Why The US Economy Won’t Recover Under the Current Plan

It pains me to see the Obama administration failing so badly to comprehend the fundamental problem facing the economy. I fear the economic consequences and the likely political disenfranchisement it is likely to cause. I was an early Obama adopter, volunteered and gave money, and now feel like a fleeced sucker at a card sharp’s table.

There has been plenty of mainstream and blogosphere comment on the error of Obama’s ways – the retention of the Wall Street cabal, the bailouts of the rich by the middle class, the enabling of Wall Street corruption, and so on. No need to recite the history here.

The issue, it seems, is that the administration, and perhaps Obama himself, have fallen spellbound to the shiny gyrating watch of Wall Street, the Fed and the “big money” progenitors. They have failed to connect the dots, learn the lessons, and take the medicine.

Here it is in a nutshell. Small business, and by that I mean very small business, is the engine that drives the US economy. Big business is the leech that sucks its lifeblood. Yet the government sponsored programs, and the regulatory swords of its various agencies, tilt the playing field in the exact opposite direction. Small business creates jobs, big business outsources jobs. Small business pays taxes, big business is paid by taxes.

Here are the government’s own facts. The U. S. Department of Labor reports that 64% of all net new jobs from 1993 to 2008 from firms of less than 500 employees. US Census data indicates that 2/3 of job creation comes from new business that started within past five years.

The Small Business Administration takes it a step further. The SBA says 20% of all employment in this country operate with less than 20 employees. These are very small businesses. 40% of all employment is provided by businesses that employee 100 or less.

Yet we make it nearly impossible for small business entrepreneurs to get financed. The traditional sources:

1. Personal Assets, including credit cards. (But these have been eroded including access to credit cards.)

2. Home Equity. (Also eroded by loss of equity, failure of banks, credit freeze in secondary markets.)

3. Friends and family. (Equally limited and fearful.)

4. Accredited investors and angel investors. Issue here is that people already invested are being asked to keep existing investments afloat, so less new money.

5. Reinvestment of cash flow. But decreased business leads to decreased cash flow.

6. Venture Capital. Private equity firms typically look for positive cash flow businesses in their niche, but they are also worried about redemptions from their investors.

7. Banks. Credit lending standards have been tightened. Banks lend money to people that don’t need it and right now nearly every small business needs it. Problem also is that business that have roll over type arrangements. 36% tightened and only 2% loosened in the past 6 months. SBA lending is picking up.

Incredibly, the SBA doesn’t collect information on actual small business loans but instead looks at the Bank Senior Loan officer survey. The SBA estimates that 90% of all business financing comes in some sort of bank financing.

Yet banks don’t “finance” small business. They finance the entrepreneurs setting them up, largely based on FICO scores and, to a lesser extent, collateral. The SBA loan programs provide no direct loans. They provide partial government guarantees for commercial loans made by banks. To be eligible, a credit test requires that the lending bank certify they would not make the loan, at least on the same terms, without the guaranty.

Even with these guarantees, banks have simply found more profitable ways to make use of their available capital and 78% of surveyed loan officers recently cite said reduced risk tolerance. In short, the “trickle down” method of funding banks who, in turn, loan money to local enterprises had hit a structural impasse.

This leaves enterprising entrepreneurs with non-traditional credit like credit cards, and home equity lines. 34% of small businesses rely on credit cards for 25% or more of their financing. Of those that used credit cards, 41% reported reduced credit lines and 79% report worsened terms on the credit cards. Again, credit cards are simply a profit source for the banks and not a method of funding businesses.

The net effect is that small business is typically relegated to the owner’s credit resources. When those run dry, regardless of the stage of the business plan, the business must operate from cash flow. Ironically, the faster the growth, the more rapidly the cash flow is absorbed, creating the “gazelle” effect.

The conventional wisdom “yes, but” financiers like venture funds and angel investors are largely imaginary. A “mini-summit” by the law firm Jones, Day essentially concluded that these models were broken as well. A study by the University of New Hampshire showed only 5,000 venture fund financings for the estimated 2.1 Million startups each year. And even that figure is misleading, since many of the venture financings were “down round” for existing clientele and not infusions to fresh clientele.

Further, the venture model presumes that the invested capital will be “refreshed” every 5 to 7 years with the entire hold lastly no longer than 10 years. This is premised on very liquid markets available when the venture capital firm seeks its exit, but that isn’t happening.

Angels have a larger number, estimated at 46,000 transactions, but “angels” are so diffuse and ill defined that a significant portion of these transactions are likely relatives, partners and others not available to the small business community at large.

There is essentially no governmental response to this situation at all, except to the extent that it worsens the problems. Start up costs for small business absorb a vastly greater percentage of available resources.

One possible remedy might be equity capital for small business, but this is an area where the regulators, and their shadowy brethren alphabet soup private companies like FINRA and DTC effectively provide the nail in the coffin, along with the coffin, gravesite and single bullet for you to shoot yourself.

ETFS - The Next Wall Street Scam?

March 22,2009

You have to give the Wall Street thugs their due. Whenever they seem to have plunged all of us into bankruptcy, they just come up with something new to drain the last few drops of liquidity.

I remember the 90’s. I got a truly unbelievable call from my broker at one of the “big” name brand investment banks. He had a story that was too good to be true. He had an investment, a fund that was being put together for very special clients like me, that was just flat guaranteed. It seems that they had bought an insurance policy to insure against the investment going down. So if it went up, we collected the profit. If it went down, we simply made a claim against the insurance policy.

I remember this discussion vividly, especially how crestfallen he was when I rejected the idea. My words to him were “find out how to short that insurance company and I’ll buy into that.” Shorting, as you undoubtedly know, means you think the price will go down.

Turns out, of course, that there was no insurance company to short, no insurance policy, and it wasn’t appropriate for small investors like me to worry ourselves about such things.  That was my introduction to credit default swaps, the “financial weapons of mass destruction” as Warren Buffet described it. The non-insurance policy insurance policy was attached to a large, reputable insurance group to lend credibility to the scam. The Credit Modernization Act of 1999, signed by President Clinton, assured that the regulators would be shown the door. The head of the Chicago commodities board quit over it.

Now that the scam has come out of the closet, with some estimates as high as $600 Trillion, (yes that was a “T”) we can all have a good laugh and start over. Provided of course that they print enough money to make us think they is just another, predictable downturn in keeping with the gospel of supply side theory.

Now there is a new"investment" called ETFs. Again, I learned this from my own personal experience. ETFs are funds that “seek to reflect the performance, less expenses,” of some commodity. This way you invest in the fund instead of taking the massive, nearly incomprehensible risks of a futures contract.  You like oil, you can buy the ETF for oil and it’s almost like buying the real thing unless your car runs out of gas at which point it is utterly useless. You get the best of both worlds because you get to invest in a commodity but there is no expiration period like in futures and you can trade it like a stock.

The key word here, of course, is “seek.” In this case seek and ye shall not find. Knowing none the better I had the Wall Street brain fart and decided to buy in.

Based on the advisors that I read and trust, this looked like a pretty good investment vehicle to me. Oil, which I fully believed would rebound, was in the proverbial toilet, trading in the $30 to $40 dollar range after peaking at $140 just a few months before. Gold, one of the few investments where you have an asset without a commensurate liability, was in the doldrums trading water. Jim Rogers was pounding the table that silver was a better investment than gold.

So what better way to cherry pick the obvious over-reaction of the market than to go long on the ETFs for these commodities. Long, as you must surely know, means you are expecting the value to go up. What could go wrong?

First, let me dazzle you with my brilliance. On the day that I bought the oil ETF, just under four months ago, the underlying commodity finished the day at $35.30. Today it was $51.00. That is a $15.70 increase in just under four months a 44% increase. Annualized, it comes out to about a 144% gain.

Gold was $897 on the day I bought the gold ETF which is just over two months ago . Today its $952.60.  Annualized, it comes out to just under 75%. Silver didn’t fare as well. It was $13.00 when I bought in just over a month ago and only $13.60 right now so I’m only up $0.60. This translates to 55% per year.

Now let me tell you about the Lamborghini and villa on the French Riviera that I am about to buy. Provided I get a bailout or go to work for Goldman Saks.

According to my online broker, having ditched the high priced guys, I would have come out better, much better, with the mattress. Gold, having gone up at the staggering pace of 75% per year ince then, has only yielded a profit in the ETF of 5.25%. And that’s one of the good ones!

Silver popped up at a 55% pace – but I’m showing a gain of 13.81 %. Not terrible, but not at all in accord with the promised land I had believed in at the outset.

Yet the big winner was oil so it will all even itself out. Or so I thought. My oil ETF, my big winner so far with a monster 144% annualized return, is down 12.06%. You read that right – DOWN. If this “seeks” to reflect the performance of actual oil, it fails. - miserably.  They all fail big time. While it looks a little better to see green numbers than red numbers, the risks have not been rewarded on a single one of these things. I have guessed right, put my money down, waited for the future to unfold just as I predicted it would, and got screwed.

Oil is now at its highest point  since I bought in.  It’s been setting new highs almost daily. So how in the name of all things good and holy, can the ETF be DOWN 12%?  Let’s face it – 12% is a pretty big loss to swallow when things are going south. Yet it’s hard to believe that, the one thing that has skyrocketed forward is still a loser. Thank God it didn’t go up any more or I could be bankrupt I guess.

From the standpoint of the underlying commodity I should be seeing fantastic returns in each of these. Yet, overall, I am barely breaking even. If that’s the case, then who are the winners? What pocket did my money go into? If you are doing absolutely everything right on a risky investment that promises great returns for the lucky ones, how do you come away with less money than you started with?

There will be plenty of market double speak. The EBIDA of the P/E was misaligned in the short yield curve or some similar nonsense that essentially means “screw you buddy.  We’ve got your money and we aren’t giving it back.”

I Am Ashamed to Be a Boomer

The post World War II baby boom generation began its maturation as an exceptional generation. The results were both philosophical and pragmatic. The search was simply for a way to have a better life – one with personal freedom and spiritual growth and without war or prejudice. On the pragmatic side we had the Civil Rights Act and integration, the Moon landing, ending the Vietnam war, expanding environmental awareness and the seeds of a burgeoning awareness of the oppression of women.  In short, people cared about other people, the quality of life and not just material wealth.

For no discernible reason, we turned our back on our own promise and became the fattest, most selfish, materialistic generation perhaps ever.  We permitted the dumbest, most atavistic conventional members of our generation to become the leaders  - essentially the people who weren’t part of the progress became the rulers and leaders of everyone else.  Wasn’t it Voltaire that said “the problem with the world is that the dunce is cocksure while the intelligent person is full of doubt.”  (I actually think he said the “intelligent man” which is a small indication of our early success.)

These faux leaders were essentially the adversaries of the progress that was contemplated.  We sat silent while they took control of the media, the government, the press, and virtually ever other institution. We were busy buying new BMW’s, $4.00 coffee and $3,500 purses to notice that they (and we) were rewriting our legacy, essentially turning that early promise into a caricatured stoned out joke.

We have now permitted a government that is essentially dismantling the wisdom of the country’s forefathers.  It has been widely reported that President George W. Bush referred to the Constitution of the United States as “just a goddamned piece of paper.” He has modeled his administration much more on the model of the Soviet Union than Thomas Jefferson – torture, domestic spying, shredding rights such as right to trial, right to confront your accusers, protections against unreasonable searches,  shredding separation of Church and state and giving short shrift to the other branches of government.

It is a government seeking unbridled federal power while advertising itself as being anti government and we are just complacent enough to let it slide. We now have a KGB equivalent, surveillance of citizens without regard to law, gulag type prison holding people for years without counsel or trial and use of torture including the tortured re-definition of the word “torture.” “People say its like George Orwell’s 1984 but it reminds me more of Leonid Breshniv and Nikita Kruschev – power is tightly controlled by a small group that seeks to serve the elite and keep the rank and file docile, enforced by huge increases in domestic policing and surveillance, use of propaganda and fear,  and maintaining a fierce and aggressive military force.

They bandy the word “freedom” as a favorite bumper sticker but they absolutely hate individual freedom. The want to protect us from our own choice so we have rules and regulations governing everything.  In my state, famous for its court ruling that “a man can beat his wife with a stick no bigger than his thumb”  now requires six months  of coursework and  a license before you can give someone else a massage.

The war on marijuana and forfeiture of assets are a cash cow business for government agencies.  Forfeiture laws have filled the Courts with Lewis Carroll sounding cases such as “United States of America versus 1997 Ford Bronco” or United States of America versus 7,512 Dollars.” Many local law enforcement agencies set up roadblocks simply to search vehicles for fine producing infractions, undercover agent prostitutes lure the lonely, and contrived internet seductions and increase the number of stings.  It doesn’t stop there or anywhere near there. Doctors specializing in pain reduction are being searched and prosecuted for lawfully prescribing lawful medications. Bank tellers are responsible, on pain of jail time, to report when a customer deposits $10,000 in two or more transactions in a day.

The Democrats aren’t exempt either. They have pushed to maintain false truisms that promote programs of imbalance and therefore injustice.  They elevated political correctness to a crime punishable by law with so called “hate crimes”. Please show me the loving crimes. They have promoted anti-male myths to appease the discredited portion of the women’s movement.  For some time it was gospel among feminists that one quarter of all college co-eds are raped during their four years.  No one seriously believes that anymore but there was a conspiracy of silence surrounding this absurdity when it was making the rounds. The same is true in the oft cited differences in pay and promotions for women. The empirical studies do not support the contentions.

Schools have become indoctrination camps for political correctness. Educators have become enforcement officers. The brain dead zero tolerance policy rears its head with some absurdity about once a month.  Usually it starts with the internet and is then picked up by the press. Children are expelled for nail clippers, Tylenol and prescription medicines and indicted for playful slaps on the bottom. Cheerleaders are expelled for “insubordination” when they spell out the letters of their mascot on the backs of their bloomers. No one seems to care that the suspended high school senior cheerleader struggled to read her suspension notice.

Of course no one treated us that way. As children virtually all of us were free to play outside until dark.  We could bring an aspirin to school if we had a headache. There were no lock downs, pat downs, or searches in my elementary school. If an adult stranger stopped to ask for directions, no one started looking for a safe house. There were no helmet laws for bicycles, leash laws, restrictions as to what color our houses were painted or what type of mailbox we had to have.   Teenagers were not demonized and given long prison sentences for having sex with other teenagers. By my count, my entire junior year high school class should now be registered as sex offenders.

By not protecting us from imagined dangers our parents gave us a great gift. They allowed us to grow. Through our bumps and bruises, close calls, and missteps we were allowed to learn. Then we became the most rigid, controlling, paranoid group of parents the world has ever known.

Now, whether adult or not, you are not allowed to alleviate your pain with medical marijuana even if your state has approved it and a licensed, trained medical doctor has prescribed it. You may not end your suffering by taking your own life with the assistance of medical personnel.  States hard sell their lotteries while outlawing gambling.  The list could go on for days.  

Every generation has some boogeyman that requires us to give up our liberties – hippies and war protesters in the 60’s, communism in the 50’s, U. S. citizens that looked Japanese in the forties, and a black man traveling across state lines with a white women earlier. Our generation has paraded out a litany of reasons why we should roll over on our constitutional rights – the war on drugs, child porn, internet kidnapping, and the granddaddy of them all, terrorism. We are told that we need them to protect us from ourselves. And we are being taxed to support  it.

The essence of the genius of Madison, Jefferson, Washington, Franklin, et. al. was that they created a governmental system that held unbridled power in check. It effectively transferred power from Kings and Lords to farmers and teachers. Nothing like it had ever been seen and It worked during their horse and buggy days. Although our forefathers never heard of cell phones, airline travel, television, automobiles, shopping malls or suburbs, nothing has proved to be a better system since.  The brilliance of our system of government is that it intends to give all of us safety from the typical brutality and tyranny of governments. It is for precisely those reasons that those entrenched in power and wealth tirelessly try to combat its ideas.

They do that primarily by keeping us fat, dumb and happy. They persuaded us to exchange the Bill of Rights for entertainment, shopping malls, frequent flyer miles, sporting events, celebrities, and  sitcoms. When their power is threatened, as the forefathers arranged every four years, they smugly sell us their chosen candidate with lies, sloganeering, and sound bites. The media doesn’t follow campaigns - it leads them. They determine who they want early on and put all the good press around their candidate and mock, ridicule or simply ignore the rest of the field.

How many of us bothered to learn that Al Gore never said he invented the internet, virtually all studies show that marijuana is not a gateway drug but alcohol is, orthat Saddam and Bin Laden hated each other, Harold Dean’s scream seemed crazy because sound engineers removed the crowd noise that caused him to shout over the din, and that the picture of John Kerry together with Jane Fonda was a photo shopped fraud,

How many of us did anything at all about it?

The results of this are certainly predictable. If the dumbest rise to the stop, the results are going to be dumb. We have used up the oil, heated the globe, debased the currency, polluted and misused our water and air, and run up national debts like a third world dictator. We have left a legacy for our children that is only slightly short of calamity. People who dare suggest that maybe this wasn’t the wisest course are immediately derided as kooks, fringe groups, and all of the leadership quickly persuades the docile boomers that such people are really not acceptable.

The model for maintaining this control was perfected by the tobacco companies, many of which come from my state. First you deny the existence of the issue. When that begins to run out you invent an imaginary controversy over the issue. Then you recruit credentialed experts who are willing to sell themselves. Then you populate the media and insure that they carry your message through paid advertising, commentary and carefully placed press releases about new reports. If you can’t change the truth, you can at least forestall it.

But Winston Churchill spoke about truth. He said “you can deny it, you can deride it, you can coax and cajole it, but in the end, there it is.” We are now in the period of “there it is.”

Maybe we thought we could sling shot our indulgence until sometime far in the future. Maybe we really believed the hype that everything was getting better and better all the time. Or maybe we just chose the most selfish, self serving options at each turn with little or no regard for our own progeny.

What a generation. Now let’s see if we can rise to the challenge that we have created.

 

 

Trickle Up Economics

Practicing law can sometimes give you a clear perspective of national events. Over the past few years, the car dealers, con artists and blue suede shoe boys that had previously been hawking multi-level marketing, penny stocks or ostrich farms seemed to all wind up in real estate finance. Mortgage brokers went from being a ridiculous waste of money to an every day occurrence. And since it was real estate, there was suddenly an air of respectability to the con games. And they became appraisers, developers, real estate brokers, title insurance agents and on and on.

 Flips were the buzzword of the day. Just about anyone, from the sidewalk wino on up, could qualify for a mortgage. And the price of real estate always went up. So it was a no-brainer to simply bid in for whatever real estate you could get and sell it to the next greater fool. Like all ponzi schemes, the last guy in the chain suffered all the losses.

 Now if this happened to your brother in law, everyone would express their deep sympathy and then snicker that you knew he was a moron all along. Sooner or later he comes around asking for a handout. He tries to tell you how its really in your best interest, how it would avoid painful situations for his family, the children and so on.

 The difference this time, is the last guy in the chain happened to be the so called financial pros – giant investment banks, hedge funds and derivatives holders. Of course your brother in law doesn’t have connections to the Fed, the U. S. Treasury and  the White House. These guys do. So the net effect is they simply don’t want to pay  up – plain and simple. They concoct all sorts of nonsense about why its really in your best interest, how it will avoid painful situations and so on.

 So the so called bailout is just another in a long line of brazen attempts to move your money to the pockets of the very, very rich.  This is trickle up economics. It was formerly just called a swindle. It’s the same as your brother in law, except this time they signed your name to the debt. The idea is to dump the losses on people who had the good sense or sufficient control of their greed to avoid overextending themselves to begin with. 

 Let me explain it in simple terms. About 6 years ago I bought a 900 foot one bedroom condominium on the North Carolina coast paying a little under $100,000. I sold it because the expense was more than I could handle with the condo dues, insurance and so on.

 This past yeara realtor I know had five of his clients purchase a 900 foot condominium on the North Carolina coast paying $1.5 Million. Not one put a single nickel into it. The first and second mortgage covered everything including the mortgage brokers, mortgage bankers, real estate agents, real estate attorneys, and the developer. All made out handsomely.

 Now my condo was probably better situated that theirs, at a closer beach with more amenities. I actually make a little more money than they do. The difference, and this is absolutely key, is that I expected to have to pay for mine. None of the other guys expected to pay anything. They expected to flip for an amount roughly twice my annual salary. When it came time to actually make some payments, no one was home.

 The reason for this, obviously, is that their condos were never worth anywhere near that price to begin with. The price quickly melted to about $800,000, then $600,000 and there are no takers. I would probably be willing to pay about $250,000 if I was in the market.

 Now here’s where the bailout swindle comes to play. The bailout is intended to prop up the mortgages that were made on the funny money. They want us to pay up on the $1.5 M in mortgages that we all had the good sense to avoid. They are not asking for any return of money from the mortgage brokers, mortgage bankers, real estate attorneys, real estate brokers or developers. And non from the purchasers. Every single wrongdoer in the scam walks. And we should pay for them so that an insanely inflated price won’t have its day of reckoning.

 There is another serious unintended consequence. Since the condo was never worth its asking price it could not attract anyone who actually intended to pay for it. The price was artificially pumped far, far past a reasonable market value that would be paid by a willing buyer.  My $250,000 estimate is 20% of the actual price and I would guess it’s not too far off the figure of most reasonable buyers.

 By propping up these fantastical values, they have effectively closed the market to those who can actually pay.  Those of us who play by the rules are priced out of the market so the hustlers are the only game in town. The point here is that the bailout is asking the taxpayers to underwrite the ridiculous valuations that only hustlers would pay.

 So we work and exchange value with other people for their goods or services. We skim the top for taxes or licenses or fees or whatever. Then we pay for our license tags, property taxes, fishing licenses, and so on.  Then they tack on the price tag for capitalist criminality.

 They told us we should fear the consequences if they did not swindle us. That the financial system would fall apart. So we are on the hook for more than we are going to earn. More than we can generate after making a living. At some point, it just won’t be worth it to go to work anymore. Or pay taxes. And then we start to barter, to move to grey economies and off the books transactions.

 And if there is anything the uber rich should fear, it’s for the rest of us to learn how little they actually contribute.

Jury Nullification

Last month the ever intriguing Joe Bageant (http://www.joebageant.com) posted a story about a friend of his that had been railroaded by the injustice system. I felt compelled to respond and my response is on his site, but I thought I would also post it here.

Dear Joe:

As a practicing attorney I must respond to your tale of your friend Stokes (Old Dogs and Hard Time). First, the vast majority of lawyers and judges in this country are just as appalled at the hijacking of our system of "justice" as are you and your readers. Stories like that of Mr. Stokes are now just every day occurrences in courts all over the country.

The cause of this is the legislature. During the 30 years of my practice, Congress and the state legislatures have propounded the largest, most mind numbing plethora of rules and regulations with such draconian penalties that practically everyone is risking their freedom for violation of something or other all the time.

The aristocrats bandy the word "freedom" as a favorite bumper sticker but they absolutely hate individual freedom. The want to protect themselves from us at our expense so we have rules and regulations governing everything. My state of North Carolina, famous for its court ruling that "a man can beat his wife with a stick no bigger than his thumb", now requires six months of coursework and a license before you can give someone else a massage.

A lot of this got started in the drug war -- the idea of forfeitures, mandatory sentencing, presumptions of guilt from vague circumstantial evidence and so on. The result has been to create a growing, dependent cancer known as the justice system. It isn't about justice anymore, it's about revenue. I've read that over 8,000 government agencies are dependent on the drug laws for their funding. This covers everything from the DEA to local sheriffs to drug courts, rehab therapy groups to things that seem to be unrelated like the Navy seals.

And it didn't take long for the overreaching authorities to allow these wholly unconstitutional measures to seep into every aspect of our laws and lives. Pharmacists, bank tellers, emergency room nurses, school teachers and so many others are forced to become unpaid government informants on pain of incarceration just to keep the wheel spinning. God forbid you should be charged with domestic abuse, a sex crime, a minor drug offense or any other politically incorrect offense.

Joe, every generation has a boogey man issue that persuades government hacks that the constitution must be suspended -- hippies and war protesters in the 60's, communism in the 50's, U. S. citizens that looked Japanese in the 40's, and a black man traveling across state lines with a white women earlier. Our generation has paraded out a litany of reasons why we should roll over on our constitutional rights -- the war on drugs, child porn, spousal abuse, internet kidnapping, and now the granddaddy of them all, terrorism. We are told that we need to give up our liberties to protect us from ourselves. And we are being taxed to support it. We've even gone so far as to deny any trials whatsoever.

The essence of the genius of Madison, Jefferson, Washington, Franklin, et al. was a governmental system that held unbridled power in check. It effectively transferred power from Kings and Lords to farmers and teachers. Nothing like it had ever been seen and it worked during their horse and buggy days and it works now. Although our forefathers never heard of cell phones, airline travel, television, automobiles, shopping malls or suburbs, nothing has proved to be a better system since. The brilliance of our system of government is that it intends to give all of us safety from the typical brutality and tyranny of governments. It is for precisely those reasons that those entrenched in power and wealth tirelessly try to combat its ideas.

There is a point to my rant. There is but one area left that is the sacred province of the commoner -- the jury trial. It resists lobbying, payoffs, corruption, and direct influence. For those reasons, there is every effort to dilute and avoid the jury. It is being eroded by statutory edicts and the misguided belief that a jury is bound by the Judge's instructions on the law.

Less than 6% of all cases now go to trial. The most shocking aspects of the law's application are required to be kept from the jury. Most juries have no idea that they are sentencing the defendant in a domestic scuffle, late night tryst or minor drug buy to being branded, jailed, re-educated, reduced to slavery, monitored and harassed, all at the defendant's expense. It is commonplace for jurors to report in surveys that they would not have convicted if they had been told the entire story about the laws.

The answer, of course, is jury nullification. Juries have the right to refuse to enforce unjust laws, despite the carefully worded and intimidating instructions to the contrary. The founding fathers, the United States Supreme Court, the Fourth Circuit Court of Appeals and Oliver Wendell Holmes all agreed on this point.

Unfortunately, virtually every court now prohibits this information from being communicated to the jury. The producers of The Wire television series ended their series with a pledge that none of them would ever convict anyone in a drug case. In response, one jackass prosecutor in Texas (with a system of justice the Gulag would have envied) says he will indict in his jurisdiction for advocating jury nullification.

Here's the bottom line. We must resolve to fight the aristocratically sponsored injustice. Perhaps a groundswell can be started whereby we common folk "just say no" to these laws by hanging the juries on which we serve whenever they come up.

Naturally this will allow some of the "guilty" to walk free but that's the point isn't it? You must first starve the beast that is attacking you before you can decide how to govern yourselves thereafter. This will only happen if we demand jury trials and then have a sufficiently informed minority to have a fighting chance in a courtroom stacked against the average shmoe. Since the aristocratic party has tilted the scales in their favor, we must tilt them back.

Keep up your good work and if you are ever in North Carolina, I'll buy the beer.

My Visit to Peak Oil

Like a peyote chewing shaman reporting his vision of the afterlife, I have returned from the land of Peak Oil. Sort of.

Over the summer I had the fortune or misfortune to spend two weeks in a forgotten Central America hellhole known as Nicaragua. After first adjusting to the culture shock, I marveled at the way people lived, worked, related and played in this impoverished throwback of a country. Then I had my epiphany! This was the land of Peak Oil and foretold the story of many other lands in the not too distant future.

First, a little background. For most U. S. citizens, Nicaragua is just an historical curiosity, being the focal point of the Reagan era “Iran-Contra” affair. Iran-Contra was a typical American foreign policy misadventure. An avowed leftist, Daniel Ortega, had won a general election. Ortega worshipped Fidel Castro and sought to model his homeland into a quasi-communist utopia. One of Ortega’s first acts was to void the titles to private land throughout most of the country, enraging corporate interests in the U. S.

A small resistance group, calling themselves the “Contras” hid in the Northeast mountain region of Nicaragua. They financed their operations with small time drug sales. From a political and military standpoint the Contras were a non-starter.

Since selling arms to Iran violated the Arms Export Control Act, the Reagan administration set up a clandestine, “off balance sheet” operation under the guidance of an ideologue named Oliver North. The basic idea was the administration would illegally sell arms to Iran, an avowed enemy that had recently held US citizens hostage for over a year, and funnel the money to the Contras to overthrow Ortega.

The Iran-Contra foray was an unmitigated disaster. Iran was equipped with state of the art weaponry that stalemated their war with Iraq and which threaten U. S. interests to this very day. The clandestine operation came to light in 1986 and Ronald Reagan went on national TV to say he did not have sexual relations with those Contras. Shortly thereafter, he recanted and a commission was appointed under Senator John Tower. Reagan gave illogical and inconsistent testimony to the Tower Commission, citing his poor memory. North and his boss, John Poindexter, were tried and convicted, but the convictions were overturned by a Reagan friendly appeals court. George H. W. Bush later pardoned 6 other Reagan aides.

For their part, the Contras failed to overthrow Ortega but became one of the most well armed drug cartels in the world. Even now a hapless soul wandering into Contra fields is often murdered on sight with state of the art U. S. weaponry.

Two elections later Ortega was beaten at the ballot box and the semi-communist experiment came to an end. Ortega’s successor, Barrios de Chamorros, tried to undo the taking of the private lands some fifteen years after the fact, creating even more legal confusion. If that wasn’t enough, Ortega was then re-elected in 2006.

The net result for Nicaragua was a failed state from almost every perspective. Already one of the poorest countries in Central America, the political and legal uncertainty prevented the foreign investment that fueled change in other poor countries. The CIA Factbook lists Nicaragua as the 3^rd poorest country in the Western Hemisphere with 48% of the population below poverty levels. The distribution of wealth is among the most uneven in the world.

Nicaragua enjoys practically none of the oil rich modern lifestyle we so take for granted. There are no interstates, parking decks, drive through windows, or suburban cul de sacs. Only the very rich can afford an automobile at all and even these are used sparingly.

As the days rolled on, I began to connect the dots with peak oil. The political and legal missteps resulted in a society that has one foot in and one foot out of the modern, petroleum based universe. This country has no oil reserves, refineries or oil resources to speak of and must fend in an oil unfriendly environment.

My own bias is that peak oil will not be a sudden cataclysmic disaster with the ball of humanity rolling off the proverbial table. My vision is more like the air slowly coming out of the tire as we rumble, slower and slower, towards the side of the road. I expect the transition will be more violent and painful in the U. S. than elsewhere simply because we have grown more dependent upon it. If there is a sudden die off of the population I think it much more likely to result from global warming or nuclear war.

So what does peak oil look like?

Transportation

This country does not have the well organized transportation, food, industrial basket weave that moves everything around the U. S. There is no petroleum supported game of musical chairs flowing imports in and through the country on flatbeds, seaports and interstate highways. The “3,000 mile salad” is a Nicaraguan pipedream and there are no Walmart shoppers.

The few paved roads are only two lane in most areas and even these are riddled with potholes, wash outs, debris and neglect. The road from Leon in the northwest to San Juan Del Sur on the southwestern coast was essentially missing for long stretches. Cars weaved around potholes, islands of upraised asphalt, and mud. At some points the oncoming cars, supposed to be on the left, were 50 yards to our right as a result of these machinations. For those stretches, speeds never topped 20 kph. Wild chickens, pigs and dogs share the streets with barefooted children. Outside of the major cities and main drags, roads are dirt paths if they exist at all.

The government decided to build a scenic north to south coastal railway similar to the one in California. After proudly building the first stretch out of San Juan del Sur, they moved north for the next section. In short order, the completed section was completely and totally missing. Every rail, pin, tie, and everything else that could be pulled up and carted off was simply gone. Understandably, the project was abandoned.

The airport in Managua would be the equivalent on a fairly nice middle sized airport in a mid-size U. S. market. It is the only serviceable airport in the country. The other airports are either unpaved or unable to accommodate large planes. The three seaports are forced to serve multiple purposes to bring in needed goods.

I met college age students who had never traveled from Leon to Managua, hardly more than an hour’s drive away. Many had not seen the beaches or mountains that were less than 100 miles away. Leisure travel, supersavers, and weekend jaunts exist in novels, but not in reality for Nicaragua.

By my unofficial count, I would guess that roughly 20% move by foot only. Around a third use bicycles, mopeds or motorbikes. Private cars account from maybe 20% of the traffic and the balance is in horse drawn carts, taxis, buses, and public transport. The horse or ox drawn carts are usually made from rummaged materials of four small car tires and axles under a wooden cart with benches or chairs affixed.

For the time I was there, the friends and family of my escort and the driver owned not one car among them. In fact, they commandeered our rented vehicle at every turn to buy groceries from distant stores, schedule doctor appointments and visit friends and relatives that were seldom seen. The car was viewed as a rare and prized treat for special occasion use.

Utilities

Utilities are a daily hit or miss proposition. Water, electricity and telephone service fail several times a week, for hours at a time. Trash is thrown by the roadsite and is picked up at irregular intervals, if at all.

The internet is served by cafés that rent by the hour. Some are DSL quality but you must pay for every service along with the time. Printing, downloading, and uploading cost extra. Outside of the cafes, the internet is so slow as to be practically unusable. The service provided in our hotel took about 20 minutes to boot up.

Only the most wealthy in the cities actually have air conditioning or heat. An open air atrium centers most dwellings, with its trees providing shade along with seasonal lemons.

The water had a nasty habit of dying out in the middle of showers and the electricity would black out and then pop back on the wee hours of the morning, only to be gone again by breakfast.

Local phone service was acceptable most of the time, but long distance and overseas calls were difficult or unavailable.

Work

The entire country seems to be underemployed. Most work here is the trading of fairly menial labor. Taxis, farming, shop keeping, apartment rental, leather tanning, farming and animal husbandry are prevalent.

The collapsed infrastructure essentially eliminates the fast paced electronic commerce we take for granted in the U. S. Web based businesses are almost non-existent. There is no electronic market for anything – not stocks, commodities, food, nothing. Unlike China, there are no smoke filled industrial areas cranking out steel or pipe or brick.

Since education is cheap and available, the country boasts many doctors, lawyers and engineers, but practically none of them actually make a living at these professions. My guess is that not enough of the populace can afford these services on a regular basis. Some teach and work on the side, but most are taxi drivers, housekeepers and just simply unemployed.

The industry should be farming but that’s a story unto itself. There are many bustling shopping areas and many eclectic shops, cafes, and stores, but they lack air, lighting, or electronics. Mostly they sell basics and locally produced artifacts. We tried in three cities for find a battery for a fairly standard Konica camera without success. Transactions are done in cash and change is parceled out by hand.

Food

Most peak oil readers know the degree to which agriculture is petroleum based. The symbiosis goes far beyond just the diesel fuel of tractors, harvesters, and trucks.

In this land of peak oil, the lack of the petroleum products has stunning agricultural effects. Nicaragua boasts some of the finest soils in the world, has plenty of rainfall and sunshine, and you would expect it to be a garden of Eden. Yet, at the mercy of mostly animal and human labor, the farms seem paltry compared to the neat, plush, geometric rows in the U. S. heartland. Larger farms come equipped with sniper stands and warning signs that trespassers will be shot.

Nicaraguan farmers laughed at notions of organic or sustainable techniques. They were having enough trouble sharing the crop with insects and animals and were hoping for kindness from Mother Nature in place of irrigation. Despite the natural advantages of Nicaragua, there is no comparison in agricultural output.

The very poor clearly compete with the animals for food as well as share the roads. Rib cages can be seen from the roadway on dogs, cattle, and horses. The flaca vaca (skinny cow) became a running joke. Pigs, chickens and even cows are freed to forage along the road side. Somehow they seem to find their way back home. When the horse pulling a cart dies, it is often left by the side of the road.

The farms are close to the city, but are not nearly the romanticized visions that many Americans have. These are filthy, smelly sweatshops that work long hours in blistering conditions for a very meager existence. Farmers inhale dust and dirt and suffer constant sun exposure and skin rashes.

For good measure, hurricanes occasionally obliterate the crops so everyone just starts over. Like their phantom railroad, reports abound of farmers planting crops on their acreage only to find every single seedling stolen after a short absence.

Food is so plentiful in the US that most of the agricultural effort is designed to trick the eye instead of sustain the body. The food products so produced are large, colorful, and symmetrical. They make visually appealing presentations - large, deeply colorful fruits, free of blemishes - that effectively compete for the consumer’s dollars. They are also virtually void of taste. Compared to this presentation, the heirloom varieties seem gnarly and colorless.

Two hundred years ago a shovel could yield a 16 inch depth of topsoil. The topsoil would be the by-product of nature’s composting and would environ tens of thousands of tiny life forms. Earthworms, insects, microbes, feces, and vegetable matter all played their important roles. Today, a shovel may yield 8 inches of very sterile topsoil. The growth results from the infusion of massive quantities of petroleum based fertilizers and pesticides.

I am aware that a small subculture in the US has already begun experimenting with permaculture style sustainable farming. Sorry, but I don’t really think that counts. The escape from suburbia is, at first, refreshing and envigorating. It may be a psychic as well as a physical vacation.

Yet everyone knows it isn’t real. At every moment there is the subconscious comfort that the little experiment can be terminated. If you need to catch an airplane, its going to be there. If you need sophisticated medical treatment and pharmaceuticals, you know they are available. If you get a whim to ride a motorcycle to Chicago for sushi, no one is going to stop you.

There is a qualitative difference when sustainable living is how you sustain yourself – when the drudgery, heat, and hard labor really make the difference between living and dying.

There is a subcurrent in the peak oil literature that peak oil will lead to widespread starvation. There may be a very real starvation issue as a result of overpopulation, but I don’t envision mass starvation in the U. S. In fact, I suspect that food demand will decrease significantly.

Our agriculture system is efficient from the standpoint of creating vast quantities of feed for animals that will be slaughtered and, in turn, become feed themselves. An estimated 500,000 cows are slaughtered every single day, most of it for the U. S. market.

The meats are freeze dried, wrapped and trucked to fast food restaurants, fine dining restaurants, hotels, hospitals, schools, prisons, churches and the corner grocery. The meats supplant instead of supplement and the entire system is dependent on massive amounts of cheap, readily available fuel.

Of themselves, most of these meats are nearly tasteless. To rejuvenate the taste buds, they are infused with huge quantities of salt and butter to add sensation and fats. The Food Network chef, Emeril, always draws applause when he says “I don’t know where you get your meats, but where I get mine they don’t come seasoned.

The result is a nearly instantaneous gratification for anyone who is hungry and has gas in a car. Pizza can be delivered, hamburgers are available on most corners, and Taco Bell typically stays open all night. For variety the hamburger is exchanged for steak which is exchanged for barbeque pork which is exchanged for roast beef and the cycle continues. Chicken and fish are added to the mix.

While the 10,000 advertisements we see in a typical day all l tell us this is American nirvana, it has everything to do with profits and little to do with sustenance. Practically all of the serious research concludes that we are not well sustained at all. In fact, we are obese, cancerous, and diabetic.

From the standpoint of actually feeding human beings this system is extremely inefficient. Most of our land provides agricultural fodder for animals, not humans. A vegetarian diet requires less than 5% of the land mass of a modern meat based diet. It requires a tiny fraction of the energy input of the carnivorous diet.

And this is not a vegetarianism borne of philosophical inclinations, eastern religious beliefs or environmental concerns. It is a diet based on necessity and it is how the race has survived throughout history. In cultures that ate meat, the meat was a delicacy reserved to the wealthy and for special occasions. When times demand, there are vastly more efficient methods of feeding humans.

The same is true for the “3,000 salad.” While the modern palate enjoys the “dainty dishes” that derive from easy access to very exotic ingredients, it really has nothing to do with sustenance. Watch an hour of the Food Channel and you will see wonderful, mouth watering dishes, some in 30 minutes or less.

Yet there is no thought at all of the immense energy and waste baked into the cake, so to speak. The ingredients typically include chocolates, bananas, sugar, lemons, pecans, tea, almonds, corn, wheat, rice, peaches, coffee, oranges, and apples. The spices and flavorings include vanilla, saffron, garlic, chocolate, cumin, etc.

There is simply no place on earth that can naturally grow all of these disparate foods and spices. These delicacies are not possible without monoculture farming and sufficiently cheap transport.

When the cheap fuel inputs are no longer available, agriculture will target human sustenance and not profits. The diet may be simpler, less varied and less tasty, but it can feed more people per acre.

Housing and Culture

The disparity between the wealthy and everyone else really shows in the housing. Wealthy villas sport beautifully manicured lawns, orchards and groves, brightly tiled swimming pools and patios, wrought iron fencing and relatively spacious airy rooms. The poor live in one room hovels made from discarded or stolen metals with dirt floors stacked side to side for support. An opening serves the purpose of a doorway. Animals and children move freely in the dirt paths beside long rows of clothes drying on clotheslines. In the middle, you have smallish but comfortable houses and tiendas sporting a meeting area or veranda and maybe a small garden as their status symbols.

People are much more involved in the arts than in the US. Artwork, dancing, music and festivals are common. They have a lot of free time. Many simply lounge in doorways or street stoops watching the world pass by. There are practically no gated communities, attached garages, cul de sacs or other alienating societal separations. Everyone is pretty much on top of everyone else.

People eat what they can. Outside of Managua, there are no U. S. fast food or even casual dining facilities. Restaurants are few, with limited menus, and are for special occasion treats.

Insects, Etc.

Since we were there during “fly season” it was impossible to protect the food from the flies. The waiters come with two napkins per person. The first goes in your lap and the second is placed on top of your glass to keep the flies out. The use the various home remedies, but nothing really works.

Since there are few insecticides, people simply get accustomed to living with insects, geccos, and lizards.

There is one shopping mall in the country, virtually no drive throughs, fast food outlets, strip malls, or parking decks. In the second largest city, we could not find a battery for my Canon camera.

Many live for the evening rigaton and salsa clubs. Alcoholism is a pervasive problem, but not one that gets the do-gooder finger waving that we are accustomed to. In fact, its almost encouraged in some sections.

Conclusions

From my perspective as a modestly affluent middle aged American, there was much to learn and much to fear from this experience. Many peakists are accused of hating our society and secretly harboring a desire to see our downfall. If you might fall into that group, I would suggest a couple of weeks in Nicaragua.

On a downbeat note, I also concluded there isn’t much you can do about it. The lack of energy derived labor affects everyone – high and low, rich and poor, young and old, right wing or left wing. There is no escape from the heat, the inconvenience and the hard labor required. Rich or poor, prepared or not, all suffered from the power outages, inconvenient travel and lack of availability of very basic items.

On an upbeat note, it was stunning to see how quickly we all adapted. Perhaps it was the knowledge that it was a hiatus that would not last long, but it became pretty normal pretty fast. Humans are amazing creatures.

Certainly there were no frivolities except for the very rich. I saw no lattes, smoothies, natural food stores, book shops, self improvement or even home improvement stores. There are no Disney Worlds, amusement parks, and practically no Dominos pizza, multiplex cinemas, golf courses, or Chuck E. Cheese.

My overall impression is that the people are reasonably happy. Some young people attending school in San Francisco or working in the US, express a desire to return and live their lives in Nicaragua. They feel more connected.

The hardest part right now is dealing with the militantly apathetic populace. Most of us can’t even persuade our families to begin to prepare. If this has become a sore subject or a constant conflict, my advice is to let it drop. Don’t bring it up. Don’t say anything at all about it.

Just announce that you have good news. You’re taking the family for a wonderful vacation to Nicaragua.

Goodbye Jesse, RIH

The former Senator, Jesse Helms, died on July 4, 2008. Having spent 30 years in the Senate, we now witness the parade of accolades from a steam of sycophants from the White House to Bono. The repeat refrain is that the conservative Jesse Helms was an uncompromising man of principle. Anyone who believes that just doesn’t know the story.

Jesse Helms’ rise to fame started as an editorial commentator in the 60’s for a Raleigh, NC television station. These established positions proliferated throughout the South after the hippie movement and the 1964 Civil Rights Bill (which Helms called the “most dangerous piece of legislation ever to have crossed the halls of Congress”.) It was half commentator and half vaudeville. These were bigots of the first order, using their platforms to espouse a thinly veiled hatred that was shocking even then.

Then comes 1972 with a sobbing Muskie, a small time break in at an obscure office building called Watergate and the re-coronation of “Nixon’s the One.” Jesse and supporters knew that North Carolina was going to hand up a Nixon landslide and the time was right to try to elect a politically incorrect bigot to protect the “state’s rights” and “family values” of the good (i.e., white) people of the country.

The story would have ended there but for an unknown Machiavellian political genius named Carter Wrenn. Wrenn set up a political fundraiser he called the “Congressional Club.” It was intended as little more than a Jesse Helms fundraising arm, but one that eventually re-wrote the political fundraising textbook

Wrenn figured out something – it was the losers in a political fight that were more willing to chip in cash than the winners. Tiny minorities, fringe groups, and out of favor causes were populated by one issue voters, ideologues and the mentally challenged, all of whom would put heart and soul, and more importantly wallet, into their causes.

Wrenn saw that he could create a political annuity that virtually printed money. By championing these forgotten and often embarrassing groups, the Congressional Club would have a monopoly and first right on a stream of income that was completely off the political radar, but went right to the coffers for Jesse Helms. While 99 other Senators (as well as 435 members of Congress) fought it out for the crumbs of the more traditional contributors, Helms became the Senatorial savior to one fringe group after another.

The Congressional Club didn’t dun these people for big money in most cases. Instead, following a famous and successful Clemson University program, IPTAY (I pay Twenty a Year) Wrenn’s group asked for modest donations, often just $20 to $50 dollars, but they asked over and over and over. And they got it. Money began to pour in from all over the world.

Jesse Helms “principle” was to locate these groups and then champion their unpopular, dangerous or ridiculous positions. The Club could then justifiably write to the fringe members touting the one Senator that saw things their way and bang the drums for support. In an age before truckloads of junk mail and incessant charitable panhandling, the Club’s letters were received as a genuine common cause.

The goal then was to simply keep adding fringe group contributor lists. It was shooting big fish in a small barrel. The trick, not too hard to pull off, was simply to make sure that the older contributor groups were not offended by the new groups. So an odd couple contributors list began to develop which later became the “base” of the neoconservative movement.

Gun groups, anti abortionists, anti-UN protesters and gay bashers stood alongside Argentinians who wanted to liberate the Falklands from Britain. Helms became famous as the 1 in 99 to 1 Senate votes. He developed the nickname “Senator No.” He held firm, hard and fast, to an agenda that frightened even the Republican minority leadership.

Contrary to popular belief, Helms was never a commanding figure in his home state of North Carolina. Locals well knew that Helms fundraising was from everywhere under the sun but North Carolina. They also knew that his causes cared precious little about what benefitted North Carolinians.

So it was no surprise that Jesse Helms started each re-election deeply in the red in the polls – often decent sized double digits. And it is there that the true legacy of Jesse Helms lies.

Helms, fueled by the mother’s milk of Congressional Club cash, eviscerated any remaining dignity in political campaigning. He hired the very best political aides to focus group to death the effects of a series of blatant, misleading and slanderous ads against his opponent. Issues were hardly discussed. It always became personal with Helms. When the most effective had been identified, he pounded the airways with a merciless barrage of expensively produced ads that stayed just far enough north of outright fabrication to confuse the issue.

Borrowing tactics from Himmler, Helm’s miscast his opponent’s votes, rewrote his opponent’s history, embellished every slight misstep, misquoted or misinterpreted newspaper accounts, and labeled his opponents with battle tested smears. And they would advertise over and over and over. Not even the most popular politicians could match the onslaught

Political battles in North Carolina became an Alice in Wonderland adventure. When responsible journalists would correct the record, the Helms machine would attach them or, more often, twist their condemnation into a distorted endorsement and advertise that. No matter what was said, it meant what Jesse Helms meant it to mean. And Jesse Helms would then win by the narrowest of margins.

The key wasn’t any political issue or stance. It was simply about winning and keeping the gravy train going. As long as there was an untouched and naïve group of crusaders who could write checks Jesse would be there.The issues hardly mattered. Most Helms campaigns were contrived acts of bigotry, designed not to serve a constituency but to focus their anger against the other guy. The shame of it is that it worked.

Like Lee Atwater before him, Helms softened when he saw death approaching. Apparently he believed in a judgment day and knew that his pearly gates application as Senator No had no chance. He backed off his gay bashing, anti AIDS research stance enough to have the very gullible Bono gushing about how many lives Jesse Helms saved. Sorry Bono, but you apparently still haven’t found what you’re looking for.

The “kindly uncle” or “courteous Southern gentleman” veneer, viewed from a lifetime of hate and bigotry, is simply a cynical and hideous cover for one of the most disastrously evil, anti-American bigots of the 20^th century. If there is any justice at all, Jesse Helms will find that God is a black, gay woman, eagerly awaiting his arrival.