Walking on the Blade:

What a hoot watching two old war horses, Senators Carl Levin and John Mc Cain, take on two young gunners from  Goldman Sachs during hearings of the Permanent Subcommittee on Investigations, The hearing was held to look into big bank ownership of, major commodities and related infrastructure. A comical political farce, put on for the benefit of the evening news casts, on the major television networks.

In my piece about Uber and post Social Media Regulation, I wrote about regulators trying to catch a train that had already left the station. Here is another example. The good Senators apparently based their venom upon a 400 page report trying to pin down the consequences of the American Mega Banks owning and trading in commodities such Aluminum Coal and Uranium. Unfortunately, the hearing  got side tracked over antics performed by Goldman Management to maximize profits from Aluminum Warehouses in the Chicago area. Goldman did not own the Aluminum Ingots stored in the Warehouses. The facilities are run in accordance with strict LME (London Metal Exchange) regulations that keep track of billions of dollars of commodities, including gold and precious metals owned by all kinds of interesting people. Apparently the ingots (blocks of raw Aluminum) were moved around so as to increase storage charges for large users.   This finding, if correct, represents but a storm in a teacup, on the outer fringe of a what is, maybe, the most shady and profitable businesses in the World, the trade in commodities.

Instead of worrying about American Banks owning physical assets such as commodities, the Senators should perhaps have been asking a far more telling question. Why are there no major commodity trading companies based in North America to investigate or tax?Instead the giant International  companies  are hidden away in Switzerland. the UK and Japan where their operations are shrouded in secrecy and far removed from the prying eyes of US Regulators. These institutions ARE the elephant in the room in any discussion about International trade.

It is strange that the United States no longer has  ‘go to company’ to do its bidding in the trade wars over commodities. By ‘go to’ I mean companies like R.T.Z. (Rio Tinto Zinc) in Britain, whose Chairman, Sir Val Duncan  was secretly charged at the outset of the Cold War,  by the British Government,, to procure a secure source of Uranium in Canada for the countries’ Nuclear Program. Or how about International Nickel, whose Head Office was in New York despite being a Canadian Company that produced most of the Nickel used for U.S. massive arms build up during the Cold War.   And finally perhaps the most significant of all, that of Homestake Mining,  a Gold company, whose relationship with the US Government dated from the 1935 ban on Americans owning gold, and the subsequent payback by means of a government granted  monopoly on Uranium production in New Mexico.

A lot has changed since those halcyon days when business and Government worked together to defeat the common scourge of communism. It was patriotic and profitable while it lasted, but with the  wind-up of the Vietnam War, there was no bogeyman to drive the continued cosy relationship. In its stead the Trading Companies appeared on the International scene.

First out of the gate were the Japanese and the giant consortiums that owned the Steel makers, the engines that drove the Japanese miracle. Giants like Mitsubishi and Marubeni were charged with the responsibility of procuring and shipping the Iron Ore and Coking Coal that fed the new  efficient steel furnaces. These companies became so powerful that they controlled the price and supply of many  commodities by means of long-term contracts with mining companies and shippers. It was quite common for convenient Japanese Seaman Strikes to suddenly start whenever there was an over-supply of raw materials in Japan. When this happened the bulk carriers would simply not show up at ports, triggering force major escape clauses in contracts. Price adjustments were almost impossible to negotiate and so suppliers were often impoverished

Then out of the blue came the Arab Oil Embargo and the Commodity Trading world changed forever.

Into the vortex stepped a man who almost single-handedly invented the spot market  in oil and became one of the richest men on earth. His name was Marc Rich, an American who renounced his American Citizenship, and lived on the lam in Switzerland for the rest of his life.  He was the founder of the giant trading company now known as  Glencore who coined the phrase “walking on the blade” to describe the cut-throat business of unregulated trade in commodities.

Rich traded mainly in oil, but his partners traded in just about any commodity where there was enough spread between the offer and eventual purchase price. They traded with friend and foe alike and even financed the trade were needed (with help from the big banks) For instance these bandits bought oil from Iran and sold it to Israel during the American hostage crisis in Tehran. They also supplied South Africa with oil during the embargo imposed by those opposed to the policy of Apartheid. These high jinks may have been legal in Switzerland, but it was  anathema  to the United States, that was so incensed , that they tried unsuccessfully to have him Rich kidnapped and returned to the US to stand Trial. In an even more bizarre act President Clinton pardoned Rich on his final day in office setting off  a firestorm that continues  to this day.

Small wonder then that the Senators are so touchy about the ownership and trade in commodities. Also small wonder that Merchant Banks such as Goldman Sates are reticent to talk about their role in the commodity business. it’s almost like they are afraid to get caught with their hand in the cook jar.

Believe me  this story, if ever told, has legs. The righteous indignation of the same Senators can only be imagined  if the truth of the gold for oil trade during the current trade embargo with Iran were to be made public.

Will this happen?

Stay Tuned:

 

 

Crusade:

Why is it that leaders so often fail to heed the lessons of history? Is it ignorance or hubris? I suspect both play their part, particularly when it comes to conflicts based  on morals and ethics.  Today we have a classic example of how history is ignored at our peril in the matter of I.S.I.S. and the Syrian Civil War.

I would seem as though we are now fully engaged in a crusade for democracy, a foolhardy and useless endeavor, that will lead nowhere and cost a great deal of money. Worse it could cause thousands of unnecessary deaths among young people caught up in the fervor of the democratic imperative.

The truth about this sorry business lies in the fact that the people’s of the Middle  East, with the exception of the Israelis,  have never been ruled by any form of government even approaching democracy. They are, and have always been, tribal, and for the most part, Moslem. This form of rule leads to autocracy because it is very often the only way to bring peace to warring tribes.  This way of life is not perfect but it seems to have worked well enough for thousands of years.

Why then are we so keen to upset the apple cart and convert millions to our democratic ways?

The lessons of history as evidenced by the failure of the great crusades, on behalf of christianity to terminate the heathen hordes, along with countless other futile attempts to subjugate the Moslems to Christian ethics, should have demonstrated the dangers and the futility of the cause . Our western imposed democracy in Iraq is a cruel joke, going nowhere as in that in Afghanistan that will shortly return to its tribal ways.  More recently, we have witnessed the results of the so-called Arab Spring in Tunisia, Egypt, and Libya, countries  that have now returned to autocracy, after a brief flirtation with social media inspired chaos.

My prime suspect in this charade is N.A.T.O. (the North Atlantic Treaty Organization) a colossus, armed to the teeth, with no mission now that it has retreated from Afghanistan.  As we are witnessing in Ukraine, there is nothing more dangerous than highly paid,arrogant bureaucrats and generals, with huge resources at their disposal, with nothing to do. In the Middle East N.A.T.O.  may have found a never-ending cause.

Syria and I.S.I.S. maybe irritants to our Judo-Christian sensibilities, that attract the lunatic fringe, good and bad, of our society. Tragic though this maybe, it is high time for the rulers in North America to grow up and realize the limits to our powers to  re-make the World as our effigy. It may also time to limit the powers, or disband, international organizations that have outlived their intended functions.

My advice would be to leave the Arab people alone.  Over time and particularly through the auspices of social media, they will come to the inevitable conclusion that there is more to be gained by interaction with the West than there is hammering away at idea-logical differences. To whit the experience with Iran. The sanctions imposed by the United States may hurt, but the religious leaders know full well the limits of their power, in continuing to subjugate the young people in the face of the social media blitz. So the West will likely gain a favorable outcome at fraction of the monetary and human cost of an Iraq or an Afghanistan.

So ends this week’s rant.

Stay tuned.

 

Uber Uber :

I recently read an advertisement  in the weekend edition of the Globe and Mail placed by the Taxi Commission of Vancouver. The content took the form of a rant against the use  of Uber the online taxi alternative now spreading like wildfire across cities in North America.

Regardless of efficacy and details, the intent of the tirade was the maintenance of a profitable over-priced monopoly service controlled and regulated by municipal politicians.

It seems Monopolies or Oligopolies, when tightly controlled by government, are deemed fit for the public good but when uncontrolled, suddenly change their spots and become villains of the peace.

But my rant du jour this week is not about monopolies or oligopolies, although I am sorely tempted to poke fun at the duplicity, of our thinking. Rather it is about destructive technology that is changing our way of life, leaving politicians and regulators trying to catch a train that has already left the station.

It would seem we in the Western World are about to witness the start of ‘the mother of all wars’ to be waged over regulation of the Internet. This titanic struggle has been looming ever since 9/11 but has gained immediate momentum by the introduction of Netflix and other online content that is challenging the oligopolies granted by governments to cable companies and broadcasters.

The term Net Neutrality is a bunch of gobbledygook, something that was the dream of those wonderful  geeks that invented the concept of The World Wide Web. Stripped of the hyperbole, what the internet has done, has been to throw down the gauntlet to the rulers (the Elite) that the ruled, can, and will, circumvent their authority when it suits them.  To the elite this is a form of anarchy.

Worse than deemed anarchy is the undeniable fact that the internet has created a system that is, for the most part, misunderstood by  rulers and regulators leaving them utterly bewildered as to what to do about their loss of power and influence.

The  Vancouver Taxi situation is typical. The regulators know that enterprising young millennial(s) are using the net to catch a ride close to a desired location at a fraction of the cost of a cab ride.

But what to do about it? The commission can, and does, cajole and threaten users, but without the approval of the gate-keepers (ISPs) they are powerless to stop the practice. Worse by trying to stop users  they risk empowering a counter-culture that will encourage even  greater usage.

This is what happened with the music recording industry, and is about to happen with online streaming.  For instance users of Netflix in Canada and the UK can circumvent delays, dictated by regulators to protect their oligopolies, by using free software available on the net. Since users of these programs are not pirating signals the originator has no interest in helping the gate keepers to keep control of the situation.

This kind of practice is considered by the elite as theft or piracy that implies illegality. I am not so sure this explanation fits all the hundreds of applications that are available, nor does it explain the real reasons why regulation is deemed to be so vital.

Somehow the words quality and price  are nearly always missing in the argument for greater control and outright regulation. Instead  we are bombarded with Fear messaging.  Fear, if we digress from the norm the sky will fall. Fear if we do not listen to the elite we will pay a terrible price. We cannot, it would seem engage in rational discussion about the internet without the introduction of fear.

The reasons for this fear mongering, is the discovery, following the tragedy of 9/11, that it is a lot easier to govern by fear than by rational debate of the issues. This is a lot like a repeat of the practice of the Catholic Church that ruled by fear of eternal damnation for nearly two thousand years. The difference, is this case, is that because of the internet the rulers are powerless to stop innovation that is driving the bus.

So war is coming and it will be long and drawn out with many battles and much confusion.

Stay tuned.

Distrust of the Elite:

I recently heard David Brooks, a Canadian born American,  columnist for the New York Times, and the most astute commentator of the current crop of journalists, opine on the likely outcome of the upcoming mid-term elections in the United States. Amongst other points David said the American Electorate was confused and extremely distrustful of the elites, of which he himself was included, to the point where there was little chance in dissipating the current gridlock in Washington.

I take this to mean voters have stopped listening to their leaders, or would be leaders, who have in the past, qualified as elites. If this is indeed the case we should not be surprised. The days of political leadership are long gone, leaving vindictive attack ads in their wake. Vast sums of money spent on this form of propaganda, have all but shut out rational debate of the issues, to the point where the electorate has tuned out.

Policy wonks would have us believe that the electorate is driving the issue of a great divide between those who want less government and those who want more.  This I suggest  is a highly simplistic way of looking at a very complex matter.

The real problem, it seems to me, is that the elites have promised the moon and failed to deliver. Globalization has reduced rather than increased the standard of living for all but a few, and the wreckage of the credit crisis has made matters a lot worse for a great swath of the population.

What  would a leader like FDR ( a super elite) say today, 75 years after his inauguration speech at the depth of the Great Depression “Trust me, things will get better,” or maybe “That guy Hoover is an idiot” I don’t think so. Rather I think he would lead from the front, rather than the rear and would not promise more than could safely be delivered. When your at the bottom of hole a chicken in every pot does not sound so bad.

The New Deal was a grand experiment advocated by another super elite, John Maynard Keynes (the British Economist) It was far from perfect but at least gave hope to the millions of unemployed. Did it work? Well, sort of.  We will never know how well, because the advent of the Second World War set in motion, a controlled economy that guaranteed work or military service for all.

Fast forward to today and we have another grand experiment. This one involves flooding the World with money and liquidity, the likes of which has never been seen. Has it worked? Well, sort of.

For now printing bags full of money appears to have helped the largest economy in the world by creating high asset values (maybe an asset bubble) as evidenced in ever rising  housing and share prices.  But a closer look reveals a different picture. Printing money has helped the rich but not the lower-income members of society.  Millions remain under employed and struggling to make ends meet, It’s almost like the reverse of the New Deal that helped the poor at the expense of the rich. Income disparity is now the hot buzz word of the intellects  where everybody is portrayed as working for Wal-Mart   or MacDonald’s  and loving it.

This is a puzzlement that will have to be solved if the ship is to righted.  Why not try Tax Reform? There is no better subject for a rant du jour than tax  reform, particularly when it applies to income disparity. Surely its’ time to admit that the graduated income tax as a tool of social policy has failed miserably. If the elite are willing to gamble trillions on Quantitative Easing why not try a Negative Income Tax as  advocated by Milton Friedman to stimulate spending by the less fortunate. Such a modest effort could be financed by an adjustment to income deductions for the middle class. Unlike a lot of other hair-brain schemes it is almost certain that such a program would work, and quickly. Since it would affect consumers in the bottom third of income brackets it would also go a long way to dampen the fears of deflation and the dreaded Japanese  Disease.

It seems to me that Negative Income Tax could be fertile ground for compromise between left and right, and foster broader tax reform that is so desperately needed in most of the Industrial World.

Will it happen? Maybe.

Stay tuned