american-style capitalism

It is often said that the American economic system is the best in the world. Then again, it is often said US healthcare is the best in the world too. And American cars, American TV, etc. Waving the flag is big business.

Every once in a while though, there are some hard data that tell a different story. Take Wall Street bankers and their $18 billion bonuses for 2008. Aren't bonuses supposed to reward good performance? Aren't bonuses there to "align" the executives with the interests of the business and its shareholders? Isn't this country supposed to be a meritocracy, where good work is rewarded? Wasn't America founded on hard work?

The sad truth is more than obvious. Those who are close to the honey pot get extra servings. Whether they work hard or not, whether they do what they are supposed to do or not, whether they perform as required or not. The pot is theirs and even when others have to go empty handed, the guardians of the honey pot reward themselves richly.

We can only draw one conclusion: American-style capitalism is about nothing but greed. Those who display it, get away with murder.

Kudos to Obama for speaking out and calling it shameful. Unfortunately it is worse than shameful. It is criminal. Criminal negligence that deserves more than harsh words. No amount of cosmetic surgery is going to fix this problem. What we need is some deep cuts to remove the rot. Where is the public outrage?

dead cat bounce

Investors have a cute name for a short term rally that follows a steep and prolonged decline. It is called a dead cat bounce. The idea is that even a dead cat will bounce once or twice when you drop it from a high enough place. Unlike a live cat however, it will stay down after that. 

What we are seeing in the housing market now, is a version of the infamous dead cat bounce. Housing rebounded somewhat in December. Some too-eager investors, hoping for a quick turnaround no doubt, are snapping up properties at what they think is a bargain. But is it a bargain? Will the market recover in 2009? Don't bet on it. 

While housing was the proximate cause of the crisis, much like an infection that kills a patient with lung fibrosis, it wasn't the real problem. The real problem is that Americans have been spending for decades like there was no tomorrow. Now their net worth has fallen to zero or below. They are done spending. 

For an economy that depends on spending for 3/4's of its bulk, that is not good news. Layoffs will continue and continue to grow. The crisis has now spread beyond housing into job losses. These losses will then precipitate another round of foreclosures and another drop in housing prices. This vicious circle will continue for a while to come.

As a matter of fact, almost 70,000 layoffs were announced yesterday, but investors chose to ignore these. Why?

One was the Pfizer-Wyeth merger. Mega-mergers like Pfizer-Wyeth always stimulate the market for a variety of reasons. But for those smart enough to look past the headlines, the merger showed none of these healthy signs. All it illustrated was how badly broken this economy is. Pfizer had trouble getting loans, even though it reportedly has $30 billion in cash. Pfizer did not want to use that cash, because in doing so it would have had to bring it into the country and pay taxes on it. By lending Pfizer avoids taxes and gets a tax break on interest to boot. So much for tax cuts!

The second reason is that layoffs often mean higher profits. Investors see layoffs as trimming fat, a move that helps the bottom line. But these layoffs are no such thing. These are layoffs caused by lack of demand. These are desperate layoffs that are meant to keep companies afloat in adverse conditions.

If I could suggest one thing to Obama, it would be to create jobs and to do so directly by starting government projects. I would only caution that it be done wisely. Not to beef up our highway infrastructure, but to dismantle it and to replace it with a more sensible, public transportation-friendly infrastructure.

Let's not invest in "green" (or any other color) energy. Let's instead invest in using less energy. Let's bring back repair jobs that allow people to keep items around longer. Bring back the tailors, the shoemakers, the grocers. It is not Walmart we need (ironically enough WM has been doing very well and that should worry us a lot!), it is local grocery and retail stores. Not suburbia and malls, but local walk-to businesses. No cheap China-goods, but locally produced artisan products with lasting value.

Not vitamin D, bran, or for that matter melamine enhanced mass-produced food products concocted together in far away places, but local organic produce and meat. Not cherries and watermelons in winter, but seasonal fare. The list is endless. Let's create jobs that matter, Mr. Obama. Not cogs in a big churning, wealth shifting, and value destroying, gas-guzzling monster.

less trash

The LA times reports that the current economic crisis is leading to less trash at landfills. It reads:"For a commentary on California's economic health, visit its landfills, where disposal rates are hitting record lows." Apparently, Puente Hills Landfill, "among the nations largest," noted a 30% decrease in tonnage recently.

First, it proves what I have been reporting all along, that we are a throw-away economy. According to some reports, 90% of what we buy ends up in the trash within six months. If you want to call that economic health -as the Times seems to think- welcome to idiocracy. Have some more kool-aid.

Second, it proves that the economic slowdown is good for the environment. Better than the "green economy" or any investment in "alternative fuel." Environmentalism is about slowing down and consuming less. Our current approach to the environment is like that of an obese person who is looking for alternative therapies instead of eating less and moving around more.

Third, it also shows that our current economy is unsustainable. It is based on churning through resources at ever faster rates. No matter how you slice it, something like that is not sustainable in the long run. And if churning hits high values, the "long" in long run becomes very short indeed. We have become like locusts, and locusts do not survive for very long.

I do not advocate recession, or depression -because that is what we are seeing now, but it appears to be the only way to get us to change our behavior. Much like out-of-control gas consumption was unstoppable until prices rose, it looks like we will need a long and deep depression to kick our bad consumerism habits. 

Common sense has failed, and to get it back we will have to experience some serious, lasting pain. But don't worry. It is coming your way. Don't be fooled by the temporary upswing -the Obama effect- because it is temporary. I have said it many times before and I will keep on repeating it, the worse is yet to come. The Dow will go down to 6,000. It may even go lower. And buying gold -the metal, not mining stocks, but actual bullion- is a smart thing to do.

While I hope we can avoid it, it may get so bad that paper money becomes real paper again.

Meanwhile, keep up the good work, and reduce trash.

Cape Cod windmills

A fight is brewing over offshore windmills near Cape Cod. A fight that apparently pitches "pro-environment" Democrats, who love to promote the benefits of "alternative energy," against the developer of said windmills. A project that was given clearance by none other than George W. Bush, in the waning days of his ill-fated administration. Oh, the irony!

You will no doubt remember that the Cape is a favorite hangout for the Kennedy family and apparently the Kennedy's have been lobbying intensely to keep those ugly windmills away from their summer paradise. It is therefore probably no surprise for you to learn that the Wall Street Journal was eager to jump on this "travesty:" pro-environment Democrats rallying against green energy. And all of it happening at the inauguration of a new pro-environment president.

It turns out that progressive rich folk everywhere sing the praises of alternative energy as long as that energy production does not mess up their cherished views or intrude into their sacred world. Homeowner's associations fight the blight -and glare- of solar panels, and beach lovers rally against offshore windmills, even if such windmills are so far offshore that one needs binoculars to see them clearly.

I have said it before and I think it is worth repeating here. Anyone can call themselves an environmentalist. Anyone can wrap themselves in green and sing the praises of wind, solar, and what have you. But anyone who "needs" to live in a 5,000+ sq foot home, and "needs" to drive an SUV to work, and uses enough energy to make solar a bargain, is not to be taken seriously. That includes Nobel Laureates such as Al Gore. If Mr. Gore were serious, he would move. 

It is easy to say, we need clean energy, but there is no such thing as clean energy. All energy production  comes at a cost. The devices needed may be unsightly, noisy, dangerous, detrimental to wildlife, leave toxic waste, or be difficult to manufacture. One thing is clear, there is no free lunch. That is just plain physics and no amount of marketing can hide it.

Therefore, we should limit our energy use to what is reasonable and necessary. We should not waste it. I do not know exactly where the line is drawn but I do know that average Americans use at least twice as much energy as wealthy Europeans. Without getting anything in return. These average Americans are not healthier, or happier, nor do they live longer, or live better than Europeans. So we have a ways to go. 

If all us of cut our total energy use in half, we would solve many "problems," like the often cited "dependence on foreign oil." We can do so without affecting our real standard of living. Granted we would have to change our life-style in rather drastic ways, but all in all, the end result would be quite acceptable and we would still be as well off as we are today.

All that can be done, without buying new stuff. Without spending money -it would save money- and without grandiose government programs. Next time you see an ad that says buy green, remember, to be green, don't buy. Not buying is green. Irrespective of what it is they are trying to sell you.

Saving energy

Much of the country is affected by a serious cold spell. That always has people scrambling for solutions to reduce their heating bills. Often very expensive and fancy remedies come to mind first. Things like replacing a good furnace with a newer "more energy efficient" model. Blame it on residual effects of media advertising. Unfortunately these remedies rarely accomplish anything other than drive more consumption.

The easiest way to reduce your energy bills is to lower your thermostat and wear some extra clothing around the house. If your house feels chilly despite a working furnace and a generous temperature setting, chances are it is leaking copious amounts of air somewhere. Better check to see if all the doors and windows are closed. If they are and the chills persist, you probably have to patch some holes.

Air leaks are the most common problem in any home. You should fix them before you invest in additional insulation, double and triple paned windows and other gimmicks. Leaks cause serious heat loss that is orders of magnitude greater than any losses through ceilings or windows or walls.

You don't need fancy equipment to find air leaks. All you need is your hands and some common sense. Leaks most often occur at or near existing openings, such as doors, windows, flues, hoods. They are rather rare in the middle of a solid wall, although in some outside-facing walls, significant air leaks may occur around electric and other in-wall outlets.

Start with the doors. Close the door and run your hand around the "seams." If you feel cold air intruding, you have a serious leak. You can also check when it is dark inside. Shine a light on the other side of the door and look for light spilling into the room. Make sure to lie down and check the bottom. If you can see light, cold air can get in easily. The fix is as simple as some weather-stripping carefully applied around the edges.

While inside doors often hang a bit above the floor (so as to clear carpet for example), doors that lead to the outside should not allow any air flow under (or around) the door. Carefully check sliding doors as they are a frequent source of air intrusion.

Next check the windows and around the window frames. Lastly, make sure all vents and flues (fire-place, stove hoods, etc.) are closed when not in use.

Ideally you should compartmentalize your home. If you do, don't heat rooms you don't use, and don't heat all rooms equally. Bedrooms don't need to be as hot as living rooms for example. Neither do toilets. And it is better if you can isolate the kitchen, as you will often want to open windows to get rid of smells.

If you do compartmentalize you need to make sure that the openings between the various rooms (usually doors) are sealed too. Otherwise you are back to square one.

While so-called "open floor plans" are in vogue, they are incredibly wasteful and should not be considered unless you live in a very mild climate. If you are stuck with an open floor-plan, try to see if you can't subdivide the space in winter. Heavy drapes can make a huge difference and they are easy to install and take down.

Also try to gather everyone together in the evening. Apart from saving on heating bills (you don't need to heat the whole house), it also strengthens the family bonds. Too many households have members hiding in their rooms at night. A good way to combat this tendency -and save energy in the process- is to limit the number of TV sets you own to no more than one.

The latter will also remove the need for fancy spyware to make sure your kids aren't watching inappropriate stuff on TV or on the web. Gather the family together in the living room. That is what a living room is for.

Today's news

Bank of America ousted John Thain (see our story T(h)ainted) after it became apparent how bad the situation at Merrill Lynch really was. The brokerage announced a $15.4 billion loss for its most recent quarter. So much for financial stewardship! It appears BofA finally saw the light that wasn't there.

Microsoft meanwhile missed its numbers. A feat that is only aggravated by the fact that rival Google beat expectations. In any case, Microsoft and its valet, Intel are not happy campers. For years the duo managed to get America to burn through new computers every other year by quickly making existing machines obsolete. So where is your carbon footprint Wintel?

All this was done under the guise of innovation. But seriously, ask yourself, is the new Office really better than the 1995 version? My answer is no, no and no.  It is worse. Bloated and worse, like an aging corpse. An undead zombie.

Now, while Mr. Gates - who fancies himself a white knight in shining armor-  rides into Africa to cure disease and help the poor, the company that made him all those billions is going to lay off American workers and cause hardship at home. How many homes are in foreclosure in Redmond, WA and environs? Maybe Mr. Gates should give back some of the money that we paid for his "high tech" cardboard boxes, containing 2 cent CD's with buggy software?

Not to be outdone, all five remaining Bush supporters have been busy writing glorifying political obituaries for their man in the Wall Street Journal. For several days now we have been reading how W saved the free world, kept the nation safe, eradicated the terrorists, banished dictators, and led our nation to a new prosperity. Oops, that last one was a typo I guess.

The other Wall Street Journal ideologues have been equally busy touting their universal recipe for recovery, prosperity, freedom, and the American Way. Tax breaks. Tax breaks for ever! The new cure for the economy, cancer, and the common cold. Just cut taxes. Wait a minute? Did not George W. cut our taxes? That must be why the economy is doing so well today?

Meanwhile the new Obama administration is still trying to find a way to kick-start that economy. How do you kick-start a seized engine? The answer is you don't. It can't be done. You need to get a new engine instead. How long will it take before the star-studded economic team gets the picture, that there is nothing left to kick-start?

denial and anger

Elizabeth Kuebler-Ross a Swiss physician did what many believe is pioneering work with dying people. She wrote a book called "On Death and Dying," describing the emotional states people go through when confronted with a terminal illness. It has been said that these states also apply to other significant life events. I am not sure if anyone has ever postulated that these states also apply to entire populations. The Western world, and especially America is one such population that is now faced with a terminal event.

The five key states are denial, anger, bargaining, depression, and finally acceptance. It appears America is largely in denial. This isn't happening, there must be a mistake, the turn-around will come, we "may be" in a recession, we have bounced back before, it will be short-lived, etc, are all statements typical of this state. Some of our more "advanced" citizens have already made it to the anger, "why us and not them?" stage.

Soon-to-be-ex President Bush is clearly in denial. As a matter of fact, Mr. Bush's middle name is denial. He for one, never seems capable of progressing. Although he did show some signs of minor anger -or at least annoyance- at some questions that were repeated too often, he is a rock of stability when it comes to denial. The lone cowboy.

The financial system is also in deep denial. So are many policy makers trying to bail them out. Although the government already owns the worthless banks, nobody wants to say we nationalized them. That would be admitting death of our fabled economic system. The right word for such behavior is denial. A denial so profound that Mr. Paulson and Mr. Bernanke, without admitting the error in their way, finally agreed to purchase shares in these undead banks. Earlier these geniuses -maybe they too were bewitched by W?- had proposed a simple handout to their former colleagues.

However, even when they bought shares, they had to forgo buying common stock and getting a board seat. That would be admitting failure. It is also the only reasonable thing to do. The symbolic gesture is of great importance, because it sets the stage for further mayhem. A denial akin to alcoholics with liver cirrhosis who can't stop drinking.

Some Republicans have expressed anger, but they are angry at the bail-out and having to pay for it, not so much angry at the demise of American style capitalism. When it comes to that, those very same Republicans are in very strong denial. These are the type of believers who will go to their grave without ever leaving phase one.

Many in the Obama administration forgot about denial and blew through their brief anger periods. They are now trying their hand at bargaining. Bargaining as in bargaining with fate. Please dear god, if you cure me of this illness, I will rebuild the bridges and highways and make America great again. 

If anything, we need to dismantle America's infrastructure and rebuild it in a more sensible way. A way that favors public transportation. A way away from cars. Depression comes next in case you wonder.

Here is some quick arithmetic to cure your current denial. Most financial institutions in the country are undead. They are lifeless but they keep wandering around sucking away our savings. The sooner they drop dead the better, because until they do, we are wasting our hard earned tax dollars trying to keep them afoot. They need a stake through the heart, and have their heads cut off too.

Half of the American households have zero net worth. You can give them rebate checks and tax cuts all you want, but they won't start spending again. They are done, period. The best you can do is give them a reasonable job so you won't end up paying for their retirement. Most of them promise to be around for another 15-20 years for sure.

The more jobs we cut, the worse it will get. Another quarter of the American public is teetering on the brink of zero net worth. Keeping these people employed should be priority number one. Forget about corporate profits for now. Forget about what you learned in economics 101. It does no longer apply.

An economy driven by consumer spending is no longer an option. The consumers are done spending. The sooner we realize that, the better.

Rather than revamping America's infrastructure, we need to redo it. The current layout is problematic. It depends on cheap energy and is unsustainable in the long run. It is also environmentally destructive. We need to dismantle it before it does us in.