February 03, 2010
Anti-Prologue
Washington, DC
The Discovery of the Titanium Capsule
On a gray afternoon in late 1984 a battered, cream colored panel truck could be seen navigating a steep, curving incline on NM Route 82 about half way between White Sands and Cloudcroft. About a mile and half behind them followed a late model black Cadillac sedan with Nevada license plates. At one of the highest points along the way, the driver of the van pulled right onto the overlook, and then back as close to the edge as he could get. Another large man from the passenger side seat jumped out, headed to the back of the truck and quickly pulled out a large pair of cable clippers. Within seconds he snapped the double reach of cable on the right side where it joined the corrugated steel barrier post. The splayed cables lay sprawled on the sandy highway edge. Below, the almost sheer precipice dropped down about five hundred yards. Besides a few scattered clumps of brush, and some outcroppings, there would be little to slow the descent of the van as it bounced, flipped and finally took fire in the deserted valley below.
As the gasoline fueled fire raged through the overturned vehicle, a plume of thick black smoke wafted across the deserted valley. It was only two days later that the military command back at White Sands got a satellite report and downloaded photo of the event along with its coordinates from a system that was being developed and tested for a newly started program.
Already short on security units, Colonel Charlie Landrift, (according to a press article) quickly made the decision to turn the case over to local authorities. The call went out to the State Police in Alamogordo who radioed instructions over to Cloudcroft.
The Discovery
As a kid, Park Ranger Tommy Doolittle would sneak out of bed after lights out on the farm. He had built himself a 6-band radio from a kit he'd seen advertised in Popular Mechanics. There wasn't a lot to listen up in those mountains back then so getting onto the Base's internal communications always had more recognizable voices than the other short wave bands he could get on different nights. One thing about these mountains, he'd discovered, was some sort of electromagnetic confluence: Depending on meteorological conditions, Tommy could listen to ships at sea on certain nights and he also often captured the downbursts from NASA and other more secret satellites.
Tommy's job over at the National Forest at first made little use for these skills. He drove a pick-up and spent most of his time clearing fire ignition debris. But a couple of years back, a group of geologists from the State University had come over and set up a semi-permanent camp about ten miles up the road from High Rolls. Tommy had met some of the guys quite by chance one day and got to talking with them. One thing led to another and they invited him over to the camp for a couple of beers and that led to a conversation about their communication system. That's when Tommy heard about how they could actually use the telephone lines to dial into their PDP11 system as if they were sitting in the computer lab.
They were standing in front of a cathode tube terminal, Sandy R___ was a little red-faced and on to his fourth can that he held in one hand while he typed instructions on a keyboard with his right: "This here is on a server at Flagstaff but you see this directory," he moved deftly through a tree structure of letters and slashes, "that's all the way over in Palo Alto at Stamford."
With a couple of commands, Sandy had logged into a database of rock formations located at a site run by the NGS. Tommy couldn't believe what he was seeing. The concept of tapping into databases stored in various places around the country brought up all his old questions about what he was doing in the Forest Service. He'd joined up because it was there and comfortable and because he thought he knew that since his mom had passed from cancer, he was needed for a while. His dad, after those pain-filled months, had never gotten over it.
So the next day at work, when he picked up the call between District 8 headquarters and the patrol car about the unreported fire, he decided to head out himself to see what had happened. After all, his crew was breaking up for the day and heading the other way into town to Johnie's Neon Boots, a place he'd never felt right in, at least, since his mom's death.
There were still about two hours of daylight left when he pulled up to the overlook. He could see where the cable lay and that it had been snipped, not broken, clean. Tire marks cut into the edge and when he looked down he could make out what looked like the burnt-out shell. Tommy also knew there was no way to climb down to the ravine bottom from up there. Somebody was going to have to get a hold of an ATV, maybe the one over at the Oppy spread to get down there. He went back to the cab of his blue and white F150 and pulled out of a khaki canvas holder a pair of government issued ranger binoculars for a better look. The sun was getting lower and starting to flare reddish by that time. And it was pretty clear to him that Trouper Ansel Kodak wasn't going to be able to get over to the site until the next day.
As he peered through the glasses, trying to follow the recognizable contours down to the spot where the wreck lay, like a beetle on its back, Tommy's eye caught something that glinted back the sunset rays. He noted in his recount that he had never seen a more vibrant color in all his life. But just as abruptly, the glint was gone. Tommy glanced at his watch to note the moment, marked in his mind the bear's jaw outline of the rock formation where he had seen the light burst and then continued down to finally spy in on the broken panels.
But it was something about that laser-like beam that kept flashing like a neon sign in his mind's eye as he shared dinner with his dad. Even the news about what was clearly a deliberate dumping of the truck didn't really grab the interest of the older man, who Tommy could tell was, as become his manner, only asking questions to punctuate their fork-fulls. As soon as they'd wiped clean the bowl of stew with the ritual slice of Wonderbread, Tommy knew his dad would excuse himself and head into their small den to nestle back in his plaid recliner, placed in front of a very snowy Channel 7, the only station that sometimes made it that far.
"The weatherman over in Las Cruces, you know the one that cottons to Madras sports coats all year round, says it's gonna be a little warmer tomorrow. Seems that the el Niño is gonna keep things drier than usual, maybe right through this year's rainy season. How's that gonna effect you guys?"
Tommy had already started to clear the dishes. He knew his dad wouldn't wait around, not even for an answer to his own question. I wish I knew where his mind really is he thought.
Dead Sea Scrolls II
Tommy had to wait until Saturday but by that time he had figured out what he wanted to do. He'd heard all about the wreck find and how there had been what seemed to be two dead bodies stowed in the back. He'd monitored first Kodak's report and then those of the team that had driven down from the State Police Crime Lab. But he was going to set out on another mission. He had been back out on the overlook both Thursday and Friday and at just about the same time he'd seen that indescribable burst of what he had already dubbed 'nourishing light'.
Even though he'd figured the shortest way to get over there by cutting through Oppy's back acres, and he'd started out just after sunrise to give himself plenty of time, he realized that what looked like a bear's head from up above was not an image that could help him as he tried to plot a way up the slope from below. The problem was that if he waited until an hour before sunset, he'd have to make his way back in the dark.
Three weekends later, and still coming up empty despite all the various schemes he'd dreamed up, he knew he would have no choice but to camp over the following weekend. Maybe then he'd get a look at the reflection from below or if not he'd had the whole of Sunday to cover the area he guessed the source was located in.
But it wasn't until his fifth weekend that he located the small rocket shaped container he had been searching so diligently for. Tommy trembled all the way back on the path the crime squad had blazed the week they'd spent in November. It was now January and even Tommy's dad had begun to wonder what had so taken him over. His crewmates had even stopped ribbing him about his strange distant look. Tommy had not taken his mind off of that capsule from the first time it had contacted him.
Tommy didn't know what binary code was at that time. But the closer he looked at the strange markings engraved in the shiny surface the more he guessed that the marks were neither random nor the product natural forces. On February 15th, he drove over to the University campus where he met up with R___, G___ and B___ at the cafeteria across from the Geoscience Department. He had on one of those lightweight backpacks they sell in the Orvis catalogue.
"I have something to show you", he said, "and I think we oughta keep it secret, I don't know why but I just reckon you might go along with me on this." They went back across the parking lot and into the basement where the assistant professors shared offices. R____ flashed his card and they let themselves into the area clustered around the small conference rooms. R____ had a key to S22, the one with vertical blinds which they pulled. Then Tommy carefully laid his precious object on the white birch table. He had also come equipped with magnifying glasses and a laser pointer that he'd also sent away for.
Wherefore?
The events of this day were to greatly alter the lives of all who were there. Tommy would agree, despite all his gut told him, to leave the capsule in a steel locker across from the room they were gathered in. There was immediate recognition among the three scientists that the metal alloy they were inspecting was beyond unusual, like nothing they'd ever seen before. B___ quickly got a hold of the project's Geiger counter and they relaxed when it determined that the object's radioactivity level was no more excessive than a lot of natural formations in the area.
None of them were metallurgists and they all concurred that the only way to know more was to locate someone who could be trusted, for an analysis. They guessed it was a remnant from one of the secret programs around there and understood that if it was, the Government certainly hadn't made public its loss, not to the scientists working in the area nor to the local Forest Service. Around Alamogordo that wouldn't surprise anyone.
The geologists inspected the tiny pockmarks on the outside and agreed that none of them was capable of making any kind of interpretation of what looked like some kind of code. G___ mentioned a guy name J_____ over in the computer science department that they all know. He'd been instrumental in getting them set up to access ARPANET, and, most importantly, was someone they thought could be trusted.
Then, while three of them sat there, G___ went back to his office and located a combination locker lock he'd gotten for a lapsed New Year's resolution, that was still in its paper bag. The capsule would be deposited and locked in the metal locker third down from the entrance to S22. Only they would know what was in it and the sequence for the lock.
The Disappearance
What happened in the ensuing 48 hours has never been revealed even though friendships and trust were tested to their ultimate limits. Their were accusations, police involvement and even more than one armed threat. All to no avail. What is known is that the locker was broken into by some one or entity and that the capsule vanished along with all traces. No photographs had been taken during the period, only drawings, notes and oral interviews. The matter was reported in the local press at the time but does not appear on line or in microfiche records.
This is as much as we at DymaxionWeb have been able to piece together from our own due diligence. We are well aware of the rumors that spread after the capsule's disappearance and cannot verify nor disprove any of the major hypotheses that have appeared in various Internet forums on the subject of various strange findings (and disappearances) in the surround desert and highlands that have been frequently reported upon.
Confidentiality Agreement
It is important for all readers to note that all of us who have handled the EggN manuscript are working under the terms of a publishing agreement that is protected by a confidentiality agreement made between the present holders of the text and its providers. We can make clear to our readers that we hold the sole rights to the publication of the materials we will publish under the title EggN and that we are further obliged to make no changes to the text as furnished to us by the holders.
We can affirm, however, that we have never seen the alleged capsule nor have any knowledge of its whereabouts (although we have been made quite convinced of its existence) and have played no role in the translation that has provided the text to be published under the title EggN. We are required by our agreements to not reveal publicly or privately any information that might lead to the identity or whereabouts of the text's owners.
Further there have been extreme measures taken to make opaque the manner in which all contacts and communications have been made between us and the holders.
We can reveal, however, that we have told that the process of machine decipherment was extremely "tortuous" and are convinced that until recently it would have been impossible for most CPU arrays to have succeeded in the task. Further, we have been told that there has been no human intervention to change wording or phrasing resulting from the machine translation.
Publishing Schedule
We are planning to publish the full text in excerpts as they are made available to us over a relatively short period of time. The website set aside for the publication of EggN is www.dymaxionweb.com/eggn. We are inviting readers to follow this link to the text. An Archive section will be provided that allows new visitors to read all excerpts in the chronological order in which they are published.
First excepts will be published on EggN from early February 2010 forward until completion. We look forward to your comments.
May 13, 2009
Rosetta Stone (RST) -- Not the Key
Washington, DC
Rosetta Stone has gone where few other companies dare these days, pulling off a successful IPO in a tough market. The company's proposition is that it is the undeniable leader in language teaching software, supporting a wide and ever expanding list of the world's languages. The company grossed nearly $210 million last year with a profit of near $14 M
Rosetta Stone has an interesting price structure with an entry level of $259 for Spanish Level 1, or a package price of $549 for the three supported levels that include Spanish 1,2 &3. Compared to the cost structure of a student seeking a private tutor or even enrolling in a class, the software price is highly competitive. Rosetta Stone's teaching method does not require translation so that an English (substitute this for any other language supported), say, can be sold to students from one end of the globe to the other. In an increasingly global world, Rosetta Stone is positioned to supply what must be an ever growing market. The company offers some 27 living languages as well as Latin, and supports in some cases various flavors like American and British English and Spanish and Latin American Spanish.
Rosetta Stone, it would seem, has done the hard work, developed a sound method that includes tools for learning to speak, read, write and pronounce with unlimited opportunities for practice. The emphasis is on what the company calls total immersion whereby students use pictures to absorb vocabulary without translation. Grammar and syntax, too, are only taught through this immersion method.
But what about the product? Having used the discs and having had some experience learning a few languages both on the spot and remotely, there's no disputing that Rosetta Stone is on the right track. They have a philosophy that contrasts them with traditional academic approaches that put an emphasis on grammar, syntax rules and vocabulary. A typical Rosetta Stone lesson --each Level includes 80 of these-- combines 40 brief, somewhat repetitive phrases or sentences, read by native speakers and accompanied by a photo or video. You learn gradually by combining building blocks. Users can test their comprehension skills by listening without the pictures, reading written phrases, seeing, repeating and digesting as long and as often as they need. There is an included microphone and headset so that users can test their pronunciation skills against the voice pattern of the instructors. There are other files meant "to go" for the car or portable player and for students who also wants to learn to write, there is a built in language-centric keyboard function that allows for typing and testing.
Nonetheless, there are a couple of problems with the method that make it less than optimum. Spoken language is most often a first person, interactive process, wherein comprehension must be matched with the ability to express needs, desires, orders and ideas, etc. on the spot. There is something oddly third person about the Rosetta Stone levels, lots of he, she's and they's and few I's and you's. Remember, this is a learning tool aimed at helping someone insert himself into the spoken language to a point where he or she can begin to cope and it's on this level that it should be judged the harshest.
Many students will also find the pace frustrating, the repetition seems to come at the cost of not introducing complete conjugations, useful tenses or the gamut and range of everyday things like all the possessive pronouns.
Rosetta Stone says it has done the IPO in order to develop a new series that will be web based. Perhaps the new approach will overcome what I would have to call a major gap in interactivity. The disc series also has an old fashioned feel to it in terms of using multimedia, the web developers may be well aware of this and more willing to take advantage of the tools available to them. Finally, there's a touch and feel of a foreign land that permeates a language. Because Rosetta Stone stretches across its range of languages, it has found economy in recycling it's images from language to language. This results in making the experience seem like learning in a laboratory rather than the street.
Rosetta Stone's IPO is based on the no doubt correct assumption that there is a vast and growing demand for foreign language speakers in business, military, tourism, academia and every day life. Rosetta Stone has a headstart and years of experience tucked under its belt. This could make investors comfortable with the IPO. After all, pricey software that can be sold in volume promises very high margins. And Rosetta Stone has also recognized that it can sell courses across the Internet on a subscription basis, which may well be it's future.
But there should be a large caveat for anybody considering going long on Rosetta Stone and it strikes at the method's heart. Rosetta Stone feels like 1990's technology not merely from a cosmetic perspective but from an almost dimensional sense. In the Iphone world, Rosetta Stone has a Windows 2000 feel.
Bottom line: Rosetta Stone may be lucky or smart and agile enough to own this niche for a long time but they are also a lot more vulnerable than may first meet the eye.
With it's rather steep --at least for the consumer market-- price structure, Rosetta Stone has to worry about pirate versions which is probably another reason why they are moving to the web and a subscription model. Many interested investors will be watching what they do as well as their numbers. There are no doubt ambitious competitors who've seen the IPO go out and may be getting ready to bring a newer look that counters the weaknesses.
October 03, 2008
Time for the US Department of the Portfolio
Washington, DC
"This sucker could go down", quoth the President,
Quoth the Secretary of the Treasury, "Nevermore".
The Vice Presidential candidate peers through her trademark glasses and exclaims: "Putin rears his head and comes into the airspace" while grown Congressmen change their votes because of the tone of a speech by the Democratic leader. Hold you Nose! Everybody kinda sorta agrees that maybe throwing a trillion unfunded dollar sponge to soak up the (toxic) waste will somehow unplug the overflowing toilet. We've got "cow patties with marshmallow centers", car wrecks galore and the greatest inflation of unfortunate metaphors in the country's history. This truly is a national nadir commensurate with the waning days of the eight-year Bush reign.
Heartland Wisdom
$85 billion, that's your money. I mean, it's all of our money. I don't know where they get it. It's really interesting. They just print it or something.
Mayor Richard Daley Jr.
Too Big to Fail, or Uncreative Capitalism
The Fed and the Treasury move blindfolded across the countryside followed by a gaggle of lobbyists shouting out the path from behind the trees. In their wisdom they have quickly created three large supernational banks, surely too large to fail. So much for the creative destruction of capitalism that the fundys love to invoke. "Take a sharp left to that $25 billion carmaker bail-out then....."
This is truly a test of the power of the US Treasury's virtual printing presses. The immediate crisis will be averted if only enough money can be beamed at it fast enough.
The taxpayer response should be simple enough: Equity, interest, fees, whatever, we want our money back with interest. Give us a new agency: The Department of the Portfolio, with requirements to report back to us every three months. All profits go the Social Security Trust Fund
Bail-outs Are US
We're used to seeing the media lunging at the meme du jour like a flock of pigeons on a telephone pole. Their target line being the trail of talking points sprinkled like a string of directional clues through the semi-dark labyrinth they forage in. Each nibble, of course, leaves them more clueless as to the real way out. But there's solace, there will always be new bread crumbs. Lunch is assured.
Candidate in a Telephone Booth
We've been having a like spectacle among the political leaders with one party's candidate suspending all campaigning as he emerges from telephone booth and leaps into a situation he knows virtually nothing about. His hope, it seems, is that by some odd chance he will manage to get the politics right, thereby winning the favor and respect of the citizenry readying to cast their votes. It's hard for us to tell if this is a strategy or a tactic but in any case it is meant to appear decisive.... at least, up to the point he has to make a decision. Unfortunately for this gray-haired chap, whose left eye may just be sagging under the strain, he found himself, with no legs, unblinkingly leaping into the mother of all political and economic quagmires.
Sorry but folks out there have little clue how this whole mess came about but they sure don't trust what their leaders are telling them, particularly those leaders who were spoon-feeding them up to just a week ago a taste of "the fundamentals are sound".
Beam Me Up A Virtual Depression, Hank
We know, of course, that the fundamentals are NOT sound and moreover that they have not been sound for a very long time, so long, in fact, that the most dynamic underpinning of the private sector house of cards has all but collapsed. We've reached a point in the evolution from molecules to bits, where only outliers dare dispute that what's good for Wall Street is good for America. We are a country that has gone into the Transporter Booth only to be fleeced as our money is beamed around the world in bits and bytes. The transporter is located in the south end of Manhattan Island and must be saved. If not, of course, the whole sucker just might go down. Thus, in typical eloquence, are we rallied on by our leader.
Real Time Central Planning
By beaming those dollars to all round edges of the globe, Wall Street genius has managed, in Greenspan's words to "spread the risk" so thoroughly that there is no one left willing to take any of it, ergo the urgent plea to the Congress to crank up the printing presses. It is the ephemeral soundness, the vibrating beams of money we know is in the ether, that still makes this a virtual depression rather than the kind that sends folks into public bread lines. The next phase, the one that is being passed in Congress today is to further spread the risk out to every single taxpayer in perpetuity as an ever larger chunk of the ever more virtual budget goes not to arms or wellbeing but to debt service, the province of which is controlled by, well, Wall Street, of course. In a virtual depression; we are much more likely to see the citizenry on their way to the grocers with real time credit limits being reevaluated on their plastic between the time they enter the store and leave. We'll be kept abreast on our iPhones.
The Wal*Marts of Treasury Bonds
Another way to look at it is to view the US economy as it manufactures fewer hard goods replacing that lost productive activity with the production of Treasury Bonds. Quite simply, we can assume that as the world economy falters there will be a rush to US Treasury bonds. And the good news is that business is jumping, so this week, even as the US economy dangled on the breach, the smiling yellow face went up and US T Bills flew off the shelves. The oil bubbling Russian stock market, for one, simply collapsed, Asians saw German and French road-kill, sold off Euros and the Yen, setting off a rush for dollars! Rates dropped to 1/20th of 1% on short term T-Bills.
For those customers with too many dollars around the world, and derivatives they couldn't move limit-free on E-bay, there is a happy outcome to all this. The Treasury Secretary, tired of merely spawning M&A deals in a down market, has moved to Washington where money need only be printed. He now rolls out the greatest deal of all time, an $800 billion whopper. Doors open bright and early next Monday morning, the line forms in front of the White House, forget the lead boxes, just bring the toxic waste.
We call this a virtual depression because its fundamentals are hidden in plain site: there is now a seemingly endless all too real war being fought on borrowed money, one that has coincidentally cost up to now approximately $800 billion. Another major factor, is the supply of imported petroleum costing hundreds of billions. This money is sent East to gadget maker and oil producers alike who must re-circulate it, into something other than the now proven toxic collateralized debt objects and the Agencies issued by Fannie Mae and Freddie Mac.
We have turned the country's principal market into one vast junk money market with headquarters in Washington: Employees around the country, throw off your assembly line gear and don the uniform of the big banks. In virtual America you'll be flipping T-bills for minimum wages until someone here can figure out how to gin up the next bubble.
A vast moat of debt is being built around the capital for the next Administration to grapple with. In it, Paulson is creating an ever deeper pool of US T-Bills and one can imagine, as the mechanics of the bail-out get put in place, new classes of Agency bonds backed, once again, by the full faith of the US government. Conceivably, with a little help from Congress, Paulson will have kicked the ball down the field until that ever looming day, the virtual dollar, itself, faces collapse. What has been beamed away will reappear.
Bernanke et al. know that the dollar manufacturing monopoly provides an enormous cushion, years, at least. Monopolies don't break easily. Unfortunately, the endless War will not go away, that's the clear logic of Iraq and Afghanistan where costly troop deployments, will have to be augmented by even more costly (aid) giveaway programs. After all, spreading dollars like manure worked in Anbar Province. Obama's hands are tied before he even gets there. This is Bush's parting gift, he thinks, while all he has really done is pull the cloak off the virtual dollar machine, the great transponder.
The (Private) Debt Party is Over?
Meanwhile, back in that part of the USA outside the Beltway, where molecules still make sense, the party is temporarily suspended. The bad news folks is that, like in 1932, the bottles empty, we've bubbled out. We have, after all, been tripping the light fantastic from bubble to bubble since the 70's and given the costs piling up for real world War and the onset of shockwaves from Peak Oil,, the end of this one has had a fate, perforce, no better than Steve Fossett's.
It will take years to dig out from under a borrowing blizzard that has been going on for decades. This is not just bad residential and commercial mortgages but leveraged buy-outs, credit card debt, auto loan debt multiplied thousandfold by layer upon layer of big bets in the shadow banking system. While the Administration was keeping the cost of the War off the books and running up steeper and steeper official budget deficits in synch, the public was doing its bit on the helium of borrowed money and spiked smoke in the stock and housing casinos. Such is leverage in every day spiked Bubble World.
Human Nature, or Leveraging Leverage
Had the borrowing frenzy been restricted to the above confines, we'd be in the process of winding down from a serious binge but there'd be only the usual casualties, the hogs, the foolhardy, and the suckers. Over time we'd work our way out of it. But this is a different story that has been brought on by the accelerating logarithms of what's come to be called the shadow banking system. Ultimately. what goosed the lending frenzy was a financial industry where the hogs had gobbled up the pigs. These porcine magos took all manner of loans, good, bad and otherwise, and bundled them and sold them as CDO's or MBS's or Swaps or whatever device they could use to pile leverage on top of leverage. To be quaint, they labeled them "toxic waste" and like their smokes from another generation they consumed them with even more gusto.
Importantly, in a souped up low interest environment, they found they could move these "securities" that paid very little better than T-Bills at enormous margins. In a creative flurry, equal they imagined to the one that brought us the Internet, they took to bundling the bundles themselves into various classes of so-called derivatives, quantifying so-called tranches of loans into various levels of risk for anyone who wanted to make believe he understood them. And as this market grew, they created a class of insurance policies they called credit default swaps, designed to back up the derivatives. We wrote a few months ago that the CDS market totaled the astounding sum of $57 trillion, though lately we've heard it calculated at 62 trillion (no one really knows) or, 4 years of the total US economy! We concluded that it was little more than a Vegas kind of side bet industry since there was no open market for the swaps nor were there any requirements for set aside reserves. It was, every hog for himself. We also predicted it would end up in the taxpayer's lap!
Meanwhile the regulators in Washington were no where to be found. Greenspan's Fed did not raise its rates to slow things down nor did it urge Congress to institute new rules that might curb the activities of the security issuers by requiring transparency, marketability or reserves to back up their promises.
In order to keep this market going, long after every not so eligible borrower had exceeded their ability to ever pay back their loans, the banks began eating more and more of their own toxic waste, trading more and more of the stuff among themselves to the point, today, that they no longer trust the books of any of their counterparties or peers. Today's bailout sponge is meant to take all of this massive mess off their hands
The reason we have seized up is that there are no markets to trade these derivatives and swaps and no way to know what they are worth given that no one knows what the underlying loans look like or how they are actually backed up. For this, and a host of other suspicions, the banks have stopped lending to each other making it hard to satisfy their legitimate customers.
Washington Truce and Consequences
Back in the 1980's the Reagan Administration introduced what has turned out to be one of the two basic seeds of destruction for the modern Republican Party. For Reagan, who promised to "get government off the backs of the American people", the Administration would embrace a theory called supply side economics (the other seed, of course, is the creation of a Christian fundamentalist base that can get ecstatic with having the likes of a Sarah Palin as President) as a substitute for the prevalent Keynesian approach that both parties had adopted, as Richard Nixon famously said. Hitherto, conservative orthodoxy had been closely associated with a cloth coat, business-like fiscal conservatism intent on balancing the budget.
Put, perhaps too simply: for Keynes, the government had a roll in stimulating the economy in a crisis through the creation of infrastructure: money put into highways, bridges, parks, etc. directly generating jobs and economic activity while contributing to the common wealth. For supply-siders, the individual taxpayer becomes the net beneficiary since the government, in essence, finances its projects through debt rather than taxes, something that Reagan's Republican primary opponent, George HW Bush, dubbed "voodoo economics". Supply-siders argued then and still try to make the case that by leaving the taxpayer off the hook to spend and invest as he/she wishes, economic activity is stimulated and over time limited level tax revenues actually increase. This was a wondrous no-pain solution for the wealthy that better fit the mood of Americans moving from the Rustbelt to the South and West. For high bracket Americans, it was "the shining light on the hill". Unfortunately, for future generations it was debt service.
It was a novel idea that also had its roots nourished by an emerging rightward libertarian tilt of the party whose proponents also advocated truly risible nihilistic thoughts of "starving" government of its lifeblood, through choking the tax stream. Reagan would abolish government social programs --for instance, it was at one time committed to abolishing the Department of Education-- while greatly increasing the Defense Department budget. In the end, Reagan left office with the largest non-wartime deficit in history; nonetheless, his presidency was seen, particularly among his co-conservatives, as a success, and the basis of a winning coalition. Since then Republicans have never looked back on this smorgasbord of voodoo economics and politics that would have horrified many of their Eisenhower era colleagues.
For a bookend, the hapless Bush II who never ran a profitable business, of course, does the same thing, only with no-blink attitude. He greatly expands the Defense budget through his new endless War and Homeland Security, he puts little or no restraints on government growth or on the mega-pork-barrel spending of a Republican Congress and he cuts taxes on high earners well below the levels Reagan wrangled out of the Democrats. There is no longer any doubt he will leave office having run up more debt than all the previous presidents combined, with the exception of Franklin Roosevelt, who merely had to dig the country out of the Great Depression and finance the Second World War. Ironically, he will, as a result of the Wall Street Bail-out Bill, also be associated with the largest government takeover of private assets in the country's history.
The End of the Bretton Woods Era?
What Reagan had inadvertently tapped into --and what makes the theory of starving the government so risible-- was the built-in advantage the US had over its trading partners, the almighty reserve currency, the now virtual dollar. Since Richard Nixon had delinked the dollar from silver, the dollar had become strictly a piece of paper backed up only by the credit and faith of the US government. It was in old parlance a "fiat currency" that also happened to be, by international agreement, acceptable as a reserve currency for central banks around the world, with the same status as gold. The US printing press would become the engine churning out decades of debt absorbed by a willing South Asia Middle East.
Back in 1999, as the Wikipedia puts it: "shortly after George W. Bush was elected president, Congress and President Clinton were trying to pass a $384 billion omnibus spending bill, and while the debates swirled around the passage of this bill, Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act."
What Gramm and the banking lobby behind him accomplished with this Act combined with a preceding Gramm-Leach-Bliley Act removing the bounds between thrifts, investment houses and insurance companies that governed the financial industry since the 1930's, provides the stage for the present meltdown on Wall Street. The Act quite specifically opened the door to a whole new classes of completely unregulated investment vehicles we're calling the shadow banking system. Gramm, of course, is the same unfettered market fundamentalist who had been John McCain's campaign head and chief economic guru until he had the misfortune to speak his mind on TV a few weeks ago. As we all remember, he got in trouble for saying that the American economic problems were psychological and that Americans who saw it differently were whiners. Another enormous irony: should McCain be elected, Gramm may by his Secretary of Treasury and therefore in charge of spending the money that Congress has just allocated.
Revolutionizing the Debt Republic
It's pretty easy to guess why all these financial wizards could play make believe with trillions of dollars: quarterly profits on Wall Street boost investment house stock prices, enriching option holders and annual profits feed into enormous bonuses for those fortunate enough to be in the game. So, for several years this decade, as the housing market pushed upward investment house stocks soared and paydays on Wall Street were the envy of the world. It would not be uncommon for a middle level executive to take home an 8 figure bonus. These were heady times and the Bush tax cuts meant that less would go back to the government coffers and the more to penthouses, second and third homes and breakfasts at Tiffany's and the pockets of armies of lobbyists and political donations to the pliant. Are we whining yet, Evita?
Billions of "excess" dollars flowed into the shadow banking system as exemplified by the plethora of hedge funds that sprang up like mushrooms around the big Investment Banks. For hedge funds there were no limits on leverage, they could borrow as much as the Merrill's etc. would lend them and the Gramm Act had removed reserve restrictions on these guys as well. Mighty Bear Stearns fell partially on the weight of its lending to its own in-house hedge funds. Where restrictions did apply, the created entities called special investment vehicles, or SIVs to skirt the laxly enforced rules on public companies. After all, the SEC was now being run by industry lobbyists weaned on Enron accounting.
Off With Their Heads!
For those yearning for the public stripping of wealth, the symbolic guillotine, the place to start might be with the hedge fund managers who not only pulled billions off the top of their funds as they gamed the derivatives game but also found a highly questionable loophole that allowed them to declare their managerial fees as capital gains, rather than wages, thereby paying a lower tax rate than the guy who emptied their wastepaper basket, as Warren Buffet famously pointed out. A simple IRS ruling under the next administration might be made to apply to this billion dollar loophole So far, we've heard no one call for this one.
Of Bubbles and Bail-outs: The Saga Continues
$85 billion here and $400 billion there and $800 billion there and before long you are talking about real money: and so, alas, this story only gets worse. Yes, Lehman Brothers was allowed to crash on its own but even there in the background the Fed was making moves to goose up its lending capital and is now accepting not only bad paper but the collapsing stocks of the other investment houses as collateral for its back window short term loan facility that not too long ago was restricted to the thrifts it oversees and which must maintain verifiable reserves. Paulson's transparently phony line in the sand on socializing loss at Lehman didn't stay visible even for the 24 hours it took to blow off AIG.
Enron Accounting Goes to Washington
For 6 years Bush has been able to keep the annual $130 billion cost off the books as he fights his "temporary" war. No surprise, then, when Paulson let it slip that he wasn't going to put the $29 billion he laid aside for Bear Stearns on the books, either. Our point, as this virtual depression started to unwind last year has been that when this story of unbridled lending fueled by insane greed got to the end, the taxpayer would pay and pay big. We have no doubt that eventually the government will find it necessary to directly intervene in the national housing market to stabilize prices there too as well, after all it is at the very root.
A real bail-out of the housing market will indeed cost real money, much more than the $1 trillion already pumped in, and on the books, or off, depending on how transparent or eventually profitable the results are --are we getting laughable?-- taxpayers will be paying for it for years to come. There are also reasons, given the takeover of Fannie Mae and Freddie Mac, to believe we may have actually already doubled the national debt by the time this crisis finally blows over.
The Deficit is not the Deficit is not the Deficit
What we are seeing this month of September is the meltdown of the entire Wall Street elite of independent investment banks either through merger with big old style banks or through collapse as in the case of Lehman Bros, that waited too late to make a deal.
Not every one of the regulated thrifts is going to make it through this meltdown (117 were already on the regulator's watch list even before the collapse of Lehman, Wamu, Wachovia and AIG). It was also very likely, as the unwind plays through, that the FDIC, the agency that insures depositors' money, would run out of cash. It didn't take too many IndyMacs to get to that stage. The Senate, in its version added on this facility for the Treasury as well, in exchange for the "temporary" raising of insurance limits to $250,000 per depositor. FDIC is funded by the banks in normal times. The $250K limit will no doubt be made permanent despite the objections of the banking lobby.
It's the Mortgages, Stupid!
Well, maybe not just the mortgages and the national housing market. But continuing lower prices for houses is at the core of much that's gone on so far. But the profits brought on by the issuing of a pyramid of paper based on these loans also extended to all manner of commercial and consumer loans. Mortgages and house prices are particularly insidious because they amount to the plus and minus side of Americans' largest class of assets. If your house is worth less than you owe on it then you are probably underwater all the way around. After all, on the minus side, most Americans have carried credit card debt, and auto loans, not savings accounts. Where mortgages look particularly bad in the coming year is not so much in the sub-primes that were so flimsy that many collapsed at the first downdraft and are being cleared off the books. But many ordinary Americans with better that bottom of the barrel credit and looking to move up, or simply to refinance their credit card debt-- took out something called Alt-A mortgages that didn't require strict income documentation and that were characterized by very easy terms during the first couple of years. These Alt-A's or "liar loans" were more than the majority of loans issued in 2006 and many will require refinancing in the coming months. That's bad news in a declining market because borrowers will face significantly higher monthly payments on houses they cannot sell for anything near what they owe. How many just walk away depends very much on just how low prices on these houses go. House prices during the Great Depression fell over 30%, Depending on how you measure it, we may have reached about half or two thirds of that grim statistic but no one can guarantee that 30% is a magic number. The ratio of debt to savings that Americans customarily carry today was nowhere to be seen back in those more innocent days; home ownership was more limited and job mobility hardly existed.
These increased loan payments are coming due just as the job market begins to crumble. In the past decade wages had remained below growth levels but there were jobs. Now, those jobs are starting to disappear. This is bad news for already shaky families who may no longer have a choice about staying in homes that are underwater. They may have to move to where the jobs seem to be, despite school and community ties.
After all, in the days of easy credit, homeowners were bombarded with offers to refinance, in other words, use their houses as ATM ;machines every time they maxed out their credit cards or wanted that bigger SUV flashing across their TV screens Ah for the life of off the road, clean family fun, or sex drugs and rock n' roll or great adventure. In that world, you could, with no money down, drive all the way to the top of the most pristine mountain peak and gaze out at a pollution free world with nary another SUV in sight or drive up the swankiest night club in town in your V-8 Ram tough.
Such is the magic of the American dream, as easy as flipping your keys to the parking valet!
Or Maybe, It's the Taxpayer, Stupid!
It's hard to mark just when we morphed into our present system of jobless, bail-out capitalism, was it the Saving and Loan bubble when everybody and his brother opened a bank with a lending window marked: No Developing Country Will Be Turned Away? Since then the series of bubble and busts have followed one another like Atlantic hurricanes in September.
Like those single-eyed monsters, the intensities and trajectories can be different but damage is left in the wake for the clean-up. FEMA gets called in and taxpayers foot the bill. Hurricanes, of course, are acts of nature, while economic bubbles are acts of human nature. Still, in the end, it's the taxpayer, stupid! --we'll resist the temptation to reverse the word order, or shedding a tear for that matter.
Many people marvel at the breadth, scope, flexibility and velocity of the world economic system as it shifts trillions of dollars from Hong Kong to London to Tokyo to New York in a 24 hour cycle. And it truly is a marvel but like any very large and constantly changing system it is open to ever more sophisticated forms of manipulation.
For some it's a necessary mechanism of doing business, a streamlined way to finance and pay for their every day business transactions. But for many more, it is an opportunity, a way to game a few basis points more out of their capital investments. And it is this very greed that is at the bottom of every bubble. It's easy to say that if losers don't get to pay for their greedy mistakes, another bubble will be on the way even before this one is wound down. But bubbles are much easier to stimulate than hard work, productivity and inventiveness, the stuff of real growth.
Alas, Say it Ain't So!
In the end, the ultimate target is always the ordinary gamer who gets sucked into the pyramid scheme just as it begins to hit its height and who is destined to get burned as the scheme begins to collapse. But often, perhaps to prove their existence, the Gods of Fear and Greed see to it that the very perpetrators of the scam get caught up in their own webs and end up taking the biggest falls of all. And so, welcome to Bail-out World, where they get to use the leverage of their power and wealth to drag in those who stayed completely clear of the whole process and never dreamed that it would be their money that would be used to get the big guys off the hook.
The mantra of course is "too big to fail". It explains why those who profess the religion of maximum gain for those who invent, work hard and risk, find it necessary to "suppress" their own core belief in moral hazard for the "good" of society. During the brief time-out, everyman will now be allowed, for the greater good, to step in and once more mop up the blood on the floor.
Last month, as the Treasury Department stepped in to bail-out Fannie Mae and Freddie Mac, we may have just witnessed the largest one-day Federal takeover in US history but certainly only the prelude to this tragicomedy.
The Tragedy of Fannie and Freddie
Like all Atlas-like epic fiascos there is a long and complex story with many more sinners than saints for main characters across the generations. In the end there is a complete failure of the system as a cynical move was made by Greenspan's Fed to shift the bubble away from the stock market after the tech bubble blew up.
In 2002, the extensive lowering of interest rates in the wake of the tech bust and 9/11 actually priced money at a negative interest rate. Banks and investment houses were encouraged by the Fed to get into the game, mortgage rates fell to historic lows and homeowners were encouraged to refinance, take cash, trade up, take on second homes and to take a plunge into real estate speculation. The flourish in activity had the effect of driving up housing prices the same way the stock market soared during previous bubbles. As housing prices rose much faster than people's salaries, encouragement in moving up hinged on the proposition that house prices would continue to move up for the foreseeable future. Greenspan assured Congress in public testimony that there was nothing to fear from rising home assets, no irrational exuberance, this time around in this Fed induced and abetted bubble.
Wall Street, on an unfettered lending and borrowing binge of its own, roared into the game by greatly widening the market for sub-prime and Alt-A mortgages through the issuance of all manner of derivatives based those mortgages. But as we noted, it was just too profitable a game to voluntarily put the brakes on. If ever there was a need for adult supervision, it was here. It is, of course, just another gambling at Ricks, moment when politicians exclaim they were caught unawares.
Meanwhile in Washington, the GSE's, that is, those hybrid privately owned Government Sponsored Agencies, commonly known as Fannie Mae and Freddie Mac, who were the backers of most ordinary mortgages issued in the country, were basically frozen out of this new market for bundling sub-prime mortgages into securities, by their own regulators. Undaunted, they found a climate in Washington ready to open the ways for them to get around their own regulations by getting leave to buy up the Wall Street derivatives to hold as their required reserves. And they borrowed heavily, leveraging 60 to 1, to get at the "profits" in this burgeoning market. Needless to say, as hybrids that made them public or private when it suited, they had grown accustomed to paying their own executives massive bonuses as well, based on the same short-term criteria as Wall Street. As a Washington creation with roots back to the New Deal, they had become masters in the game of lobbying and thus in getting their way no matter the Administration.
The Bell Tolls for Fannie and Freddie
Of course, sooner or later, someone would have a reality moment and sell off some of the growing mountain of toxic waste. That finally occurred with a couple of hedge funds run by one of Wall Streets most savvy and ruthless bond trading houses, Bear Stearns. When people began to pull money out of the funds back in summer 2007, the managers were forced to offer up their securities to the market and when Bear, itself, wouldn't fully step in, there were no other takers. Then, Bear Stearns, themselves were forced quite publicly to only sorta back up their own funds, letting the more highly leveraged one slosh noisily into oblivion.. The emperor's clothes had now to be hung out to dry. With the sweep of a wand, less than 7 months later, venerable, savvy, Bear, itself was toast and banks all around the world were nervously digging into their balance sheets to determine just how much waste product they were holding. True they had hedged up by buying things called credit default swaps to insure against losses but they now were forced to take a hard look at who it was that had issued these totally unregulated insurance policies and just how much in reserves there were to back them up. Bear's hasty demise, greased by Paulson's Treasury, told the sad story.
Credit ratings, based on the possible toxic reserves, were suddenly being reevaluated. Reserves were based on the face value of securities with no market and the regulations required they be marked to market, or priced at what they might actually bring in a sale. Many swap and derivative agreement also had clauses in them that required issuers to firm up reserves as their credit ratings were downgraded. This set off a spiral, as the entire financial world began to grock that there was no real market for the derivatives of the swaps. Mark to market, or give a real value to a security, had no meaning and too much meaning at the same time. SEC regulations required this accounting. The commercial banks would be forced to begin making real write-downs of billions in losses to meet their requirements. The operative word was "write downs' but these were losses that had to be put on the balance sheets. It was a signal to the other banks that their best customers might just be insolvent.
A Hosing in Housing
Meanwhile back at the subdivisions of California, Nevada, Florida, etc., as those houses in real America went into foreclosure, it drove the price of surrounding houses down as well. People who had been convinced that they could borrow beyond their means for houses they couldn't afford now found themselves owing more than their houses were worth. Many of them had no choice but to pack up, leave the keys under the mat and take off. Home builders found themselves with developments full of unsellable houses worrying about the cost of plugging roof leaks and cutting down weedy front lawns. Their stocks tumbled as did the stocks of the big banks as it became clear they were holding mountains of debt based on an inflated value of the same sinking home market. For a while, there was denial then a belated effort by some of the big regulated banks to unwind their worst losses. Along the way IndyMac bank suffered the first public run since the 1930's as it shut its doors. The spectacle was taking an ugly turn.
Government Bail-Out Phase 1, a mere $29 billion
The problem was becoming national and then international. Each quarter major banks around the world would announce the write-off of billions of dollars, $10 billion for USB, one quarter, $8 billion for Merrill Lynch, another. Foreign buyers were invited in to take big pieces of these International financial trophies. And then one winter weekend Bear Stearns fell off the cliff. The losses were mounting into the hundreds of billions and the Asian and Arab nouveau riche bowed out.
Here then was Treasury Secretary Hank Paulson, a Wall Street poobah, himself, announcing a deal in which the old, hard knuckled investment house that had assured every one that it was fully capitalized, would be sold off over a single weekend before markets in Asia opened on their Monday morning. It was highly unseemly, not only wasn't there adequate capital, the entire $multibillion firm was actually less than worthless, an estimated $29 billion less than worthless! Paulson took $29 billion out of the Treasury, and gave it to JP Morgan to make the problem disappear. And for a while, the markets quieted down. The crisis was averted! But now there was the potentially politically damaging spectacle of a Republican Administration using public's money to shore up Wall Street, the paradigm of excess, while millions of Americans were facing foreclosure on their rapidly devaluing homes and collection agency calls on their lump sided plastic debt.
Are We Whining Yet?
For years the Wall Street wing of the Republican establishment has wanted nothing more than to stick a stake in the heart of the two largest (when combined) financial institutions in the United States, Fannie Mae and Freddie Mac. And then when the housing bill passed Congress before the summer recess, Treasury Secretary Paulson, a Wall Streeter himself, was given the green light to do the deed as part of a what then appeared probable bail-out of the two hybrid giants. Still, he hesitated, there was too much at risk to the broader economy.
And yet, it had become clear to knowledgeable folks who looked over their
holdings that a collapse at Freddie and Fannie was inevitable. There was a
tactical question as to whether they could hold out until after the election,
which seemed to be why Paulson and the Administration kept holding back
from doing the deed. A financial crisis as large as a Fannie and Freddie
collapse, would certainly turn the public's attention back to the economy and
probably spark the big run on the banks.
It's Not Just Housing, Stupid!
But in a tightrope act, the Treasury under Paulson was active in other pre-election areas as well. Towards the middle of July, the dollar suddenly jerked upward and the price of oil moved in the opposite direction. Until then, for months, the dollar had been trading in a range between 1.55 and 1.60 Euros. As we write this, it has gone down well below 1.40. Meanwhile, oil, which peaked near $140/barrel has fallen back to less than $95. It was as if, somewhere way behind the damask, the Administration had decided they had to bring the price of oil down before the election and had set in motion the gears that force the dollar up. By doing this, they would with the benefit of a little lag time, sacrifice gains made in exports, for what would be an immediate stop to the oil price bubble that had powered the speculation market in the early summer.
At first the strengthening of the dollar and the even bigger drop in oil prices appeared to provide a boost for the US stock market already reeling from the sub-prime mortgage crisis, but which had reached a bottom in the middle of July just as the price of oil peaked. Then the sucker started to go down!
AIG and then what?
For mortgage lenders and a number of banks and investment houses of all sizes, the subprime debacle has been an ongoing disaster. Two of the largest lenders in the market, had already gone belly up, and many observers believe that the nation's largest bank, Washington Mutual would soon follow suit. Morgan Stanley, one of the last of the 4 independents seemed likely to go the way of Merrill Lynch, in some shotgun deal and that might even have dragged down the last, Goldman Sachs, Paulson's own alma mater.
Credit, Credit, Everywhere and Not a Drop to Drink
This --the latest chapter-- in what has come to be our first virtual Depression-- was breathtaking in the number of ironies that got rolled up into what is still unfolding as the greatest rescue package of all time..
In retrospect, it might appear to more sanguine viewers that the consolidated goal of the Bush Administration, its Fed and the bankers became to strip Americans of their one asset, their house, and turn it into spending money. With a little luck, they might also have succeeded in diverting social security into Wall Street's maws.
There was a rather lengthy list of major players in the scheme all with their own, sometimes coinciding, sometimes antagonistic agendas: There was the Administration that was intent upon replicating and outdoing the Reagan years by running up the national debt; there was Alan Greenspan's Federal Reserve that was equally intent upon experimenting with substantial deregulation of the financial markets and stimulating growth through low interest rates, there was Wall Street, with its bonus system of big insider payoffs, ready to pick up the Greenspan's challenge of "innovating" and new types of unregulated investment entities we'll lump under the rubric of hedge funds; there were the commercial banks that were being rolled up into giant national financial entities as banking laws were repealed; there were the building and building supply industries, obvious beneficiaries of a residence construction boom; there were foreign governments running enormous trade surpluses with the US looking for creative ways to park their dollars, there were millions of Hispanics ready to risk all to cross illegally into the country for low wage building jobs, there were the mortgage brokers who sold the loans; there were, of course, the homeowners who could tap their equity and, sometimes, move up and eventually lots of new homeowners who were offered deals on homes that might never have dreamed to get into, the flippers, or the speculators who jumped in to fire the upward pressures on the market as house prices spiraled higher, and now, of course, the guy who thought he was staying clear of the shenanigans, who's just getting the mop up bill.
Pigs Get Fat While Hogs Get Slaughtered (Tom Delay quoting Texas wisdom)
The trouble with virtual depressions is that they always leak over into the real world. Recent government moves have proved once again that while the gains may be private, the risk must be socialized; on that both political parties are in agreement as are all the governments in the G8. All that bad paper sloshing around the world financial system will eventually be absorbed by the governments and the great international banks themselves, when it suits them, as the price they pay to soak up pesky competitors. The next couple of years will be full of sound and fury as the politicians realize they will have no choice but to pull out all the stops to stabilize the housing market as a first step. This will not be a pretty tug of war nor a shining day for moral hazard. But in financial crises as in war, the truth is always the first casualty.
The taxpayer, alas, will not get his Department of the Portfolio.
August 13, 2008
Bruce Ivins: Just Another Psychopathic Loner in the Zeitgeist?
Washington, DC
Decoration of Exceptional Civilian Service
Credit the enduring demand for shows like The Twilight Zone, The X Files and the writings of Philip K. Dick to feelings of deep suspicion that many Americans share regarding the government's power to pull the strings of reality from beyond the shadowy pale. There is a toolbox for these black ops weapons of mass deception: cultural steganography, repeated leaked disinformation, innuendo, half truths and the cloak of a credible enough alternative or cover story.
In that light, consider another equal and enduring layer of the zeitgeist that succeeds in pinning the attribution of game changing events to the lone, "deeply disturbed" individual. Just as the X-Files Agent Fox Muldur could be expected to trip over "nonexistent" government installations, there is also a proven narrative for this lone actor, who having hidden in plain site, gets thrown headfirst into the churn of the news cycle and then, if the stakes are high enough, somehow eviscerated before he gets into a court of law.
Until not too long ago, Bruce Ivins, a scientist at the DOD's Fort Detrick lab, was mainly known, from what his colleagues and neighbors have to say, as a well respected and liked colleague, a family man, churchgoer, part time musician and amateur juggler. Officially, he was an award winning American who in 2003 received the highest military award given to a civilian for his work in developing a vaccine against anthrax. His memorial service at Fort Detrick, where he worked, was attended by more than a hundred colleagues and friends even as his persona was being retrofitted in the tossings of the media cauldron.
At a Pentagon ceremony on March 14, 2003, Ivins and two colleagues from USAMRIID were bestowed the Decoration of Exceptional Civilian Service, the highest honor given to nonmilitary employees of the Defense Department. "Awards are nice",Ivins said in accepting the honor. "But the real satisfaction is knowing the vaccine is back on line".
Ivins, like his fellow scientists in highly secure government labs had been subjected to numerous regular background checks over the years including a post anthrax-letter attack evaluation in 2002. In a radio interview on NPR this week, Ivins' former boss at the time said he, as direct supervisor, had never been informed of what, through a steady stream of FBI leaks, has become a laundry list of Ivins' alleged aberrances.
Indeed, so much dirt was piled up against Ivins through a series of leaks and, finally, the formal presentation that it became nearly impossible to believe he would have held security clearance in a lab that was already ground zero for the largest bioterrorism in the country's history. At the time, a colleague there, Steven Hatfill was being publicly hounded as a "person of interest".
The fierceness of the FBI's character attack on Ivins seemed to have achieved its results despite the weak forensic case; on Diane Rehm's Friday roundup show, three well known and experienced MS journalists, Karen Tumulty, Ruth Marcus and Brian York, while expressing degrees of skepticism on the FBI's evidence presentation, had all clearly bought into the weirdo profile angle. None seemed to factor in that in the final year and a half --when Ivins does check in and out of various clinics and refuges-- he was being purposely put under the kind of FBI duress that few among us could withstand.
The Loner Story Trumps Evidence
It would be a very dark day for the FBI if in trying to hastily close the 7-year old bioterrorism case, it turned out, as now seems ever more likely as they move to unveil their full case, that after wrongfully persecuting Hatfill for years, they have managed to hound yet another possibly innocent man.... this time to his death.
For those watching closely, this has been yet another case where the blogosphere has played a decisive role in tackling the story head on almost from day one. You can just go over to Glen Greenwald's blog at Salon.Com for the kind of thorough, researched journalistic effort that the case deserves. Importantly, Greenwald has gone beyond casting a cold eye on the limited crime story line that is being reported in the media cycle: Greenwald has raised front and center a defining dimension left out of most stories by reminding his readers that the anthrax-letter terror campaign had far greater political impact than merely extending the horror of 9/11 to the mail slots of each and every American around the country.
Cui Bono?
The killing and terror campaign aimed at leading politicians, journalists and seeming random public --eventually it was postal workers who took the homicidal brunt-- was a major factor in heightening the public's insecurity and fear of terrorism. It was a meme that was handily leveraged by those who were bent on attacking Saddam Hussein and getting the Patriot Act passed. Curiously, it was not only a broad driver of public fear but there were overt attempts to link Saddam Hussein to the anthrax at around the same time that the Administration was beginning to publicly build its case for war; i.e, that Saddam Hussein had contacts with Al-Q'aeda and, more importantly, that he controlled a large arsenal of weapons of mass destruction; biological, chemical and nuclear that he might just be willing to hand over to them.
Greenwald reports that in one major network instance it was Brian Ross of ABC Nightly News who ran with a story based on "four government sources" that the anthrax used in the attack contained the substance, bentonite, and that this was purported to be a signature of the Iraqi biological weapons program. This story turned out to be a complete fabrication as it was later ascertained that silicon had been used rather than bentonite as a part of the process of weaponizing the powder containing the toxic bacterium.
Even though Ross and ABC News were fed a false story that clearly has the earmarks of someone trying to use the bioterrorism attack to stir up anti-Iraq sentiment, the network has never released who it was that planted the story. (For Ross's explanation go to here.)
The Lone Weirdo Story Gets Rolled Out
It was first reported (AP) that Ivins had committed suicide just days before a meeting with prosecutors for a "plea bargain". The plea bargain part, of course, makes this a loaded leak that, according to Ivins' lawyer, was, indeed, a distortion. Other stories reported that the government was gearing up for a dealth penalty case. Over time a litany of weird and suspicious behavior was attributed to Ivins, some of which we'll get to below.
But a mainstay of the new narrative --what we might characterize as the scientific or rational cover vs. the looney-did-it story-- was that new more sophisticated DNA evidence, discovered since the Hatfill fiasco-- had been used by the investigators to link Ivins to the precise anthrax used in the attack, or as the Justice Department would finally come, the day of their public accusation, to define as "the murder weapon" "solely controlled" by Ivins' lab since 1997. Unfortunately for the FBI case, it quickly emerged that Ivins' sample may have been circulated to other labs and, certainly, to other individuals. Further, the FBI is yet to say how they can even be sure they traced all distributions since anthrax inter-lab transfer records weren't formally kept back in 2001. Interestingly,in 2002, the FBI had also offered some very sophisticated scientific carbon dating evidence that the batch used in the attacks had not been developed before 1999.
In recent days since the FBI released their case, there have emerged a number of pieces authored by scientists in publications ranging from the NY Times to more specialized scientific journals raising a number of questions. For a rundown on some of those, please check here.
As for the psychopathic loner narrative, on day two of the media cycle word of a "psychologist" in fear for her life was headlined. This person, said to have charged in a court affidavit filed in Ivins' home town, Frederick, MD, that through her interaction with him as a counselor she feared Ivins whom she named as a "sociopath" ... "murderous killer" Further anonymous leaks to the media soon emerged relating that Ivins had a private P.O. box where, it was said, he received pornography featuring "bound women".
As the cycle churned, it was also revealed that he had once had a fixation for a young woman who was a soccer player and that he attended games she played and that he had once said that he would kill her if her team lost. Further, it was confirmed that Ivins had sought help for alcohol addiction and --going back to his college days-- that he had an obsession with a certain sorority, Kappa, Kappa Gamma, that could, it was stated, directly link him to the site of the mailbox in Princeton, New Jersey where anthrax letters were posted.
But by the time the FBI and the Justice Department moved into the formal revelation of their case on August 6th, reporters looking for something concrete, were raising all kinds of questions. For one thing, Paul Kemp the lawyer hired by the Ivins' family was speaking out. Even in the wake of Ivins' suicide he was beginning to counter the FBI leaks. Most importantly, he was able to point out that there was, as far as he knew, not a shred of physical evidence to link Ivins directly to the anthrax letter campaign; the FBI case was strictly circumstantial, according to Kemp.
The FBI has never been able to claim they hold any evidence placing Ivins in Princeton or even on the road at that time. As for timeliness, reporters also found that the links between Ivins and the national sorority went back to a woman he knew in his college days in Ohio and that there was nothing to connect him to any "odd" behavior regarding the organization since 1981, and absolutely nothing ever regarding its chapter's small, upstairs, office in Princeton, located some 60 yards from the mailbox.
Another leaked story that a first seemed somewhat significant appeared in the Washington Post on August 5 entitled Anthrax Dryer a Key To Probe: Suspect Borrowed Device From Lab. This story attempts to indicate that a key piece of evidence might lie in the fact that Ivins had "borrowed" a drying device called a lyophilizer that is used to produce powdered substances from the type of liquid brew in the flask in Ivins' lab. Lyins, it was reported, should not have needed such a device for his work. The next day Greenwald rejoined:
...... that appears to be completely false. Here is the abstract of a 1995 research report, for which Ivins was the lead scientist, reporting on discoveries made as part of their research into anthrax vaccines (h/t substantial). This is the method they described using:
The efficacy of several human anthrax vaccine candidates comprised of different adjuvants together with Bacillus anthracis protective antigen (PA) was evaluated in guinea pigs challenged by an aerosol of virulent B. anthracis spores. The most efficacious vaccines tested were formulated with PA plus monophosphoryl lipid A (MPL) in a squalenel lecithin/Tween 80 emulsion (SLT) and PA plus the saponin QS-21. The PA+MPL in SLT vaccine, which was lyophilized and then reconstituted before use, demonstrated strong protective immunogenicity, even after storage for 2 years at 4°C. The MPL component was required for maximum efficacy of the vaccine. Eliminating lyophilization of the vaccine did not diminish its protective efficacy. No significant alteration in efficacy was observed when PA was dialyzed against different buffers before preparation of vaccine. PA+MPL in SLT proved superior in efficacy to the licensed United States human anthrax vaccine in the guinea pig model.
The Post had failed to report that Ivins had obtained the lyophilizer through a proper requisition and that he had made no attempt to hide it from his coworkers in the lab, who, one would suspect, would have soon come to a heightened level of suspicion as the terror attack spread.
A
s
for the so-called psychologist turned
witness being reliable:
Here's the August 6 account by the Washington Post:
The counselor he saw for group therapy and biweekly individual sessions, who would eventually tell a judge that he was a "sociopathic, homicidal killer," had a troubled past. Jean C. Duley, who worked until recent days for Comprehensive Counseling Associates in Frederick, is licensed as an entry-level drug counselor and was, according to one of her mentors, allowed to work with clients only under supervision of a more-seasoned professional.
Shortly before she sought a "peace order" against Ivins, Duley had completed 90 days of home detention after a drunken-driving arrest in December, and she has acknowledged drug use in her past.
In a 1999 interview with The Washington Post, Duley described her background as a motorcycle gang member and a drug user. "Heroin. Cocaine. PCP," said Duley, who then used the name Jean Wittman. "You name it, I did it."
It takes a specialized lab to weaponize anthrax powder. An opinion piece was placed in the Wall Street Journal by a biological war specialist who had been part of the UN team that investigated the Iraq program in the lead up to the war. The author, Richard Spertzel argues: Bruce Ivins Wasn't the Anthrax Culprit, pointing out the technology required to produce the attack powder was of a much greater difficulty than might be carried out by a single individual working in even the most sophisticated program. Ivins' lab, with its vaccine objective, was not set up for that.
Spertzel's piece seems to punch a gigantic hole in the FBI's case. The FBI claims that Ivins would have cooked up the powder while working late in his own lab alone and that his activities pulling off this very difficult feat had gone unnoticed somehow by his fellow lab workers. He might have had a drying machine but Sperzel's piece indicates that getting the toxic liquid into a solid was hardly the difficult part of the weaponization process. Other sophisticated instruments would have been needed to "mill" and treat --hence the silicon/bentonite-- the powder to get it into a volatile form that could get into a victim's lungs. Once in this very deadly state of volatility, there is an immense handling problem for the perpetrator(s) to overcome as the envelopes are packed, sealed, transported and deposited into the mail system.
On August 6th, targets and victims' families, including members of Congress were more fully briefed on the case as the prosecutors came before the microphones to announce that they are convinced that Ivins could be proved guilty and that he, a lone, estranged, psychologically disturbed perpetrator acted alone. Formal documents were presented to the public including papers submitted to the courts by the FBI as they sought warrants in the case. What many people following the case were watching for, was some concrete evidence linking the powder, handwriting, envelopes, movements, etc. to Ivins.
Would the FBI be able to show any trace of the anthrax mailings that also had Ivins' DNA on them or that he had made the trips to Princeton, or even minute traces of the powder in his home, automobile, etc or anything else, physical for that matter?
What emerged with great emphasis, instead, was a claim that Ivins in 2001, in the period between 9/11 and the anthrax attacks had sent an email to a colleague that talked of Bin Laden and seemed to use language somewhat reminiscent of that used on the notes that accompanied the poisonous powder. Ivins, it was said, had expressed fear that Bin Laden might have access to anthrax or sarin nerve gas and that he was an an enemy of the Jews and America.
As the investigation played out, the FBI is said to have put intense pressure on Ivins and his immediate family, according to a NYT August 5 article: Pressure Grows for F.B.I.’s Anthrax Evidence
They had even intensively questioned his adopted children, Andrew and Amanda, now both 24, with the authorities telling his son that he might be able to collect the $2.5 million reward for solving the case and buy a sports car, and showing his daughter gruesome photographs of victims of the anthrax letters and telling her, “Your father did this,†according to the account Dr. Ivins gave a close friend.
We're reminded that this is not just any criminal case where the prosecutors zero in on a weak link and try to bring a brute force case backed by character assassination (alcohol, porn, breakdowns, etc.) even while lacking any physical proofs tying the defendant to the crime. In this case we are talking about one of the most important chapters in our recent history that paved the way for an unprecedented assertion of Executive Branch power and the lead up to a war whose costs will be felt individually and collectively for decades. A weak case that might just get over the very low bar of just getting you to trial is hardly enough.
This case needs to be looked at by Congress and perhaps even by an as close as can be hoped for independent Commission. Even as it is hard to put too much stock in the end product of any of those processes, it's important to find out under oath who back in 2001 leaked to ABC and to others like John McCain, who went on Dave Letterman's show at the time and mentioned that Iraq just "may" have been the source of the anthrax powder. Others have reported that they were tipped off just before the anthrax attacks began that they should go to their doctors and request prescriptions for Cipro. Richard Cohen of the Washington Post is one person who reported such a tip from someone he knew in the government. Experts like Spertzel have to be called and records, including the complete FBI files showing the results of security checks, polygraph tests, Ivins' colleagues' testimony and other trails they pursued that didn't pan out, have to be subpoenaed.
As Agent Muldur would say: "the truth is out there!"
May 19, 2008
The $800 Billion Bank Shot
Washington, DC
The Apotheosis of Deal Making
For Ben Bernanke and the Fed these have been bare knuckle flying days. Never has the dominant central bank moved so radically into a new orbit as has the US Fed this year. Conversely, for the Media this launch into monetary outer space has been greeted with the kind of yawn that might have been reserved for a weather balloon.
Never mind the Bear Stearns rescue that was done so hastily that it appears no one bothered to insist that JP Morgan Chase return future windfalls estimated to be in the billions against guarantees the Fed made to get the deal done in a weekend. The Bear deal did close to end out a very perilous week and what looked like a potential domino game of other falling investment houses --Lehman Brothers was most named as the next-- was stemmed, at least for the time being. This respite, coupled with recent moves up in the markets and the dollar, has gained Bernanke street creds and has kept the flak to a minimum, and directed mainly by capitalist purists, long used to not being listened to. Politically, it also has served as leverage for those who would rescue the millions of underwater adjustable mortgage holders.
While it's true that the Fed's rescue of an important "investment house" crossed a bright historical line, it was also widely recognized that the banking world itself has changed so radically in the last decades as deal making has replaced the sweat and toil of agriculture and manufacturing, that the commercial banks and the investment houses overlap in the kind of credit issued and the kind of paper they accept either as "insurance" or "assets" to back their financing of deals. And it wasn't just Bear and Lehman Bros. etc. who were taking enormous losses, it was also the world's largest "commercial" banks; i.e, Citi, Deutsche, UBS, HSBC, etc. who were announcing multibillion write-downs as far as the eye could see.
The lesson to be drawn is that the Fed and the key European central banks (ECB, BOS, BOE,) have made it abundantly clear that no rash of bad deal making, no matter how egregious the imbalances created are, will be allowed to fail. The Bear deal made headlines, that couldn't be helped but a much more radical plan to create a superfund for bad debt that could go to $800 billion by year's end passed unnoted!
TAF, the Fed's Superfund for Toxic Waste
Last December 17, the Fed announced that it was about to offer US Banks (This was later expanded to include the Bank of Switzerland and the European Central Bank) a deal that they couldn't (and wouldn't) refuse. In exchange for the highly discredited --we prefer the word, toxic--mortgage backed securities on their books, the Fed would offer the banks at face value highly secure US Treasury notes. This deal was called TAF, or Term Auction Facility. In exchange, the Fed charges only 2% --slightly below market, that is, for paper that would probably mark to market at an average discount of 20%-- in interest.
In essence, to get around reserve rules and allow the banks to keep lending, the Fed is taking them off the hook for the bad paper they issued and bought and for the collateral they received from hedge funds that were gambling in the real estate bubble that was fueled by these mortgage backed securities. Remember, the mojo that fueled the rush to lend anybody standing (Chicago voting rolls had better actuaries) with the dough to get into their dream house, came directly from the red hot mortgage backed security and credit swap markets that looked great on the balance sheet of the hedge funds, generated huge annual bonuses for the poo-bahs, and eventually spread as far as the coffers of small towns on the banks of the Norwegian fjords.
So, once again, now that the party is over, the bonuses banked, the private jets furbished and the summer and winter palaces built, the Fed has rushed in to sweep up Wall Street's left over garbage. However, quite significantly, since this was a very big party, even the limits of the US Federal Reserve may be stretched by the time this plays out.
The Fed had been buying up Treasuries for over a hundred years and before this latest rescue operation now in full stride, it had managed to accumulate a war chest of over $800 billion. It's more than a little notable, that by early May, they had already drawn down that pool by more than $150 billion.
In May, Bernanke and crew decided to double down on their bet when they realized that this was not just a mortgage crisis but instead a major debt crisis that includes consumer and student loans as well as automobile credit. To meet the threat that Americans might start walking away from their gas guzzlers and piles of credit card debt, they agreed to expand the definition of eligible paper beyond residential and commercial mortgage backing to anything with a rating above AAA/Aaa asset backed securities. Remember, one of the sub plots of the whole greedy asset-backed security mess, was the way the bond rating agencies decided to jump into the party by trading good ratings for expanded business. In this pool, AAA/Aaa could mean practically anything, even used cars!
Bernanke's big bet is that the failure in the real estate markets will have begun to normalize by the end of the year. And for this to happen he has managed to buy time by putting his $800 billion stake on the table where everyone can see it. For the moment, this has had a calming effect on the stock market and even has slowed the decline of the dollar.
By the end of the year, this hiatus may look more like a pause between storms and if housing prices continue to fall, job losses accelerate and consumers pull way back , it's quite possible Bernanke will have blown the entire pool of Treasurys built up over a century in just a single year. Little wonder, then, that he has given his own encouragement to Congress to move in its rescue of the little guys struggling to hold onto their houses. Too many empty houses on the market could tip the balance.
But there are headwinds that could counter the stimulus that comes from artificially low interest rates, government supported mortgages and a giant green light for bankers to continue to lend. For one thing, a majority of the houses that need rescuing are located in exurban locations. Commuters from these locations where just about everyone has a long commute, often driving the de rigeur SUV or pick-up are getting doubly clobbered as they fill up their tanks and do the weekly supermarket run. Also, a number of the most vulnerable no-money-down mortgage holders were working in the then booming construction industry. In order for prices to even bottom out, new building will remain at a standstill for a long time to come. The combination of a slowdown and the kind of inflation that hurts consumers most, also spells trouble for the commercial building market as company's shrink their staffs. The Fed and Congress's best efforts may not be enough to convince people to keep paying for homes, much less cars, they can't and never could afford.
In CreditWorld, Leverage is King
Most Americans not only do not have savings but most have accumulated large amounts of plastic debt as they attempted to live better even while struggling to keep up wages and pay for health care, fuel and food prices that have only accelerated even as jobs get harder to find.
By lowering interest rates to artificial levels for the second time in five years --to make its TAF subsidy less conspicuous?-- the Fed is also telling savers that they are losers in this new economy. There is little wonder that people who sat on the sidelines while their neighbors were tapping their houses like ATM's now see themselves as the losers. In CreditWorld, it's obvious that Aesop's Tales get flipped upside down.
We have been in bubble mode back since the Keating Five. Since then we have had a succession of bubbles all fanned by Fed policies. We can offer some ideas on what the Fed will sacrifice next to keep the party going one more time.
The Dollar Has No Clothes
Where the buck stops and starts, erosion of the world's preeminent store and measure of value, the US dollar, can serve as a metaphor for the way we grok an expanding, inter-related sphere of critical but slow boiling crises like: energy, health care, population, food, water, climate change, human rights, personal freedom, trade imbalance, wealth division; etc.
FUD and Band-Aids
The dollar is, after all, merely the material meter with which we value all our goods and labors. And yet the precipitous shrinking of this measure, of anywhere between 50 and 150% over the last decade against basic materials has all but escaped mention in the agenda-driven, zeitgeist whirlpool we call the Media. Obviously, once again, it serves no one's agenda to call attention to this inconvenient happening just as it appears to serve no one's interest to understand the consequences of peak oil in an energy driven world economy.
We can offer some "politicized" explanations for the inconvenience, like the cost of a long war to folks who want to expand it to Iran, the war's impact on the price of oil, the insistence on borrowing from foreigners holding excess dollars-- to offset government deficit spending and soak up the overhang from the trade imbalance, the fostering of easy credit needed to jack up the consumer component of the economy to over 70% even as wages stagnate and manufacturing and services are outsourced, the fudging of the CPI to grossly hide inflation and the loosening of controls on how the financial sector can create money.
Here in Dymaxia, we have no magic ways to tap into pools of truth. We are as unarmed as you, dear reader, to insist on what gets talked about on the loud megaphones that, when blared, reach everyone. So, when we try to discern agendas; we mainly revert to the "who stands to gain" approach.
In TV-land we notice there are rarely analysts who insist that borrowing a trillion dollars to fight a war has a negative affect on the value of our currency. There are rarely analysts who make plain that the war in the Persian Gulf is about the control of the flow of petroleum even as it is so completely obvious it sometimes shows up as a slip of tongue by some soon to be sorry politician. There are rarely analysts who make clear that it has been Iran, that has been the greatest beneficiary of our sorry adventure in Mesopotamia. It even took forever for anyone to note that Bush's brain was running on empty even though nobody had ever heard him successfully string three words together.
Time Outs are Ugly
The blogosphere, with all its cacophony, is the repository of an enormous pool of gray matter and hands-on knowledge. One only need think about Wikipedia, warts and all, to grasp its potential to gather information in a cooperative endeavor. But for all its vitality it is a David in the face of a massive Goliath. The whole sorry run-up to the war and the fool me twice rant on the success of the Surge has shown just how a repetitive Media acting in unison can drown out wiser voices.
China, as well as many other more or less totalitarian regimes, has gone further in managing to suppress activity on the Net. Likewise, here in this country, the major internet service providers (led by AT&T and Verizon) have been waging a legislative battle to gain control of the Internet's pipes they manage and parse them into fast lanes (for paid media stuff) and slow lanes (for everybody else). Advocates for Net Neutrality understand that the speed in which a web page, or say, a YouTube clip, is delivered to a browser can ultimately have a major impact on users' preferences for competing info sources. Lest we forget, here's a brief list of YouTube moments that have, for better or worse, had significant weight on this election: Jeremiah Wright's "God Damn America" rant, Hillary's Bosnia misinformation episode, Allan's Macaca Moment (yes, he was an insider conservative pick), McCain's confusion over Sunnis and Shiites, etc.
Ultimately, a sure sign our experiment in democracy is failing is when citizens continue to vote against their best interests. There is, it seems, one tried and true way to make this happen, through cacophony and confusion that elevates wedge issues far above their significance and neutralizes inconvenient facts and truths. Imagine pointing out to people that the price of gasoline or their basic foodstuffs hasn't really gone up so much as the dollars we use to pay for them have gone down. Imagine how that would affect the mass psychology! Instead the story line goes: India and China are now getting richer and they are buying up all our excess petrol, rice and corn. Shouldn't we be wondering how this cosmetic explanation gained such mainstream currency?
Peak Oil?, When's the Last Time You Heard About Peak Oil?
The great issue of our moment, is the nonrenewable fuel crisis. It shapes the most fundamental aspects of our government policies in enormous ways that then need to be obscured by those who would allow us down this --for them very profitable-- path towards the most momentous crash this civilization has ever known. If you look at the War as an extension of our status-quo oil policy, and the cost of maintaining that war at its present inconclusive level and the cost of borrowing to sustain that and factor that in as a direct subsidy to petroleum, the price we really pay per barrel goes ballistic. Now, add in the cost of keeping the Persian Gulf open for shipping, the naval and air power, control and command structures for the region and all the unintended consequences that grow out of our preoccupation with keeping the spigots open, then factor in the burgeoning cost of global warming, not to mention road building and maintenance and you are talking about the greatest subsidy in our history for an ultimately declining industry that will, by the definition of its finiteness, only fail us if we insist on remaining addicted to its supply.
What is worse, as long as we insist upon basing our energy mix around imported oil, we are sending more dollars out of the country into the coffers of the very same countries we feel most threatened by! This, we submit, is collective insanity of the first order and it it doesn't convince you, dear reader, that something very fundamental in the way we process information in this country is entirely broken, then, we suppose, you are reading this for laughs.
Corn to Ethanol, a Metaphor for our Time
It might take chutzpah and confusion to get here but once in Washington, the real money is in the FUD and band-aid businesses: take the current economic crisis-- the product of serial bubbles and across the board excess borrowing from the government down to the lowliest citizen. As a remedy for these excesses, the President announces, without worrying how it might be paid for, that he is sending everybody in the country a check that he promises is sure to kick-start a new recovery to the "slowdown", Congress funds a way for communities to buy up foreclosed properties, the Fed has its back window open soaking up the financial waste products on the books of the major banks and brokerages and it's printing presses running over-time to serve up cheap (when you factor in inflation, interest rates are now negative) money for the next bubble, farmers are paid to turn corn into ethanol even if the process absorbs as much energy as it produces and food shortages pop up around the world, and the Presidential candidates promise programs or further tax cuts, with no way to pay for them. "Got a Problem?, we'll lower a tax!
You might think that this money for nothing, kicks for free approach to solving what is essentially a borrowing crisis, might have raised the curiosity of those who tell the national narrative. How, they might ask, have we found ourselves in the position of facing lower salaries for workers, rapidly rising food prices, gasoline prices that might have showed up in some SUV driver's nightmares a few years ago, and a dollar that is so anemic that travelers abroad have taken to complaining they can't afford un Grand Mac not to mention a coffee and croissant. Watched or not, pots will come to a boil, and now it seems we have come to one of those moments where the steady stream of bubbles in the weak dollar kettle can't be ignored. Of course, as they ignored the rise of CO2 in the atmosphere and its effects, or the decline in ordinary peoples' earning power over the years, the pundit class continues to prate, as if they were playing pin the donkey's tail on their own asses.
Connecting the Dots
First off, there's the unavoidable price at the pump that's brought one of the least enjoyable aspects of traveling in Europe to our own pump islands. You no longer have to imagine paying over 120 bucks to fill up your tank; it's enough it seems to make some people want to give up a job that requires a 150 mile daily commute in their Tundra, if they could only find another. No wonder then, that people are tucking the keys under the Hummer's driver side mat and walking away from that 5000 sq. ft. dream house now 20 or 30% under water, with heating and cooling bills to match.
For that matter, has anyone noticed that while the price of gas was going up, the value of the US dollar was somewhat symmetrically falling when measured against food staples, raw materials, precious metals or even other trading partner currencies like the Euro or Yen?
Of course, we are not on a gold standard, that is, there is no official link between the metal and the dollar but quite curiously we can see that even though the price of oil is actually quoted in dollars, the sellers of that black liquid are getting no more today, if measured in gold, then they did five years ago.
Once upon a time, there were, in more primitive days, political positions that would argue in favor of a weaker or stronger currency. Populists, remember William Jennings Bryant and his famous Cross of Gold speech, would argue for the government to soften its golf restraint to print more money to stimulate growth, Conservatives, with notions of protecting their net worth, argued against the notion. Later it was said that a cheap currency protected both industry and worker by cheapening exports and making imports more costly. Significantly, it was Richard Nixon who broke off the last link between a precious metal --in this case, silver-- and the dollar, thereby making the American printing press, the world printing press. Today, a weak dollar benefits the balance sheets of multinationals who can shift resources in and out of markets and magnify the "growth" of foreign profits by converting them, on paper, at least, into cheaper dollars. For instance, last month, it was Ford's turn to show a profit abroad that magically out-totaled its losses in the US.
For those of us who measure our spending ability in dollars, it is hard today to make the argument that a less valuable dollar has some beneficiary impact. The old saw that currency devaluation acts as a stimulus for export trade has a very hollow ring to a society that has outsourced most of its manufacturing capability to other parts of the world. A low dollar may be helping China and India to establish markets in the "strong" Euro and Yen zones but it has done little or nothing to offset the ever growing trade deficits being run up in this country.
Curiously, outside of Ron Paul's run, none of the present candidates talks about the impact of the dollar's value on all us and so while broadly "the economy" is perhaps the major issue, the role our currency plays appears to get short shrift. Paul, though somewhat coherent, probably has done little to broaden the discussion. By putting a lot of focus on the gold standard, which only rewards gold producing countries, and combining that with an unreal role for government, Paul turns off most progressives and fiscal conservatives who might otherwise be repelled by a weak dollar policy that punishes all of us with savings and earnings in dollars while rewarding multinational corporations that can hedge their holdings abroad and further gimmick earnings.
There are many reasons why the weak dollar has been shut out of the national political discourse by both parties; it's just plain inconvenient since: it makes our assets less valuable in a global economy, it makes it advantageous for players outside the dollar zone to purchase US assets, it tilts corporate power to companies that can do a large part of their business outside the dollar zone and most importantly, it boosts the prices of staples and raw materials where there is global demand. Like the recent rise in oil prices vis à vis the dollar, the same thing is happening with the price of rice, corn and wheat, the basic food staples the world depends upon. And like petroleum, the food story has a raft of causes. Being somewhat simple in nature and style, we here in Dymaxia, will make the argument that the price of food, like the price of copper, or platinum or uranium has followed closely the ascent of the price of oil (and, of course, the symmetric decline of the dollar).
It's the Dollar, Stupid
We are left to wonder why the two Democratic candidates have not seized on the weak dollar as an argument against McCain and his supply side bromides that will lead to further deficits as far as the eye can see. One supposes they are afraid of being ridiculed the way Paul was made to suffer. Ultimately, this may be a mistake because there is a visceral component to the issue. We in this country are being beggared in order to protect global hegemony for our great global corporate entities. In fact, this is actually and certainly, a potent enough issue, if past currency crises are examples, to be successfully used as an argument for pay as you go government!
Many of the most successful investors over the last six years have bet against the dollar. They looked at the supply-side (debt-fueled) script that Bush was intent on playing out, they looked at the historically unprecedented shift of manufacturing capability out of the US to Southeast Asia that insured an ever increasing trade deficit, they looked at the ensuing shift in demand for basic commodities including food and energy, they looked at the laissez-faire postures coming out of Greenspan's Fed, and finally, once underway, they concluded that the cost of the Iraq War, particularly as it was funded off the books, would further weigh on the dollar, the world's reserve currency.
We are far from our Zimbabwe moment --the rest of the world is paying a price for the weak dollar and will ultimately intervene to support it-- where it takes a wheelbarrow of currency to buy a loaf of bread but we are beginning to see some weird distortions: the price of basic foodstuffs has climbed throughout the world. This is partially due to weather changes, they say --the rice crop in Australia-- and partially due to increasing demand, particularly in Southeast Asia, and partially to the use of corn for ethanol production but also to the decline of the value of the dollar. The US is a major grain producer, a weak dollar would indicate that grain becomes cheaper when purchased outside the dollar zone. This is not the case, of course. Instead, like oil that is also denominated in dollars, food grain prices have climbed as currencies in the raw materials exporting parts of the world have not followed the US dollar down, countries like Canada, Australia and New Zealand.
Because so much of our food is packaged, manufactured product, the raw material component price has not had such a startling impact as say, the price of corn has had on Mexican families who rely on the grain as a key part of their diet. There have been demonstrations in a number of countries beyond Mexico including most recently violence in the streets of Haiti. It is possible then to foresee troubled times around the globe because of a devaluation in the US.
As we've also often noted, paradoxically, the oil rich Arab states, the Chinese and the Japanese have a vested interest in supporting the dollar regime, even as it appears to be falling apart. This is because they are major holders of the dollar in the coffers of their banking systems. They could precipitate a world financial crisis that would make the present leveraged banking crisis feel like a warm breeze in the eye of a hurricane. To be sure, they are all working overtime trying to figure out the least destabilizing ways to lower their dollar positions. We can look for the Chinese, say, to be out seeking stakes in entities that own and control raw material assets and distribution.
Another factor driving the value down is our artificially low interest rates. Money from abroad that might normally flow into the US for safe harbor bond purchases, will instead go to places where interest rates are higher. Today, the rates set by the governing central banks in Europe, Australia, New Zealand and Europe are about where the US was before the Fed rushed in with its record setting cuts. Low interest rates make it cheap for companies to borrow and thus stimulate business activity. What's dismissed is that low rates hurt savers and retirees who have managed to be thrifty and are now living off those savings, even as much as a cheap dollar does. Together, there is a double whammy of inflation and wealth erosion.
Miraculous Recovery
There are some out there who are already heralding that we are on the brink of recovery in the US, even as we are just entering into this Recession. After all, the stock market has performed well this month and the unemployment figures don't seem so bad. Our guess is that unemployment and job loss will be revised upward in the future as they are measured by means that tend to obscure the facts at the outset and end of cycles.
What that would mean is that the financial system has managed to absorb $100's of billions in bad paper, that construction workers who have lost their jobs have some how ended up on their feet, that ordinary Americans, no longer able to borrow against their houses, are bellying up to the bar and paying more for gas and food and still yet are able to keep the 70% of our economy that depends on their consumption on track for growth, that continuing job losses in manufacturing are being replaced elsewhere, that interest sensitive savers are able to absorb the hit of low returns, that high diesel costs are not driving up retail costs and that continuing job shrinkage --we need 150,000+ new jobs per month just to keep pace with population growth-- are all being overcome by some miraculous happenings off the radar somewhere.
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