Friday, December 31, 2010

Remember Wall Street Reform?

Ever wonder what happened to the Dodd-Frank Wall Street Reform Bill? Remember when It became effective on July 21? The Democrats hailed it as landmark legislation that was really tough on the big banks and would prevent a repeat of an economic meltdown. The Republicans said it was anti- business and the meltdown was the governments fault anyway. The banks were against it as it would keep them from “providing their creative services to the public and employers.”

In short, all parties put out pure BS. The issues were apparently too complicated for the daily media to be helpful. So it has remained a mystery to most of the public.

Finally on Dec 28, 2010 Business Week has released an article that attempts to put in understandable format what has happened in the bill. It also discusses the politics and lobbying behind the results. A total of 9 journalists from New York and Washington are listed as contributing to the report. We have to be grateful to Business Week for this difficult but very useful task.

The phase “Wall Street Gets Pretty Much What It Wants” is included in the article headline and portends the sinking feeling citizens will feel as they read the article. The Wall Street victory is confirmed by looking at the record profits at the major banks only two years after their mismanagement led to the economic meltdown and to a comment by an ex-Citibank executive.

“We continue to listen to the same people whose errors in judgment were central to the problem,” said John Reed, 71, a former co-chief executive officer of Citigroup Inc., who estimated only 25 percent of needed changes have been enacted.

The article covers almost all the issues that congress talked about but sadly did little when it came time to write the laws. Like the boy that murdered his parents and then asked for mercy because he was an orphan the banks destroyed the economy with bad management and now fight any regulation on the grounds that it would hurt the recovery.

The biggest laugh of all (if it weren’t so pitiful) is that the banks seem to have convinced many congressmen that they are adding value to the economy with their “innovative” instruments.

Read the article and learn what happened to all that big talk after the lobbyists worked over congress. Remember too big to fail, the revolving door, bringing bonuses into line, banning certain derivatives, and walling off risky ventures from government guaranteed funds? The article discusses the politics and final inaction on all of these.

The only pro-citizen event was the establishment of the Consumer Protection Agency as designed by Elizabeth Warren. The banks fought that desperately but seem to have lost.(as of now). I remember a talk show where the banking representative, fresh from helping the industry set a world record for dumb management, said he was worried about her because she didn’t have enough bank management experience.

Please, surely we aren’t so dumb we will let them do it to us again.

The report is certainly discouraging and confirms that we need a complete rethink on the nature of the organizations that this nation uses to manage its financial infra-structure,

Once again, thank you Business Week.

Monday, December 27, 2010

Our Ideology Regardless of the Problem

Recent polls show that approval of congress has hit a new low of only 13%. I had hoped that this would cause the political party elites to show some humility and give us at least a few ideas on how they were going to correct the situation. Not so.

Last week a group of senators, congressmen, and citizens (about 1000) met in New York to launch an organization dedicated to reducing the party ideologue-based bickering and drive both parties to cooperatively focus on the nations’ problems. It is named "No Labels”. Although they apparently didn’t have time to spend on the low 13% ratings both the Republican and Democratic media attacked the No Labels concept, giving various reasons to reject it.

There were scores of negative posts from both the right and left, They went from insistence that the two party system was critical for debate, to noting that there already were 63 parties in the US, that working together was useless because our current leadership is incompetent, and that No Labels is just plain left wing.

The scariest of all were several writers who contended that No Labels was being set up to be a platform for Bloomberg to run for president. Thankfully No Labels says that they had taken no money from Bloomberg and that he spoke at the launching in New York because he was the mayor. Bloomberg himself has said that in no way would he run for president. Some evidence please.

It is pathetic when citizens feel they must form another party to try to force the two major parties to act reasonably. It is even worse that the self serving ideological media focuses its guns on them before they can even begin. Very typical of the way they are addressing problems. Fred Brown of the Denver Post sums this situation up very nicely.

Regardless of its final accomplishments No Labels is an encouraging example of American citizens starting to recognize and rebel against the bad decisions our leadership has put us through. If No Labels could cause a fracture in the “my ideology for everything” attitude that is smothering individual analytical thought it would be very valuable. The Tea Party, No Labels, and many other small organizations that are being formed are coming from different directions but pointing to the same objective. We all want a constitutional government that is focused on passing opportunity and freedom to the American people rather than power to itself.

That is what the Founding Fathers intended and is what we are honor bound to support.

Thursday, December 16, 2010

The More You Know the Worse it Gets…

While finance has never been my favorite area I became determined to gain a much better understanding of exactly what happened to cause the subprime waterfall of economic disaster that has fallen on our country.

Of the multitude of post meltdown books on the market I chose three: The Big Short by Michael Lewis, Gristopia by Matt Taibbi, and All the Devils are Here by Bethany Mclean and Joe Nocera. All authors have extensive experience as financial journalists during the 20 years of life in the subprime era. They tell their stories from different perspectives. The Big Short is from the viewpoint of a few low level hedge fund managers who discovered (to their surprise) glaring weaknesses in the execution of the sub primes business model. No one would listen to them but they initiated very successful hedge funds that played the subprime system short. Gristopia addresses in anger the outright foolishness behind the 20 years of government and private decisions that allowed the subprime business model to develop. He discusses the events, people and the bad decisions that allowed it to grow to the final catastrophic breakdown. All the Devils are Here presents a thoroughly documented historical approach of the last 20 years of bad management that lead to the meltdown. All three books cover the meltdown and the emergency effort by the government to save the financial sector.

This post only touches on a few of the items and at the thousand foot level. Read one of the books to get really incensed.

The subprime business developed during the Clinton administration, and was protected and grew under Bush. Then it fell completely apart. The naïve belief was that the industry would regulate itself. Greenspan was a powerful figure in furthering this philosophy.

The elements of the business plan are easy to understand. The goal was to drastically increase profits by tapping the revenue from the citizen’s multi trillion dollar housing market. This required transforming the normal low risk one lender to one borrower relationship into multi-mortgage securities which could be sold in the financial market with much greater profits. Thousand of mortgages were combined to create derivative securities, the most popular being called a collateralized debt obligation, or CDO. These were then sold on the open market at high yields.

A notable characteristic of the business model is the interconnected nature of the risks between the business units. A failure of due diligence or risk analysis in one business area could spread bankruptcy throughout the entire system. This is exactly what happened at the meltdown and explains the desperate and extremely expensive effort by the government to save the entire financial system.

Here are a few highlights of the role of the key participants and their contribution to the meltdown.

1.0 The mortgage originators that received revenue for finding the borrower

This is where the extraction of wealth from the American citizens began.

The demand for mortgages to bundle into securities was so great that several billion dollar plus public companies were created in this sector. To pay for the high fees the mortgage originators added closing costs that in some instances increased the mortgage cost by as much as 20%. Qualifications for a mortgage were lowered drastically to ensure a steady flow of applicants. Financial positions of borrowers were falsified and teaser rates with 2 year automatic resets to high rates were used to lure unsophisticated buyers into loans that they would never be able to repay.

Because the originators sold the mortgages to others they had little interest in their likelihood for later default. The mortgages they passed into the system were loaded with default potential.

2.0 The large banks and other institutions that assembled the thousands of mortgages into complex high yield securities.

These were the key drivers behind the business. They took the thousands of mortgages from the originators and chopped and structured them into levels of risk that determined the yields and levels of payback priority bundled into the securities. They were then sold to investors who received revenue from the mortgage payments. This was done to the tune of hundreds of billions of dollars. Because of the high yields the sub prime securities were very popular with investors and became the greatest source of profits for many of the banks

The banks did very little due diligence on mortgages being bundled into this essentially unregulated business. They packaged many bad loans into the securities. They placed pressure on the ratings companies for the necessary triple A rating for each security.

The amount of reserves held against failure of the loans of their own securities was left to the banks and proved to be ridiculously low.

3.0 The investors--consisting of institutions, retirement funds, insurance companies, hedge funds, and banks.

The investors received high yield revenue proportional to their ownership in the mortgage security. They also gained profits by trading their securities into the financial market. Obsessed by the high yields being offered they did little due diligence before investing billions of dollars-relying solely on the erroneous triple A ratings.

4.0 The rating companies

Default of a significant number of the mortgages in a CDO could drive its value to zero with complete loss to the investors. The probability of this happening was supposed to be indicated by the rating given by independent rating companies such as Moody’s A triple A rating means that the probability of default is small.

The rating companies did not accurately evaluate the risks of default of the mortgages making up the securities. Each security was complex with a very large number of embedded high risk mortgages. The rating companies could not adequately evaluate the securities and apparently yielded to the pressure to give undeserved triple A ratings. A few hedge funds did the necessary due diligence of the securities and discovered the rating companies error. They made large profits by short selling.

5.0 The companies that sold default insurance on the securities

Investors could buy insurance against the failure of the securities. These were called credit default swaps because they moved the credit risk from the investor to the insuring company. A leading company providing this insurance (AIG) took the insurance premiums but did not reserve capital to meet the amounts that became due on failure. This spread throughout the system and left many of the investors facing bankruptcy. The government eventually took over AIG and made the payments out of public funds.


When the mortgages in the securities began failing in very large numbers the whole system disintegrated. This left almost all of the investors with worthless (toxic) securities and mortgages on their books for which they had paid hundreds of billions. The failure of one business would cause failure in others as the securities became further devalued. None of the players had the reserves to meet their obligations and most were facing bankruptcy until the government and the Federal Reserve intervened with over a 3 trillion dollar injection of funds- announced so far. This does not include the toxic assets of Fannie Mae that are not yet publically announced.

The magnitude of the greed and sloppy business practices described by these three books certainly gives the lie to the fallacy that this industry is made up of the brightest of people who deserve the ridiculous bonuses paid.

There were many warnings of future problems by government regulatory agencies and other experts. Proposals of regulatory control were met by angry rejections of the concept from banks lobbyists, trade organizations and congress. This included threats of firings and loss of appropriations to government officials. While self regulation results were clearly becoming catastrophic the concept of self regulation was slow to die. In fact it still lives with many diehards.

The short term focus on immediate profits, sloppy business practices and the lack of executive foresight illustrates how poorly the financial sector is managed. There is really no concern for the American citizens who have paid a very high price for the incompetent practices. It also illustrates how ineffective the elected government is in protecting the citizen. The elected government and the financial sector mutually thrive on the basis of political power bought with our tax money.

Millions of Americans lives have been very badly affected because of the false values and incompetency of this sector. The sector has forgotten that its basic mission is to organize financial support for the productive enterprises of the country. They are now focused only on their own profits. This last gambit for their specific profits has caused terrible problems to the nation. Do we want to continue with them in their current position of power? This seems to be happening by default.

We need a complete review of the nation’s financial model with the goal of a new citizen oriented structure.

Monday, November 29, 2010

Our Moral Obligation and a Total National Restoration Plan

The bean counters correctly complain about the financial deficit we are creating while attempting to end the recession. But because they are bean counters they have only one solution—maniacal cost cutting. It is driven by their DNA. Bean counters never lead to growth and expansion.

Cost cutting of wasteful spending is a valuable activity but it should not be done as an isolated task. Cost cutting alone, without wise investment of the savings; will only further shrink the already starved economy. It belongs as an element of an integrated national program where savings can be immediately put back into the productive work of our economy. The problem is that after all the time, suffering, and damage to our nations global position our two party elected government has still not developed such a plan.

The American vision contends that free people can productively govern themselves for the common good. No despots needed. This was a unique basis for a nation when the US was formed and the vision has been kept intact in America for 230 years. Sadly it is now at risk. We must not let the vision end with us. Like the Founders we must pledge our sacred honor to passing an intact America on to future generations. To fail would be a terrible legacy to leave our children.

We will never succeed with the existing approach of one by one attempts at underpowered solutions-followed by years of the parties blaming each other for failure. The citizens need to see an integrated program that reverses the self inflicted damage that was done to our interconnected financial, manufacturing, job creation,and trading systems. We have the talent to do this if we can free the process from interference by self serving special interests and the political parties. It will be an honest national restoration plan that the citizens can evaluate and support.

This is a complex undertaking because of the special interest opposition it will generate. Many of those who led us into the disasters are still in power and have benefited from our difficulties. They will fight against openness on past mistakes and the continual transparency of the plan’s execution to citizens.

It can succeed, however, if the majority of Americans feel strongly enough about the moral obligation to actively and honestly participate.

We must first gain an elected government, business sector, and population that agrees strongly with the moral obligation and the need for an integrated plan as a basis for action. Lots of details to work out but a primary characteristic is that it is citizen, not government, run.

This sounds like a job for that non-party, the Tea Party.

Monday, November 22, 2010

Harmful Developments Not Covered by the Constitution

One of the inspiring thoughts that drove the framers of America was that after thousands of years of governments by despotism the United States experience would prove that free men can govern themselves. They carefully crafted the Constitution to guide America through a life expectancy of many years. It was hoped that with continual improvements made through a careful process the vision would be protected and passed forward from generation to generation.

While the Constitution was being drafted neither political parties or corporations were of major significance. They therefore were not mentioned in the Constitution.

We were, however, given vocal warnings against a future controlled by political parties from many of the Founding Fathers. Washington even included a warning in his farewell address. Jefferson also warned against corporations assuming power (see earlier post “Founding Father Warnings on Current Issues, Oct 3, 2010).

Each generation of Americans has been a critical link in preserving the vision of a government that is controlled by its free citizens. Although some may disagree, I believe that in general we have performed well in that part of the vision protected explicitly by the Constitution.

But time has taken its toll in areas not specifically covered by the Constitution. We have allowed a two party system to gain control of our electoral process. In addition we have given corporations many of the rights previously reserved for citizens. This has allowed them to use their vast financial resources to influence our political processes. Both of these events have reduced the ability of the citizens to govern themselves.

The Democrats claim roots back to early post revolutionary war, while the Republicans emerged just prior to the civil war. Since then, although competitors for specific offices, they have jointly beaten down any attempts for a third party. This has greatly limited the choices in candidates and policies available to the citizens.

The two parties now essentially limit our choice of candidates to those from either one party or the other, meaning either a far left or far right agenda. There is no moderate agenda available. Further, as predicted by many of the Founding Fathers the party members have developed stronger loyalties to their party than to the country. Thus each party spends most of its energy sabotaging the other. Finally, the two parties have legislated themselves elite rights and privileges to a level that would really have distressed the Founders. The record of the Congress has been so bad that a recent Gallop poll showed that only 17% of the voters approve of its performance.

The direct solution rests on the efforts of the citizens to take advantage of the ability given by the Constitution to replace a large portion of the Congress. There is some evidence from the mid-term elections that this is starting to happen.

The solution to excessive corporate political power is more difficult. Corporations have become irreplaceable engines in the global economic system. The legal shield that allows investors in a corporation to only risk their corporate investment as opposed to risking their total owned assets is the most powerful incentive for capitalization of companies. An overwhelming portion of the countries economic and technical strength rests with corporations.

In their formative years corporations were engines of commerce only and forbidden to participate in politics. Over the last 100 years this has evolved to the point that corporations now enjoy rights previously reserved for citizens. This has been generally affirmed by the courts. Vast sums are now spent by corporations and their organizations to influence legislatures. The critical task ahead is to formulate an industrial program which strengthens American corporations competing in the global economy while preventing them from acquiring such strength in the political process that they harm the creativity or well being of the citizens.

These are both fixable issues. They do require an aware and determined citizenry to keep the parties and the corporations from taking over ownership of our vision.

Sunday, November 14, 2010

The Tea Party - Forerunner of a New American Political Architecture?

A No-Party Election Structure

With public approval of Congress at 17% it is unreasonable to think the current two-party system is serving us well. It has brought us very limited choice in candidates or philosophy and created inefficient and inept legislative houses. Worst of all, it has created leaders who have loyalty to their party that exceeds that to the country. Adams, Jefferson, and Washington were all strongly against the establishment of political parties. Very few citizens think that the parties operate for the general good of the citizens.

The country should give serious consideration to moving from the two party system to an architecture that is much more open to all citizens and that provides more choice. Forgetting for the moment the political agenda of the Tea Party we can use it as useful glimpse of how a no-party system might perform.

The Tea Party is not a political party in the conventional sense. It is a loose relationship of independent local organizations consisting of citizens from all walks of life. The local citizens support individual candidates that fall closest to their choice. This gives a very distributed architecture that has shown impressive power in the mid-terms for supporting new candidates in the primaries and opening the process to more citizens. It is taking a strong toll on the centralized power of the GOP.

How would it be if the entire American political system were organized on this basis, as opposed to the existing two party system? On the surface, not all that different. The all-controlling two parties would be replaced by many more advocacy groups. These organizations, many of whom would be national, could be more flexible in policies and indivdual candidates. They would replace the existing campaign headquarters of the two parties. Each center would normally present a slate of candidates and policies to support during the campaign. The multiple advocation oraganizations would offer a much broader political spectrum than the current two party system. The balloting would be the same as now but only vote on the position and candidates, not an organizational affiliation.

In the mid-terms the Tea Party used the GOP primaries to sort out the candidates which were to run in the finals. This would not be availabele in the no-party system. A new primary system would have to be designed, perhaps using state primary centers.

The advocate groups, of course, would have to be licensed and subject to qualifying rules.

Just a starting discussion, but worth exploring. It would be much closer to what our founders had in mind.

Thursday, November 11, 2010

Wise Investment Versus Wasted Spending: Congress Better Learn the Difference

In the long term any successful business must eventually acquire good management of its resources-both financial and people. This requires spending in areas which return good value and cutting costs in areas that do not. A company with an especially strong product can avoid this requirement for a period but eventually the competitive forces of the marketplace take hold. Thus, there are hundreds of once imposing companies that became mediocre or bankrupt because of their management failures.

The analogy fits the US in the current global environment. We have enjoyed a powerful product made up of strong protection of individual freedom, intelligent aggressive citizens, and bountiful natural resources. This has allowed us to excel in providing advantages to our citizens and the world in spite of many missteps. The good treatment has made American citizenship a treasure valued around the world.

Unfortunately, we have allowed weak leaders and special interests to degrade our ability to serve the citizens. They have also created an investment deficit that if not corrected will override any other efforts at resurgence. To be effective we need to implement a wise investment plan of equal importance to any spending control program.

We have many reforms ahead, but one of the most important is to revitalize manufacturing. It is unconscionable that the Government and citizens allowed international trade to get so far out of hand. We are now in the position of asking other countries to agree to controlled trade balances between countries. This is an embarrassing attempt to correct a situation that our government should never have allowed to take root. With no real industrial plan and the only political talk directed at cutting spending rather than investing, the US is in a very weak negotiating position. China and Germany, through aggressive and wise industrial policies, have established large trade surpluses. They are not about to agree to give them up.

The result is that the new balances for the US can only be reached through the hard work of re-establishing a commanding industrial trade position. It requires investments for the future in research, development, education, and incentives for manufacturing in the US. The goal would be to allow our manufacturers to compete directly in the free global market. Faced with that strength by the US the other countries will be anxious to talk.

We desperately need our industrial leaders and the government to cooperatively attack this well known problem aggressively head on with a realistic and thoughtful plan.

But remember that this will require knowing the difference between wise investments and wasteful spending.

Sunday, November 07, 2010

The Reform of the Senate: Enough Honest New Faces to Begin?

The constitution allows each House in Congress freedom in determining the rules of its proceedings. Over the years members of the Senate have abused this freedom to give themselves outrageous powers and self serving privileges. This has created a pathetically inept and corrupt body that exists to serve the two political parties and their members rather than the country. This has become clear to most citizens.

It is difficult to find an American citizen that does not believe that each member of congress puts their own interests and that of their political party ahead of the country and the citizens. The congress is sadly in need of radical reform,

The current situation is much too attractive to the current members for them to initiate significant reform. In fact, much of the need for reform is related to our monopolistic two party system. Until the majority of existing office holders are replaced with honest and dedicated candidates that place the higher value on the country and it citizens reform is not going to happen.

The constitution allows for elections to replace one third of the Senate every two years. Anti-incumbency as a step toward “taking back the country” was a major battle cry for the recent mid-term elections and won the new senators their jobs. The mid-term results reflect how the citizens took advantage of this opportunity.

Of the 33 positions open for seats in the Senate the recent mid-terms elected 16 candidates who were new to the Senate. Thus, when the new Senate convenes almost half of those who were up for election will have been replaced. Thirteen of the new senators are Republicans and three are Democrats. A short resume of each of the new senators is provided by Salon in this reference. Seven of the new senators have served in the House of Representatives. We therefore have nine new senators with no vested background in the federal machine. Three are small businessmen who have had no elected experience until this election. Four have held only state government positions. Two have been state governors.

Depending upon the position for reform of the seven from the House this mix could be a reasonable group to lead a series of reforms. It will take many more similar elections and very careful watching over the next years to return our Senate into the organization the Founders intended. But we have begun.

Tuesday, November 02, 2010

Rally for Sanity a Very Pleasant Surprise

When my two daughters asked me if I would like to go to the upcoming Stewart and Colbert Rally for Sanity it was an easy answer. No way was I going to travel the 65 miles to DC to hear Jon Stewart make jokes about the Tea Party and Sarah Palin. I hate listening to all that self-congratulating laughing and applause that comes with every lame joke told to a mass liberal audience.

But early Saturday afternoon I decided to turn on C-Span so I could intelligently criticize later. To my surprise there was a very large and lively crowd. It appeared to be larger than the Beck rally. The rally was publicized as aimed at calming the anger and fear that has taken control in today’s politics. The rally was true to that goal. There was music, singing, and Stewart and Colbert comedy skits directed specifically at that objective. The selections and speakers were patriotic. No ranting and partisan accusations. It was truly apolitical and filled with patriotism.

The media coverage has focused on the theatrics and essentially ignored the underlying principles of the rally. In this post I will focus on the values they were presenting without trying to reproduce the theatrics. You can find a summary of the show aspects in this reference. A full copy of the important closing remarks by Jon Stewart are here.

The basic principle is that we are all loyal Americans who must put aside irrational anger and fear and calmly face our real problems.

We must resist manipulated by the irresponsible media. To feed a 24hour news cycle it is saturating us with warnings of an infinite number of possible bad events which are very divisive and unlikely,and will probably never occur. Some will happen but they are solvable if we focus on those that are reasonable problems.

The anger and fear is further exaggerated by expanding the causes for problems from specifically identified individuals to much larger groups. This is being done without the required accompanying analysis.

It is important to realize that we are now one big mixed country of almost 300 million. We can expect many diverse opinions and consequences on issues that affect many groups differently. We must eschew one line insults to each other and try to reach reasonable solutions while showing respect for other's views. This does not mean we cannot aggressively address the causes of our problems. We should show strong aggression to the specific individuals behind the problem but be careful about extensions to a generalized congregate that will extend and magnify the problem.

If you have the chance, watch the video that shows media clips of both liberals and conservatives violating these very simple and common sense rules. You will recognize the faces.

Of course,calm discussion isn't "in" with the media so they have given the rally a big thumbs down.

Sunday, October 03, 2010

Founding Fathers Warnings on Current Issues

There is a common nightmare where you are faced with approaching danger but when you try to escape your legs are frozen in place. This seems to be the perfect metaphor for the United States as we struggle to recover the American vision after allowing decades of terrible decision-making by our elected government and their ruling class partners. We see the dangers but are so entangled that we are slow to respond. We must break free.

With all the pro-citizen tools embedded in the Constitution and the words of the Founding Fathers to guide us how did we lose control of the country-and to the very kind of people the Founders warned about? Here are a few of their warnings that we have sadly ignored. They are so timely that they could have been given this very day.

Political Parties

George Washington, John Adams and Thomas Jefferson were all dead set against political parties on the basis that members would develop loyalty to the party rather than the country. They discussed the subject often. Here are a few quotes from George Washington’s Farewell Address, on September 19, 1796 and one of John Adams statements.

"Let me now take a more comprehensive view, and warn you in the most solemn manner against the baneful effects of the Spirit of Party generally. The common and continual mischief of the spirit of party are sufficient to make it the interest and duty of a wise people to discourage and restrain it." – George Washington

"I have already intimated to you the danger of parties in the state, with particular reference to the founding of them on geographical discriminations." – George Washington

“There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution. “– John Adams

Conclusion: They were 100% correct. Our two party system remains a major factor in enabling the damage being suffered by our country. Note how Adams exactly describes our current situation. We must minimize the role of the two political parties.

On Banks Gaining Too Much Power

“I believe that banking institutions are more dangerous to our liberties than standing armies.” - George Washington

"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.” - Thomas Jefferson

Conclusion: Oh boy, were they ever right on this. We have let the financial industry become the master of the economy and it is ruining us. We must return them to their proper position of providing a simple administration service to the productive units of the economy.

Foreign Policy

“Great is the guilt of an unnecessary war.” - John Adams

Term Limits

“Nothing so strongly impels a man to regard the interest of his constituents, as the certainty of returning to the general mass of the people, from whence he was taken, where he must participate in their burdens” - George Mason

“Experience hath shewn, that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.” - Thomas Jefferson

Characteristic of Politics

“Here comes the orator! With his flood of words, and his drop of reason. “ - Benjamin Franklin

“Those gentlemen, who will be elected senators, will fix themselves in the federal town, and become citizens of that town more than of your state.” - George Mason

“Half a truth is often a great lie.”- Benjamin Franklin

“No man will ever carry out of the Presidency the reputation which carried him into it.” - Thomas Jefferson

On Government in General

“While all other sciences have advanced, that of government is at a standstill little better understood, little better practiced now than three or four thousand years ago.” – John Adams

“Every government degenerates when trusted to the rulers of the people alone. The people themselves are its only safe depositories.” – Thomas Jefferson

“I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country.” – Thomas Jefferson

“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.” - Thomas Jefferson

Concern That Their Work be Continued by Future Americans

The Americans suffered terribly through death, bankruptcy and deprivation during the years of the Revolutionary war. At the end the Fathers asked themselves if future generations would appreciate and continue their work. Here are quotes from Washington and Jefferson.

"No country upon earth ever had it more in its power to attain these blessings than United America. Wondrously strange, then, and much to be regretted indeed would it be, were we to neglect the means and to depart from the road which Providence has pointed us to so plainly; I cannot believe it will ever come to pass." – George Washington

“Yes, we did produce a near-perfect republic. But will they keep it? Or will they, in the enjoyment of plenty, lose the memory of freedom? Material abundance without character is the path of destruction.” – Thomas Jefferson

What is our answer? If we don’t fix the current state of affairs and restore the government to the true American vision we will certainly stand disgraced in history.

Wednesday, July 28, 2010

Lets Call a Temporary Truce and Solve the Real Problem

Our Founding Fathers gave us a state-of-the-art governing structure that allowed us the opportunity to build a country like none before. It enabled a system that for the first time could focus on the welfare of its citizens rather than an elitist ruling class.

We were expected to use our best talents within the structure to “establish Justice, insure domestic tranquility, provide for the common defence, promote the general Welfare, and to secure the blessings of Liberty to ourselves and to our Posterity”, There was a lot of hard work ahead but the enthusiasm for the vision was there to tackle it.

Over the following 200+ years we successfully conducted a continual battle against domestic and foreign forces that would destroy that vision. Although there were ups and downs most Americans felt that progress would allow their children to inherit a country that offered increasing blessings of liberty along with a continuing improvement in general welfare. We became a very special nation that was an example to the world.

This progress has come to a screeching halt. The citizens feel shock and deep disappointment after the disheartening discovery that both the elected government and many sectors of the private economy have no interest in the Founders’ vision for America. They have led a period of governance that is inept and almost completely self serving. A recent Gallup Poll shows that citizens rate their confidence in Congress dead last among 16 critical institutions.

The fundamental problem can be stated simply.

We now have a government that is under the corrupt control of special interests acting to the detriment of United States citizens. The ineptness and self serving greed of our private and public institutions has brought hardship to good citizens throughout the nation, and destroyed our vision for the future.

These destructive forces have pushed their will on us not by an invading army-which we would surely defeat- but by hidden manipulations of our economy and successfully lobbying for damaging foreign national policies. This has siphoned trillions away from productive job- creating work in the United States. The misallocation of resources is bringing the nation to its knees. The result has been billions for the few and financial disaster for the many.

Unfortunately, those few benefitting from the situation have assembled powerful tools.

A two party system that works against our choices for responsible leaders.
Hugh wealth in large corporations and institutions used for the control of the government
Excessive influence through the financial sector
Extensive ownership of the media

They are already using these tools to divert the public outrage away from the fundamental problem into multiple confusing issues to which they are offering self contradicting solutions..

To counter their strengths we have the following
The Constitution power to replace governments
Our numbers
The vision of America we hold with the Founders

The level of effort required to focus and solve the fundamental problem as a precursor to solving the many others is not even seriously on the table for the two political parties.. Drastic actions will have to come from the patriotic citizen regardless of party. The Constitution provides the tools to do this. We need a major change in our government.

This is one goal on which patriotic Conservatives, Liberals, and Independents should agree. A sincere plan to rebuild should be a priority in all party platforms and in the thoughts of voters. Once we have the fundamentals back we can return to the traditional conflicts.

Tuesday, July 06, 2010

Intel Founder Explains Unintended Consequences on American Jobs from Mistaken Movements of Manufacturing Overseas

Andy Grove, a founder and one time CEO of the semi-conductor giant Intel Corporation, has taken billions of dollars of product from startup to mass production. He correctly points out that most observers do not understand the job implications of what he calls the “scaling phase”, which is that part of the cycle that moves the product status from startup to mass production. Manufacturing is a key component of the scaling phase.

In the July 5 issue of Business Week article “How to Make an American Job” he presents a clear and detailed description of how the economist and financial experts lack of understanding of the scaling phase led America to give up leadership positions in critical industries. They did this in the mistaken belief that moving manufacturing out of the United States to “low cost labor” was a wise strategy that would only affect manufacturing lines. The consequences of this action to our nation’s workers, along with our position in the global economy, have been severe. To quote “Without scaling, we don’t just lose jobs; we lose our hold on new technology. Losing the ability to scale will eventually damage our capacity to innovate.”

He gives strong and specific advice on what must be done to recover some of our losses. It is a discussion of what is working, regardless of ideology. He describes how the governments of Asian countries have had great success in guiding and assisting their industries into critical areas against us. As a former Hungarian who came to the US in 1956 he is well informed on how a capitalist system can outperform a rigidly planned system. However we must recognized that our system is now being outperformed by the Asian system. We must intelligently incorporate some features from the Asian system if we are to compete.

. This is only a sampling. To hear from someone with real knowledge Please read the article.

Saturday, June 19, 2010

Competency and Analytical Thinking –Two Missing Components of our Ideological Wars

It is disheartening to watch our country in freefall while the two controlling ideologies major attempts at a solution is to blame the other party. The fact is that administrations from both sides have had their time in charge, with each one sowing seeds that made the situation worse. It is time we realized that the root problem is the mindless incompetency and lack of analytical thinking that has infected both our private and governmental institutions.

We face issues that are too complex to be resolved by blind adherence to either of the simplified ideologies being offered through our two party system. With only two parties controlling the political machinery and selecting the top management for government agencies we are given the choice of either a left wing or right wing administration. We are not tapping into the analytical skills of our country to obtainr the reasoned , balanced government most citizens desire.

A January 2010 post on this blog raised the question of just how much incompetence this great country can stand. The recent BP drilling incident shows that we are nearing the limit. The helpless frustration and disappointment is expressed in hundreds of articles in the media. This one is typical.

Incompetence is a well studied problem. A Google query on “government incompetency” returned 545,000 hits. A query on “private sector incompetency” returned 690,000 hits. There are probably several common sense paths to success buried in that mass of information. Unfortunately our internal arguments are so steeped in emotion and lacking in analytic thinking that we would not recognize them.

The first step in correcting this problem is to elect leaders who are capable of applying analytical thought to solving problems. We must eliminate the “suits” who can only recite party jingles. This requires a careful examination of all candidates, regardless of party.

I have formulated two initial questions for public meetings that I intend to use to test the competence and thinking skills of candidates for national office. I am sure you can formulate many more for your candidates.

Question #1

Our countries infrastructure is in terrible need of repair. We have millions of skilled Americans who are unemployed and ready to do the work. The American factories that produce the materials are operating well under capacity. Putting the workers and materials together with the required work would seem to be well within the capability of a competent government. Could you explain why that has not happened under our government and what you would do to correct the situation?

Question #2
We are finding that by off- shoring our manufacturing for many industrial sectors we have lost technical skills, created a dependency on foreign manufacturers, generated a large trade deficit, and exported millions of jobs previously held by Americans. The damage outweighs by far the marginally lowered retail costs to American consumers. Could you explain how this happened and how you would work to reverse this damaging trend?

Listen carefully to their answers. If they don’t reflect real thinking on the subject look for another candidate. Standard superficial party lines loaded with half truths are not acceptable.

Our Founding Fathers gave us the right and duty to choose our leaders. We have been much too accepting of low quality. We must demand more of ourselves and our candidates.

Friday, April 16, 2010

Underground Mining Must Meet Safety Levels of Other Dangerous Industries

Coal Mountain--another heartbreaking coal mine accident. I have heard those sad reports throughout my childhood to the present. They never seem to end. They are mostly related to methane explosions or fires in one form or another.

One of the arguments often cited to excuse the deaths in coal mining accidents is that the industry is “inherently dangerous”. This implies that it is futile to expect a fatality free safety record.

Extracting coal from a deposit thousands of feet underground from a matrix that outgases explosive methane as the coal is accessed is indeed dangerous. But why have many other industries that are also engaged in very dangerous manufacturing, such as chemicals, petroleum, nuclear, and space been able to bring their fatality record under much better control? They have all found the technology and operational expertise to mitigate the danger. Why is the underground coal industry unable to design and operate extraction systems that bring the accident fatalities very close to zero as these other industries have done?

This answer should come from the National Mining Association. Its web site proudly claims the following:

The National Mining Association (NMA) is the voice of the American mining industry in Washington, D.C. NMA is the only national trade organization that represents the interests of mining before Congress, the Administration, federal agencies, the judiciary and the media.
In March of 2006 NMA established the independent Mine Safety and Training Commission to develop a status report on the industry safety practices and make recommendations for the future. In December of 2006 the following report of 193 pages was issued:

Improving Mine Safety Technology and Training: Establishing US Global Leadership

As it happens I have spent a large portion of my professional career as a chemical engineer in development, design, startups and operations in the petro-chemical industry. The chemical plants, along with the other dangerous industries previously mentioned, are engineered with a goal of zero accidents. Although fatalities do rarely occur, each one triggers immediate corrections to prevent a repeat occurrence.

With the recent Coal Mountain tragedy as motivation I reviewed the commission report. It is filled with industry safety practice information and recommendations that were valuable in comparing underground mining with my chemical industry experience. It answers my question by showing the differences in levels of prevention between the two industries.

The report is clearly written and is an apparently thorough report on the practices of the industry. It was contributed to and reviewed by academics and professionals with deep experience in mine safety operations. They obviously are sincerely concerned about the continued fatalities. (I recommend that you browse the report to gain some familiarity with the industry).

Strangely, however, the report specifically states that although these contributors agreed with the recommendations they were not asked for an endorsement of the report. (An obvious question is why this commission and assessment was not established until 2006 instead of 50-75 years earlier).

Five recommendations were listed in the commission transmittal letter to the NMA. .

1. Of primary importance is a call for a new paradigm for mine safety that focuses on systematic and comprehensive risk management for all life-safety issues.
That this would be a “new” paradigm is surprising. It is an admission that much of the industry has not followed the example of the other dangerous industries in putting life protection as an unquestioned priority in design and operation. The report states that many mines do not have risk assessment and management skills and must be educated. Good risk assessment is critical in preventing fatal accidents. This points to the overriding reason for the poor performance. It raises the question of how the industry has been allowed to operate at this level over the years

2. Better technology in communications, mine rescue training, and escape and protection of miners.
A very valid recommendation. Good voice communication between the working areas of the mine and the surface would be extremely useful after an accident. It is technically difficult but not impossible because of the unfavorable signal environment. There is no such standard system in practice. The report discusses hybrid systems which would work in a transition phase while undertaking a major development effort to make this a standard mining capability
3. More realistic and more frequent training
Detailed discussions on and recommendations to upgrade,

4. Broadened and more professional emergency response
Detailed discussions and recommendations on which I am not qualified to comment

5. Development of a culture that promotes safe production at the business core
This is very important. Without a pervading culture of safety in the business core piecemeal regulations will not be adequate. Considering the years of operation. such a culture should already be well developed. It is further evidence that the industry does not give safety the special priority in its business practices that other dangerous industries have. It corroborates well with the earlier stated primary need for more emphasis on risk management.


The underground mining industry has clearly underperformed in the application of technology for prevention of serious accidents. The industry must change its business culture to the point that prevention of serious accidents receives the same priority in operations and capital expenditures that it does in other dangerous industries. This is recognized in the commission report. If accepted it would put the underground mining industry on a path to the standards of other dangerous Industries and provide the basis for a zero fatality goal. Unfortunately the industry is far from this point

For example, the report mentions that the industry should monitor more. This is a tremendous understatement. If designed to the common practice of the chemical industry every area in which an explosive or toxic threat could develop would be protected with carbon monoxide and methane gas detectors. This would be combined with major increases in automatic ventilation capability that would also set an alarm and take other appropriate action if a threat is found to be developing. All of the detectors and ventilation blower’s status along with other sensors and appropriate operating information would be routed to a central control room which would continually monitor the complete status of the entire mine.

Does the United States have the technical and management skills to build a safe environment for underground coal mines? Of course. Will we have the discipline and vision to do so? That remains to be seen.

Wednesday, March 24, 2010

Doubling of US Exports Will Require Tripling of Smart Manufacturing Policy

The administration has announced a goal of doubling US exports over the next five years. The program is called the “National Export Initiative (NEI). The goal for the program is to create 2 million new jobs.

As seems to be the practice when discussing US exports, the government actions that hurt exports and created overwhelming imports are not mentioned. Over the last 35 years mismanagement of trade agreements with specific countries and the World Trade Organization sent thousands of US based manufacturing opportunities overseas along with the fruits of American innovation. Once again our elected government representatives failed to protect Americans as they gave away US manufacturing sectors, one by one, to astute countries. Those countries wisely helped their own industries make good use of the gifts. The foreign factories are now built and running, selling us the results of our innovations that are now made in their factories. The receiving countries helped their industries make good use of the transferred technology by ignoring US reciprocal trade treatment.

In the review of the program with Reuters the Secretary of Commerce made statements showing that they do understand the problem.

"Free trade only works in a system of rules where all parties live up to their obligations," Locke said in the prepared text of a speech he gave detailing Obama's National Export Initiative, or NEI.

"The United States is committed to a rules-based trading system where the American people and the Congress can feel confident that when we sign an agreement that gives foreign countries the privilege of free and fair access to our domestic market, we are treated the same."

"The approach that we're taking is trying to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways."

It is good to see that we now have a goal and understand the problem. But this is only the start. It is in solving the problem that the challenge lies.

The US got here by blindly accepting the advice of economic specialists who claimed we need not worry about the loss of manufacturing jobs in existing industries because even more new jobs would be created in advanced industries by"innovation.” They failed to understand the effect of the large capital outflows that went to construction of plants in foreign countries and the strong inspirational link between innovation and the technology of manufacturing. It turned out that by shipping manufacturing sectors overseas we were also shipping our innovation infrastructure along with a large portion of the business of our parts suppliers.

Innovation in the US could not make up for the large number of jobs lost under these conditions. We are now also importing advanced technology products built by our newly educated foreign competitors.

This is all explained very well, with confirming statistics, in a webinar by the Association of Manufacturing Technology. AMT is the trade organization for companies which manufacture machines used in manufacturing, such as machine tools. Their members have had a front row seat on how unthinking actions by both political parties have hurt their American customers. If you can, stay with the whole webinar to get an ideal of how our manufacturers are fighting back and want government assistance in critical areas.

So what to do? In 2008 total exports were $1.826 trillion dollars against imports of $2.522 trillion for a resulting annual deficit of $696 billion. Doubling exports with reasonable restraints on new imports would certainly make a dent in the problem. But what more are we going to export? What needs to happen to allow us to recover our previous positions? Excluding devaluation of the dollar there are three other areas to work on:

1 Supercharge our innovation engine

America has been the hands down world leader in product innovation. Innovation has been the driver for our economic leadership. We are still leaders in innovation both through our established companies and from breakthroughs by startup small companies. Apple, Microsoft, Google, Genentech, Dell, are just a few examples of American companies that were either starting up or not existent just 35 years ago. Startups offer specialized expertise, ideas, and the willingness to work unreasonable hours for the idea. We must not let the associated American jobs from these sources slip away. Government should work closely with small and larger manufacturers to develop innovation friendly policies. Special financial incentives for investments in startups that encourage US manufacturing combined with associated basic research are already in place in many sectors but should be greatly expanded.

2 Redo one sided trade agreements and make changes in the World Trade Organization

China, Japan, Mexico, Canada, and Germany are the countries which supply over two thirds of our deficit. They have to be approached with the information that we will not continue the current imbalances. They must become more favorable trading partners for US goods to avoid direct action by the US.

The World Trade Organization is a special case in which we need revisions of many elements which are unfavorable to US trade.

3 Capture a favorable trade balance in emerging markets

Emerging markets are countries experiencing rapid economic growth after previously lagging the advanced countries. China, India, Brazil, Hungary, Poland, and Taiwan are typical of what is called advanced emerging markets. Chile, China, Argentina, and Egypt are typical of secondary markets. Wikipedia has 22 markets listed as “emerging”. These areas are targeted as future leading area for economic growth. The US must gain its proper share of exports to these areas. It will not be easy because these countries want jobs as well as products and we have supplied them with the technology they need to compete..

We have had almost 40 years of destructive behavior from both political parties that fell upon the American citizen. Even now our government is heavily lobbied by former federal officials representing foreign interests. We have a hard row to hoe. One thing for sure, it won’t be fixed by band aid rhetoric and a congress heavily lobbied and influenced by foreign interests. Like our other problems it will only be corrected through citizen anger and very hard work. We desperately need a sincere American- centric cooperative effort by our government and industry. Neither has the ability to succeed alone. The government has the responsibility of setting policies and negotiating agreements that have reasonable economics for manufacturers to produce in the US. The manufacturers have the responsibility to respond intelligently and with appreciation of the advantages of being an American company.

Friday, March 12, 2010

Fix Our Trade Deficit and Manufacturing Situation Now!!

The continuing trade deficit is disgraceful, and an insult to the American worker. Americans want to build and manufacture, not borrow to buy products made by others.

From the early 70’s until now our elected governments and their appointees have mismanaged the US from a global manufacturing powerhouse with a trade surplus to an annual negative balance of over 696 billion dollars in 2008. The American worker hasn’t changed. The American export environment negotiated by our government is different.

We must face the fact that over the last thirty years our elected governments and some large corporations have traded away thousands of opportunities for American to add value to the worlds manufactured items. They did this by following the advice of narrow “experts” who did not understand the pivotal roll manufacturing plays in a nation’s strength. They seemed completely oblivious to the long tern consequences of the trade and financial policies they were promoting. As a result some few individuals have been grossly enriched while the large majority of American citizens, and the nation, have been severely harmed.

Our great nation has been crippled by leadership that damaged our ability to provide the challenging jobs our skilled people deserve. They undermined our position as a prime example of the benefits of a free working democracy.

They did this by committing to conditions of the World Trade Organization, and individual countries which were very unfavorable to US built products. They gave no consideration to the consequences for the US citizen worker. They failed to adhere to the sensible thought that a country of the size of the US should always have the capability to be independent in critical areas. They allowed themselves to be heavily lobbied by foreign and US companies to pass US legislation that favored foreign manufacturing. This all has a disheartening resemblance to failures of the financial sector to show any interest in the good of the US in its disastrous practices.

We need real action with America’s interest placed first. Fixing this entangled mess requires that we renegotiate our trade agreements with several countries and the World Trade Organization to a level of reciprocity between what we give and what we receive. We also must immediately develop a national plan for a guaranteed balancing of our imports versus exports and stand the pain to implement it. It should be easy to resist the nonsense of some who will say a trade deficit is good.

This situation was brought on by both political parties. Many of those responsible are still in power. The same old lobbyist system that brought us here is still in play.

A sincere effort will only be undertaken through the anger of the citizens. Our Founding Fathers anticipated these situations and have given us in the Constitution the required tools—Let’s use them in 2010. A quick and decisive end to the trade deficit and a resurgence of our manufacturing reach must be a sincere component of the program of any candidate who gets your vote.
If you are interested in a further understanding of the entangled mess we are now in and would like a better understanding of what needs to be changed I recommend the book "Saving Capitalism" by Pat Choate

Saturday, March 06, 2010

Once Again Nature Teaches Us Humility

Snow in the Eastern Shenandoah area is supposed to happen just a few times per year, is usually just a covering of a few inches ,and is rarely over 12 inches. It stays just a few days before warm weather returns to chase it away. Sure the old timers talk about the real storms of the past but they are usually associated with the Blue Ridge or Appalachians and taken with a grain of salt. The District of Columbia, that is over 50 miles to the east, has usually been spared even that modest amount. The most talked about snow in DC recent history was January 22, 1961, the day of the Kennedy inaugural. That day DC got a whopping eight inches which created havoc in the inaugural celebration events.

That is why two successive storms over 25 and 30 inches of snow each, combining with winds to whip up towering drifts, were so appalling to us. They essentially imprisoned most of the population around DC for over a week. It was a perfect example of how easily Nature can brush aside mans’ petty agendas and come forth with its own.

As in always true when Nature flexes its muscles its raw power was overwhelming. Our plows, energy reserves, food and heroic physical efforts were temporary barriers and couldn’t compete with the peak level storms. Schools, politics and almost all social functions faced reality and were cancelled and forgotten. Health care reform and the economy were dropped from TV for 24 hour coverage of the storm. We were put in our proper place each night as the bitter cold winds re-drifted the snow, destroying the days hard plowing.

As always, Nature final relented and the struggle slowly turned in our favor. The winds became less ferocious, the snow stopped, the main roads became passable, and the essentials of our society returned. The drifts and mountains of plowed snow remain but are largely out of the way of our critical life systems.

What important bits of knowledge can be gleaned from the experience? There are several:

We are a pretty tough society that fights back hard.

When the scope of the storms was understood a hardworking cooperative meta-organization was immediately formed. This front line defense was shared without hesitation by contractors, government, local volunteers and neighbors.

The commitment of the personnel who formed this line against the storms showed the toughness of the American workers. This includes both those fighting the snow and those restoring power. Many served consecutive 12 hour shifts or longer to work all night in bitter cold moving and blowing snow. A tremendous amount of back road plowing was done by private owners.

The commercial delivery system was also outstanding under very strenuous conditions. Large delivery trucks make it through on very marginal roads. As soon as a route for delivery to a commercial area was configured by the road team the word was spread and the delivery vehicles came through.

It was an excellent job by overextended teams. Another example of how good the American worker can be when challenged. A curse on those idiots that sent so many of their jobs overseas.

Citizen Behavior

Generally good, with the usual exceptions that caused suppressed resentment. The most common was people with the wrong vehicles stuck and blocking roads. Some residents didn’t grasp the need for high road clearance to travel through deep snow. They became stuck and blocked streets that had been previously passable by four wheel drive trucks, jeeps and most SUVs.

Side Events

There was a well deserved shift of wealth to construction operators that put previously underutilized construction equipment into 24 hour operations moving snow.

Many unemployed construction workers earned well deserved good paychecks for the period.

The internet was a priceless local information center for the citizens. You could always get the latest status of a local road or route by queries on the internet.

The storm was especially tough on restaurants, because neither staff nor customers could make it in.

A Philosophical Thought

This once again confirmed that when Nature is in a state of violence the tools of mankind are weak and only allow us to wait it out. We absolutely count on Natures violent excursions lasting only a limited time before returning to a quieter level where we can regain control. That is what happens in almost every clash of civilization with violent Nature, be it earthquakes, thunderstorms, volcanoes, hurricanes or flash floods. As expected, this is what happened in our record snow storm of 2010.

As powerful as it is, however, the damage done to mankind by Nature is small in comparison to that which man inflicts on himself through wars and stupidity. (Possible future cosmic events not considered)

Wednesday, February 17, 2010

Deep Snow and Howling Winds Make Hardening of Electrical Distribution Systems a Priority

The hundreds of thousands of people who lost power in the recent storms leads me to question the cost to benefit analysis that always seem to leave our electrical distribution systems so vulnerable to weather. Power failure is by far the major cause of hardship and suffering by customers in severe weather. Because of this billions are continually spent on emergency restoration of power.

The electric companies work endlessly to restore power. Their literature is filled with advice to homeowners who lose power. But discussions to the public on programs to reduce the magnitude of the emergencies in the first place are rare. Each severe weather event seems to come with a list of thousands to hundreds of thousands of customers who have lost power. The same old story is told of how the electrical companies are working day and night to restore it.

The techniques available for hardening are well known. They include moving especially vulnerable lines underground, strengthening of lines and poles to support additional ice and wind loads, better connectors, and more attention to tree trimming to provide isolation from tree branches.

Electrical distribution systems are complex and expensive. The payback of hardening is in reduced costs to restore damaged systems on an emergency basis and the tremendous benefits to the customers who are spared days of powerless living. After studying a few of the upgrade proposals which are public and online I find that in true capitalist fashion the value of hardening is often understated when subject to cost analysis. It is hard to place a dollar value on the benefits to the customers even though they are substantial. Reduction in emergency repair costs alone does not seem to pay for an extensive upgrade in most cases.

Here as an example of the give and take which occurs is the presentation made by Oklahoma Gas and Electric to the Utility Board asking for a rate increase to pay for their hardening plan. Notice the importance and expense of vegetation management.

Because the number of failed power events is dependent upon both the hardening and the applied stress simple comparisons between utilities are not always appropriate but could serve as a starting point. Statistics on the long term performance of hardened versus standard systems do not appear to readily available.

This is just one of many examples where the needs of the people are not given adequate consideration. There is work to be done and people who want to do the work. Why can’t our system put the two together?

Monday, February 01, 2010

Imported Goods Dull the Effectiveness of the Fiscal Incentive Package

Arguments continue on the effectiveness for job creation of the fiscal incentive package. There is no doubt, however, that it would be much more effective if the US was manufacturing a higher percentage of the goods consumed by Americans.

The job intensive part of the program is lost to the country when the stimulus leads to the purchase of goods manufactured outside of the United States.

To illustrate this effect, suppose first that the incentive package entices the citizen to spend on a product manufactured in the United States. The retailer takes the money to pay operating and fixed costs, pay the wholesaler to restock the item, and make a small profit. The wholesaler accumulates its regional orders for the item and places a factory order. So far only some sales and administrative labor has gone into the economy. It is when the order is received by the manufacturer that the benefit of serious job creation starts. The factory places the replacement order into its production schedule and commits to the plant labor to produce the required number of items. The multiplier effect starts as the manufacturer places orders to its suppliers for the required raw materials and sub assemblies. The economic engine starts up and begins to create some real US labor value add.

In the case where the item is not manufactured domestically the wholesaler or importer places the order to a foreign manufacturer and any further value added goes to another country. Not surprisingly, there are not many jobs created in the United States. The trade deficit grows and the chance for the American worker to add value is missed.

There are some “expert” economists who say that a trade deficit is good and doesn’t significantly affect manufacturing employment. (Some were advisors to Bush!!) To counter this the Enterprise Policy Institute (EPI) in 2004 published a detailed analysis of the contribution of the trade deficit to unemployment in manufacturing. It concluded that in contradiction to those “experts”, the trade deficit was an important contributor toward jobs lost in manufacturing, accounting for 59% of the loss since 1998. The other contributor to unemployment was the productivity increase of the American worker.

EPI examined the percent of US production in relation to the total demand for production goods in the US. It is very telling. In 1991 94.7% of the total product demand for the USA was made domestically. It dropped to 76.5% by 2003. 1991 was a time of almost full employment. They stated that if we could return to our previous position of around 90%, millions of jobs would be created. Another interesting fact is that the US had a trade surplus until 1971.

There are some who say that our service business will make up for our loss in manufacturing. In 2008 we had a service surplus of $144 billion. Our negative manufacturing trade was $840 billion. That is a long way to go and very unlikely.

President Obama has set a target to double the US exports. It will be impossible to do this without the increased value add of manufacturing. If it were done, however, it would result in millions of American jobs and return us to economic strength we once knew before the damaging actions of the past. It will take drastic action to reverse the decades of bad decisions. It must be done.

Our current approach just isn’t working for the American people. China, Germany, Japan and every country with a strong export record is implementing a strategic plan to support their critical manufacturing sectors. These plans address innovation, trade, tax, and educational issues. They are eating both our lunch and dinner in manufacturing while we turn our focus on finance. Where is our integrated plan? It is necessary if we are to compete in a capitalist global economy!!!

Monday, January 25, 2010

Watch out 28% Democrat and 24% Republican Blocs, Here Comes the 42% Independent Steamroller!

The Massachusetts win by Scott Brown was a victory for independent voters, not the Republican Party. It was a big loss for Democratic Party politics but in no way an endorsement of the Republican Party. An insightful analysis of the voting was made by the Christian Science Monitor.

The voters were simply sick and tired of the screw-ups and ridiculous inability to govern shown by both parties. They voted for an individual candidate in defiance of party politics. This is strong evidence that the exclusive two party system is losing control. This bodes nothing but good for the nation.

It is good because the first task in rebuilding our sickened system is a massive injection of honesty and dedication into Congress. This depends on the success of two actions:

1. We continue to grow an informed and thoughtful bloc of voters who think independently of the two party system.
2. The two party system loses its almost exclusive power to govern the election process

Independent voters with no allegiance to either party will tend to support honest candidates who support the common good regardless of party affiliation. These voters will also be more aware and less tolerant of purposeful misinformation. Lies and misinformation are an inherent part of the current election process. This need not be the case. Legitimate election points and counterpoints can be made with truth. Parties that routinely incorporate half truths and outright lies in their campaign cannot be trusted with public office. Money spent on misinformation should be a negative marker to its own cause.

Political parties were not mentioned in the Constitution, and the concept was frowned upon by most of the Founding Fathers. Jefferson and Washington were especially adamant that political parties would be harmful to the nation. Loyalties develop for the party over those for the country. The parties limit creative thought, encouraging “party think” in its place. They limit the quality and quantity of candidates who are presented to the voters.

Neither party is tapping into the vast talent pool of the country. The selection process must be opened to more and better qualified people to become candidates. This will not happen as long as almost all seats in Congress are held by loyal party members.

Perhaps the system performance has finally reached the “tipping point” level of embarrassing incompetence and corruption. The Massachusetts election is an encouraging indication that the citizen has finally turned disgust into votes.

The Founders gave us a Constitution that allows the citizens to correct the government through elections. Unfortunately as it now stands those very elections are strongly influenced by those we hope to correct. This will require extra diligence. Our votes are extremely valuable. We must use them carefully and wisely. We desperately need a congress of citizen-legislators who will focus on the nation’s problems rather than a political party. This should be an important consideration before you give them your vote

Sunday, January 17, 2010

The Financial Crisis Responsibility Fee: A Possible First Step

On November 6, 2009 we made a post detailing how almost all citizens feel completely betrayed by both government and private institutions. They see that the government is acting for special interests, not the public good as required by the constitution. To restore our nation we stated that:

The citizens require a strong program that will absolutely guarantee that the psychology and ethics that led to the betrayal is completely disgraced and placed outside the American system forever. It is critical that those in the entities who were responsible for the meltdown are publically identified and punished. There must be significant retribution with large sums recovered for the people who innocently suffered. The public consequences to those that caused the situation must be adequate to prevent any thoughts of ever returning to similar behavior.

The banks however have been operating under the assumption that their only obligation toward the citizens suffering from the economic meltdown they caused is to repay the TARP funds at some point. They expected no further consequences for the misery they have caused the nation. They are reporting large profits and intend to reward themselves with record bonuses-while the rest of the nation suffers.

The announcement by the administration of its intention to impose a Financial Crisis Responsibility Fee* on banks with over 50 billion dollars in assets is the first credible indication that the necessary consequences may be coming. It could mean that the cozy financial sector/government relationship is starting to unravel under the relentless anger of the US citizens. Of course the 90 billion dollars expected to be recovered in 10 years is minuscule compared to the damage done to the nation. But at least it initiates a principle of collecting consequential damages that should deter future similar behavior. Watching how congressmen react to this bill will be a real marker for those who must be replaced.

As currently described the bill will only apply to banks with over fifty billion in assets and will be structured so that there will be a strong incentive to pay the fee from the planned excessive bonus pool. This will protect the smaller banks and prevent the large banks from simply passing the fee through to its customers. It is indeed meant to have the large banks who acted against the public good suffer additional consequences.

The drumbeat of the bank lobbyists against the bill is already underway. There will be a very aggressive effort to have it either killed or weakened with loopholes. Hopefully this will not end as a Republican versus Democrat issue. We must follow the life cycle closely and be sure that our congressman and senators understand that regardless of their party affiliation you expect them to act in the public good. Follow their statements and votes very closely. Its will be a good warm-up for the many battles we have yet to fight.

Saturday, January 09, 2010

The Big Question: How Much Incompetence Can a Great Nation Stand Before it Becomes Not Great?

Is the US running out of runway?

The previous decades have been characterized by incompetence from our elected government and private sectors that have eaten up large amounts of runway.
•Emergence of the financial sector as the nations policy leader
•Failure to develop a reasonable integrated energy plan for independence from enemies
•Disastrous trade policies that seem designed to weaken America manufacturing
•A misdirection of effort on climate change
•Ill thought out wars
•Major public policy being controlled by gullible uneducated media, alarmist environmentalists, and special interests
This has resulted in:
• A global recession
• Millions of Americans losing jobs and homes while being forced into government assistance
• Thousands of our young dying in those ill thought out wars
• A complete loss of faith by the people in both their government and private institutions
• Disastrous trade balances
• Gigantic misallocations of resources

There just isn’t much runway left!

All this has happened on our watch. To avoid the terrible disgrace of destroying a great country we must turn it around.

So what weapons do we have?
• A population with a continuing love of country and respect for freedom
• Intelligence.
• Tools our founders gave us to change the elected government.

If we use them wisely they should be enough. Let us begin by accepting certain high level truths and targets for correction:
1 First, we must acknowledge that the two party system we now have is corrupt and is failing us. There is nothing in the constitution about political parties. Both George Washington and Thomas Jefferson were among the founders who were outspoken against them. Their fear being that people would develop loyalties for their party that would override their loyalty to the country. We have seen this come true in spades! The two national parties focus on sustaining their own standing. They have passed laws that purposely limit citizen choice. Their sole control of the election process must be broken and the process re-opened to the citizens.
2. The financial sector must be placed in its proper role as a simple service to the producing sectors of the economy-not its current commanding position of control. Its current consumption of the wealth created by the country is completely out of line.
3. The government is not able to adequately manage the large sums of money being spent on major R&D projects. Climategate is but one example. The citizens must have a better view of these expenditures. The country has thousands of experienced engineers, scientists and tradesmen working in the private sector or retired who would provide an independent view as a public service-possibly organized by the professional societies. This would be an important step for the citizens to regain control of the country finances and allocation of resources.
4. The availability of education opportunities to the citizens must be greatly expanded to match the increasing need for an informed electorate.
5. The media should be distinguished for providing, facts, education, and free discussion by the public. The ownership and control of media assets by only a few corporations is not desirable.
6. The Founders went to great effort to protect the individual citizen against infringement by the government. They are well stated in the Bill of Rights. We must reaffirm these protections in all our actions.
This is just a beginning list and shows how far we have to go. Once again, can we trust the current elected government to initiate these and other steps? If not, the Founders built in the ability to replace the House in two years and the entire Senate in six.

We have to keep this great country great!

Sunday, January 03, 2010

With Global Cap &Trade and Climate Change in Free Fall Where is USA Energy Plan B?

In accordance with its standard policy of minimizing the useful information it provides to the public the mainstream media has only discussed two choices for a US energy program.

1.Lead the world in an economy killing global cap and trade system to control CO2
2.Allow civilization to be destroyed by CO2 caused climate change.

In spite of our elected government’s record for bad decisions, surely climate gate and the general impracticality of an energy policy based totally on the global control of CO2 will prevent the first option. The second is not worth discussing. But where is the plan for a third option that presents an environmentally sustainable and balanced energy plan free from the noise of global CO2 control? A plan that is directed to what is best for the USA?
We need an integrated energy plan that uses all of the technologies in their best applications and is based on quality engineering, science and economics. It must be created for the general good of the US citizens and not the result of public relations and lobbying by special interests.

After over thirty years and untold billions you would think that the Department of Energy could pull a copy of a plan like that right out of the files. They might make a few adjustments to reflect the increased domestic reserves of natural gas before publishing it widely for Congress and the public to judge. It should be open and well explained so the public can judge how intelligently their congressmen are addressing the problem. It will be a base case for risk/benefit analysis against which the demands of global CO2 control advocates could be publically judged.

Sadly, this is a fantasy. The intimidation of the media and political system by the climate change alarmists has been so complete that they could politically stop any such plan from being developed. This is another example of just how blundering these institutions are as guardians for the public good. However, climate gate has finally opened the subject for objective analysis and correction. Can we count on either institution to correct the errors of their ways and lead? Sadly again, that is fantasy B.

We must somehow change this situation.