The Perfect Storm

Two major economic problems seem to be converging like the perfect storm.
The economic problems facing the EU as a nascent confederation and the economic problems facing the USA.

Pundits believe both problems arose because of greed, corruption, and mismanagement. Greedy bankers, corrupt politicians, lousy managers.

The derivative stuff has been analyzed to death. Regulators either not doing their jobs or looking the other way. Mortgage companies chasing the buck so hard they didn't see they were riding into a barbed wire fence. Heads of companies, and government agencies, who believed Alan Greenspan, remember him, when he said that derivatives were good for the economy.

Greenspan expected the financial market bosses to act like gentlemen. He forgot, they never have. Not in the days of the tycoons like Rockefeller, Gould, and Morgan, not in the days of Morgan Stanley, and Lehman Brothers, and not today.

That tsunami of bad loans brought down banks around the world, in the USA, and in Europe. One of the EU's problems today is the debt some of the European banks suffered in that mortgage pyramid scheme.

Worse, though, is the EU's mistakes. A couple of decades ago Ireland was a wasteland. Tractors were small, cars were old, farms were barren, and farmers poor. The Irish blamed the British, claiming that the Brits kept the price of Irish goods below the poverty line. Then came the EU and the ECB, with money to finance projects, allow farmers to buy and sell Irish goods in Europe at fair market prices.

One farmer was visited by an EU representative. The farmer was poor. But his sheep and their wool, and their meat, were being exported to the EU for good money. The EU guy found a stack of checks on the farmers desk. Checks the farmer didn't know what to do with since he'd never really been paid before, at least not by check, by the Brits. After he began cashing the checks the farmer was no longer poor.

Other businessmen applied for EU loans through banks approved by the ECB, banks recommended by government officials. Okay. That's their job, isn't it? Recommend businesses that will grow and boost the economy? Only that's not exactly what happened. Politicians and government officials got kick-backs for recommending banks, or their cronies, for loans. Loans which were never repaid.

Take the case of enlarging the tiny port in the Greek island of Foligandros, in the Cyclades. Only relatively shallow-water ferry boats can come into port. Actually a broad concrete pier about 50 meters long and ten wide.

Eva, the British-born owner of Eva's coffee shop, at the tiny port, said that the EU had lent money to the Greek government, and that government to a bank, and that bank to a contractor, who was going to expand the port, dig down and make the seabed deep enough to accommodate cruise ships.

Foligandros has no airport. has an area of about 32 square kilometers and Is only 10 km long. Has a population of about a 600 people. And 42 small hotels. Tourism is the main industry. Well, that's not true. Tourism is the only industry. In fact, Foligandros, like Greece really has no other industry.

The Greeks don't make cars, washing machines, or plastic hangers, like Turkey. They don't have high-tech or even low-tech. They have tourism.

Athens, according to observers, is a city that services the tourism industry around the country through accounting firms, banks, travel agencies, the airport, the ports, whatever. The schools, from bottom to top, produce people who will either work in the tourism industry, unless they're academics or soldiers, or leave the country. Or go on strike.

On the islands, the taxi drivers, the bellboys, the kitchen help, the cooks and waitresses and maids come from Albania or Bulgaria. Greeks, observers say, don't do manual labor.

Santorini, about 45-minutes away by ferry, has a population of about 14,000 people. In the summer the population can double in a single day when half-a-dozen cruise ships, each carrying over two thousand people, pull into the deep water ports. Skiffs then unload the passengers for their day of shopping and eating and touring, then bring them back. At nightfall the cruise ships bellow a loud goodbye and sail away.

In Foligandros the planned bigger port never got dredged. The contractor went broke. So what happened to the money? The money the EU gave to the government who lent it to the bank who gave it to the contractor? Gone.

This story, we were told, is common. In Ireland, Greece, and probably other countries. The old boys made money for each other and left the well-meaning EU folks with the check.

One analysts says this is the fledgling EU facing growing pains. Unlike the USA, with a long history of confederation, the EU is a relative infant. Should the EU geniuses figure a way to solve the problem of greedy bankers, businessmen and politicians, the EU may not only last, but become a dynamo.

Of course, with the USA as an example, keeping greed and corruption under control is no mean trick. Where were the regulators when the toxic derivatives were flourishing? Or to a lesser extent, when Madoff was ripping off his own people? Did these officials, entrusted with a watchdog role, fall asleep and let the burglars in, or were they paid to take a walk around the block while the house was stripped bare?

Some folks are saying that not every country is ready for democracy, for an EU. Greeks are striking in the streets. One man identified himself as a good tax-paying citizen, a firm member of the middle-class. He was striking because he thought the EU had no business telling him how much tax he had to pay. That was an internal Greek matter. He seems to stick his head in the sand when it comes to admitting that the Greeks borrowed the money and have to pay back the EU lenders.

Will the Greek attitude prevail? Will the hand out for more continue? Will the high unemployment continue? Will the Albanians and Bulgarians keep making money while the Greeks take unemployment checks?

The problems are in the city, Greeks told visitors. The wealthiest people are in the Islands. There is no poverty in the hinterlands, just in the cities. The traditional farms still provide a basic living. The tourist industry makes those involved wealthy. Those involved in services in the cities are the ones suffering, now.

And in some ways that is the same problem in the USA. If a country relies on one industry for income, pundits say, that is a recipe for disaster. In Greece there is not enough money from tourism to support the folks in Athens. In the USA most of the major manufacturing jobs have been outsourced to China, Turkey, and Mexico.

What this means, says one observer, is that both the USA, and those counties in the EU facing problems, have to go back to basics. Create jobs in more creative ways. Open factories. Stress buying local goods. Create an economy that beats with a healthy heart not one supporting a fat lazy body with clogged arteries.

If the EU and the USA don't get in shape, flush out the fat cats who are draining the system by reaping in cash through outsourcing but taking jobs away from those in their own county, corrupt officials knowingly giving out bad loans, okaying phony construction deals, looking the other way when 'derivative' schemes pop up, then the perfect storm may well form, wiping out society as we know it.

Where' s The Genius?

Genius is both objective and subjective. According to Harvard University Prof. Howard Gardner, a person can have genius for one thing, but not another. Albert Einstein had genius for conceptualizing solutions to physics problems, but might never have been a jet-pilot. Michael Jordan had genius for basketball but not for baseball. So is genius objective?

Jordan bulldozing over the opposition to score with those dazzling flights and dunks. Points rung up on the board. His genius could be measured. Einstein thought of a formula, designed a reaction, and then assisted as a bomb was constructed based on the theorem. The bomb was an objective fact.

Genius in art, however, is subjective. What one person finds beautiful, another finds repulsive, witness the two sides of the argument about modern art; or rock music versus classical music. Would primitive tribes in the Amazon find Michelangelo’s David beautiful? Would the snooty upper East Side New York society ladies and their spouses find stretched lips and mutilated ears of African tribeswomen beautiful, or disgusting?

Then there’s luck. Napoleon, was said to prefer a lucky general over a good one. Bill Gates, when he was working in his father’s garage tinkering with a new operating system, got lucky when IBM signed on to run the system without demanding to buy the exclusive rights to it. Had they done so Gates would have wound up an employee of IBM, and Microsoft would never have been born.

Recently, a top literary agent from Manhattan related a conversation with a top Hollywood studio head. The studio chief said, at the end of the year he’d made 100 decisions about films, choosing fifty out of a hundred to go into production. The studio head then surprised the agent by saying, had I chosen the other fifty rather than this fifty, the year-end income results would probably still have come out the same.

So what of those people in the fifty projects he turned down. Subjective decisions that influence a life, but not the big picture.

Then there’s the West Bank of the Jordan River. Recent statements in its annual report, the Association of Civil Rights in Israel (ACRI) pointed to "extremely worrisome trends at the center of which are violations of the most elementary human rights."

The report also noted that the situation in the occupied West Bank, between Israeli settlers and the local Palestinian population, was "reminiscent, in many and increasing ways, of the apartheid regime in South Africa."

The ACRI noted that since the foundation of Israel, the country's Arab citizens have been discriminated against though legislation and allocation of resources. officials have stated that Israel practices apartheid in that area.

Does that mean Israel actually does practice apartheid, or is it simply the subjective opinion of the person making that judgment call? ACRI has long been criticized as anti-Israeli pro-Palestinian.

Former U.S. President Jimmy Carter said the same thing last May. One would have to go deeply into the definition of apartheid and see if it applies only to situations in S. Africa, or see if indeed the term also fits the West Bank. Again, this is a subjective judgment since no empirical facts exist that can be checked off in a list.

NATO has floated the idea that a multi-national force deployed in the West Bank may be the best solution, but according to the Israeli media, Israeli security administrators would rather keep foreign armies out of the West Bank. They point to UNIFIL’s poor performance containing Hezbollah in Lebanon, and the history of the UN voting against Israel, or pulling out, rather than digging in, at the Egypt-Israel border when war was about to break out. Fleeing, rather than attempting to affect some sort of de-escalation of tension. About NATO, one Israeli source said that no foreign army is going to risk their lives to save either Arabs or Jews. That in fact NATO would only get in the way.

Israeli security officials claim that Israel’s consistent and constant battle against terrorism in the West Bank is what has kept that area relatively quiet. Israel routinely goes into Arab villages and towns and cities, conducting raids against “wanted terrorists.” Not a month goes by without notice of a “wanted terrorist” killed or arrested.

Is this apartheid? Perhaps it is. The S. African army routinely raided the black townships searching for activists who wanted self-rule. But is this the same as Israel’s search for “wanted terrorists?” Did the self-rule activists in S. Africa also wage terror campaigns? Strap on suicide belts laden with explosives and blow themselves up in the midst of crowded civilian centers? The comparisons are easier to make in a glib fashion than in empirical application.

Subjectively, from the activists on the Arab side, Hamas, Hezbollah, Islamic Jihad, Al Quaida, are freedom fighters. , Israelis and many on the West would see them as terrorists. How then will the newly appointed U.S. Secretary of State deal with the issue of the West Bank? And why, given all of the trouble in the world today, would solving the problems of the Middle East, specifically Israel and the Palestinians, be of primary importance? Is it because progress in the Middle East makes the history books? Leads to a Nobel Prize?

And who says the Nobel Prize is so important? Some prizes are given based on objective standards, the discovery of a gene that can lead to cancer; the formulation of a theory that influences the world’s finances. But what of three men shaking hands, making peace in the Middle East? When the peace fell apart did anyone ever ask that the prize handed to Yassir Arafat be returned? Was the prize given subjectively or objectively?

In a recent discussion with a CEO of a high- tech company, the issue of the US financial meltdown was a hot topic. The CEO said it would be the grandchildren of today’s Americans who would pay for the bailout. The American government had borrowed from the future to cover the debts of the present. On a subjective level, this seems a good decision. Without a solution to today’s problems, there might not be a tomorrow. The market can continue to plunge until there is no market. The employment picture can continue to turn dire until there is no work. The economy can turn so far down that the United States is no longer united. An apocalypse could occur without a rocket ever coming out of Iran, or Russia.

But what of that future? With the US economy in a deep recession, who is to say that there will be a future for the grandchildren of tomorrow? The US ability to produce and manufacture has slipped steadily since 1956 when 75% of all goods were manufactured in the USA, until today when that number is in the teens and only income in the abstract seems possible: profits from commissions on the sale of commodities and goods produced somewhere else. By providing so well for America’s workers, the unions and the workers destroyed their own jobs.

Can these trends be reversed? Can the US become a competitor in the manufacture of automobiles once again? Or will the designs be drawn up in Detroit and executed in Shanghai? Will President-Elect Obama’s plan to provide government-subsidized jobs to the unemployed break this downward cycle?

American genius has been in designs, widgets that became an integral part of modern life, from the light bulb, to the Model-T, to the computer chip. Without the development of new ideas that generate jobs and money for America, the power of America seems to be on a downward spiral, so much so that in a generation or two when today’s debts have to be paid off, there won’t be enough left of the US economy to make the payments.

Like the burden of the pensions on the auto industry, the burden of those debts will so cripple the economy of the next two or three generations that America as we know it will not longer exist. Russia, striving mightily to regain super-power status, along with China and India, will be in the ascendancy. Russia because of her surfeit of oil, China and India because of brainpower and masses of factory workers.

What America seems to need are big idea men, women with Amazon-sized concepts, all with brains twice that of Einstein, conceiving of, developing and manufacturing things the world needs. Not abstract profits from speculation in the stock market, but products that generate capital. Objective evaluations based on empirical evidence, not subjective guesses that seem right today, like Alan Greenspan’s guess that the financial sector would self-regulate, that turned out to be wrong tomorrow. There is no longer room for those mistakes. Americans have mortgaged our grandchildren’s future, and it is up to Americans to lay the solid foundations so that those future generations can make the payments. What America needs is to allow genius to flourish, and then hope there’s a lot of luck to go with it.