Now that the House has left for summer recess, with the Senate leaving in a week, it’s a perfect time to look back and see what may have gone wrong in the Democrats’ plan to pass a major health care reform package before this week had passed. Most people tend to focus on the policy and the intrigue of ‘the fight’, but I think the failure to pass this bill is more a tactical one rather than mistaken policy or lack of potential votes.

Polling on the issue has been fairly  consistent. A majority do want health care reform this year, but while a majority is willing to pay more in taxes for better coverage, they care more about lowering costs than expanding coverage. A large majority support a public option that competes with private insurance, but an even larger majority are actually satisfied with their current coverage. This creates a situation where people are wary that government coverage may lead to rationing and will lose the relatively free choice they currently enjoy in their health care options now.

Much of the debate has circled around how to try and pay for this health care reform, so it doesn’t lead to more debt. I suggested one way to help pay for some of it, but I am not aware of the idea of taxing the consumption of unhealthy things as a source of funding being discussed as an option (although polling shows the public supports the idea). The idea of taxing the wealthy is still popular and will probably be included in the final bill to pay for part of it. A big wrench was tossed in the gears when the CBO announced that the cost savings touted by Democratic leaders really didn’t exist.

Perhaps as much attention has been given to a coalition of conservative and moderate (or centrist if you prefer) democrats who hold the swing votes to push this piece of legislation over the hump into passage. They’ve been leveraging this situation to push for modifications that lowered costs and squeezed more savings from the system itself before adding taxes on the wealthy or taxing more high cost benefits. The latter idea has hit a brick wall, since some labor unions have extremely good benefit packages that they have negotiated for over the years that would fall into the category of taxable benefits in some of the proposals.

The tipping point for this legislation stands here, at the junction between the more liberal Democratic Party leadership, the so called Blue Dog Democrats and the independent and moderate Republican constituents they need to get reelected. If I had to point out one thing that has had the most detrimental effect on the march towards passage, it would be the misplaced attempted strong-arm tactics against these Democratic swing votes.

When confronted with a powerful enemy, do not fight them head on but try to find their weakest spot to initiate their collapse. This is the weak overcoming the strong.

-Sun Tzu, from The Thirty-Six Strategems

An illustrative example of this fell into our lap yesterday, with moderate Democrat Ben Nelson, of Nebraska (where I live), lambasting ads leveled at him by Howard Dean’s Democracy for America (DFA). I was pretty surprised at how poorly executed the ads are, but the same tired attacks are being leveled at Nelson, that are being leveled against other swing votes across the country, are what make the ads so ridiculous.

We begin with the perennial attack you can level at any politician regarding who donates to their campaigns. Pretending that you know that he’s doing what he’s doing because of who his donors are, rather than the distinct possibility that he’s doing it because many of his constituents (including myself) asking him to slow down passage of the bill, look for more cost savings and make sure we don’t rush this, is plain idiocy. Nobody can read his mind, and I’ve yet to see any evidence that the guy is any more corrupt than any other politician. I would be pushing for many of the same modifications if I was in the senate, and I (unfortunately) don’t get millions of dollars given to me each year by anyone.

Then there is the time pressure argument, that we need to pass this legislation now. I can’t disagree with this sentiment more. If anything we should slow down further still, with more and more coming out as to mistaken estimates of cost savings and details of proposals being made more clear. There is no artificial timetable you can set on something like this, it needs to take however long it takes to be reviewed in great detail.

Regardless of what you believe, this sort of push only works when you have a majority of the public with you. It would work if he was in a weak position, but he’s not. This is Sun Tzu 101 stuff here… you don’t mount a full frontal attack on an enemy in a fortified position unless you have vastly superior forces. Like it or not, the Blue Dogs have the high ground right now.

The groups that are pushing for this with these tactics need to look in the mirror to lay blame when they look back and wonder why they weren’t able to get some of the things they wanted when this finally moves to passage. A public plan pegged on Medicare, with that panel slowing the rate of cost growth, would have saved us an amazing amount of money over the years, and I think the Blue Dogs and Moderates would have been convinced to support that with more work on cost savings and less political pressure. The pressure from liberal groups force them to fight back very publicly, so they don’t look like they are towing the liberal line to the independent and moderate republican supporters they need to get reelected.

Sun Tzu would have advised these groups to use the same tactic that PHARMA used once they saw that a health care bill of some kind was going to pass whether they wanted it to or not. The choice was to go in early, get a seat at the table and get a better deal by offering concessions from the start, or fight a losing battle later on and get stuck with a much worse deal. These groups demonizing Blue Dogs and moderates are doing precisely opposite what they should have done. They should have realized the situation early and negotiated a way for them to show their constituents that they fought for cost savings, like the Medicare panel, which instead took months of fighting to accomplish.

Sun Tzu would have told these groups that they should ‘remove the firewood from under the pot’. Instead of fighting the Blue Dogs head on, they could have weakened their resistance by working with them from the start, rather than turning a soft ally into a potential enemy with these tactics.

This is Danielle Ivory, reporting from the American News Project and Alternet.

Back in February, in the House Financial Service Committee, when asked a question about the value of Citigroup’s assets, CEO Vikram Pandit provided a less-than-clear response: “It’s an extraordinarily difficult question.”

Click the video below to WATCH the exchange between Rep. Louis Gutierrez (D-IL) and Vikram Pandit.

Rob Weissman, director of the corporate watchdog group, Essential Action, and author of a new report called Sold Out: How Wall Street and Washington Betrayed America, said that, in addition to what Pandit said, there’s an additional factor that could fog the test results: off-the-book assets.

“If you don’t include the off-balance sheet assets in the stress test, then it’s not a legitimate stress test,” Weissman said. “It’s pretty plain that the off-balance-sheet operations are a central part of the story of why we don’t know what the banks own.” The Treasury Department declined to comment on whether they would take off-book-assets into account when running the stress tests.

Weissman says that recipients of bailout money, like Citigroup, Bank of America and JP Morgan, have been engaging in “fanciful accounting” of what they owe and what they own by relocating of their less-than-healthy assets off the books, in shadow corporations. Rep. Brad Sherman has described the process as, “apples on one balance sheet and oranges on another.”

According to RGE Monitor, off-balance-sheet operations have skyrocketed over the last 15 years. From 1992 to 2007, on-balance-sheet assets grew by 200 percent, while off-balance-sheet assets grew by 1,518 percent. In 2007, it was estimated that there was 15.9 times more money parked in off-balance-sheet operations than in on-the-book operations. Not all off-book assets are toxic. Some financial institutions might park assets off their books if they are planning, for instance, to sell them. However, in rough economic times, off-balance sheet accounting allows banks to veil their losses from investors, regulators, and even insiders.

“This turns out to be a really important benefit [for a bank] if it happens to be insolvent,” Weissman added. “And many believe that if you total Citigroup’s assets and liabilities, it is insolvent.”

As of July, Citigroup appeared to have the most off-book assets — an estimated $1.1 trillion. But they aren’t alone. As of July 2008, JP Morgan Chase & Co. had more than $400 billion off their books. Bank of America had $48.2 billion off the books before it bought Merrill Lynch. “If you start adding up all the potential exposures, it’s a huge number,” Sam Golden, former ombudsman for the U.S. Office of the Comptroller of the Currency, told Bloomberg. “The banks will say that it was disclosed. Investors are saying, ‘Yeah, but it was cryptic.’”

Disclosure rules for off-balance sheet operations are notably less strict than those for assets on the books. Neri Bukspan, chief accountant for Standard & Poor’s told Bloomberg, “A lot of information tends to disappear.”

The use of the off-balance-sheet assets was a core part of the Enron scandal, where they were able to wrap debt inside of debt, using obscure corporations, so no one could track what they owed and what they owned. After the Sarbanes-Oxley Act of 2002 was set in place, there were efforts to address the problems with off-book assets. But after heavy lobbying by two main trade groups, the Securities Industry and Financial Markets Association and the American Securitization Forum, banks were given special exemptions.

In September of 2008 as the financial crisis was coming into full view, the Senate Baking, Housing, and Urban Affairs Committee held a hearing, discussing off-balance sheet operations. Senator Jack Reed recalled Enron: “This phenomenon of moving assets off the balance sheets is eerily familiar. We recall back in the days of Enron that its schemes to manufacture false profits included special purpose entities that conducted transactions off-balance sheet. The goal was to avoid financial reporting. While no one is necessarily suggesting scandals of the Enron kind, we cannot fail to admit the irony. We are dealing with a similar problem yet again, only six years later.”

George P. Miller, Executive Director of the American Securitization Forum, said that moving assets off-book back on to the books would cause dangerous swelling of balance sheets. He added, “There are many other steps that the industry can and should undertake to promote broader and better transparency about risk exposures in these vehicles, whether they are on or off-balance sheet.”

But Donald Young, former member of the Financial Accounting Standards Board countered, “We just had an investment bank [Lehman Brothers] go bankrupt with a fair value balance sheet that showed it had plenty of assets and liabilities. And it almost seems like financial reporting is out of control and not trusted and not believed in. And I think what we do here has got to establish transparency. If the transparency is such that we’re going to bring out some bad news that wasn’t there before, that’s a risk. But I think the benefits of reestablishing confidence in the markets will overwhelm that.”

The Financial Accounting Standards Board (FASB) are revising the rules so some off-book assets will have to be reported on the books. However, the changes won’t be effective until January 2010 at the earliest. In March at a House Financial Services Subcommittee hearing, Rep. Sherman complained about this lag. He told the chairman of the FASB, Bob Herz, “If you guys can’t act quickly and logically, perhaps the regulatory accountants need to act and depart from what is a somewhat illogical and certainly slow process that you’ve got.”

In the meantime, in a recent letter to his employees, Pandit has said Citigroup is having its best quarter since 2007 and the bank had conducted its own internal stress tests with positive results. But Weissman says something doesn’t add up. “Either they’ve done a lot of due diligence in a short amount of time that they hadn’t done before, or the stories are incompatible.”

Crossposted at Alternet.

After months of hand-wringing, bailouts and backlash, new GM CEO Fritz Henderson says bankruptcy is still a very real possibility:

The company, he said, has until June 1 to accomplish changes sought by the government, or it will be in bankruptcy. The 60-day deadline should be enough time, but if it becomes evident that the changes can’t be made by the deadline, GM could go into court sooner, he said.

“It doesn’t have to take 60 days. If it’s quite clear that we’re not able to accomplish what we need to do in terms of operational restructuring, reduction of debt on the balance sheet and what we need to do to accomplish these broad parameters of having a viable business, this will be a management judgment” reviewed by the Obama administration’s autos task force, he said.

Hopefully GM can find a way out of its tailspin, but the company is clearly worried they won’t be able to meet the new guidelines laid out by the Obama administration. Arguably, we should have worked with GM to find a bankruptcy solution months ago, rather than kicking the problem down the road.

By delaying what may be inevitable, we’ve left both GM and the government in awkward positions. The situation should have never gotten to the point where the President of the United States can force the resignation of the CEO of a publically held corporation. While the cries of “socialism” are hyperbolic at best, no one should be happy with the way the government has handled GM.

Perhaps GM can still avoid bankruptcy and the government bailout and meddling will prove to have been a distasteful but necessary step in saving one of America’s key industries. But I can’t help but think that, once again, we allowed a sky-is-falling mentality to prevent us from developing a solution that addressed the core problem.

Bernie Madoff scam artist action figure

In this economy, would you pay $149.99 for a Bernie Madoff action figure?

Would your answer be influenced if you knew it was a limited edition action figure?

Herobuilders.com is no stranger to controversy, brazenly giving G.I. Joe collectors the meanest enemies possible to wage war on — Saddam, Osama, Hugo Chavez.  Without bad guys, who are the good guys gonna fight, right?

But as brash toymaker Emil Vicale tells the Boston Herald, not everyone wants real-world evil (corrupt CEOs like Lex Luthor are fine) represented in the playroom.

“Everything we do offends somebody,” he says. “If you are looking for a company not to offend somebody, it’s not us.”

(Darren Garnick, who has an Apollo Creed bobblehead on his desk, can be reached at www.cultureschlock.com)

One of the few saving graces with respect to this legislation, which will devastate small, medium and domestic businesses in numerous industries, has been a recent opinion letter which held that the bill’s ban on phthalates would apply only to products manufactured after February 10 and not to pre-existing inventory that was manufactured prior to the statute’s effective date (products containing any amount of lead, no matter how unlikely to be “mouthed” by a child or to contain the legitimately dangerous lead paint, are not so fortunate). This exemption for some pre-existing inventory is important because without it, businesses would be forced to destroy products already on their shelves, even if those products were legal when manufactured. The exemption is particularly important to small and medium sized businesses because of how businesses of that size order and/or manufacture their products many months in advance in order to take advantage of bulk discounts; larger businesses can obviously turn over large quantities of inventory much quicker than small businesses and, moreover, were much more capable of being aware of this law’s potential effects as early as October/November of 2007.

The Natural Resources Defense Council, having solved all “Natural Resources Defense” problems, is apparently not happy with the Consumer Products Safety Commission’s issuance of the exemption for pre-existing phthalate inventory. As such, they have sued the CPSC to make sure the law, with its $100,000 minimum penalties, is enforced in as draconian a manner as possible.

In defense of this lawsuit, the NRDC’s spokesperson expressed little sympathy for businesses that will have to close:

The problems of the retailers and the toymakers are beside the point, Colangelo said. “Congress decided these toys are unsafe,” he said. “That’s critical here. […] We’re talking about something that Congress decided was unsafe and shouldn’t be on the shelves.”

So why are these products so particularly unsafe that it justifies forcing hundreds of businesses to close in the midst of a severe recession? “Because Congress said so.” And why did Congress say so? “Because they’re so particularly unsafe that it justifies forcing hundreds of businesses to close in the midst of a severe recession.”

Again, if ever there was a time for conservative blogospheric activism (although liberal and/or libertarian activism would also be more than appropriate), this would be it. Unfortunately, the Malkinized portion of the Right (also the most activist portion) is much more concerned with talking about the NY Times’ latest flub on the all-important issue of Caroline Kennedy’s qualifications for Senator, not to mention Obama’s amorphous ties to the equally important issue of who the 800th Most Corrupt Chicago Politician of All Time spoke with and when, to even be aware that this problem exists and can realistically be prevented.

(Cross-posted at Publius Endures)

PS – I promise my next post here at Donklephant will be on something other than this issue.

Ostensibly I self-identify as a libertarian, although I’m not terribly dogmatic and tend not to write much on the more common libertarian themes, focusing instead on taking a sober look at the relationships between interest groups (which I define broadly) and political parties, the way in which political coalitions are formed, and the way in which laws and regulations are affected by interest group politics.

My most recent piece at Publius Endures dealt with a piece of legislation that largely fell under the radar: the Consumer Product Safety Improvement Act of 2008, which I argued needs significant revisions regardless of your political viewpoint. I have a much better piece (read: actual journalism!) up as of this afternoon at the excellent conservative site Culture11. The act, passed with almost no opposition, appears to represent the confluence of good intentions gone wrong, poor legislative incentives, and bad economics, with the added bonus of being particularly devastating to small and medium-sized domestic businesses. In other words, as enacted, the legislation should offend the sensibilities of almost any ideology.

The basic facts of the legislation appear, at first glance, to be quite reasonable. In essence (and although it also addresses several other subjects), the legislation is a response to the imported toy scandals of 2007, in which several mass-produced toys had to be recalled for containing levels of lead far in excess of the legal limits. As a result, near-unanimous passage of the legislation was almost guaranteed from the start – after all, who wants to be FOR lead in childrens’ toys in an election year?

The problems arise in the actual details of the legislation, which are voluminous and, worse, vague. As I write in the Culture11 piece (please do go read the whole thing!):

The biggest problem, perhaps, is that the law implements a new third party testing requirement on every SKU number of every children’s product (including individual titles of children’s books), testing that can run anywhere from a few hundred dollars to tens of thousands of dollars, depending on the type of product. It is unclear how often this testing will be required; however, the wording of the legislation suggests that it could be as often as every outgoing shipment. What is clear, however, is that large imported shipments will only need to be tested upon their arrival in the U.S.

The new law also requires a new type of labeling on all children’s products, in which these products must be stamped with various information for tracking the product, including the date of production. While seemingly easy to comply with, this will actually require expensive retooling for manufacturing machines. The law further mandates that suppliers provide their distributors with certifications for each shipment of each product, a bureaucratic nightmare that many businesses will likely violate occasionally due to simple human error. Yet punishments for violations of the law are draconian — $100,000 minimum fines for each violation up to $15 million, plus possible criminal sanctions. In addition, it is still possible that the law will be implemented in such a way as to turn some pre-existing inventory into contraband when the law takes effect on February 10, 2009 (unless this changes, existing inventory would have to be discarded, immediately driving many businesses to close and/or default on loans).

The piece goes on to discuss the way in which this legislation was passed, and how free market advocates can prevent legislation such as this in an era where “deregulation” is a four-letter word.

For those answers you’ll have to read the whole thing, but I did want to discuss something here that was not relevant to my point in that piece.

One of the most amazing things that came out during the course of my research was just how little this law is going to do to improve toy safety – indeed, it will most likely make children’s products more dangerous by causing the CPSC to focus on catching paperwork errors instead of finding dangerous products. This is true even though the bill significantly increases the agency’s budget.

Even more amazing was just how easily Congress could have passed legislation that actually would have improved safety. The people I interviewed for the article agreed that one of the best things that could have been done in the wake of the toy scandal was to force the CPSC to better prioritize its enforcement responsibilities. In essence, one of the reasons so many lead-laden toys got through last year was that the agency treats most enforcement issues as being created equal (unless, of course, there’s a death involved). This encourages a focus on finding problems that are easily found, but are usually relatively harmless – things like paperwork errors, for instance. It’s the same type of problem Megan McArdle says faced the SEC with respect to the Madoff case. Instead of fixing this problem, the legislation actively makes it worse by giving CPSC more technicalities to enforce.

Another possible solution that was mentioned to me was the idea of “component testing.” Under component testing (which the CPSC actually is, apparently, considering in some form), you require testing only of individual components instead of the final product. This is less costly on a per-test basis and allows manufacturers to make multiple products using the same components. So, for instance, a small children’s book publisher would only need to test its ink, paper, and coverboard rather than having to test every single title.

Yet neither of these easy solutions was even considered by Congress. Instead, one of my sources told me that Congress’ response to just about any proposed changes or objections was, effectively, “the National Association of Manufacturers is on board, as are Hasbro and Mattel, so we don’t really care what you think.”

This presents a major problem for small business (unless one of the major parties adopts something akin to the position I advocated in my Culture11 piece), to wit: How do small businesses defend themselves against onerous laws and regs when they can’t get a seat at the table?

One obvious answer is to organize into a more focused advocacy group, but even this doesn’t always get you a seat at the table. For instance, so far as I can tell (though I’m not 100% certain), the Apparel and Footwear Association (which, unlike other advocacy groups, is not dominated by its biggest members) did spend a substantial amount of effort pushing for changes to the legislation. Yet none of those changes made it through, suggesting they received essentially the same response.

And, finally, some breaking news. I just now found out that the National Association of Manufacturers (which supported the legislation) is petitioning the CPSC to implement regs that would eliminate a lot of the hardship to be caused by this law. I have to think about what this means…but I don’t think it’s inconsistent with the explanation I gave in my C11 piece.

(Excerpts cross-posted at Publius Endures)

With so much negative sentiment about the “Big 3″ and the bailout, I thought I should start this post with something positive. I’ll have even more positive things to say about Ford later, but first – the bailout. Not much positive there. On Wednesday, the House of Representatives voted 237 – 170 to pass the Federal Auto Loan Bill. Friday, the Senate failed to reach the needed 60 vote threshold to pass the bill by a vote of 52 “for” and 35 “against”. 10 Republicans voted for it. 8 Democrats did not vote for it. It failed by 8 votes. Somehow this was widely reported as Republicans blocking the bill. Go figger. Personally, I don’t care how it got stopped as long as it did.

For at least one GM retiree, Michigan resident and blogger, the failure of the bill could only be blamed on one thing – Senator Richard Shelby and the State of Alabama. Of course. His call for a boycott of Alabama, has actually garnered quite a bit of media coverage. Of course.

Then late Friday we learned that our lame-duck President and the Bailout Czar (in yet another extra-constitutional working weekend maneuver) are going to give them our money anyway. Quite a roller coaster ride.

Stephen Green at Vodkapundit sums it up nicely (Warning – Green’s graphic includes gratuitous use of the “s” word):

The merits of a “Detroit 3″ bailout has been debated here at Donklephant ad nauseum. Since I have already weighed in, I won’t repeat those arguments here. But there is one point that seems to get lost in all the discussion and is even reinforced in Green’s otherwise brilliant ad spoof.

The question should not be framed as whether the “auto industry” or the “Big Three” should get taxpayer money. The point is that these three companies are not the “auto industry’ and are not even the “domestic auto industry”. Arguably, Toyota makes cars with more American content and labor than do any of the “Big 3″. Moreover, the “3″ are not monolithic, do not have the same operational structure, do not have the same financial needs, do not make the same cars, do not have the same competitive status and they should not be lumped together in this debate. These companies are competitors. So instead, lets consider them separately.

GM is a basket case, plain and simple.

• In 2007, Toyota sold 9.37 million vehicles.
• In 2007, General Motors sold 9.37 million vehicles.
• In 2007, Toyota made $17.1 billion.
• In 2007, General Motors lost $38.7 billion.

Source:Mises Blog (H/T Crossing Wall Street)

GM has massive manufacturing overcapacity in workers and plants compared to to the number of cars they have sold recently, are selling now, or have any realistic expectation of selling in the foreseeable future. Nothing short of a chain saw restructuring can make them viable. It is not the kind of cars they make. It is not their quality. It is their business model. It is their labor costs. It is their excess capacity. The only rational way they can accomplish the radical restructuring they need will be under chapter 11 bankruptcy protection (as recommended by Nobel prize winning economists). Every penny they get from the taxpayer between now and that inevitability is money thrown into a bottomless pit.

Chrysler was taken private by Cerberus, which is one of the richest and best connected private equity firms on the planet. Doug M and Michael W at QandO have been beating the drum on the Cerberus issue for a couple of weeks. The story is getting some traction in the mainstream media and other blogs. This example from Forbes and the NYT:

This stinks to high heaven. The Kabuki theater in Washington has nothing to do with “saving Chrysler”. Nothing. It has everything to do with asking taxpayers to bailout the Cerberus investors and save them from extending any additional risk to support their own speculative investment.

That brings us to Ford, and a ray of hope. Don’t get me wrong. Ford CEO Alan Mulally did not cover himself or his company in any more glory than the rest of the bozos in either of his two appearances before Congress. But this week, with the help of the great-grandson of the man who founded the company, Ford finally got it right:

Proponents of the bailout bill make much of the argument that consumers will not buy a car from a company operating under Chapter 11 protection. Given the publicity of this debate, and the indisputable fact that this bridge loan will do nothing more than bridge the time until GM asks for much more money in March, that argument is becoming moot. Would you buy a car from a basket case of a company that refuses to face reality and take the strong medicine they need to survive? From a private equity firm without the balls to back their own investments? Or from a company that has already taken the right steps, has figured out a plan to weather the storm, and also happens to make some really great cars? A company like Ford.

If Ford declines the taxpayer money, Ford deserves the support of American car buyers. If GM and Chrysler take taxpayer money, they do not deserve the support of American car buyers.

Polls show that a majority of Americans oppose taxpayer dollars being used to support the Detroit 3 bailout. Perhaps a better idea than boycotting Alabama, is to boycott any company that takes taxpayer funds against the wishes of the majority of American taxpayers.

In my dreams, Americans take matters into their own hands. In my dreams, Americans begin to apply the discipline that our representatives in Washington and our President did not. In my dreams, Americans vote with their wallets and stop buying products from any company that solicit government bailouts. This might be tough to do with the banking industry which has effectively been nationalized, leaving few choices. But it is certainly something that Americans can do when choosing to buy a car between Ford, Chrysler, and GM.

I drive a 1999 Jeep Cherokee that I purchased new from a Dodge/Chrysler/Jeep dealer ten years ago. I thought I would replace it next summer. With all the great deals being thrown around, I may move that purchase up. I love that Jeep, it has been a great car for me. But if Chrysler/Cerebrus takes Federal money – I won’t buy another Jeep. If Ford declines the loan, I’ll be a Ford man now.

FWIW – in a small token of support for Ford doing the right thing – I thought I’d show them some love and offer up some of Justin’s blogspheric real estate for a little free advertising. This is a great American car company that builds great cars, is capable of making tough decisions in a tough market, and can run an automotive business without picking the pockets of the American taxpayers. Unlike GM. Unlike Chrysler.

Boycott Chrysler/Cerberus. Boycott GM. Buy a Ford.

Want fast? Consider this ….
Ford Shelby Mustang GT 500

Need a truck? Consider the ….
Ford F150 Pickup Truck

Going off road? Consider the …
Volvo XC70 SUV Crossover
I’m going to look at this one to replace my Jeep.

Going green? Consider the …
Ford Escape Hybrid

The Ford Shelby Mustang kicked the GM Corvette’s butt when I was in high school in 1967, and with the decision to decline government bailouts, Ford is still kicking GM butt today.

^{X-post excerpted from “Divided We Stand United We Fall“}

With newfound bailout money in their wallets, big banks have been rushing to gobble up smaller ones. At the center of these mergers is the Treasury Department, led by Goldman Sachs alums Henry Paulson and Neel Kashkari (you might remember his Ferrari, recently profiled on Gawker.) While neglecting struggling homeowners, they have created major incentives for widespread bank consolidation, which could lead to a host of new problems. And, as members of Congress recently noted, Treasury officials seem to be making the rules up as they go.

http://www.americannewsproject.com/videos/181

Follow Danielle’s reporting on twitter.

Follow Lagan’s reporting on twitter.

While the extravagant retreat did not include employees from the troubled financial services division, how on earth could these men and women partake in wining, dining and spa treatments when they know how much their company has cost taxpayers and investors? Even if you argue that this is exactly the time a distressed company needs to rally its employees, can’t you have a meeting at Holiday Inn and a happy hour at Chili’s?

Lawmakers are incensed. Barack Obama all but called for AIG heads to roll. And the rest of us are left with yet more proof that what caused this mess was not just a few bad mistakes but an entire culture of undue privilege and no accountability.

It’s going to take more than a flood of government money to wash away those problems.

Why does that make sense? Well, the strategy here is that if it shows up on the list, that’s pretty much all the marketing they need to get the author on talk shows and therefore jump start the marketing campaign.

Now some conservative authors are suing one of these publishing houses for royalties from the “sales” of their books, thus exposing the publishing house for the raconteurs they are and the conservative authors as, well, not too bright.

From The New York Times:

Five authors have sued the parent company of Regnery Publishing, a Washington imprint of conservative books, charging that the company deprives its writers of royalties by selling their books at a steep discount to book clubs and other organizations owned by the same parent company.

In a suit filed in United States District Court in Washington yesterday, the authors Jerome R. Corsi, Bill Gertz, Lt. Col. Robert (Buzz) Patterson, Joel Mowbray and Richard Miniter state that Eagle Publishing, which owns Regnery, “orchestrates and participates in a fraudulent, deceptively concealed and self-dealing scheme to divert book sales away from retail outlets and to wholly owned subsidiary organizations within the Eagle conglomerate.”

Some of the authors’ books have appeared on the New York Times best-seller list, including “Unfit for Command: Swift Boat Veterans Speak Out Against John Kerry,” by Mr. Corsi and John E. O’Neill (who is not a plaintiff in the suit), Mr. Patterson’s “Dereliction of Duty: The Eyewitness Account of How Bill Clinton Compromised America’s National Security” and Mr. Miniter’s “Shadow War: The Untold Story of How Bush Is Winning the War on Terror.” In the lawsuit the authors say that Eagle sells or gives away copies of their books to book clubs, newsletters and other organizations owned by Eagle “to avoid or substantially reduce royalty payments to authors.”

Heh, yeah, that’s why they wanted to do it. They sold them to fake entities to avoid paying them royalties. OR, they sold them to fake entities to make the books seem more popular than they were. I’m going with the latter.

More…

In Regnery’s case, according to the lawsuit, the publisher sells books to sister companies, including the Conservative Book Club, which then sells the books to members at discounted prices, “at, below or only marginally above its own cost of publication.” In the lawsuit the authors say they receive “little or no royalty” on these sales because their contracts specify that the publisher pays only 10 percent of the amount received by the publisher, minus costs — as opposed to 15 percent of the cover price — for the book.

Mr. Miniter said that meant that although he received about $4.25 a copy when his books sold in a bookstore or through an online retailer, he only earned about 10 cents a copy when his books sold through the Conservative Book Club or other Eagle-owned channels. “The difference between 10 cents and $4.25 is pretty large when you multiply it by 20,000 to 30,000 books,” Mr. Miniter said. “It suddenly occurred to us that Regnery is making collectively jillions of dollars off of us and paying us a pittance.” He added: “Why is Regnery acting like a Marxist cartoon of a capitalist company?”

It sucks to be a hack!

More twisted logic from the administration that keeps me in stitches nearly every single day.

From IHT:

WASHINGTON: The Bush administration said Tuesday it will fight to keep meatpackers from testing all their animals for mad cow disease.

The Agriculture Department tests fewer than 1 percent of slaughtered cows for the disease, which can be fatal to humans who eat tainted beef. A beef producer in the western state of Kansas, Creekstone Farms Premium Beef, wants to test all of its cows.

Larger meat companies feared that move because, if Creekstone should test its meat and advertised it as safe, they might have to perform the expensive tests on their larger herds as well.

The Agriculture Department regulates the test and argued that widespread testing could lead to a false positive that would harm the meat industry.

A federal judge ruled in March that such tests must be allowed. U.S. District Judge James Robertson noted that Creekstone sought to use the same test the government relies on and said the government didn’t have the authority to restrict it. -
A federal judge ruled in March that such tests must be allowed. The ruling was scheduled to take effect June 1, but the Agriculture Department said Tuesday it would appeal, effectively delaying the testing until the court challenge has played out.

So wait…they don’t want to make absolutely sure that our meat supply is safe, they just want to make sure that the industry’s image doesn’t get harmed.

One word: furious.

So what do I know? I know that people on both sides of the political divide have sought to take advantage of the situation. While that isn’t necessarily wrong, it is indicative of a much larger problem in our society. In the broadest sense, it’s the oversimplification of us versus them…good versus bad.

To make my argument, the best example I can offer is from the 2004 presidential election and the circumstances surrounding John Kerry’s military service in Vietnam. At the Democratic convention, Kerry made his oft quoted announcement, “Reporting for Duty”, and so began a series of volleys intended to frame the issue for the voting public. The two choices offered were that he was either a courageous war hero who risked his life for his fellow soldiers and then focused his energy on opposing a war that was wrong…or he was a cunning opportunist who crafted his actions to garner the accolades of a heroic soldier in order to provide him with the vehicle to make inflammatory accusations about the war and his fellow soldiers to promote his own political and personal gain.

Back to Imus. There is no doubt that his actions triggered this mess. His derogatory comments about the Rutgers women’s basketball team were ignorant and inflammatory. His words were immediately met by a barrage of criticism and that is as it should be. In short order, MSNBC acknowledged the inappropriateness of his remarks and suspended him for two weeks. As an outside observer, that certainly seems warranted.

So now what? Well, this is the point at which it gets tricky. This is the juncture at which the situation becomes larger than the sum of its parts. This is where it becomes less about Don Imus and more about ideology and advantage for those in search of opportunities to engage in the dialogue of us versus them…good versus bad…from positions that have eclipsed the essential considerations of those involved in and impacted by the transgression. It’s not surprising and it’s nothing new…but it is wrong.

Let me attempt to explain. Fortunately, today’s headlines provide a relevant example…the dismissal of rape charges against three Duke University La Crosse players. By all accounts, the local District Attorney sought to manipulate the system and the media to further his own agenda…regardless of the intended purpose of his office…to determine the guilt or innocence of the alleged perpetrators.

First, my own mea culpa. When it was reported that one of the accused had previously been involved with, and charged in, a gay bashing incident, I felt justified in doubting the assertions of his friends and family that he was incapable of the alleged rape. In my own way, I wanted to punish him and all those who would commit crimes against gays…and I made the rape incident about more than those charges and the guilt or innocence of those alleged to have committed those specific charges.

Read the full article at Thought Theater…here:

www.thoughttheater.com

As the story notes, this is not an entirely selfless act. Some of it is PR, attempting to repair the damage done by a lawsuit over AIDS drugs a few years back. Some of it is marketing, establishing a presence in markets where GSK may hope to sell other drugs down the road.

Nor is it a solution to finding cures for “neglected” diseases — illnesses that occur solely in the developing world, and thus have no rich-nation market that can be charged higher prices to pay for the development costs. Companies cannot be expected to routinely write off $400 million for the global good.

But it is a sign that pharmaceutical companies are waking up to the complex world they operate in, and that profit motive is not the only valid consideration for their research efforts. GSK is doing an extraordinary thing, and millions of lives will likely be saved because of it. Good for them.

You can read my take on Walmart, class and the Democrats over at NeoMugwump.

Jack Whelan:

Thanks to Amba for inviting me to respond to those of you who take exception to my posts about Normal USA and Whom the Gods would Destroy. The negative reactions come from either misunderstanding my intent or from fundamental disagreements. I’d like to address the latter; I think Amba herself did a pretty good job of trying to address the former. My goal is not to convince anyone I’m right, but only to lay out my case in such a way to promote some serious discussion about bridging a gap between two fundamentally different world views. I challenge you; you challenge me. Deal?

So I think the best way to go about this is to lay out several propositions, any one of which could be developed into a full-length essay. Challenge me on any one of these, because if you disagree with my conclusion, it’s probably because you disagree with one of these propositions. This might help to give the discussion some focus. So here goes:

First. To live in society means to live in a state in which people restrain their liberty for their own and the common good. The best societies are democratic because people get to develop a consensus on the nature and extent of those restraints. To live in “the state of nature� is to live in a state where everyone is technically free until they run into someone who wants to enslave them. Hegel is the guy who worked out the whole master slave dynamic as it operates in pre-social situations. In the state of nature, might makes right. The powerful dominate the weak. In the state of nature, freedom is something only the powerful really possess. The powerful work hard to aggregate power to themselves, and they are free only until they meet someone more powerful who succeeds in dominating them. The New Hampshire license plate slogan, “Live free or die� is rooted in this basic dynamic. The aristocrat of freedom is the one who chooses to die fighting rather than to submit to enslavement to save his skin. The duel is a vestige of it as well. The whole idea of entering into society is to develop more civilized mechanisms for working things out so the powerful don’t go round doing as they please to the not-so-powerful. In its most developed form this alternative is called the rule of law.

Second. No one likes living with constraints, and we all chafe under them. It’s frustrating, and it’s a hassle. People seek wealth and power because the wealthy and the powerful live with fewer constraints. People who have power tend to abuse it. Why? Because they can, and that’s the whole point of getting it, to act with as few constraints as possible. And to be able to act without fear that anyone is going to stop them. One could argue that this desire is fundamentally a form of infantile narcissism, but I’ll leave that alone for now. The only point that needs to be made here is that it exists and it is a cause for all kinds of social pathology. Societies develop laws, mores, and norms which are designed to put constraints on pathological behavior, and the rich and powerful will always use their wealth and power to loosen things up when it comes to the constraints that they have to live with. They have the resources to make it happen if the rest of us let them.

Third. To be a conservative means to conserve. It’s not the same thing as being a man or woman of the right. To be a rightist means to lean toward the authoritarianism in which might makes right, i.e., to lean more toward the end of the social spectrum that is closer to the state of nature in which the exertion of power is the highest value. To be a rightist means, by extension, to celebrate the glories of the military and the control powers of the police which work to do the will of the powerful. To be a conservative, on the other hand, means that you lean toward the rule of law and the preservation of cultural mores and values. I consider myself to be a conservative in the Burkean tradition. Burke in his famous work on the French Revolution decried the Jacobin mentality that led inevitably to the social chaos known as the Terror. The Jacobins’ mistake was the mistake of all social engineers since, that they could systematically dismantle the old system and create from scratch a new one�mostly all that does is create more problems than it solves. I am against Jacobinism in all its forms. I am a subsidiarist, which means that I am against all top downism. I think that initiatives (except in national emergencies) should come from the bottom up, which is the way it should work in a democratic republic. So I would like to dismiss any idea that I am a socialist, if by socialism is meant the top-downism of command economies, Maoist cultural revolutions, legislated moral behavior, or nation building.

Fourth. Classical Liberalism in the economic sphere was an ideology which was developed to liberate a new class of capitalist investors from the constraints of mercantilism, the early modern top/down command economic system. Liberalism became associated with the whole cultural shift from medieval aristocrat-centered feudalism to modern bourgeoisie-centered democratic capitalism. Liberal had a progressive meaning in its early stages because it was about progressing beyond medievalism, and later it was associated with the policies that were about progressing beyond the social brutality of 19th Century unrestrained classical capitalism. Classical liberalism unleashed an unprecedented new social dynamic in the world which Schumpeter later called creative destruction. It created unprecedented wealth, technological innovation–and social dislocation and chaos, especially for those whose lives had been agriculture-centered. There is hardly anyone who will dispute that the transition from a traditional society to a modern capitalist society is brutal. Is there any one who would argue that it has had a tremendously destructive effect on traditional societies and the values that came with them? And is there anyone who will argue that the behavior of the early winners in this transition followed the logic described in item #1 and 2 above? Social Darwinism emerged as the ideology which justified this survival of the fittest mentality which was just the old law of the jungle rule, which is that the powerful dominate the weak. This system reached its high point in the period between 1870 and World War I. This early form of capitalism was pretty much as close to being back in the state of nature as modern societies ever got. Something had to give.

Fifth. In the social chaos that followed WWI, two great threats emergedâ€â€?fascism and communism. Social democracies, first in Sweden, then the New Deal in the U.S., then the Popular Front in France and so on were developed as a third way. According to point three above, neither fascism nor communism is conservativeâ€â€?they were both centralized command systems that sought to reengineer their societies. All three were attempts to deal with the failures and chaos created by 19th century laisser faire capitalism. Social democracy, I would argue were relatively speaking, the conservative solution that naturally evolvedâ€â€?in the Burkean sense–in democratic societies in response to the brutality and social chaos created by 19th century classic capitalism. Fascism and Communism were the Jacobin alternatives.

Sixth. Americans are human beings and as such we behave no differently than anyone else. The presumption ought to be that Americans who have enormous wealth and power will behave like everyone else in history who have had it, which is that they will abuse it, and that they will do what they can to get more. If Social Darwinism was their mythos in the 19th Century. Ayn Rand Libertarianism is their mythos in this country at least since 1980. As point #2 states above, no one likes living with constraints, and Libertarianism is the ideology of no governmental constraint. But the problem lies in that taking the no constraint argument to its logical conclusion, you’re back in the state of nature. In the state of nature the strong dominate the weak.

These are some questions I put to you, dear Libertarian Ambivablogistas: Do you or do you not agree that the underlying agenda of the GOP since the Reagan revolution is to return this country back to the pre-New Deal era? If you say no, give me evidence, because the evidence for yes is pretty strong. Second, if we return to the pre-New Deal era�if we privatize everything, deregulate whenever an industry lobby demand it, reduce taxes to starve the beast so it has no muscle, what means will you have to protect you and your family when the world is dominated by corporations who can act without any counterbalance to restrain them? Do you really want to return to 19th century power arrangements? What makes you think we won’t if this reactionary agenda is successful? The problem is not big government, but who controls it. And we ordinary Americans have been pretty much sitting around and just let it be taken from us. And the result is legislation like the Medicaid Prescription bill. It now serves the interests pretty much of the already rich and powerful.

So where does the real threat come from? Every system can be abused, but the question for me is in which system do the abuses have the most potential for harm. In which system are abuses more likely to be redressed? Libertarians are afraid we’re going to become Soviet Russia, when it is far more likely we are moving toward becoming something like oligarchic Mexico or Brazil.

I’m for evolution�that’s what the word progressive means to me. I’m for slow steps forward, keeping what works, improving what doesn’t, but moving forward. The Reagan/Norquist/Libertarian program is based on a devolutionary state-of-nature agenda. It benefits the already rich and powerful and strips away the tools that ordinary people have to protect themselves from the predations of the rich and powerful. What part of this am I not getting right? To me nothing could be more obvious. So if it is I who is befuddled and delusional, make your case. Give me some evidence or a coherent argument. Because I haven’t heard it yet.

            ~ Jack Whelan

Cross-posted at AmbivaBlog and After the Future

So said Ken Lay after his conviction on fraud and conspiracy charges relating to the collapse of Enron. Shocked? Really?

My theory is that he really doesn’t believe he did anything wrong because he never intended anyone to get hurt.

If someone breaks into my house and takes everything I own, they know they are robbing me blind. But when a CEO and other top executives choose personal greed over employee and investor welfare, they don’t intend to hurt anyone. So does that make Lay’s crimes less severe than those of a burglar?

Hell no.

Whether or not Lay intended harm makes no difference. His actions were like those of a drunk driver who kills a family. The drunk had no intention of hurting anyone but we still throw the book at him because his negligence was of the most deplorable sort. Like the drunk who chooses personal pleasure and convenience over concern for all others on the road, Ken Lay chose personal success and wealth over concern for the employees and investors of Enron.

The result of his actions were tragic. The punishment is warranted.

But I do want to add: to all those who claimed Ken Lay would never suffer justice because of his personal connections to the Bush family, please note that the system is not so malleable. Ken Lay didn’t walk. He’ll serve time just like every other criminal who gets caught.

And I, for one, am glad to live in a country where even the most powerful are not above the law. That might “shock� Ken Lay, but it should please the rest of us.

According to Wired, since the gag order applied only to “the EFF, its representatives and its technical experts,” and not to Mark Klein or any of the other news agencies, Wired was free to release the information they had. I’m not a lawyer of course, but I have a funny feeling that AT&T may try to sue anyways.

The interesting part though, is not that Wired released the documents. The interesting part is that, so far as I can tell, Mark Klein’s evidence basically consists of “AT&T installed a Narus STA 6400 in Room 641a.” Which basically doesn’t mean anything unless you know what a Narus STA 6400 is.

First, a bit of explanation of how the Internet works. The vast majority of internet traffic is transferred using a protocol called TCP, or Transmission Control Protocol. TCP works by splitting up the data that needs to be sent between two computers into “packets” — smaller chunks of information that are sent independently and reassembled on the other end. This allows for reliable communication across unreliable network infrastructure, because, if one packet is lost in transmission, and the receiving computer doesn’t acknowledge that the packet was received, the sending computer will automatically resend the data. That way only that tiny chunk of data will have to be resent instead of the whole thing. Even better, packets don’t have to be sent directly from the sending computer to the receiving computer. The underlying protocol for TCP — IP, or the Internet Protocol — allows packets to be relayed between several different computers before arriving at the final destination computer.

Now, back to the whole spying business… If you want to spy on everybody, everywhere, there’s really only one way to do it. You need to function as a man-in-the-middle. And if you want to do that, you need to locate the major hubs of communication and tap into them. This sort of thing is much simpler with circuit-switched networks (such as standard telephone calls) because all the information is basically sent in one go, across a single route for the whole transmission. But with packet-switched networks (the Internet), because they break everything up into chunks of data, if you want to get at that information, you have to first reassemble the packets.

Which is where the Narus STA 6400 comes in apparently. From what I can gather (there’s not much information to be had on the thing, for obvious reasons), Narus’s “Semantic Traffic Analyzer” technology reassembles the packets back into the full data that was sent, and is able to identify exactly what type of data it is, whether it be email, VOIP/Skype, P2P/filesharing, web-browsing, instant messaging, or streaming media.

Now, of course, there are plenty of reasons why a carrier would install one of these things, and by itself, evidence that AT&T had installed one probably wouldn’t mean anything illegal was going on. But there’s only one obvious reason the NSA would install one inside a secret room in a carrier’s headquarters. And that’s why Mark Klein is now the key witness for the EFF in their class-action lawsuit against AT&T for illegally working with the NSA on warrentless wiretaps.

What makes this whole thing especially alarming though, is that by tapping into AT&T, the NSA actually has access to much more than just AT&T customers’s data. Qwest was apparently the only major US telecom company that refused to work with the NSA on this program. So let’s say you’re a Qwest customer. You instant message a friend of yours who, unfortunately, is an AT&T customer. Because of the nature of IP routing, your traffic may very well have been routed through the NSA’s no longer very secret room even though you have no relationship with AT&T at all. According to Wired, ConXion, Verio, XO, Genuity, Qwest, PAIX, Allegiance, AboveNet, Global Crossing, C&W, UUNET, Level 3, Sprint, Telia, PSINet and Mae West were all compromised as a result of the fiber optic splitters that were installed at AT&T. The claim that this is targetted surveillance is growing much harder to believe, though from what I’ve heard, a single Narus STA device would be unable to monitor all traffic through an internet backbone, so in this case we’re probably talking about specific subnets being examined.

By the way, Narus, by their own admission, is a <sarcasm>really delightful company</sarcasm>. They also appear to be the guys who are supplying the equipment that allows telecoms to stomp all over the concept of “net neutrality” and it seems that they’re the ones supplying the Voice Over IP identification and blocking equipment. (They help block VOIP to prevent “revenue leakage” of course.)

Here they delve into the Peak Oil question. According to their sniffers, the peak moment is coming, and soon, and that’s the consensus of people in the oil biz.

But, since this is a policy-based site, they’re interested in how Big Oil will “frame the issue to a public more concerned about $3.159/10 gas than anything else.”

Much like the climate change debate, on Peak Oil you have two sides with staunchly staked-out positions. Each side includes their own petroleum geologists, resource economists, energy investment bankers and multinational oil companies. Of course it is the latter we’ll listen to most closely, since they ostensibly are in the best position to know about a peak and perhaps to drive policy toward or away from it.

So what are the majors saying and doing about Peak Oil? Chevron is clearly embracing the tactic of warning the public so that when the public eventually sees the light, Chevron can say, “Hey, we’ve been telling you about this for a while!”

But not so ExxonMobil. XOM is taking exactly the opposite tactic: “With abundant oil resources still available … peak production is nowhere in sight.”

This difference in opinion has interesting parallels to how these two companies have approached other environmental issues over the past few years. Chevron has been running ad campaigns touting their environmental stewardship while Exxon has been pouring money into muddying the climate change science waters. Further, many assume that XOM is well-aware of climate change risk, but has their own internal logic and reasons to muddy the debate. If so, it parallels their attitudes on Peak Oil, for while they are running NY Times op-ed ads saying “peak production is nowhere in sight,” they apparently don’t really believe that themselves.

Thankfully, although positions are staked out on Peak Oil, there does not seem to be a Left/Right, Republican/Democrat slant on the positions, which may make political action easier if/when this issue’s time has come. And that might be the best indication that this isn’t a clear “winners and losers” issue. If the Peakists are right, we’re all losers.

Sounds like a call to action to centrist/moderate types. An issue that hasn’t been ripped into polarities by the partisan juggernauts. Rally, rally!

In many ways, Crunchy Cons sound like David Brook’s Bobos, only with a more overt party affiliation. Of course there are going to be conservatives who shop at Whole Foods, live in more urbanized areas and donate to the Nature Conservancy. The real question is, do the Crunchy Cons represent a significant shift within the Republican Party or are they just a previously unexamined subgroup?

Obviously that’s not a question I can answer, but one aspect of the Crunchy Cons does fascinate me more than the others: their distrust of large corporations. I’ve always found it odd that Republicans can be so mistrustful of big government and yet so blasé about big business. Any large organization runs the risk of abusing its power and causing suffering. But too often Republicans seem to think big business has only the purest of motivations.

Big businesses are amoral and the biggest of them can very easily cause more harm than good. For example, who exactly benefits by AT&T taking over BellSouth and firing 10,000 employees? And don’t tell me “the shareholders.� While stock ownership is a vital part of an open and robust economy, there is more to a healthy society than buoyant stock prices. Is the slight up-tick in our mutual funds worth 10,000 people’s jobs? Does stock ownership carry with it anywhere near the dignity and societal benefit that comes with having a job?

If Crunchy Cons really are a force to be reckoned with, it will be because they do not like what they see in the facelessness and amorality of multi-national corporations. We have not yet come to a crisis point where the excesses of big business are causing irreconcilable harm to our free markets and way of life. But given our blind reverence for these monstrously large companies, we could be headed down that path.

We can be very pro-capitalism and still constrain the excesses of these big businesses. But we have to start with an understanding that the problem exists and that it will likely take regulations and taxes to reign in large corporations who’ve become a burden on society and a roadblock to free market progress. Crunchy Cons could be the ones to lead the way if they can wean the Republican Party away from its current love affair with multi-nationals. What they do then, I don’t know. But just having a Republican Party that is cognizant of the problem would be a step in the right direction.