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.
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 4Â°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.
As 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.â€™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, â€śYour father did this,â€ť 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!"
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 Ă 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.
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.
We have, it seems, evolved a political/media system that nearly guarantees no remedies until the damage has been done, the scoundrels have safely buried the loot, and there is a full blown crisis on hand. It's not just the politicians out there running reverses and repeating tired saws that negate even their own private thoughts; it is also the media pundit chorus, people purportedly paid to do some quality thinking who, it seems. all too often forget how little they really know.
We got back to the States two weeks ago, in time to hear the weekend bloviators indicate almost unanimously that Hillary Clinton had wrapped up the Democratic presidential nomination. Only on the following Monday when an ABC Washington Post poll came out of Iowa were they stunned into realizing that all of their hot air and spin had to be revised. Somehow, Iowans --the folks who actually will be making up their minds in 5 weeks-- had, like their credit cards, maxed out on Hillary's message of a return to the good old days.
What Don't They Miss?
Pundits, of course, travel on other peoples' credit cards and sometimes even get to dine and rub shoulders with the Great Gatsby crowd that have had a great run these last few years. For them, the sound and smell of little people's mortgages going up in smoke is as far away as one of Jupiter's liquid moons. Nothing it seems can divert their eyes from the talking points coming across the transom, not even the unseemly multibillion dollar panhandling in Arabia of giant financial institutions --Bear Stearns, Merrill Lynch, Citibank, Bank of America, HSBC, to name a few- as stoppers to the hundreds of billions of dollars in write-downs they are taking for holding derivatives (many of their own making-- that were somehow supposed to have allowed them to sprinkle fairy dust on the toxic waste they'd bundled into tidy CDO's, CLO's, MBS's, etc.) (For a lot more detail on this alphabet soup mess, please have a look at our July 27 piece The Big Crack )
That trillions of dollars have flowed out of the US and into the coffers of sheikdoms small and large, friend and foe, as well as to our East Asian allies and rivals is something best left to the money men to figure out, it seems. Even when great banks teeter on the brink, and CEO's are forced packing, we hear nary a peep out of the political and media class.
Does anyone among the poobahs and sages wonder how it is that nearly all these so-called sophisticated money men, and their peanut counters in the back room bought so heavily into their own waste product? Or in the more convoluted case of Goldman Sachs, shorted the lousy paper they were selling to their best customers (even while the present Secretary of the Treasury was still leading the firm)?
Hardy, though Paul Krugman, the Princeton economist and New York Times columnist, who does do his own thinking, had a simple way of nailing it; greed in the corner office in a political environment that has put the foxes in full control of the henhouse. Krugman has made the Enron-revisited point that none of the CEO's who've lost their jobs as the multibillion dollar losses of the subprime crisis have hit the fan, has had to give back his golden parachute going forward or the obscene, bonus-based, pay packages they collected during the years they were ginning up the phony mortgage market and creating the mountains of bad paper --they secretly called "toxic waste"-- their institutions and stockholders are now forced to swallow and that is shaking world financial markets.
The Farce Begins
The Friday November, 30th Wall Street Journal reports that the Bush Administration --the same guys who advocated that Social Security should be replaced by private investment accounts in the markets-- is in the process of negotiating with the banks with an end result that is sure to mean --even if its hidden in the deal-- that the taxpayers will soon be subsidizing the banks as well.
Here's a good pundit question to be asked: Will the Democratic Congress ratify a deal designed to help the banks and the holders of some of the many balloon mortgages that are scheduled to blow up as rate increases kick-in, without asking that at least some of those bank and hedge fund executives who have pulled in billions of dollars in bonuses for the last few years to give back any of their bonuses and commissions, in return for a rescue of their scams?
We, here in Dymaxia, are willing to bet that the question will hardly arise before it gets buried like a lead pipe in a toxic waste dump. After all, this sitting Congress already has a record on hedge fund bonus money; i.e., they continue to allow it to be called "capital gains" by the hedge fund moguls, so it can be taxed at 15%, half the rate the folks who sweep their offices pay on their earnings!
But bank sub-prime paper mega-write-downs (see the E*Trade deal where $3 billion in CDOs was turned overnight into $800,000, for instance) also strike at lots of folks who have pensions invested in the banking industry not to mention bank stocks in their mutual fund portfolios. In the case of Citigroup (CIT), alone, shareholders have, since the beginning of the year, lost approximately two thirds of the value of their holdings, or more than $80 billion dollars. In E*Trade's (ETFC) case, shareholders have lost more than three-quarters of their holdings.
CIT is, or was, of course the world's largest financial institution. In desperation, to stay above water it negotiated a deal in which it promised to pay its rescuer, the Abu Dhabi government, 11% interest on the $7.5 billion cash injection it received this week. In today's world where very big money accrues even to individuals if they're in the right place, $7.5 billion probably doesn't sound like a lot to a pundit's ear. It was, it turns out, enough to buy nearly 5 percent of our biggest bank. Importantly, for the gulf state oil sheikdoms, it represents probably only a few-day flow of petrodollars; here, it seems, the pundits and the petro-billionaires can agree!
Trillions of dollars, of course, is real money even in Washington where they print the stuff. No one knows where it all goes except when big purchases become visible like the Chinese attempt to buy a large oil company with significant reserves or when the management of our major ports goes on the block. What the Citigroup deal points out is that these outside government and quasi-government players in the Gulf States (including Saudi Arabia, of course), China, and Russia are likely to continue to gain clout as the major tectonic shifts of the current crisis continue to shake the banking system.
Now, imagine for a minute that subprime mortgage based money creation was not an anomaly and that there are parallel but even larger fault lines still to come into play! Impossible, you say?
Here's the way it works when the Fed and the regulators are betting on the private sector to regulate itself: banks and their proxies earn immediate money by lending time bombs that don't go off for several years; bigger banks and hedge funds earn money on these foolish loans by packaging them and turning them into respectable derivatives they sell without, in many cases having to pay a middle man or market fee directly to their customers; rating companies profit by this new business stream and give out their imprimatur of a high credit ratings to this paper now three steps removed from the original loan; other banks and insurers serve as counterparty guarantors, buying and selling the obligations as investment grade to their customers or hold as reserves, thereby "spreading the risk" eventually around the globe.
Are Junk Bonds the Next Junk Bombs?
When it became clear last summer that the entire world banking system had been gaming itself as the US home mortgage bubble reached gargantuan proportions, politicians and their sock puppets looked the other way, spouting the usual nonsense about the core economy being sound. Neither party could see perils without an equal mix of good news in dealing with the crisis.
Now that the problem has spread beyond the growing rash of foreclosures (these only affect ordinary people and are thus ..........) and to the foundations of the major banks thereby threatening pension funds and even bank deposit holders, the problem still gets less notice by the commentators than the daily swings of the Dow Jones Index. It's almost as if on the day the twin trade towers fell, the stock market stayed open and went on to gain a couple of hundred points so the headlines read: "Despite Early Fall, Markets up on Gains in Scrap Metal, National Security and Office Building Prospects". The Dow Jones Index now seems to be the only gauge the media use to measure events on the ground.
Pundits are an important component of the information flow, since they shape public opinion; so how they get spun matters much. Politicians, we know, who get out in front of public opinion face ridicule and sudden death, which is probably why there are mere nuances of differences in the platforms of all the Democratic candidates, minus say, Kucinich and for all the Republican's, Ron Paul. The pundits, as we noted, tend to read each other, hoping, one supposes, that one among them knows something. The rest of the time they rely upon being fed thought aids by the lobbyists and other operatives, the guys who earn the big bucks in Washington.
Unlimited Dollars All Around
Public money used to have meaning in Washington until Ronald Reagan intuited that debt, in our new economy, had become as American, say, as a wallet full of credit cards. Take the 5th year of the Iraq Occupation. The United States continues to spend off budget nearly 10 billion dollars a month on Iraq, or, in annual terms, nearly one percent of our entire annual gross national product. To make this palatable, the Administration has raised no taxes but preferred to merely further run up our national debt, something it has been doing across the board without much pushback, anyway.
As we've often pointed out here in BlowBack, since Bretton Woods, the US has had a built-in cushion that allowed it to spread its debt practically cost free around the world. The privilege, a massive type of seigneurage, was made the base of a system in which dollars printed here and spent to buy foreign goods and services often don't show up for payment but instead get held by other countries as a Reserve Currency It's a great benefit that any country would be envious of; nonetheless, there can be too much of a good thing; the system has been allowed to perpetuate right into this massively financial global era, allowing trillions of dollars to build up outside the country in the last few years as China and petrodollar debts mounted geometrically.
Now that there are these trillions of dollars out there, it doesn't take a perfect storm scenario to imagine what kind of an avalanche a real crack here --say, a major bank or brokerage going under, might set off! China and oil producing nations, should more bad paper start to unwind, might be tempted to cut their losses and try to recycle those dollars into "real" investments, like shares, say, in hat in hand banks or teetering corporations or in the holders of natural resources..
It now looks like one indirect result of the Iraq adventure will be the future dismantling of Bretton Woods. Since Bush took office the dollar has lost more than half of its value if gold, oil or other raw materials, including food grains) are used as a counter value.
Our pundit class, of course, never mentions the actual financial cost of the occupation, even as many of them advocate stretching it out as far as the eye can see, once again imagining that the US can go on printing dollars indefinitely just like in the good old days.
But this level of obliviousness, unreality and folly is, of course, hardly limited to the falling dollar, the collapsing mortgage market, the strains showing in the banking system from Citibank to E-Trade or even the looming recession.
CDS, the Next Dominos, Junk Bonds and Counterparts
To get to the Perfect Storm scenario, another shoe might have to drop and it looks like junk bonds may very well be the next subprimes:
This week, we read a compelling piece on where the next big crack might occur, thanks to the research of Ted Seides, as republished by John Mauldin in his Nov 26th "Outside the Box" weekly e-letter. Seides entitled his essay The Next Dominos, Junk Bond and Counterpary Risk. In his article, Seides makes the point that the total amount of derivatives issued by the financial institution bundling mortgage debt, pales in comparison with the amount of deriivatives (CDS) that are in circulation, built not on mortgages but around corporate Junk Bonds, which, he points out, are by definition are high risk vehicles.
According to Seides, there are $45 trillion (yes, trillion with a T or more than three years of US GNP) of these derivatives sitting on the balance sheets of financial institutions around the world. He also makes the searing point that there are no reserves (or counterparts, as he calls them) to back these CDS's up. The issuing banks and hedge funds are the guarantors and they have not been required to set any countervailing funds aside to support the paper they've issued.
Here are a selection of attention-grabbing quotes from Seides piece that, unfortunately does not appear to be available on line, yet:
Does this all sound familiar? It should if you've followed the sub-prime debacle!
The Black Swan in the Room
We take our lead from Nassim Nicholas Taleb, mathematician, empiricist and trader, who can be fairly ranked as one our worthiest contemporary anti-pundits. NNT, as he likes to refer to himself is, most recently, the author of The Black Swan, The Impact of the Highly Improbable. In this book and others, Taleb argues that contrary to the thinking of the punditry, or all those who would predict the future based on the norms of the past, randomness plays a much greater role in the outcome of history than is even vaguely appreciated by those whose world is routinely described by the bell curve of probabilities. For Taleb, it's not just that backward looking statistics lie but when it comes to seeing what might lie ahead, they are as useless as an ice cube in hell.
The Black Swan is, of course, his metaphor, for something that is totally unexpected (by all, but those close to it, and even they often don't realize the true extent --remember Watson, the founder of IBM predicted there might be a market for four of his machines!) until it is actually developed and injected into the system. In the world of mediocrity, the land of the pundits and politicians, there are no black swans but, as NNT points out, we do not live in "Mediocristan" but instead in "Extremistan". Taleb, of course, can easily point to a string of even recent developments that have appeared "unexpectedly" that have radically and irreversibly changed the way the world functions, from central processing computer chips to the Internet, to mobile phones, (to, yes, the subprime loan debacle that was on no MSM analyst's radar up to just a few months ago), etc.
Mediocristan or Extremistan?
As we've said often in these pages, it sure doesn't look like Mediocristan out there as we watch the markets jerk up and down like vaporetto commuters in Venice, even as we watch the bailouts big and small at banks all over the globe and as we mull over all those unregulated hedge funds --the new counterparties-- going after "absolute profits" for themselves and their clients.
In Mediocristan it all shakes out, reason trumps greed and the beat goes on,,lati lati do!
One of the costliest, blunt-force lobbying attacks in DC relies on carpet bombing 30 and 60-second TV ads aimed around all three major local news slots and the Sunday morning interview shows. These ads are unique in that they are targeted not at anything close to a meaningful sample of the hundreds of thousands of folks in the viewing audience but instead, exclusively at the undecided among the 535 voting members of the US Congress.
The Hard Boiled Calculation
Since most votes are pretty much decided in party caucuses, these ads actually are placed to sway a very tiny percentage of the potential voting members, as a tactical component in a full-press lobbying campaign. And though the TV ad leg of these campaigns can run up costs into the multi-millions of dollars, the actual number of folks they're aimed at can be as low as one or two undecided members of some committee or other.
Unfortunately, for the viewing audience's many collaterals, the ads are produced by the same breed of hucksters that turn out hard-core election campaigns; in other words, people who bet heavily on a generous dose of up-front obfuscation, and the assumption that if something is said enough, it must have validity. As for us unconcerned viewers, we're expected to just nod through these ads, in our customary state of undiagnosed TV apnea; after all, the jetsam of undigested ads just ends up in that copious subconscious recycling bin with all the SUV, beer and pharmaceutical pitches.
Nonetheless, targeted or not, when someone makes a pounding plea aimed at keeping somebody's hands off the Internet, we, the denizens of Dymaxia, do perk up. After all, it's something we relate to in spades, especially when the plea is about a chokehold on the Internet. We are, you can rest assured, ever vigilant on that front.
Having just suffered through all the recent lapses of the mainstream media, those guys who took three years to figure out that there was something rotten in Baghdad and who, it seems, never cease to get spun.... and spun again --we don't want anybody, government or private, deciding which information or media conveyed across the Internet gets a pass and which gets pushed into the slow or no lane.
So, who, we wondered, was putting up all this cash to fight this seemingly good fight for Internet freedom? After all, at first blush, the ads sounded pretty damn reasonable. Here was a dedicated organization warning us there was a menace to our net freedom, and that the enemy, was the government itself! These Hands-Off guys were letting us know that Congress was about to impose new rules that would hog-tie our ISP's, or Internet service providers.
In Dymaxia, we pride ourselves on being equal opportunity skeptics. We know more than a thing or two about the Patriot Act and its attack on our liberties and we wince when we hear about the spy agency guys with the database tracking our telephone calls or browsing trackmarks, but we've also heard from no less an authority than the CEO of AT&T, himself, that the Telco ISP's are launching their own plan to turn the Internet into slow and fast lanes they get to control. And so, we wondered, who was it, the Hands Off guys were fingering and why?
So we got on line and googled "hands off the internet" which quickly got us to handsoff.org. A click on their "about us" page, turned up sponsors like AT&T, Alcatel and Bell South. Hmmm, we wondered, as our curiosity began to perk with the intensity of a Roman barista at rush hour. Maybe, this massive campaign --it ran daily in September and October-- had something to do with the makeup of Congress as it was and how it might become. After all, Nancy Pelosi happens to represent a district very much linked to Silicon Valley and she had already gone on record as being on the side of net neutrality.
What Hands-Off didn't want, it seems, was rules written by Congress that would once and for all put an end.... yes, to their plan to get their own hands in a stranglehold around the Internet! They were making an all out play for a green light to impose their own rules on Internet traffic. So much for Orwell! What they didn't like, it seems was net neutrality.
When it comes to telecommunications laws, obfuscation comes in multiple forms and layers. The legacy of a century of regulatory laws has made the situation as clear, say, as the IRS's guide to tax deductions. It's an environment that would get Machiavelli's writing juices going.
Given their different business histories, there are certain legacy legal differences between the Telcos and the cable providers, their new major competitors. The Telco's, for instance, as monopolies and common carriers, have always operated under a regime that requires them to provide a level playing field for their customers. The concept, in fact, goes way back into English Common Law governing the operation of canals and highways. Regarding electric communication lines in the US, the roots appear even before the Civil War, when a Federal law subsidizing a coast-to-coast telegraph line stated :
messages received from any individual, company, or corporation, or from any telegraph lines connecting with this line at either of its termini, shall be impartially transmitted in the order of their reception, excepting that the dispatches of the government shall have priority.
—An act to facilitate communication between the Atlantic and Pacific states by electric telegraph. June 16, 1860
Playing under different rules, the cable companies-- purveyors of TV signals who trace their roots nearly a century later to somebody putting up a big antenna and sharing it with their neighbors for a cost-- have generally grown up as monopolies under local and state jurisdictions in which they were granted the rights of way they needed. And since, from the start, their one-way architecture couldn't accommodate unlimited channel capacity, they grew up negotiating contracts with both their content providers and their customers over various levels of service. Consequently, when it comes to the cable business model, the content providers (CNN, TBS, Disney, etc.) who gain revenues through their advertisers routinely pay the cable companies for access to their customers' eyeballs while play-for-pay providers like HBO negotiate revenue splits. This non common-carrier heritage in Cable flares to the surface every once in a while as it did in New York a few years ago when Time Warner cable kept one of the major local channels off its system for months as contract negotiations stalled. Last year DC residents were told they would have to pay extra to Comcast to see their new home team, the Nationals' games on days when the Orioles were playing.
Lo, the Convergence Cometh
But over the last decade, the cable operators, the only other guys with a physical pipe into the house, have been successfully muscling into the Telcos' ISP space, thus putting themselves into the bidirectional communications space. That has the Telcos calling foul! What's further shaking up the Telcos, is their diminishing future as monopoly voice carriers. What you see with VOIP (voice-over-IP companies) like Vonage and Skype today, is only the beginning. Eventually there will be no money in traditional voice for the Telcos. That nightmare is already a reality: if you've already got cable as your ISP, you no longer need their landline for anything. And even counting their big new cash cow, mobile, they have to deal with a level of real competition that's bound to erode margins over time. Little wonder, then, that they are actively looking round for somebody else to squeeze.
The Double Pickle
And so, most ironically --and this is something you've got to appreciate if you take any perspective on these happenings-- the very same telephone companies that are lobbying against Congressional intervention in this Hands off the Internet campaign are also simultaneously waging a TV campaign that portrays the present state of mobile phone operations as a tangled mess that only the federal government, yes, Congress, through regulation, can sort out. These Tangled Mobile ads where they call for new regulation even sometimes run back to back with their Hands-Off ads! Of course, the audience has no way of knowing who's paying for the ads.
Once again, hiding behind a another shadow group made to look like something grassrooty and consumerish, the tangled-mobile-phone campaign portrays everyday folks complaining about the various webs of local and state rules that the mobile phone operators have to work under, as if any individual would give a hoot. In their own very messy world, they, the Telcos, are, we do not exaggerate, simultaneously and sometimes in back-to-back ads, urging Congress, perhaps the same members, to pass Federal regulations governing mobile phone operations while a minute later they decry government regulations that forbid them to defy net neutrality. Go figure! As the man used to say, only in Washington do the lobbyist cajones even outsize their disrespect! Jack Abramoff may be gone but his spirit goes marching on.
The Nimble Dinosaur
In the meantime, with their new investments in high speed optic fiber to home, the Telcos are also aiming to get into the cable TV game, themselves. As can only be savored, the Telcos didn't like the regulatory regime that, in this case, they rightly perceive as favoring the cable companies. And quite naturally they began gearing up a lobbying campaign that aimed at putting the two utilities under what they like to call a single stovepipe of regulations. However, along the way, something quite different happened which brings us back to the Hands-Off campaign.
As the lobbyists began dreaming up new telephone and cable (and mobile) regulatory acts for Congress, they expanded their thinking to enlarge the pie. After all, competition, even with their fellow but now rival monopolists, the cable companies, was going to lead to decreased revenues. So, they dreamed, if we could only get rid of those pesky common carrier regulations protecting Internet applications, we could start squeezing the Internet application providers like Google, eBay and Yahoo, not to mention the next generations of video and interactive game players and providers and whatever other innovations a true high-speed web (Web2) will spawn even further down the road.
With a compliant 109th Congress already feeding out of their hands, the most favorable FCC in years and some ideologically motivated antiregulatory think tanks at their side, and flush with ISP and mobile profits, the Telco's decided to make their big moves.
Every Good Campaign Needs a Boogey Man
Meanwhile back at the K-Street ad agencies the thinking was that any political campaign has to have a gob of mud. This is politics-ville, after all, and these adsters know that when pinch comes to shove, negative trumps. And so, In one of their strangest twists, the handlers of Hands-Off decided to make everybody's favorite search engine, Google, the boogey man! Google, they impugned, was taking advantage of the level playing field on their lines and profiting richly (at the expense of their Yellow Page franchise). It was as if Google wasn't paying them for their huge connections and as if we, the consumers of Internet services like Google, weren't already paying them for our DSL connections!
In one of their grainy negative ads they showed Vint Cerf, one of the true inventors of the Internet but now on the payroll of Google, testifying before a Congressional committee, that if Google were faced with toll booths put up by the Telcos, that Google would of course bend to paying the tolls. Cerf's quite frank point in this piece of testimony was that the already established players, like Google, Yahoo and eBay, could now afford to pay extra, if Congress failed to protect the status quo. Not shown in the ad, was his follow on that it would be the next generations of innovators, whatever they might be, that would become the real victims, if Congress allowed these toll booths
In their usual retrovative way, the Telcos are now spending billions to enter into the traditional one-way cable business even as the walled in television model it was built on, begins to crumble under the weight of real bandwidth. The connected viewing public, particularly the one the advertisers like to aim at, wearing their mobile phones and iPods etc., has already left not just the Ozzie and Harriet living room of their grannies but the Seinfeld flats where their older sisters and brothers hung out!
In this case, the Telcos, and you have to suppose, their cable rivals as well, have also subconsciously grocked, at least in their nightmares, that the real bandwidth that will flow out of this fiber-optic conversion, the kind that can come right into the home, will change the Internet video and game picture in ways that neither the cable, satellite, or Telco guys (should they take the multibillion dollar plunge) won't really like. TiVo's, podcasts, content sharing sites like YouTube and whatever comes next, all have one thing in common: The customers --now become moving targets-- consume the content how and when it suits them, not how and when anybody chooses to position it. The Great Unwired, having shaken off the physical barriers, want to make their own tracks using their own choices. And, oh, by the way, they may also want to filter out the ads or share the experience with their friends in ways that challenge present copyright laws, not to mention the creative guys who produce the content. The line between cable, upload and download, game and drama, could quickly blur leaving in its place an environment that looks a lot more like an electronic, zero-delay, Netflix mash for friends and families.
A Modern Day Golden Goose Tale?
Once again, it will be the very guys the Telcos are trying to squeeze out of the market that will create the applications that work in this environment and without their innovations the ISP business that Hands-Off is trying to mess with to get an unfair upper hand, might lose its potential to lead the way. Like the auto business that clung to its gas guzzlers and fought seat belts for years, we might see the center of electronic gravity move to places like Korea, Japan or Europe that are, after all, already leading the way in real broadband acceptance.
In an insurgency, it doesn't matter if 80% of the territory is calm at any given
moment, it's that insurgents somehow circulate freely within the various warring
populations and that they are able to stay organized and have access to lethal
arms and the money it takes to conduct and coordinate a successful gorilla war.
Two and half years after declaring victory on the ground, it seems rather ironic
to hear the President talking about securing Haifa St or the road out to the
airport in the very capital of this large country. It is even worse when it turns out that what is considered secure, is
only secure because militia's like the Mahdi army of Muqtada El Sadr, not the Iraqi Army, are in control of those areas and many others across
the country. American's don't want to leave a mess in Iraq, they know the
consequences. What they need to know is what the US military can and cannot
achieve and whether perhaps as Murtha suggests, the presence of US troops is in
itself a provocative factor at this point.
We need facts, as best they can be revealed in such a roiled situation and good reporting is necessary. Koppel's Nightline, for all its lapses and signs of fatigue, was a source for some reliable information. We need all we can get, not less certainly and even more certainly, not the kind of cheerleading we got from Terry Moran last week.
Meanwhile, facts on the ground, the ultimate determinant, will continue to come out of Iraq no matter what the politicians say. As we write this, two days after the President's victory speech, the major news media report the detonation of an IED that killed 10 US marines and wounded another 11 in Fallujah, a city that cost the lives of so many others to "secure" just a short time ago.
Once upon a time there was Wonder Bread. Wonder Bread and its competitors were the ultimate short tail product. Americans liked the idea of getting a packaged good that was fresh and didn't go stale in a day; they also liked the colorful and hygienic packaging and the convenience that came with a pre-sliced and uniform format. Judging from common parlance, it might be safe to say that they found sliced white bread to be a great thing.
To make things even better, everybody went out and bought electric toasters. And thus toasted white bread became for many the second greatest advance of the Twentieth Century.
What happened in bread was matched in other daily pursuits. Where once there were Hudson, Packard, Studebaker, Kaiser, Jeep etc., there remained Ford, Chrysler and GM And for a while these giants manufactured a wide range of brands and models but, alas, over time, and consistent with a new bean-counter logic, they'd reduced that choice to a few simple bodies and chassis differentiated by a little chrome, and
a lot of hype boosted by tailfins and leaning girls in shorts, one hand on the hood ornament.
But lowest common denominator marketing didn't stop with molecules. The spectrum was also consolidated as thousands of local stations were marshaled into the columns of three major networks. Likewise for print, so whereas a city might have had 5 daily papers, the count dwindled down to one or two.
Market-share dominators, it seems, like first and foremost the idea of managed, predictable choice for their customers. From this perspective it's good that at the multiplex this week you were choosing, say, among Wedding Crashers and the Island or going back to see War of the Worlds for the third time. Quite simply, the supply side dominates this equation.
But this long, hot summer, after a string of good money years, there's a cold shadow hanging over Hollywood and once again we hear talk of a crisis in the industry. Could it be that Hollywood, long shielded from real competition, has become the last of the "white bread" or
short tail industries? Like white bread, with Hollywood you always are supposed to know what you are getting-- sometimes they throw in raisins and cinnamon, sometimes a dose of poppy seeds, sometimes the loaf is round, sometimes it's square but the proven
formula stays true.
For people in the biz, the quality of the product is not the problem they most often cite in the face of declining seat sales. In a TV interview with one of the producers of the Island, this week, pirating and its impact on time to DVD were given as the main reasons for the slump. She might as well
have got her talking points from the music arm of one of the studios.
Concurrently, virtual DVD store, Netflix, announced that it now has available more than 45,000 titles for its customer base. Netflix subscribers pay a monthly fee for the privilege of being able to choose among those 45,000 titles and to have a certain number of DVD's on hand at any given time --at Netflix you can keep a disc for as long as you want; when you are finished with it you mail it back to them and they send you out another. Given the reliance on choice, in contrast to Hollywood and the Network owners (BTW,one, Viacom, owns brick and
mortar competitor, Blockbuster), Netflix is the ultimate new economy or long tail company. If you feel like hunkering down with a season of Tony Soprano, just let them know by putting
those discs at the top of your queue. Netflix's policy is to have what you want on hand by the time you are ready to have them sent out. Netflix has clearly learned a lot from Amazon,
another long tail success story.
The customer chooses from this wide variety, and importantly, rank what they've seen. Mining this feedback, Netflix can then let one customer know what other people
with similar tastes have also recommended or rented. Recommendations lead to other recommendations and as you browse, you find yourself adding ever more films, you may have known
little about, to your queue.
In perspective, with all of its 45,000 titles, Netflix has been able to gather and retain a subscriber base of little over 3 million people. Their recently reported quarterly gross revenues came to just over $146 million, the
typical three week gross of a single semi-successful film. Clearly, Netflix, in its present form, resembles more the fly in the ointment than the 800 pound gorilla in the room. But there are also rumblings that Netflix is busy this summer building the technical infrastructure to pave the way for its holy grail, the downloading of films on demand.
What this opens up to is something more broadly called IPTV, or, TV over the Internet. At present day Internet speeds, even the fastest DSL, IPTV is mainly a novelty, no more relevant, say, than VOIP, or voice over the Internet was, back in the early days of dial-up Internet access. But what it will mean eventually for the cable companies, is real competition.
Nonetheless, at present network speeds, we are far from IPTV. Still, that hasn't stopped a rapid acceleration in activity lately.
So much so, that long before we get to the high speed broadband that makes it really fly, there's already a flurry of activity: thousands of regular video bloggers (vloggers) turn out original content in all forms and shapes, streaming video is a
regular feature of NYTIMES.com coverage of major events, eyewitnesses capture video on their mobile phones and upload it to grassroots news sites that scoop the network, regularly providing the most striking shots of dramatic events as
they unfold; and most recently major players like the BBC, the Associated Press, CNN and CBS have all announced streaming video services on their websites. And just last week, a record number, nearly 450,000 people watched the launch of
Challenger via live streaming video And for the two companies that most profit from a long tail world, Google and Yahoo, it was no time too soon to announce extensive additions to their video search and play services. In typical
Google fashion, this ia a "beta" site http://video.google.com but it also includes a downloadable video viewer. Google video not only locates
potential videos but lets the searcher know if the actual video is available on line as part of the search result.
Other groups, in a race to gather content, have announced that they will host downloadable video files on their servers at no cost to the content owners. And formats like Bit Torrent have
been developed that help to speed up downloads of (more compact) higher definition video formats. On university campuses where 2nd generation high speed broadband networks
are available, pirated and copyright-free long films are being distributed. The other day, for instance, someone made available, legally, the silent German expressionist film the Cabinet of Dr. Caligari,which apparently is old
enough (1918) to escape the long fingernails of the Sonny Bono copyright extension act.
The history of the Internet is the story of the long tail. Analysts often forget that Google, EBay, Amazon and Yahoo (the four great dotcoms still standing), owe their success to the long tail.
Google, of course, devours content as fast as it appears and spits it out in small, manageable doses. Their business model goes: you supply the content and we deliver it decorated with paid ads-- we get paid, you get traffic. EBay, of course, no longer just sells the long tail remains of old attics, closets and cellars. Buyers often nowadays go on it looking for items so new they haven't yet
been imported much less hit the shelves of stores. The Internet works even in its most mundane manifestations because it is the anti supply-driven channel. Can't find a handle you are looking for in Restoration Warehouse, Expo
or Lowe's, just go onto the web. It's there somewhere, just Google it and off goes UPS.
IPTV requires next generation bandwidth. Right now, that means the cable guys and the telephone guys, period. Maybe IP over electric lines will work, who knows. Maybe high bandwidth across spectrum will function and there will be
some sort of competition, though as we noted above, even three players, isn't usually enough. There is also a role for Congress in pushing to speed up Internet 2.
If it stays at only two, Hollywood will eventually be forced to team with those two main future high-speed distributors, Cable and Telco. Yes, cabin fever will always be with us, especially for the young, but as we can see
already today in the percentage of business DVD now delivers, big screen, surround-sound, home-entertainment centers will provide more and more of the seats for the movie industry and video on demand will become the main source of
paid entertainment. It should be noted that already Cineplex seat sales represent only about 50% of the revenue that a movie brings in. Not too long ago, that number was 85%. High price
tickets, the string of in-theatre ads, baby-shit smelling popcorn, kinky babysitters and choked roads make getting out of the house less and less of a viable alternative for many people. Hollywood will have to look
past the pox-faced kids in the multiplexes and try to figure out what the Gen X,Y and boomers at home will want to download. The year of IPTV? No, not quite but the decade of
the long tail, you bet!
So where does IPTV (or, better, the future) leave Netflix? Netflix faces the perennial middleman problem, owning neither the content they move nor the distribution channels. Their real value is in knowing who their
customers are (not terribly important in a two player broadband world, where the Cable and Telco's own the customers) and in the original content they have gathered from their customers through their rating and buying patterns. There's value there, but not a home run. In our eyes that makes Netflix a buyout target and the future of the long tail, guaranteed. If Rumsfeld can understand it's time to
switch business models in Iraq and start pulling the troops out, Hollywood will probably get the message, too. That's the real value of being a dinosaur, you don't have to be too sharp. Most of the time, you can count on the other
guy screwing up and as you finally do swing around your tail, that most critters have no choice but to duck and get out of the way. Tune in later for more on tail.
No one, certainly no one here in Dymaxia, can argue that in some important ways,
the range of content available to consumers today, is broader than at any time
in history thanks mainly to what's come to be called the long tail of the
Internet. Even within the limited scope of our
BlogDrome section, we are able to
consistently reblog meaningful, thoughtful, sometimes jarring, sometimes
amusing work being freely circulated by dedicated bloggers on the isthmus of
media, technology, economy and politics.
Grassroots or Citizen Journalism, as it has come to be called, is a powerful means for getting information amplified and out into the public forum. The advent of powerful and diligent search engines that constantly troll the Internet for updated content and RSS feeds that notify consumers when their favorite sites have new content to offer, have made a major contribution to the speed and depth of the stream. Diligent consumers can also use their browsers to access content provided world wide by media organizations once found only in the largest of libraries, days old. Large organizations like the NY Times, the BBC and others make available video and audio feeds, podcasters offer a wide range of talk out of the control of the near monopoly radio broadcast networks.
Yet, against this backdrop of expansive long-tail content availability, it's not hard to argue that the big picture is darker, and far from a golden age. Take the dominant force in content production, the US entertainment/media complex. "The business", appears to be suffering a crisis of its own making. For years, it has increasingly tweaked its products in its successful attempt at ever wider audiences and near-complete hegemony. Time-Warner, the largest of these conglomerates, Disney, Viacom, Fox and the media wing of GE carefully manicure the distribution and cross-marketing of their products.
And just as the US has achieved sole superpower status by outspending the rest of the world, developing the most technically sophisticated military ever fielded --able, at least on paper, to take on foes anywhere in the world and near space with Rambo-like impunity-- Hollywood has built a bulllet-proof product line that is designed to span a wide range of markets with a common denominator for nearly every taste. The ideal product, in this formula, is a movie that has enough testosterone and estrogen stimulation for the teenagers who flock the live screens, a simple enough plot line and character pool familiar enough to be recognizable from Auckland to St. Petersburg and a secret blend of contemporary camp sauce to pique the appetites of the ever growing stay at home DVD aftermarket.
In so doing, Hollywood has succeeded --some would say, perhaps too well for their own good (especially, since most recently year over year box-office numbers are down for the last 20 weeks running)-- in chasing out the competition. Only India has been able to sustain a thriving domestic film industry. Countries, that played major creative roles in early film history, like Italy, France, Germany, Britain, Japan, Sweden, Russia, etc. have, for all practical purposes, gone out of business. Only tiny Denmark seems to have managed to avoid annihilation.
Italy, for just one example, turned out more movies annually in the early 60's than Hollywood now produces in a decade. It is impossible to imagine our cinemateque minus the likes of Eisenstein, Tarkovsky, Bunuel, Lang, Dreyer, Fellini, Rossolini, Bergman, Visconti, Vigo, Resnais, Godard, Losey, Wenders, Fassbinder, Misoguchi, Kurosawa, etc., not to mention the many great American directors who first learned their trade abroad, people like Wilder, Hitchcock and Von Stroheim.
On the broad information front, the situation is equally bleak: the network nightly news has become such a tepid shadow of itself that its sometimes impossible to distinguish it from shows like Entertainment Tonight. Does anyone still tune into 60 Minutes expecting to see them to break a story on the level of the Enron or MCI ponzi schemes? In today's atmosphere, can we really expect to see the Washington Post able to take the heat of pursuing a story of the scope of Watergate? Can we be sure that the NY Times would have the guts to release the equivalent of the Pentagon Papers this time around? In the past they had to resist the accusation of being anti-American, pro-communist; today they will surely be accused of being anti-Christian.
In the lead up to the ongoing war, all of the leading news-breaking media organizations --the number of these is unfortunately quite limited-- have acknowledged burying critical stories that questioned assumptions that were the main rationale for the invasion. Would anyone seriously argue today that minus the threat of WMD and a terrorism link with OBL and the promise of a cakewalk, a majority of Americans would have gone along with the invasion plans? Noticably, although Americans and Iraqis die every day from bloody attacks, there appears to be some sort of ban on photo coverage of these gory events. We do know that the Pentagon has made it impossible to cover through images the stream of coffins returning to the country.
But how seriously has this same MSM taken the revelations coming out of the Air Force Academy. In the wake of stories about fundamentalist Christian control of the Academy's leadership, and even manifested bizarrely by its football team, the Academy's Lutheran chaplain resigned this week and took the charge onto Nightline that it's common practice in the Institution to deny the existence of a Constitutional separation of church and state. When the training ground for the elite officer corps of the US Air Force, the guys that command the flight of the fighters and bombers and the missile launchers, is challenged on Constitutional grounds by its own Christian chaplain, this has got to be worthy of in-depth reporting! Hopefully, MSM editors will prove us wrong and have already assigned top journalists to a story that the Pentagon felt needed a press conference during the week.
With major newspaper readership in a downward spiral, many Americans get their news in short bursts from the radio and television or by taking quick glances at their local dailies. The all news channels tend to parade their rosters of talking heads who generally spout talking points listing canned party line positions, which, of course is really most useful for people trying to read the tea leaves of inside-the-beltway Washington.
The format on NPR's Morning Edition, All Things Considered and talk venues like the Diane Reim Show, Talk of the Nation, Science Friday etc. provide opportunities for a wide variety of beyond-the-sound-byte discussion. On television, PBS's News Hour with Jim Lehrer has little competition in the time it takes to treat four or five major daily stories. Another program that can often be counted on for in-depth reporting and some guts in taking on tough issues has been ABC's Nightline, which unfortunately appears to be in its death throes.
Given the preponderance of public broadcasting programs on our short list, it should come as no surprise that the entire public broadcasting system is under attack by the Administration and the conservative right. The campaign against public broadcasting has been multi-pronged this time around, which makes it a much more deadly strike than in the past when Congressional funding, alone, was put under attack. Deservedly, public broadcasting has a large and vocal audience that has been successful in pushing back the funding attack. This time around the Administration has appointed an ally, Kenneth Tomlinson, to head the Corporation for Public Broadcasting, the parent organization for PBS and NPR. Behind the scenes, Tomlinson has fought what conservatives call bias on NPR and PBS, managing first to get Bill Moyers removed from his program Now. Moyers, an experienced and passionate journalist and one of the founding fathers of public broadcasting, was punished, it seems, for offering, among other things, the kind of pro-immigrant and labor stories that have disappeared from media coverage but would hardly have raised an eyebrow 40 years ago, when PBS was founded. For "balance", PBS was convinced to run a Tucker Carlson show and one featuring the Wall Street Journal Editorial Board, a group that consistently takes conservative positions in contrast even to stories published by WSJ's own journalists. This week, in typical fashion, it distinguished itself with a long piece denying once again the validity of the role atmospheric carbon dioxide plays in global warming
Thursday, Tomlinson managed to get Patricia S. Harrison, the assistant secretary of state for educational and cultural affairs, selected as the new President of CPB, after three days of closed meetings by the corporation’s board of directors. She was co-chair of the Republican National Committee from 1997 to 2001.
The attempted funding cuts for public broadcasting were meant to go very deep. They were aimed across the board at stations but also at particular programs. One irony, from this "conservative" Congressional attack is their focused aim at PBS's children's programming. In the cultural wars that have pitted the Bible Belt against Hollywood, it might have been assumed that PBS, the home of Sesame Street, et al. would be supported by parents offended by the Saturday morning fare coming from an industry they oppose.
But in a longstanding inside the Beltway tradition most recently exemplified by uber-lobbyists Jack Abramoff and Mike Scanlon, official Washington particularly relishes an opportunity to please their big contributors while hiding behind their culture war cloak. In the case of Abramoff and Scanlon, it was Christians and Indian tribes being played against an exceedingly profitable middle, while in the case of weakening PBS, that same vilified entertainment industry, itself a major contributor, could hope to eliminate competition via the lobbying capital of conservative groups. The coincidence that NPR's Morning Edition, the most listened to early morning radio program in the country, and that competitor in every market, Clear Channel -- a major contributor to conservative causes-- is nothing to snicker at. Neither, does it go unnoticed in a very competitive TV advertising climate, that PBS has the ability to consistently attract a prime-time TV audience of affluent trendsetters away from the major networks.
America's economic problems flowing out of the massive trade deficit (see, China's unsolicited bid to buy Unocal this week, as just the latest wrinkle), the out-of-control housing market, the accelerating exportation of manufacturing and service jobs, the growing budget deficit, looming problems in the health system, etc. not to mention a way out of the Iraq quagmire, are going to boil out of the mud at some point. After years of happy talk, Americans are going to have to face very likely a combination of grave issues with very complex solutions at some point soon. They are going to need well sourced information that may not please anyone. Only a very tiny portion of that will come from citizen journalists.
When it comes to overemphasizing the power of the long tail, we might
be reminded of the ancient Chinese parable of the blind men and the
elephant. In the tale, the blind man who hangs onto the tail, declares with
great assurance that the beast is like a rope.
The Washington Post survey has Bush up by around 8 percentage points coming out of August. The bump was the result of a concerted attack first to undermine Kerry's record in Vietnam by the Swift Boatees and then a pile on by McCain, Giuliani, the batty senator from Georgia, Zell Miller, Cheney and the President himself. What they all said was that the present Iraq War, despite some pre and post attack mistakes, was succeeding in bringing the attack (in the War on Terrorism) to the enemy over there and hence was making us all safer over here.
The double pounding worked for much of August as the media took its eyes off the real story on the ground in Iraq, the anemic economic situation at home and focused on the spectacle of a smear campaign working its corrosive magic. For days the Kerry folks seem stymied by an attack that they should have fully anticipated. Our guess is that Kerry's emphasis on his Vietnam War record at his convention that overshadowed any political agenda he might have presented, was designed to preempt attacks that his campaign must have known were coming.
But by going for the jugular Bush has put his own campaign at great risk. For Kerry the only good news is that the election is not going to be held this week and there are still over 7 weeks left before voters actually go into the booths and cast their votes. A lot can happen. Here's Bush's major problem as we see it: He has now virtually wrapped himself around his Iraq War strategy and this presents him with major potential pitfalls, mainly the truth as to what the situation on the ground in Iraq really is.
Everybody in Washington, including John McCain and the brass at the Pentagon knows that the Iraq strategy is becoming a catastrophic failure. Given enough time and media focus the reality on the ground in Iraq will be revealed to the American people who will then have to face a much graver choice than the one offered in the turmoil of 1968 when Nixon managed to get elected. The strategic importance of the Vietnamese War hinged on what was called the Domino Theory that promised that any Communist expansion would lead to a cascade of falling neighboring countries. We all know now that there was no such catastrophe after the abandonment of Saigon by the Americans and an entirely different dynamic occurred in the region as Hanoi played off Moscow against Beijing. The second factor, of course, was lost American blood, treasure and prestige. All those deaths, all that hard feeling at home, all that loss of innocence and swagger in the jungles of Southeast Asia; is it any wonder that we are still trying to sort this out?
The blowback for W may occur before the election. Since he has so tightly bound his premise for re-election to results on the ground in Iraq and Afghanistan, there is always the possibility that major attacks on US and Iraq and Allawi-led government forces will re-inflame what is already a knawing feeling among a majority. But, more significantly, whether it's Bush or Kerry who gets elected, the victor will be faced with a much more difficult situation than Nixon and Kissinger had: Iraq is not Vietnam. It festers at the heart of the world's energy supply zone, an area that has been newly put in play by Osama Bin Laden. There is no Iraqi nationalistic movement that might emerge victorious as did Hanoi. Instead there is a newly resuscitated mullah-led government in Iran that will become the major backer of the Shiites in the South, militias on the ground, break-away Kurds in the North and a determined group of Sunnis and Mujahadeen in the center --all the makings of a failed state.
Notice that J. Paul Bremmer, the erstwhile Proconsul has been put into the witness protection program never to be seen again. Notice that neither Rumsfeld nor Powell were anywhere in view at the Republic Convention. Cheney would have been gone too, if they could have thought up an excuse. Instead, he was nicely positioned right after crazy Zell who would make anyone, even the Vice President look reasonable by comparison. And notice most significantly, the total absence of any mention of Osama Ben Laden and the head of the Taliban, Mullah Omar.
And so goes our little drama. Can Carl Rove and company continue to dominate the news cycle with distractions right up until Election Day? Take the argument over whether the letter that CBS showed the other evening was created on a word processor and thus a forgery. Could CBS have been set up or will we find that IBM had a proportional font wheel for its electric typewriters that allowed for the questionable "th"?
So far so good for the Bushies who couldn't have asked for anything better than seeing Clinton's heart operation grab the oxygen for a day or two or even another 5-day hurricane cycle. But one thing is for sure: whatever we see on the big tube is not going to be a palliative for what is happening on the ground.... ironically, though, it will determine who ends up in the White House and in place for the day the shit (of a failed policy) really hits the fan.
It's now pretty clear that on the surface the real issues of our time will be worked out by symbolic inference. Ever since Fritz Mondale said, in all honesty, he would have to raise taxes, and George Bush the Elder charged Reagan with voodoo economics or Al Gore grasped his ill-fated "lock box", it's become clear that in national politics and economic policies, the details have gone to the devil. Where code words were once limited to racism and sexism, they now serve as clues for all manner of things so that politicians have maximum deniability and flexibility as, say, this week, they try to convince us of their decisiveness for whatever the scenario du jour demands.
There is little upside for truth and in a very tight race, and much to be lost by wrestling with the issues. Where once it was vision, we now have political leaders who vie with one another for "resoluteness ". Paul Krugman has an interesting piece in the NY Times this week called "Reading the Script" (free subscription required, unfortunately) in which he talks about the media's penchant to follow a narrative line or script crafted in part by the owners of the megaphone themselves in step with the political Spinmeisters and their red hot fax and email machines. Commentators fall into line evaluating performance based on how closely they hew to this fluent and blackiswhite script. In this regard it was interesting to watch David Brooks right after Kerry's speech the other night and read his words two days later. He had, he said, read Kerry's speech and thus (explaining his obvious flip-flop) had got a grip on himself.
Re: the economy, the narrative goes that there is a booming recovery somewhere out there and that, facts be damned, recovery we will have. Here in Dymaxia, we have talked, quite often about the massive stimulus that has gone into this last cycle to our possible great peril. This has been a borrowing induced recovery that finally after three years moved into gear in the first quarter of this year only to peter out in the second leaving us still with massive deficits at home, low job creation, a trade imbalance that could easily bring down the dollar and the world economy to boot and interest rates so low that the Fed will have no way down to further goose things if the slowdown continues.
The real problems, we believe, will continue to compound, perhaps gradually, but perhaps not so gradually, in the coming years as things start to catch up with us. One huge blip that is likely to be off the radar for the duration of the campaign is the inexorable move of the baby boomer population towards retirement age beginning in the next five years. This great population wave will gradually put greater and greater pressure on Social Security, Medicare/Medicaid, on other social services and, given its size, it will vote successfully to defend and expand these benefits. Already we see the Federal entity that ensures corporate pension funds straining towards a form of bankruptcy as large companies like United Airlines (last week) renege on their promises. In an extended and deep downturn, the pressure will be placed on companies like General Motors and Ford to try to get out from under their very large obligations, shifting them also to the government and, of course, our children.
Further pressure from the Boomers will also go to programs like unemployment insurance, food stamps and Medicaid as people in their 60's lose their jobs and fail to get rehired or become dole subsidized Wal-Mart greeters. It's estimated that, disproportionately, only half the population over 60 who have lost jobs in this downturn were able to get new work.
For almost 20 years starting in 1982 the stock market grew at an average rate of over 12% per year. In that kind of environment, anybody could make money, even a monkey throwing darts into a chart; and that monkey's luck, it seems, encouraged the bulk of the population to get into the market. With all of the lumpen investoriat gathered in one place, we got the great Internet boom, which, as we remember, got so outlandish that a company in the waste fish oil business in Texas, changed its name to whatever dot com and immediately tripled its market value.
Sitting at any watering hole, you heard the bartender exchanging stock tips with the waitress; partying in Podunk and telling people you worked in "high tech" could bring you star quality and gather a crowd of would-be punters.
For a while everybody was happy; they could look at their portfolios any hour of the day and see their net worth climbing off the charts. Suddenly, that retirement RV, that Lexus in the driveway or the summer house in the Hamptons seemed in reach. Everybody agreed it was lots of fun. The Internet had solved all our problems and there were jobs galore and the government even began to run surpluses and pay down the debt.
What people had forgotten or perhaps never known is that leading up to 1982 we had had a long period of declines in the stock market and that we had seen similar periods from 1929 to 1945. The stock market doesn't always go up and booms even if grounded at first, are usually momentary periods of folly where everything goes and the predators finally get their full day in the sun.
There will, we fear, be tough times ahead as the economy has so far failed to really unwind from the disaster of the Tech Boom. The recent debt boom has only served to forestall the extent of the dip. It should come as no surprise that interest rates will go up and catch some people out on a limb. They are, after all, being told we are "turning the corner". Who knows, maybe it will be the price of oil that finally tips the balance, or a terrorist attack or a war that won't end or maybe it will be one half trillion dollar deficit too many. We can only hope not. However don't make any bets a boom like the late 90's is just out of sight and that this is what will cover over deficits and provide the bulwark against the coming stress.
In the inference game, all this --and there's really lot's more-- in the great TV eye and the to and fro of spinners gets reduced to some inanity like whether the candidate is down on America or not.
In DC, Information, like Traffic has to Flow Smoothly
In the inference war, there is a battle for minds. Now pause for a moment and take a look at the choke-hold being put on the information pipeline that sometimes resembles the barriers being thrown up all over Washington in what has become the latest land grab in the capital in the name of this week's terrorist alert.
In the fight going on over the free flow of information, the land grab is being fought in the name of that potent combo of copyright protection and homeland security.
We talked about Orrin Hatch's INDUCE ACT a couple of weeks ago but it is only one of a number of efforts to squash legitimate modes of information flow that, of course, given what we said above, are all the more important in the face of the political shadow plays.
We can understand why the politicians cater to ambiguity just as we understand why the public is largely unaware of what goes on in the halls of Congress and in the courtrooms where the reach of certain laws get extended or limited. We also believe, lo and behold, that authors and the industries that promote their works should get paid for their work but we are even more concerned that the pendulum is swinging way too far in the other direction. The sad fact is that like in everything else, the huge media companies have much more clout than free speech groups. Remember that Entertainment is the US's largest export industry at a time when we are running a half trillion dollar trade deficit. In other words, Hollywood helps retrieve some of those dollars we spend on made-in-Asia gewgaws.
Can the non-commercial Internet --the great friction-free distribution pipe for uncontrolled bits and bytes -- get road-blocked by this kind of legislation in the name of saving the entertainment industry, the national debt and homeland security?
Well let's just look at a few instances. In testimony a couple of weeks ago, before the committee taking testimony on the INDUCE ACT Mary Beth Peters from the copyright office of the Library of Congress all but claimed that the Supreme Court case (Betamax) that allowed for the VCR was a mistake.
When Disney won its famous "Mickey Mouse law" "the Sonny Bono Copyright Term Extension Act" that extended copyright out again for another 20 years they weren't protecting the widows and kids of dead authors. But they were taking a huge amount of material produced in the 1920's and 30's out of the public domain for Mickey's sake.
The Digital Millennium Copyright Act was passed and signed into law in 1998 to put teeth in antipiracy law. Unsatisfied with what they got there many states are today being pressured by the Motion Picture Association of America (MPAA) to adopt "Super DMCA" (S-DMCA) legislation that would have serious consequences for freedom of speech, encryption, and the public's rights.
The extent of the 1998 US DMCA law has recently hit home in Australia where it came into effect as a result of a trade agreement signed in July. As a result, Aussies are covered by US law in a harsher way than are US citizens who enjoy the concept of "Fair Use" that allows access to copyrighted material for educational and other related purposes. Fair Use provides something of a counterweight to the more draconian provisions of the DMCA.
One of the most visited sites on the web last week, jibjab.com was hit with a lawsuit for copyright when it used, quite clearly, an old Woodie Guthry protest song "This Land" as the basis for some mild political satire.
In Boston, last week DNC attendees suffered information flow crush as they went to a Black Eyed Peas concert at the Avalon in Boston sponsored by the record industry's lobbying group the RIAA. It was reported: "They were met at the doors, with big signs posted everywhere forbidding cameras. As a result, people were sent home after failing cell phone inspection. The choice was to leave your phone / camera behind or leave the concert."
The other day, the FCC voted to certify digital protections on TiVoToGo, which is not yet available but would enable a user to record and send a digital broadcast television -with DRM- show to up to nine other registered people who have a key allowing them to see it. The approval came despite concerns by the Motion Picture Association of America and the National Football League about the risks of "unfettered" distribution.
In the INDUCE ACT new technology that might "induce" a user to infringe could be outlawed before it ever hits the market. In the TIVOToGo ruling, benign as it might have appeared to be, you now have the very disturbing precedent of a federal agency made up of political appointees predetermining what kind of equipment a technology company can or can't design and ship.
To the owners of the narrative, the need to control the flow of information is like peanut butter and jelly. The Internet and technology like RSS (that allows the easy transport and re-transport of content from website to website (take a look at our Cherry Picks column) might just fall into the category of being "inducive" or some other catch phrase. It's one narrative worth watching and certainly, one that we will be paying close attention to here at DW.
In his speech the other night, the president used the term "full sovereignty" several times as he sought to describe the transition of power in Iraq come the end of June. However, in subsequent paragraphs he went on to say that Iraqi sovereignty, full as it might be, would not include jurisdiction over the troops that occupy the country nor the conduct of foreign nationals working for the occupying force. Now, if that's sovereignty, DeGaulle never would have made his way to London to duke it out with Churchill and Eisenhower while he might have led his fight against Hitler in the pleasant clime of the south of France in Petain's Vichy state.
If you do not control the army that controls your streets, you do not have sovereignty, period! You are at best a transitional entity and at worst, no better than a Quisling or a Petain. So how did the media treat the president's words spoken just the other night? Not so curiously, they pretty much gave him yet another pass. Even when Tony Blair the next day declared that Great Britain would accept having its troops under Iraqi control, there was very little stir in the newsmedia world.
Just the week before, Colin Powell had made something close to a major gaffe while speaking on the same subject to a group of Arab leaders gathered in Jordan. Powell was forced the next day to go back on his earlier statement to get back in line with the sovereignty: now-you-see-it-now-you-don't camp. The flap even played out on Washington's premier insider Sunday morning program, Meet the Press, when Powell appeared to be whisked out of camera range by his press secretary. Still, the media, appeared once again to be nearly brain-dead on the subject.
For the DymaxionWeb central, we monitor the news using a number of automated search engines. It can be quite disturbing to see a perfectly similar story repeated from newspaper to newspaper across the country. Of course, there is such a thing as news syndication through the AP, UPI, etc. but what is most striking is that on stories of major importance, these newspapers have basically decided to leave the reporting to others. And we are not talking about international news here but on the basic economy.
And so it turns out that it is really not only the Jason Blairs of the world that bring discredit on the standard press; they do a pretty good job of it themselves even when they are checking their sources. The New York Times is now, just maybe, sort of doing a much more important mea culpa, in our estimation, than the one they did for Jason, in reacting to questions coming out of the blogging world regarding their coverage of the run-up to the war. To remind those who might have forgotten, both the Washington Post and the New York Times supported the inexorable march to war in Iraq with very little hemming and hawing. But the Times, in all its gray respectability, served to provide the most vociferous cover to the argument by running a string of stories authored and co-authored by Judith Miller. Judith was, after all, something of an expert on scary stuff like nerve gas and bio nightmares not to mention aluminum tubes used for nuclear bombmaking. For pure resonance, her creds had been further enhanced by the weight given her testimony by "independent" programs like PBS's "Frontline".
She had covered the dismantling of Russian WMD programs and built a reputation as a tough, not easily daunted reporter with a deep knowledge base on the subject. And yet, it now turns out that according to her own writing, she mainly sourced her stories through the same defectors that Ahmed Chalabi had supplied to the Pentagon, according to an article written in the Washington Post by Howard Kurtz, the Post's media critic: see article.
Judy, it seems even got into a heated email dispute with John Burns, the gray-bearded Times man through thick and thin in Baghdad, when he questioned internally her commitment to the cause of WMD. Later on, during the postwar search period, Judith's zeal turned out to be no less than that of the elusive Vice President. Perhaps the Times ought to assign Judy to find out where our Scarlet Pimpernel is hiding out these days?
Our point is not to single out Judy or the Times for their role, important in terms of credibility in getting public support for the war.... and as bad as the implications of that are and have been on the lives of so many-- but instead to burnish our own particular point of view on the role of the official media and of its ultimate credibility on things that really matter.
It's been our notion for a long time that the press can't help but act as a cheerleader for Wall Street and the present administration's spin on the economy. Only when there is already blood on the ground do they get themselves worked up like a pack of jackals nosing around the body of a near-dead lion.
There's an object lesson here somewhere and it has to do with what we hope to accomplish at our new central node: www.dymaxionweb.com. We've got some test streams up now and will be working on populating our columns with those of you writing from behind the scenes and in a position to help peel back the veils. Please take a look and get in touch!
We were wondering how the administration's defense of marriage amendment was going to fly until we also caught yesterday morning's news that Comcast is looking to take over --oops, did they say merge with?-- Disney. According to the Washington Post, a major New York brokerage firm issued an analyst's report calling the proposed deal one of "perfect merger 'partners'", while Dan Rather on the CBS Nightly News --a rival of Disney's ABC-- called it a "marriage".
It hadn't struck us before that the defense of marriage amendment had something to do with key economic infrastructure. And so we thought about the metaphor and, with the Universal/Vivendi deal in mind, that nearly half of all marriages in this country result in divorce...and those are just the heterosexual ones. And then right there on CSPAN (which I was getting through Comcast) the body politic was passionately nattering about Janet again.
So here we have the government messing with marriage, the media and obscenity: One of the first rulers to start messing with marriage --to put it mildly-- was Henry VIII, who, coincidentally, is said to be a distant Bush relative. Upon taking the throne he was hooked up with his deceased brother's wife, Catharine of Aragon, who was 8 years his senior. When he couldn't get a son with his Kate, Henry decided to go for an annulment. Unfortunately for him, the Pope was one of Catherine's relatives and the rest is history.
Marriage, if the proposal goes through, is to be defined in the Constituion as the union of a male and female. Presumably incest and bigamy will still be outlawed and you'll still be able to get a divorce. The amendment will not affect Britney Spears or JLO, or any big media program where they get the pick of hundreds of women (and men) to line up in their skivvies and endure other humiliations just to marry some guy or girl for their money. Where's the shock value? After all, marriage in the past has mostly been a business affair, sometimes at the business end of a shotgun or pitchfork and often the merging of two adjacent farms, fields or kingdoms
So, according to the new Constitutional criteria, let's see how the deal between Disney and Comcast will hold up. First off, we note that this is not a marriage in which both sides agree; Comcast, the suitor, is actually forcing itself on Disney. Perhaps, then, before going too far down this path, we ought to try to determine if this is a true marriage between a male and a female and thus whether the government in the form of the FCC and SEC should support it. If so, we might have to assume that Comcast is the male and Disney ...... But then again, the Merrill Lynch analyst carefully chose the word "partners", a term often used by gay couples while Dan Rather went for "marriage".
From a program ratings standpoint, we know that Disney is unhappy. S/he hasn't been doing as well lately as s/he ought to and just recently it leaked out that s/he had given a call to Microsoft to help her in downloading movies on the Internet. Now, everybody who's watching this show in Hollywood knows what kind of lousy reputation Microsoft has when it comes to crawling in bed. Many have gone down that path and few have lived to tell the tale. In urbane business legend, MS is known as a modern day Caligula. There's even a story that as a child MS climbed into bed with the great giant of the day, IBM, who rolled over but MS, little more than a sprightly young'un, dodged and IBM ended up splashing onto the floor.
Disney just isn't the lighthearted kid s/he once was and with all the movie studios, a major network (ABC), theme parks and sporty cable channels, s/he seems to be coming apart at the seams. Along comes a kid who wants to be just the right fit. Namely, the biggest cable company(21 million customers) in the country with more broadband customers (7 million) than anybody else not to mention a few cable channels to boot.
And if we remember, it was the promise of broadband access (false, as it turned out to be) that got AOL over the top with Time Warner. Once again, we see the promise of content getting rolled by the promise of a big pipe and connections.
The naked truth is: together, this couple could squeeze a lot of players right where it hurts most but as we said, it isn't that easy. First off, Disney is going to have to do an extreme makeover, that may mean chopping off that schizophrenic head. Then there's Mickey Mouse and Donald Duck with their secret of eternal trademark life. Would they be happy answering to somebody in Philadelphia? Wasn't that why W.C. Field's left the East Coast to give Hollywood its big boost?
So, even before the government passes that Defense of Marriage Act, there's going to be a drag out tug of war. According to yesterday's NY Times: http://www.nytimes.com/2004/02/11/business/media/11WIRE-COMCAST.html "The bid is likely to ignite a bitter takeover fight.... The unsolicited offer also has the potential to make Disney takeover bait for other media giants that may now be inspired to make their own bids."
To make things even messier, if they can ever get their heads off of Janet's silicone, the government will do its own snooping around the "partnership". First it will be the FCC. Now, everyone knows that Chairman Powell has never seen a big fat media wedding he didn't like but lately he has been getting a lot of heat even from some of those same conservatives in Congress who back the Marriage Amendment. There's even a Federal Court looking into his latest proposals on forced and unforced marriages.
Further, there's the SEC. Their job is to check to see if a marriage like this doesn't constitute a monopoly. Now, we also know that John Ashcroft, the head over at DOJ, which prosecutes these cases, is also a big fan of marriage, though not of "Marry a Millionaire" type programming.
Our guess: this is one marriage the administration will smile upon without getting under the covers to decide who's up and who's down. Obscenity, it seems once again, is in the eye of the beholder. That the guy who controls the pipe going into the house, the set-top box, the future delivery system for music and video, also gets to own a major studio and one of the big four networks, wow, that's beautiful, man! At least that's the view on Wall Street.
And who said reality TV is dead?
Copyright 2003 Richard Mendel-Black All Rights Reserved
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