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 Whistleblowers Need Protection



June 25, 2009

Earlier this month the US Centre for Disease Control reported that, rather counter-intuitively, two-thirds of the 5,000 confirmed US cases of swine flu involved people between the age of 5 & 24 and less than 1% people over the age of 65. Blood work suggests this is because older people have a partial immunity to the swine variant due to a lifetime of exposure to all kinds of other flu viruses.

Much was made recently of 10 US banks repaying almost US$70BN in TARP funding. But people have short memories; for most of these banks were among those whose CEOs, after the program was approved by Congress, were summoned to a meeting by the then Secretary of the Treasury Hank Paulson without being told the reason for it, only to be told, once Paulson had arrived & had sat down, that they were not going to be allowed to leave the room unless & until they had all agreed to borrow money under the program whether or not they wanted or needed to do so (and several did neither).


· It cut it to -2.9%, down from its -1.7% forecast three months ago, but expects East Asia to grow by 5%, largely due to China’s economic stimulus program.

Stock markets didn’t take kindly to this forecast, even though the Bank had signaled it a week earlier in reporting the improving outlook for the Chinese economy.


· After a not reported-on talk at its Annual Dinner on June 1st, Charles Krauthammer gave another one on June 15th to a more select audience of 25 or so at the Washington-based Center for the American experiment on June 15th. An attendee summarized it as follows :

· Obama is intellectual & charming but hiding “behind a mask.” His political skills are akin to Reagan’s & Clinton’s, and taking down the Clinton dynasty was an amazing feat. But pay no attention what he SAYS, watch what he DOES; for he wants to dismantle capitalism & level the playing field by redistributing income & punishing achievement, but needs to tread carefully to keep the public onside;

· He aims to gain control over energy, education & healthcare. Making the latter free & extending coverage to 46MM more people will make costs go through the roof & lead to a massive rationing of health services, like in Canada. While he ran as a moderate, he is bent on revolution & will govern from the hard left;

· Obama sees himself as the ruler of the world. While seeing moral equivalency in all cultures, he sees America as an arrogant imperialist nation, rather than a great noble one that occasionally missteps. He hopes that the bill (& the pain) for the goodies he is handing out now will not come due until after 2012;

· The Republicans will come back strong but only as the party of lower taxes, smaller government, personal responsibility, strong national defense & states’ rights. Current spending levels are irresponsible & court hyper inflation, depression or worse. While the media give Obama a pass because of his agenda, at some point the people will realize the bailouts were merely payoffs to placate the Left; and

· In 2012, if the unemployment rate is > 10%, the Republicans will win, if it’s < 8% the Democrats will & in between it will be a dog fight. It’s all about the economy.

Being a neocon & a Bush apologist blinkers Krauthammer. Obama is likely more capable of making a speech without a teleprompter than Bush. He gives Obama credit for having political antennae on a par with Reagan’s & Clinton’s but then disputes his reading of the domestic situation (that by pushing hard early in his mandate he can get a payoff by 2012 & that Americans all along knew intuitively that the party, though great while it lasted, had to end at some point). With respect to the fiscal situation, people who live in glass houses should not throw stones; for irresponsible spending predates Obama. As to who saw/sees himself as “the ruler over the world”, Obama’s cosmopolitan background & upbringing likely gives him a better ‘feel’ for the world beyond the 12-mile limit than Bush, who had never ventured beyond North America’s shores until he became President, ever had. As to the bailouts being a “pay-off to the Left”, this seems a stretch. And to paraphrase Mark Twain, the report of a “massive rationing of (medical) services in Canada” is ”an exaggeration”. .


· May sales of previously-owned homes rose 2.4% MoM to a 4.77MM annual rate. Foreclosures & other distress sales dragged the median selling price down 16.8% YoY to US$173,000. The “best news” was said to be that the supply of previously-owned homes for sale declined 3½% to 3.8MM, a 9.6 months’ supply.

The really good news, that received scant attention, was that foreclosures etc. went from 50+% of total sales in March through 45% in April to 33% in May. Meanwhile new home sales slipped 0.6% to a 344,000 annual rate, a 10 months’ supply, although their median price rose a bit. .


· For years police agencies were bullet-proof where funding was concerned. But as tax revenues dwindle, in some cases drastically so, they too are feeling the effect. Thus Chicago’s 13,000-strong police force has over 400 vacancies (a number that may double by year-end) as it doesn’t hire enough new officers to keep up with attrition. And many smaller communities are cutting costs by consolidating their police forces.

While some help is on the way from the federal stimulus program, the US$1BN set aside for this purpose nation-wide is little more than one-tenth of the amount requested (for Year One). .


· Treasury Secretary Tim Geithner noted in an oft-quoted speech last summer that banking involves lending long & borrowing short. And in 2007 over half of all banking activities in America so defined were accounted for by a largely unregulated parallel ‘shadow’ banking system. Obama plans to correct that by empowering the Fed to regulate any financial institution it deems ‘systemically important’, i.e. capable of creating havoc if it failed. But he doesn’t address the need to alter compensation structures biased towards short-term earnings rather than risk, nor the reform of rating agencies that contributed to the crisis by giving higher ratings to securities than they deserved.

Left to its own, the market likely would deal quite adequately with the rating agency issue.


· President Obama wants a healthcare bill on his desk for his signature by October. He seeks to cut costs & extend coverage to the 46MM who currently have none. He told reporters at his June 23rd press conference “Reform is not a luxury, it is a necessity”. No fewer than five Congressional committees are working on healthcare legislation. Cost estimates range from US$1TR to US$1.6TR over ten years. Republicans are incensed by the idea of having a government plan compete with private insurers in offering coverage to individuals & small businesses. On July 4th Congress will adjourn for the summer & lawmakers will have to face their constituents’ questions & concerns.

· On June 23rd the US$1.5TR per annum health insurance industry joined the fray. In a letter to Senators the America’s Health Insurance Plans & the Blue Cross Shield Association warned a government plan option would dismantle the half century-old employer coverage system Americans have come to depend on & compete unfairly with private companies.

Polls show overwhelming support for a government plan option, suggesting the industry is fighting a battle already lost; for the polls have caused many lawmakers to dig in their heels on this issue. And the hullaballoo over cost is a storm in a teacup; for even US$1.6TR over 10 years amounts to a mere 1.1% of GDP per year while healthcare at last report accounted for over 15% thereof (half as much again as in Canada). Study after study have found that, while the US leads the world in medical innovation, it has the highest costs, & below median usage levels, of the world’s 191countries (and a worse infant mortality-, life expectancy- & post-heart attack survival rate track record than the average for the OECD countries). It spent US$2.26TR on healthcare in 2007, growing at a 6.7% average annual rate, and 1% of Americans accounted for 25% of all healthcare spending (& another 4% for another 25%). With medical expenses a leading cause of personal bankruptcies in the US, Obama may have ‘lucked out’ in his timing of the introduction of universal healthcare for a time of nationwide personal financial concern.


· US Energy Secretary Steven Chu & Nancy Sutley, Chair of the White House Council on Environmental Quality, told a meeting of Western State Governors & Provincial Premiers in Park City, Utah on June 15th that the Alberta oilsands are important to the US but warned its development must be cleaned up since there is “a lot of concern” south of the border about their environmental footprint. With the Administration committed to ramping up clean-energy production, the carbon-intensive oilsands are “very tricky”. Chu also noted it takes 20-25% more energy to produce oilsands-, compared to conventional-, oil.

The US State Department’s must issue permits for pipelines can cross the Canada-US border. So an environmental group, ForestEthics, has written Hilary Clinton asking her not to issue permits for pipelines that will move oilsands oil to US refineries (in particular Enbridge’s 1,000 mile, 450,000 bbld Alberta Clipper Pipeline). It claims producing such oil entails up to 5x more greenhouse gas emissions than conventional oil (likely an exaggeration) & says this conflicts with Obama’s pledge to tackle global warming. In the letter its Executive Director purports “Oil from the tar sands is one of the world’s dirtiest ... For the U.S., continued dependence on tarsands oil would impair plans to reduce our carbon foot print in the short & long term.” (Note the use of the old-fashioned, and now derogatory, term “tarsands”). This should be another warning for the Stelmach government to get its head out of the sand & its finger out of its %^&, and smell the coffee & get serious about addressing the environmental aspects of developing, & producing from, the oilsands (& more specifically, going forward, to avoid environmental problems rather than trying to clean up afterwards) .


· A week after Netanyahu told a Tel Aviv university audience (& the rest of the world, incl. President Obama) “an undivided Jerusalem will be Israel’s capital”, Salem Fayad told a Palestinian university audience on the West Bank that East Jerusalem will be the “eternal capital” of a Palestinian state that he expects will come into being in two years.

Obviously one of them is, or perhaps even both are, going to be proven wrong. Any bets? .


· Obama’s Special Envoy for Mideast Peace, former Sen. George Mitchell (who played a key role in the Northern Ireland peace process) was to have met with Prime Minister Benjamin Netanyahu in Paris on June 25th. But the meeting was cancelled at the last moment. While Yediot Aharonot (an Israeli mass circulation tabloid emphasizing “drama and human interest over sophisticated analysis” but with no particular political bias) said this was a US reaction to Netanyahu’s refusal to halt settlement activity, the latter’s office claimed it was he who had cancelled out to allow “more professional work” to be done on various issues. Meanwhile Netanyahu continued his first trip to Europe since becoming Prime Minister to promote his hawkish line on Iran that seeks harsher sanctions over its nuclear programme (that polls suggest has the support of 51% of Israelis) and Mr. Mitchell is now set to meet with Israeli Defence Minister Ehud Barak (the leader of the more dovish Labor Party) in Washington on June 29th.

The settlements are the ‘crunch issue’. The Palestinians want every last one of them gone while the settlers believe they are there by God’s will & are now establishing vinyards there because, as the Settlers’ Council’s President puts it, this “is a new way to settle people in the area ... more permanently than mobile houses.” Netanyahu has halted the creation of new ones, & even forcibly ended some marginal ones, but insists on allowing the “natural growth” of existing ones (settlers tend to have large families, with a fertility rate 2x or 3x that of secular Israelis). But in 2007 over one-third of their growth was “unnatural” in the sense that it was due to inmigration from outside the West Bank. And today 300,000 Israelis live in West Bank settlements & 180,000 more in East Jerusalem, vs. less than 120,000 in 1993 when under the Oslo Agreements both Israelis & Palestinians undertook to avoid doing anything that could undermine future peace negotiations. .


· Late last year the then commander of the US forces in Afghanistan issued orders to “minimise the need to resort to deadly force” in close contact situations. Now his successor, Gen. Stanley McChrystal has expanded on that by telling them they must disengage from firefights with the Taliban when civilians may be at risk (although then fudging the issue by telling his officers that ‘air strikes have to be used responsibly’).

It’s likely too little, too late. And the only real alternative to bombing hostile sites is to go in & root the bad guys out, one by one; for once it becomes clear that the ‘good guys’ will withdraw at the sound of gun fire, control of the battlefield is handed to the ‘bad guys’.


· US forces have been using the Manas air base outside the country’s capital, Bishek, since 2001 as a transfer point in the movement of troops & military hardware to Afghanistan, a medivac transfer point & a base for the aerial tankers that refuel the jet fighters in the Afghan skies. So Washington was stunned in February when, within hours of getting a US$2+BN loan from Russia, President Kurmanbek Bakiyev announced this arrangement would be terminated, claiming Washington was paying too little for its use.

· But on June 23rd, one week after Afghan President Karzai asked Bakiyev to allow coalition forces to continue using Manas, a Kyrgyz Parliamentary Committee approved a deal that will triple the US$17.4MM annual rent the US has been paying, with the Kyrgyz Foreign Minister saying this was partly out of concern about the deteriorating situation in Afghanistan & Pakistan & the implications thereof for peace in the Central Asian region.

The importance of the Manas base has grown as the main supply route through Pakistan has become more dodgy & after the US lost the use of a base in neighbouring Tajikistan. Last year was its busiest ever, with 6,370 flights, 204,000 lbs of fuel used in aerial refuelling & 189,000 troops stopping off there on their way to & from Afghanistan. While Russia really wants the US out of the four “Stans” in Central Asia altogether, it is believed to have given its begrudging approval to the deal in the hope this will strengthen its hand in dealing with Washington on issues that have soured its relationship with the US, such as NATO’s possible expansion in Eastern-, & the planned US missile defence complex in Central-, Europe.


· Industrial output in the 16-country Euro zone in April declined 1.9% MoM, bringing the YoY decline to a record 21.6%, as companies reduced orders & cut inventories.

This was more than triple the 0.6% expected. Meanwhile, German business confidence is at a seven months’ high (although not yet at a recovery level).


· The London-based Chatham House think tank has found problems in the Iranian election. The outcome in three provinces implied Ahmadinejad got the votes of all conservative- & centrist- plus half the reformist voters in the 2005 election plus those of all new voters. The record turnout (85% of the 46MM eligible) should have favoured Ahmadinejad’s opponent Hossein Mousavi since it was his campaign that had energized the one-third of eligible voters under the age of 30. And in two provinces voter turnout was > 100%.

With 25% inflation & 20% unemployment the economy is not in good shape & voters typically blame incumbents when that’s the case. To fund the programs that buy him political support Ahmadinejad needs oil prices of US$90 or better. High turnouts usually bring out the disaffected & spell trouble for those in office. The election, & more specifically its aftermath, may have let not just one, but two, genies out of the bottle. On the one hand, it may have aggravated a split among the clerics, & more specifically between the Supreme Leader, the Ayatollah Ali Khameni, & his friend & colleague of 52 years standing, the former President Ayatollah Ali Rafsanjani, who was beaten by Ahmadinejad in 2005 when he ran for a third term, and who is deemed more pragmatic & to want better ties with the West (and whose daughter was reported to have addressed some demonstrator groups). And on the other, it may have put much-needed access to foreign investment & technology, that is already hampered by the sanctions, still further out of reach; and it needs both very badly to help boost output at its aging fields (which is declining by up to 8% annually), to develop new fields, to build gas liquifaction plants to utilize byproduct gas currently being ‘flared’ & to increase its domestic oil refining capacity (it exports oil but must import most of its gasoline). But those who compare this situation with the 1979 uprising against the Shah overlook the following facts : then it was the zealots who were in the streets while today they hold the reins of power, then the Ayatollah Khomeini was willing to risk martyrdom himself & have his followers’ blood run in the streets while today Hossein Mousavi may be less willing to go to such extremes, and now women, incl. Khomeini’s own granddaughter, play a far more prominent role than they did in 1979.


· The stimulus spending is helping to make up for the collapse in the demand for exports that wiped out millions of Chinese factory jobs. For May retail sales were up 15.2% YoY (vs. 14.8% YoY in April) & industrial output 8.9% YoY (vs. 7.3% in April & 8.3% in March).

And ‘investment’, most of it government infrastructure building, was up 38.7% YoY in May vs 33.9% in April & a monthly average of 25% during the five months’ period ended February 28th.


· Due to shoddy construction & embezzlement, at least five newly built dams on tributaries of the Yellow River in Gansu Province in the arid Northeast are “in very fragile condition” & “possibly near collapse”. According to Chen Lei, the Minister of Water Resources, “As the flood season approaches in July, August and September, China’s dam safety is coming under heavy pressure and inspections show many... are not in good condition.”

One of them, 80 meters long & 20 meters high, has developed a “dangerous breach, 10 meters wide, in the middle.” China has 37,000 dams (10% of which are currently being reinforced & another 20% of which ‘need immediate attention’) & is frantically building more so as to produce 300,000MW of hydro power by 2020. The ‘mother of them all’ is, of course, the Three Gorges Dam completed in 2006 that took 12 years to build, is 2,335 metres long & 101 metres high, will by 2011 generate 22,400MW of power & create a 1,045 sq. km reservoir holding almost 40 cubic kilometres (40BN tonnes of water), and sits on two major earthquake faults [creating a risk of “reservoir-induced seismicity” (RIS), earthquake activity caused by the weight of the water in the reservoir). And it too already displayed dozens of cracks before it was even finished.

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