Why Arabs Believe In Force Fields

December 26, 2008: Many Pakistanis now believe that the recent Islamic terrorist attack in Mumbai, India, was the work of the Israeli Mossad, or the American CIA. Such fantasies are a common explanation, in Moslem nations, for Islamic terrorist atrocities. Especially when women and children, and Moslems, are among the victims, other Moslems tend to accept fantastic explanations shifting the blame to infidels (non-Moslems).

Conspiracies are not unique to the Moslem world, but they are much more common there. After the September 11, 2001 attacks in the United States, many Moslems again blamed Israel. A favorite variation of this is that, before the attacks on the World Trade Center, a secret message went out to all Jews in the area to stay away. Another variation has it that the 19 attackers (all of them Arab, 15 from Saudi Arabia) were really not Arabs, but falsely identified as part of the Israeli deception. In the United States, some Americans insist that the attack was the work of the U.S. government, complete with the World Trade Center towers being brought down by prepositioned explosive charges. While few Americans accept this, the Moslem fantasies are widely accepted in the Moslem world. Even Western educated Arabs, speaking good English, will casually express, and accept, these tales of the Israeli Mossad staging the attacks, to trick the U.S. into attacking Afghanistan and Iraq. Americans are shocked at this, but the Moslems expressing these beliefs just shrug.
American troops arriving in Iraq go through a real culture shock as they encounter these cultural difference. They also discover that the cause of this, and many other Arab problems, is the concept of "inshallah" ("If God wills it.") This is a basic tenet of Islam, although some scholars believe the attitude preceded that religion.

In any event, "inshallah" is deadly when combined with modern technology. For this reason, Arab countries either have poorly maintained infrastructure and equipment (including military stuff), or import a lot of foreigners, possessing the right attitudes, to maintain everything. That minority of Arabs who do have the right attitude towards maintenance and personal responsibility are considered odd, but useful.

The "inshallah" thing is made worse by a stronger belief in the supernatural, and magic in general. This often extends to technology. Thus many Iraqis believe that American troops wear sunglasses that see through clothing, and armor vests that are actually air conditioned. When they first encounter these beliefs, U.S. troops thought the Arabs are putting them on. Then it sinks in that Arabs really believe this stuff. It's a scary moment.

However, many troops learn to live with, and even exploit, these odd beliefs. When troops at one base discovered that they weren't being attacked much, because many of the locals believed that the base was surrounded by a force field, the troops would casually make reference to their force field, when they were outside the wire and among the locals. This reinforced the force field myth, and made the base safer. Other troops would invent new fantasies, like a pretending that a handheld bit of military electronics was actually a mind reading device. That often made interrogations go a lot quicker. Not all Arabs believe in this stuff, and those that didn't and worked for the Americans, often as an interpreter, could only shrug their shoulders when asked about it.

This easy acceptance of fantasies is exploited by leaders throughout the Middle East, and the Moslem world in general. Leaders who know better, build on these fantasies as a way to maintain their control over the population. The problem is a dirty little secret in the Moslem world, that leaders and academics don't even like to discuss it openly, much less with infidels. But it is real, and you can read all about it in the local media, or overhear it in the coffee shops.

Consumers Get Important New Credit Card Protections

Dec. 18, 2008
WASHINGTON, Dec 18, 2008 /PRNewswire-USNewswire via COMTEX/ -- Office of Thrift Supervision Adopts New Rules to Safeguard Consumers; Federal Reserve Board and National Credit Union Administration Set To Act Later Today

New rules adopted by the Office of Thrift Supervision today will help protect consumers from certain abusive credit card lending practices that can result in excessive fees and interest rate charges. The rules were developed in conjunction with the Federal Reserve Board and National Credit Union Administration, which are expected to adopt the same regulations later today. The new regulations will go into effect on July 1, 2010.

"Millions of families have been stung by unfair credit card practices that trap them in debt and make it harder to make ends meet," said Gail Hillebrand, Consumers Union Financial Services Campaign Manager. "When these rules finally go into effect, they will help protect consumers from being gouged by credit card companies and make it easier for families to manage their finances during these tough economic times." While praising the new protections, Consumers Union criticized the 18 month delay before consumers finally get relief.

Among other things, the new rules will protect consumers by:
-- Prohibiting credit card companies from raising interest rates on money already borrowed unless the money was borrowed on a variable rate card, or the minimum payment is made more than 30 days late.
-- Protecting new cardholders by prohibiting interest rate hikes in the first year of an account. The only way interest rates can go up in the first year is if the card issuer disclosed a future rate hike at a preset time when the account was opened.
-- Imposing a new rule that zero interest means zero, ending the practice of so-called deferred interest.
-- Prohibiting credit card companies from charging a late fee if the bill was mailed to the consumer less than 21 days before the due date. -- Requiring payments to be allocated fairly among credit card balances with different interest rates. Payments must be allocated to the highest interest balance or pro rata.
-- Prohibiting credit card companies from charging interest on amounts already repaid, through two cycle billing. -- Restricting the financing of fees on credit cards where the fees or deposits use up the majority of the available credit on the account.

Over a third of all credit card users were charged late fees in 2005, according to a report by the Government Accountability Office (GAO). The GAO also found that top six credit card issuers collected $7.4 billion in penalty fees during that year.
On top of penalty fees, the vast majority of credit card contracts allow issuers to increase the interest rate for consumers who pay their bill late, even by a few hours. A low interest rate on a credit card can climb to 30 percent or more after a single late payment or if consumers fall behind on payments to other creditors. These penalty interest rates apply not only to future purchases but also the consumer's existing balance.

The new regulations were adopted after the Federal Reserve Board received a flood of comments from approximately 66,000 people who weighed in on the proposal - mostly in support of tougher protections for consumers. While the new rules will provide important new protections, more safeguards are needed to address other lending practices that can make it difficult for consumers to manage their credit. Other reforms needed to address some of the abusive practices that hurt consumers are:

Comment: Nice start but these still need to be imposed.

-- Limiting the amount of "penalty" interest rates, and how long card companies can keep you at these extremely high rates.
-- Prohibiting fees for paying a credit card by phone or internet.
-- Prohibiting account-opening fees no more than 10 percent of the credit limit.
-- Banning multiple over-limit fees during a single billing cycle.
-- Ending ALL over-limit fees when it's the card company's fault.

A consumer shouldn't be penalized when the credit card company approves a transaction, imposes a credit hold, or charges fees that put the consumer over the credit limit. "The new credit card regulations adopted today will help restore some basic fairness to the credit card marketplace, but there is more work to do to protect consumers," said Pam Banks, Policy Counsel for Consumers Union. "It's time to end excessive credit card interest rates and fees that undermine the financial well being of millions of American families."
The three federal agencies decided to put off action on a proposed set of new rules regarding the automatic enrollment of consumers in overdraft loan programs and re-issued a new proposed rule for comment. These programs cost consumers $17.5 billion in fees annually, for $15.8 billion in loans. Consumer groups had criticized the overdraft proposal as too weak. Consumers Union has called on federal regulators to require opt-in before consumers can be charged overdraft fees.

SOURCE Consumers Union

Inability of the wealthy to connect the dots = stupid

It never ceases to amaze me how preternaturally stupid the wealthy in this country are. Let's make that our meme – not that wealthy right wingers are unfair, or mean, or uncaring or selfish, but that they are knock-down, drop-dead STUPID. They simply are incapable of connecting the dots between (a) workers who can play an active part in looking out for themselves, (b) better incomes in general for the middle class and below, (c) a belief among most Americans that the system, including the tax system, is about as fair as it can be and is not stacked in favor of the wealthy. They are unable to recognize that those lead to higher confidence across-the-board, and that higher confidence translates into a strong economy, and a strong economy with better results for the middle and lower classes means a bigger pie for everyone. It most certainly does not mean that those normally disfavored people are grabbing a bigger piece and the wealthy are ending up with less. They seem unable to get it: that if the pie is bigger, that means the wealthy will do better than they do when the poor and middle class are treated like dirt.

In other words, a + b + c = C’ (aggregate national confidence) = E+ (better economy) = P+ (bigger pie) = M+ (more for everyone). It should be as plain as the noses on their faces they routinely spite. It certainly was clear in the 90s, when incomes at the bottom of the scale grew faster than they had in decades, and, voila! – the wealthy made out very well, too, thank you very much.

Of course, the fact that it is so plain leads directly to the suspicion that the number one objective of these people is not to have more wealth, but to be able to treat some people like dirt.

Past as Prologue for the Financial Bailout

Over the coming weeks, we are going throw hopefully more light than heat on the managers of the Bailout by taking a journey through the basics of economic conditions that create such situations requiring strong intervention into the economcy. We start out with some macroeconomic concepts essential to the problem.

LIQUIDITY TRAP. In a trap, money injected into the economy through an open market has no stimulative effect because it is hoarded either by banks as excess reserves or as cash “under the mattress” as precautionary or emergency balances by households or business (2008 companies drawing on lines of credit). In a 100% trap, all increases in the monetary base would be “hoarded” for whatever reasons (and finding the reasons is important for remedies). St. Louis Fed plots of borrowed reserves, excess reserves, and the monetary base for 2008. With no trap and no Fiscal distortion the base Ba, M1, and borok credit should change proportionally. In a half trap, Ba would expand twice as fast quarterly to counter the 50% hoarding effect.

PUSHING ON A STRING. There is an idea known as a liquidity trap. See Keynes (1936) and most macroeconomists since. There is an argument over the existence of liquidity traps. If traps do not exist, then we do not need to worry about getting out of them, but if there are traps (1935?, Japan, USA 2008?)

In a Federal Reserve article, Orphanides ( 1993) argues that 1934-6 depression was not a liquidity trap. The contention of whether there is a trap or not is too narrow. There may be a partial trap, the analogy being loose steering of a car. There may be “play” in the steering wheel but if turned enough the car will change direction.

The approach to be used here could be called the “Deep Throat” approach – “Follow the Money” (Hal Holbrook in All the President’s Men). In a trap, base money injected into the economy through an open market has no stimulative effect because it is hoarded either by banks as excess reserves or as cash under the mattress by the nonbank public. We will track what happened to the monetary base, Ba, and components (currency in circulation and reserves) with data from the Federal Reserve Bank of St. Louis website in 1934-6 and draw analogies to today's situation.

'Pay option' loans could swell defaults

New wave of defaults likely as risky loans reset to sharply higher payments
By John W. Schoen
Senior producer
updated 9:01 p.m. ET, Wed., Dec. 10, 2008

Some time after Sharren McGarry went to work as a mortgage consultant at Wachovia’s Stuart, Fla., branch in July 2007, she and her colleagues were directed to market a mortgage called the “Pick A Pay” loan. Sales commissions on the product were double the rates for conventional mortgages, and she was required to make sure nearly half the loans she sold were "Pick A Pay," she said.

These “pay option” adjustable-rate mortgages gave borrowers a choice of payments each month. They also carried a feature that came as a nasty surprise to some borrowers, called "negative amortization." If the homeowner opted to pay less than the full monthly amount, the difference was tacked onto the principal. When the loan automatically “recasted” in five or 10 years, the owner would be locked into a new, much higher, set monthly payment.

While McGarry balked at selling these pay-option ARMs, other lenders and mortgage brokers were happy to sell the loans and pocket the higher commissions.

Now, as the housing recession deepens, a coming wave of payment shocks threatens to bring another surge in defaults and foreclosures as these mortgages “recast” to higher monthly payments over the next two years.

“The next wave (of foreclosures) is coming next year and in 2010, and that is primarily due to these pay-option ARMS and the five-year, adjustable-rate hybrid ARMS that are coming up for reset,” said William Longbrake, retired vice chairman of Washington Mutual. The giant Seattle-based bank, which collapsed this year under the weight of its bad mortgage loans, was one of the biggest originators of pay-option ARMs during the lending boom.

Louis Rukeyser and real wealth

Krugman’s column today stirs up recollections. Remember “Wall Street Week” and Louis Rukeyser? With his flowing longish gray hair, impeccable suits and highly understated wit, he looked like someone whose likeness should be on $1000 dollar bill. His set was an elegant simulation of a home library for someone very, very wealthy. You could almost feel the pillars of Wall Street as the symbol of American greatness. His guests from the American investment community looked right at home. It was just so, so. . . .classy, so completely trustworthy.

Then for awhile, we had Jeff Greenfield, once a journalistic rebel who skewered the establishment for The Village Voice, groveling before the high-tech entrepreneurial wizards – the AOL guy who became a zillionaire selling nothing to Time-Warner, Scott McNeely from Sun and the like -- as starry-eyed MBA students in the audience looked on in rapt admiration. It was the business version of "The Actor's Studio." With those stocks flying a price-earnings ratio of 10,000/1 -- actually of infinity, because half the time there were losing money -- who could question the wisdom behind such success?

Both were PBS, weren’t they? Might that say something about the real leanings of public broadcasting? Remember when it was “liberal” to watch PBS and listen to NPR?

It was so 80s and 90s, wasn’t it? Now we see Wall Street exposed as a collection of charlatans, the lowest of the low, simply stealing your money, using Ivy League educations to become the shoddiest of businessmen (as Krugman says, it’s almost always a he), making , junk dealers, and used car and door-to-door magazine subscription salespeople look like Titans of honor in the business community? Many of those MBA students at Greenfield's interviews who thought they were going into investment banking to help find the next Microsoft would up bundling mortgage-backed securities for even more insane profits and bonuses.

We also see money exposed for what it is: a bunch of numbers on paper that people will accept gives us certain legal rights, and that we have all collectively decided will buy X of something I can touch or feel one day, and the next day, because we found out so many of those charlatans are, in fact, charlatans, and, therefore, we can’t believe a damn word of what they told us, will buy only X minus Y of the same thing – and maybe the day after that will buy only X minus Y minus Z because the President-elect appointed someone unfamiliar and not from New York to some key economic post and “the market” didn’t like that. The wealth in a real estate market inflated by a bubble was perfectly real to anyone who sold property for cash before the bubble burst, but it was unreal for someone who held onto it.

The economy is a bunch of air that expands and contracts according to how everyone collectively feels. I think of an accordion: it gets bigger when people trust that those pieces of paper mean what they say, and especially when they are confident they will be able to continue to collect more pieces of paper with numbers on them. If the confidence is modest and well-grounded in reality, the wealth represented by that air is real wealth. When it gets overly excited, overconfidence sets in and a bubble happens. Where does econometrics fit into that nebulous reality?

It's a political economy

We know that at least 65% of the working-population will take a decent job if it is available. That’s the employment to population ratio.

Actually, from places like the Dakotas or Minnesota, where poverty and lack of basic education is not a drag on the local economy, we really know that, in the culture of today, including women working outside the home, retirement ambitions and education, it’s more like 72% who will take a job when they are plentiful.

We know that when Bill Clinton stepped into office, 61.4 % of the working-age population had a job, and that the percentage grew to a peak of 64.7, and held at 64.4 in January, 2001 when he left office. That was a gain of three percentage points in eight years – actually quite a lot in that short a period, since by 1993 it had grown by less than six percentage points in 32 years since John Kennedy took office.

The Clinton years showed what Americans will do when they are confident they can go out and get a job: almost three-quarters of them will go out, find a job, and take it when it’s offered. Given that growth of participation in the work force during the Clinton years, a strong economy under GW Bush should have generated another three percentage-point gain in the employment to working age population ratio.

In other words, and now bear with me if you’re still with me at this point, the 137.8 million Americans holding jobs the month George Bush took office, or 64.4 % of the working-age population, should have grown to 67.4% of the population now, or 158.3 million. Instead, that rate has dropped back to where it was when Bill Clinton took office 15 years ago, or 61.4 %. That’s only 144.3 million who are working. So there’s your true loss of jobs from what should have been if the economy overall – yes, apart from the early recession – had stayed strong: 14 million jobs. Just about 14 million more Americans would be working now. The number of jobs would have been increasing by an average of almost 2 million every year.

There have been times in the GW era when the GDP seemed to be soaring, and even the official unemployment rate has been low, and yet consumer confidence has at no time reached the heights it was reaching in the Clinton years. Sometimes, pundits would declare it baffling that Americans did not express more confidence in the economy or in Bush when those official unemployment rates were announced. That’s because, I would submit, Americans themselves sensed that the economy was not generating enough new jobs merely to keep up with population growth. Iraq and the decline of American world prestige were certainly a contributor, but I would also submit that the sense of things not being as they should be, and not as good as the big statistics said they should be, with some trepidation that the fantastic growth of real estate values was too good to be true, was a big part of why it always seemed Americans at a high rate were saying things were “moving in the wrong direction.”

* * * * * *

All of this leads me towards saying that the numbers economists seemed to be looking at – the macro-economic statistics like “capital infusions” and “liquidity” are barking up the wrong tree. It’s about the gestalt, the weltenschaung of the day. The critical thing is for Americans to start thinking the Titanic’s path has been shifted, that we finally have people in the pilot house who know how to run a ship, and we will not, after all, hit the iceberg. Roughly, it’s in the consumer confidence measures, but it’s probably deeper than any survey. When a critical mass of Americans start thinking we are now “moving in the right direction,” even if progress is slow at the start, consumer confidence will see a new day dawning. It’s a social science measurement, not an economic input measurement.

How do we get there? Jobs, jobs, jobs – and good jobs, ones that people believe will last and will not just disappear. Picking up paper and broken bottles, OK as a stopgap, but infrastructure jobs will last a generation. Green technology jobs will be forever, so to speak, and will only grow in number. Health insurance reform will allow companies afraid of skyrocketing benefits to offer real jobs again, and take away the fear of financial devastation from a health problem. But it is only jobs – the belief that I will probably get a decent job offer within a month or so of losing or giving up the old one – that will get us out of this mess. It’s fundamentals like health insurance reform, seeding new manufacturing opportunities and spending on real infrastructure improvements, not gimmicks like random fiats making more money available for lending to people who don’t want to borrow it, that will get us moving in the right direction.

Economists got us into this mess, and now confess they had no idea what they were doing. Maybe some good old outcast political economists -- the holistic economists who recognize that an economy is based on a social contract and will fail when the most powerful break the promises of that social contract -- who are best positioned to help us work our way out of it.

Welcome to the 2nd Great Depression

It is really hard to fathom how blisteringly stupid Republicans can be. May they all rot in hell.

What's good for GM is good for America

Looks like we could see GM file for Chapter 7 liquidation as early as next Monday. If you want to see the USA in your Chevrolet, you'd better do it quickly.

Car Czar epilogue

There is some hope "officials" as quoted in the NYT realize no Bush executive branch qualify for Car Czar, given the expetise desired as expressed in the article:

Officials declined to speculate who might fill the role of car czar, but the Democrats’ legislation called for “one or more officers from the executive branch with appropriate expertise in such areas as economic stabilization, financial aid to commerce and industry, financial restructuring, energy efficiency and environmental protection.”

Try to find anyone in the Bush administration with credible credentials in even one of these five required areas of expertise.

No Bush Lame Duck Car Czar

At the risk of quoting Reagan, there she goes again:

In an implicit sop to the outgoing bankrupt Bush regime, given a proposal to place a bankrupt adiministration flunkee in charge of a bankrupt (auto) industy, per NYT, House speaker, Nancy Pelosi, said "she hoped that Mr. Bush’s appointee — or car czar, as the position has come to be known — would not need to be replaced by President-elect Barack Obama, raising the prospect that the outgoing and incoming administrations would cooperate in selecting someone."

Where was Pelosi during the Presidential campaign which tenents included the ridding the nation of the bankrupt policies of the Bush administration and thier incompetent cronies? Pelosi even at one point on the eve of becoming House speaker was quoted as saying the Bush administration was unprecedently incompetent. Now she is concerned that Obama might not keep in place as car czar one of the incompetents he pledged to purge from the executive branch. If this is another Pelosi subrosa bi-partinanship gesture, someone reminder her that it does not include perpetuating the problems of the past eight years by appointing the incompetent for the sake of providing GOP participation. The goal should be to minimize GOP participation in order to build a firewall to protect the Obama's administration from holdover Bush bungling bureaucrats.

Support H.Res. 1531

Courtesy of Activist.the pen:

Another day, another non-denial denial that Bush is planning midnight preemptive blanket pardons for his entire gang, including himself. In an article in the New York Times the other day, current attorney general Mukasey is quoted as asserting it would not be "necessary". Please take careful note he did not say it wouldn't happen, because unless we speak out now it WILL.

The best shot we have is H.Res. 1531 which puts the administration on clear notice that there will be strong push back from Congress if they attempt such a scurrilous stunt. Please submit this action page to ask your House member to sign on as a co-sponsor of this measure.

Support H.Res. 1531 Action Page: http://www.usalone.com/hres1531.php

We all know that George Bush as someone without even the guts to face his own music, he who sent more that four thousand brave Americans to their senseless graves, for a premeditated and knowing lie in Iraq, tens of thousands of American crippled and mutilated for life, trillions looted from our economy, and he doesn't even have the simple courage to risk the accountability of having to defend his numberless crimes in a fair trial.

It is now known that Nixon seriously considered pardoning himself, but even he was not THAT despicable. George Bush most certainly is. And remember that his administration has been infested with Nixon era cronies like Cheney and Rumsfeld, so it is no surprise that the malfeasance of the Nixon era has been magnified in the last eight years.

Nixon infamously said, "If the president does it that means it is not illegal", conveniently after his own blanket pardon by the way. That has been their creed. The entire Bush administration has been one ongoing criminal enterprise since day one, a wrecking ball to the Constitution and rule of law, with torture, illegal surveillance, obstruction and perversion of justice in the firing of U.S. attorneys, not to mention national level election fraud, the naked treason of outing Valerie Plame, and on and on.

And the only way we can make sure nothing like this EVER happens again is to demand full accountability, so that all America truly understands what a miserable, lying, cowardly creep we were so foolish as to allow get away with stealing two successive presidential elections.

Please call on your members of Congress to immediately sign on to H.Res. 1531, and let's have a real national debate on the coming greatest outrage of all, before they get away with that too.

Does the corporation's interest "align with shareholder value"?

There is a massive world unto itself of literature on corporate governance, and I seldom venture into it, so I have no idea whether the following comment is just turning over well-plowed ground or not.

However, there is also a large body of literature with the ingrained assumption that executive compensation should be “aligned” as closely as possible with the interests of the shareholders. Sounds like, sure, why not, unless, of course, you’re an employee but not a shareholder, or the mayor of the town completely dependent on the huge local plant.

Maybe we should take a deeper look. The result of this concept of alignment is compensation dominated by incentive payment over salary, and especially with stock grants and stock options. There has been considerable critique of the stock options form: the fear that it will tend to distort executive interest away from the interests of the corporation and towards the self-interest in affecting (or in worst case manipulating) stock prices with potentially enormous personal rewards.

However, it occurred to me that the critique should go deeper. Shareholders may think otherwise, but the corporation is legally distinct from the shareholders. States and countries grant corporate charters with special privileges and powers in order to advance the public interest, not only the interests of those currently with the money to invest in it. Without getting into the heavily-loaded subject of other publics that ought or ought not be considered in making corporate decisions – employees and the local community -- we can say as a matter of fundamental principle that the fiduciary duty of officers of a corporation is to serve the best interests of the corporation itself as a separate legal entity from its shareholders. It is really irrelevant how we might define the public interest in the success of a corporation. As a matter of law the state has in order to advance the public interest created the corporation as an entity, a citizen apart from every other citizen, with a perpetual life.

The health of the corporation, not shareholder value, must be the sole and entire focus of the corporate officer. While present shareholder value may be one important indicator of that health, it is not the shareholders themselves or the return on their investment that the corporate officer should be considering. Although it may often be easier said than done, it is certainly not the return of current investors at the expense of later potential investors, which is strongly implied in the very concept of making corporate decisions that “advance shareholder value.” It is only – only -- to do one’s best to maintain and advance the health of the corporation, to make sure the corporation is just as healthy or healthier when the officer leaves as it was when he or she started, so that it is just as likely to live forever as it was. The corporation was created to live forever, as a vehicle for investors forever and whatever public interest could be served by its existence forever, and advancing that purpose, subject to law, should be the sole and entire guidepost for decision-making. It is this interest that will help management make appropriate decisions between distributing earnings to shareholders and retaining earnings to make the business grow.

At least for a mature corporation, executive compensation theoretically should be a salary only. Why should it be assumed that someone making several million a year needs more incentive than a healthy salary on top of an innate desire to excel is necessary? OK, if we assume human nature might cause a well-established executive to lose the competitive edge and do little to earn the salary, then perhaps it should be a salary with well-defined corporate performance incentives that probably are completely untainted by the stock price at any given time.

But the mantra “aligning executive compensation with shareholder value” based on the vagaries of a stock price that can be affected by all kinds of unpredictable and ultimately unimportant events, and even by manipulation by the company’s management to prop up its price – should be seen as just that, a mantra that is wrong-headed to boot. Yes, weak stock price can affect the fundamental health of the company, so efforts to prop it up may be justified sometimes. But that must be the sole focus. When such action is undertaken for the purpose of satisfying the wants of current stockholders, with the natural consequence of making sure the executives’ compensation packages are not undermined, the servant is taking care of the wrong master.

Compensation in the case of start-ups is a different matter. In that case, equity participation serves a different purpose, because the nascent entity cannot afford to pay the talented executives who really are needed in such environments the necessary compensation. Some day, I will try to figure out what the principle is for separating the two: when does the start-up phase end, and the impropriety of excessive stock and stock option components of executive compensation begin? There is also the not-unimportant matter of how change in current practices of executive compensation could be implemented. For now, let’s just say there’s something out of whack when the CEO of a major, long-established corporation earns $5 million in salary and non-stock corporate performance awards, and $50 million in stock and stock options. No wonder he or she will go on and on about the central importance of shareholder value.

A blog with tiny a following is a good place to preserve your thinkpieces. Flashdrives get lost, hard drives crash or get tossed, etc. If this is utterly commonplace stuff, well it wasn't to me.

Another failure for supply side economics?

I haven’t seen this said, but when you take the big-picture view of the Paulson-Bernanke solutions to the banking crisis, aren’t they really just “supply-side economics” applied to the financial sector specifically? They seem to be all about giving the banks the wherewithal to resume lending, and I understand "supply side economics” to be in essence giving tax advantages to businesses to increase their production, rather than the Keynesian focus on stimulating demand for that increased production. So what does infusing capital or take the risk out the banks’ bad assets have to do with shoring up the consumer and business confidence to want to borrow again? The banks’ wanting to lend is only half the equation

Maybe those more schooled in economics can ponder this.

Detroit's real problem

While most commentators on the misery of the auto industry seem to focus on the cost side – with many predictably blaming greedy workers or their unions for bargaining for decent wages (which are not, if you’ve seen this falsehood floating around, even close to $70 per hour after being combined with benefits) – and the plans also appear to have that cost-based focus, it seems to me the more fundamental problem is with atrocious big-picture marketing. It is the responsibility of the managements of the car companies to manage their image with the public, and the public image of American manufacturers is terrible.

It is an image that may never or only for a very brief time have been deserved as far as the actual product was concerned. Our 70s-era Honda Civic was easily the most unreliable car we’ve ever had, followed closely by a Japanese(Mitsubishi)–built compact with an American label, and probably followed not too far after that by our original beloved but brittle German-made Beetles. Easily the best cars we have ever had have been American cars, one from Ford in the 80s, the rest since from a wonderful GM dealer. Except for a brief dalliance with a scandalous SUV, we’ve always gotten 30 miles-per-gallon highway on the GM sedans – somewhat more on Grand Ams, even the very zippy 6-cylinder version, and actually pushed 35 MPG highway on trips with a powerful and relatively heavy V-6 Pontiac Bonneville in the early 90s.

Meanwhile, just as much or more than Detroit, Toyota, Nissan and Honda have been making and heavily promoting monster gas-guzzling SUVs. Their comparable sedans are usually about the same in mileage. There’s a lot of evidence that there is no quality gap, either. They’re all world class manufacturers and they all know how to engineer and manufacture extremely reliable cars. Yeah, yeah, design. Well, of course, that’s frightfully subjective, and the Big 3 have brought in their own hotshot Italian designers, but I look at some Camrys, Accords and the like and say, ho hum, looks pretty boring to me. They aren’t exactly Lamborghinis either.

Yet it rolls off everyone’s tongue as conventional wisdom: “Detroit” = gas-guzzling behemoths that break down all the time, while “Japanese cars,” or often “foreign manufactures” generally even including Europe (which make some of the biggest gas-gulping and breakdown-prone cars in the world) are assumed to be sleek makers of exquisitely-designed cars that are more fuel-efficient, have better quality, and come out of nothing but the most pristine roboticized plants you can imagine. It’s the standard accepted narrative that’s buried very deeply in there, and there isn’t a reporter anywhere in America, probably not even Detroit itself, who can’t rattle off the expected phrases to reinforce that awful image.

The result is what one might expect: for an industry in which the lifestyle image of the product is critically important – let’s face it, everyone, whatever car you get, it’s got to be cool – and in a time when “green” is the watchword of the day, especially among youth, the highly educated and along both coasts, the demographics of the American industry are simply awful. Market share keeps going down, because buyers of Honda Accords in their 20s don’t switch to their father’s Cadillac – the Oldsmobile being long-gone for these very reasons – when they hit 40.

Market share will only keep going down. And with declining market share comes inability to manage prices for profitable enterprise. I’d prefer to fully develop the data on this, but my eye-balling tells me that the major Japanese cars are commanding about a 10% premium in new car prices for basically the same car – same size, same weight, same engine-type, same mileage – while the depreciation differential only gets worse over time. Yes, it would be nice to knock another $1000 out of the cost of the car, but that’s real difficult nuts-and-bolts. Pricing power in the marketplace is about perception, which the Japanese manufacturers have to their credit recognized as malleable (even if it does to a great extent rely on fundamentals). With the long view historically attributed to Japanese companies, they have assiduously built up the image of fuel-efficiency and top quality over the last 30 years.

But what did the CEOs expect when they took the visible lead attacking efforts to assure automobile fuel efficiency, or failed to challenge the build-up of the conventional wisdom before it became that? Attacking fuel standards was tantamount to an admission that GM's or Ford's engineers just weren't good enough to do the job. Did they think such impressions wouldn't carry over into other ways that people judge a company?

The fundamentals may be there for the American companies now, but people do not know it, or do not belive it, or in some cases no longer care because in their circles a GM dinosaur of a car is as uncool as you can get. Everything was about numbers, and the wrong numbers at that. Units sold – up, happy and break out the champagne, down, get that Tony Robbins motivator-guy to fire up the troops. And stock price, a huge part of executive compensation, usually enough to distort decision-making. Meanwhile, marketing rot has been setting in for several decades. Yes, get some national healthcare relief from escalating costs for all American manufacturers. $34 billion? I’m for it, but split of a billion of that for one of the most massive and most challenging propaganda campaigns you’ll ever see – and I don’t mean propaganda in a pejorative sense here, either. They are going to need it for a massive turnaround of ingrained public opinion if the other $33 billion won’t be just going down the drain.

Supreme Court to get another chance to undo an election

Could they give us yet another unelected Republican president?

The U.S. Supreme Court will consider Friday whether to take up a lawsuit challenging President-elect Barack Obama's U.S. citizenship, a continuation of a New Jersey case embraced by some opponents of Obama's election.

The meeting of justices will coincide with a vigil by the filer's supporters in Washington on the steps of the nation's highest court.

The suit originally sought to stay the election, and was filed on behalf of Leo Donofrio against New Jersey Secretary of State Nina Mitchell Wells.

Legal experts say the appeal has little chance of succeeding, despite appearing on the court's schedule. Legal records show it is only the tip of an iceberg of nationwide efforts seeking to derail Obama's election over accusations that he either wasn't born a U.S. citizen or that he later renounced his citizenship in Indonesia.

Franken by hook or crook?

Hey, suppose Franken loses in Minnesota, maybe the New York Guv could appoint him to Hillary's seat? Lots of community ties, there.

Consumers individually vs. society as a whole? (Consumer confidence just a lagging indicator, Part II

We hear all the time that in a time of recession, what is rational for the individual – strengthening a rainy-day war chest, paying off debt, hunkering down – is irrational as far as the economy is concerned, since 70% of the economy is consumer spending. Saving, then, becomes unpatriotic. Something about that juxtaposition of conflicting principles sticks in the craw.

Well, how about this for a theory that breaks that Gordian knot? It is ultimately the aggregate confidence in the future of all participants that drives an economy. When a downturn begins, consumers have been in relatively profligate spending patterns, and the future for being able to maintain that lifestyle looks gloomy. Consumer confidence plummets. Business confidence does, too, investment slows and we enter a recession. Eventually, professional economists see what everyone else has seen for a long time.

But maybe it’s the saving and the slower rate of spending that ultimately sets a floor on that confidence downturn among consumers: once consumers have adjusted their lifestyles to a more modest expenditure level, or more likely, a slower rate of gratification, and they find they can still do most of what they need and enjoy without a major hit to their happiness, confidence in their own ability to meet their future needs stops dropping. That may not be enough to turn confidence up very much, so some stimulus from government or elsewhere that actually promises an increase in jobs may be necessary – i.e., an increase in the likelihood of employed consumers that they will hold onto their jobs, and of the unemployed that they will have a better chance of finding one – but it may be a socio-economic phenomenon that slows down the freefall.

In that sense, then, there is no conflict between rational individual behavior and ultimate recovery on a macro level – with “ultimate” in this case being a lot closer than the “ultimately we are all dead” counsel that in slightly different words Keynes gave us (“in the long run”). The thread is in the central role of aggregate confidence in the future. The individual rational thing lays the groundwork for recovery, even if in the short term it appears to make things worse.

“Or elsewhere,” I said above in weasel words. What is that “elsewhere” where a source of re-building consumer confidence might be found? Besides some deus ex machina -- like sudden discovery of a way to make large, safe automobiles reach 100 MPH in 4.7 seconds and run for 5000 miles before a recharge on nothing more than four AA lithium re-chargeable batteries, or maybe a fashion change in China and India that demands only made-in-America goods – perhaps it is the prescient business-investor who senses that the confidence decline has reached bottom, and that goods produced from a restored night shift will sell.

Just noodling. Optimism beats despair, doesn’t it?

Consumer confidence just a “lagging indicator”?

One thing that’s always bugged me is the way some economic writers – and I assume economists – confidently define “consumer confidence” as a “lagging indicator” – one that, to quote a business weekly writer, “responds only after the overall economy has already changed.” (Citation or link unimportant here.) Yet we see another description of “consumer confidence” like this in the same short article: “If consumers are uncertain about the economy, they will buy less and the economy will slow further. If consumer confidence increases, then the economy will grow.” This is a common formulation.

There is a fundamental reasoning problem in those two statements, however: on the one hand, we are saying that it is confidence that is the engine of the economy, and then we turn around and say that engine will only get started if the economy magically on its own improves. If we assume that an economic transaction does not occur unless both parties have confidence that it will be advantageous to them, and that an economy starts to grow when more people have the confidence to enter into transactions than had the day before, then by definition, while what we have known since 1985 as the “Consumer Confidence Index” from the Conference Board, or since 1954 as the “Index of Consumer Sentiment” from the University of Michigan may have statistically shaken out as an indicator that is discernible after the fact, confidence of some kind must be a leading indicator as well.

What we then have to assume is that the “confidence” that is the engine of an economy is a far more complex concept than the random-sample periodic surveys can capture. Indeed, something outside the economy itself – yeah, those “exogenous variables,” the terminology in the English language that perhaps more than any other makes one sound brilliant – must be the spark that starts the necessary complex of confidence in the right direction to speed up the aggregate of economic transactions. That would be things like the stimuli the United States Government can decide on its own initiative to employ to get people more money and especially more jobs.

Yes, the quantifiable mechanics of the multiplier effect will rev up the economy, but what if there is no confidence it can be sustained? Look at what has happened to recent rounds of interest rate cuts, or the tax rebate checks. Anything at all besides theoretically preventing things from getting worse? Somehow, the clear signal must accompany the stimuli: this will work, and this is not a one-shot desperation heave, but will be maintained until it works. And when it works, we will be able to start minimizing any problems we inevitably created – increasing the deficit and the national debt – the way Clinton did it in the 90s. And by the way, we know what we are doing.

Get those messages across, and confidence will build for a sustained recovery. But if you only look at “consumer confidence” as a “lagging indictor,” you may miss the central necessity of those messages.