, to inhibit corrosion, and to suppress the growth of bacteria and algae. In Texas, Colorado, and western Pennsylvania, pollution of nearby drinking water wells by methane, benzenes, methyl napthalenes, Halad 344 and a hundred other toxic creations, has been documented. Were you expecting Halliburton to hold to high environmental standards? They didn’t even worry about patriotism when they moved their headquarters to Dubai from Houston.

You might not expect the interviewers from the media to know the details about drilling for diffuse natural gas deposits. But, how much knowledge and imagination does it take to ask T. Boone Pickens if he ever heard of using freight trains (electrified, of course) to move goods around the country instead of driving pollution spewing 18-wheelers? The electricity to run the trains can be obtained from sun, wind, and tides. T. Boone Pickens is a good geologist. Does he know something about gas deposits under the brush on his Texas ranch?

Electronic Origins

In the beginning, electronics were mainframes and psycho-pathology was talking to oneself. If you saw someone in the street talking aloud to no one in particular, you would think the person crazy or, if you were in the mountains of Greece, an oracle. Then, one individual who was both off the wall and extremely bright, perhaps a savant, decided that if cell phone technology were in existence, even a latter-day Socrates would be able to practice up for any issue of the day. And so, cell phones began.

Fast forward to today. We have untold permutations and combinations of pods, tunes, photos, and text messaging — which Apple usually develops and Microsoft steals — to keep us from boredom. The internet offers opinion, information, and references galore. Every computer has enough memory for all the text that a scribe could produce in a couple of lifetimes. Everywhere you go, people wear tiny earplugs attached to discs containing a few hours of music of their choice. They even have discs of nothing but classical music, maybe even mostly Mozart. Often the listener would hum along with the electronic recording.

One day on the New York City Subway, I heard a man humming , and occasionally singing out loud, along with the electronic music. He seemed completely immersed in his world of music, except … all the music was from his imagination. He was connected to no electronic anything. He must have been the son of that first cell phone man.

Quotation For our Time

"The man who is always waving the flag usually waives what it stands for."
Laurence J Peter

Hope Below the Radar

The election is over. Cheney has not attacked Iran or declared martial law, though he thought about both. Now comes the hard work of real change that will need imagination and courage. Today’s column is a first step in holding Obama’s feet to a fire sparked by working people, by young people (of all ages), by thinking people. Obama may not know it, till now, but “yes we can” has already started in terms of cultural change. Please read on.

Once upon a time, early in the last half of the 20th century, when America had a culture of rugged individualism, competition, and self interest, the Japanese entered the world of economics with a radical attitude: cooperation and altruism. Before that time, Japan was known for producing trinkets and low quality items. In the West, quality was good but productivity was not improving. Labor-management negotiations always included threats of strikes or lockouts & firings. Conflict was part of Capitalism and remains so in the West today.

The second half of the 20th century saw a 180° turn in Japan. Nikon lenses and cameras became as good as the best German optical equipment. Other products followed. In cars today, Lexus and and Infinity give Mercedes and BMW a run for quality. Today, Japan produces electronic devices of highest quality. In the Land of the Rising Sun and first hybrid cars, auto workers and labor in general: have a hand in corporate decision-making, have a pride in the products they manufacture, and have the security of a lifetime job. They are productive in both quality and quantity.

Look what happened to Toyota. It became eminently successful despite its silly name. The Toyota Prius leads all hybrids in sales and satisfaction. The Japanese eschew the American cultural model in many disciplines from law to business sharkity. If a CEO commits a strategic error he makes public apologies to employees, stockholders, and the public at large. He often resigns with bowed head. The next quarter’s bottom line can wait an Asiatic few years. Quality will out. Patience pays.

A few American firms have found they can do well by doing good, but very few have made it a habit or considered it more than image and good PR. The eight years of the B-C administration with “So?” Cheney calling the shots have reinforced the great white shark model. Very quietly in a multibillion dollar whisper, Google is creating a new cultural model. While everyone is talking about Google’s 400 billion searches a year and huge databases, we hear little about the company’s dual mission statements: a) “to organize the world’s information [all of it] and make it universally accessible and useful” and b) “don’t be evil.” The primary purpose of the former is not to make as much money as possible. The latter is not some sort of a joke, They don’t claim ownership of the world’s information and don’t charge for providing it. And, they’re serious about not being mean spirited. The mission statements are backed by many quotes of the
founders, Larry Page and Sergey Brin, and the like-minded CEO, Eric Schmidt. Here are a few. Brin: “We have no desire to screw any category of people or trick them. We want all our partners to be successful.” Schmidt: “We would never cross the boundary of violating user trust.” Brin: “How many people do you think had embarrassing information disclosed yesterday because of some Google cookie? Zero. It never happens.” Compared to Microsoft, which the courts have ruled suppressed competition, Google has not even been charged with violating any laws. Like Microsoft, Google offers a variety of software: word processing, spreadsheets, e-mail, instant messaging, map locating, and others beyond Gadfly — all under the umbrella they call “cloud computing.” But their first of all is their web search engine. It occupies 70% of their energies.

Concerning labor-management, Google gives above-and-beyond employee benefits. In addition to the usual, employees in the home office (not just mucky-mucks) get annual physicals, weekly car washes and other unlikelies. More impressive, Google allows its workers to devote up to 20% of their paid time to developing projects on their own.

Perhaps most telling, Terry Winograd, a professor of computer sciences at Stanford, was given Google stock for work he did early in the company’s history. Standard operating procedure in most American corporations is amnesia for early work, or just plain stealing. At Google, founders Sergey Brin and Larry Page have maintained good relations with Winograd and are genuinely generous. The principals at Google leave the lofty speeches to politicians, to promisors of one kind of change or another, they just do the deeds. Google offers free information on any topic with its search engine, free e-mail services with Gmail, free maps & directions, and free other things that are beyond Gadfly’s elementary electronic skills. Google explores every possibility — they are now looking into everything from mobile phones to renewable energy technologies.

One thing they do not offer free is advertising. Advertisers want to be noticed by the people in Google’s huge database, and revenues from advertising have given Google a net worth of over 200 billion dollars. Maybe, in a few years, if we don’t add to the $10 trillion national debt, Google will buy the US of A and change American culture to one of “Do no harm.” We certainly can’t expect that from Exxon-Mobil.

Google is growing far faster than the Chinese economy. It has been in business only since 1998. and grows with each year. Their technology is superior to all others, and they are attracting both creative talent and engineers without peer. They think they can do anything. Maybe they can. Hey Google, how about starting with changing American culture to one of cooperation and caring. You have the numbers, both in search requests and in earnings — just what Americans will respond to initially. Philosophy will not be far behind.