Previous Weeks' Conservative Press

     June 2 to September 29, 2003

     This file was just started on the week of June 2, 2003. In the brief time since then, note the number and diversity of articles that were published in America's most respected conservative financial publications.

     In one way or another, they clearly demonstrate the hypocrisy of those conservatives who claim that:

     So, grab your barf bag and read on!

     (Note: the abstracts below are presented for purposes of criticism only. Because of copyright laws—and in the interests of brevity and readability—they are necessarily incomplete. Those who are interested in the investment or other implications of the articles should read the originals.)

The week of...

September 29

September 22

September 15

September 8

September 1

August 25

August 18

August 11

August 4

July 28

July 21

July 14

July 7

June 30

June 23

June 16

June 9

June 2

Week of September 29

     The following sad editorial in The Wall Street Journal is symbolic of America’s total industrial base.

From The Wall Street Journal, October 1.


Jean Genie


Levi Strauss & Co. has announced that it's closing its last factory in North America. Its blue jeans, a spin-off of the Great California Gold Rush, will now all be made overseas. There's the loss of 800 U.S. jobs, of course, but one is tempted also to lament the departure of this all-American symbol, created out of cheap, durable canvas. Yet the fact is that unless you're a gold miner you haven't got much claim on blue jeans any more. They belong to the world now….

     Not only does the production of blue jeans “belong to the world now” (a euphemism for “not made in America”), so does the production of any manufacturing product in existence.

     Although The Wall Street Journal can’t avoid reporting the bad news, at least they can try to minimize its negative impact on the political scene.

     So, they report that “The U.S. poverty level rose in 2002, but income inequality didn't worsen because the rich took a hit, too.” Implication: Gee, everyone—even the rich—is hurting from the recent economic slowdown.

From The Wall Street Journal, September 29.

Income Gap Is Steady,
But Poverty Spreads

WASHINGTON—The U.S. poverty level rose in 2002, but income inequality didn't worsen because the rich took a hit, too.

For most of the past 20 years, those at the top of the income ladder have been the big winners in the U.S. economy. But last year, incomes of the wealthiest Americans fell by the same percentage as incomes of those toward the lower end of the scale, according to Census data released Friday.

Household income of Americans in the 95th percentile slipped by 1.9%, to $150,002 from $152,893 in 2001. Income in the 20th percentile dropped similarly, to $17,916 from $18,256. Percentiles, a scale that divides levels in order of magnitude, is one measure used by the Census Bureau to compare 2002 findings with those of previous years….

Income levels across the board suffered in 2002, according to Census figures. Income in the second-highest percentile slid by 3.3% to $114,112 in 2002 from $117,952 in 2001. Income in the lowest 10% sank by 4.2%, to $10,620 from $11,087….

Though the income disparity didn't increase, poverty levels climbed to 12.1% last year from 11.7%. Nearly 34.6 million people lived in poverty in 2002, about 1.7 million more than the previous year, the data show. Critics of the Bush administration seized on these numbers to lambaste its economic policies….

     Talk about the selective use of statistics. The Journal noted that “Income in the second-highest percentile slid by 3.3% to $114,112 in 2002 from $117,952 in 2001. Income in the lowest 10% sank by 4.2%, to $10,620 from $11,087.” While they admitted that the lowest percentile income slid by 4.2%, they failed to note that the highest percentile just slipped 1.9% (being content to pick the second-highest percentile for comparison).

     Of course, noting that all income categories suffered income declines is almost irrelevant. The fact is that the lowest 10% of Americans suffered the greatest income loss, 4.2%, and all other categories, except the second highest, suffered a 1 to 2% loss.

     In addition, any loss of income—no matter how little—directly affects the daily lives of those at the bottom, while even a significant loss of income at the top has no effect whatsoever on their quality of life.

     All of which is irrelevant to the readers of The Wall Street Journal, who take righteous comfort in knowing that all income levels have had to suffer from the recent economic downturn.

     As poorer Americans continue to see their incomes go down, the Journal gladly reports that the economy—and, thus, corporate profits—continue to grow.

     And, incidentally, of course, working Americans (non-investors and non-high-level-corporate executives) are seeing their jobs go to third world countries.

From The Wall Street Journal, September 29.

Economy Grows At
Faster Pace Than Estimated

The U.S. economy grew at a faster pace than previously estimated in the second quarter, but consumers remain worried about their job prospects.

Second-quarter gross domestic product, a measure of all of the goods and services produced in the U.S., rose at a revised 3.3% annual rate, up from the 3.1% rate previously reported, the Commerce Department said in its final estimate of second-quarter growth. The economy grew at a 1.4% pace in the first quarter.

     Once America’s aristocracy becomes used to extremely high returns on their investments, and high-level corporate executives become dependant on their huge bonuses—it’s hard to ever return to reality.

     Thus, to keep the corporate profits coming in, even in an economic slowdown, the greedy and materialistic figure out ways to maintain their lifestyles.

     At the direct expense of consumers.

From Business Week, September 29.

Fees! Fees! Fees!

Companies can't raise prices, so they're socking consumers with hundreds of hidden charges—and that's creating stealth inflation and fueling a popular backlash

America used to be the land of the free. Now, it's the land of the fee. Companies, hard-pressed for money, are taking every possible opportunity to nickel-and-dime people to death.

Need a monthly brokerage account statement mailed to you? Ameritrade may charge you $2 per statement. Want your hotel room cleaned? The Alexander Hotel in Miami Beach, Fla., will bill you an extra $2.50 daily for housekeeping. Have to return a new camcorder? Best Buy Co. will dock you 15% as a "restocking fee." Want to buy a season ticket for pro football? The New York Jets will make you pay $50 for the privilege of getting on their waiting list.

The U.S. economy has become sneaky. Inflation is officially low, but Americans face an ever-growing mountain of extra charges that are pushing up the true cost of purchases. No area is safe, from retail to finance to travel to sports….

The extra hits—each one typically small by itself—add up to big money. AT&T could bring in as much as $475 million by charging its long-distance customers a new 99 cents monthly "regulatory assessment fee."…

The plethora of stealth charges makes it much harder for consumers to use the Internet to do comparison shopping, as they started to do in the late 1990s. The result is that apparently simple buying decisions are turning into a hopeless and discouraging labyrinth….

The growing significance of extra fees means that inflation is understated. Surprisingly, many add-on charges are not reflected in the Bureau of Labor Statistics consumer price index….

State and local governments are also willing participants in the fee game. Rather than hike taxes, politicians are hitting up Americans with a bewildering array of fees, fines, and penalties. Cash-strapped states will pull in $2.6 billion in new revenues this year by raising more than 200 different fees on everything from fishing licenses to fingerprint processing to driving with new tires….

Nobody figures fees will be eliminated entirely. But as the country recovers from an era of corporate scandal, it's not too much to ask that companies keep prices easy to understand. That way people will know they're getting what they pay for.

     Self-interest is a good thing. It keeps the world running. But greed—excessive self-interest—leads to behaviors that are deceptive, fraudulent, manipulative, and ultlimately destructive to a healthy society.

     This mentality even allows conservative politicians to lie to voters and to maintain the fiction that they can govern without taxing the rich.

     Sound familiar?

     Remember when President Dubya said we had to give tax breaks to the rich so they could invest their money and create jobs? Turns out, a lack of investment capital isn’t the problem, and hasn’t been for at least three years.

From Business Week, September 29.

All Cashed Up with No Place to Go

VCs have $84 billion to invest and an aversion to risky startups

The venture-capital industry is facing an embarrassment of riches. Venture firms have a staggering $84 billion in their coffers to invest, a near-record amount. And institutional investors are eager to give them more dough, anticipating that the tech industry will regain its financial luster…."Even today, after all the problems the business is having, there are tons of institutional investors clamoring to get into the venture business," says Joshua Lerner, a professor at Harvard Business School. "This is what we call the potential overhang."

But the flood of money could turn out to be more bane than boom. For starters, the seemingly endless supply of resources could lead venture capital firms to throw good money after bad, keeping alive faltering companies instead of shutting them down. VCs also are chasing bigger and bigger deals, putting increasing amounts into later-stage projects and even leveraged buyouts. These investments may use up big chunks of capital, but they hardly fit the high-risk profile for which venture firms are traditionally known….

With so much money focused on a few areas of technology, some question whether a new bubble is forming. "I'm nervous that this will result in mindless competition," warns Roger B. McNamee, a veteran tech investor now with Silver Lake Partners, a high-tech buyout fund in Silicon Valley. "The mismatch of capital and opportunity is a real threat."…

     What has been missing all along in this economic slump is the lack of money in the hands of the consumers who will spend it. That’s what creates demand, and demand creates investment, and that creates jobs.

     It’s obvious: to stimulate the economy, we should have given most of the tax breaks to the middle- and low-income worker, who would immediately spend it.

     The ultra-rich already were already spending all the money they wanted to. Their huge tax breaks resulted primarily in investment in other countries—which will further aggravate conditions for America’s workers.

     Even ultra-conservative Forbes magazine is admitting the looming disaster of globalization—corporate America’s strategy to destroy working-class wages and increase profits.

From Forbes, September 29.

Giant Sucking Sound

Battered by the tech slowdown, EDS is shipping white-collar jobs offshore to catch up with low-cost competitors.

The new Electronic Data System office in Mumbai (formerly Bombay) is half a world away from company headquarters in Plano, Tex….

This is where Amit, 24, works. "This is Andy. How may I help you?" he says politely, hour after hour, to the Midwesterners who have forgotten their e-mail passwords or need the phone number of a colleague. EDS hired Amit and 500 of his colleagues—young men and women dressed in khakis or saris—to answer phone calls and e-mails on behalf of American companies that have outsourced tech work or customer service calls to EDS.

Amit and colleagues are paid $1.25 an hour. His counterpart in the U.S. would get $10. On that difference rests whether or not EDS can wiggle itself out of deep trouble. Victimized by cheap outsourcing by competitors, EDS is playing the low-cost-labor game itself now. It is rushing to hire thousands of mostly Asian college graduates like Amit, who are desperate for the kinds of jobs found in the U.S. Frantic to cut costs, EDSplans to hire 13,800 workers by the end of next year—a of its current global work force of 137,000—in low-wage countries like India, Malaysia, Hungary and Mexico, places where starting pay is as low as $2,400 a year. Meanwhile, EDS plans to lay off at least 2,750 higher-paid workers, mostly in the U.S. and Europe.

Companies as varied as General Electric and Morgan Stanley are making the same calculation. White-collar jobs—in engineering, programming and accounting—are leaving America's shores for low-cost locales at a pace of nearly 4,000 a week, according to Forrester Research. The U.S., Europe and Japan combined are losing 600,000 a year, says McKinsey & Co….

There's also a price to be paid in angry and anxious workers. "I'm sure I lost my job to offshoring," says Richard Randall Mohler, 51, an EDS programmer from Midland, Mich. who earned $68,640 a year until he was let go last year. That job in India pays about $6,500 a year. Mohler remains unemployed and says his former colleagues at EDS are worried, too. "They are all scared to death," Mohler says. "When you can get the same job done for a fraction of the cost, it puts everybody on edge."

Is Jordan the bad guy? If he doesn't export jobs, someone else will.

     "Is Jordan the bad guy? If he doesn't export jobs, someone else will." This one sentence explains two things: the ultimate disaster of globalization for working Americans; and who the bad guys really are.

     First, the inevitable disaster is that the only Americans with jobs will be those who provide products and services that can be produced only in the U.S. And many more millions of those who previously had good-paying jobs will be competing with them in a race to the bottom of the wage scale.

     Second, the real villains are not the businesses who are forced to abandon the U.S. by other businesses without any moral standards. The real villains are the Republicans and conservative Democrats who passed legislation that made this kind of ruthless global competition legal and profitable. In effect, they announced to American businesses that they were removing any and all protections of business persons with moral standards; it's everyone for his own greedy self.

     Forbes warns its sophisticated readers of the pitfalls, not only of investing in so-called hedge funds, but also suggests pitfalls in investing in mutual funds generally. Again, from one of America’s premier conservative financial publications, an unintended message: to privatize Social Security would be a horrible mistake for unsophisticated investors (which includes most of us).

From Forbes, September 29.

Money & Investing

Suckers Wanted

…The big hedge fund story of the moment: accusations from crusading New York State Attorney General Eliot Spitzer that the hedgies are ripping off investors in mutual funds via secret trading arrangements with operators of the mutual funds. If anything, the scandal makes you want to invest in hedge funds, to get in on the illicit gains.

The untold story: Hedge funds are rotten investments, too. A good example of why you shouldn't have anything to do with them comes from Alpha Strategies I, a crossover product of sorts that is like a mutual fund in its mass-market appeal but like a hedge fund with its exotic strategies and high fees….

…do you want to invest in Alpha? Not if you have any brains.

Start with Alpha's murky disclosures, all too reminiscent of hedge funds….

The main reason not to own Alpha, though, is not its past performance but its steep fees, 4% of assets annually….

     This is just a brief excerpt of an extensive article criticizing the mutual fund industry. Investors who are interested in the investment implications of the article should go to the original source.

     The following three excerpts come from the same issue of The Wall Street Journal and, together, describe the disaster that health-care has become in the U.S.

The following three excerpts are from The Wall Street Journal, September 30.

Wal-Mart Cost-Cutting Finds
Big Target in Health Benefits

Restrictions, Tough Stance on Basic Claims
Keep Its Outlays Below the U.S. Average

BENTONVILLE, Ark.—Wal-Mart Stores Inc. is famous for cutting costs everywhere it can. Today a giant target for the world's biggest retailer is the health-care costs of its employees. Wal-Mart makes new hourly workers wait six months to sign up for its benefits plan and doesn't cover retirees at all. Its deductibles range as high as $1,000, triple the norm. It refuses to pay for flu shots, eye exams, child vaccinations, chiropractic services and numerous other treatments allowed by many other companies. In many cases, it won't pay for treatment of pre-existing conditions in the first year of coverage.

The payoff: Last year, average spending on health benefits for each of the company's roughly 500,000 covered employees was $3,500, almost 40% less than the average for all U.S. corporations and 30% less than the rest of the wholesale/retail industry, according to estimates by Mercer Human Resource Consulting, a unit of Marsh & McLennan Cos…. Wal-Mart has been using a team of six people to scour every state for the lowest-cost networks of doctors and hospitals….

"The problem is rising health-care costs," responds Jay Allen, Wal-Mart's senior vice president for public affairs. "We're grappling with it like everyone else."… Wal-Mart also is aggressive in controlling medical costs related to on-the-job injuries. The company says these claims are a related and additional expense on top of the 18% increase in its health-care outlays last year, a rise in line with industry averages.

Mittie Funderburk, 52, says she injured her back in 2000 while moving photo-lab merchandise in the San Angelo, Texas, Wal-Mart. She didn't report the incident until two months later, when growing numbness in one of her legs immobilized her. Her doctor prescribed surgery, and a second doctor, selected by Wal-Mart, concurred. Nevertheless, Wal-Mart fought the claim for months, first alleging Mrs. Funderburk hadn't reported the accident in a timely fashion and then arguing she didn't need the surgery….

Number of Americans Who Lack
Health-Care Coverage Is Rising

Census Bureau Counts 43.6 Million
As Employer-Based Plans Shrink

WASHINGTON—The federal government says 43.6 million Americans lacked health insurance last year. That's more than the population of the nation's 24 smallest states plus the District of Columbia, and it adds fuel to a growing debate about both the cost and availability of health care.

The figures, released early Tuesday by the U.S. Census Bureau, show that 15.2% of Americans didn't have coverage for all of last year, an increase of 2.4 million people from 2001, when 14.6% were uninsured….

More Companies That Self-Insure
Get Stuck With Huge Medical Bills

Some Insurers 'Laser' Sickest Workers

In the game of hot potato that health insurance has become, employers and insurers keep trying to pass rising health costs to each other. Now, insurers are using a tactic called "lasering," which shifts the costs of the sickest workers back into the lap of employers.

Typically, self-insured employers—a common practice under which a company pays most of its employee medical bills—contract with stop-loss, or reinsurance, carriers to pay catastrophic claims. This protects an employer from being hit with a single medical bill that could wreak havoc on its health plan.

But now, as employers seek to renew their stop-loss coverage or obtain new contracts, reinsurance companies are lasering, or carving out, severely ill employees from coverage….

     It’s time to face reality. Our health-care system is broken. It’s been taken over by investors who insist on outrageous corporate profits, greedy high-level corporate executives, and the politicians who support their every desire in Congress and the White House. The health-care of working-class Americans is irrelevant to them.

     Note that five separate members of the Walton family—of Wal-Mart fame—are among the richest 400 persons in the United States. And these selfish people not only don’t give their own employees decent health-care benefits, they are leading the corporate trend to give stingier benefits throughout our country.

     A single-payer government-sponsored program—as already successfully exists in many other civilized nations—couldn’t possibly be less efficient or more costly than our present system, and is long overdue.

     If the following article were to be published in the “biased liberal news media,” conservative critics would say that it was intended to make the U.S. look bad—to such an extent that it was unpatriotic to publish such nonsense.

     This excerpted article, however, came out in The Wall Street Journal, October 1.

U.N. Peacekeeping
Is a Troubled Art

Congo Mess Shows Rich Countries Send Money,
The Poor Send Troops— Operations Often Suffer

BUNIA, Democratic Republic of Congo—Earlier this year, while the world was transfixed by the war in Iraq, the Congolese district of Ituri was on the verge of genocide and the United Nations was in trouble. For months, the U.N. had searched for a military force capable of stopping another African holocaust. No significant power accepted the challenge.

With nowhere else to turn, U.N. peacekeeping chiefs dispatched to the war zone 840 Uruguayan soldiers. It was a moment of excitement for the men, who came from a country that hadn't fought a war in over a century, says one of their officers, Lt. Colonel Waldemar Fontes.

Their mood soon changed as they dropped unsuspectingly into a place they would later term the devil's caldron. Equipped only with rifles and a few armored personnel carriers, the Uruguayans were appalled to find tribal militias rampaging through the dusty streets with machetes and machine guns. Child soldiers chopped Hema residents to pieces and took body parts as souvenirs. Hundreds of cadavers littered the city. …

As the U.N. struggles for relevance in the wake of the Iraqi war, nowhere are its dilemmas and limitations more stark than in its peacekeeping campaigns in forlorn lands. The troubled effort in Bunia shows how the U.N.'s best-known function has languished, as world powers send money, not men, leaving the work to soldiers from the developing world. In effect, the rich countries subcontract the actual soldiering to poor nations….

Since 1995, no major power has put any of its combat troops under the U.N. flag. Instead, countries with bloated armies such as Pakistan, Bangladesh and Nigeria lead the U.N. peacekeeper ranks, lured by cash, on-the-job training and international prestige. "Western countries have essentially created a form of apartheid in peacekeeping," says David Malone, president of the International Peace Academy, a think tank in New York. "The toll is much-less-effective peacekeeping."…

The White House sees this notion of peacekeeping efforts outside the auspices of the U.N.—but with its blessing—as the right approach for Iraq. "We need to be flexible to have different models for different kinds of problems," says Kim Holmes, Assistant Secretary of State for International Organization Affairs. "What we are asking for Iraq falls under this new tradition or model. It's certainly not blue helmets under a U.N. command."

     Sounds almost like a model for what’s happening in the U.S. The rich “chicken-hawks” (those who have never been in a war, but are quite willing to send others) in Congress and the White House send our poor citizens (who have no other opportunity for employment) to war, while the rich collect war profits.

     The evidence against privatizing Social Security continues to build, as the underbelly of Wall Street exposes itself, from one prestigious firm to another prestigious firm.

From The Wall Street Journal, October 2.

Fund Probe Reaches Prudential

Departures of Brokers in New York,
Massachusetts Come on Suspicion
Of 'Market Timing' Mutual Funds

A dozen stockbrokers and managers for Prudential Securities resigned under pressure after their mutual-fund trading for clients raised suspicions of improper "market timing," say people familiar with the matter….

Mr. Collora (an attorney for five brokers in Prudential's Boston office ) declined to name the mutual funds his clients traded but said they included Prudential funds. "I couldn't even begin to list them," he said. "They are numerous." Mr. Collora said the brokers were working on behalf of hedge funds, investment pools for the wealthy and institutions….

The investigations into market timing increasingly are noting the involvement of fund managers. One reason managers might have allowed timers to trade in and out of their funds—despite the fact that such trading can cut into a fund's returns—is that many managers have their compensation tied to how much money they control.

     Prudential Financials entices new investors with the following assurance: “Our goal is to help you grow your wealth and to help you keep it. As a leader in asset management and insurance, we have the experience and services you need.” Of course, the rookie assigned to you will be competing with their real brokers who are “working on behalf of hedge funds, investment pools for the wealthy and institutions.”

     The following three excerpts go together, since they are directly related. It should be obvious why, but in case you’ve been in a cave for the past 20 years, their connections will be explained below. All three are:

From The Wall Street Journal, October 3.

Grasso Pushed Specialist
To Boost AIG Stock

Former New York Stock Exchange Chairman Dick Grasso pressured a major Big Board floor firm to increase its purchases of shares of giant insurer American International Group Inc. after Mr. Grasso received written complaints from AIG Chairman Maurice "Hank" Greenberg, according to people familiar with the matter.

The unusual move involving buying of one of the Big Board's largest stocks raises questions about whether Mr. Grasso favored AIG because of Mr. Greenberg's previous role as an NYSE director and member of the board's compensation committee. Mr. Greenberg was on the NYSE's compensation committee when the controversial employment contract that ultimately led to Mr. Grasso's ouster was developed and approved….

Through a representative, Mr. Grasso declined to comment….

The disclosure comes amid a continuing exchange investigation into the practices of the floor's elite specialists. The exchange is examining whether some specialists, including Spear, stepped between valid buyers and sellers of stock to make trading profits for themselves, rather than for investors….


Executive Pay Keeps
Rising, Despite Outcry

The public furor that prompted Dick Grasso's forced departure from the New York Stock Exchange in September drove home a stark point to corporate managers: Even a well-regarded chief executive officer can be sacked largely because he made too much money.

The incident aggravated the ongoing tug of war between investors and management over how much CEOs should be paid. Surprisingly, despite all the negative publicity, many big-business bosses continue to win this battle as they find new forms of compensation to make up for more modest salary increases and bonuses paid during the economic downturn.

CEOs' total direct compensation at major U.S. corporations jumped 15% to a median of $3,022,505 in 2002, according to a proxy analysis done for The Wall Street Journal by Mercer Human Resource Consulting. And compensation is expected to rise again this year, say pay consultants and attorneys who negotiate CEO contracts….

Indeed, an early look at 2003 pay deals shows how corporate titans keep piling up the dough. The median cash bonus rose 26% to $605,000 for the heads of 69 big companies whose fiscal year ended between Jan. 1 and June 30, while the 17 of those chiefs with restricted-share grants saw the grants' median value soar 73% to $2.31 million, according to a proxy analysis set for release next week by pay consultants Equilar Inc. of San Mateo, Calif….


Scandal Scorecard

Jury selection began this week in the trial of L. Dennis Kozlowski, the former chief executive of Tyco International accused of looting the conglomerate of hundreds of millions of dollars. Testimony started in the trial of Frank Quattrone, a former star investment banker at Credit Suisse First Boston, on charges that he obstructed justice. Former Rite Aid general counsel Franklin C. Brown also went on trial, on charges of conspiring to defraud shareholders and orchestrating a massive coverup.

Those are just three of the more than a dozen corporate scandals that rocked Wall Street, shattered reputations and cost investors hundreds of billions of dollars. A few of the executives involved have pleaded guilty, others are fighting charges and still more are waiting to see if they will be indicted. Very few of the top executives have been convicted, leading to a sense that this sorry chapter in American business is far from closed.

Here is a status report on the corporate carnage and principal players:
(Readers who wish to read in detail about they myriad ways in which corporate executives can rape consumers, the government, and even their own investors, should read the original article. The following are just the listing of corporations described—some have been among our most prestigious American “stars.”)

Adelphia Communications Corp. …


Enron Corp. …

Global Crossing Ltd. …

HealthSouth Corp. …

ImClone Systems Inc. …

Merrill Lynch & Co. …

Qwest Communications International Inc. …

Rite Aid Corp. …

Tyco International Ltd. …

WorldCom Inc. …

Xerox Corp…

     These three articles in a single issue of The Wall Street Journal illustrate the total corruption of our entire American corporate culture. The last article just describes the corporate executives who got caught.

     Bear in mind that Grasso’s behavior would never seen the light of day had it not been for a much broader investigation of his overall job performance and recent practices of the New York Stock Exchange.

     The outrageous incomes of practically all the Chief Executive Officers of our major corporations are, in themselves, indictments of their moral standards. A review of other articles throughout this website demonstrate that workers, consumers, and investors are paying dearly for those high incomes via higher prices, scarcities, lost jobs, inadequate health care—and on and on.

     These clowns couldn't get away with all this skullduggery if it weren't for sympathetic politicians in Washington. It’s time for a regime change in in our national government.

Week of September 22

     Now, for the real reason drug companies are so concerned about counterfeit medicines and the public’s safety:

From The Wall Street Journal, September 22.

Drug Companies Cry
'Danger' Over Imports

The pharmaceutical industry is sounding alarms about what it calls a growing danger from counterfeit medicines—especially in drugs bought abroad. The tough talk is a break from drug makers' traditional reluctance to put even the slightest dent in consumers' confidence for fear it could discourage them from filling prescriptions.

But drug companies have found that the specter of bogus medicine is a forceful lever for moving public and policy-maker opinion in the U.S. against imports.

Counterfeits may be a growing problem, but so far, the documented risks pale next to the rhetoric where imports are concerned. In Canada, the main source of drug imports to the U.S., authorities say they haven't detected problems in the supply there. "We're not aware of any counterfeit activity at this time," says Jirina Vlk, a spokeswoman for Health Canada, that country's equivalent of the U.S. Food and Drug Administration.

Drug-company profits are threatened as more Americans buy their medicines from cheaper markets, particularly Canada. IMS Health, which tracks prescriptions, estimates that American consumers are buying $350 million to $650 million in prescription drugs annually from Canada, either over the Internet, by mail order or by driving across the border.

The potency of the safety issue became apparent to the Pharmaceutical Research and Manufacturers of America, or PhRMA, the principal trade group for U.S. makers of brand-name drugs, after it engaged Edelman, a public relations concern based on Chicago and New York, to help develop a communications campaign that would dissuade Americans from importing prescription medicines.

Edelman convened focus groups of people without drug-insurance coverage in St. Louis, Detroit, and Fort Lauderdale, Fla., in March. The firm's report on the research asserts that "fear and accountability 'move the needle' of consumer perceptions" the most. The report recommends that the U.S. industry question the safety and effectiveness of medicines procured elsewhere….

The testing by Edelman indicated that the illegality of drug importation has little effect on consumers' perceptions or their likely behavior. "So what? Speeding is illegal as well," said one focus-group participant, according to the memo. While older people in the groups were less inclined to risk breaking the law, the report says, consumers with a "larger financial burden/higher prescription drug usage" are less likely to worry about abiding by the rules….

Several drug makers, including Eli Lilly and Pfizer Inc., are providing financial support to the National Association of Chain Drug Stores for an effort to combat illegal drug imports. "International mail order is downright dangerous," says Larry Kocot, the group's senior vice president and general counsel. Meanwhile, one of the highest-profile Canadian companies that exports drugs to U.S. consumers defends its safety record. "All of the drugs that we ship into the U.S. from Canada are approved by Health Canada," says Daren Jorgenson, president of American Drug Club, of Winnipeg, Manitoba. "Billions of dollars have been sold into the U.S. over the last four and half or five years from Canada with no reports of injury or death as a result of a counterfeit, outdated or substandard product."

     The big question is why buying drugs from Canada should be illegal in the first place. Isn’t that what the conservative mantra of “free trade in all things” is all about? Of course not. If free trade will cut into corporate profits, it’s lobbyists make sure their stooges in Washington make it illegal.

     Since many Americans see little moral wrong in cutting into corporate profits that are obscene to begin with, about the only course left to the pharmaceutical companies is to deliberately lie to the public with trumped-up charges of supposed dangers.

     Want more demonstration of the real reason for “globalization”? This excerpt demonstrates what is left of the power of labor unions to protect American jobs.

From The Wall Street Journal, September 22.

GM, Ford Win UAW Permission
To Close or Sell Eight Facilities

DETROIT—General Motors Corp. and Ford Motor Co. won permission from the United Auto Workers to close three assembly plants and to sell or close five other facilities under terms of the four-year contract agreement struck last week.

In a contract summary prepared by the union, the UAW said it gave GM clearance to close a Baltimore assembly plant that builds vans. The factory employs about 1,100 workers. The UAW is also allowing GM to close an auto-parts factory in Saginaw, Mich., and to sell a GM division that builds locomotive engines. The union also said that it will allow GM to close the Argonaut Building, a Detroit structure that once housed photographic and real-estate offices. In total, about 3,000 GM workers are affected….

Ford said it won UAW approval to close or sell four plants, affecting 4,500 people. Ford will close two assembly plants: a small pickup-truck factory in Edison, Ill., which employs 863, and a full-size van plant in Lorain, Ohio, that has 1,640 workers. Ford will also close Vulcan Forge in Dearborn, Mich., and Cleveland Aluminum Casting in Ohio….

DaimlerChrysler AG, in its deal with the UAW , got union clearance to close or sell five of nine operations the company has deemed uncompetitive. About 4,700 workers at the company are affected.

     Republicans and conservative Democrats finally have American workers where they want them. Unions have almost totally lost their power to protect jobs. They either agree to more lost jobs—and thus retain some jobs for the immediate future—or they totally lose all their jobs to manufacturers who have no commitments to the moral treatment of workers.

     And this is just the beginning of the end, as American auto manufacturers get totally out of the business of making cars. They are becoming investment bankers—not auto makers—by outsourcing every aspect of manufacturing, even including the assembly of the vehicles, to those countries with the lowest labor costs.

     Business Week joins the crowd in condemning the mutual fund industry. If there were ever any doubt, there isn’t now: As an industry, America’s mutual funds are concerned only with their own profits and incomes, and could care less about the welfare of their investors.

From Business Week, September 22.

How to Fix the Mutual Funds Mess

Hidden fees, lax boards, and now scandal. Here's what has to be done

Used to be, the worst you could say about a mutual fund was that it lost money. Nowadays, there's worse: losing money dishonestly. Thanks again to the crusading efforts of New York State Attorney General Eliot Spitzer, some mutual-fund managers have made the growing list of investment-industry professionals willing to sacrifice investors' best interests for the sake of profits.

On Sept. 3, Spitzer tore the veneer from the almost pristine, 79-year-old fund business. In a $40 million settlement with hedge fund Canary Capital Partners, he outlined a series of improper practices in the trading of mutual-fund shares. Not only were four blue-chip companies implicated—Bank of America, Bank One, Janus Capital Group, and Strong Capital Management—but dozens of others, Spitzer suggested, schemed to bilk investors of billions each year. "Looks like they are taking advantage of investors like everyone else on Wall Street," says James Punishill, an independent analyst with Cambridge (Mass.)-based Forrester Research Inc….

Representative Richard H. Baker (R-La.), the author of a mutual-fund reform bill watered down after pressure from industry lobbyists earlier this year, is sharpening his pencil. And the Securities & Exchange Commission—already miffed over negligent boards, hidden fees, and conflicts plaguing both the mutual and hedge-fund businesses—plans a rulemaking push in coming weeks….

Who's watching out for you? Certainly not the fund's board of directors. Most rubber-stamp management's recommendations, and few bother to negotiate lower fees. The largest mutual funds, in fact, pay money-management advisory fees that are more than twice those paid by pension funds….

Mutual-fund companies have had three years of watching their stock portfolios plunge, and fees along with them. That has tempted some to get creative about enhancing their profits, which has gotten them into hot water with regulators. "Salesmanship and not enough stewardship" rule the day, quips Vanguard's Bogle….

     Again—from one of America’s top conservative financial publications—a solid argument against privatizing Social Security. Note that this is just a brief excerpt from an extensive article that describes the many ways mutual funds and Wall Street takes ruthless advantage of sophisticated, as well as unsophisticated, investors. (As New York State Attorney General Eliot Spitzer put it, they: “…schemed to bilk investors of billions each year. ‘Looks like they are taking advantage of investors like everyone else on Wall Street.’”)

     In the U.S., we live in a world of auction markets. That means that the more money other people have, in effect, the less you have. Nowhere is this more evident than in medical care.

From The Wall Street Journal, September 23.

At One Hospital,
A Stark Solution
For Allocating Care

Galveston Facility Cuts Drugs,
Treatments for the Uninsured

GALVESTON, Texas—Joan Richardson, chief medical director at the hospital of the University of Texas Medical Branch, faced an agonizing decision: Should she approve a $1,500 drug for a 52-year-old woman with metastatic breast cancer?

The patient had no money, no insurance and rapidly fading hope. Three powerful cancer drugs had failed to help her. A fourth, exemestane, offered a slim chance, but strict rules at the hospital barred the drug from being given to patients who couldn't pay for it. Dr. Richardson would have to authorize the money to come from a $25,000-a-month drug fund for indigents—meaning some other poor person who needed a costly drug might not get it….

The rules restricting drugs at this 795-bed hospital are part of a bold experiment in allocating health care at a time of rising costs. In most other U.S. medical centers, decisions about who gets scarce resources such as expensive drugs and surgical procedures are often made on an ad hoc basis—with few formal guidelines for doctors and nurses on how to help their patients while hewing to budget restrictions.

But UTMB, as this state-supported hospital is known, has developed a detailed playbook to help determine exactly who gets treated and who doesn't. Its rules require that patients undergo financial screening before they can be admitted and that virtually everybody pay a fee before seeing a doctor. For patients who are poor or uninsured, the rules restrict or proscribe the use of certain drugs and treatments….

Unlike most hospitals, UTMB is also blunt about its need to limit some services on financial grounds. "We are rationing," says John Stobo, UTMB's 62-year-old president and chief executive….

     Rationing medical care—which, in effect, often eliminates health care for the uninsured or poor—is not the fault of specific hospitals or doctors. They have limited budgets and have no easy choices in the matter.

     The fault is in the health care system itself—from insurers to drug companies to legal firms to administrators: top corporate executives are making multi-millions in income, corporations are making huge profits, and millionaire and billionaire investors are cleaning up on the stock market. Those inflated incomes result from the huge prices charged for everything from the health care itself to the insurance people must pay to protect themselves.

     In a broader context, the stagnant wages of workers over the past 30 years, reduced income taxes on the wealthy, and federal legislation that favored investors over workers—have resulted in many people not having enough money to meet the inflated costs of health care or insurance, while others, who have financially benefited from this inflation—have no problems with the system.

     Those who fight for a system that rations health care —Republicans and conservative Democrats—don’t want it changed because it results in less corporate profits and may increase tax rates on the wealthy. Naturally, they charge anyone who tries to make the system more equitable as being socialists or communists.

Actually, they are just capitalists who have a conscience.

     Public outrage about Dick Grasso’s 140 million dollar payoff stimulated all kinds of counterspin from America’s right-wing. After all, the public’s acceptance of greed as a new American virtue is crucial to our established wealthy. It’s an important factor in keeping voters from electing politicians who will bring back a progressive tax system.

     The following excerpt from a The Wall Street Journal editorial is typical of the conservative spin.

From The Wall Street Journal, September 24.

Who Decides How Much Is Too Much?


In all the folderol about Dick Grasso's paycheck last week, one question worth pondering is how did it come to be everybody's business what he was paid? The money isn't yours or mine but comes out of the revenues of the New York Stock Exchange, owned by its 1,366 seatholders. They're the ones who get socked with the costs of the exchange (including the onerous new "technology" fee that keeps the exchange's head above water these days)….

Whatever you think of the exchange's defenestrated impresario and its goofy board of directors, the spectacle put on by Mr. Grasso's critics was hardly more attractive, full of self-righteousness and the kind of chicken-bleep hostility that isn't even brave enough to find its own target but simply looks around for a socially approved punching bag. The mob's behavior, rather than Mr. Grasso's, may end up supplying the odor that lingers.

Perhaps it's time to remember that fat pay—even misguidedly fat pay—is not an offense against anybody's rights. Luck was the biggest factor in tipping over the old salary scale at the exchange….

It's no skin off anybody else's back if his employer paid him too much, and looking over the past 20 years, one might readily conclude that we all benefit from the willingness of companies to wave big money carrots in front of their servants….

Little hissyfits of envy, like the one we witnessed in the Grasso case, might seem an expensive luxury when measured against the benefits of a fertile, lively economy, even one that occasionally offends us by delivering dramatic paydays to a few conspicuous public figures. David Altig, an economist at the Cleveland Fed who has studied income inequality, once put the anti-envy case this way: "I would gladly see you gain a zillion dollars of real income if doing so would obtain a billion for me, even if the distribution of our incomes becomes more unequal in the process."…

     The absurdities in this editorial are too numerous to deal with briefly. However, the crucial economic fallacy—that this editorial suggests, and that needs to be exposed to public scrutiny—is that wealth is not a zero-sum game.

     Wealth is a zero-sum game. When Jenkins Jr. questions “how did it come to be everybody's business what he was paid?,” he suggests that no one is hurt when Mr. Grasso’s investment advisors buy hundreds of rental homes for the benefit of his heirs. Those homes are taken off the market, and the prices of housing and rents continue to go through the ceiling—at great cost to the poor and middle-class.

     “The money isn't yours or mine but comes out of the revenues of the New York Stock Exchange.” Not true. The money did come from you and me, in the form of higher prices for the products and services that ultimately financed the entire financial community in New York.

     "Luck was the biggest factor in tipping over the old salary scale at the exchange." Not true. Luck had nothing to do with it. It was all part of a planned strategy by the "good 'ol boys club" to feather each others' nests, and at the direct expense of the clients of the New York Stock exchange. It's the same strategy that corporate executives have been using for the entire century, but especially in the past 25 years.

     “Little hissyfits of envy, like the one we witnessed in the Grasso case, might seem an expensive luxury when measured against the benefits of a fertile, lively economy, even one that occasionally offends us by delivering dramatic paydays to a few conspicuous public figures.” Wrong. It’s not envy, it’s anger. Anger against the greedy jerks at the top of our society who have destroyed working-class wages for the past 25 years—just so they could be incredibly rich. This “lively economy” has been a boon to rich investors and top corporate executives, primarily because it was a premeditated disaster for America’s workers.

     "I would gladly see you gain a zillion dollars of real income if doing so would obtain a billion for me, even if the distribution of our incomes becomes more unequal in the process." That’s probably true at the billion- and million-dollar levels. But it’s not true at the level of working-class wages. They’ve been stagnating for the past 25 years, while the rich have driven up the costs of everything from medical care to rents.

     The fallacy, “wealth is not a zero-sum game,” is one of the most important propaganda ploys of right-wing America, and it needs to be confronted at every opportunity.

     Good times have come back for investors: companies are announcing employee cutbacks and the stock market is celebrating.

From Barron's, September 22.

Sackings Help Some Stocks Surge

…While the most recent data released Thursday showed fewer people filing for state unemployment insurance, other disquieting trends suggested an overall deterioration in the jobs scene. The four-week moving average of jobless claims, considered to be a truer, less volatile measure, rose to 410,750 for the week ending Sept. 13 from 408,750 the previous week. The number of jobless drawing benefits rose to about 3.7 million in the week ended Sept. 6, the highest level since late June. In leaving interest rates unchanged at 45-year lows Tuesday, the Federal Reserve's Open Market Committee cited the fragile jobs picture.

Nonetheless, investors focused on the sunnier side of the stats, including a steadily improving leading-indicators index, which has risen four months in a row, as well as two straight weeks of lower mortgage rates. Broader averages shot higher, rallying more than 100 points on Tuesday and Thursday, and reached new 52-week highs by week's end despite giving back some gains in Friday's volatile "quadruple witching," in which four sets of options and futures contracts expire. The Dow Jones Industrial Average gained 1.8% to end the week at 9644.82, and the S&P 500 rose 1.7% to 1036.30, levels not seen in 15 months. The Nasdaq powered ahead by 2.7% to close the week at 1905.70, breaking through the important 1900 mark, putting it nearly back to heights reached in March 2002.

Indeed, contrary to being concerned about weakness in the job market, investors showered largesse on those companies that continue to cut costs.

Long-distance telecommunications provider Sprint vowed Wednesday to cut expenses by 5%-7% in the next three years by eliminating $1 billion a year. The number of job losses expected wasn't specified… Sprint PCS, which reflects the wireless business, advanced nearly 5% to 6.10….

Wednesday, R.J. Reynolds Tobacco Holdings said it planned to cut 2,600 jobs, or 40%, of its workforce in the next year, mostly at its Winston-Salem, N.C., headquarters….

RJR stock jumped 16% after the announcement to end the week at 39.81….

     People don’t remember that back in 1960, college professors, economists, politicians and corporate executives were promising workers that they would benefit from increased corporate profitability, and that they should contribute their best efforts to help it happen.

     Just as the 60-70 hour workweek of the 1920s gave way to the 40-hour workweek—and better working conditions and better benefits—employees could look forward to a 3-day, 30 hour workweek and even better benefits.

     That’s before the 1980s and conservative economics and the adulation of greed came along. Now, employees are simply an expense to be minimized. (“investors showered largesse on those companies that continue to cut costs.”) Today the only ones who profit from the corporation’s successes are the investors and top corporate executives. The employees who made the corporation successful to begin with get sacked.

     It has nothing to do with fairness, or even sound economics. It has everything to do with power, and today—because of their Republican representatives in government—corporations have all the power and employees have none.

     Anyone who doubts that Clinton and Gore were disasters for working-class Americans should read the editorials in The Wall Street Journal.

     Whenever the Journal supports someone, you know it’s got to be a bad sign. And when they oppose the leading Democratic presidential candidates—for opposite reasons—you know it's got to be a good sign for them.

A The Wall Street Journal editorial, September 25.

Trading Places

…We had our differences with Bill Clinton, but there's no doubt one of his achievements was leading his party away from protectionism. Open trade was a pillar of his New Democrat philosophy. He and Al Gore routed the AFL-CIO and Ross Perot to pass Nafta in 1993, followed by bills to create the World Trade Organization and allow most-favored nation trading status for China. A decade later all three have contributed to American prosperity.

But without a Democrat looking out for the national interest from the Oval Office, the party is now slipping back toward trade parochialism. On Capitol Hill, the party's regional and union interests have become dominant; most Democrats opposed giving President Bush new trade negotiating authority last year. More ominous still is the rhetoric coming from the Presidential candidates….

The Democrats insist they don't oppose free trade but only that any new trade agreements must have "labor and environmental standards" written into them. Dr. Dean has told several interviewers that he would withdraw from the World Trade Organization and Nafta if they weren't altered to ensure that foreign workers have "the same labor laws and labor standards and environmental standards" as the U.S….

     Realize what the Journal is saying here. Clinton/Gore “routed the AFL-CIO and Ross Perot….” In other words, they joined the Republicans and the conservative cause and betrayed the interests of workers, which resulted in the giant sucking sound of jobs leaving the U.S., which Ross Perot and many others predicted.

     The “decade of prosperity” that it created was actually the Journal’s version of prosperity: stagnant wages, soaring corporate profits, and a skyrocketing stock market.

     And its been downhill for American workers ever since.

Week of September 15

     This is typical of the news coming from the conservative press today: greatly increased productivity as a result of technological advances, rising corporate profits, a great stock market, and signs that the present economic recovery will continue.

     The news for workers, however, isn’t as rosy. They get laid off, replaced by outsourcing, and experience increased job pressures because of competition from other corporations, etc.

From Business Week, September 15.

Productivity: Still Getting Stronger

Tech-driven productivity is powering profits, stock prices-and now, spending

It has been a long time since prospects for the U.S. economy looked this good. Profits are up, capital spending is rising, and inflation remains under control. Even ailing manufacturers are showing signs of life, with the Institute for Supply Management reporting on Sept. 2 an upswing in factory orders and production. And following the second quarter's surprisingly strong 3.1% gain in gross domestic product, economists are scrambling to revise their second-half forecast skyward. Many now think growth could finish the year at a healthy 4% clip.

But the most important news is the continuing surge in productivity….

The continued surge in productivity is a key reason why profits have strengthened considerably in recent quarters even as growth remained tepid. Even now, pricing power remains nonexistent in many sectors, and capacity is excessive. Yet ever-improving productivity has enabled companies to squeeze costs and rebuild their bottom lines….

Yet technology explains only part of the productivity boom. Economists also failed to appreciate how tighter management could contribute to efficiency gains year after year. Practices such as benchmarking performance against comparable companies, outsourcing, use of temporary workers, and business-process redesign have not only raised the level of productivity but raised the rate at which companies improve. Companies are also quicker to resort to layoffs. Painful though that might be, it helps avoid the big drops in productivity that come from having far too big a workforce when orders dry up….

That means that over the longer term, the economy is capable of higher growth without inflation than many economists have predicted. If long-term productivity is now closer to 3% and the labor force is growing at 1% a year, output can grow steadily at roughly 4%.

There is a downside, of course. While it's good for the economy as a whole, rising productivity accounts for the jobless recovery the U.S. has seen so far -- and will continue to see for some time. Since rising productivity lets companies meet new demand without adding workers, GDP will have to grow at a higher rate than in the past before new jobs are created. Most economists think it will take a long period of growth above 4% for the unemployment rate, now over 6%, to fall back to 5% or so….

     What’s missing from this article is any mention of corporate obligations to its own workforce, or any moral consideration of the inequity of giving all the results of improved productivity to just investors and the top corporate executives.

     This is a direct violation of the promises that were made to workers during the 1950s, ‘60s, and ‘70s—when they were encouraged to put their best ideas into productivity improvements. Economists and politicians of those decades promised workers that they would continue to benefit from productivity improvements, just as they had during the previous three decades.

     Economists, politicians, management consultants and corporate executives were promising 35 hour work weeks, 5 week vacations, better health, education and pension benefits, etc.

     With the arrival of the 1980s and conservative economics and politics, all promises were to workers were forgotten. All the benefits of productivity go to investors and senior corporate executives, and workers are forced to work harder than before, because they must compete with workers from impoverished countries.

     When will the insanity stop? In the not too distant future, the only jobs left in the U.S. will be those that require a physical presence in this country. Jobs like waiters and waitresses, dentists, garbage handlers, and retail clerks.

From Barron's, September 15.

Call-Center Shuffle

As telemarketing jobs vanish or migrate, who'll absorb the glut of space left behind?

…So many call-center jobs that were moved to rural areas are now being pushed to cheaper Ireland, India and the Philippines….

Other firms closing call centers: Starwood Hotels & Resorts Worldwide, Harrah's Entertainment, Best Western International, InterContinental Hotels, Marriott Vacation Club, Cendant and Carlson Hospitality Worldwide. Carlson, which operates a number hotel brands, including Radisson and Regis International, has closed its call center in Albuquerque, N.M., consolidating those jobs into its Omaha, Neb., center. But that's its only remaining call center in the U.S. The others are in Mexico City, Dublin, and Sydney, Australia.

Technology and telecommunication call-center jobs are being transferred overseas, too. Earthlink, according to The Wall Street Journal, shut six of nine such U.S. facilities, opening a large center in India. Other companies moving overseas for customer service include AOL, Yahoo and IBM. Convergys, which provides customer service, technical support and telemarketing services, employs thousands in India and the Philippines. And it's not just the lower salaries. Many foreign call-center workers are university graduates—unlike most of those in the U.S….

So while call centers business should continue thriving—despite Do Not Call and the Internet—the real estate it will occupy is, increasingly, outside the U.S.

     These jobs are leaving our country because conservatives have created a political climate that has shifted all the power to corporations and away from workers. Corporations can drive down wages with impunity, and that’s exactly what they are doing when they abandon American communities and go to other countries. And that’s the only reason they’re doing it.

     Think of the following article the next time huge media corporations lobby Congress to pass laws which will allow them to swallow even more of the media.

From The Wall Street Journal, September 15.

How Media Giants Are
Reassembling The Old Oligopoly

Mix of Broadcast, Cable Proves Lucrative
In Making Many Deals, Promoting Shows

Two years ago, Mattel Inc. gave CBS a choice. The network had refused to broadcast the toymaker's movie "Barbie in the Nutcracker" in prime time. So Mattel threatened to pull millions of dollars of advertising from the Nickelodeon cable channel—owned by CBS parent Viacom Inc.

Viacom, which had spent a decade bulking up with acquisitions, now wielded its new clout, according to people familiar with the situation. If Mattel made good on its threat, Viacom said, it would be blacklisted from advertising on any Viacom property—a wide swath of media turf that also includes MTV, VH-1, BET, a radio broadcasting empire and even billboards. Mattel backed down, and the Barbie movie ended up running during a less-desirable daytime period….

…the media giants have discovered that owning both broadcast and cable outlets provides powerful new leverage over advertisers and cable- and satellite-TV operators. The goliaths are using this advantage to wring better fees out of the operators that carry their channels and are pressuring those operators into carrying new and untried channels. They're also finding ways to coordinate promotions across their different holdings….

Entertainment giants such as Viacom, NBC parent General Electric Co. and Walt Disney Co., which owns ABC, now reach more than 50% of the prime-time TV audience through their combined broadcast and cable outlets….

The big media companies are quietly re-creating the "old programming oligopoly" of the pre-cable era, notes Mr. Wolzien, a former executive at NBC. Of the top 25 cable channels, 20 are now owned by one of the big five media companies….

     Sounds like a true gentleman’s industry—with high moral standards for serving the public’s interest—doesn’t it?

     Finally some good news. Poor countries are coming to the defense of their small farmers, and not all agricultural trade policy will be geared to benefit the huge corporate farms of rich countries.

From The Wall Street Journal, September 15.

Trade Talks Fail Amid
Big Divide Over Farm Issues

Developing Countries
Object to U.S., EU Goals;
Cotton as a Rallying Cry

CANCUN, Mexico—In a severe blow to the future of global trade negotiations, talks here among 146 countries collapsed in a dispute between rich and poor countries who failed to bridge differences over farm subsidies and other issues that have plagued trade-liberalization efforts for years….

From the start, however, the talks in this Caribbean resort exposed raw differences between the world's rich and developing countries over what further trade liberalization means.

The talks all along hinged on how deeply the rich countries, particularly Europe, would be willing to slash their huge farm-subsidy programs. Developing countries say the $300 billion a year in rich-country farm payments depress world-wide crop prices, making it difficult for their own farmers to compete….

"The pretense of the development objective has finally been rejected and discarded," said a furious Indian Commerce Minister Arun Jaitley. Instead of special treatment for poorer countries, he said, the WTO was creating new carve-outs for powerful developed countries.

Some delegates said the shifting balance of power within the WTO contributed to the impasse. Not long ago, the U.S. and the EU could largely dictate events at the global trade body. But developing countries have become increasingly well organized and willing to throw their weight around….

The following two articles from the conservative press demonstrate why

  • small investors usually get taken by Wall Street,

  • investment professionals and exchange officials drain huge amounts of money from the system with their outrageously high fees and salaries,

  • improper trading practices by insiders take advantage of little investors, and, in sum,

  • why Social Security should not be privatized.

From Business Week, September 15.

How Eliot Spitzer Makes the SEC Look Stodgy

Will Spitzer's mutual-fund probe get the feds moving faster?

Eliot Spitzer, New York State's attorney general, is at it again. Like Batman out to save a sordid Gotham City, he continues to pursue and torment the professional investment community, vowing to end everything from fraud to conflicts of interest that affect investors. Now, he's taking on the mutual-fund industry.

On Sept. 3, in an energy-infused press conference, Spitzer said "illegal trading schemes" allowed at least one hedge fund to buy mutual-fund shares at prices that were not available to most other investors….

But while Spitzer continues to grab headlines, many wonder: Where is the Securities & Exchange Commission?… Now, expectations are high that Spitzer's big splash will spur the SEC to adopt those measures quickly, and perhaps more….

Says Mercer Bullard, a law professor at the University of Mississippi and founder of Fund Democracy, a mutual-fund advocate: "The real failure has been on the enforcement side. The SEC has done nothing to show that it really means business."…

Says Russel Kinnel, Morningstar's director of fund analysis: "One of the reasons that funds are so popular is the perception that they're very ethical—they supposedly treat the little guy like the big guy. But clearly, they haven't done that here."…


From Business Week, September 15.

The $140,000,000 Man

What Dick Grasso's excessive payout reveals about how he runs the New York Stock Exchange

… To Grasso's detractors, what matters most is not his financial performance but his moral leadership—and in that realm, they maintain, Grasso is sorely wanting. On Sept. 2, SEC Chairman William H. Donaldson fired off a letter demanding that the NYSE explain, in detail, how it determined Grasso's pay package. And as if to drive home the point, the SEC released the letter, which contained an extraordinary public bawling-out of a sitting NYSE chairman. "In my view," Donaldson wrote, "the approval of Mr. Grasso's pay package raises serious questions regarding the effectiveness of the NYSE's current governance structure." Even before the paycheck bombshell, institutional investors were going public with long-festering complaints about improper practices on the NYSE trading floor…. … the public's patience with the NYSE is growing short. For years, Dick Grasso has been the undisputed overlord of a private entity that all too often has paid lip service to its public purpose. It's a long-running act. But an experienced showman like Grasso ought to know better than anyone when a long-running act is starting to wear thin.

     As if the credit card industry needed another example of how they deliberately “educate” the most vulnerable members of the public to become financially irresponsible—here’s another one.

From The Wall Street Journal, September 16.

A Bonus for Blowing Off Your Bills

Credit Cards Offer Rewards
For Carrying a Balance;
5% Back vs. 13% Interest

"Hey—We know you're not dumb," says the come-on from Citigroup. "You can tell a good deal when you see one."

Then comes an offer of questionable generosity: Up to 3% cash back on all credit-card purchases—but only during months when you don't pay off your monthly balance.

Just when you thought you'd seen everything from the credit-card industry, now come cards that reward customers for not paying their bills. The conventional wisdom is that it rarely makes sense to carry a balance on a credit card. But, in fact, 61% of Americans do. That accounts for the bulk of credit-card company revenues, making it only a matter of time before the industry's rewards-and-miles obsession came rolling their way….

Do the extra rewards from these rewards-for-debts credit cards compensate consumers for the interest costs associated with carrying a balance? Almost never, since the interest charges range from 8.99% to 16.99%….

Still, some of the pitches are aimed at people who are just beginning to learn about credit and managing their own finances. The Citibank card is targeted specifically at students. It offers 3% cash back on all purchases but only during months when you don't pay off your entire bill. Write a check for the full amount each month, however, and there's no rebate at all….

     Incredible. And the executives of these companies probably have advanced degrees in some of America’s most prestigious colleges and universities. Aren’t any of them teaching ethics?

     If you need any more reasons to believe that our health care industry in broken and needs substantial revision, check the article below.

From The Wall Street Journalk, September 16.

Health Club:

Behind Medicare's Decisions,
An Invisible Web of Gatekeepers

TUCSON, Ariz.—One evening in 1986, while Chris Erringer was sitting in his Toyota Land Cruiser, a stranger approached him and shot him under the right eye….

The attack left Mr. Erringer a quadriplegic, with painfully knotted back and neck muscles….

Then, in September 1999, came a letter that would change his life again. Medicare would no longer cover the injections. "It didn't really explain why," he says. "It just said no."…

Finding the answer took Mr. Erringer more than a year of frustrating arguments and appeals, a legal crusade that turned into a class-action suit against Medicare's bosses. The decision-makers, it turned out, weren't in the massive Baltimore headquarters of the federal Centers for Medicare and Medicaid Services, which runs the Medicare program for nearly 40 million elderly and disabled Americans. The real authority lay in the hands of a North Dakota insurance company—one of the hidden gatekeepers of American medicine who ration health care.

About two dozen of these government-contracted insurers handle the claims for doctor visits and hospital outpatient procedures submitted to the $250 billion-a-year federal program. The Medicare agency, commonly known as "CMS," sets national policies on coverage for some items, including expensive new technical advances.

But the agency gives the insurers--whose territories cover multiple states or even whole regions—broad authority to fill in the blanks, laying down local rules on what Medicare will cover and what it won't. The result: Decisions on everything from trigger-point injections to psychiatric services to the use of ultrasound and CT scans are in the hands of the insurers and their little-known medical directors….

"It's rationing. It's a way to limit things," says Grant Bagley, a former top Medicare coverage official who now represents manufacturers, providers and beneficiaries as a partner at the Arnold & Porter law firm in Washington….

     Not covered in this article about the invisible gatekeepers who ration health care—are the outrageous incomes of all the top players in the medical industry who have made it so expensive in the first place: hospital and HMO administrators, health insurance executives, pharmaceutical industry executives, many doctors and specialists, and the investors in all aspects of the health care industry who put pressures on executives for excessive profits.

     The following two articles go together. As frequently noted about other articles in this website section, they demonstrate the disaster that would follow privatizing Social Security.

From The Wall Street Journal, September 17.

Struggling to Retire on $1 Million

Advice for a Thrifty Couple
Overexposed to a Few Stocks;
Getting Past a Fear of Bonds

Jim and Sue May have accomplished the dream of so many savers: The Kentucky couple has amassed a nest egg exceeding $1 million—and on a combined income that, in the best years, never topped $100,000.

Now, the Mays have a worry: Is even a million enough for a comfortable retirement?…

From time to time we're asking readers like the Mays to expose their portfolios and their worries in exchange for professional guidance from three financial planners. This time, we consulted planners from Pillar Financial Advisors, Mayhew Asset Management and Zussman Financial Advisors.

The planners all agree the Mays should be able to afford the retirement they seek, so long as they restructure their portfolio now….

     Roughly once a month an article similar to the above comes out in one of our prestigious financial publications. The message always is: even the rich have serious challenges planning for retirement, and it requires the ability to consult with financial advisors.

     Think of the challenges for the bottom 80% of Americans, who—if the Republicans have their way and privatize Social Security—will have to manage their own meager funds.


     Under a privatized Social Security system, not only will retirees have to manage their own funds, they will have to rely on brokers like the ones described below:

From The Wall Street Journal, September 17.

NASD Says Firm Gave
Improper Rewards

Morgan Stanley, Official Fined;
Incentives Used to Boost Sales
Of Proprietary Mutual Funds

NEW YORK—The National Association of Securities Dealers charged securities firm Morgan Stanley and one of its top executives with improperly rewarding the firm's brokers with tickets to concerts, sporting events and other noncash incentives valued at more than $1 million in an effort to boost Morgan Stanley's sales of in-house mutual funds and variable annuities….

The NASD's charges target the heart of Morgan Stanley's system for motivating its brokers to sell the firm's own lines of mutual funds to investors rather than funds run by outside that also are available for sale through its brokers….

"This action points to a culture that put tremendous pressure on its brokers to not let down the rest of the team regardless of whether or not it was in the best interest of investors," said Mary Schapiro, vice chairman of the NASD, which regulates mutual-fund and annuity sales….

Week of September 8

     The utter corruption of corporate America is becoming clearer every day. Remember the CEOs of recent years who demanded multiple millions of dollars for their ability to improve the corporate bottom-line?

     The following excerpt describes one of the many fraudulent ways they were able to do it.

From Business Week, September 8.

Economic Viewpoint

The Great American Pension-Fund Robbery

By Robert Kuttner

America's corporate pension system is said to be facing a perfect storm: Equities have taken a big hit (they are still way off their highs), and returns on bonds have plummeted, leaving pension funds with reduced earnings to pay benefits. In addition, corporate downsizing and lengthening life spans have left many companies, particularly in manufacturing, with a rising ratio of retirees to active workers. U.S. Treasury Under Secretary Peter R. Fisher has testified that pensions are underfunded by $300 billion—far exceeding the resources of the government's Pension Benefit Guarantee Corp.

But if pensions are under water, the cause is less a perfect storm than a leaky boat ravaged by pirates. For more than a decade, corporate sponsors of pension plans have been systematically looting them. The great pension raid is of a piece with the other accounting deceptions of the 1990s, and it had the same motivation—to boost reported earnings and stock prices….

Among the favorite gimmicks for creative theft of pension assets:

  • Project an unrealistically high rate of return and claim that the plan is overfunded….
  • Convert from conventional plans to "cash-balance plans."…
  • Redefine employees as independent contractors.…
  • Sell off units that have older employees, who then lose their pension benefits….
  • Declare bankruptcy, but set up a special bankruptcy-proof pension plan for top executives as an off-the-books trust….

Once, pension plans were intended to induce loyalty and long service in workers. Now, big corporations and their executives seem to care about only one category of worker—top managers, who loot the plans while protecting their own assets. Ordinary long-tenured employees are deemed liabilities.

The remedy for depleted pension funds is much tougher regulation. But the Bush Administration wants to weaken anti-discrimination rules to make it even easier for top executives to have one set of rules for employees and another for themselves….

It's fine to have an Administration that prides itself on being pro-business. But don't the tens of millions of employees who loyally serve Corporate America also count as part of business? Shouldn't their pensions be protected as well?

     With monotonous repetition, the Bush Administration has again demonstrated its total disregard for the welfare of America’s workers—and its commitment to help its corporate supporters to get incredibly rich.

     In one sense, the following three articles are similar: they demonstrate again that—despite all the recent reforms—Wall Street is still a jungle for the unwary and the unsophisticated.

     As they both point out, even the experienced investors who read Business Week and The Wall Street Journal need to be warned of the pitfalls awaiting anyone who counts on the integrity of the securities industry.

From Business Week, September 8.

Commentary: The Myth of Independence

Unbiased research? It's more elusive than you think

By Marcia Vickers

…Regulators and investors are making an enormous bet that independent research—supposedly untainted because it has no links to investment banking—is the cure-all for a conflict-of-interest-riddled Wall Street. But it's not. Independent research, too, can have problems and conflicts of its own. Shoddiness is just one of them. Independent analysts' pay is sometimes linked to the amount of trading commissions they generate for their firms, much in the same way Wall Street analysts' compensation often depended on how much banking business they brought in. And with new research shops hanging out shingles every day, there are questions about their lack of track record and expertise….

….investors shouldn't be lulled into thinking that independent research is the holy grail for stockpicking. Some academics who study financial markets question whether stock research has much value at all, given the amount of information bouncing around the markets. Untainted research is obviously preferable to the flawed kind, but it's no silver bullet.


From Business Week, September 8.

The Latest Magic in Corporate Finance

How contingent convertible bonds blindside shareholders

…Raising money by selling bonds at little or no apparent cost is great for corporate bottom lines, but not so great for unsuspecting shareholders. The bonds carry below-market interest rates because investors, typically hedge funds, get a conversion option—the right to swap their bonds for stock—instead of interest payments. And, just as with the stock options granted to employees, companies don't need to treat the conversion options as an expense under generally accepted accounting principles (GAAP)….

For their part, the companies say they aren't hiding anything. Instead, they're doing the deals to get cheap capital, they say…. However, Christopher Senyek, an accountant at Bear Stearns who looked at more than 100 of the contingent convertible issues, says public information on the deals is often "sketchy at best," making it hard to gauge their impact on stock prices.


From The Wall Street Journal, September 8.

How Market Timers Can
Drain Returns For Some Investors

It's been a sure-fire investment bet for hedge funds. It's a strategy mutual-fund companies increasingly have been trying to combat. And now it's at the heart of a high-profile legal attack on the mutual-fund industry.

Timing, as the strategy is known, involves jumping into or out of various investments…

Timing moves by traders moving in and out of these mutual funds raise operating expenses and may cost other fund investors some $5 billion a year by one estimate. That's a huge drain on fund shareholder returns, especially in a period of falling markets that has caused most stock funds to post losses over the past three years….

Long-term mutual-fund holders are disadvantaged in several ways. Waves of cash flowing rapidly in and out of a fund increase the commissions that managers pay to buy and sell securities, and those expenses eat into returns. Rapid withdrawals can force managers to sell some winning investments to pay off those selling their fund shares. And to offset fast trading, some fund managers hold a larger portion of their assets in cash than otherwise would be necessary, a move that dilutes fund returns when markets are rising….

     These were just three more brief examples (in one day) of the hypocrisy of conservative economists who want to privatize Social Security, and to let loose the Wall Street barbarians to prey on America's workers.

     These were extensive articles and only brief excerpts were used to demonstrate a point. Those who are interested in the actual investment implications of the issues cited should go to the original articles.

     Remember Bush’s reasons for giving our richest Americans a huge tax cut? It was to stimulate investment and create jobs. As usual, Bush addressed a problem that didn’t exist. Our economy wasn’t weak because of a lack of investment money, it was because poor and middle-class consumers didn’t have enough money to buy the products they needed.

     The real problem of recent years, as the Wall Street Journal describes it, has been “capacity glut.”

From The Wall Street Journal, September 8.

Long a Drag on the Economy,
Capacity Glut Begins to Ebb

WASHINGTON—One of the biggest remaining obstacles to U.S. economic recovery is fading as industries are finally starting to whittle down ruinous overcapacity.

For the last three years, the U.S. economy has been hobbled by too much supply: too much fiber-optic bandwidth, too much vacant office space, too many empty airplane seats. That is beginning to change. Demand is picking up throughout the economy, and companies aren't increasing capacity to fill that demand. As a result, the imbalance is receding. That will help firms boost profits and resist pressures to cut prices…

Automakers, wounded by brutal price wars and foreign competition, are making a more-concerted effort to cull capacity. In the last contract signed with the United Auto Workers union, Ford Motor Co., General Motors Corp. and DaimlerChrysler AG's Chrysler Group generally agreed not to close any plants.

"In the flush years, the 1990s, we could absorb that," says Anne Marie Gattari, a spokeswoman for Ford. "We can't any longer." The Big Three want to end the moratorium in the new contract now being negotiated. Ford, the most financially strapped of the three, wants to reduce its current North American capacity of 5.7 million units to 4.8 million, its normal level of annual sales….

     This is beginning to sound ominously similar to 1929, when the richest Americans had 44% of the privately held wealth in the nation. It was reduced to 19.9% in 1976, but rose to about 42% in 1998 and is probably close to 44% again today.

     Again, investors seem to have most of the money, but their consumers don’t have enough to buy the products they need. Even with all this going on, corporate America's biggest concern, of course, is their ability to "boost profits and resist pressures to cut prices."

     In this regard, the Journal seems to think the economy is getting better. Let’s hope so, even if the corporations take most of the profits, at least workers will have jobs. But don’t count on it, with the current crowd we have in Washington wanting to pursue the same policies that got us into trouble in the first place.


     It has taken some time for the world to wake up to the disastrous effects of globalization and the WTO—for most citizens of all nations. The issue has never been, and still isn’t, rich versus poor nations as whole entities. The issue has been rich versus poor citizens in all nations, rich and poor alike.

     The wealthy of both rich and poor nations have formed a club, called the WTO, to ensure the continued accumulation of wealth by pitting workers of the world against each other, and calling the barbaric practice “free trade.”

     Unfortunately for the rich, conditions have gotten so bad that there are real threats to political stability throughout the entire world. Thus, we are seeing the WTO's problems described in the following excerpt:

From The Wall Street Journal, September 9.

Post-Iraq Influence Of U.S.
Faces Test At New Trade Talks

WTO's Clout Is on Trial, Too; Persistent
Rich/Poor Gap Dims Hopes Raised in '01

…As delegates from 148 countries converge here (Cancun, Mexico) Wednesday for a World Trade Organization meeting, they will bring with them all the tensions between rich and poor nations that came to a boil four years ago during a WTO meeting in Seattle, amid tear gas and riot police. And America's ability to bridge those gaps appears much diminished from the last meeting two years ago, in Doha, Qatar….

Except for a breakthrough on poor countries' access to drugs, the trade talks have floundered on nearly all fronts. Europe continues to balk at demands that it slash its massive agricultural export subsidies, blamed by some for deepening poverty across much of the Third World. And many big developing countries, such as Brazil and China, want to maintain high protections for their own farmers and manufacturers while insisting that rich countries drop nearly all subsidies and tariffs….

Mr. Zoellick (U.S. trade negotiator) says the U.S. is willing to slash its farm subsidies and pull down tariffs, but only if other countries, including poor ones, make some concessions too. And if they don't? "Then we'll keep our subsidies," he says, "and I'm going to go around opening markets" country-by-country outside the WTO.

The U.S. wants poor lands to soften their demand for a complete end to farm subsidies in Europe, the U.S. and Japan. It says countries such as India, Brazil and China must also show real willingness to drop their import tariffs, which are still several times as high as those in the West, where import duties average around 3%. All agree that the talks will rise or fall on agriculture and particularly on the $300 billion a year that rich countries spend in farm subsidies….

The outlook isn't much brighter on textiles. The source of great rich country/poor country friction, textiles helped spoil the Seattle WTO meeting in 1999….

Even on drug patents—portrayed as a breakthrough last week—all isn't sunny. The WTO agreed that poor countries can import generic copies of patented drugs to combat ills such as AIDS and malaria. Drug-making nations such as India and Brazil will be able to produce drugs patented by Western companies if they export the copies at low prices solely to needy nations.

Activists are criticizing the agreement. One criticism is that it's worded so vaguely nobody can be sure how it will work. Some fear that poor countries lack the legal sophistication to take the steps needed to receive the drugs. The nations have to find a foreign company to make the drugs for them and then inform both the drug maker that holds the patent and the WTO's committee on intellectual-property rights. Finally, they have to be prepared to fight a challenge to their use of the drugs at the WTO's dispute-settlement body. Several countries, including the Philippines and Kenya, had last-minute worries about the deal but agreed in the face of heavy-duty U.S. arm-twisting.

     America’s self-interest, bordering on naked greed, is evidenced by the U.S. negotiator, Mr. Zoellik, who insisted that poor nations put their poor farmers at a severe disadvantage—if America’s giant corporate farms are to give up some of their own protections and subsidies.

     The U.S. is among the last nations on earth willing to risk public health in the name of corporate profits. Not only that, we pressure other nations to go along with us in our gambling with the future of mankind.

From The Wall Street Journal, September 9.

U.S. Opposes EU Effort to Test
Chemicals for Health Hazards

Amid festering trade and diplomatic tensions, the Bush administration is siding with the U.S. chemical industry to wage an unusually aggressive campaign against European proposals that would require testing tens of thousands of chemicals for potential health and environmental hazards at a cost of billions of dollars.

The controversy comes as the European Union increasingly has asserted its regulatory powers in the global marketplace, in matters ranging from genetically modified crops to consumers' Internet privacy. The growing role of the EU, a 15-nation trading bloc and the world's second-largest economy, threatens the U.S.'s traditional role as the world's standard setter for manufacturing and safety. U.S. producers are finding that if they want to export to the lucrative European market they must comply with the EU's separate and often stricter regulations.

The U.S. State and Commerce departments, the Environmental Protection Agency and the office of the U.S. Trade Representative have sided with companies, including Dow Chemical Co., Rohm & Haas Co. and Lyondell Chemical Co., and trade groups in opposing the EU's chemical-testing initiative. That has angered environmentalists, who say that lax U.S. policy allowed dangerous chemicals such as PCBs and DDT to be used for decades before they were found to be potentially cancer-causing….

Documents gathered by the Boston-based Environmental Health Fund under the Freedom of Information Act show that the Bush administration has been a leader in fighting the EU chemical-testing proposal. Don Wright, a desk officer in the Commerce Department's Office of European Union and Regional Affairs, wrote in a January 2002 background paper that the U.S. government "has advised industry to develop an official position and strategy as soon as possible to assist in influencing EU's draft text." In an internal memo, the department even chided the U.S. chemical industry for not joining the lobbying fight more quickly and aggressively, the documents show….

The Bush administration also has lobbied other countries with sizable chemical industries, including Brazil, Canada, China and Japan, to oppose the EU proposal, he said….

Documents obtained by the Environmental Health Fund show that U.S. diplomats in EU-member states were instructed by Secretary of State Colin Powell to fight the chemical-testing proposal, which Mr. Powell called "costly, burdensome and complex" in an April 29, 2003, e-mail message. Mr. Powell also widely distributed a "nonpaper," unsigned by any U.S. governmental agency, that challenges the original Reach proposal….

The differences between the U.S. and Europe on the testing issue reflect a broader debate over the so-called precautionary principle, a legal concept increasingly invoked by the EU. The Europeans maintain that in the case of uncertain science, everything from chemicals to hormone-treated beef should be banned to prevent potential harm to humans and the environment. The U.S. maintains that some uncertainty is acceptable.

Some environmentalists react angrily to the degree to which the State and Commerce departments and the EPA have lobbied the Europeans.

"It's not the mandate of those agencies to do what they're doing," contends Joe DiGangi, a scientist with the Environmental Health Fund. "The government has adopted the industry position and tried to sell it," he says….

     Could the close connection between the Bush Administration and the worst aspects of corporate America be clearer?

     The corruption caused by political incest continues.

From The Wall Street Journal, September 10.

Many Ties Link Pension
Lobby To Regulators

The retirements of millions of Americans could hang partly on the relationships between those who regulate pension plans—and are drafting regulations—and pension lobbyists and consultants hired by employers and financial firms.

The relationships are social as well as professional. Consider a recent party at the Washington home of William F. Sweetnam Jr., a lawyer at the Treasury Department who is playing an important role in drafting regulations for what are known as cash-balance pension plans. The party was thrown to welcome a new congressional staffer working on pension issues. It was co-hosted by Brian Graff, a lobbyist for the American Society of Pension Actuaries, a group representing those who make a living running employer-sponsored pension plans, which has lobbied in favor of cash-balance plans.

Not invited were any of the few lawmakers and congressional staffers who have staked out strong positions against cash-balance plans, which offer financial benefits to employers but can reduce payments to older workers.

Instead, among the invited guests—aside from a smattering of congressional and Treasury staffers who work on pension issues—was a long list of lobbyists representing employers on pension and retirement matters….

Mr. Sweetnam, the Treasury's benefits tax counsel, says the party to welcome Judy Miller, an actuary from Montana joining the Democratic staff of the Senate Finance Committee, was a social event, not work, and the staffers and lobbyists he invited were people with whom he works regularly and "who are also my friends."…

Treasury Secretary John Snow, who has final say on cash-balance regulations, once headed CSX Corp., which implemented a cash-balance plan for newly hired workers this year. Mr. Snow also was on the human-resources committee of Verizon Corp.'s board when it voted to adopt a plan for Verizon employees.

Ms. Bradshaw, the Treasury spokeswoman, objected to questions about the party. The policy positions of those invited to the party "had no bearing on whether they were invited or not," Ms. Bradshaw said. "This was two buddies throwing a party for friends."

     The pretended innocence of it all is especially disturbing: "This was two buddies throwing a party for friends." Even if that was true, it demonstrates a total lack of appreciation for the inbred biases that color political decision-making. When the regulators and the regulated—just friends—get together to schmooze, corporations always win and the public always gets screwed.

     Again, it’s Republicans and big business against working Americans. This Wall Street Journal editorial endorses the removal of protections of the rights of organized federal employees to earn decent wages and to have humane working conditions.

From The Wall Street Journal, September 9.

The Union Libel

If you want to know why the government keeps growing, consider what's happening to President Bush's effort to expose a chunk of the federal work force to private competition. Unions are trying to kill it in Congress this week, and some Republicans of all people are playing along.

The battle is over the status of air-traffic controllers at the Federal Aviation Administration. Even the Clinton Administration had designated these employees as "commercial," which means the jobs could be performed by private contractors. The Bush Administration wants to build on this by putting 15% of these jobs out for competitive bid by the end of the year. This is the first step in a larger plan to put all 850,000 commercial jobs, nearly half of the 1.8 million federal civilian work force, out to bid in the next four years….

Alas, union leaders care more about membership and dues income than about saving money for taxpayers. So they're running ads and working with Members of Congress to kill an FAA authorization bill this week that would allow this kind of competitive sourcing. If they win this round, they will then attempt to add language barring competitive bidding in this year's spending bills for every federal department.

The effort can't succeed, of course, unless some Republicans cooperate. In the House, GOP Members Jack Quinn (New York), Steve LaTourette (Ohio) and Ron Kirk (Illinois) are among the wobbly. Over in the Senate, New Jersey Democrat Frank Lautenberg is expected to attempt a filibuster, and GOP Senators Jim Inhofe of Oklahoma and Jim Talent of Missouri are listening too closely to the union libel. If Republicans help defeat this gift to taxpayers, we'll know they no longer believe in smaller government.

“Saving money for taxpayers” equates to farming out jobs to contractors who have no moral scruples about cutting wages for workers, and who believe in hard work under stressful conditions—for others.

     Apologies: Just another article in the continuing series about the corruption of America’s securities industry—and why Social Security should not be privatized.

From The Wall Street Journal, September 9.

Will Funds Disclose More—Publicly?

Mutual funds have long kept a tight grip on what stocks and bonds they currently own, fearing that disclosing up-to-date portfolio information would enable fast-moving traders to take market positions that would dent the funds' investment returns.

But that argument has been weakened by indications that, for at least one large investor, some mutual funds apparently have been happy to tip their hands and turn over current portfolio data.

E-mails released last week by New York Attorney General Eliot Spitzer indicated that fund executives at Bank of America Corp. and Strong Capital Management Inc. provided hedge fund Canary Capital LLC and its managing principal, Edward J. Stern, with more frequent reports on their fund holdings than were available to other investors….

Strong didn't return a call seeking comment on its policies regarding holdings disclosure to individual or institutional investors….

In return for providing frequent portfolio reports and waiving antitiming rules, Canary maintained a large investment in other funds run by Strong and Bank of America, according to the complaint document. The complaint said that Mr. Stern had formal timing arrangements with as many as 30 different mutual fund families, although only four—Bank One Corp. and Janus Capital Group Inc., in addition to Bank of America and Strong—are mentioned in the complaint….

"To restore faith in the fund industry, it's not just important that everyone gets the same [fund-trade] execution, but also the same [portfolio] information," says Russ Kinnel, director of fund analysis at researcher Morningstar Inc. "It doesn't take any more effort to post a fund's portfolio to a Web site than it does to e-mail it to a hedge fund."

Week of September 1

     The following two Wall Street Journal articles go together: first, the news report that details the looming disaster of the misguided Iraq war. Second, the editorial that—despite all the evolving evidence—still tries to convince voters that Republicans are strong on defense and Democrats are weak.

From The Wall Street Journal, September 5.

The Postwar Bill For Iraq
Surges Past Projections

Sabotage, Looting Take a Heavy Toll;
Oil Revenue Flows, but Only Weakly

Rebuilding Iraq is turning out to be far more expensive than the Bush administration predicted just months ago, with U.S. taxpayers likely to foot much of the tab.

… officials involved in the process say the U.S. tab for helping to rebuild and sustain Iraq through next year—aside from the $3.2 billion already put into the effort—could exceed $10 billion. On top of that, the administration expects to spend as much as $50 billion next year to keep tens of thousands of U.S. troops in Iraq, beyond the $70 billion Congress approved earlier this year to pay for the war and its immediate aftermath.

That picture is strikingly different from the one the Bush administration sketched out before the war in Iraq began. Then, the official message was simple: Unlike Afghanistan, oil-rich Iraq would largely pay its own way. "We're dealing with a country that can really finance its own reconstruction, and relatively soon," Deputy Defense Secretary Paul Wolfowitz told Congress a week after the war began. Oil revenue, he predicted, "could bring between $50 billion and $100 billion over the course of the next two or three years."

That estimate, which was predicated on aggressively optimistic assumptions, now looks off course. In reality, Iraq seems likely to fall short of even the $12 billion to $14 billion in oil revenue next year that coalition officials say they expect.

The mounting price tag for Iraq comes as President Bush grapples with a yawning deficit at home, expected to hit $480 billion next year, and continued hostility among many erstwhile allies in Europe that might otherwise contribute. All this could become a major political liability for Mr. Bush moving into the election season next year….

Bechtel Group, hired to do $680 million in U.S.-funded infrastructure repairs, estimated soon after it arrived in Iraq this spring that putting the country in working order would cost at least 24 times that much. L. Paul Bremer III, the top U.S. official in Baghdad, in recent weeks has made even higher estimates….

That means that outside sources—some combination of the U.S., Europe, Japan, Persian Gulf nations and international financial institutions—may have to contribute more than $16 billion to Iraq's budget and rebuilding needs next year, aside from the military costs of occupation. And, unfortunately for the U.S., there isn't much sign of serious help from elsewhere, thanks in part to lingering prewar tensions between the U.S. and many allies….


From The Wall Street Journal, September 5.

John Kerry Puts the Big
Issue Before the Voters


… the Democratic Party is not quite a normal party now. It has become the antiwar party. It is the hell-no-we-won't-ever-go-party. Which is why Howard Dean, the most antiwar candidate among the party's presidential hopefuls, is stretching his lead in polls based on phone calls to Democratic warrens, with the result reflecting what's David Talbot calls "the party faithful's passionate mood."…

I don't doubt that a President Kerry or even a President Dean would deploy the U.S. military on relatively modest missions—a Haiti or Liberia, or Somalia. But an Iraq war? A strike and follow-through against North Korea? After Vietnam and no matter that September 11 happened, and no matter what the merits, Mr. Kerry and the others (perhaps excepting Sen. Lieberman), give the impression they would not act, or not act in time. They would consult, specifically with France, Russia, Germany and the U.N. secretary general.

There is no way to know with certainty whether any of them would act on the scale of the Iraq war on behalf of American security. But Mr. Kerry has usefully raised the issue. It won't be sufficient to say they would have "done things differently." The real question is whether they would do it at all.

     Remarkable. The news story details the disastrously poor planning and decision-making of the Bush Administration, and the terrible mistake of going alone without the U.N. and others.

     And in the same Journal issue, the editorial criticizes Democrats for doubting the wisdom of going to war with Iraq in the first place, and then wanting to get the support of other countries and the U.N. in the second place.

     Being “strong on defense” doesn’t equate to going to war with Iraq. It means you correctly analyze likely terrorist threats and allocate your recourses according to priorities that make sense. For more on this, see How the Republicans Beat the Democrats on Spinning Iraq.

     The stock market continues to go up, investors and corporate executives see their incomes continue to go up. And competition among Americans for jobs continues to reduce working-class incomes.

From The Wall Street Journal, September 5.

Payrolls Drop by 93,000 Jobs
As Unemployment Rate Declines

WASHINGTON—Employers cut jobs for a seventh consecutive month in August, as the labor market remained in a funk despite the economic recovery gaining steam.

Nonfarm business payrolls declined by 93,000 last month, the Labor Department said Friday. The cut, the steepest in five months, brought total job losses since the start of the year to 431,000. The unemployment rate fell a tenth of a percentage point to 6.1%….

The numbers highlighted the peculiarity of the current economic recovery. The economy grew at a solid 3.1% annual rate in the second quarter, and forecasters are betting third-quarter growth will be at least 5%.

But employers keep cutting payrolls. One reason is a surge in productivity, which rose at 6.8% in the second quarter. That allows companies to delay hiring until profits improve and the economy recovery has solidly taken hold….

August's job cuts were broad based and remained heavy in manufacturing, a sector that suffered the brunt of the economic downturn. Manufacturers shed 44,000 jobs last month, raising the total of jobs lost in the sector to about 2.7 million over the last three years. President Bush on Monday announced he was creating a new assistant-secretary position in the Commerce Department to focus on revitalizing the factory sector….

     A key issue has been omitted from the above excerpt. A major reason for increased productivity of American industry amidst declining payrolls is that employees are under the threat of losing their jobs, and are much more willing to work harder under more stressful conditions.

     Republican politicians and corporate America have working-class Americans exactly where they want them. However, there are signs that they may be beginning to realize that they have taken things too far. This lopsided economy is bound to crash if workers don’t start getting more income to spend.

     Although globalization has led to the rapid accumulation of wealth to America’s investors and corporate executives, the massive exodus of jobs to other countries is beginning to worry even some moderate Republicans.

     The effects of corporate greed and misbehaviors are rapidly multiplying, and the economic news continues to get worse—especially for those who didn’t benefit from the economic boom of the 1980s and ’90s.

From The Wall Street Journal, September 5.

Warning of Pension-Plan Shortfall
Raises Pressure for Financial Fix

The government agency that insures 44 million workers' retirement benefits said the nation's pension system is in worse financial shape than previously believed, a politically charged warning at a time when economic uncertainty, unemployment and rising fears about the loss of manufacturing jobs overseas already are stoking debate in Washington.

It raises the prospect that companies could be forced to contribute more to the government insurance plan, that benefits to retirees could be reduced and even that taxpayers ultimately could have to bail out the pension-guarantee program….

The Bush administration wants Congress to approve legislation that would ease the pension burden on companies for two years, allowing for the economy to turn around. After that, the administration is proposing a transition period of three years that would end with tougher, long-term rules for determining pension-contribution requirements. Democrats such as Rep. George Miller of California are calling for greater disclosure of existing problems, so workers can judge for themselves how likely they are to receive the benefits they've been promised.

Business groups, meanwhile, are pressing Congress for changes that could permanently ease their pension burden….

     It’s the usual cast of characters: Republicans and business groups wanting to protect the profits of corporations and minimize protections of employee retirement benefits. And Democrats who want to protect the interests of retired workers.

     No matter how this is resolved, you can count on it: Corporate executives who caused the problems will continue to get income increases, the American taxpayer will pay through the nose, and benefits to retirees will be reduced.

     For those who have been victimized by the economy of the past 25 years (at least) The Wall Street Journal is always looking for good news among the bad. It has finally found some. There are terrible jobs out there for those who want to work.

From The Wall Street Journal, September 2.

Why Some Jobs Go Begging
Despite Weak Labor Market

While many Americans feel insecure about their jobs in the current tough labor market, workers in certain fields enjoy a surprising degree of job security.

These careers often have industry-specific reasons for their strength, but typically they have three things in common: Many require considerable training and certification even though pay levels can lag behind those in other careers. None of these jobs can be outsourced to lower-cost nations. And the most secure jobs are often seen as undesirable to many job seekers.

Among these are many positions in health care, which often is stressful and can have higher injury rates than some construction jobs. Another field, selling cars, takes relentless effort and garners little respect….

More than nine million people, from computer programmers to factory workers, are looking for work. Millions more say they don't make as much money as they should….

Barbara Williams, a 58-year-old clinical nurse specialist at Dominican Hospital in Santa Cruz, Calif., watched younger nurse colleagues depart in the 1990s. The fast pace of the work and rising number of patients assigned to each nurse led to burnouts and career switches. Pay was another issue. In 1998, nurses, who attend college for two to four years, made an average annual salary of $43,070, not competitive in many regions with jobs requiring a similar level of education. "If they were young and able to, they walked out," Ms. Williams says. The result: The Labor Department projects nursing will be one of the top generators of new jobs during the coming decade.

     The last example of nursing is an excellent demonstration of how corporate greed and conservative economics combined to almost destroy one of our most revered, and desired, professions. For the past 20 years nurses have found their pay and working conditions deteriorate, simply because they had no negotiating power compared to pharmaceutical companies, insurance companies, hospital administrators, and organized physician groups.

     Wealth is a zero-sum game (see Zero-Sum), and in one way or another, those groups were responsible for recklessly cutting the costs of nursing in order to increase their own incomes.

     Unfortunately, other groups of workers won't be as lucky to see their pay and working conditions improve, as apparently is happening in nursing. Increasingly, working Americans are going to find that their jobs must fit the three requirements described above:

  1. Considerable training and certification even though pay levels can lag behind those in other careers (or lower pay for the same level of work they did before).

  2. The jobs cannot be outsourced to lower-cost nations (just how many of those are left nowadays?) and

  3. The jobs must be seen as undesirable to many job seekers.

     What a glorious society conservative economists and politicians have created for us.

     It always starts slowly. A corporation like GM sets up a new labor force in another country. They train them, give them the very best technology and equipment, and pay them somewhat better wages than they could get otherwise.

     As the foreign workers develop their expertise, they begin to take the jobs of much higher-paid workers in the U.S. to produce products, technology, or services intended for the U.S. Eventually, they replace virtually all the U.S. workers, except those who must physically be present in this country.

     The corporation’s investors and top executives benefit financially from the reduced labor costs and the American consumer may get cheaper products and services.

     But it’s the replaced U.S. workers who make all the sacrifices, and their numbers are growing rapidly.

From Business Week, September 1.

China's Design Dream Team

Industrial designers are making a mark

…Today, though, Sun (Yunbo) is one of 21 Chinese designers working on the Buick Excelle, an new sedan that General Motors Corp. plans to start selling in China this fall. “Now auto design is natural for me,” Sun says.

Sun is at the vanguard of a trend that’s shaking the world of design. As China grew into an export powerhouse over the past decade, most of what its factories churned out was designed elsewhere. Now, like the Japanese in the 1970s and the Koreans in the 1990s, Chinese companies are keen to reap the higher margins and market share that often reward flashy, well-designed products. "Our goal is the transition from 'Made in China' to 'Designed in China,"' says He Renke, chairman of the industrial design department at Hunan University….

Even so, it may be a while before designers in Milan, London, or Detroit need to worry about finding a new line of work. So far, most Chinese designers have simply tweaked color and form for export products, while conceptual work on new cars, appliances, and electronic gadgets is done in Europe or the U.S. "They have good designers, but they don't know the U.S. market" in many products, says Jerry W. Edwards, executive vice-president for merchandising at retailer Home Depot Inc., which hires Chinese subcontractors to produce items such as faucets and ceiling fans….

For a glimpse of the future, check out 28-year-old Fang Zhen, who works with Sun at GM. He sports orange hair, favors black T-shirts and cargo pants, and looks to Italy for inspiration. "First, I want to be the Giorgio Giugiaro of China," says Fang, referring to the legendary Italian who designed Alfa Romeos, Lamborghinis, and the 1967 Oldsmobile Toronado. "Then I want to be a top auto designer globally." With that kind of ambition coming out of Shanghai, designers in the West may want to keep one eye on the rearview mirror.

     When the time comes to face the fact that we have totally destroyed—not only America’s middle class, but also the upper-middle class—will those who profited from the globalization craze be willing to voluntarily pay for the social dislocations and problems they have created? I wouldn’t count on it.

     It’s going to take a new batch of politicians who aren’t afraid of being called “traitors of their class” (as was Roosevelt), and a new “new deal.”

     Corporations can always think of reasons for swallowing smaller companies and getting bigger. They never mention one of their best reasons: Like Donald Trump, when you get really big—and the economy, jobs and economic stability are threatened—there’s no way the politicians and banks will allow you to fail. Of course, in the case of these accounting firms, it’s the sheer lack of diversity of independent accounting firms that is at issue.

     Too many of the little firms have been absorbed by the greedier ones.

From Business Week, September 1.

Commentary: The Big Four: Too Few to Fail?

By Paula Dwyer

The Securities & Exchange Commission is finally getting around to disciplining the auditors who played supporting roles in some of the biggest corporate disasters in modern time. In mid-August, it banned two PricewaterhouseCoopers accountants from auditing public companies after they failed to follow audit rules in reviewing the books of software company Micro-Strategy Inc. and conglomerate Tyco International.

But in both cases, key players appear to have dodged the SEC hammer. The agency didn't pursue other senior partners who signed off on the audits. And it hasn't brought charges against PwC itself, despite citing the firm or one of its auditors for improper conduct three times in the past three months.…

The mild punishment raises a troubling question that has lurked ever since last year's collapse of Arthur Andersen: Are the surviving Big Four accounting firms now too few to be allowed to fail—and effectively beyond regulators' reach? Any severe, firmwide sanction, such as a one-year ban on auditing public companies, could put an accounting firm out of business. That would only strengthen the ever-growing concentration of the Big Four. Already, their market dominance threatens to make unworkable an idea the SEC is studying to boost auditor independence—requiring companies to rotate audit firms every five years.

     The Bush administration’s dismal environmental record gets worse every day. This excerpt from The Wall Street Journal clearly informs those who care about the environment which political party and which lobbyists support legislation that could eventually kill our planet—all to protect short-term corporate profits, and to keep the public buying gas-guzzling cars.

From The Wall Street Journal, August 29-September 1 (Labor Day Holiday).

Bush Team Clears Carbon Dioxide

The Bush administration declared that carbon dioxide and other "greenhouse gases" aren't pollutants, rejecting calls by environmentalists to have the Environmental Protection Agency cap emissions of the gases thought to contribute to global warming….

Conservative lawmakers and business lobbyists have long opposed restrictions on carbon dioxide and other greenhouse gases, citing the likely negative economic effects of new regulation. Automobiles and power plants are the nation's biggest sources of carbon dioxide, which is produced by the burning of fossil fuels….

Cars and trucks would also have to become much more fuel efficient -- a move that could be unpopular with many consumers, who have recently snapped up relatively low mileage sport-utility vehicles and pickup trucks while relegating fuel-efficient cars to niche status….

California, the nation's biggest auto market, passed a law last year seeking to curb automotive greenhouse-gas emissions by 2009, and the auto industry has said it plans to sue to block the measure once it is finalized….

Auto-industry officials argue the EPA decision is beside the point, saying that California's attempt to regulate greenhouse-gas emissions from automobiles amounts to a back-door effort to regulate fuel economy, a power that's reserved for Washington under the nation's separate fuel-economy law….

Glenn Kelly, spokesman for the Alliance for Climate Strategies, a Washington-based group that represents the mining, chemical, utility and other industries, applauded the Bush administration decision. Mr. Kelly pointed to recent efforts by both Republicans and Democrats in Congress to amend the Clean Air Act specifically to allow regulation of greenhouse-gas emissions as evidence that the law as written doesn't now permit such regulation.

     Not only to Republican legislator and lobbyists want to keep the federal government from protecting the environment, they threaten to sue those individual states who want to set standards for themselves. So much for the Republican reverence for “states rights.”

     Another Wall Street Journal report that demonstrates that the Journal’s editorial staff’s chronic criticisms of governmental regulations doesn’t jive with its own news stories:

From The Wall Street Journal, August 29-September 1 (Labor Day Holiday).

Experts Urge More Investment
In Power Industry , Clearer Rules

WASHINGTON—The U.S. electric industry needs stronger, clearer regulation, greater incentives to invest in new equipment, and a common inventory of hard-to-get spare parts to prevent long-term blackouts stemming from terrorist attacks, a bipartisan panel of experts has concluded….

The report asks Congress to pass mandatory rules for transmission operators, asserting that the blackout was a "terrible reminder that the system of voluntary compliance with nonbinding reliability rules for electricity grids is breaking down across North America." Energy bills approved by the House and Senate include such mandatory rules, and there is little disagreement in industry….

     Count on it. In this bipartisan approach to preventing future power blackouts, the Democrats will focus on “clearer regulation” [corporate misbehaviors that need oversight]. The Republicans will make sure that corporations get “greater incentives to invest in new equipment” [money from the American taxpayer, or higher electric rates approved for consumers].

     Corporate investors and high level corporate executives who caused the blackout will suffer no losses, and may even gain materially from the new preventative measures the Republican Congress comes up with.

     Conservatives insist on getting their way, no matter what they have to do to get it. If they can’t privatize public schools, then they just cut taxes and, hence, funding for public schools.

     The Wall Street Journal describes how conservatives can make everyone—rich and poor alike—pay for their “public” education. Of course, the rich benefit, because they can use their huge tax cuts to fund much more than just their own kids’ school fees.

From The Wall Street Journal, September 3.

Public Schools Pile on Fees

Cash-Strapped Districts Charge Students
To Play on Sports Teams, Join the Band

As public schools open around the country, families are finding themselves paying steep fees for all kinds of activities and services that once came at no extra charge.

Starting this fall, middle-school students in Gurnee, Ill., must pay $145 to participate in a team sport and $60 to join the school band or choir. High-school students in Harvard, Mass., have to buy their own Advanced Placement text books, at $85 each. Across the country in Lake Oswego, Ore., a family could pay as much as $900 a year for their kids to play high-school sports.

The so-called user or "pay-for-play" fees, as many school districts refer to them, are an effort to make up for shortfalls in state and local funding caused by the still lackluster economy. Massachusetts, Nebraska and Oregon have recently cut funding for K-12 education, while other states have provided little or no increase….

Some school districts have considered cutting their extracurricular programs entirely because they worried about discriminating against lower-income students. But many chose to keep them and charge the fees because extracurricular activities are important in the college admissions process. Still, many officials in districts around the country are concerned that the new charges will keep some kids from signing up….

The notion of a public education is "truly in jeopardy when you have to start charging these kinds of user fees," says Markham Jeep, a Gurnee school-board member who voted against them. For some kids, he points out, the very thing that keeps them coming back to school are the kinds of activities that will no longer come without added cost….

     So what’s next? Fees for science class, computer education, algebra, etc.?

     The following is just another small item that probably won’t make the mainstream press or Fox news. It’s just another example of the good ol’ boys at the top sticking together and giving themselves huge incomes—at the direct expense of their own organizations.

From The Wall Street Journal, September 3.

SEC Head Demands Details on
Pay Deal For NYSE's Grasso

Securities and Exchange Commission Chairman William Donaldson demanded that the New York Stock Exchange provide a detailed accounting of its decision to pay out nearly $140 million in accumulated retirement benefits to NYSE Chairman Dick Grasso, as well as extend his contract through 2007….

For all the SEC's concern, however, it isn't clear what the commission can or will do about Mr. Grasso's pay. The agency oversees the NYSE and has the authority to look at its governance. But SEC officials said they don't want to be in the business of dictating compensation. Still, SEC officials said if the commission finds that some type of misconduct occurred, it could hold hearings and remove compensation-committee members who engaged in wrongdoing….

Mr. Donaldson is also concerned about how the NYSE is going to fund the payout to Mr. Grasso and whether that is the best use of the exchange's money, SEC officials said….

     Of course, one of “the best uses of the exchange’s money” could go to overseeing the unethical behaviors that have characterized the Exchange over the past few years—instead of into the pocket of the lead guy who should have prevented it.

     Again, the stock market is soaring and investors are getting richer, while the “Employment numbers have continued to worsen.”

From The Wall Street Journal, September 3.

Dow Industrials Surpass
9500 On Strong Data

Another dose of strong economic numbers pushed the Dow Jones Industrial Average above 9500, to its highest finish in more than 14 months….

Stock investors loved it. The broad Standard & Poor's 500-stock index, which had been unable to hit a new high all summer, moved up to its own best finish in more than 14 months. With technology stocks leading the charge, the Nasdaq Composite Index recorded its highest close in 17 months.

Traders and analysts were particularly impressed that the broad S&P 500, which many of them follow closely, finally had joined the Nasdaq composite and the Dow industrials at a new high….

Employment numbers have continued to worsen, he said, but he added that he expects them to improve this month or next….

     It’s almost like the infamous 1980s and ‘90s, when the stock market soared, investors got richer, and wages for working Americans declined. Only this time, even the jobs that pay poorly are getting fewer.

     And, of course, although investors benefit immediately, or prematurely, from conservative economic policies, conservatives promise workers that they'll benefit from their economic policies sometime in the future ("this month or next").

     Maybe. If everything goes well. And if the economy gets better than the most optimistic expectations. And if conservatives can't figure any new ways to further screw those who actually work for a living.


     I apologize for the following redundancy. The number of articles from conservative financial publications that describe the utter corruption of America’s securities industry is mind-boggling. And anyone who reads the file, “Previous Weeks’ Conservative Press,” must get tired of so many similar articles that have come out in recent months.

     However, the conservative pressure to privatize Social Security—and to encourage working Americans to put their retirement future into the hands of a corrupt industry—deserves constant refutation.

     Here again, is an excerpt that demonstrates the need for a reliable and honest national program, Social Security. It ensures at least minimal retirement benefits for those who work in jobs that don’t provide enough funds to realistically participate in an individually directed, diversified investment program on Wall Street.

From The Wall Street Journal, September 4.

Spitzer Kicks Off Fund Probe
With a $40 Million Settlement

New York Attorney General Eliot Spitzer, opening a new front in allegations of financial-market abuses, charged that a hedge-fund manager arranged with several prominent mutual-fund companies to improperly trade their fund shares—some after the market's close—reaping tens of millions of dollars in profits at the expense of individual investors.

Edward J. Stern, managing principal of Canary Investment Management LLC, agreed without admitting or denying wrongdoing that his company will pay a $10 million fine and $30 million in restitution. That settled civil charges that Mr. Stern violated New York state's business law against using fraud, false statements, deception and concealment in trading securities. But Mr. Spitzer said future charges were "almost certain" to be brought against mutual-fund companies themselves and possibly others. Fund companies cited, but not named as defendants, in Mr. Spitzer's complaint include Bank of America Corp., Bank One Corp., Janus Capital Corp., and Strong Capital Management Inc.

Such scrutiny of the mutual-fund business, among the most serious faced by the industry in decades, threatens to undercut the presumption that individual investors get treated fairly in the main vehicle that 95 million Americans use to invest for everything from college savings to retirement. The charges could stir concern among investors about the ways in which big investors may get preferential treatment in the market. Most hedge funds are primarily private investment pools for the wealthy, though many also take investments from institutions such as retirement funds….

In a statement after Mr. Spitzer's announcement, SEC Chairman William H. Donaldson called the abuses charged "reprehensible" and pledged to continue a review of regulatory issues regarding both mutual funds and hedge funds. But by his action, Mr. Spitzer again encroached on the SEC's regulatory turf, beating them to the punch as he did with his cases on the conflicts facing Wall Street research analysts. SEC officials said they were somewhat frustrated that Mr. Spitzer didn't involve the agency or brief its officials on his investigation.

     Thank heavens for Mr. Spitzer, who “encroached on the SEC's regulatory turf, beating them to the punch as he did with his cases on the conflicts facing Wall Street research analysts.” If it weren’t for him, we’d never have heard of this scandal or the analysts’ scandal.

     Certainly the SEC club of greedy good ol’ boys aren’t interested in discovering corruption in their own securities industry.

     Joe Lieberman has always been my least favorite Democratic candidate. His positions are classical “Republican-Lite”—just like Bill Clinton and Al Gore. All of them seem to believe that the key to winning an election is to show how much they can please the corporate power brokers.

     My suspicions were confirmed when The Wall Street Journal published the following commentary by Republican-Lite Bob Kerry (former Democrat Senator from Nebraska). The Journal was only too happy to support Kerry’s endorsement of loser Lieberman, as the now-desperate Lieberman demonstrated his “courage” when he “reaffirmed his support for open markets and free trade and for private school voucher experiments for poor children.”

     All of those positions are music to America’s right-wing crackpot supporters of rich investors and of our top corporate executives

From The Wall Street Journal, September 4.

Hold the Applause!


I have not yet endorsed any of the candidates partly because I call most of them friends and because I am watching the campaigns and the way the candidates are conducting themselves. Among the characteristics I look for is the courage and independence to stand up and tell us something we don't want to hear. I want a leader who will tell us that sometimes we may be part of the problem. It's easy for politicians to say what people want to hear. My vote goes with the candidate who is willing to tolerate a round of boos to say what he thinks is right.

One notable example of that was Joe Lieberman's recent performance before a national gathering of labor leaders. Knowing that some of his views would be unpopular, Mr. Lieberman stood his ground and reaffirmed his support for open markets and free trade and for private school voucher experiments for poor children. He was loudly booed, and in response Mr. Lieberman said, "I'm going to speak the truth; I'm going say what I think is best for America regardless." I wanted to endorse him on the spot. He understands that America has always performed at its best when leaders know how to lead.

Week of August 25

     As you read the following excerpt, realize that this article was not on the editorial page of The Wall Street Journal. It was the lead news story on the front page, August 28, 2003.

     Also note that, a few days earlier, the Journal reported that a likely cause of the massive and costly blackout over much of the country was the result of corporate mismanagement and a lack of effective government oversight. Even this article acknowledges the need for better regulations of corporate behaviors.

     Apparently not wanting to leave it at that—just reporting corporate misbehaviors and the need for government oversight—The Wall Street Journal editors decided to assign one of its right-wing propagandists the job of equating government regulation by the “left” (Democrats), no matter how necessary and sensible, with communism. (Certainly no reputable journalist would repeat the following Republican mantras in a supposed news story.)

From The Wall Street Journal, August 28.

A Lesson From the Blackout:
Free Markets Often Need Rules

Federal Agencies Attack Mistakes
In Electricity, Broadband and Others


The blackout of 2003 offers a simple but powerful lesson: Markets are a great way to organize economic activity, but they need adult supervision.

In the battles of communism vs. capitalism and rigid regulation of economic activity vs. competition, the market won. Despite persistent diatribes from the left, there is little prospect that the U.S. government is going to reinstate old regulations that once dictated how much airlines or stockbrokers could charge customers or determined which long-distance phone company could serve a particular place or shielded owners of power plants from losing business to more-efficient competitors.

Much the same is true abroad: The economic vision of the Chinese Communist Party is moving away from Marx and Mao and toward Adam Smith and Milton Friedman.

The spread of markets, however, is increasingly focusing attention on the need to make them work well—or risk blackouts, bankruptcies and backlash. Spectacular failures, such as the blackout, put market advocates on the defensive, including market-loving Republicans who control the U.S. government. They are now turning from advocating markets to fixing them….

"Our support for markets must not be based on blind faith," Mr. Wood (Patrick Wood, the Bush appointee who serves as chairman of the Federal Energy Regulatory Commission) said in a speech earlier this year. "California will be a constant reminder that poorly designed markets can fail miserably. Ideology alone will not capture the benefits of competition while preserving customer protections."…

The past 25 years offer plenty of evidence that making markets work is a lot harder than simply unshackling them….

Consider the history of football. Soccer, rugby and football have their common origins in games of folk football played in England since medieval times, Mr. (John) McMillan (an economist at Stanford University's business school) writes. "What rules there were had emerged spontaneously: They rested on custom and varied from village to village. Any number of people could play," he says. "There was no referee. ... Little skill was on display, just muscle." Contests were often violent and bloody. In the 1860s and 1870s, rules were written and the modern games of soccer and rugby were born; American football followed.

"An absolutely free market," he writes, "is like folk football, a free-for-all brawl. A real market is like American football, an ordered brawl."…

Until the 1970s, electricity in the U.S. was provided primarily—and successfully—by privately owned, state-regulated monopolies that both generated and delivered power to prescribed areas, and didn't compete with one another. Ever-bigger and efficient power plants brought the price of power down by about 20% a decade, according to the Electric Power Research Institute, an industry think tank….

     Of course, when disaster strikes, propagandists like David Wessel must create the impression that Republicans are not a total idiots and ideologues. So Wessel quoted Patrick Wood, chairman of the Federal Energy Regulatory Commission, who said, evidently for publicity purposes only, “Ideology alone will not capture the benefits of competition while preserving customer protections.” The implication of the article is that Republicans are capitalist regulators, whereas Democrats are communist regulators.

     Naturally, any legislation the Republicans come up with will be designed to achieve three objectives:

  1. Correct the electrical transmission problems with as few regulations on corporate greed as possible, and in a way that

  2. Allows corporations to make still more money out of the disaster by charging as much as possible to fix the problems (count on it: either taxpayers or rate payers will pay through the noses for the new regulations), as they then

  3. Claim another victory for “capitalism over communism.”

     Republicans believe that capitalism is a system that should allow the American aristocracy to control markets for their own profit, no matter what the cost to the consuming public.

     Often this means that they design rules for the economic “playing field” to favor those with power and money, rather than those who have high moral standards.

     Of course, this also means that they must make Herculean efforts to convince the public that this is all in the best interests of the American public. Hence, propagandists write articles like the above in the Journal.

     There are so many absurdities in the above article, it is almost insulting to the intelligence to list them. Nevertheless, a brief mention of the most obvious one might be indicative of the extent to which America’s right-wing will go to defend its ideologues.

     Most obvious, to equate the past policies of Chinese Communist Party with the kinds of regulations, government agencies and legislation that Democrats have created over the years is criminally stupid. The Securities and Exchange Commission, environmental legislation, social security, national parks service, Communicable disease center, OSHA, etc., etc.—all those things that help civilize a society and that Republicans always equated with communism and opposed—China NEVER had.

     And by implication, to equate Mao and Marx with people like Roosevelt and Truman should be beneath even The Wall Street Journal. But that seems, sadly, to be characteristic of the times we live in.

     Supposedly, this week’s Barron’s and Wall Street Journal were giving investment advice to their readers. However, in doing so, they inadvertently blew the cover on the real goal of globalization.

     Sometimes the most revealing part of an article can be one or two sentences. Today’s conservative values were again displayed in an extensive Barron’s article analyzing investment opportunities in German stocks—and concluding that it may be a bad idea.

From Barron's, August 25.

Auf Wiedersehen, German Rally?

…For all the market's embrace of Berlin's proposed reforms, Carl Astorri, head of strategy at Barclay's Private Client division, points out that in reality the easy fixes were the ones accomplished so far, rather than tough-to-swallow measures that could, for example, make it easier to hire and fire in Germany's famously rigid labor market. "We're coming up to the trickier part," he says of September, when the federal legislature considers in earnest the proposed reforms. "That will be much more of a test," he maintains….

     Whereas Barron’s was presenting investment opinion with regard to Germany generally, The Wall Street Journal presented a specific case.

From The Wall Street Journal, August 27.

Despite Rally, the Skeptics
Dial In on Deutsche Telekom

FRANKFURT—Deutsche Telekom AG has dazzled investors this summer with better-than-expected earnings, aggressive debt reduction and a 10% rise in its share price since June 13.

After two years of crisis, has Europe's largest telecommunications operator finally turned the corner? Don't bet on it, the skeptics say….

"It's a utility," says Joerg Schlinghoff, a fund manager at Dusseldorf-based West Asset Management and a holder of Deutsche Telekom shares. "The only possibility they have to generate growth is through cost-cutting, and that's difficult with Germany's labor laws."

It is a problem that won't go away. Deutsche Telekom's 250,000 employees account for about 30% of the company's total costs, analysts say. About 70% of the workers are in Germany, and more than a quarter of those are employed under generous civil-servant contracts—a vestige of the group's state-owned past that makes it all but impossible to lay off people….

It employs 141,000 workers and is the main target of management's plan to cut 50,000 jobs by 2005….

     Those who don’t regularly read investment advice in the conservative financial press may not realize the conclusion that “tough-to-swallow measures … could … make it easier to hire and fire in Germany's famously rigid labor market,” is a regularly repeated theme. It is applied to most of Europe, where workers get up to five weeks vacation a year, have much better working conditions than do American workers, and where unions still have at least a little political influence.

     Americans who actually have to work to make a living should pay special attention to the Journal’s comment that “About 70% of the workers are in Germany, and more than a quarter of those are employed under generous civil-servant contracts.” Implication: Germany had better export most of those jobs to third world countries where working conditions are the worst, and labor costs are least.

     And that’s after they already announced plans to reduce costs by eliminating 50,000 jobs out of 141,000 by 2005.

     Naturally, American investors see good working conditions and decent pay for employees as undesirable because:

  • It means that workers get a greater share of corporate income, either in wages or humane working conditions—as you would expect in a civilized society.

  • Since those workers get more money, corporate profits are not as excessive.

  • When corporate profits are not excessive, investors abandon Europe and move to countries where workers can be brutalized at will.

  • So, if investors have their way, Europe will lose its industry and its jobs, and eventually its workers will have the same kind of lives as workers in China, Indonesia and elsewhere.

     So, conservatives prove that they were right all along when they threaten: “If you treat workers decently and fairly, we’ll abandon you, you’ll lose your jobs, and you’ll be impoverished—even as we investors become fabulously wealthy from the process of pitting workers of the world against each other."

     And they regularly use Europe as an example of how they can carry out their threats. They constantly refer to Germany, France and Italy as examples of countries that have lost industry because of high labor costs. They can't be as open about the U.S. because that would be too inflammatory to American voters.

     The conclusion that Barron's and The Wall Street Journal want to leave the politicians of the world with: National legislatures must have the courage to do the "trickier part" of reforming labor laws. (Meaning, of course, that they had better deliberately screw their workers in order to benefit the investors of the world—or they will lose their industries.)

     It's about time American voters gave politicians a different message: quit screwing workers in order to benefit investors, or we'll vote you out of office.

     Even the conservative Wall Street Journal can’t avoid the obvious hypocrisy of the Bush administration’s environmental policies.

From The Wall Street Journal, August 25.

Clean Air Act Change
Spurs Criticism of Bush

WASHINGTON—As President Bush campaigned with an environmental theme in the Pacific Northwest late last week, complaints from environmentalists erupted on the East Coast with news of a coming change in Clean Air Act regulations.

New rules to be signed this week will allow utilities and refineries to upgrade their plants without installing pollution-control equipment, as now required. The change has long been sought by major utilities that complain the Clean Air Act's enforcement program has been too costly and confusing….

"He's repaying his campaign contributors," complained Massachusetts Sen. John Kerry, a presidential candidate. "The result will be dirtier air, more childhood asthma and an increase in respiratory disease."…

The planned change in the Clean Air Act's so-called New Source Review program leaked just as the president was standing in the Northwest touting his fish and timber policies. While the setting allowed Mr. Bush to display personal interest in the environment, the arguments advanced by the administration on the New Source Review rules are broadly similar to those made by the president for his timber and fisheries policies. All are described as "practical, results-oriented" and are nonconfrontational toward industry. Carl Pope, executive director of the Sierra Club, said Mr. Bush is trying to curry favor with voters by embracing the "right rhetoric," but contended that his actions betray a shallow commitment to the environment.

     It’s the same old story. Describe your environmental policy as a profit motivated—and, thus, superior to government regulations and oversight. It never ends. Despite common sense and a dismal history of private industry environmental disasters in the past, conervatives say the environment will benefit from fewer, not more, regulations.

     The following excerpt indicates why it’s important to get progressive politicians elected to public office. They don’t appoint right-wing judges who always find in favor of corporations, no matter how much damage they have done to the public or the environment.

From The Wall Street Journal, August 25.

U.S. Court Rejects $5 Billion
Punitive Award for Exxon Spill

A federal appeals court again struck down a punitive-damages award against Exxon Mobil Corp. for the 1989 Exxon Valdez oil spill, meaning the oil company may end up paying only a fraction of the jury's original $5 billion penalty….

In a significant victory for the Irving, Texas, company in a lengthy legal battle, the appellate court cited a recent U.S. Supreme Court case that severely limits jury awards….

"We will continue to pursue this case until we are satisfied that a fair decision has been made," said Exxon spokesman Tom Cirigliano.

In 1994, a jury ruled that Exxon should pay $5 billion in punitive damages for its role in spilling millions of gallons of crude oil into Prince William Sound. The verdict at the time was the largest ever awarded. Exxon derided it as "excessive by any legal or practical measure."…

The 1989 spill, the largest in U.S. waters, damaged the fisheries and other wildlife in the sound.

     "We will continue to pursue this case until we are satisfied that a fair decision has been made"—means that “we have enough money to carry this through the courts until we find enough conservative judges (almost ten years later) to rule in our favor.”

Week of August 18

     The debate about our country’s outsourcing of jobs continues, although the evidence is so clear, one wonders why it’s necessary. The following Business Week article was so large, and the issues are so widely discussed in other sources, only a few key portions were excerpted for purposes of criticism.

     Actually, this is almost a non-debate. Even the debater who warns of the dangers of outsourcing jobs seems comfortable when it's only manufacturing jobs being lost. She becomes alarmed only when the jobs are higher-status.

From Business Week, August 18-25 (a double issue).

Commentary: Outsourcing Jobs:
Is It Bad?

An accelerating pace is raising concerns over its effects.
Two BusinessWeek economists debate whether that's good or bad

These are anxious times for U.S. workers. Sure, the recovery seems to be getting under way. Yet hardly a week goes by without another report of a batch of high-paying, white-collar jobs getting exported to far cheaper locales such as India, China, or the Philippines. In mid-July, IBM set off a firestorm when news of its plans to move more white-collar jobs overseas was leaked to The New York Times. And news service Reuters announced on July 28 that it will move 600 or so jobs from New York, as well as dozens of other slots in England, Scotland, and Singapore, to its operations in India…

As white-collar jobs move away with increasing regularity, a debate that once focused on the loss of manufacturing to foreign outsourcing is once again raging: Just how serious for America, its workforce, and its economy is the shift?…


This is no longer about a few low-wage or manufacturing jobs. Now, one out of three jobs is at risk

Economic evolution is inevitable. Companies will always pursue the lowest-cost structure, which means less skilled work will move out of the U.S. to emerging economies. And that's a good thing, because living standards around the world will rise. Workers in developing nations will get new and higher-paying jobs, and consumers in the U.S. will be able to buy products that are cheaper than if they were made at home. The shift first occurred in textiles and other manufacturing jobs, followed by low-end services such as telemarketing and data entry. Now, it's moving up the labor food chain, leaving white-collar workers increasingly nervous….

Is the angst justified? It's probably too early to know for sure whether this latest shift in jobs is qualitatively different from past offshore movements. But it certainly feels that way. Outsourcing is hitting skilled jobs that were once thought "safe" across a far wider swath of white-collar America. What's more, the new outsourcing is occurring at a breathtaking pace….

Overall, the global economy will do much better, but the U.S. workforce may face frequent career changes and downward pressures on wages through every part of the economy subject to competition from foreign labor. And that's just as baby boomers will be counting on younger workers to pay a lot of money into the Social Security fund….

By Kathleen Madigan
Business Outlook Editor Madigan still believes in free trade.


America's strongest suit is innovation, which will always create new high-paying positions

Think of the world economy as a ladder. On the bottom rungs are the countries producing mainly textiles and other low-tech goods. Toward the top are the U.S. and other leading economies, which make sophisticated electronics, software, and pharmaceuticals. Up and down the middle rungs are all the other nations, manufacturing everything from steel to autos to memory chips.

Viewed in this way, economic development is simple: Everyone tries to climb to the next rung. This works well if the topmost countries can create new industries and products. Such invention allows older industries to move overseas while fresh jobs are generated at home. But if innovation stalls at the highest rung—well, that's bad news for Americans, who must compete with lower-wage workers elsewhere….

The biggest danger to U.S. workers isn't overseas competition. It's that we worry too much about other countries climbing up the ladder and not enough about finding the next higher rung for ourselves.

By Michael J. Mandel
Chief Economist Mandel writes about innovation and economic growth from New York.

     You’ll note that Ms. Madigan subconsciously sabotages her own logic. The looming problems she sees with the loss of higher-skill jobs are exactly what we’ve already seen with the loss of lower-skill jobs.

     Although she doesn't mention them specifically, the problems include the loss of income for masses of workers, the destruction of communities, the breakdown of families, etc., as have been reported elsewhere. When these problems were limited to working-class workers and communities, Ms. Madigan saw only benefits to American society.

     Now that the problems have migrated up to her social level, she’s beginning to get concerned. She says she believes in “free trade.” Not true. She believes that it’s perfectly ok to destroy workers' incomes by constantly pitting them against one another. That’s not “free trade.” That’s barbarism—and what we now know as globalization.

     (Free trade should be based on purely economic factors: nearness to raw materials, access to the distribution system, competence of management and technical talent, etc. It should not be solely a device to drive wages down and destroy workers' ability to negotiate for decent working conditions.)

     Also, when she notes that now "one out of three jobs is at risk," she demonstates that she has no clue as to the real downside of our job losses. When you lose one job out of three, it means that the two jobs that are left pay will now pay less, because of the greatly increased competition for jobs. This is exactly what we have seen happen to working-class wages over the past 25 years (which is of no concern to Ms. Madigan or Mr. Mandel).

     Mr. Mandel, arguing the negative, still sees no problem even when lower-level high-level workers lose their incomes (the lower-upper “rungs on the ladder”). After all, at the same time, a few lucky workers in the breakthrough technologies (the top rung of the ladder) become fabulously rich. But, hey Mike, the ladder is becoming much taller, and the top rungs are fewer and much narrower.

     Of course, for both Ms. Madigan and Mr. Mandel, and for most of the readers of Business Week, everything will turn out ok, no matter what.

     After all, investors, high-level corporate executives, and conservative economists and politicians, will continue to profit from the race to the bottom for international wages.

     Two lessons from the following excerpt: First, moral standards of the U.S. health industry are becoming corrupted by greed, to the extent that government regulations and oversight are absolutely essential. The supposed “magic hand of the free market” is simply not working. As previous news releases have indicated, it’s not working in many other entire industries as well.

     Second, how could our present privately controlled health industry possibly be better than a single-payer, carefully monitored system as exists in other developed countries? Somehow, we’ve got to get the corrupting effects of unrestrained greed from further destroying the health system in the richest country in the world.

From The Wall Street Journal, August 18.

Health Industry Sees
Surge in Fraud Fines

The federal government is on its way to collecting a record amount of fines and settlements from the health-care industry this year.

In the last three fiscal years, the government has amassed $4.21 billion in fines, settlements and restitution payments from its health-care investigations—well over the $3.29 billion it collected in the prior 10 years combined, according to the U.S. Department of Health and Human Services Office of Inspector General….

The companies have been under scrutiny for everything from how they manufacture and price drugs to how they pitch their products to doctors and report data to regulators on patient deaths and injuries….

"The enforcement spotlight shifted to the pharmaceutical industry, and it appears that the intense competition in that industry led some of the companies to take risks in their marketing and pricing," says Mac Thornton, who was chief counsel to the HHS Office of Inspector General from 1990 to last fall and now helps health-care companies craft compliance plans to stay out of trouble….

Arthur Caplan, chairman of the Department of Medical Ethics at the University of Pennsylvania Medical School in Philadelphia, says ethics in the health-care industry have slipped in recent years and companies began to bend the rules of government insurance programs to meet investors' expectations. "There's been a huge appetite of greed created in the go-go late '90s and companies are trying to meet what are obviously unrealistic expectations any way they can," he says….

"If you go to conferences, you'll hear CEOs say, 'That's not a big deal. Everybody does it,'" says Brent Saunders, co-leader of PricewaterhouseCoopers's global pharmaceuticals and health-sciences group. "I tell them that's music to a prosecutor's ears. That means they can learn the case and roll it out against the entire industry."

As spending on health care has continued to surge, health programs have become a magnet for fraudulent schemes, says Bill Mahon, CEO of the National Health Care Anti-Fraud Association. Americans' expenditures on prescription drugs rose 14% last year to about $161 billion, according to the federal government. Medicare alone cost $253.7 billion last year. As Congress considers adding a prescription-drug benefit to Medicare, lawmakers more than ever want to root out fraud….

"I don't know why it is that these very large companies continue to engage in behavior that's going to get them in trouble when they can see all these other companies falling like dominoes," Mr. Mahon says. "I hope we're not at a point where people are cynical enough to say, 'Well, that's the cost of doing business.'"…

     The disconnect between The Wall Street Journal’s editorial policies and its news stories is a regular occurrence. The following two article excerpts clearly demonstrate the need for more government regulation to protect consumer interests. Yet, you can count on it, the Journal, like its Republican representatives in Congress, will oppose any legislation that protects consumers and lessens corporate profits.

     A careful reading of these articles will clearly indicate which political party always supports the interests of corporations—and stretches logic to justify its support—even when it is at the direct expense of American consumers.

From The Wall Street Journal, August 19.

Furor Greets Bid to Alter System
Of Closing Costs on Mortgages

Title Insurers, Others See Loss of Income
In HUD Plan, and Gains for Big Banks

Millions of Americans have faced mortgage closings in recent years, either while buying homes or refinancing, as interest rates moved steadily lower until recently. For many, the experience is both baffling and frustrating. Borrowers regularly complain that even though they shopped diligently, they ended up paying more at closing than they expected, thanks to fees that ballooned or showed up only at the last minute.

Mr. Martinez (secretary of Housing and Urban Development) wants to fix this by getting borrowers a clear view of all costs early on in the process, so they can shop effectively. He thinks this would lead lenders to offer lower costs in order to compete. A 1974 federal law gives him power to change the closing-cost system.

But one thing stands between him and his reform: the powerful real-estate industry. Its various players collected a total of more than $50 billion in fees last year from people who bought or refinanced. Now, many of those who profit from the mortgage industry, including title insurers, mortgage brokers and real-estate agents, feel threatened….

The debate has boiled over in Congress, where legislators urged on by industry lobbyists have railed against the plan. At a heated hearing in March, Republican Rep. Don Manzullo of Illinois called HUD's economic analysis "appalling" and demanded that HUD witnesses tell him the impact on small business. That will be the first question they'll face in a lawsuit, he said, so "pretend this is a deposition." Then the congressman, who before his election often served as a lawyer in real-estate transactions, ordered all HUD staffers present to stand and identify themselves so he could publicly berate them…

HUD estimates its plan would save consumers an average of as much as $927 in fees per mortgage—a total of $10.3 billion a year….

Despite all the criticism, many of the various players agree that the old system doesn't serve consumers well. It's based on the Real Estate Settlement Procedures Act, or Respa, passed in 1974. It was common then for real-estate agents, lenders and others to charge referral fees for giving each other business, or to grant business in return for favors such as free vacation trips.

Respa outlawed such deals. It also required lenders to provide mortgage applicants with an upfront "good faith estimate" of the closing fees they would pay. But it didn't have a mechanism to require lenders to stick to the estimates….

The title industry is looking to thousands of title agents to make its case. Cara Detring, president of Preferred Land Title Co. in Farmington, Mo., says her office alone has sent about three-dozen letters to HUD. As past head of the title-insurance trade group, she has also made three lobbying trips to Washington. She targets key congressional panels, such as Rep. Manzullo's House Small Business Committee and the Senate Banking Committee, headed by Alabama Republican Richard Shelby—who in private life is chairman of the Tuscaloosa Title Insurance Co.

Like Rep. Manzullo, Sen. Shelby is critical of HUD's proposal. His aides say this is no time to be fooling with the housing economic engine….

From The Wall Street Journal, August 20.

Eli Lilly Battles Bill Provision
That Challenges Drug Patents

With quiet backing from others in the drug industry, Eli Lilly & Co. is working to reopen one of the few things in Medicare legislation that appeared settled: a provision intended to encourage generic-drug makers to challenge brand-drug companies' patents.

Lilly argues that the provision tilts too far in the generic industry's favor and would lead to costly, wasteful litigation. The generic companies counter that the brand companies are just trying to protect profits by weakening incentives for patent challenges. Changes backed by Lilly "would turn a proconsumer bill into a probrand windfall," says Kathleen D. Jaeger, head of the Generic Pharmaceutical Association.

The generic-drug section is one of two in the Medicare bills—along with legalizing the importation of medications from other countries—that directly address exploding drug costs. House and Senate negotiators have several differences to work out in their bills' generic-drug sections, but Lilly is challenging a provision that is identical in both bills….

Republican Sen. Orrin Hatch of Utah, author of the 1984 drug-patent law that the generics section would modify, helped Lilly by holding a hearing on the provisions earlier this month. His staff plans to raise the issue in House-Senate negotiations on the Medicare bill. "If we turn and completely balance it in favor of the generics because it's a cheap, easy thing to do ... we will lose our capacity to do the [research] necessary to come up with the blockbuster drugs," Mr. Hatch said at the hearing….

     It's especially notable that Congressional Republicans support high profits for the major drug companies—at the public's expense—at a time when drug costs are reaching crisis levels.

     Here’s another article that demonstrates the disaster of globalization. The masses of older workers who have lost their jobs are NOT going to be retrained into better ones. In many devastated communities they are likely to find no jobs at all. And when the companies that used to employ them go bankrupt, it will be up to the U.S. taxpayer (through the Pension Benefit Guaranty Corp., a government agency ) to provide them with their pensions.

     Meanwhile, the investors who caused the job losses get richer, have their taxes reduced by the Republicans in Congress and the White House, and continue putting their money into producing jobs in Third World countries.

From The Wall Street Journal, August 20.

Older Workers in the Lurch
For an Employee Laid Off After Decades

On the Job, Question Is What to Do Next

…The closing of factories continues to erode the Southeastern textile and furniture-making industries, especially in the Carolinas and southwestern Virginia. North Carolina alone has shed 160,000, or 36%, of its textile, apparel and furniture-making jobs in the last four years as a result of the soft economy, improved factory efficiencies and intense overseas competition. Still, some economists and labor experts believe these workers can end up better off in the long run, provided they can be trained for, and actually find, higher-paying, less bone-aching work.

But older workers … generally find it harder to change, and often avoid retraining out of fear they wouldn't be rehired anyway because of their age….

Pillowtex says it's unlikely that workers will ever get severance pay. Their pensions are most likely to end up administered by the Pension Benefit Guaranty Corp., a government agency. In most cases, those workers who were fully vested would maintain their benefits, according to Milliman USA, a firm now handling the pensions….

     For the past 20 years, articles like the following have been published in the conservative financial press, every six months or so. The only difference between them over the years has been their extravagance. It was absurd 20 years ago, and it’s beyond absurdity today.

From The Wall Street Journal, August 20.

Nu 5BR/4Ba Home,
Perfect to Tear Down

Even McMansions of the '90s Are Targets
For Wrecking Balls as Buyers Covet Lots

…Traditional teardowns—demolishing a smaller, older house to construct a bigger one on the same lot—have been on a tear for at least a decade. But now, the epidemic has reached a whole new level: knocking down just-built or remodeled McMansions to put up even newer and bigger ones. A New Jersey family ripped down a $2.6 million home built just five years earlier. In upscale Chicago suburbs like Hinsdale and Highland Park, builders are bulldozing houses that were renovated only a year ago.

A typical teardown is older than 30 years and under 2,000 square feet, with dated features such as low ceilings or small kitchens. But low interest rates and a still-roaring housing market are now making much younger houses targets in communities that have lots of amenities but few available lots.

In Aspen, Colo., where the average single-family home sale is nearly $4 million, 10-year-old homes are now fair game. On Lake Tahoe's valuable lakefront, some brand-new, million-dollar homes are teardowns, because lots there are so rare. Hot housing markets in South Florida and Southern California, and the suburbs of New York are also seeing teardowns of newer homes….

"It's amazing, the brand new kitchens, brand new appliances, brand new windows -- all in houses getting torn down," says Ms. Murphy….

One big reason for teardowns is the insatiable demand for ever-larger, custom-built houses. About 19% of new single-family homes were at least 3,000 square feet in 2002, compared with only 13% in 1990.

As houses become more individualized, with extensive "built-ins," one family's custom-built castle may not work for the next tenant. "Homeowners who have resources can afford to reinvent their version of the American dream as often as they want," says Marya Morris, senior research associate of the American Planning Association, a national nonprofit public-interest organization….

As for the new suburban chateaus being erected, they may not be around long either. In Bernards Township, N.J., a family recently ripped apart a 10-room, 7,000-square-foot, $2.6 million Colonial—built in 1996. (They left two rooms intact from the original structure.) The new owners loved the large 9.8-acre lot, but the layout wasn't right for their family and they couldn't find an equivalent lot in the area, says Jane DiGian of Weichert Realtors in Warren, N.J., who represented the home buyers. The family didn't stay in the new place for long. Less than a year after building their new manor, they are moving out of town for business. Their brand new 15-room, over-11,000-square-foot replacement home is now listed for more than $4.8 million.

     Think of the incredible economic waste these people are causing, at a time when so many workers can’t even afford to live in the communities where they work. Of course, as Class War in America points out, it’s the sacrifices politically forced on American workers that have allowed so many people to become so rich in the first place.

     Ever wonder why the editorial pages of conservative financial publications universally support immigration? That’s supposed to be a liberal cause; a humanitarian attempt to help disadvantaged people from other countries.

     But it’s also a neat way to increase the labor supply and to drive down wages. And that’s the only reason conservatives—not known for their humanitarian instincts—ever support immigration.

From The Wall Street Journal, August 19.

Hispanic Newcomers Damp Wages

Study Calls for More Workplace Rules
And Amnesty for Illegal Immigrants

Hispanic immigrants piling into the labor market are weighing down the wages of all workers in a broad range of blue-collar occupations in big cities across the country, according to a new study….

… research found that occupations in which new Hispanic immigrants account for a quarter of the work-force pay as much as 11% less than those where there are no new Latino immigrant men. Toward the lower end of the wage ladder, where average annual earnings are about $21,600, jobs in which new Hispanic immigrant men account for 10% of the labor force pay $950 less per year than similar jobs with no new Latino arrivals. Where new Latino male immigrants account for a quarter of the labor pool, the wage penalty is almost $2,400.

There are more than 10 million Hispanic immigrants working in the U.S. About an additional 400,000, most of them poor and low-skilled, arrive each year, sucked in by a labor market hungry for their services….

"It all comes down to the marginal status of immigrant Latinos," Ms. Catanzarite (researcher) says. She says immigrant workers are willing to work for less money and are less likely to defend their rights in the workplace, which drag down wages of all workers in the industry.

What's more, Ms. Catanzarite says the natives who suffer most from the wage penalty also are minorities. In jobs in which new Hispanic immigrant men account for 25% of the labor force, the penalty for white native workers is about $200 lower on an average income of $21,600 annually. But nonwhites earn almost $2,900 less in this category. "It is earlier-immigrant Latinos who take the hardest hit," she said. They are far more likely to be employed in brown-collar fields than are natives."…

She says the best way to eliminate the wage gap is to improve working conditions for new immigrants, by enforcing minimum wage standards for immigrant workers, providing an amnesty for illegal immigrants and strengthening their workplace protections. "Policies aimed at raising the social status of immigrants would protect native workers from both immigrant competition and brown-collar wage penalties," she says.

     American Electric Power Company is representative of today’s corporate morality: cut costs, maximize profits, and no matter how an action (like cutting costs) affects the public—if it’s not specifically prohibited by laws or regulations—do it.

From The Wall Street Journal, August 22.

AEP Line Maintenance
Faulted Before Blackout

A Focus of Electric Failure, Utility
Was Criticized for Cutting Corners

American Electric Power Co., one of the companies whose failed transmission lines may have triggered last week's huge blackout, has scrimped on some maintenance spending at its Ohio utilities, according to an internal report by the Ohio Public Utilities Commission.

The May 2003 report criticizes AEP for lax tree trimming around power lines, failing to replace worn-out equipment and shoddy maintenance practices…..

From 1992 through 2001, the company spent $88.5 million less on maintaining its existing power-delivery equipment than it had told the commission it needed and then collected the higher amount from customers through their monthly power bills, the report said. Customer complaints about service interruptions by AEP's Ohio utilities doubled between 2001 and 2002….

Mr. Hemlepp said AEP has been able to cut expenditures in some areas by "process improvements and more efficient use of manpower." But he said AEP always spends whatever amount is necessary to do its duty under the law. Utilities are required to provide safe and reliable service in exchange for being allowed to maintain monopolies….

     So, AEP gets approval from the electric commission to raise rates to customers, because they had to provide necessary maintenance. Then, they didn’t do the maintenance—thus cutting costs and increasing profits, and, undoubtedly made the investors and top execs richer. Modern capitalism at its best.

     The key statement in the above article, however, was by the company representative who demonstrated why government regulations are necessary: “AEP always spends whatever amount is necessary to do its duty under the law.”

     It’s guys like that who make regulations absolutely necessary. And they are found throughout corporate America.

     The problem with the following article is that similar articles have been regularly published over the past 30 years—bad times, like today, and good times, like in the roaring 1980s and '90s. It's not "bad times" that caused the unions' lack of power; it's a dramatic change in the political climate during the last half of the past century.

From The Wall Street Journal, August 22.

Labor Talks Become Marathons

Wary of Economic Climate, Unions,
Businesses Strive to Avoid Strikes

High-profile labor talks this summer have stretched to weeks and even months after contracts expired, a sign that the uncertain economy is weakening the will of both companies and unions to boldly call strikes or lockouts that might jeopardize jobs or business. If other companies follow the same tack, there will be fewer labor disruptions to snarl the budding recovery….

In part, the longer talks over wages, benefits and other issues are part of a trend away from strikes. Companies have proved their willingness to hire replacement workers and wait out the strikers. With only 8.5% of private-sector Americans belonging to a union, strikes don't carry the same resonance with the American public as they did in the past. And with 9.1 million people looking for work, hiring replacement workers isn't so hard these days….

Labor experts say the lack of real hostile moves reflects both progress at the bargaining table and a tougher economic environment. "In the 1990s it was fashionable, and with good reason, to say companies were provoking strikes," says Michael LeRoy, a labor professor of University of Illinois. "Multinational corporations were egging for a major fight. They would make an offer to provoke a walkout, then hire replacements." Today, he says, "companies are trying to hold off using those weapons."

     The real reason labor unions have lost their power to negotiate, in both good and bad times, is that corporations have discovered that, among other things: 1. our labor laws have no teeth and corporations can replace strikers and union supporters at will; and 2. globalization—and its threat of job loss to other countries—has shifted the balance of power almost totally in corporations' direction.

     Another problem was caused by the unions themselves. When they were strong, they should have used more of their resources to increase union membership across more companies and industries—thus getting the political support of more workers. As it is, too many underpaid (and short-sighted) nonunion workers are jealous and have no sympathy for pro-union politicians.

     The following is just another example of corruption in the industry that conservative politicians want to handle workers’ Social Security funds. Note that the firms mentioned are among the industry's most prestigious.

From The Wall Street Journal, August 22.

Smith Barney Is Fined
By NYSE Over WorldCom

The New York Stock Exchange fined Salomon Smith Barney $1 million and temporarily stripped one of the brokerage firm's regional managers of his duties for failing to supervise brokers dealing with employees of WorldCom Inc….

Salomon Smith Barney earlier this year paid $400 million as part of an industrywide pact to settle charges it issued misleading stock research in an attempt to win investment-banking business. At issue in the NYSE case are lending practices to WorldCom employees, who on the advice of Salomon Smith Barney brokers often borrowed large amounts of money to cover taxes on their stockholdings, which are now almost worthless….

Merrill Lynch & Co. was ordered to pay $3 million to a couple who alleged Merrill gave them bad investment advice on their options, including the tax consequences they faced. Many of the investor complaints against Smith Barney's Atlanta office are scheduled to go to arbitration this year, plaintiff lawyers say….

Week of August 11

     As you read this excerpt from this past week's Wall Street Journal, bear in mind that the total article was read by the same corporate executives who have caused these conditions to exist. By getting conservative politicians elected, they have deliberately created an economic climate that has no respect for families, workers, or stable communities.

     These bastards know full well that globalization, as opposed to true international trade, is not based on sound economic principles (closeness to raw materials, central to the distribution area, etc.). It is based solely on the theory that workers have no human rights and are to be treated like machinery or raw material—to be callously used and discarded at will.

     When they close down operations in the U.S., they know full well that they are deliberately cutting working Americans out of the wealth-creation process. And they move to areas that are chosen because of—not in spite of—their uncivilized working conditions.

From The Wall Street Journal, August 14.

Textile Powerhouse Learns
Downside of Globalization

Clothes Made Mauritius a Big Name,
But Now It Faces Brutal Competition

PORT LOUIS, Mauritius—When it won independence from Britain in 1968, this tiny island off the coast of Madagascar had little to offer the world except sugar cane and white-sand beaches.

So the government decided to embrace the global economy, creating an export zone with low taxes and relaxed labor laws. And the global economy embraced it right back. Clothing companies rushed to set up textile factories on the island—and, improbably, Mauritius became a powerhouse....

Median household income nearly doubled in the 1990s, to roughly $380 a month last year, making it one of the most prosperous nations in Africa. Its textile business grew so rapidly—turning out clothes for such global brands as Gap and Calvin Klein—that employers had to import workers from China and India to staff their production lines….

But now this poster child for globalization is starting to see the downside of free trade. As trade barriers ease around the world, China and India are flooding the world's markets with their own textiles and undercutting Mauritius's prices by drawing on their own vast pools of cheap labor. Since the late 1990s, thousands of Mauritians have been cast out of the textile factories as they have closed or downsized. The unemployment rate among Mauritians, who are mostly ethnic Indians, crept up to 9.8% last year, from less than 3% a decade ago, and many expect it to top 10% this year....

The unemployment picture is more complicated than it looks. Some factory owners are laying off Mauritians, but not the foreign workers who continue to enter the country. Chinese and Indian workers, the factory owners say, are more skilled and diligent than the locals, since many were trained in overseas factories and don't have family or social obligations to take their attention away from the job. Now expatriate laborers, virtually unheard of a decade ago, make up 23% of the work force that produces garments for export….

Many laid-off natives are sympathetic to the imported workers, but with an edge of resentment. "They're all beasts of burden. They're like machines. When you have a need for them, just call and turn the machine on," says Maryline Olivier, 41, who began working in the factories at 17 and was also among the 23 workers laid off….

In 1970, the government created an export-processing zone, which today gives companies tax and duty breaks, plus key exemptions from many of the nation's otherwise tough labor laws, if manufacturers export 90% or more of their production….

Imported workers are appealing for another reason: They're prepared to do work locals are now reluctant to take on. Many Mauritians say garment-industry jobs in the export-processing zones pay too little to live on. The average garment worker in the zones earns $185 a month, compared with the $319 average for Mauritian workers as a whole….

To spur more productivity from his local workers, he (factory manager) recently pinned on a bulletin board a clipping from the Mauritian French-language daily L'Express that describes China's competitive advantages over Mauritius. "I want my workers to know and to be afraid," he says.

Palmar has shifted some production to Mozambique, where labor is cheaper. The company produces 8,000 garments per day in Mozambique, compared with 50,000 in Mauritius, and hopes to produce 12,000 there beginning this month….

On a recent night, in one dormitory off a muddy country road, a worker named Wang shut his bedroom door to keep a supervisor from overhearing him. Wang, who asked that his full name not be used, said a manager at his factory, displeased with his performance, hadn't paid him since March. Wang, a 36-year-old from the Chinese province of Fujian, said he hasn't seen his wife, his 14-year-old daughter or his son, 11, since he left three years ago….

The government has taken a harder stand in overseeing contract workers after two deaths of Chinese expatriate workers last year, apparently due to illness. It recently sided with Chinese workers who wanted their paychecks in their own hands rather than sent back to China. It banned the occasional practice of some companies that fired workers after 11 months, making them ineligible for a year-end bonus, then rehiring them, says Showkutally Soodhun, Mauritius labor minister….

Looking ahead, the government's problem is moving its work force beyond factories. "You can't run a country on cheap labor. You can't rely on cheap labor. Eventually, you've got to give the people something better," says Jayen Cuttaree, Mauritius commerce minister….

     Same old story. To drive down wages at home, export jobs to desperate states or countries who are willing to sell-out their own workers to the lowest bidders. The wealthy in both areas become richer, workers benefit temporarily, and the bill doesn’t come due until the workers begin to actually benefit from the system.

     Then, naturally, industry moves to a new area, where workers have fewer protections and worse conditions.

     Amazing. Jayen Cuttaree, commerce minister of a tiny island off the coast of Madagascar has a greater understanding of what the survival of a civil society requires—than the entire Bush or Clinton administrations combined: "You can't run a country on cheap labor. You can't rely on cheap labor. Eventually, you've got to give the people something better."

     (Both Clinton and Bush supported NAFTA, WTO, and "fast track" trade negotiations with third world countries. At least Clinton pretended to be conserned about worker and envrionmental provisions in trade agreements.)

     The U.S. has not only lost most of its middle-class, it’s now in the process of losing much of its upper-middle-class. Our loss of jobs and industries now involve high-skilled and professional workers with advanced educations and degrees. Soon, we'll have only two classes of people: investors and those who can still find jobs in the U.S. that can't be exported.

     If you still don't believe that globalization has been an utter disaster, check out other recent excerpts from Previous Weeks’ Conservative Press.

     Even The Wall Street Journal can’t keep the bad economic news off its front page. When you read this, remember that it’s just an excerpt. The entire article gives many more depressing examples of workers’ downward mobility and illustrates, perhaps unintentionally, the sham of the “recovery” we’re experiencing.

From The Wall Street Journal, August 13.

After Long Boom, Workers
Confront Downward Mobility

In five years at Nortel Networks Corp., James Richter won a series of promotions and saw his salary more than double, to $94,000 a year. He figured the upward trend would continue. But the opposite happened.

He was laid off in March 2002, and expected to find a new job quickly. But Mr. Richter, 30 years old, got no offers in the telecommunications industry, which was shedding thousands of workers. After six months, he ended up taking a supervisory job at a cable company, even though it paid little more than half as much as his old job….

This unusual period in U.S. economic history—a sluggish recovery, with continued job losses, after a prolonged period of intense growth—is increasing the ranks of the downwardly mobile. Many workers who have been laid off are eventually finding new jobs, but they're riding the down escalator at a time of life when they expected to be riding up. Even now, as economic growth appears to be gaining steam, it remains unclear how soon the economy will grow fast enough to improve the job market.

While the recession is officially over, this is the first recovery since World War II in which the number of payroll jobs has continued to fall 20 months into the rebound, according to the Economic Policy Institute, a Washington think tank. The previous record was 13 months into the recovery in 1992. In all, 2.7 million payroll jobs have disappeared since the recession began in March 2001. Even when the job cuts stop, economists say, many workers will find their incomes well below the levels reached only a few years ago.

Jobs have been lost across a wide spectrum, hitting workers of all levels of education and experience. Many of today's downwardly mobile are skilled, well-educated people, who only recently were highly sought-after. The boom of the late 1990s allowed them to soar in salary far ahead of workers of their age and experience in the past….

In such a climate, many workers are experiencing a mix of emotions, from relief at finding work, to frustration over their changed circumstances. Mr. Richter, who accumulated debt, ran through some of his savings and is in the middle of a divorce, says he is "back to pre-college financially." Yet, "I feel lucky," he says. "Even though I've lost ground, I know people out there who have no ground at all any more."…

The unemployment rate, at 6.2%, fell slightly last month, but the drop was largely because nearly 500,000 job seekers stopped looking for work. Job searches have become much longer. Last month, the share of job seekers who had spent at least 15 weeks looking for work was 39.8%, the highest level since the bleak job market of 1983….

     This article doesn't even touch the subject of what is happening to so many upper-income people who are saddled with small mansions—along with many other expensive lifestyle choices—that they bought in the exuberance of the 1990s. There's a gathering storm that few economic observers seem to appreciate.

     To see many more examples of how conservative economists and politicians are destroying our nation's economy, check out the past two months of Previous Weeks' Conservative Press.

     Steve Forbes, editor-in-chief of Forbes magazine, once ran for president of the United States and was a strong advocate of totally eliminating the “death” tax.

     Consider this: In February, 2002, corporate raider Victor Posner died. He couldn't raid any more corporations. He no longer could buy lottery tickets. He couldn’t be injured in a traffic accident. He was no longer hassled by a worsening arthritis condition. And guess what?

     He could no longer be taxed by the federal or state governments. He was DEAD. As in permanently gone. A previous human.

     However, the greedy, materialistic idiots described in one of Forbes own articles could—and should—have to pay an ESTATE tax on the millions they will eventually receive. Just like you will have to pay taxes on every cent of the money (minus deductions) that comes from your labor, they should have to pay taxes on the money they get just for being born—or married—to millions of dollars.

     How obvious can this be?

From Forbes, August 11.

All in the Family

Corporate raider Victor Posner spent much of his life in court. The legal belligerence continues unabated after his death.

Victor Posner's legacy of rapaciousness and legal battles—against corporate shareholders, the Securities & Exchange Commission and the Internal Revenue Service—lives on among those closest to him. Scarcely had the body of the slumlord-turned-takeover-tycoon chilled in February 2002 when his children, grandchildren and former gal pal began fighting one another to get their mitts on the estimated $200 million fortune he left behind. (One longtime business associate says it's worth $1 billion.) At the moment Victor's on-again, off-again girlfriend, Brenda Nestor Castellano, has the upper hand.

Castellano—54, married and mother of triplets and twins—was a young actress in New York when she met Victor in the 1970s and eventually wound up as an executive and director at some of his companies. She got another big break in 2000, when Victor settled years of legal wrangling with his son Steven, who had sued him for withholding payouts from Security Management Corp., which held much of Victor's real estate and was 26% owned by Steven through a trust. Steven got $11 million in cash—and the chance to flip a coin in front of a judge (Steven won) and then take turns with Victor choosing one asset after another until Steven owned $58 million of property. In return he waived all future rights to Security Management and the estate….

No one's free to cash in quite yet. Victor's children from his second marriage, Troy and Tracy (married to Burt Ward, a.k.a. Robin from the 1960s Batman TV series), have filed claims that Castellano unduly influenced Victor and that the estate should go to Victor's kids. Steven's three children—Kelly, Jarrett and Sean—have joined the battle, suing Grandpa's estate to oust Castellano and revoke the probate of the 2001 will….

For witnesses the grandchildren are prepared to trot out nurses saying that in his last months Victor confused reality with fantasy and could not string a sentence together….

     America’s loss of high-paying jobs is becoming a tidal wave of bad news.

From Business Week, August 11.


China is rising fast as a services outsourcing hub

…After emerging as the world's hottest manufacturing hub, China is joining English-speaking countries such as India and the Philippines as a key destination for outsourced service jobs….

So far, China's role is largely focused on providing back-office support for financial service, telecom, software, and retail companies in neighboring Asian countries. Operators can easily talk to people in Hong Kong and Taiwan in their own languages. China also has plenty of Japanese and Korean speakers. But it is making inroads as an outsourcing base for English-speaking nations, a business dominated by India, because of the influx of Western multinationals who now are bringing back-office work to China….

China's ascent could inflame an already heated debate in the U.S. about companies sending work abroad. With the U.S. economy still struggling and the jobless rate at 6.4%, lawmakers in several states want to make it harder for governments to contract work to low-wage countries. India is the center of attention. But China, which many Americans view as a political and economic rival, is likely to be a bigger lightning rod for outsourcing foes….

Chinese officials aim to give this burgeoning industry a push, by forging partnerships with multinationals to train information technology engineers. For example, IBM has signed deals to train 100,000 software specialists in various Chinese cities over three years. Indian computer-training companies are teaching 20,000 students in more than 100 centers across China….

China's low-cost talent is another edge. Although India is a powerhouse in high-end IT services, latecomers these days must pay higher wages for experienced engineers. That's one reason BearingPoint chose Shanghai for its new software-development center, says the company's Greater China President, Bryan Huang. BearingPoint pays $500 a month for engineers in Shanghai. In India, he says, the pay would be $700, and $4,000 in the U.S. "Where can we sustain our cost advantage for the next 40 years?" Huang asks. "We're convinced that China is the only place."…

     "China's ascent could inflame an already heated debate in the U.S. about companies sending work abroad." No kidding. Why wasn’t there a heated debate when the whole “globalization” absurdity began in the first place?

     There is a massive redistribution of wealth today, going from workers to investors and high-level corporate executives. Some day, our politicians will have to figure out how they can peacefully redistribute wealth in the opposite direction. Either that, or we’ll have a total collapse of our orderly society, as increasing numbers of families cannot meet basic needs.

     The willful blindness of conservative economists and politicains is truly amazing.

     Here’s another “So what’s new?” article. Despite the proclaimed purposes of the last tax cut bill, those who advocated—and benefited most from—the tax cuts were the very rich.

     As usual, the losers will be the general public who benefit from the governmental agencies that are starved for tax revenues: in education, health care for the poor, police and fire services, environmental protection, even veterans' benefits—and all those things that only government can address.

From The Wall Street Journal, August 11.

As Taxes Fall, Dividends Rise—
And Executives Reap Big Gains

The federal tax cut, which slashed the tax rate on dividends and prompted many companies to increase their payouts, is proving to be a boon for some corporate executives who are reaping millions in after-tax gains.

All shareholders benefit from higher dividends and lower taxes. But for senior executives holding sizable stakes in their companies, the rewards have been especially lucrative. At Wall Street securities firm Goldman Sachs Group Inc., which raised its dividend by 108%, Chief Executive Henry Paulson will get a $2 million after-tax boost in dividend income each year. Charles Schwab, chairman of discount-brokerage firm Charles Schwab Corp., picks up an additional $5.4 million, Leslie Wexner of retailer Limited Brands Inc. will get $9.3 million extra and Microsoft Corp.'s Bill Gates, whose company announced its first, though modest, dividend earlier this year, gets an $80.3 million after-tax increase….

…since executives must disclose their share ownership and because dividend increases are announced publicly, benefits from the lowered levy on dividends can be estimated for this elite group, providing a glimpse into the million-dollar ramifications of a controversial tax-law change.

The big dividend-income raises for some corporate leaders come at a time that high executive salaries and other outsize compensation have come under fire from shareholders suffering through three years of shaky stock-market returns….

Under the old tax rules, dividends were taxed as ordinary income, at rates that topped out at 38.6% last year (the rate fell to 35% this year)…. The new law lowered the tax rate on dividends to a flat 15%, making dividends more attractive, especially for wealthy individuals….

Several executives, including Mr. Schwab and Goldman's Mr. Paulson, publicly supported the dividend tax cut as a way to stimulate the economy and the stock market, which in turn would be good for their businesses….

The benefits gained by the wealthiest taxpayers from the dividend-tax cut echo complaints by opponents of the measure, who said it would benefit the rich far more than the poor and middle class....

Of the tax cut itself, the Urban-Brookings Tax Policy Center, a research organization, says that 29.1% of the benefits accrue to the top 1% of taxpayers and 61.6% will go to the top 10%….

     Another round in the battle of states’ rights vs. federal government, plus corporate interests vs. the public good.

From The Wall Street Journal, August 11.

Auto Makers to Drop Suit
Over Plan to Cut Emissions

General Motors Corp. and DaimlerChrysler AG's Chrysler unit said they will drop a lawsuit against a California program that seeks to put cleaner cars and trucks on the road in the state that is the nation's biggest auto market….

California designed the program more than a decade ago to force the industry to sell thousands of nonpolluting, battery-powered electric cars. Over the years, however, state regulators watered down the rules amid evidence that such cars are too expensive and impractical to attract many buyers. In 2001, California said auto makers could satisfy the mandate largely by selling highly fuel-efficient gasoline-and-electric hybrid cars. But GM and DaimlerChrysler sued, arguing that change amounted to an illegal fuel-economy regulation. Last year, they won an injunction in U.S. District Court in Fresno delaying the implementation of the mandate to 2005 from 2003.

The California air board appealed that decision. The Bush administration supported the auto makers' argument that California's changes amounted to a state usurpation of federal authority. In April, the California board proposed changing the rules to remove the reference to fuel economy and make it easier for the industry to comply with hybrids and fuel-cell-powered cars. "We thought it would be faster and more efficient" to change the rules rather than to continue the legal fight, a spokesman for the California air board said.

     Whenever conservatives want to weaken the federal government—say national standards for workers' right to organize—they divide and conquer by allowing individual states to destroy unions with their "right-to-work" laws. They say that states rights are supreme.

     But when the Bush administration wants to support its corporate sponsors, it joins them in fighting the rights of states ("a state usurpation of federal authority") to control their own environment, and insists that the weaker national environmental standards prevail.

     Then there is the issue of the total absence of corporate morality. They are quite willing to destroy the air of California in order to maximize corporate profits. They KNOW that what they are doing to the air is detrimental to health; yet they insist on the right to produce high-profit polluting cars—a right made legal because of the power of money and the machinations of lawyers.

     The next pair of articles go together. They demonstrate the hypocrisy of those who want to "give average workers the same kind of benefits that rich investors get from the stock market."

     Apparently it's difficult even for the sophisticated readers of the Journal to get good financial advice, and also to find their way around the Wall Street Jungle of hungry tigers. Think what a disaster it would be for many (most?) unsophisticated novices to use some of their Social Security funds to speculate on Wall Street.

     None of the Journal's proprietary advice is repeated here. These excerpts are for purposes of criticism only.

From The Wall Street Journal, August 13.

Fast Talker? Five Ways to Gauge
A Potential Financial Adviser

If you think picking investments is tough, try picking an investment adviser….

Many brokers and financial planners charge too much. Many know too little. And some are crooks….

So how do you find a top-notch broker or planner? Try these five steps:…

Also from The Wall Street Journal, August 13.

Wall Street's Plan
For Your Nest Egg

In a Shift, Brokers Target People
Tapping Into Retirement Savings

For decades, financial firms made a mint helping Baby Boomers save for retirement. Now, with those customers graying fast, firms are plotting how to make money from the boomers' inevitable next step: drawing down their nest eggs.

Mutual-fund companies, insurers, and brokers are rolling out all manner of new products and services that—for a fee, of course—promise to help retirees avoid running out of money. The products range from simple annuities to automatic portfolio-rebalancing tools.

All are aimed at the growing number of workers who rely on 401(k) or similar plans, which are designed to generate a big sum of money that retirees must manage themselves. The problem with such plans is they don't guarantee a secure monthly income stream, like a traditional pension plan, or even guide retirees about how to achieve that goal.

Meanwhile, retirees in general are living longer, making planning even tougher. An average 65-year-old man can expect to live to 81; a woman to 84….

… the security of these new products comes at a price. For one, they tend to carry much higher fees than plain-vanilla mutual funds. In addition, retirees moving their 401(k) money into more conservative pension-like instruments won't benefit if the market takes off again. Here's a look at the latest offerings and their main benefits and drawbacks:…

Of course, unlike an annuity, stock and bond investments can lose value with market swings and aren't guaranteed to last until you die. That means you need a pretty big nest egg for safety's sake. Take a $1 million portfolio. If that sum were invested 60% in stocks and 40% in bonds, a retiree could withdraw 4% a year—or $40,000 during the first year—and have a 90% chance having the money last for 30 years, says Rande Spiegelman, vice president of financial planning at the Schwab Center for Investment Research.

"It's pretty daunting to think about having to save a million dollars just to generate 40 grand," Mr. Spiegelman says.

     Ah, the trials and tribulations of wealthy investors: what they've got to go through just to get 40 grand for not working.

Week of August 4

     What is the hidden agenda behind the following article? It’s apparently intended as helpful advice for a diverse group of professionals who find themselves in need of new employment.

From The Wall Street Journal, August 5.

Employees Leave Struggling Jobs
In Search for More Fertile Fields

A free-lance photographer no longer makes a good living telling stories through pictures. A podiatrist wishes he were a high-school biology teacher, enjoying regular hours and guaranteed benefits. A stock research analyst worries that a conflict-of-interest scandal engulfing his profession could hurt his employability elsewhere.

Professionals from many walks of life find themselves in turmoil these days, buffeted by diminished pay, increased regulation, lessened prestige—or all three….

"It's much harder to reinvent myself and enter a completely different profession at this point in my life," says Paula Lerner, the struggling photographer. "And I'd still have to start at the bottom."…

Since then, pursuing her passion for her brand of photographic storytelling "has become all but unworkable," Ms. Lerner laments. Adjusted for inflation, magazines typically pay free-lance photographers roughly 35% less than 18 years ago.

Ms. Lerner earns half of what she did three years ago, despite aggressive efforts to supplement her scarce magazine assignments with additional commercial projects. She craves more work "that will feed my soul," she says….

Career specialists urge besieged professionals to undergo a scrupulous self-assessment, pinpointing their favorite and most transferable talents. "Don't think of yourself as an accountant. Think of yourself as someone with strong financial-management skills who, say, understands the hospitality industry," advises Barbara Moses, president of BBM Human Resource Consultants in Toronto and author of several career self-management books….

The most difficult aspect of such a change is the typical drop in income….

     Articles like this suggest that the current professional malaise is just another mid-life crisis, and people simply need to seek out new opportunities—usually at lower pay.

     The hidden agenda: the reduced incomes of all kinds of professionals is a planned result of political and economic policies brought about by rich investors and top corporate executives. These people see workers purely as expenses to be minimized. Increasingly, those workers include everyone from PhD. Chemist, to computer programmer, to electrical engineer, to doctor—to everyone who works for a living.

     When the jobs of whole groups of professionals are shipped overseas—and skilled immigrants imported into the country—people who previously had good jobs enter the job market for photographers, stock brokers, travel agents, and so on. Or they go into the business of industrial cleaning, fast-food franchises, home repair, etc. The inevitable result: more competition for jobs and, if in a business, for customers or clients. Result: lower incomes for everyone.

     And remember, "globalization" is just one of many strategies to destroy incomes of professionals. (Classifying employees as temps, reducing benefits, contracting work outside the organization, etc.)

     It’s basic Econ. 101. And the conservative politicians who brought it about know very well what they are doing, and what the long term effects will be. After all, they read the conservative financial publications cited in the files throughout this website.

     Want more evidence that a higher education or advanced skills training are not the keys to higher incomes in the U.S.?

From The Wall Street Journal, August 5.

Grads Seeking Public Service
Find Few Jobs Are Available

Shan Patel graduated with high honors from Harvard University in June. But that wasn't enough to get him a position with Teach for America or the New York City Urban Fellows Program, two public-service programs….

Neither prior experience nor an Ivy League pedigree, it turns out, is any guarantee of success in the heated-up competition for slots in the public-service sector. Applications for such positions are soaring, while budgetary problems at AmeriCorps, the federal umbrella organization that runs and finances national and community service, are taking their toll on the number of positions available….

Over the past two or three years, the number of employers participating in campus job fairs has dropped by 30% to 40%, with fewer positions being offered by those who still come….

Most service jobs don't pay much, but some -- especially those in teaching -- do provide a livelihood, albeit a temporary one since service terms are typically limited to a year or two. And that has become an increasingly attractive alternative to unemployment.

"There aren't 40 dot-coms saying, 'Come and play with us for a couple of years, and you'll be with a group of extremely smart people, and, if we do extremely well, the world will be your oyster,' " says Bill Wright-Swadel, the director of career services at Harvard. Recalling a time when seniors got signing bonuses to work in business, he says: "That kind of market doesn't exist at this point in time, so students have to be much more assertive."…

     If advanced education and higher skills are not the key to a good income, what is? Easy. Same as it always has been. The groups who have most of the political power always control the economy to benefit themselves and their descendants.

     Right now, those in power believe in aristocracy—that wealth and political power should be inherited, and that those who work for a living should get a marginal income at best.

     Before the next election, voters had better figure out which politicians have the best interests of most Americans at heart—and not just the interests of the few at the top.

     Isn’t there a connection between lowering the incomes of professionals and increasing profits? This article came out on the same day as the previous two.

From The Wall Street Journal, August 5.

Profits at Big Companies Show
Solid Gains in Second Period

Some Executives Are Remaining Cautious
Despite Signs Recovery Is Gaining Steam

It's been a long time coming, but the growth in corporate profits appears to be picking up momentum.

Net income rose 63% in the second quarter among companies tracked by Dow Jones & Co. that had reported earnings as of Friday. At present levels, net income is approaching historic highs and falls just short of the $122.9 billion recorded when the economy was still booming during the second quarter of 2000. The profit improvement, if sustained in the coming months, could contribute to the stronger economic recovery that so many economists are now predicting….

Economists believe an earnings turnaround is critical to a full-fledged economic recovery. They reason that executives will only start hiring and investing again when they are confident their profits are on a sustainable upward trend. Recent economic reports have shown signs that business investment is indeed turning up, although companies continue to cut payrolls, according to the latest Labor Department statistics….

"How much more proof do you need that profits are improving," said Nancy Lazar, an ISI economist. "They are improving and it's good for the economy."

     How nice. Companies are still cutting payrolls and yet their “net income is approaching historic highs.” Of course, that’s how you do it.

     Cut payrolls, intimidate those who are left with the threat of job loss, contract work out to firms that brutalize workers, and then pocket the profits. Naturally, you promise that the economy will get better for everyone after our wealthiest Americans have become true aristocrats.

     As if we needed more reasons not to privatize Social Security, here’s another one.

     According to stock market expert Lee Gomes, in The Wall Street Journal, unsophisticated investors are again going to be taken to the cleaners by those who know how to play the “greater fool” game on Wall Street:

From The Wall Street Journal, August 4.

Investors Still Believe
In Tech-Stock Magic

Attention, Wall Street investors. The working stiffs of Silicon Valley have a question for you: Exactly what planet are you on?

Given the recent sharp increases in the Nasdaq Composite Index, one worries that investors are ignoring the hard lessons they claimed to have just learned, and are once again engaging in a herdlike overreaction to modest pieces of good news. Mindful of Warren Buffett's observation that the folks who know the most about an industry are those actually working in it, I spent time last week chatting up the technology rank and file in a Sunnyvale, Calif., parking lot.

Bulls, beware. Of a dozen people, nine essentially agreed with Broadcom engineer Vino Raj. "Technology is not recovering as fast as people on Wall Street think it is," he said. "It's another bubble that is developing, and it's going to burst soon."…

Some folks blame money managers, saying they spend more time looking over their shoulders than they do looking at their spreadsheets. Because no money manager wants to miss the "tech rebound," they all jump in at the same time. There's nothing new about picking stocks based on guesses about what others might pick, but these days, the practice is apparently being taken to new extremes….

It's essentially the "greater fool" approach to investing, and as long as you know the risks, it's a perfectly valid approach to follow. It's just not a very good approach to running an economy. Why must we always suffer through these bipolar market swings? Why can't we just settle into "slow and steady"?

     Of course, the ones who will suffer most from the upcoming burst of the Wall Street bubble will be those who don’t read the Journal and similar publications. Even some of them will probably get caught in the snare of the fickle greater-fool game of stock speculation.

     That’s why Social Security was never intended to be a vehicle for individuals to speculate with their own retirement funds.

     In their book, Lessons of History, Will and Auriel Durant concluded that bankers—or those who control money—eventually rise to the top in any society as it grows older.

     Their lessons are not lost on America’s corporations, as they go from manufacturing products or producing services to contracting out all the labor required for the businesses to operate. General Motors is becoming a classic example of a manufacturing company that is becoming a mortgage and investment banker.

From Business Week, August 4.

For GM, Mortgages Are the Motor

But how long can it rely on profits from its finance unit?

Given the weak profits in the auto business these days, General Motors (GM ) Corp.'s second-quarter earnings didn't look too bad. GM weathered a weak economy, falling car sales, and a vicious price war to salvage a $901 million profit….

But hang on a second: GM isn't making all that money selling cars. In fact, the auto maker's all-important North American vehicle operation made a paltry $83 million, down from $1.3 billion a year earlier. So where did the other $818 million in second-quarter profits come from? Try General Motors Acceptance Corp., GM's lending arm. And it's not primarily car loans that helped GM bring home the bacon. Half of those finance profits came from GMAC's mortgage business, including its fast-growing online mortgage subsidiary. These days, GM looks a lot more like a financial institution that happens to sell cars and trucks than a successful auto maker….

In 2004 and 2005, GM will be replacing as much as 22% of its sales volume with new cars and trucks, much faster than Ford Motor Co. and even Toyota Motor Corp. If it can avoid deep incentives, the new vehicles could help lift profits next year, says Prudential Financial Inc. analyst Michael Bruynesteyn.

Until then, GM will struggle and remain dependent on its finance arm. The question, says Deutsche Bank Securities Inc. analyst Rod Lache, is whether GM can turn around its auto business in time to offset the decline in the finance unit. If not, GM could face lean times once GMAC is no longer minting money.

     Although this article deals mostly with GM’s mortgage business, its role of investment banker is far more significant—as it abandons American communities and contracts out its manufacturing operations to Third World countries.

     In the following article, Robert Barker describes another way corporations use political and legal power to control the stock market in ways that favor its executives and insider investors—and possibly (likely?) at the expense of unsophisticated investors.

From Business Week, August 4.

A Legal Way to Keep Investors in the Dark

Just when you thought transparency in corporate financial reporting was improving, along comes this: More public companies are telling the Securities & Exchange Commission they will deregister, meaning they will stop submitting quarterly financial reports and other key disclosures.

Rules set by the SEC in 1965 let U.S. companies "go dark," as the move sometimes is called, when their shareholders of record fall below 300 (or 500, if assets total less than $10 million). Now, a group of nine institutional investors is complaining that increasing numbers of much bigger companies are thwarting the aim of the rules. On July 3, they petitioned the SEC to close what they call a loophole in its deregistration policy. It allows U.S. companies to count holders of record, which is usually far lower than actual shareholders since many investors have a broker keep stock for them….

The question for the SEC is if rules set 38 years ago still reflect today's markets. Egon Guttman, an American University law professor and expert in the field, thinks not. Bigger companies going dark this way, he said, violates the law's spirit. How many investors are too few for the law to protect? That's beyond me. But any outfit with thousands of shareholders strikes me as the definition of a public company.

     Below: Another example of the extent to which powerful corporations will go in order to reward their investors and high-level corporate executives. If bending the rules will do it, that’s fine. And if what they did turns out to be illegal, you can count on it—nobody will go to jail.

From The Wall Street Journal, August 7.

Banks Shifted Billions Into Funds
That Shelter Income From Taxes

Some of the nation's biggest banks have sheltered hundreds of millions of dollars from state taxes by creating investment funds that didn't sell shares publicly but paid tax-exempt dividends to the banks.

A review of Securities and Exchange Commission records shows that at least 10 major banks shifted more than $17 billion into such funds. Bank of America Corp. alone transferred at least $8 billion into its fund, sheltering more than $750 million in income from 1999 through last May. The banks contend the funds were legitimate vehicles for raising investment capital, but many appear to have served little purpose beyond sheltering income. In effect, the funds converted interest income from the banks' loan portfolios into tax-exempt dividends.

All but one of the known funds -- 11 in all -- were set up with advice from KPMG LLP, an accounting firm whose tax shelter practices are under scrutiny by the Internal Revenue Service….

Exactly how much the strategy has cost cash-strapped California, where many of the banks have their headquarters, is unclear. Revenue officials said a sampling of tax returns from just a handful of banks showed that the maneuver trimmed those institutions' levies by a total of $46 million in 2000….

The practice came to light after California officials received complaints about it, including an anonymous letter that they believe came from inside KPMG. "Look into how KPMG tax partners ... are engineering tax avoidance for companies using regulated investment companies," the writer urged.

Another complaint came from the tax lawyer for a bank that received a proposal to set up one of the funds but declined to do so after the lawyer concluded it was illegal. The bank ordered its lawyer, Edmund Cohen, to let California and the SEC know about the practice….

     The airline industry joins most other American industries as being totally corrupt and without any regard to the moral standard of utility. The greed of top executives—at a time of financial distress and huge sacrifices forced on lower-level employees—is incredible.

From The Wall Street Journal, August 8.

Delta's Retention Program Fails
To Stop Some Executive Departures

ATLANTA—A special bankruptcy-proof pension program that Delta Air Lines established to retain its top executives during the airline industry's worst financial crisis hasn't kept some from leaving the company—and taking their pensions with them…. In all, the trusts are expected to cost Delta, which is currently seeking concessions from its pilots, about $65 million by early next year.

While top executives—including Chairman and Chief Executive Leo Mullin—have received the bulk of the trust payments, company documents show that a number of less-senior employees also have received substantial payments under the plan, including the head of Delta's credit union and several company attorneys. Delta's employee pension obligations are underfunded by about $4.9 billion.

Delta isn't alone in looking after what it considers key people. Many large companies have been beefing up special pensions for top executives, even as they cut pensions for the rest of their workers, drawing the wrath of rank-and-file employees….

The controversy over Delta's special pension trusts comes as the airline is seeking help from the government and is weighing on Delta's negotiations with its pilots' union over cuts in pay…. The friction at Delta over its executives pension trusts comes as the nation's third biggest carrier, behind American and UAL Corp.'s United Airlines, is seeking ways to cut costs everywhere it can. The company had a net loss of $1.3 billion last year, and expects to lose between $200 million and $250 million in the current quarter.

United and American, also saddled with losses, have won substantial pay cuts from their employees. Delta has asked its pilots for a 26.5% pay cut and cancellation of a 4.5% raise next year, plus a later round of talks on work rules changes to raise productivity. The pilots union, which represents over 9,000 Delta pilots, has offered to take less-drastic wage cuts.

Week of July 28

     Articles describing the disastrous effects of globalization have now become a steady stream. The only mystery now is: Why can't American voters see what is clearly staring them in the face?

From The Wall Street Journal, July 30.

In Quest for Steady Work,
A Man Traces State's Decline

Fred Harp, Just 32, Jumped From Mills
To High Tech to Utilities to Government

EUGENE, Ore. -- Oregon has pegged its fortunes to one hot industry after another, and Fred Harp has had a foot in all of them. He started in timber and bounced to paper to electronics to electric power -- only to lose his job as each went into a slump.

Now he's working for his county government, just as that sector faces a big crunch. "My uncle used to tell me get a job and stay with it," the 32-year-old Mr. Harp says, guiding his 1979 Ford pickup past some of his old work haunts. "But I tell him you can't do that anymore."

Mr. Harp's ill-starred odyssey traces the woes of a state that has searched in vain for economic salvation over the past dozen years. Oregon grew faster than most states during the 1990s, only to crash harder as virtually every one of its major industries shriveled….

Oregon's schools are so strapped for cash that some have closed and many have had to sack teachers. In a few cases, schools shaved weeks off their schedules….

In Lane County, a heavily forested area in the foothills of the Cascade mountains where Mr. Harp works, local officials say they have had to eliminate 119 of their jail's 450 beds, forcing the early release of less-violent offenders….

Old-line industries, Mr. Harp concluded, were a thing of the past. The future lay in electronics.

Oregon's planners had decided the same thing and opened their arms to high-tech manufacturers. Microchip giant Intel Corp., custom-chip maker LSI Logic Corp. and others enthralled with Oregon's low-cost labor market were flooding into the state with production plants….

The Sony plant was the biggest economic event ever to hit the Eugene area and was a symbol of Oregon's new economic hope. Built in the neighboring city of Springfield for $50 million, the campus sprawled across 37 acres and created economic ripple effects. Among other vendors who arrived to supply Sony, an International Paper Co. unit opened a big carton plant across the street….

Then, shortly after reporting for a graveyard shift in the spring of 2001, Mr. Harp says he and almost all his co-workers were handed pink slips. Komag Inc., of San Jose, Calif., had bought HMT a few months earlier and decided to send all U.S. production jobs to Malaysia, citing a slowdown in demand for its products and the need to cut costs….

It became clear to Mr. Harp that even his new government job wasn't immune. In late April, Lane County announced it would cut about 80 jobs as part of an effort to slash $20 million from its $408 million annual budget. "We are in the midst of a full-scale financial storm," County Administrator William Van Vactor warned in his budget report….

     It's the same old story:

  • Jobs are shipped overseas,

  • Displaced workers enter the job market,

  • Wages for everyone are reduced,

  • Tax revenues dry up,

  • Public services for those who need it most are eliminated,

  • Conservative investors and top corporate execs get incredibly richer, and use their money to

  • Blame liberals for being "tax and spenders," and

  • More conservatives are elected to public office, who then


Note: check out the "new class war" op-ed piece near the top of the center column of

     How many Barron’s readers see the significance of the article below? Both in terms of where the money came from, and what is going to happen to all that wealth that has been sunk into foreclosed “conspicuous consumption”—golf courses for affluent Americans?

     Also, how does this make you feel about wealthy conservatives' claim that "we can spend our money better than the federal government can."

From Barron's, July 28.

A Rough Round
Why golf's prospects are dimming

…the game that came of age in the swell of post-World War II prosperity—only 3.5 million Americans golfed in 1950, compared with 26 million last year—seemed destined to find new devotees in the New Economy's dot-com millionaires. After all, few sports have the snob appeal of golf, and few allow for the indulgence of so much conspicuous consumption—of $500 titanium-shaft drivers, extravagant trips to the celebrated links of Ireland and Scotland, and multi-million-dollar homes in swank communities built around courses designed by Jack, Tom and Rees.

Yet a funny thing happened on the way to nirvana. The golf boom has fizzled unambiguously in the past few years, and threatens to become a king-sized bust. Take the number of rounds played in the U.S., which dropped to 502.4 million last year from 518.4 million in 2000, according to the National Golf Foundation. This year threatens a third consecutive decline. Florida-based Golf Data recorded a 2.7% drop year-to- date in rounds played through May, the latest figures it has compiled….

Last year, a record 50 golf courses suffered severe financial distress, resulting in their foreclosure, conversion to other use or fire sale. There are no figures available yet for 2003, but there are plenty of horror stories. Barron's has learned, for example, that in June a high-end, daily-fee course in Houston, the Fish Creek Golf Club, was handed over to lender Woodforest National Bank, which had a $6.5 million loan on the year-old, $14.5 million property….

Then there are the trials and tribulations of golf-course real-estate investment trusts, which grossly overpaid for properties during the 1990s….

The reasons for the current slump in golf are myriad, and both obvious and subtle. For one thing, the golf "industry" in the 1990s enjoyed an explosion in revenues, and the prices of courses and club memberships to a degree mimicked the stock market's breathtaking lift-off. Greens fees at daily-fee courses tripled to $60 or more by the end of the decade, even after adjusting for inflation. At the most exclusive clubs, greens fees of more than $200 a round became common. For non-high-rollers, MGM Mirage's Shadow Creek course in Las Vegas charges $500 a round.

Initiation or membership fees at many private clubs went on a similar tear. Memberships in the Bridge, in tony Bridgehampton, N.Y., went for $500,000 apiece last year…

As a result of the sour economy, however, many golfers, and would-be golfers, no longer are in a position to shoulder golf's inflated costs. Stock-market losses have crimped the incomes of many seniors, which means the demographic cohort best known for its "frequency" of play has had to cut back….

Tougher times have bolstered the work ethic, too. "In today's economy, people are genuinely worried about keeping their jobs and far less likely to slip out of the office early to sneak in a round of golf," says Terry McAndrew of Phoenix-based….

Golf's problems aren't only on the demand side. During the 1990s a surge in golf-course construction created an oversupply. According to Pellucid's Koppenhaver, around the middle of the decade the rate of new capacity additions began to outpace the rise in rounds played. For a time, the economic boom disguised the growing disequilibrium. Golfers, flush from rising real incomes and stock-market gains, willingly fattened the coffers of course owners by paying ever-higher greens and guest fees and golf-cart rental charges….

     Question: How much better off had much of that money been invested in roads, schools, hospitals, etc.? The benefits would still be pouring in—instead of being abandoned in foreclosures.

     In addition, an important reason affluent golfers could afford $200 for an afternoon of golf is that America’s corporations kept workers’ wages low—while exerting pressures on them to be more productive. The resulting increase in profits were then shared by investors and top corporate executives, who saw their incomes skyrocket.

     But that’s not the worst part. The worst part of this scenario is that large numbers of affluent Americans have been locked into an extravagant lifestyle, and, although very costly to our society, golf is only a minor symptom.

     With Silicon Valley going to India, manufacturing to China, and professional services to Ireland—and this is just a small listing of the problem—many affluent Americans are beginning to feel the effects of globalization, and it’s scaring hell out of them. They aren’t going to use their tax cuts to stimulate the economy. They’re going to retrench. Besides cutting back on golf, many of them will have to sell their second mansion and the family jewels.

     After all, it’s beginning to dawn on them that their affluence of the past two decades resulted from our country selling-out working-class Americans, and the pool of workers to sell-out in the future is getting increasingly small.

     The Great American Sell-Out has fewer places to go—so it’s going up the income ladder, to where they are. Investors have no loyalties—even to the ones who made them rich in the first place.

     One of my all-time favorite writers is Barron’s Alan Abelson. This introduction to an editorial about President Bush’s stretching of the truth is just a sample.

From Barron's, July 28.

The Prevaricator


FOR THE MOST PART, the humor that plays well on Wall Street is pretty down to earth or, as you go down the primate scale to the trading desks, down to dirt. It's not infrequently in awful taste, willfully scornful of racial, ethnic and gender sensibilities, shamefully irreverent. Did we neglect to mention the jokes are often very funny?…

An investment banker is sipping his glass of Chablis in the lush comfort of his starter mansion in Greenwich (he's a young investment banker), relaxing after a hard day suborning analysts. He's unaware of his wife stealthily approaching his chair from behind and is completely unprepared for the blow she delivers with furled newspaper to the side of his head.

"Hey," he cries out. "What's that for?"

"That," she answers, "was for the piece of paper I found in your pants pocket with the name Betty Jane written on it."

"Betty Jane? Oh, for gosh sakes," he says, laughing. "Remember last Thursday, when I went with that boring client to the track? Betty Jane was the name of a horse someone gave me a tip on."

Apologies were made and accepted and marital bliss enveloped the couple.

A few days later, our investment banker was engrossed in watching the Mets blow another lead, when once again his wife crept up behind his chair, and without warning struck him on the side of the head, this time with a cast-iron skillet. When he regained consciousness, he asked shakily, "What in the world was that for?"

Leaning toward him, eyes aglint, she rasped, "Your horse called."

The moral here is... well, there are several morals. Don't write down the name of a horse on a piece of paper likely to fall into your wife's hands, especially if the name is Betty Jane. And, for gosh sakes, don't give the horse your home phone number….

     Nuff said.

     Some things never change. An article almost identical to the one below appeared in The Wall Street Journal on February 18, 1997.

From The Wall Street Journal, July 28.

Dairy Aisle's Secret:
Milk Is a Cash Cow

Are consumers getting gouged in the dairy aisle?

America's farmers are swimming in such a glut of milk that they are getting their lowest prices for the stuff in 25 years. Processors of ice cream, butter and bottled milk have seen the price of their single biggest ingredient plunge by a third since September 2001.

But consumers aren't reaping comparable savings, as many dairy processors and retailers hold onto the profits. The average price of a gallon of whole milk has declined just 9.4% during the past 20 months to $2.676 in June, according to the U.S. Bureau of Labor Statistics.

In many places, prices haven't dropped even that much. In Boston, the prevailing price of a gallon of whole milk in supermarkets hasn't budged in the 20-month period from $2.99. About 30% of the 190 New York retailers surveyed in June by the office of New York Attorney State General Eliot Spitzer were charging prices that appeared to violate the state's milk price-gouging law….

The change has escaped the attention of most consumers, who are so removed from the farm they don't know when milk should be a bargain. But the shift makes a big difference in household budgets, particularly those of families with young children. Consumers would have saved $1.3 billion last year if low milk prices were passed along fully to them, according to the National Milk Producers Federation, an Arlington, Va., trade group representing dairy farmers.

Some economists and state officials worry that the supermarket merger wave is largely behind the change. Corporate survivors seem less inclined to pass along savings to consumers. The nation's top five grocery chains, including Kroger Co. and Safeway Inc., now control about 45% of supermarket sales, up from roughly 26% in 1995, according to Wall Street analysts.

"With all the mergers, there is less competition," says Marty Mack, a deputy in the New York State Attorney General's office, which has sent letters to 40 grocers in the state seeking explanations for their high milk prices….

Many ice-cream makers haven't cut list prices, nor have they restored the size of containers that had shrunk in recent years. For example, Dreyer's Grand Ice Cream, an Oakland, Calif., unit of Swiss behemoth Nestle SA, reduced the size of its half-gallon container to 1.75 quarts following a jump in raw-milk prices in 2001. "Ice-cream prices stick out like a sore thumb now," says Kenneth Bailey, a dairy economist at Pennsylvania State University in State College, Pa….

Dean Foods, which makes ice cream and bottles milk, wouldn't provide details about its ice-cream-pricing strategy. "This is a bit of an uncomfortable discussion," says Mr. Fromberg, the Dean Foods executive….

Hard-pressed dairy farmers across the country are cutting production so much that raw-milk prices will probably rebound later this year, closing the door on big potential supermarket bargains.

     It's the usual story. Those without the power—in this case, the dairy farmer and consumers—lose out to the corporations who have the power to control what is happening in our country.

     The Journal article of 1997 said the following:

The problem is chronic... [I]t takes more than a year for the full impact of a decline in raw-milk prices to reach consumers. And the dairy industry has become a frequent target for antitrust investigations. Economists and Wall Street analysts say grocers, who generate about 6% of their sales from dairy products, are taking advantage of lower raw-milk costs to sweeten their bottom lines.

From The Wall Street Journal, July 28.

'Protection' Funds: Peace
Of Mind Becomes Pricey

Some investors may be paying a steep price for buying "principal protection" mutual funds.

First, people who have collectively put more than $10 billion into these funds in recent years were told in marketing materials they would get stock-market exposure along with a guarantee of getting their money back. In practice, however, investors ended up with portfolios that in some cases are almost entirely bonds. That has ended up hurting them lately, as bond prices have sunk as stocks have risen.

Now investors in the principal-protection portfolios offered by ING Funds, which oversees $2.3 billion in such funds and has been a leader in offering them, face another twist. Under a policy just adopted by boards of these funds, shareholders could end up paying high management fees normally charged on actively managed stock portfolios even though fund managers won't be selecting any stocks in which to invest.

When the ING funds were launched, the funds' prospectuses said the stock portion of their portfolios would be run by managers picking individual stocks. Instead, thanks to the new investment option disclosed last week by ING, those managers overseeing a total of $375 million in assets can run their stock portfolio just like index funds, putting the money entirely into stock-index futures and exchange-traded funds….

The management fees that ING collects on its principal-protection funds, which range from 0.54% to just shy of 0.8% of assets a year, are about 50% higher than investors would pay on government bond fund and three times the amount for an index fund, according to averages provided by Lipper Inc….

The average principal-protection fund is up 2.2% year to date, while the average U.S. stock fund is up 15%, according to Lipper. And over the past three months, the average protected fund is up 1.9%, far behind the average stock fund, which is up 11.4%. There were very few of these funds around three years ago, but those that were outperformed pure stock funds during the bear market, thanks to their bond holdings….

     If these kinds of "investment professionals" are taking ruthless advantage the readers of The Wall Street Journal, what about average workers who don't read The Journal? Just another reason, among many, why social security should not be privatized. Even sophisticated investors need at least one source of ironclad retirement security—not vulnerable to market fluctuations or fast-talking financial hucksters.

An editorial comment from The Wall Street Journal, July 29.

Clothing Costs

Once upon a time the favorite target of American protectionists was Japan. But judging from a complaint just filed by American textile and apparel industry groups, these days the bull's-eye has been painted squarely on China.

The idea here is that a surge in Chinese textile imports to America is causing "market disruption."…

Thursday's petition, moreover, is only a taste of things to come…

It's doubtful that American workers will really benefit in any case. American textile jobs are bound to be lost as protection is peeled away, and by free-market rights probably would have been lost a long time ago. The only real question is to what developing country locale the jobs will go: Bangladesh, Vietnam, China or elsewhere….

The bad news is that Beijing has too often settled for managed trade, and indications are it might settle for voluntary restrictions in textiles too. But China would do American consumers a service if it used its leverage as a large and growing market for American products to accelerate the political demise of the U.S. textile lobby.

     Ten years ago, when "globalization" was rapidly destroying American industry, conservative politicians assured us that American workers—with their ingenuity and their increasing productivity—could compete with any workers in the world.

     Now the Journal editors tell us that we can forget our textile industry, it's history. Not only that, our country (meaning wealthy investors and tight-fisted consumers—not workers, however) are better off for it.

Also from The Wall Street Journal, July 29.

J.P. Morgan, Citigroup Reach
Settlement in the Enron Case

The Financial Institutions Agree
To Pay $305 Million Combined

Ending 19 months of intense regulatory scrutiny, Citigroup Inc. and J.P. Morgan Chase & Co. agreed to pay a total of $305 million to settle actions related to loans and trades made with Enron Corp. and Dynegy Inc., and to overhaul the way they vet their most complex financial deals.

The Securities and Exchange Commission said both banks agreed to the payments and the changes in the way they do business after "helping to commit a fraud" on Enron's shareholders, according to Stephen M. Cutler, the SEC's enforcement chief. Regulators said the settlement involves $8.3 billion in loans improperly accounted for by Enron. Neither bank admitted any wrongdoing….

     This is just another example of greed and fraud that conservatives are well aware of. How can they possibly claim that Americans are better off when corporations—and not government—control the ground rules for our economy.

     Yet another article in the Journal that illustrates Wall Street's country club of "good ol' boys," who look out for each other's financial interests, and at the expense of the investing public. Still want to privatize Social Security?

From The Wall Street Journal, August 1.

NYSE's Corporate Governance
Is Harshly Criticized in Report

The New York Stock Exchange is coming under intensified attack for weaknesses in its own corporate governance.

The Council of Institutional Investors, a powerful pension-fund group, will release a report Friday harshly criticizing the nation's biggest securities market for shortcomings in governing itself and disciplining the brokerage industry. The 46-page report cites extensive conflicts of interest involving officials and board members. Among them: an arrangement where the co-chief operating officer of the not-for-profit exchange also has been running a for-profit supplier of technology to the Big Board that is two-thirds owned by the NYSE.

The New York Stock Exchange "is not well-governed," its conflicts of interest are "surprising and disappointing," and its disciplinary structure doesn't protect investors adequately, said Sarah Teslik, executive director of the Washington-based council. The council represents 130 pension funds with $3 trillion of assets. In June, the Big Board unveiled a slate of governance changes and invited proposals about further steps. The council's report undoubtedly will inflame debate over how much further regulatory overhaul the exchange needs….

The council report also criticizes business relationships among several NYSE board members, suggesting that someone with such a tie "may be reluctant to oppose that director" and members with multiple connections "may fail to be an independent check on the system."…

     The number of whole industries in our country that are rotten to the core seems to be exploding. To better understand how all human organizations (religions, corporations, unions, public charities, armies, societies—you name it) tend to degenerate as they get bigger, older and more complex, check out: Proactive Vs. Reactaive Management.


Week of July 21

     Most people are becoming much more aware of the extent to which congressional legislation over the past several years has adversely affected their lives. Few, however, seem to understand the extent to which judicial elections and appointments can affect working-class incomes, consumer protections, and civil rights.

     Forbes magazine was quite pleased to report that America's right-wing conservatives are making significant progress in loading the courts with their own ideologues.

From Forbes, July 21.

Buying Justice

… McRae (liberal judge)… ends his 11-year tenure next January, passing the gavel to a pro-business corporate lawyer and Republican named Jess Dickinson. Dickinson was swept into office on a down-and-dirty, name-calling campaign bankrolled by $1.2 million he raised from doctors and small-business owners—an unheard of sum for a judicial election. But he also had a hidden helper: Unbeknownst to some Mississippi voters, the U.S. Chamber of Commerce pumped $1 million more into anti-McRae ads, funneling it through local groups such as Mississippians for Economic Progress.

McRae's ouster is part of a secret war on judges now being waged by the chamber. It has spent $100 million since 2000 and will spend $50 million or more this year. The prime objective: to vote out judges supported by trial lawyers, labor unions and the Democratic Party and install new judges sympathetic to insurance companies, multinational corporations and the Republican Party. The chamber also is taking aim at state attorneys general, trial lawyers and state legislators.

So far the chamber has won in 21 of 24 judicial elections in eight states—and prevailed in 11 attorney general races. It helped win 7 open seats in Illinois, Pennsylvania, Texas and elsewhere and helped reelect 11 pro-business jurists. And it ousted 3 incumbents—2 in Alabama and 1 in Mississippi (Justice McRae). Sixty-three judges in 28 states are standing for reelection next year, and the chamber hopes to throw at least 10 of them out of office, aiming in particular at antibusiness courts in West Virginia, Texas, Mississippi and Ohio….

This is a dirty business. The Brennan Center says ads have "grown increasingly negative and controversial, and in some cases [have] fallen far beneath the level of dignity most Americans associate with their judicial system." Adding to the intrigue, the chamber cloaks its efforts by sidestepping disclosure laws that require revealing contributions. Instead of donating cash to candidates, it provides ad money and couches the effort as "informational" and policy-based. "We're seeing that politics is rearing its ugly head," says professor Lester Brickman of the Cardozo Law School in New York. "But politics has always been present, if shrouded in black robes. Now it's out in the open."…

     Forbes, probably our most conservative financial publication, reports this disgusting state of affairs with a mixture of pride and awe, and it seems characteristic of today's right-wing political movement. The public be damned. Any strategy is justified if it benefits corporations, businesses and the established wealthy.

From The wall Street Journal, July 21.

Laid-Off Factory Workers Find
Jobs Are Drying Up for Good

Not Just the Slowdown: Structural Changes
Are Stranding Many With Basic Job Skills

…Trinity Industries Inc. started laying off workers in 2000 and a year ago, in a bid for efficiency, shut down the Butler factory where the Karenbauers and Mr. Mottern worked. After (being terminated), (workers) began scrounging for work. They moved from job to job—shoveling snow, stocking a Wal-Mart Supercenter—but nothing has added up to the pay or fulfillment of their old jobs.

While hundreds of factories close in any given year, something historic and fundamentally different is occurring now. For manufacturing, this isn't a cyclical downturn. Most of these basic and low-skill factory jobs aren't liable to come back when the economy recovers or when excess capacity around the world dissolves.

Railroad cars, unlike buggy whips, are still needed, as are toys, appliances and shoes. But the task of making these goods is increasingly being assumed by more efficient machines and processes. Or they've been transferred to workers who earn less and live in another country. While these changes have been going on to a limited extent for years, the economic slowdown has greatly accelerated and broadened this historic shift. By some estimates, roughly 1.3 million manufacturing jobs have moved abroad since the beginning of 1992, the bulk in the past three years to Mexico and East Asia.

Other plants around Butler also have closed, including one that fabricated steel and another that made vinyl siding. Hundreds of manufacturing workers have been left without jobs and their options for similar work have narrowed significantly in this city of 15,000, an hour north of Pittsburgh….

In June, manufacturing cut 56,000 jobs, the 35th consecutive monthly decline and the longest string of layoffs in that industry since World War II.

"We're saving corporate jobs by moving production jobs to lower-cost areas," says Daniel Meckstroth, chief economist with the Manufacturers Alliance, a public policy and business research group in Arlington, Va….

Stan Donnelly, whose Alexandria, Minn., company makes plastic parts for big equipment manufacturers, imports tools from China to save money. In the long run, bypassing U.S. toolmakers is a mistake, he believes. Those kinds of jobs helped create and sustain the middle class, and he's not sure displaced workers will learn new skills and become higher paid. "Look, we've got millions of people who have failed to get through high school. If their minds are not their salvation, what's wrong with letting their hands be their salvation?" asks Mr. Donnelly. "Over the last two centuries, America has developed a balanced society, with opportunities for a large cross section of people. We're gutting that."…

Then as now, manufacturing paid more and had better benefits than many other jobs. In Butler County, population 174,000, about 20% of the work force is in manufacturing, but those jobs contribute 30% of the county payroll. Nationwide, manufacturing jobs averaged $54,000 in pay in 2000—20% higher than the average of what all American workers earn, according to the National Association of Manufacturers….

Brad Karenbauer (assembly line worker) moved around the floor adjusting machines that were clogged or not working properly. He learned the tool and die trade, the craft of making the tools that form parts, from his supervisor. "He took a liking to me and taught me," Mr. Karenbauer says. That sort of informal teaching was invaluable to companies and workers who couldn't afford other education. And for generations, it sufficed….

Once he was invited to Trinity's headquarters in Dallas to explain his solution to a glitch that had been causing many pieces of a metal post to be scrapped. He figured out that the post was moving slightly when it was in the press, causing a wrinkle. He built a device to hold it firmly. His cousin, Mr. Mottern, came up with a design to replace a part that had been made by welding two pieces of metal together. That eliminated the welding, and helped the department make twice as many pieces of higher quality.

His employers gave him a framed certificate and a grainy video of his talk, which he still shows visitors. "All the bigwigs were down there," he says….

Pennsylvania has lost one out of 10 manufacturing jobs, or 90,300 jobs, in the past three years. Industrial cities such as Butler have been disproportionately hit by job loss. Earlier this year, unemployment in the county jumped to 7.3%, the highest level since 1994….

     This is yet another article describing how conservative economists and politicians have changed our society from one which produces the greatest good for the greatest number—to one which creates a few big winners and many losers.

     Through "globalization," investors and corporate executives make out like bandits, while those who actually built, developed and maintained our country—through their ideas and creativity, as well as their manual labor—lose their livlihoods.

     It's no accident. The negative effects of globalization have been predicted by its critics at every stage of its development. And at every stage conservatives assured American workers that it was being done for their benefit, if they would just wait long enough.

     Now, even the right-wing Journal is admitting that the changes are fundamental and permanent, and conditions aren't going to get better for manufacturing workers. Not only are they losing their jobs, they are entering the job market and exerting downward wage pressures on jobs that can't be exported out of our country.

     Middle-class America is a permanent loser, unless some serious changes are made in our political system.

From The Wall Street Journal, July 21.

The World Bank Wonders
About Utility Privatizations

WASHINGTON—The World Bank, the apostle of privatization, is having a crisis of faith.

What seemed like a no-brainer idea in the 1990s—that developing nations should sell off money-losing state infrastructure to efficient private investors—no longer seems so obvious, especially when it comes to power and water utilities….

Consumers, feeling deceived, increasingly associate privatization with higher rates for them and higher profits for foreign companies and corrupt officials. Rate increases have spurred violent demonstrations against a water concession in Bolivia and private power plant projects in Peru. A 2001 survey of 17 Latin American nations by Latinobarometro, a Latin American polling company, found that 63% of respondents felt that privatization of state companies hadn't been beneficial, up from 45% just three years earlier.

The result of this widespread disappointment is that across Africa, Latin America and Asia, some privatization contracts are being renegotiated and a handful of projects—concentrated in toll roads, power and water—have been canceled. Fewer new projects are getting off the ground….

Privatization hasn't always gone badly. Telecommunications deals have generally been much more successful than water or power projects. When it comes to phones, technology and privatization conspire to provide the public with service that is less costly and better. The advent of cellphones, for example, has made it simpler to introduce competition to improve what was once a state exclusive.

But water and power are tougher. They naturally lend themselves to monopolies, not competition. Why build parallel, competitive sewer pipes or power lines? And, since the public often views low-cost water and light as rights, not privileges, privatization has been the focus of popular discontent.

The unexpected turn of events has left privatization enthusiasts at the World Bank—the main tool the wealthy nations have to influence economic policies in the poor ones—wondering what went wrong….

World Bank officials have now decided it doesn't matter so much whether infrastructure is in public or private hands. What matters is that it be run in a business-like manner, perhaps more frequently combining public ownership and private management. But above all, they now say, bureaucrats, investors and, yes, the World Bank itself must pay far greater attention to the fiery politics of privatization and especially to the effect of rising prices on the poor and disaffected….

     Here's another wake-up call from "surprised" conservative economists. They've found that privitization doen't always work the way they promised us it would.

     And why should it be a surprise when privatization doesn't work? As the article states: "What matters is that it be run in a business-like manner." Suppose Enron executives were in charge of our postal service, Tyco execs in charge of our national parks, etc. Who would ever want that crowd in charge of a public service?

     Unfortunately, that's usually the kind of managers you get when greedy investors dominate business decisions. At least one advantage of government-managed utilities is that the "CEO" and his cronies don't make the outlandish incomes that are now characteristic of corporations, and the public's interests, not profits, are the organization's priority.

     In the early 1980s, I attended a meeting for management consultants in Atlanta, GA. We all described the kinds of activities we were doing and the kinds of consulting that corporations were requesting.

     The consensus was that "soft" consulting was out, and "hard" consulting was in. This was the beginning of the Reagan years—the time when conservative thought became dominant in the American culture, both politically and economically.

     Soft consulting focused on developing human resources in an organization by improving working relationships and working conditions. The emphasis was on developing teamwork with people committed to doing a good job—because they were motivated to do so.

     Hard consulting was pure and simple cost reduction. Of course, the easiest and quickest way to reduce costs is to : close down a manufacturing facility in the U.S. and move it to Mexico, for example, or reduce staff and pressure the remaining employees to work harder or longer.

     The following two articles will not be carried by the main media. They are almost incidental in today's news market. However, they are symbolic of the radical change in corporate philosophy since 1980, and they sort of go together.

From The Wall Street Journal, July 23.

Reuters Swings to a Profit;
Cautious Outlook Hurts Shares

LONDON—Global information company Reuters Group PLC edged back into profit in the first half of the year despite a sharp fall in revenue, but a cautious revenue outlook through 2004 helped send its shares down 7.9%….

In the face of severe cutbacks among its core financial-services clients, Reuters in February launched a three-year restructuring program called Fast Forward. It entails some 3,000 job cuts, including the recent departure of the chief operating officer, and a move toward a segmented product line designed for clients who may not need the top-of-the-line products offered by Reuters or archrival Bloomberg LP.

As Bosses Power Nap,
Cubicle Dwellers Doze

…All nappers aren't created equal. In a country with the largest economy, built on a nose-to-the-grindstone work ethic, falling asleep on the job here is taboo—if not a fireable offense. Never mind the drumbeat of science suggesting that napping would help production. Executives can get away with it, but the cubicle set have to go to absurd lengths to catch a wink….

Napping on the job has been driven underdesk. One napnik confesses to closing his eyes right at his desk, holding tight a bottle of eye drops. Mike Hogan, a computer consultant in Rocky Hill, Conn., announces that he's going to the bank on his lunch hour, then dozes in his car. Even though he's on break, he refuses to admit to napping…. It's obvious to Mr. Nicholson, himself an executive, that the more zeros in your salary, the more z's in your workday. "It was a privilege of rank," he says….

Opponents of napping argue it's bad form. But maybe it's just another example of our fetish with the appearance of productivity and professionalism. In our fake-it-till-you-make-it culture, superficiality is a substitute for real productivity. There's hardly a gripe about power lunches or pumping iron….

     So, Reuters Group had a sharp fall in revenue, yet still managed to make a profit. How? By, among other things, firing 3.000 people and, undoubtedly, making those left in the company work harder under the threat of also losing their jobs.

     No doubt the present CEO will be called an outstanding leader and given a bonus for his brilliance.

     He'll also be able to take naps to keep himself sharp, while his employees scurry around trying to keep their jobs by looking vital to the organization.

     This is just another example—that the mainstream press will ignore—of the sorry state of corporate ethics. Corporate defrauding of Medicare and Medicaid is so common, I'm not quite sure why I should include it in this week's conservative press.

From The Wall Street Journal, July 23.

Abbott Labs Unit to Plead Guilty

Case Involves Felony Charge
Of Obstructing Fraud Probe

An Abbott Laboratories subsidiary Wednesday plans to plead guilty to a federal felony charge of obstructing an investigation of an alleged scheme to defraud government health-insurance programs, according to people familiar with the investigation....

     One of the best things about the Journal's news pages is that readers can get a feel for which politicians are supporting corporate interests, and which politicians support the interests of consumers and small investors. The first three paragraphs say it all:


From The Wall Street Journal, July 25.

State-Level Stock Cops Retain Power

State securities regulators won a temporary reprieve from legislative efforts to cut their clout in policing Wall Street.

Congressional Republicans, after being faced with mounting opposition, retreated from an effort to curtail the power of state regulators by postponing a vote on the bill until September. The decision by leaders of the House Financial Services Committee was a victory, in the short run at least, for New York State Attorney General Eliot Spitzer, who had criticized the measure and waged a vocal campaign against it.

Mr. Spitzer was quick to crow over the action, calling it "an encouraging step" because the bill "was attempting to address a nonexistent problem and was being supported by investment houses that simply do not want state prosecutors to protect small investors." He had rejected a last-minute call for a compromise from New York Republican Vito Fosella of Staten Island and Brooklyn….

Week of July 14

     In Barron's, Market strategist Barry L. Ritholtz accurately described the real intentions and strategy of Bush's tax cuts. Instead of directly stimulating the economy by putting money in the hands of low- and middle-income consumers, Bush is putting money into the hands of rich investors—despite the fact that we are already in a period of over-investment and excess capacity.

     It's the usual conservative spin: benefit the wealthy today, and it will benefit workers in the future—which never arrives, at least under their policies. As in the early 30s, it'll take a progressive government to turn around this economy, now unbelievably biased in favor of the established wealthy.

From Barron's, July 14.

It Really is Different this Time

Whenever this phrase is used to describe stocks, it signals that something bad is about to occur. We use the slogan instead to describe this very unusual macro-economic environment, specifically the shallow recession, and even shallower economic recovery, which is unique in the post-war era….

The post-bubble, jobless recovery was caused by vast capital over-investment, creating excess capacity for businesses. Simultaneously, it put the tools of increased productivity into the hands of workers. The cure for overcapacity is simply time. It takes years to grow into, and fully utilize all that excess capacity. What one hopes for from the government is that they simply don't muck things up too much with ill-advised interventions as we wait for normal levels of demand to return.

Contrary to this dour macro-economic news is the massive monetary and fiscal stimulus from the White House and the Fed. For the first time (in my memory at least), these new government policies are specifically targeting the equity markets as opposed to the broader economy.

Consider this: Dividend tax cuts have raised the value of stocks with yield; Capital gains tax cuts encourage greater speculation; Income tax cuts targeted to the highest income brackets encourages investment, rather than spending; The Federal Reserve rate cuts have made "cash trash," forcing money to flee fixed income instruments and money market accounts. It has rushed into equity markets simply because it has nowhere else to go….

     The next two items go together. Conservatives have passed legislation that allows corporations to treat employees ruthlessly—which they are doing with impunity—and at the same time they also are trying to cut funding for those programs that can correct the social and economic problems that corporations have caused.

From The Wall Street Journal, July 14.

To Save on Health-Care Costs,
Firms Fire Disabled Workers

Policy Shift at Polaroid Leads to Scrimping,
New Worries for Extremely Sick Employees

As it was preparing the sale of its assets to Bank One Corp. last July, Polaroid Corp. sent a letter to 180 disabled employees notifying them that they had been fired and their health, life and dental insurance were being terminated….

Across the corporate landscape, disabled workers are becoming an increasingly common casualty of the drive to cut costs. As recently as three to five years ago most companies paid health benefits for the long-term disabled until they were 65 years old, according to James Curcio, a senior consultant for Washington Business Group on Health, a trade association that helps companies contain health-care costs. At 65, federal Medicare benefits kick in.

But as health-insurance costs and the number of disabled employees climb, more companies are firing them. A Mercer Human Resource Consulting study last year found that 27% of the 723 companies surveyed dismiss employees as soon as they go on long-term disability and that 24% dismiss them at a set time thereafter, usually six to 12 months. (Dow Jones & Co., which publishes The Wall Street Journal, terminates employees six months afterward.) The survey found 15% keep the disabled on as employees with benefits until age 65….

Bankruptcies and takeovers often spur companies to fire disabled workers. When International Steel Group Inc. acquired the assets of LTV Corp. last year, it rehired many of the able-bodied workers who had been dismissed in LTV's bankruptcy proceeding. It didn't rehire the hundreds of employees on disability. When MMI Co., a medical consulting and insurance firm in Deerfield, Ill., in 1999 acquired Applied Risk Management Inc. of Oakland, Calif., which administers worker's compensation programs for companies, it only hired ARM employees who weren't on medical or extended leave. Five employees on long-term disability leave weren't hired.

MMI has since been acquired by St. Paul Cos., an insurance concern. A spokeswoman declined to comment. Mitch Hecht, vice president of external affairs at International Steel, says, "It's strictly an arithmetic fact that the profits are not being generated to cover the costs of all the health care programs of workers from the past." The company views the plight of the disabled workers as a tragedy and calls on the government "to come up with a broad solution to fix the problem," says Mr. Hecht….

On receiving news of his termination last summer, Mr. Tauriac, the long-time forklift operator, found it would cost him $862 a month to continue the health insurance he had been getting free.

That left Mr. Tauriac with a difficult choice. He could continue to live in his $1,100-a-month, two-bedroom apartment in New Iberia, La., without health insurance, or keep his health insurance and move out. On his monthly disability income of $1,960 he couldn't afford both. Even with the company's health plan, his co-payments for 16 prescription drugs and doctors' visits had been running up to $350 a month. In addition to heart problems Mr. Tauriac was suffering from hypertension and diabetes, and needed kidney dialysis three times a week….

Mrs. Tauriac says she skips prescriptions for hypertension and a heart condition. She has been moving from relative to relative to save on rent. At 59, she has concluded, she soon will have to find work.

"Life today is a far cry from the way it used to be a decade ago," when she and her husband lived in suburban Easton, Mass., she says. "Between the two of us we made $90,000 a year. We sent our son to Boston College and we thought life was good. I never thought I was going to end up this way."…

     So, after impoverishing long-term loyal employees, corporations want government "to come up with a broad solution to fix the problem."

     Yet, the same class of people who caused the problem want to destroy the kind of government that can correct it:

From Business Week, July 14.

Can Bush Finally Finish Off the Great Society?

With Republicans in control of both ends of Pennsylvania Avenue, it's not a great time for the Great Society. President George W. Bush and GOP leaders on Capitol Hill are seeking to restructure some of the signature social programs of the free-spending Golden Era of American Liberalism to fit the cash-strapped Age of Compassionate Conservatism. Among the mainstays targeted for overhaul: Head Start, Medicaid, and federal housing programs….

… if the President wins a second term, he is almost sure to step up efforts to reshape more costly low-income assistance programs, including Medicaid, which provides health care to the poor and disabled, and federal housing. Four more years, and Reagan's deferred dream of shrinking the federal government could be realized by Bush.

     Just when you think it can't get any worse, it does. Even the conservative press knows what's going on. They just don't tie it all together in a way that the public can understand it.

     Even the conservative press can't help exposing—in their news stories—the need for the kind of regulations their owners and editors always condemn.

From The Wall Street Journal, July 15.

How Food Labels Legally Mislead

A 'Fat-Free' Product
That's 100% Fat

Your food labels may be deceiving you.

Many shoppers rely on food labels to help them pick nutritious and low-calorie foods, but a closer look at labels shows many are misleading, making products seem far healthier or less fattening than they are. It's the reason you may think a 20-ounce bottle of Coke has only 100 calories (it really has 250), why cooking sprays loaded with fat can boast they are fat-free, and why a brand of peaches-and-cream oatmeal actually contains no peaches….

At a time when most of the country is overweight, the food label is the single most important tool dieters have to help them control how much and what kind of foods they eat. But right now, the flaws in the food label mean consumers may easily misunderstand the true content of foods, though manufacturers are complying with the regulations….

From The Wall Street Journal, July 17.

     Three articles, each one with a different lesson. The first two demonstrate two things: the lack of moral standards in America’s for-profit health-care system, and the need for governmental regulations when corporate morality breaks down (as it always does without regulations, see the introduction for Proactive vs. Reactive Management).

     The third article is another sad example of how conservatives are selling-out American workers to the false god of globalization.

House Panel Begins Inquiry
Into Hospital Billing Practices

Citing "significant public health and consumer protection issues," a congressional committee launched a formal investigation into hospital billing practices that often require uninsured patients to pay rates that far exceed what other payers, including the government and HMOs, are charged….

Even before the investigation was announced, the industry was on edge, as evidenced by a special "Alert" sent out by the American Hospital Association last month to its 4,800 member hospitals, urging them to change their billing and collection practices. The Alert cited increased media scrutiny and warned of a possible congressional probe.

In recent months, The Wall Street Journal has run a series of articles about billing and collecting issues involving the uninsured. One cited the case of a 78-year-old widower who was hounded over an ever-expanding bill resulting from his late wife's treatment at Yale-New Haven hospital 20 years before. Another explored the case of a 25-year-old woman who amassed $19,000 in hospital and doctor bills for an appendectomy at New York Methodist Hospital in Brooklyn, considerably more than an HMO, insurer or Medicaid would have paid….

At the heart of the congressional investigation is the thorny issue of "charges," which are the retail prices that hospitals list for their services. According to the letter, these rates are "often inflated far beyond [the hospitals'] actual costs and reasonable profit." Some payers are able to negotiate discounts and pay far less, but "individual uninsured patients are expected to pay this full, undiscounted 'sticker' price," the congressional letter said….

Advocates for the poor such as Elisabeth Benjamin, a health-care attorney with the Legal Aid Society in New York, expressed delight at the prospect of a congressional probe. "It is the secret shame of the U.S. health-care system," she said, "that all of these entities that are either tax exempt or received other government largesse have failed to pass on the benefits of this largesse to uninsured Americans."…

Nursing Homes Improve Quality,
but Not Enough

A new report by Congress's investigative arm found that serious deficiencies or harm to residents occurred at one in five of the nation's nursing homes over an 18-month period that ended in January 2002….

Poor investigation of complaints and a large number of inexperienced surveyors in some states lead to understatement of quality problems, the GAO found. Federal surveyors found examples of actual harm to residents in about one-fifth of homes that state surveyors had judged to be free of deficiencies. The GAO called for improvements in state surveys, investigations and enforcement….

China's Latest Export:
Early American Look

Cheap Furniture Gains,
Quality and Popularity

…As recently as three years ago, a made-in-China label (often slapped inconspicuously on the bottom of chairs and the backs of cabinets) could mean warped tops, weak drawers and loose legs. But thanks to new factories, cheap labor from China's countryside, and design and manufacturing advice from Americans, the quality of Chinese furniture has improved substantially.

Consumers have noticed, making furniture the latest import tidal wave from China. Measured by container volume, furniture is China's leading export, with more containers arriving here than the combined volumes of TVs, toys, shoes and auto parts, according to first-quarter statistics from trade-tracking firm Piers. One industry analyst estimates China-made products represent 35% of the $23 billion American wood-furniture market….

The influx is taking a toll on U.S. manufacturers and this week triggered a trade protest from 14 companies that say China's factories appear to benefit from subsidies and currency issues. Domestic companies have closed scores of factories and laid off more than 34,000 workers during the past 2½ years in the wood-furniture-making industry alone….

Week of July 7

     In Barron's, Howard Gold defends globalization and, along the way, dismisses the severe injustices against those in America who still actually work for a living.

From Barron's, July 7, 2003.

Globalization Meets Creative Destruction

…Businesses from private medical practices to large rental car chains to giant corporations like Delta Airlines and Hewlett-Packard are under enormous pressure to keep costs down. And now, with the Internet and the opening up of the world economy called globalization , they have the means to do so.

Globalization allows corporations to scour the world for the highest returns and lets them build a truly international workforce. The Internet makes it easier for managers to monitor that workforce—wherever they are—and integrate them into the global networks that large companies are becoming.

Twenty years ago, it would have been inconceivable for a small private company like ANDA Networks to in effect relocate its engineering workforce from San Jose to Wuhan, China… Not surprisingly, manufacturers are the furthest along… For years they've had to cut costs in the face of overcapacity and a lack of pricing power. But now the outflow of jobs we've seen in industries like clothing, toys and shoes has spread to more sophisticated sectors like industrial machinery and computer technology….

So, where is this all going? Assuming that this is a structural change and not just the outgrowth of a recession and a slow recovery (which some economists argue), we can expect major dislocations in various parts of the U.S. economy over the next few years….

Industries like U.S.-based call centers and the cities that support them could be hit hard. Many blue-collar workers will have to give up their dream of a steady union job and go into business for themselves or retrain as lower-paid teachers or nurses.

Older, highly compensated information technology professionals may have to take pay cuts, and some of them may never work in IT again at the level to which they're accustomed. MBAs in finance from Harvard or Wharton may not land that first Wall Street associate's job out of school, because increasingly those jobs will be filled, at much lower salaries, by graduates of Beijing University or the Indian Institute of Technology….

But it's a necessary part of the ebb and flow of our economy, which sacrifices a false "stability" for real dynamism and growth.

Time after time in our history, critics have proclaimed the U.S. had exhausted its potential and time after time the economy has reinvented itself….

That's why I'm optimistic that though many Americans may be hurt over the next few years, the U.S, economy will emerge from the Great Shakeout more competitive than ever….

     This article needs some translation:

  • "Many blue-collar workers will have to give up their dream of a steady union job and go into business for themselves or retrain as lower-paid teachers or nurses." Meaning: investors have successfully destroyed the incomes of working-class Americans.

  • "Older, highly compensated information technology professionals may have to take pay cuts." Meaning: Retraining into more high-skill jobs isn't the road to higher incomes for workers either. Investors, through globalization, can destroy those incomes also.

  • "But it's a necessary part of the ebb and flow of our economy, which sacrifices a false 'stability' for real dynamism and growth." Meaning: Only investors, business owners, and high-level corporate executives should have stable incomes. Incomes of workers should dynamically decline if incomes of the wealthy are to continue grow.

  • "Though many Americans may be hurt over the next few years, the U.S, economy will emerge from the Great Shakeout more competitive than ever." Meaning: Working Americans must be willing to lose their livlihoods if America's investors are to continue dominating the world—and become fabulously rich in the process.

The following article makes a good companion to the above. The minority opinion expressed here suggests that economic policies that destroy American jobs will ultimately end in disaster.

From The Wall Street Journal July 7, 2003:
Bias Toward Optimism

By Jesse Eisinger

The principle of parsimony reminds us that the simplest explanation is the best: We had a huge boom. That ended. Why shouldn't we have a big bust?…

There is much talk of stimulus. But how much is truly new? The dollar has been dropping for well over a year. People have been repeatedly refinancing. The government has cut taxes multiple times. The Fed has trimmed rates in a baker's dozen. The stock market has rallied before in this bear market, though not as strongly as this time.

The unemployment report "raises some fundamental issues: Can we have economic growth without new jobs?" asks Sung Won Sohn, economist of Wells Fargo. "We can have a jobless recovery temporarily but not long. Eventually, the recovery will falter."…

Says Mr. Sohn: "The next three months to me are very crucial. If this massive stimulus doesn't do the job, what would? At that point—maybe it's premature now—you'd have to wonder if this was no longer a cyclical problem but a structural problem."

     How can anyone think that the current loss of American jobs is anything but structural? It certainly isn't cyclical. It is a fundamental change in our society that will affect us for generations. It will eventually show itself in the stock market, and ultimately in all our measures of social health: crime, civil disorder, family stability, etc.

The following is another classic example of why Social Security should not be privatized.

From The Wall Street Journal July 7, 2003:
As Fed Cuts Rates, Retirees
Are Forced to Pinch Pennies

With Interest Income Down, Senior Citizens
In a Florida Complex Face Tough Choices

…Across the country, retirees and older adults are struggling with the dark side of falling interest rates. The Federal Reserve has made 13 cuts in the past 2½ years, chipping its benchmark rate to 1% from 6.5%. While cheap money has helped fuel a housing boom and may yet spur capital spending, the low rates are ravaging interest income from older Americans' investment vehicles of choice—certificates of deposit, bonds and money-market accounts.

Low interest rates have always been a threat to retirees relying on interest income. But the relentless decline of the past two years, with no uptick in sight, is taking a particularly hard toll on elderly CD and money-market investors. These are the people who tried to do everything conservatively with their money. For the most part, they didn't chase Internet stocks, and they didn't load up on debt. They sacrificed to pay off the mortgage while building nest eggs to leave their kids.

"They've had their plans in place for 40 years, and now, through no fault of their own, they've had the rug pulled out from under them," says Robert Allsbrook, an economist with AmSouth Bancorp, of Birmingham, Ala., who spends much of his time visiting customers in retiree havens such as Clearwater….

Pat Wheeler, a Clearwater financial planner, got an earful while manning an advice hotline two months ago for a local TV station. The retirees he talked to typically had several hundred thousand dollars in CDs that had been paying 7% interest a few years ago and were now down to 2%, he says. "If you have $200,000, that's $14,000 a year in interest that's gone down to $4,000. It's quite a cut in pay."

Betty Houghton, who lives a mile away, feels she has to stay put in CDs and a money-market account. Seven years ago, she accepted an invitation to a dinner sponsored by an investment adviser and wound up sinking nearly $120,000—almost three-quarters of her and her husband's life savings—into variable annuities that since have lost a third of their value. "I made such a big mistake giving them such a big check," she says….

     Again, another article from the conservative press inadvertantly admits that most middle-income people can't reliably invest their money in safe securities. They don't have the background, the money for advisors, or enough money to diversify in a broad range of investments. And, as the last paragraph demonstrates, they are prime candidates for being taken to the cleaners by Wall Street fast-talkers.

     Again, The Wall Street Journal’s news story helps objective observers determine which politicians are deliberately lying (conservatives) and which are telling the truth (moderates) about proposed legislation.

July 10, 2003:

House Votes to Allow Bush
To Change Overtime Rules

WASHINGTON -- The House voted Thursday to let the Bush administration move ahead with proposed rules that could stop at least 644,000 white-collar workers from receiving overtime pay, heeding a White House veto threat and taking the side of business in its battle against unions.

Lawmakers voted 213-210 to reject a Democratic provision that would have derailed the regulations. Unless Congress prevents it, the proposed rules could take effect later this year….

The House vote was a victory for President Bush and Congress' Republican leaders….

The proposed rules would require overtime pay -- equal to one-and-a-half times the hourly rate -- for as many as 1.3 million additional low-income workers when they work more than 40 hours per week, the department said. Democrats did not oppose that expansion of the number of workers who would get the extra money.

But the department estimates at least 644,000 white-collar workers now required to get overtime would lose it as a result of new definitions of jobs that would be exempt from the extra pay. Unions say that figure would actually exceed 8 million.

The Democratic provision would have blocked any Labor Department regulations that0 would deprive workers of overtime pay they already receive. They offered it as an amendment to a bill providing $138 billion for labor, education and health programs next year….

In a statement, the White House said the proposal would help 1.3 million low-wage workers by changing "outdated overtime laws" and threatened a Bush veto of the spending bill if the House voted to block the rules….

Wavering lawmakers fell largely into two categories: moderate Northeast Republicans from districts with a heavy union presence, and conservative Southern and Western Democrats.

     Whenever conservatives want to do the bidding of corporate interests, they always include in their legislation a false reason for its passage. In this case, they increased the benefits for some low-income workers, and that’s just about all they talk about in their communications with the public. But the real intent of this legislation was to cut the incomes of higher-income workers, as the Journal suggested in its first paragraph.

Week of June 30

     This week's Barron's is a classic example of the hypocrisy of America's conservative economists and politicians. Again, they express surprise ("Who would have thought it would come to this?") that America is losing so many jobs—that giant sucking sound—to other countries. Of course, they MUST express surprise, because otherwise they would have to admit that their original intention was to depress wages for all categories of workers. They promised us that what this article describes wouldn't happen.

From Barron's, June 30, 2003.

Asia or Bust

U.S. Tech firms increasingly move jobs overseas

THREE YEARS AGO, telecom equipment firm ANDA Networks had about 100 engineers in Silicon Valley. Now it has seven.

Where did those jobs go? Wuhan, China, a city of seven million people about 400 miles west of Shanghai. ANDA employs 65 engineers there.

In Wuhan, San Jose-based ANDA Networks pays an engineer about $17,000 per year, including benefits—about one-seventh of what it pays his or her counterpart in Silicon Valley. No surprise, then, that privately held ANDA has slashed operating costs by 90% since 2001.

ANDA's story is becoming more and more common these days as demand for technology remains weak and investors push for stronger earnings growth, forcing tech companies to cut costs.

How? The same way other manufacturing and services companies are doing so—through consolidation and exporting jobs overseas.

In fact, Silicon Valley may well be the epicenter of the restructuring that's transforming all of American business….

What's more, the personal computer, computer networking and wireless technology—responsible for much of the job growth during the tech bubble—are maturing businesses. And tech companies have to slash costs, just like everybody else.

Increasingly, that means outsourcing jobs to China, India and elsewhere….

Many of those jobs flying the coop will be in technology, which represents about 10% of the gross national product. And not just to India, of course. Companies like Hewlett-Packard are also operating in low-cost countries like the Philippines, Poland and Costa Rica….

It's no longer just customer service jobs, either, that are migrating abroad, but the whitest of white-collar tech jobs such as computer chip design. "Now they are moving engineering teams, where they had just moved production [before]," says Barry Jaruzelski, managing partner of Booz Allen….

"Those companies have sucked the manufacturing prowess out of American industry," Michael Moritz, partner at venture-capital firm Sequoia Capital Partners in Cupertino, Calif., told attendees of the Bear Stearns conference earlier this month. "Now they're embedding the design process in their business."

So, even keeping small staffs of white-collar workers may become a memory, since "innovation is starting to happen overseas," says Jadallah….

Who would have thought it would come to this? Just three and a half years ago, we were in a New Economy whose growth engine was technology, where the U.S.'s competitive advantage appeared well nigh impregnable.

Now, tech companies are slashing costs any way they can, and software engineers in Palo Alto or Menlo Park are fighting for jobs with much-lower-paid counterparts in Bangalore or Wuhan.

Welcome to the Great Shakeout, Silicon Valley. It's going to be part of the way we do business for quite a while.

     I suppose it's possible that conservative politicians didn't know the extent to which "globalization" would destroy incomes, or the range of professions they would affect. But globalization is now affecting those who thought they were immune to the sellout of American workers. Surely, people are about to wake up to what conservatives have done to what was once the greatest economy in history.

The following article makes a good companion to the above. It's a typical "rosy-glow" description of how the elimination of traditional working-class jobs will ultimately benefit everyone.

From The Wall Street Journal June 30, 2003:
A New Blue-Collar World

Workers Need More Skills,
But Get Less Job Security

Mr. Koch … earned a Ph.D. and started the plastics engineering technology department at Pennsylvania State University's Erie campus to teach a new generation of manufacturing workers. They study plastic design and plastics processing and travel abroad to gain global perspectives of the seemingly mundane but critical world of injection molding. Graduates go on to create plastic parts for surgical devices, computers, cars, and toys, with starting salaries of as much as $50,000 a year.

These are new blue-collar workers, although the term seems almost a misnomer today. Recorded first in the 1940s, it described the color of the shirts worn by factory workers, blue preferred over white because it better hid the dirt from the soot-filled air. Over time, the term came to describe a way of life and it split the working world neatly into two: White-collar workers used their heads; blue-collar workers used their hands, and fittingly for manufacturers, the word's Latin roots, manu factus, mean made by hand.

These days, blue collar still means manufacturing, but technology and globalization have transformed it dramatically. Gone are traditional assembly jobs that required little skill and less education, those tasks being automated or sent overseas to less-industrialized countries. Remaining in the U.S., as well as in most industrialized countries, are blue-collar jobs involved in making products with proprietary technology, or items that require frequent tweaks and updates….

The world of blue-collar work has changed as well. What once took two weeks and a dozen workers now takes two people only a few hours. Jobs once considered a lifetime commitment are now more temporary, forcing workers to stay adaptable. Many of them move from one factory or plant to another, from day shift to nights to keep up with changing demands. Far fewer belong to unions and far more take midcareer classes to keep up with the latest in lathes and resins.

Automation and globalization haven't only reshaped jobs but eliminated many, too. The sector lost about two million jobs in the past two years alone. Overcapacity, global competition and rising labor costs make blue-collar work particularly vulnerable to global boom-and-bust cycles….

The notion that automation will create, rather than eliminate, production jobs seems counterintuitive. Ever since the spinning jenny and flying shuttles reduced the number of people needed to turn wool into yarn by four-fifths, many have thought that machines would replace labor. And machines have indeed reduced the number of jobs involved in production, with many of the jobs eliminated—but not all—involving repetitive, injury- and accident-prone functions. At one small factory in Pennsylvania, about 40% of the equipment is automated. But someone has to build those increasingly automated machines, the parts for them and then improve upon them.

Nationwide, about 42% of manufacturers say they face a serious shortage of highly skilled machinists and craft workers. One study shows that 10 million new skilled workers will be needed by 2020 as many retire and few enter the field.

Some manufacturers are so worried about a looming labor shortage that they're teaming up with universities and think tanks to develop programs to attract talent. The recruitment push starts as early as grade school: Fifth graders who demonstrate facility in building with plastic Legos are being wooed to attend a Cleveland high school that has special manufacturing programs.

     Again, the promise: workers will be better off if we ship low-skill jobs overseas and replace them with high-skill jobs that pay better, are safer and are more personally rewarding. Great. Except the promised benefits never get here for most of those whose jobs were eliminated.

     Even those who get the high-paying non-unionized jobs will soon discover that they have no power to defend themselves when investors ship their jobs overseas—just as they shipped the highly technical jobs overseas, as described in the Barron's article above.

     Then, of course, there is the unanswered question no one wants to address: what in the world are we going to do about the millions of workers who are left behind, and who can't afford to support themselves, let alone their families?

     Someday the public has got to wake up: The class war today is between investors/corporate executives—and everyone who works for a living.

The following is just another example of why Government is a better and more honest guardian of our society, than are typical investors and corporate executives.

From The Wall Street Journal July 1, 2003:
Most Workers Are in Dark
On Health of Their Pension

US Airways Killed a Plan That Its Pilots
Had No Inkling Was in Financial Danger

For millions of American workers, few retirement issues are more vital than the health of their pension plans. But companies have waged a successful battle to keep crucial information about their plans a secret.

The fight comes amid rising alarm about the fate of pensions. Some employers, notably steelmakers, have killed decades-old pension plans. Many other companies have reduced pension benefits by restructuring their plans. And employers are now lobbying Congress for formula changes that would let them make smaller pension contributions and smaller payouts when people retire.

Yet employees and retirees have almost no way to find out how financially sound their own pension plan currently is—in part because companies have long resisted attempts to let them have more up-to-date information. The result is that employees are hard-pressed to find out if their pensions are in any current danger….

Without access to accurate data, employees and retirees face two risks. One is that employers can mask the deteriorating health of a pension plan, and then take steps to cut benefits or kill the plan. Paradoxically, the other risk is that employers can exaggerate the ill-health of the pension plan, to justify reductions in retirement benefits….

     Remember all those promises of the past:

  • That corporate CEOs and high-level executives deserved those high incomes, and

  • That wealth isn't a zero-sum game and it really doesn't matter how much the CEO makes, and

  • That higher profits (due to stagnant lower-level wages) resulted in higher stock prices and stronger corporate financials, and

  • That everyone benefits from a rising stock market because that's where their pension funds are invested.

     Well, now the truth is beginning to be told. Wealth is a zero-sum game, and the lying bastards at the top are taking too much out of the front end, and leaving too little for those at the bottom.

Week of June 23

     This week's Forbes is a classic example of the hypocrisy of America's leading conservatives. The first is an editorial piece by editor-in-chief Steve Forbes, explaining why tax cuts for the rich are good for the stock market and American workers.

From Forbes, July 7.


Tax Cuts = Stock Gains

Investors are beginning to grasp just how potent that newly enacted federal tax cut is for raising equity prices and goosing our sluggish economy. Most economic models utterly underestimate the importance of risk-taking in providing us with ever higher standards of living. That's why the capital gains tax is so ruinous—it stifles innovation and risk-taking—and why reducing that exaction does wonders for both government revenues and economic growth.

The 60% cut in dividend taxes will create more capital, inducing entrepreneurs to actively take risks again. Labor comes out ahead: Increased capital spending means better tools and ways to do things, which mean higher wages. The cut will also improve corporate governance—corporate chieftains will have to justify retaining earnings to skeptical shareholders.

These two reductions will overcome the damage done to the national economy by the states that hiked their own taxes.

     Steve Forbes' message to rich investors and voters is:

  • Tax cuts for the rich = higher stock prices,

  • Higher stock prices = more investment in jobs,

  • More investment in jobs = higher wages, and

  • "Labor comes out ahead."

     Sure, the recent tax cuts will result in a rising stock markeat, at least for a time. But the rest of this line of editorial propaganda is totally in disagreement with news and factual articles in his own magazine and in the current mainstream conservative financial news media.

     Note the two following articles in the same issue of Forbes, which are more consistent with what is being published elsewhere today:

That Sinking Feeling

Could deflation happen here?
A gloomy Stephen Roach says
it may well be on its way

In the predawn hours Stephen S. Roach sits in his Connecticut home writing economic briefs with ominous titles like "Euro-wreck," and "Japan's Moment of Reckoning." When Morgan Stanley's chief economist talks about the state of the world, he frequently uses phrases like "scary" and "appalling."…

It is just that to Roach the U.S. economy is dealing with its most acute challenge since World War II. He believes the global economy slipped back into recession this spring. He suggests earnings disappointments lie ahead in 2003's second half. The stock market rally, he says, is doomed.

Underlying all this, Roach fears, is a dire threat of deflation—that seemingly unending spiral of decreasing prices and wages, where an anemic economy can't get better because no one wants to borrow or spend. Worst case: the Great Depression of the 1930s. Within the next year, says Roach, the core consumer price index (which excludes oil and food) will decelerate from a trailing 12-month gain of 1.5% to 0.5%. In the 12 months after that, it will go slightly negative….

Roach frets that two powerful colliding forces are increasing the likelihood that it will. The first is that overcapacity, high debt loads and other late-1990s excesses are still unwinding in this country. In the absence of any pent-up U.S. demand or corporate pricing power, there's nothing to offset the baleful influence of such an economic purge….

The second force is what he calls a "U.S.-centric" global economy, a dysfunctional situation where we depend on iffy foreign capital to keep going the only engine capable of restoring world prosperity. The U.S. economy accounts for two-thirds of the growth in the global gross domestic product; growth elsewhere has almost come to a standstill. Meanwhile Americans have overspent, while domestic demand throughout the rest of the world has remained below average….

     The second Forbes article:

Price War

Too many car factories chasing too
few customers—and no end in sight

The big three automakers continue to cut prices, and yet they're selling fewer cars. As the folks at DaimlerChrysler have discovered, that's a moneylosing proposition. Its Chrysler unit announced recently that it expects a second-quarter loss of $1.2 billion….

It doesn't seem likely that the foreign share of the U.S. market—39.7% through May—will decline.

And the foreigners don't have to cut prices as much to sell vehicles. Asian models carried an average discount of $1,197 in May compared with $3,655 for General Motors, Ford and Chrysler.

Some of that pricing pressure could be relieved if Detroit closed a few more factories. Ford has already said it intends to shut five plants, and analysts believe GM wants to close two. Chrysler recently canceled plans to build a new factory in Canada. "Now is not the time to be adding new capacity," says Zetsche. Automakers will take up the thorny issue of plant closings in contract talks with the United Auto Workers later this year.

Short of higher demand—or lower supply—is there anything that would enable carmakers to roll back their profit-sapping incentives? There's the doomsday scenario, says Merrill Lynch analyst John Casesa: If the price war persists, the Big Three's credit ratings could fall to junk levels, increasing their cost of borrowing. GM and Ford then would be less able to offer attractive deals. Trouble is, this falls in the "operation was a success, but the patient died" category. More plant closings, layoffs and weak sales would follow….

     These last two articles reflect the truth about taxes, investment and jobs:

  • The problem today is not lack of investment money in the hands of the rich.

  • The problem today is overcapacity (too much money already invested in producing products that consumers don't have enough money to buy), which leads to

  • Further loss of jobs and income, which leads to

  • The wealthy hoarding their tax refunds, or investing overseas where labor costs are lower.

     Result: an absolute disaster for working-class Americans and an eventual boon for wealthy investors who will buy up depressed properties (land, buildings, businesses)—just like they did in the depths of the depression.

From The Wall Street Journal, June 24.

Jobless Workers Switch Fields
In a Scramble to Find Relief

ASHEBORO, N.C. — Tectonic shifts in the nation's job market are playing out at tiny Randolph Community College in this small manufacturing town. Stung by layoffs at nearby furniture, apparel and appliance factories, workers are flooding the school with applications to enroll in nursing and teaching programs.

There aren't many silver linings in a national job market that has shed 2.5 million payroll positions over the past 28 months. But here's one: In a scramble to find stable jobs, many workers are flocking to industries that have suffered through chronic worker shortages in recent years.

Shortages have been forcing American hospitals, for instance, to raid developing countries like the Philippines or Jamaica for nurses. Now there are signs of some short-term relief: Enrollment in four-year U.S. nursing programs rose 12% in the past two years after falling throughout the 1990s, according to the American Association of Colleges of Nursing. At community colleges like Randolph, applications for two-year nursing programs jumped 35% last year, says the National League for Nursing.

"It's [a job] they can't ship overseas," says Angela Freeman, a 32-year-old mother of two who is studying nursing at Randolph. She spent 13 years making upholstered furniture here until April 2002, when her employer, Klaussner Furniture Industries Inc., scaled back. Similar trends are playing out in teaching….

Experts in teaching and nursing say the upsurge of interest helps, though it might not be enough to relieve all of the longer-term pressures these sectors face. And the newfound popularity brings its own problems: Colleges don't have enough faculty to train nurses even though demand for degrees is rising. So many are being forced to turn away eager students….

Asheboro has been hit hard by manufacturing-job losses. A century ago, large furniture manufacturers in Chicago and New York began moving their operations south to this part of central North Carolina, where labor was cheap and raw materials—poplar, cherry and beech trees—grew in abundance.

But now, furniture manufacturing is migrating again, this time overseas. Klaussner, until recently the largest employer in Randolph, has eliminated several hundred positions over the past three years, moving some production to China. The area also has been losing textile jobs for years….

For workers leaving manufacturing jobs, the transition can be tough. Nursing-assistant jobs are abundant, and a certification is possible within 12 months. But the pay is only $7 or $8 an hour and it's grueling work. The school also trains registered nurses, who can make up to $20 an hour. That's more than most local manufacturing jobs. But it takes two years to finish that program and there is a long waiting list to get into it.

This often makes it challenging for many people to make ends meet while they're back in school without income from a job. Ms. Freeman says she has been clipping more coupons, cutting back on shopping by her 12-year-old daughter and relying on help from family....

     This article sums up the real purpose of globalization since the very beginning: It's the single most effective way to destroy wages at the bottom levels of all categories of workers. It's based on pitting workers from region to region against each other. Workers make all the sacrifices-in pay and working conditions-and investors, corporate executives and the established wealthy reap almost all of the benefits.

     Note the intended progression of events this article describes:

  • Industry moved from the North to the South in search of lower wages and fewer protections of working conditions, thus putting severe downward pressures on wages in the North.

  • Then industry started going to other countries, doing to southern workers what it did previously to northern workers.

  • Throughout America, fired manufacturing workers went to lower paying jobs, thus putting downward pressures on pay-rates, even for those in the lowest-paying jobs.

  • An unstated but obvious issue-the shortages of nurses was another result of conservative political skullduggery: they convinced voters to elect politicians who wouldn't adequately fund education-thus forcing American hospitals and schools to go to other countries for qualified nurses. Wealthy conservatives saved money in taxes, more of our uneducated citizens ended up in jail instead of productive work, and imported nurses helped hold down wages for 20 years in the nursing profession-which, in turn, discouraged new students from entering the profession.

From Business Week, June 30.

Land of Less Opportunity

In recent decades, income inequality in the U.S. has grown sharply, far outpacing similar rises in other industrial countries. This trend, which reflects hefty gains reaped by those at the upper end of the income scale as well as meager gains at the middle and bottom, has disturbed many economists who believe that it may ultimately harm the nation's social and economic health.

Others, however, argue that this picture is exaggerated. The widening range of incomes, they claim, simply reflects the greater labor-market flexibility and job instability inherent in today's high-productivity economy.

In this view, families facing temporary income shortfalls in the New Economy can still come out ahead. Assuming their incomes bounce back, they may well wind up with higher lifetime incomes. That is, greater income inequality among households isn't so worrisome if it has been offset by rising family income mobility.

But has it? A recent study by Katharine Bradbury and Jane Katz of the Federal Reserve Bank of Boston is hardly reassuring. Drawing on survey data on the income paths of individual households over time, they find that income mobility has declined in recent decades. Upward mobility-the share of families moving from one quintile, or fifth, in the income distribution to a higher quintile-decreased in the 1980s, and slipped even more in the 1990s.

In the 1970s, for example, nearly 10% of families who started in the bottom three-fifths of the income ladder wound up in the top fifth at the end of the decade. In the 1990s, however, only 7.2% managed to do so, even though most incomes rose in real terms.

The decline in upward mobility is troubling. For one thing, another recent study found that many low- and middle-income households have been taking on more debt to maintain their living standards in the face of greater income volatility (BW-Feb. 24). Falling income mobility implies that those with high income expectations may find themselves with reduced savings when they reach retirement.

It also implies that the nation's lopsided wealth distribution is likely to worsen, particularly if the estate tax is eliminated. Estimates by Federal Reserve economist Arthur B. Kennickell indicate that in 2001, the top 1% of families, including the superrich, held 34% of America's total household net worth, and the top 10% held more than 70%-compared with the bottom 50%, which held only 2.8% of the wealth.

The public still seems to have an abiding faith in the American dream of achieving affluence. But unless the decline in income mobility is reversed, that faith may waver. And the sharp growth in income and wealth inequality may yet become a contentious political issue.

     This is a typical article regularly read by conservative politicians, and they are fully aware of the following:

  • The wealth and income gap between the rich and poor-and-middle-class is growing to historic proportions.

  • This fact is explained away by claiming that the trend will reverse in the future because of "greater labor-market flexibility," as described in the previous Journal article. (Conservatives always benefit from their economic policies today, while workers are promised that they'll benefit sometime in the distant future-which never arrives.)

  • The elimination of the "death" tax will make the situation even worse than it already is.

From Barron's, June 23.

A Bumpy Road for Foreign Auto Makers in China

MAKING MONEY IN CHINA has always been a touch-and-go proposition for foreigners, and auto makers are the latest to get the jitters. The reason, as it often is in China, is the potential for intellectual-property violations.

Lately, a Chinese car maker called Chery is suspected of illegally copying the design of a General Motors subcompact that the world's largest vehicle producer makes through its Korean unit, GM Daewoo Automotive. Chery denies it....

As a result, executives from foreign manufacturers... are starting to fear their local partners could use their own technology and patents against them while competing in the world market. GM, Automotive News reported, wasn't happy with the Chinese government's proposals that westerners transfer technology to their domestic partners, but has no plans to slow expansion....

A study by Merrill Lynch global emerging-markets strategists Nazmeera Moola and Ed Butchart indicates that GM wants to boost its Chinese production by 35% and Volkswagen by 50% in the near future; Ford Motor wants to increase capacity threefold by '05; Toyota Motor wants to grab 10% of the Chinese market by 2010; Honda aims to double production this year, expand the number of dealerships and launch yearly production of economy sedans through yet another venture; BMW entered a new joint venture with annual capacity of 30,000 starting this year (last year, it sold 6,700 vehicles)....

No surprise, either, that supply will probably outpace demand: Merrill figures that supply of passenger cars in China will hit 2 million units this year, versus demand of 1.4 million units....

Peter Boardman, who invests in foreign stocks for NWQ Investment Management in Los Angeles, and a former auto analyst in Tokyo, Boardman is "nervous" about the auto industry, given vulnerable earnings; GM, after all, has warned that it may not hit its full-year profit target, owing to a weaker-than-expected economic recovery in North America and Europe, and price wars. It's also laying off half its workers in Japan.

Boardman believes, too, that U.S. consumers are tapped out. Meanwhile, Ford, GM and DaimlerChrysler have pushed incentives beyond $2,500 a car. "It's worrying that even Toyota is getting into the game, and they have tremendous capital to spare to raise incentives." Boardman reckons that Toyota is spending about $1,000 per car on incentives....

Thailand and South Korea were among the world's best performing markets last week, as investors who foresee a snapback in global economic recovery plowed into emerging markets stocks. The popularity of the two markets also sent the South Korean won and the Thai baht higher....

     This is the part of the world that American investors have abandoned our country for. Their stock markets are going up because they either have the world's industry or they are about to get it. And it's all beginning to unravel.

     What's especially disgusting is that many of the "intellectual property rights" the Chinese are stealing were originally gained from the same American workers who helped build American manufacturing-and were summarily abandoned by the investors who became rich from their labors and creativity.

     And the above articles, ladies and gentlemen, are not from the "biased liberal news media." They are from our most prestigeous conservative financial publications.

Week of June 16

From The Wall Street Journal, June 17, 2003.

GE Workers to Pick Up
More Health-Care Costs

New Contract Agreement Raises
Premiums While Increasing Wages

Tackling one of the hottest issues for companies and their employees today, General Electric Co.'s proposed contract with its two biggest unions succeeds in shifting more of its rising health-care costs to its workers, a move that is likely to encourage other large employers seeking similar concessions….

Despite the optimism of union leaders, the agreement comes at a tough time for unions as a whole. The loss of two million manufacturing jobs since 2000 and turmoil in heavily unionized industries such as airlines and steel have cut further into union ranks after decades of decline.

Last year, the number of union workers fell to 8.8 million, or 8.5% of the private-sector work force, compared with 9.2 million and 8.9% the year before. Continued job losses mean many unions are less willing to fight hard, for fear of losing their jobs outright as companies grapple with the weak economy. With health-care costs rising, many unions have had little choice but to agree to contracts that increase workers' share of those costs.

At GE, unions now represent less than 10% of the company's world-wide work force of more than 300,000, thanks to the company's longstanding efforts to downsize unprofitable operations, move jobs overseas and expand in areas such as financial services where workers aren't represented by unions…....

     Again, another honest explanation for the stagnant wages of working-class Americans for the past 25 years. GE deliberately shut down many of its unionized operations and went overseas. (They also pressured their suppliers to do the same thing.) To some extent, they got out of the businesses that took genuine management talent, and went into areas where they didn't really have to manage workers—and share more of the profits with them.

     With virtually all of American manufacturing going in the same direction, unions have lost their abilities to protect their members, and well as protect workers in non-union companies that have to keep wages high enough to remain non-union.

     And why have corporations gained so much power in negotiations with workers? The answer's obvious: conservative presidents and congresses have passed legislation that was deliberately designed to bring it about. (NAFTA, WTO, fast track trade agreements, reduced workplace protections, etc.)

     For additional background on this issue, see What conservatives say about labor unions versus what they know about labor unions

     For the sake of argument, let's say the war in Iraq is a moral one and it needed to be done. Let's also say that it's worth the expense to the American taxpayer—even with the cuts in funding for American schools, health care, roads, police, firemen, cleaning up the environment, ad infinitum.

     But damn. It's not just the paranoid "biased liberal news media" that suggests that corporations and government insiders salivate at the prospects of war.

From The Wall Street Journal, June 16, 2003.

Rebuilding Iraq Proves to Be
A Gold Mine for Middlemen

Ex-Soldiers, Diplomats Open Doors
And Broker Deals in Chaotic Region

DUBAI, United Arab Emirates—Mac McClelland did some quick math as he steered his Lincoln Navigator through chaotic Dubai traffic.

He'd just learned of a contract to supply food to 12,500 U.S. soldiers in Iraq. If he won it, he'd be a subcontractor to a subcontractor on a deal that originally went to Kellogg, Brown & Root, which provides support services to the military overseas.

"Twelve thousand five hundred mouths," he mused. "That's about 40,000 meals a day." He figured if he could clear 10 cents profit on each meal, he could make as much as $4,000 a day. "That's real money," he said to himself.

Rebuilding Iraq will take billions of dollars, and dozens of entrepreneurs such as Mr. McClelland are angling for a share of that money. These businesspeople—mostly retired military or diplomatic personnel who spent their careers in the Middle East—act as middlemen for hire. They do everything from rounding up local suppliers for construction projects to helping companies set up branch offices in the region.

Mr. McClelland, a retired Marine Corps major, figures he's got three dozen deals cooking right now related to Iraq reconstruction.... (and) ...describes himself as a "bit player" in the Iraq gold rush. But even for the bit players, there's the potential for big money. "If 10% of the projects come through, I'll have made enough to retire twice over," he says. A couple of big ones, such as the food contract, could make his year.

Middlemen and go-betweens with strong military contacts always appear wherever there's a war and wherever there's money to be made supplying the U.S. armed forces. What makes Iraq different is the size of the rebuilding effort the U.S. has taken on and the huge number of U.S. troops involved. The U.S. government is spending several billion dollars a month on troop support, fuel, equipment and, to a lesser extent, reconstruction.

Rather than bid out each individual project, the U.S. government has awarded large contracts to a handful of corporations, including Bechtel Group Inc.—which won a $680 million deal to coordinate the rebuilding effort—and Halliburton Corp.'s Kellogg, Brown & Root, which has taken in about $425 million of U.S. Army work, much of it related to supporting troops with food and housing in Iraq and the Gulf. Those big players then offer hundreds of subcontracts to other companies. Bechtel, for instance, is subcontracting about 90% of its work....


     Are these people doing things that need doing? Of course. Are they competent? Sure. Are their inside information and contacts useful to our country. Obviously.

     But for well-intentioned patriotic citizens, they're sure taking a huge cut out of our tax dollars for their services—and becoming a new class of American aristocracy in the process. And remember, there are layers upon layers of these subcontractors at the trough.

     And when the desirability of war is discussed, let's not pretend that there aren't highly motivated people who intend to profit handsomely when it happens. And if they do profit handsomely, (despite our government's supposed efforts to run the war economically, and without favoritism), let's not reward them additionally with huge tax breaks—while we cut funding for impoverished children at home.

Week of June 9

From Barron's, June 9, 2003.

Take the Money and Run

Budget figures have only political significance

By Thomas G. Donlan

…In an amazing display of negotiating skill, President Bush managed to get a bigger tax cut out of Congress than he asked for originally. Just as President Reagan always used to say that it was amazing what you could get done in Washington if you were willing to let somebody else take the credit, President Bush could say (but never would) that it's amazing what you can get done in Washington if you are willing to keep silent while somebody else lies through his teeth....

This president asked Congress for a set of tax cuts that were officially estimated to reduce government revenues by $750 billion over 10 years. A bipartisan majority of lawmakers was duly horrified at the threat to spending as usual. Some of the swing votes said they would take nothing larger than $350 billion. After several months of negotiation, Congress passed and Bush signed a tax-cut bill that was officially estimated to reduce government revenues by $350 billion, allowing his opponents and his lukewarm supporters to claim a sort of victory.

The trick, widely recognized by budget fanatics but too complex for a headline, was to enact tax cuts that would have been officially estimated as worth $850 billion or so over 10 years, and also to enact shorter expiration dates so that they would not be scored for the full 10 years. This sunset strategy satisfied the swing voters' need to have it both ways….

It also will have an important political effect. Instead of making painless promises to enact the next dramatic expansion of government spending, such as a prescription-drug benefit for all elderly regardless of financial need, candidates will have to bundle their spending proposals with tax increases.

     So, the good news that Mr. Donlan is telling Barron's readers is:

  1. Bush got much bigger tax cut than was widely reported in the major news media—$850 billion instead of the $750 billion he asked for, or the $350 billion opposing politicians said they would be willing to grant.

  2. The reason he got so much was that the Republicans and their right-wing media stars deliberately lied to the American public about the true significance of the cut. In addition,

  3. Those who opposed such a large tax cut wimped-out because the right-wing of the Republican party gave them a logically-sounding excuse ("too complex for a headline") that the public can't understand.

  4. The big bonus: the federal government will be so strapped for money in the future, it'll be much easier for Republicans to deny aid for impoverished children, drug assistance for the elderly poor, unemployment compensation for workers, and so on.

From The Wall Street Journal, June 12, 2003:

Lower Capital-Gains Tax Boosts
Attraction of Custodial Accounts

By Kaja Whitehouse Dow Jones Newswires

The new tax law gives a boost to old-fashioned custodial accounts as a way to save for college.The accounts—known as Uniform Transfer to Minors Act, or UTMA, and Uniform Gift to Minors Act, known as UGMA, accounts—should attract more interest from parents who have stocks that have risen in value, financial planners said. These vehicles have been overshadowed by 529 college-savings plans mainly because withdrawals are taxed at the child's tax rate, whereas 529 plan withdrawals are tax-free until 2011....

First, make sure your child meets a number of prerequisites to benefit from the new tax law. Stock transfers must be made to children 14 and over to take advantage of the lower 5% and 0% tax rates. Children under 14 are subject to a so-called kiddie tax, which means that they pay taxes at their parents' rate.

Theoretically, you could get past this requirement by opening an UTMA or UGMA for a child younger than 14 as long as he or she turns 14 by the time you sell. Also, keep in mind that the first $750 in earnings in a custodial account is tax-exempt.

Also, make sure that any stock sales won't push the child's income above the 15% bracket, which peaks at about $28,400, or the lowered rates won't apply, said Mr. Nissenbaum. Even if you qualify for the new wrinkle in the tax law, 529 plans still offer many benefits that might outweigh the benefits of custodial accounts, said Joseph F. Hurley, president of, an information Web site of 529 college savings plans. For example, you may find that you get a big tax break with a custodial account, but that you prefer the control of the 529 account.

With the 529 plan, withdrawals are tax-free only if the funds are spent on qualified education costs, like tuition and books. Plus, there can be age restrictions placed on when the money can be tapped. With a custodial account, the funds can be tapped at any time for any purpose that benefits the child, including braces, summer camp or a new computer.

Of course, you might forfeit control over the assets: With custodial accounts, parents lose control of the money after the child reaches the age of majority, usually from 18 to 21, depending on the state. With a 529 plan, the custodian retains complete control over the funds for life and can even switch beneficiaries.

For this reason, investing in custodial accounts may be best for people who plan to spend the money before the child gains control of the assets. It might also be a good option "if the child is older and about to go to school or even in school and knows they need the money," said Mr. Hurley.

There are also other factors to consider. For example, contributions to 529 plans and custodial accounts are subject to a gift tax if they are more than $11,000 a year if you are single, and $22,000 if you are married. But a special provision allows each parent to deposit as much as $55,000 to a child's 529 plan, with no gift-tax consequences as long as no other gifts are made in the next five years, said Kevin McKinley, a financial planner in Eau Claire, Wis.

     This Journal article demonstrates the hypocrisy of conservative economists and politicians who sold this tax cut to American voters on the basis of benefiting America's workers: those who want to save up for their kid's education. Just go back and look at the numbers the Journal is throwing around: $55,000, $28,000, and $22,000. And look at all the machinations of tax law that allow all kinds of financial skullduggery for those who can afford professional tax accountants. Does this sound like it is supposed to benefit "workers"?

     This legislation is designed to grant huge tax benefits for our richest citizens—period: The financial supporters of Republicans and conservative Democrats. It's not even remotely relevant to the people who don't have capital gains from stock to even consider taking advantage of this legislation, and who really need help sending their kids to college.


From Business Week, June 23, 2003.

Savings Tip: Don't Do It Yourself

Human resources and accounting are but
two cost centers ripe for outsourcing

You would think a company as big and profitable as the $179 billion oil giant BP (BP ) PLC would count its own beans. But it doesn't—because it's cheaper to pay someone else to do it. In fact, BP is paying the Global Services Div. of IBM $1 billion to handle a chunk of its accounting for 10 years. In the first two years, BP has saved about $52 million, and over the next eight years, it expects to save $200 million more. "We're very happy with how it's working out for us," says BP Vice-President Thomas Blackwell.

BP is just one of hundreds of global corporations singing the praises of business-process outsourcing. In BPO deals, as they're known among the tech set, companies farm out entire business tasks, such as human resources, accounting, and claims processing. It's one of the few bright spots in techland—and a growing source of revenue for the 11 tech-services companies on this year's Info Tech 100.

While the total tech-services market is pegged to grow 4% this year, IDC expects the BPO market to rise 11%, to $860 billion. By 2006, the market is likely to hit $1.2 trillion. "There are almost no boundaries to the potential," says Marty Cole, managing partner for outsourcing at Accenture (ACN ) Ltd. (No. 36)….

Recently, greater savings have been realized by moving these tasks overseas, often to low-wage locales such as India, the Philippines, and the Caribbean. Of IBM Global Services' 172,000 employees, 7% work overseas doing accounting and human-resource tasks, while Cincinnati-based Convergys (CVG ) has moved 10% of its 44,000 workers abroad since 2000.

    This is just another in a series of conservative articles that celebrates the effectiveness of globalization, which benefits corporations at the direct expense of workers. The real mystery: why can't wealthy conservatives realize the looming disaster—even for themselves—as jobs leave our country and the bottom 80% of Americans lose their incomes?

Week of June 2

From Business Week, June 16, 2003, p. 54.

     Here's yet another report from the conservative financial press about how conservative politicans have created a climate where corporations can destroy workers' wages and working conditions—even for skilled workers.

Skilled Workers—or Indentured Servants?

As jobs dry up, abuse of power over visas is on the rise

In 1998, Mohan Kutty, a Malaysian-born doctor who has practiced medicine in Hudson, Fla., since he immigrated to the U.S. more than 20 years ago, decided to open five clinics in rural Tennessee. To find physicians to take such hard-to-fill posts, he sponsored work visas for 17 doctors from a variety of countries, including India, Pakistan, and Romania. But when they showed up for work, Kutty paid them just half the $80,000 a year he had promised—and fired several after they hired a lawyer to help them out....

Such stories have become increasingly commonplace these days. Immigrants have long complained about employers who cheat or abuse them and threaten to have them deported of they protest.

Generally, the problem has been confined to the lowest rungs of the workforce, such as Mexican farm hands who enter the country illegally. But nowadays, the weak economy has sparked an outbreak of abusive treatment among the legions of white-collar employees who flocked to the U.S. on perfectly valid visas during the late-1990s boom....

Experts point out that the U.S. work-visa system gives employers tremendous power over immigrants.... "You're essentially in indentured servant."

     So what would be a proactive solution for filling physician needs in "hard-to-fill" posts? Why not give scholarships for those who want to become doctors, instead of deliberately restricting the number of medical schools and teaching hospitals (the conservative medical profession does not want to create a "surplus" of doctors—as the Wall Street Journal once reported).

     Long-term proactive solution: improve the education and training of ghetto kids so they become doctors instead of prison inmates. I'm sure they would much rather choose that career path.

     And remember, this isn't just about skilled doctors. It's about skilled everything: computer programmers, Ph.D. chemists, engineers, and so on.



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