“Outrage” is not a bad word

I used to think that the bumper sticker quote “if you’re not outraged, you’re not paying attention,” was merely another empty platitude plastered on the rear end of many a Subaru.

That was before the financial crisis and Henry Paulson’s $350 billion dollar handout of taxpayer’s money to Wall Street.

In fact these days, I’m shocked at how little outrage there is across America at the combination of corporate greed and government recklessness and stupidity that we as a country are experiencing.

Last weekend, I was slightly relieved to watch at least one senator who is starting to voice his outrage—yes, it’s not a bad word, and in fact is necessary now—directly at the Treasury Dept. and the way the TARP money has been spent. Now, I say only “slightly,” because the hypocrisy displayed by this senator is galling to watch as he played an instrumental role in drafting the legislation.

Nonetheless, speaking on CNN’s State of the Union on 1/25/09, Sen. Kent Conrad (D-ND), Chairman of the Senate Budget Committee, was interviewed about a series of letters he recently sent to the Treasury Dept. In one, he wrote that "TARP was intended to restore liquidity to the credit markets so that Main Street businesses could get the funds they need to meet payroll, purchase materials and finance sales. It was never intended to fund lavish bonuses for the people who got us into this mess." In another he pointed out that "In particular, the accounts of AIG's spending on lavish employee rewards, travel and retreats are outrageous…It is critical for Treasury and the Federal Reserve to clarify which institution has primary responsibility for making sure AIG is taking appropriate actions."

When pressed by CNN’s John King about his own party’s responsibility, Sen. Conrad defended himself by saying that “we thought we had strings and controls. For example, we had an oversight board. Only the outgoing administration never called it to meet.” Why am I not surprised?

The Senator went on to say that “money was given to some of the major banks in this country, some $250 billion, with no strings attached. They weren’t required to expand the credit pool. They weren’t restricted on bonuses, although the legislation clearly called for such restrictions.”

Merrill Lynch was particularly clever in evading any restrictions. As the senator explained, “they put the bonuses out before they got the federal money. In other words, they almost created a circumstance in which they would have to get federal money because they put out $4 billion in bonuses in December of last year, then were sold, bailed out basically, by Bank of America. And then Bank of America gets $20 billion in taxpayer money. That is an outrage. And for the man who ran Merrill Lynch, to then go to Bank of America and spend over $1 million redoing his office at Bank of America, when he knew there were massive losses and that the federal government, the taxpayers of the country, were going to be asked to make up this money. That really is outrageous.”

Amen Senator. Now get back to work on making sure that the second half of the $700 billion of the TARP money (and the $800 fiscal stimulus plan, for that matter) is not likewise pissed away without any accountability for how the funds, eh hem, how our money, is spent.

Sources:

http://transcripts.cnn.com/TRANSCRIPTS/0901/25/sotu.05.html

http://www.bismarcktribune.com/articles/2008/11/22/news/local/170024.txt

Pick of the Month: The FT must be proud of its man in Moscow, Neil Buckley, for his insightful reporting on Putin’s hand-picked successor, Dmitry Medvedev. Among several stories filed is one posted 12/11/07, in which Buckley suggests the 42-year-old Chairman of state gas monopoly Gazprom is a “modernizer” rather than a liberal willing to roll back some of Putin’s “hyper-centralisation,” and is expected to focus his efforts on delivering a planned $1,000bn investment in upgrading Russia’s transportation and other infrastructure. Perhaps even more noteworthy is the fact that Medvedev is not from the military/security camp but rather from the Russian bureaucracy, indicating that Putin’s succession plan—seen as proceeding smoothly by outsiders—may actually be quite the opposite, according to Buckley. One Moscow analyst ominously says that Medvedev can look forward to serious attacks by warring factions in the military/security establishment.

See the story at: http://www.ft.com/cms/s/0/80e5e8a8-a81d-11dc-9485-0000779fd2ac.html

Rescuing Myanmar, one cup at a time

Western bras “Made in Thailand” by Burmese workers forced across the border by Western sanctions

The Wall Street Journal’s man on the ground in Myanmar should be applauded for his nuanced reporting on a bra factory across the river in Thailand this Monday, which employees Burmese workers for $3 a day to produce lingerie that will end up in stores across the United States, under names like Maidenform and Vanity Fair. (Page 1: http://online.wsj.com/article/SB 119222553593857680.html?mod=hps_us_inside_today.)

While U.S. and E.U. sanctions prevent Western manufacturers from sourcing goods in the country formerly known as Burma, the WSJ reveals that multinationals have merely found a way around sanctions by establishing factories across the border, which produce clothing that bears the label “Made in Thailand,” but is really a product of desperate, and as a result, cheap, Burmese labor.

It comes as no surprise that the laissez-faire WSJ spotted and nailed this story of international trade beneath the headlines of the military junta arresting and beating protesting Buddhist monks and killing civilians. The article’s one weakness is that it gives into the temptation to paint the cost-conscious factory owners as saviors in the Adam Smith sense—by acting out of self-interest they provide jobs that the Burmese and its despotic military government need.

NewsShark Verdict: While the go-go gadget reach of global trade appears to be filling a void in this instance, it has also unquestionably contributed to the current economic stagnation in Myanmar, sustained the military junta’s rule and allowed the human rights abuses to continue. Conveniently, Chevron Corp. and Total SA’s $300 million a-piece- investments in Myanmar’s gas fields were grandfathered in under the current sanctions regime, so the generals will still get fat royalty payments no matter how many protesting monks are beaten and disappeared. Even if sanctions did cut off Western energy investments, resource-hungry China would more than pick up the slack, as Chinese energy companies are already starting to do.

And, as so often happens, while Myanmar exports natural gas and crude oil, it cannot refine those fuels and must import them and heavily subsidize fuel for its own citizens. Indeed, it was the spike in global fuel prices and subsequent cut in subsidies that sparked September’s street protests.

In the end, it’s clear that strengthening economic sanctions, which the Bush Administration is contemplating, will only make life more miserable for Myanmar’s people. Only increased investment will create more leverage with the military regime.

Posturing Potentates or Real Radicals?

CEOs Propose Progressive Measures to Stem Rising Tide of American Protectionism

“Our prescriptions might, in some respects, seem radical” begins a surprising report on globalization commissioned by an association of CEOs from twenty financial services corporations, including Wachovia, AIG and Citigroup. The Wall Street Journal had coverage of the report the day it was released—incidentally just three days before Bush’s fast track trade negotiating power expired.

The WSJ reporter registered his shock at some of the proposals to combat income inequality: wage insurance (gasp!); eliminating payroll tax for those earning less than $32,140 and even raising it on higher-income earners to offset the lost revenue; and, government-backed insurance of local tax bases to provide payouts during severe economic downturns such as factory closures.

WSJ neglected to mention that while seemingly innovative, many of the ideas floated in the report are hardly new. For instance there was a wage insurance test program inserted into the 2002 trade bill, and the local tax base insurance idea was taken from a 1996 Brookings Institution policy proposal.

According to WSJ, at the same time the report suggests ways to soften the blows of globalization it also proposes ways to streamline trade deals by giving the president permanent fast-track authority (NewsShark can hear Nancy Pelosi and Charlie Rangel laughing already), along with allowing the U.S. to negotiate a broad-free trade agreement open to any WTO member that wanted to participate, as an alternative to global trade rounds (more laughing).

The lackadaisical New York Times waited until late July to even mention the report. In a story about IBM’s new “learning accounts” for worker education (essentially 401(k)s, but without the tax deductibility), NYT said the Financial Services Forum report argued for a change in the tax code that would allow employees to deduct education expenses whether the training related to their current job or not. Another pragmatic solution to help workers brought to you by those unlikely progressives at FSF. (Current law only allows employees to deduct education expenses related to the position they already hold.)

NewsShark Verdict: As Adam Smith put in the Wealth of Nations, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” When CEOs start talking about wage insurance they are not doing so out of their humanity but rather to quell the outsourcing outcries. Nevertheless, many of the ideas are spot-on and the only question is whether others in the business community will join them in a serious lobbying effort. Democrats take notice: the butcher, brewer and baker want to cut the price of dinner, or at least make it more palatable.

Will He Stay or Will He Go?

Last week the Financial Times scooped other papers with its revelation that World Bank President Paul Wolfowitz personally ordered the Bank’s vice president of human resources to offer Wolfowitz’s girlfriend, Shaha Riza, a generous raise and promotion as part of her secondment package to the US State Department. (Riza was shipped off to the State Dept. pursuant to Bank rules that – surprise – don’t allow staff to work under the authority of those with whom they are intimately involved.)

When the story broke, the Bank’s board held an emergency session to go over the findings of its own investigation of the matter. With the media feeding frenzy beginning to froth, Wolfowitz apologized to staff personally for his handling of the affair. But throngs of Bank staff, European diplomats and some leading anti-poverty NGOs are still calling for Wolfowitz’s head.

As Wolfowitz weighs his decision to hunker down or flee, he is probably taking comfort in the fact that, as the FT pointed out on Friday, he only “in theory…serves at the pleasure of the board.” Rather he was appointed by POTUS, and even if the board could give him the boot, there does not appear to be enough shareholder governments willing to go that far—yet.

The FT’s editorial on Friday did not waste words, arguing that the World Bank president “has one asset: his credibility” and now that he’s compromised that, he should resign or the Bank itself risks being stripped of its moral force and branded a hypocritical institution.

In sharp contrast, the Wall Street Journal ran a bitter editorial today that mounted a persuasive defense of the embattled Wolfowitz. The editorial gives highlights of the 109 pages released by the Bank from its ethics investigation, and appears to show that Wolfowitz disclosed his relationship with Riza and requested that he recuse himself from having anything to do with matters affecting his girlfriend before he signed his own employment contract.

The editorial then follows the paper trail between Wolfowitz, his lawyers, the bank’s general counsel and the ethics committee chairman. The upshot, at least according to the WSJ, is that Wolfowitz only intervened after attempting to recuse himself but was prevented from doing so by the ethics committee; and that he intervened only after the committee advised him to compensate his girlfriend for her damaged career – due to the conflict of interest caused by Wolfowitz’s appointment.

NewsShark Verdict: Wolfowitz won’t step down, nor will the Europeans on the board rally the votes needed to oust him. The two real stories here are U.S. vs Europe and Wolfowitz vs. most of the World Bank. To make a few blatant generalizations, Europe doesn’t like Wolfowitz’s anti-corruption campaign; they don’t like his history in the Bush Administration; and they want to wrest control over the Bank from the US. Now, Bank staff members also don’t like Wolfowitz for his focus on anti-corruption, his history in the Bush Administration, and, well, you get the idea. But Wolfowitz is used to strong criticism, and, while rattled, will probably try to hang on.

The FT was probably right when in a news story today it said if the issue became a domestic political scandal in the US, then the White House will not let Wolfowitz go—at any cost. What the FT may have forgotten, however, is that such a story has next to zero chance of becoming a domestic political issue in the US, simply because most Americans could give a damn about what a former Bush hawk did or did not do at the World Bank.

Pick of the Day: “Chinese lending creating new wave of hidden debt in Africa, IMF says”

A managing editor once told me that a good reporter finds the real story behind the story. Today, the FT found the story behind Chinese investment in Africa: the accumulation of unsustainable debt. The debt relief crowd should be banging their heads on the wall right about now.

After all, the Chinese have impeccable timing. The G8 and World Bank have spent the last decade writing off debt to African countries. NewsShark recalls that just this July, the G8 pledged to cancel $37bn of debt owed by the world’s poorest nations, all in Africa and Latin America.

Despite the lack of specificity in the FT article—not one African country is actually named, except Sudan—the debt that China is leaving in the wake of its rapacious direct foreign investments is a largely untold story.

China Development Bank, the largest development institution by assets in the world, is proving a challenge for the World Bank, which has proposed jointly-financed projects so that pesky social and human rights conditions might be factored into the terms of China’s development loans.

The WB appears overly confident that it will be able to influence CDB, even though China has flatly rejected attaching any detailed conditions to its loans to developing nations.

Apparently it’s not only the WB that’s worried. The European Investment Bank and other multilateral banks are starting to lose business in Asia and Africa to Chinese banks because they don’t give a hoot about social or human rights conditions.

NewsShark Verdict: China’s investments in Africa, whether in the form of oil contracts, infrastructure projects and arms sales with Sudan, arms sales to Zimbabwe, or manufacturing plants elsewhere, all have one thing in common. They exhibit China’s penchant for caring nothing about externalities. This is bad news for post-conflict countries in Africa and countries now in economic and political crises. On top of it all, you can be sure China does not care about its effect on African business, which is smaller and no challenge to more advanced Chinese competitors.

Max Says Send Mercs to Darfur

In a Wall Street Journal op-ed last Wednesday, Max Boot offered an unusual suggestion to solving the ongoing genocide in Darfur: the UN, NATO, or even Bill Gates or George Soros should hire mercenaries to stop the Sudanese government’s campaign of rape, murder and ethnic cleansing. After all, argues the senior fellow at the Council on Foreign Relations, they have a long track record of “good service” quelling insurgencies, from the Hessians (er, maybe not the best example) to today’s Dynacorp, Vinnel and Blackwater operating in Iraq (ok, also not the best example).

According to Mr. Boot, several private military firms have already offered their services in Darfur. And, while mercenaries do not have the cleanest of reputations, “the record of privateers compares favorably with that of U.N. peacekeeping forces, which have been distinguished more by their propensity for committing sex crimes than by any success in keeping the peace.”

Invectives against the UN aside, Mr. Boot points out that, unlike U.N. peacekeepers—and as NewsShark adds, US troops—mercenaries could be hired under an employment contract that would hold them liable for war crimes in the ICC or another jurisdiction.

NewsShark Verdict: The often supercilious Boot may not win any friends in the UN General Assembly, but destitute refugees in Darfur would most assuredly welcome any protection from the Sudanese government, janjaweed militias and now, apparently, from non-Arab tribal factions.

The question is, does the world have the will for an intervention action—whatever the form—when Khartoum will accept nothing more than the present impotent and pitiful African Union force of 7,000, which it too has said must leave now if it cannot operate alone?

Clearly, sending in mercenaries will not solve the myriad conflicts raging in Sudan and now spreading into Chad. But they could be a temporary way to protect humanitarian organizations, which have been forced to abandon many parts of the region due to attacks on aid workers. (Twelve aid workers have been killed in one town alone in Darfur, since May, according to the New York Times.)

While it is extremely unlikely that the UN would ever hire mercenaries, since it balks at even outsourcing administrative tasks, NATO, or an ad hoc coalition of countries should consider funding private security for aid groups. No one else will step up to the plate, and the disgraceful alternative is what exists now: little or no presence of aid organizations in many parts, which means no food, medicine or other vital supplies for many of the 2.5 million refugees created by the fighting and the more who are created each day. As for Boot's suggestion that Bill Gates hire a private army to deploy in Darfur, he would be wise to heed the advice of Julius Caesar, who once said that "all bad precedents begin as justifiable measures."

Read Max Boot’s op-ed at: http://online.wsj.com/article/SB116173782126202804- search.html?KEYWORDS=Sudan&COLLECTION= wsjie/6month