Ponzi Schemes

"Decades later, the Ponzi scheme continues to work on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses."- an SEC government website.

Ponzi schemes are common: people want to make money and wolves wearing wool are everywhere.

By his own estimate, Bernie Madoff lost $50 billion of investor funds while the Securities & Exchange Commission (SEC) regulated his fund. A December 19, 2008 New York Times article, "Madoff Scheme Kept Rippling Outward, Across Borders" by Diana B. Henriques described Madoff's fraudulent investment scheme:

"The first worldwide Ponzi scheme — a fraud that lasted longer, reached wider and cut deeper than any similar scheme in history, entirely eclipsing the puny regional ambitions of Charles Ponzi, the Boston swindler who gave his name to the scheme nearly a century ago."

On paper, Bernard Madoff generated 15% returns year after year. Once financial markets started plunging, all the money pouring in wasn't enough. People wanted cash and, typical of Ponzi schemes once people start a run, the enterprise collapsed.

Many wealthy and powerful people were defrauded and Madoff will be prosecuted.

Federal prosecutors in Manhattan are currently prosecuting Bryant Rodriguez for a smaller scale Ponzi scheme: bilking churchgoers at the upper Manhattan El Camino Church of about $600,000 in 2007. Prosecutors called it a classic financial grift as Rodriguez promised investors 30% on their investment every two weeks. The scheme fell apart when investors started to withdraw their money.

Ponzi's Scheme

Charles Ponzi, an Italian immigrant in Boston, devised his fraudulent investment scheme in 1920. He made millions of dollars in a short time by paying 50% returns to investors after 45 days out of money paid by subsequent investors rather than from any actual profit from investment. His scheme relied entirely on current investors meeting the obligations due those who had invested earlier, while Ponzi pocketed the difference.

Ponzi schemes are typically very successful until they collapse. Everyone makes money and is happy while new "investors" can be found and until regulators shut down the operation or there's a run on the funds used to pay off "investors." Once confidence is lost in the person or persons running the scam, because there is no real investment supplying value, everything collapses.

Social Security and Medicare

On August 14, 1935, FDR signed the Social Security Act into law. Social Security, which shares many of the characteristics of a Ponzi scheme, is funded with Federal Insurance Contribution Act (FICA) payroll taxes. Individual social security and medicare taxes are calculated as a percentage tax on up to $106.8K of salary for 2009--with 7.65% paid by you and 7.65% paid by your employer to the government instead of to you--for a net 15.3% reduction in your paycheck. The "contributions" are to be considered an "investment" by workers into a government-mandated retirement account. As in the early stages of a Ponzi scheme, Social Security had lots of new "investors" when FDR and Congress started it.

The 1935 Social Security Act created an "Old-Age Reserve Account" in the Treasury which was to pay benefits and invest the reserve in federal debt, including unmarketable debt issued for this purpose, originally earning 3 percent. Social Security’s tax rate was to rise gradually, to create a reserve big enough so its interest would cover future costs. The Social Security Act started tax collections in 1937 and was to start benefit pay outs in 1942.

On August 10, 1939, FDR signed the Social Security Amendments of 1939 which renamed the Social Security Old-Age Reserve Account to the "Federal Old-Age and Survivors Insurance Trust Fund" managed by the Secretary of the Treasury, added family coverage, started pay outs in 1940, and funded the Trust Fund directly from FICA taxes. Similar to a Ponzi scheme, Social Security was marketed to the public as an insurance fund which invested investor contributions.

And just as investor contributions are not invested in a Ponzi scam, it's a myth that current FICA payments are invested in a "trust fund" earning interest. FICA taxes paid by today's workers are, as in a Ponzi scheme, transferred to pay today's retirees. When FICA taxes exceed Trust Fund outlays, the remaining surplus funds don't go into money-making investments, but instead get spent by the Treasury on federal outlays. In return, the "Federal Old-Age and Survivors Insurance Trust Fund" receives IOUs--unmarketable Treasury bonds carried as intra-governmental holdings on federal budget spreadsheets. There is no money put aside; there is no investment--only claims on taxpayers of the future.

When the most recent budget surplus occurred in 1999, the national debt still increased. Why? Because as required by law, FICA tax surpluses were borrowed to fund federal outlays. Social Security’s Trust Fund is a bookkeeping device at the Treasury and nothing more. The "trust fund" label was for public indoctrination only to reassure the public that Social Security was trustworthy. As with a Ponzi scheme, there is no actual investment, just the appearance of one:

• In a 1937 brief to the Supreme Court, the Roosevelt administration conceded that Social Security “cannot be said to constitute a plan for compulsory insurance within the accepted meaning of the term insurance” and characterized Social Security as a “public charity” program under the “general welfare” clause of the Constitution. The Supreme Court declared Social Security constitutional in two separate decisions because it was a welfare system and not an insurance system.

• The Social Security commissioner, Stanford Ross, after he announced his resignation, conceded in 1979 that: "...the mythology of Social Security contributed greatly to its success... Strictly speaking, the system was never intended to return to individuals what they paid."

• On February 9, 2005, President Bush acknowledged Social Security is not a trust fund:

"Some in our country think that Social Security is a trust fund -- in other words, there's a pile of money being accumulated. That's just simply not true. The money -- payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust. We're on the ultimate pay-as-you-go system -- what goes in comes out. And so, starting in 2018, what's going in -- what's coming out is greater than what's going in. It says we've got a problem. And we'd better start dealing with it now."

As with "non-sanctioned (i.e. illegal) Ponzi schemes," Social Security also depends on enough people paying in to be able to fund others receiving the benefits. The system works only as long as new "investors" are recruited to pay in more money. By General Accounting Office (pdf) and other estimates , Social Security and Medicare will be in increasing financial trouble over the next two decades as the number of people receiving payments becomes greater than the number paying into the system. This is what collapses Ponzi schemes. As Thomas Sowell says in Basic Economics, Basic Books, New York, N.Y., 2000, p. 206:

"In a genuine insurance, the premiums paid by the current generation are invested and the returns used to pay either annuities to that very same generation or to pay death benefits to their survivors. That is why insurance companies do not have to worry about how big the next generation is going to be, but politicians do. Politicians do not invest the Social Security premiums, but spend the money as fast as they get their hands on it."

According to Gary North:

"The entire Western world is trapped in a Ponzi scheme sold by politicians: free lunches in our golden years of retirement."

While Madoff is prosecuted for operating a Ponzi scheme that lost $50 billion, the government has lost nearly $4 trillion in its own Ponzi scheme. The current national debt is over $10 trillion, of which over $4 trillion is unfunded liabilities, the majority of which are for the Social Security Trust Fund.

Other than the difference between private criminals competing with those of the state, is there any difference between Ponzi, Madoff, and Social Security?

The state's answer:

"Social Security is and always has been either a 'pay-as-you-go' system or one that was partially advance-funded. Its structure, logic, and mode of operation have nothing in common with Ponzi schemes or chain letters or pyramid schemes." - an archive of a Social Security website.

What's yours?

The lady protests too much, methinks.

Democracy in Action

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard." H.L. Mencken

Six weeks after Congress voted a pre-election auto industry bailout of $25 billion, the "Big Three" asked the federal government for a second bailout. This latest example of democracy in action--the Congressional hearings for a December bailout of the "Big Three" American auto manufacturers--is a case study in the workings of American democracy.

The performance started when the CEOs for General Motors, Chrysler, and Ford flew to Washington, D.C. in their corporate jets this November to warn Congress of impending bankruptcy and the peril to the US economy if they weren't given immediate financial help.

As with any good performance, a lot of the work to create the show is done out of view of the audience: the American taxpayer. There are unseen characters such as Stephen Feinberg, head of Cerberus Capital Management, the majority owner of both Chrysler LLC and GMAC, and unexpected plot twists where former Treasury secretary John Snow and former Vice President Dan Quayle are chairman at Cerberus.

This most recent episode begins after bureaucrats at the Department of Transportation (DOT) sharply increased the rate at which automakers must comply with the CAFE mileage standard in April of this year, and a summer of record gas prices caused consumers to slow their purchase of the pickup trucks and sports utility vehicles which supply the bulk of the "Big Three’s" profits, automakers needed to retool to manufacture a product that met the standards, and they weren't ashamed to use taxpayer money to do so.

The September 24, 2008 bailout came before the elections, so both McCain and Obama supported it. Obama wanted twice the amount. Both were running for office at the time, and in our American democracy, parties throw taxpayer money around before an election; neither wants to be accused of hurting automakers or the American workers in an election year. In this case, opposing the September bailout would have meant opposing the United Auto Workers (UAW) union, and with both car-manufacturing states, Michigan and Ohio, being important states to win, principled opposition to making taxpayer money available to automakers from either party was nonexistent.

Congress generously decided to use other people's money and approved $25 billion in federal loan guarantees for the "Big Three," designating the funds be used to speed the makeover of the "Big Three" product line to feature smaller, more fuel-efficient vehicles to help meet the new Corporate Average Fuel Economy (CAFE) standard. The LA Times reported that the pre-election auto industry bailout moved unusually quickly through Congress with bipartisan support:

"Acting with unusual speed and bipartisanship, the House of Representatives on Wednesday approved funding for a $25-billion loan program to help the auto industry build more fuel-efficient vehicles."

The second bailout request came in November after sales plunged across the auto industry in the face of consumer fears and the drying up of credit in the wake of Wall Street’s meltdown:

• The "Big Three" first tried to get the money guaranteed in September and use it to pay suppliers.
• Environmentalists, a major D constituency, oppose using that money for anything other than designing and building vehicles that get higher gas mileage and produce less pollution. Ds instead wanted to prop up the automakers with some of the $700 billion in funds from that recent savaging of the taxpayer and the dollar, otherwise known by the benign-sounding acronym TARP (Troubled Assets Relief Program). The price automakers would pay would be the federal government gaining more control over them. The CEOs and the UAW don't care as long as they could continue to get paid.

• President-elect Barack Obama wants $50 billion from TARP, and new government oversight of the "Big Three" included in the package, with creation of an "auto czar" or independent board modeled on the government's rescue of Chrysler in 1979 (perhaps not the best example to choose considering how well Chrysler has performed).

• The White House rejected using any of the TARP money designated for the financial services industry. The Bush administration wanted Congress to expedite the release of the separate $25 billion loan package for automakers approved in September to help meet tougher fuel-efficiency rules.

• Rs didn't want to help the UAW, whose members would benefit from the bailout. The UAW supported D politicians during the recent elections as their political action committee pumped $1,918,450 this election cycle into the congressional campaigns of Ds and only $12,500 into Rs.

Why all the disagreement in November and December after the swift bailout in September? The difference is that the November elections are over. In the show called "democracy," politicians pay close attention to voters immediately before the election. Politicians know that after the election, the audience doesn't pay much attention and typically doesn't remember all of the "crises" from which the government "protects" them. After an election, both major political parties agree on one thing: the taxpayer is carrion.

Much of the performance in a democracy involves misdirection with catch phrases uttered so frequently in the media that the audience starts repeating them:

• "The 'Big Three' are too big to fail." This catch phrase is a misnomer: the "Big Three" isn't the "Big Three" anymore: Toyota moved ahead of Chrysler in US sales last year and Cerberus Capital owns 51% of GMAC and almost half of Chrysler LLC. In a free market, nothing is too big to fail, which, if you accept the premise, means the auto industry is not a free market.
• The problems of the "Big Three" are a "failure of capitalism and the free market." (See previous bullet.)
• "Protect American jobs." This phrase appeals to those concerned about the loss of American manufacturing capability, particularly mercantilists. Protectionism is one of the considerations of the second bailout: some members of Congress were concerned that giving money to American automakers would end up helping Chinese and other foreign parts manufacturers. Keep in mind that some vehicles manufactured by the "Big Three" are built in other countries, and US government statistics for domestic production include Canada and Mexico as a result of NAFTA. So your import car can be built in the US and your domestic car can be built in Canada.

The "domestic" Big Three also asked other countries for financial help: General Motors of Canada asked the Canadian government for $2.4 billion in loans and an immediate $800 million to make it through the end of the year. Chrysler Canada Inc. is looking for $1.6 billion. Ford wants a $2 billion line of credit on stand-by to be used only if the current economic crisis worsens.

The only certain domestic characteristic of the "Big Three" are the locations of their headquarters in Michigan and the three well-dressed CEOs looking for taxpayer money:

• Richard Wagoner, chief executive of General Motors, received compensation valued at $14 million in 2007.
• Robert L. Nardelli, chief executive of Chrysler LLC, receives no salary until Chrysler's owner Cerberus Capital Management LP makes a profit on Chrysler, so when Nardelli volunteered to work for $1 at the hearing, he wasn't giving up much. Nardelli, originally a GE executive, recently headed Home Depot, where he made $38.1 million in 2006, and received a $210 million retirement package.
• Alan Mulally, Ford president and chief executive of Ford, formerly of Boeing, earned $2,000,000 in salary and received incentive bonus awards of $7 million. Total 2007 compensation was $21,670,674, which includes salary, bonuses, the Company-recognized expense for stock options and other stock-based awards, as well as all other compensation. In 2006 he earned $28 million in 2006 for four months work. (Or was that $39.1 million for four months?)

That all three executives eventually volunteered during Congressional hearings to receive a $1 salary is a diversion, just as driving to Washington, D.C. weeks later for their next attempt at a handout was only for appearances. Their performances and the pontifications of politicians about what the automakers would have to do to get taxpayer assistance are all part of the show and an example of government and large corporations working together to serve anyone but the consumer as the federal government gradually takes over another industry.

The performance, as with other forms of entertainment and public distraction, succeeds in getting the audience to willingly suspend their disbelief as the story unfolds. For this performance to succeed, taxpayers must believe that federal bureaucrats will do a better job making sure automakers balance their books than Congress has done balancing the books of the US government. With a National Debt greater than $10 trillion, this is quite a stretch and an indication of how successfully the public is distracted in a democracy.

The "Big Three" submitted three separate survival plans to Congress:

• Ford wanted a $9 billion standby line of credit in case a competitor fails.
• Chrysler said it needed $7 billion by year's end to keep operating.
• GM asked for an immediate $4 billion as the first installment of a $12 billion loan, plus a $6 billion line of credit to use if conditions worsen.
• Ford's chief executive, Alan Mulally, and GM's chief executive, Rick Wagoner, said they would work for $1 a year if each company accepted government loans. The automakers also offered to cancel bonuses and merit raises. Chrysler said its chief executive had cut his annual pay to $1.
• All three plans included the government getting a stake in the companies that would allow taxpayers to share in future gains if they recover.

Over the last five weeks in Washington, D.C., the argument wasn't about the propriety of feeding on taxpayer money to keep a failing business afloat, instead the question was how much control over the auto industry the federal government would arrogate while doing so.

"If we continue down the path of taking money from more efficient and competitive companies and giving them to companies which are less efficient and in trouble because of bad management and bad decisions, our overall productivity as a country will continue to suffer," said Rep. Spencer Bachus, the top R on the financial-services panel.

Apparently Bachus has changed his view since he voted to bail out poorly managed banks.

House Financial Services Committee Chairman Barney Frank (D-Mass.) proposed extending $25 billion in loans from the $700 billion rescue fund. The loans would be repaid with interest and come with stock options, limitations on executive compensation, and oversight by a government board.

At the climax of the performance, the Senate rejected the bailout. All was resolved as the Bush administration suggested it would use the coveted TARP money to keep GM and Chrysler LLC afloat until new performers and old actors recast in new roles take the stage in January.

This most recent performance of democracy in action, a play with many acts, showed both parties bickering over which pot of taxpayer money to give to the "Big Three" while the three CEOs, the UAW, and the three-headed monster Cerberus, hidden behind the curtains, looked on drooling.

Democracy in action is a lion and a pack of hyenas fighting over a kill. Fellow taxpayers: How does it feel being the zebra in the fight?

The timeline below lists some of the major acts in the play.

____________________________________________

Timeline for Multiple Payoffs while Moving towards Nationalization of "Domestic" Auto Manufacturers

August 23, 2005: Bush administration proposes new CAFE standards for light trucks.

May 3, 2006: DOT secretary Mineta testifies in bureaucratize before the House Committee on Energy and Commerce about "reforming" CAFE standards:

"On March 29th of this year, we completed a rulemaking that replaced the single fuel economy standard with an innovative size-based system...If given the authority to reform CAFE for passenger cars, we will replace the one-size-fits-all system with a size-based system, as we did with light trucks."

Mineta's bureaucratic stroke of the pen may have resulted in the "Big Three" shifting production to larger, less fuel-efficient vehicles to benefit from the change in standards that applies separate fuel economy targets to each vehicle based on its footprint. Larger vehicles didn't sell so well when gas prices went over $3 a gallon this year.

January 23, 2007: In his State Of The Union Address, Bush proposes 20% reduction in gasoline usage in ten years because he knows force is better than the free market:

"Let us build on the work we've done and reduce gasoline usage in the United States by 20 percent in the next 10 years. To reach this goal, we must increase the supply of alternative fuels, by setting a mandatory fuels standard to require 35 billion gallons of renewable and alternative fuels in 2017 – and that is nearly five times the current target. At the same time, we need to reform and modernize fuel economy standards for cars the way we did for light trucks – and conserve up to 8.5 billion more gallons of gasoline by 2017."

May 2007: DaimlerChrysler announces plans to pay $650 to $675 million to sell Chrysler to Cerberus Capital after purchasing Chrysler for $37 billion in 1998. Cerberus may merge Chrysler and GMAC.

August 2007: Cerberus Capital buys an 80.1% stake in Chrysler from DaimlerChrysler.

November 19, 2007: $4 billion sale of loans connected to August purchase of Chrysler by Cerberus Capital will be postponed. The underwriters are J.P. Morgan Chase, Citigroup, Goldman Sachs Group, Morgan Stanley, and Bear Stearns.

Note: Underwriters are all future players in the TARP performance of October 2008.

December 18, 2007: Congress passes Energy Independence and Security Act, H.R. 6, which contains new CAFE standards for the first time in 32 years. Raises fleet mileage standard to 35 mpg by 2020. Bush administration takes credit for pushing bill through. Section 136 (d) of bill provides for $25 billion in loan guarantees:

"(d) DIRECT LOAN PROGRAM.—
(1) IN GENERAL.—Not later than 1 year after the date
of enactment of this Act, and subject to the availability of
appropriated funds, the Secretary shall carry out a program
to provide a total of not more than $25,000,000,000 in loans
to eligible individuals and entities (as determined by the Secretary)
for the costs of activities described in subsection (b)."

February 2008: Steve Feinberg, head of Cerberus, owner of 51% of GMAC and 80% of Chrysler LLC, concerned about GMAC and a $921 million loss in its mortgage business.

April 22, 2008: DOT secretary Mary Peters proposes rule requiring automakers to meet new CAFE standards five years sooner than required by Congressional law:

"Under the proposed rule, the fuel economy on a fleet-wide basis will increase by an average of four-and-a-half percent annually through 2015 – a 25 percent improvement over five years. This standard exceeds the 3.3 percent average annual increase needed to reach the target passed by Congress last year."

June 2008: Cerberus Capital sells more than half of its Chrysler LLC holdings as sales drop. Citigroup-owned Avenue Capital is one of the buyers.

September 3, 2008: Cerberus Capital announces Chrysler LLC car sales down a third in August.

September 24, 2008: Appropriations bill HR 2638 passes House and three days later is approved by Senate. Supplies another $25 billion in addition to what was approved for automakers in December 2007.

October 27, 2008: US Treasury Department planning $5 billion in financial assistance as Chrysler LLC and GMAC work on merger plan.

November 6, 2008: Wagoner, Alan Mulally, and Bob Nardelli in Washington, D.C. to get $25 billion in loans sooner to see them through a 2009 even worse than 2008. Meet with House Speaker Nancy Pelosi.

November 8, 2008: D-leaders House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid send a letter to Henry Paulson, secretary of the Treasury, urging him to use funds from $700 billion TARP money.

November 14, 2008: House Financial Services Committee Chairman Barney Frank's (D-Mass.) loan guarantee bill has virtually no R support in Senate.

November 15, 2008: UAW, automakers, and Ds step up lobbying efforts. The three CEOs return to Capitol Hill to plead their case for bridge loans a second time in two days of congressional hearings.

November 18, 2008: CEOs appear before Senate Banking Committee.

November 19, 2008: CEOs of "Big Three" make their case again before the House that auto industry is running out of cash and needs $25 billion in taxpayer money to avoid bankruptcy and warning that auto industry collapse could lead to loss of 3 million jobs.

November 21, 2008: House Speaker Pelosi says "Big Three" must show Congress a plan by December 2nd.

December 2, 2008: "Big Three" Executives return to Capitol Hill, but don't use corporate jets. Ask for $34 billion in federal loans. Grilled during their previous visit, they retooled their pitches, but not their production lines, promising labor concessions and restructuring just as long as Congress gives them money.

December 4, 2008: Executives appear before Senate banking committee. They mention JP Morgan estimate of a loss of $1 trillion to economy if they fail.

December 5, 2008: Executives appear before House Financial Services Committee.

December 7,2008: President-elect Obama describes a long-term bailout conditioned on federal oversight similar to nationalization of the car industry. Both Rs and Ds reportedly favor a car czar to oversee the auto industry.

December 10, 2008: House approves $14 billion rescue of American automobile industry. Ds speculate that if Senate Rs kill plan, Treasury secretary, Henry M. Paulson, Jr., would be forced to keep G.M. and Chrysler afloat until new Congress begins early next month and D majorities sworn in.

December 11, 2008: Bailout fails in Senate as Senate Rs refuse to support a bill endorsed by White House and Congressional Ds.

December 12, 2008: After refusing to tap $700 billion financial rescue fund, White House says it will dip into fund to permit companies to continue operations until new Congress and President arrive next month.

December 17, 2008: GMAC restructures debt to be considered a bank and qualify for TARP money.

"Mankind will in time discover that unbridled majorities are as tyrannical and cruel as unlimited despots." John Adams in a letter from John Adams by David McCullough, 2001, Simon and Schuster, New York, N.Y. pp 443-4

Pearl Harbor Day

December 7, 1941 is "a date which will live in infamy," according to Franklin Delano Roosevelt. American school children are taught of the sneak attack on Pearl Harbor that day, the likes of which Americans would not see again until the new Pearl Harbor of 9-11.

After the attack, Americans, no longer reluctant to support direct involvement in World War II, willingly surrendered their freedoms to support the war effort. Inhabitants of the land of the free accepted wage and price controls, a draft, rationing, prison camps for 110,000 Americans of Japanese ancestry, and income tax withholding during World War II.

In his speech after the Pearl Harbor attack, referring to Japan, FDR said that "the United States was at peace with that nation." In contrast the book Day of Deceit, by Robert Stinnett, shows a copy of the October 1940 McCollum memo, obtained with a Freedom of Information Act request, which advocates US economic warfare with Japan as a way of inciting Japan to war.

Dean Acheson, Secretary of State during the Truman administration, was Assistant Secretary of State under FDR. Acheson's self-deification in Present at the Creation, his book about his years in the State Department from 1940 to 1953, gives details of FDR's pre-war policy toward Japan, which Acheson characterizes as an economic war against the Japanese:

• "Everyone in Washington wanted in on economic warfare..."[1]
• "Two other potent instruments for helping friends and harming foes... furnishing supplies to our friends with lend-lease and withholding them from our foes by financial freezing orders."[2]
• In August 1940, the US restricted aviation gasoline shipments to the western hemisphere; Japan bore the brunt of this embargo.[3]
• In September 1940, the US limited the export of iron and steel scrap with the exception of to Great Britain. Japan was the principal buyer of American scrap metals.[4]
• On July 26, 1941, the the US froze Japanese assets. Japanese tankers in US ports were unable to buy US oil. The State department was concerned that this measure would drive the Japanese to attack Indonesia for oil.[5]
• Japan considered the US economic measures an "effective weapon" and the cutoff of oil was an act threatening their survival.[6]

Acheson's description of what happened matches the McCollum memo proposal of what should happen to provoke an attack.

Contrary to his 1940 campaign promise to "not send American boys into any foreign wars," FDR and his administration wanted the US in World War II. Acheson disagreed with first US President Washington's farewell address, which bid his countrymen to avoid entangling alliances, calling it "isolationism."[7] Whether or not you believe FDR tried to incite the Japanese to attack the US, whether or not you believe he knew in advance of the attack on Pearl Harbor, FDR did use the attack to get Congress to declare war and most Americans supported the war effort and the resultant sacrifice of lives, wealth, and freedom.

In a time of crisis, people give up their freedoms willingly. The Project for a New American Century (PNAC) predicted a similar effect on page 51 of in its 2000 report, "Rebuilding America's Defenses" (available here in pdf) if a "new Pearl Harbor" occurred. The PNAC group was correct. Many Americans supported the invasions of both Afghanistan and Iraq, the Patriot Act, and the creation of another government bureaucracy: Homeland Security, in the name of (literally) security.

We're in an economic crisis, exacerbated by the wars in Iraq and Afghanistan and by the growth of government spawned by post-911 security measures. There are those who think we'll willingly give up even more of our freedoms for the perception of security, much as Americans did under FDR during the Great Depression and later after Pearl Harbor was bombed.

Are they right?

____________________________

[1]Present at the Creation, Dean Acheson, W.W. Norton & Co., N.Y., N.Y., 1969, p.46.

[2] ibid. pp 46-7.

[3] ibid. p.42

[4] ibid. p.43

[5] ibid. p.49

[6] ibid. p. 65.

[7] ibid. pp. 27-8.

Have You Heard the One About the Constitution?

The old joke behind the Iron Curtain before the Soviet Union fell apart was: They pretend to pay us, and we pretend to work. The American version is: US citizens pretend the Constitution is valid, and Congress pretends to follow it.

In grade school, we're told we are a nation under the rule of law and, as the supreme law of the land, the US Constitution protects the rights of the states and our rights as individuals.

Outside of the classroom, we might be aware as each branch of government continually erodes our Constitutionally-protected freedoms. Recent examples are:

• the Supreme Court Kelo decision,
• Congressional lapses such as the Patriot Act and the various bailouts in vogue,
• sundry Executive intrusions big and small including denial of habeas corpus in the US and at the Guantanamo detention camp, and the 1997 Gore telephone tax.

These get short-lived media play and US citizens gradually forget about them as Big Brother, aka the federal government, grows in power.

The "Constitutional issues" that hold the attention of the media and the public are "safe" issues, mainly R and D bickering. The bickering leads some to think the Constitution is more of a nuisance, something to be gotten around, and not a document that defines and intentionally constrains the federal government.

The most recent noise about Hilary Clinton's (D) qualification for a cabinet office is the latest of the "safe" Constitutional issues that excite the two dominant parties written about nowhere in the Constitution, as they squabble about who is king of the hill for the day.

Recent examples of the "safe" use of the Constitution by one party to harass the other:

• Obama (D) is not a legitimate candidate for President per Article II Section 1 of the Constitution (Arnold is watching this carefully).
• Clinton (D) impeached per Article I Sections 2 and 3 of the Constitution, but not convicted for lying about semi-consummated sexual relations with a federal employee.
• Clarence Thomas (R) confirmed after nomination hearings per Article II Section 2 of the Constitution, where newly nominated Homeland Security chief Janet Napolitano (D) (more change you can believe in), was attorney for Anita Hill (D), who opposed Thomas as a potential sexual harasser. One memorable example Hill gave was his mention of a pubic hair in his Coke (not the real thing).

One Constitutional issue that politicians won't consider, because it truly limits the power of government and their power, is the exclusive Congressional power to declare war. Both parties benefit from the increase of government power and do nothing to jeopardize that power. If Bush aggrandizes the executive office, then Obama can use it when it's his turn.

Consider the recent history of the lack of adherence to Article I Section 8 and the power of Congress "To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water":

• Truman (D), citing UN authority, in 1950 sends troops to the Korean war, fighting the communist North without a declaration of war by Congress. US troops are still in South Korea 58 years later.
• Eisenhauer (R) sends 14,000 troops to Lebanon in 1958 to "fight communism" without a declaration of war.
• Kennedy (D) sends 16,000 troops to Vietnam in 1961 continuing Eisenhauer's policy of "fighting communism" without a declaration of war.
• Kennedy (D) sends 1500 US-trained Cuban exiles in the Bay of Pigs fiasco that led to the Cuban missile crisis. There was no declaration of war, but there almost was a nuclear war.
• Johnson (D), after US-caused Tonkin Gulf incident, uses Gulf of Tonkin resolution to send troops to Vietnam in 1964. US leaves after eleven years and after hundreds of thousands killed. The Gulf of Tonkin resolution was not a declaration of war. (For those thinking Congress can vote for funding without declaring war, refer to US Constitution Article V.)
• Nixon (R) expands the Vietnam war into Laos and Cambodia--still no declaration of war. Vietnam war continues until 1973.
• Carter (D) funds mujahadeen for terrorist activities in Afghanistan against Soviet Union in 1979. During his administration, as in that of his successors and predecessors, US troops remain in Korea.
• Reagan (R) sends troops to Lebanon in 1982-84. More than 240 killed.
• Reagan (R) sends troops to invade Grenada in 1983 without a declaration of war.
• Reagan (R) sends 2000 troops to Panama without a declaration of war.
• GHW Bush (R) sends 24,000 troops to Panama to remove former ally Manuel Noriega from power without a Congressional declaration of war.
• GHW Bush (R) organizes UN-authorized but not Congressionally-declared Gulf War of 1990-91. The US moved troops into the Middle East using the Rapid Deployment Force created during the Carter administration.
• GHW Bush (R) sends troops to Somalia in 1992 to help distribute food for the United Nations.
• Clinton (D) changes the mission in Somalia, and in 1993 has US troops support the UN in nation-building. After the battle of Mogadishu and the deaths of eighteen US soldiers, all US troops were withdrawn. All without a Congressional declaration of war.
• Clinton (D) continued the embargo considered to have resulted in half a million Iraqi deaths and the bombing of Iraq in the "no fly zone" for eight years.
• Clinton (D) authorized the 1995 bombing of Bosnia with no declaration of war.
• GW Bush (R) invaded Afghanistan in 2001. There was no Congressional declaration of war. The war continues seven years later.
• GW Bush (R) invaded Iraq in 2003 to remove former ally Saddam Hussein from power. There was no Congressional declaration of war. The war continues five years later.
• President-elect Obama (D) wants to increase troop levels in Afghanistan. He says he wants to eventually withdraw from Iraq. He has also been mentioning Darfur. More change you can believe in?

Have you heard the one about the Constitution? It's supposed to be the supreme law of the land.

Bread and Circuses

"Bread and circuses," an expression describing people choosing food and fun over freedom, was coined by Roman satirist Juvenal (55-127 A.D) writing about the Rome of his time. Juvenal could have been writing about Americans today.

The populace-distracting circus games of Juvenal's time are today, housed in publicly funded sports stadiums. The publicly-funded new Yankee stadium is scheduled to open next year. A November 30, 2008 NY Times article, "City Pressed Hard for Use of Yankee Luxury Suite," describes how aides to NYC mayor Bloomberg wanted a free luxury suite at the new Yankee stadium for use by the administration. In exchange for a larger suite and free food, Bloomberg gave the Yankees the rights to three new billboards along the Major Deegan Expressway and whatever revenue they generate, and 250 additional parking spaces, originally planned for public parking.

Bloomberg administration officials wanted the best seats in the new stadium, just as the emperor and the Vestal Virgins kept the best seats in the Flavian Amphitheatre, the Colosseum of ancient Rome. The NY Times article describes the observations of a NYC assemblyman: "...what emerges from the e-mail correspondence is a sense of entitlement ingrained in Bloomberg officials."

This sense of entitlement isn't unique to New York city politicians. During the post 9-11 Arizona Diamondback-N.Y. Yankee World Series in November 2001, a handful of Arizona politicians, members of the Maricopa County Board of Supervisors, pre-empted a Valley of the Sun United Way charitable auction of World Series tickets for games one and two. They purchased the tickets at face value and used the tickets for themselves, their families, and their friends.

The Maricopa County Board of Supervisors had approved a sales tax to help publicly-fund construction of the ballpark seven years earlier. According to the Phoenix New Times: "The United Way subleases the stadium suite from the Maricopa County Stadium District, which is overseen by the five-member Board of Supervisors. The lease agreement gave the supervisors leverage to muscle the charity for the tickets."

One of the members of the Board of Supervisors in 2001 with a sense of entitlement to the luxury box seat tickets was Jan Brewer, currently Arizona Secretary of State. If current Arizona governor Janet Napolitano joins the Obama administration as Homeland Security head (more change you can believe in), Brewer will become governor of Arizona. Perhaps the Arizona Diamondbacks will let her throw out the first ball in the season opener.

In 1989, George Bush used the power of his father's public office for personal gain and privilege before he became governor of Texas by becoming a managing partner and part-owner of the Texas Rangers. Two years later, in 1991, when Arlington, Texas voters decided to help pay for a stadium, George Bush could sit wherever he wanted.

If you've ever voted to support public-funding of a sports team, none of this is new: Juvenal was laughing at you almost two thousand years ago. The next time you go to the game, if you look up at the luxury suites, you might see a politician laughing at you, too.

Democracy. Power to the people. Which people?

Other People's Money (Part III)

During the campaign in January of this year, Hilary Clinton proposed to jump-start the economy with a $70 billion stimulus plan and the possibility of $40 billion more.

Barack Obama said: "I'll see you, and raise you $10 billion" when he proposed a $75 billion plan with a possibility of $45 billion in reserves in his January 2008 stimulus plan to jump-start the economy.

President Bush thought even more amperage was needed and asked for $145 billion.

Congress, not to be outdone with other people's money, passed a $168 billion package which Bush signed February 13, 2008, with Rs and Ds looking on admiringly.

In October before the election, McCain vowed tax cuts to jump-start the economy and Obama proposed a $175 billion stimulus plan. The main difference in their approaches was where to clip the jumper cables.

Now President-elect Obama has appointed Paul Volcker, Federal Reserve chairman during the Carter and Reagan administrations, to head his economic advisory board (more change you can believe in). Obama is proposing yet another economic stimulus plan to "jump-start economic growth."

Would you be surprised that his latest plan has increased the stimulus amount?

From a 22 November NYT article:

"Mr. Obama’s proposal would go beyond the $175 billion stimulus plan he proposed in October ... Separately, Democratic leaders in Congress have been calling for a robust economic recovery initiative of up to $300 billion, including major investments in infrastructure to create jobs."

Deus ex machina anyone?

Other People's Money (Part II)

We're taught in grade school that democracy isn't a perfect system, but that it's the best system to determine the will of the people. The publicly-funded Valley Metro Light Rail in metropolitan Phoenix, scheduled to open in December 2008, is an example of democracy in action at the local level, and now at the national level since Phoenix Mayor Gordon wants US taxpayers to subsidize it.

Democracy isn't perfect at determining the true will of the people and the history of the referendums to fund the Valley Metro Light Rail shows some of the difficulties our democratic system encounters:

• In 1989, Maricopa county voters got it wrong, they said no to a sales tax to fund light rail by a margin of 61 percent to 39 percent.
• In 1994, Maricopa county voters got it wrong again when they rejected Proposition 400, another attempt to fund light rail.
• In 1997, Phoenix voters got closer to getting it right ; they were evenly divided, but the proposition to fund light rail failed again 50.2 to 49.8 percent.
• In March 2000, Phoenix voters finally figured it out and approved light rail funding 65 to 35 percent.

In 2003, nine years after the original county-wide vote ended in failure, a resurrected Proposition 400 was planned for the 2004 ballot. Since the voters don't always get it right, at a December 7-9, 2003 conference in Tempe, AZ, politicians, contractors, and transportation lobbyists met to compare notes on how to market light rail to voters to make sure the voters would get it right this time.

The politicians included former Phoenix mayor Skip Rimsza, Mayor Gordon's former boss and predecessor, Peggy Bilsten, former city council member, a Tempe city council member, and various government bureaucrats from other cities with transportation initiatives past and pending. Conference attendees were told, “If at first you don’t succeed, try, try again ... they’ll come around eventually.” Strategies to divide and conquer and keep putting up referendums until they pass, and lessons learned from past referendums in other cities were presented.

Unlike its 1994 predecessor, in 2004 the marketing worked. Maricopa County voters passed Proposition 400 by a 58-42 percent margin and established funding for several future projects including highways and mass transit.

As we all learn in grade school, democracy isn't perfect at determining the true will of the people. What we aren't taught in grade school is that the real question is not, what's the true will of the people, but the will of which people?

Mayor Gordon (seated right), former mayor Rimsza (back row, 3rd from left), and other light rail advocates after funding available

Timeline of Light Rail in Metropolitan Phoenix

1989: ValTrans - Regional rejected

1994: Proposition 400 - Regional rejected

1996: Proposition 400 - Tempe passed

1997: Proposition 1 - Phoenix and Scottsdale rejected

1998: Question #1 - Chandler rejected

1998: Qualify of Life Tax - Mesa passed

2000: Proposition 2000 - Phoenix passed

2001: Proposition 402 - Glendale passed

2004: Proposition 400 - Regional passed

2008: Mayor Gordon ask for US taxpayers to help Phoenix with revenue and infrastructure problems

Other People's Money

On Friday, 14 November 2008, Phoenix Mayor Phil Gordon added the city of Phoenix to the growing list of those with their hands out for taxpayer money after Congress approved a taxpayer bailout last month of wealthy bankers. The mayor is asking for money from US taxpayers to help pay for a city budget shortfall of sales tax receipts of up to $250 million and also to pay for other Phoenix projects, "including transit," for a total of $1.2 billion.

The mayor's timing is interesting because the day before he was at the CityNorth grand opening, which he has championed by subsidizing it with up to $97.4 million over 11 years in sales taxes the developer is allowed to collect and keep.

From Mayor Gordon's website, one can see that he is a proponent of spending taxpayer money on infrastructure:

"As Mayor, Gordon lists his three priorities for the city as: Public Safety, Education and Jobs. He has already chalked up a tremendous record: Light Rail, ASU Downtown, two new downtown hotels, expansion of the Phoenix Convention Center and the passage of a $878 million bond program. The U of A Medical School is headed for downtown Phoenix and, according to The Tucson Citizen, 'Credit for this belongs to UA President Peter Likins, Phoenix Mayor Phil Gordon, and members of the Board of Regents, who hammered out details between two schools that have been traditional rivals.' "

Some more interesting timing is that the controversial light rail system supported by the Mayor is scheduled for completion next month. With a $1.4 billion price tag ($200 million more than what the Mayor is asking US taxpayers to pay), one hopes it doesn't run into the same problem that the Houston Metro is having with bank lease-back deals now in default since insurer American International Group (AIG), which insured the deals with the banks, collapsed.

Final note: "other people's money" is how politicians and developers see it. The other people are you and me.

Change You Can Believe In (Part II)

As the Obama campaign slogan would have you believe, a vote for Obama was a vote against George Bush and his foreign policy.

For those of you in that group, here's a 17 November 2008 article by Guy Raz that might indicate how successful your strategy will prove to be: For Albright and Rice, Josef Korbel Is Tie that Binds. Joseph Korbel was a believer too. Korbel believed in US intervention in other countries to spread freedom. Two of his proteges are his daughter, Madeleine Albright, and Bush's Secretary of State, Condoleeza Rice.

Those who believe in change and Obama will be familiar with Rice and her support of the Bush administration's foreign policy. This Council on Foreign Relations website lists Madeleine Albright as one of many from the Clinton administration who is advising President-elect Obama on foreign policy.

While the article about Korbel tries to draw a distinction between his two students, and Madeleine argues that her foreign policy follows what her father advocated and is different from that of the Bush administration, the differences seem superficial.

Madeleine Albright infamously stated that the ends justified the means when she said it was worth killing 500,000 in Iraq during the US embargo of that nation. Albright was the US ambassador to the UN at the time, and later became Secretary of State in the Clinton administration.

Perhaps the change you can believe in Obama's foreign policy will have Oceania invading the disputed zone in addition to Eurasia?

Change You Can Believe In

The economy is weak because of inflation and the ever-growing national debt. The wars in Iraq and Afghanistan drain money and blood from Americans. As President-elect Barack Obama delivered his election night victory speech, reiterating a campaign message of "change you can believe in," the television showed close-ups of many in an audience filled with true believers in the Eric Hoffer-sense.

What kind of change should we expect?

Both Obama and McCain voted for the October $700 billion bailout of investment bankers. Obama's chief of staff-to-be, Rahm Emanuel, also supported the bailout bill, was on the board of directors for Freddie Mac from 2000-2001, supported the Iraq invasion, and advocates mandatory government service for American youths. Early in his campaign, Obama solicited advice from Franklin Raines of Fannie Mae fame.

Obama's Vice President, Joe Biden, has been in the US Senate for 36 years. He also voted "yea" for the $700 billion bailout for the wealthy.

Obama favors increasing U.S. military forces in Afghanistan; McCain favored the increase of U.S. military forces in Iraq. Both McCain and Obama advocate control of Iranian access to nuclear weapons. Mark Brzezinski was a campaign foreign policy advisor of Barack Obama and is the son of Zbigniew Brzezinski, a founder of the Trilateral Commission and architect of the Carter era policy of funding the mujahadeen of Afghanistan that started the latest blowback mess in America. The foreign policy advisor to John McCain was Mark's brother, Ian Brzezinski.

In their pamphlet, Blueprint for Change, Obama and Biden give more details of the change we can expect:

• On page 9: a $1000 emergency energy rebate to help pay energy bills. This rebate is different from rebates offered by businesses--the US government would take it from oil companies and give it to families.
• On pages 17-21: "shine the light on Federal lobbying and free the Executive branch from special interest influence." Page 21 states that "Obama’s campaign refuses to accept contributions from Washington lobbyists and political action committees" which is casuistry at best.
• On page 25: guarantee affordable health coverage for every American. Guarantees paid for by whom?
• On page 34: help states move to voluntary, universal pre-school. Paid for voluntarily by whom?
• On page 37: "Obama and Biden will reduce oil consumption so that we will eliminate our current imports from the Middle East and Hugo Chavez’s Venezuela within 10 years." Either Obama and Biden use a lot of oil themselves and plan on cutting back, or they are planning on telling others how much oil they can use.
• On page 49: "Obama and Biden will tackle diseases and illnesses that disproportionately affect women." Perhaps only equal opportunity diseases are allowed, or diseases that disproportionately affect men?
• On pages 55-57: increase the minimum wage to $9.50 by 2009 and increase the Earned Income Tax Credit (EITC). The EITC is an income redistribution scheme. Politicians who advocate increasing the minimum wage are apparently unaware that it causes unemployment. This would seem to work against the new administration when they strive to "tackle concentrated poverty" as planned on page 57.
• On page 65: end deceptive voting practices. This "establishes harsh penalties for for those who have engaged in voter fraud and provides voters who have been misinformed with accurate and full information so they can vote." I predict that neither Obama or Biden will ever be prosecuted under this proposed legislation.
• On pages 67-69: plans (in Orwellian doublespeak) to keep a residual military force in Iraq and also remove troops by the summer of 2010. "Military experts believe we can safely redeploy combat brigades from Iraq at a pace of 1 to 2 brigades a month that would remove them in 16 months. That would be the summer of 2010 – more than 7 years after the war began." Does this sound similar to the Vietnamization program of the Nixon administration? The repeated use of the word "would" means it isn't a definite withdrawal plan and leaves plenty of wiggle room for the new administration.
  
• On page 71: refocus the military on fighting in Afghanistan and Pakistan. Since the military is fighting in Afghanistan now, this would be an escalation. Moving into Pakistan would be a new front--like Laos or Cambodia in the Vietnam era.
• On page 75: continue foreign aid to Israel. Business as usual?

Was the change from the frying pan into the fire?

Takings and Teachable Moments

The headmaster at our children's school recently sent parents a message about teachable moments--those opportunities which present themselves, oftentimes unexpectedly, to address issues critical to a child’s education. Two separate moments were mentioned as teachable moments: the upcoming Presidential election and a recent theft of candy by some older students at the school.

The school has high standards and the children were disciplined in a manner consistent with values espoused in the Parent-Student Handbook, the written code of values for the school. The reason given for the punishment was the responsibility of the school staff as educators in partnership with parents to develop each student's moral character. Some adults thought the children were dealt with too harshly.

There were also recipients of the filched candy, so the headmaster's message also stressed the importance of listening to one's inner voice and not going along with the crowd.

I can imagine the reasoning of the children and those who thought what they had done wasn't a big issue--it was only candy, no one would miss it. The headmaster's point of view was that he was upholding the written code of values for the school, and by addressing a problem early, was helping prepare those students when they face bigger issues.

The Presidential election, with both of the major party candidates coming to the finish line is a bigger issue. Both the R and D candidates recently voted for a massive bailout expected to exceed a trillion dollars to subsidize a select group of individuals. At various rallies, sign-shaking supporters cheer as their candidate explains a plan to make their supporter's lives better at the expense of someone else. Each candidate has a plan to take someone's money and satisfy those he thinks more deserving. Is anyone's inner voice whispering to them yet?

Neither R nor D candidate, nor their supporters pay much attention to the US Constitution, a flawed, but written code of rules that's supposed to limit our federal government. Is there any wonder if the students who took that candy are morally confused?

Is there perhaps a teachable moment for adults in all of this?