The more we learn about Obama’s trade deal, the worse it looks

Posted on by j.giglio

The Trans-Pacific Partnership (TPP) is a mega free-trade pact that would link 11 Asian countries and the Americas. The member countries have nearly 800 million people, an annual gross domestic product of about $28 trillion and they account for 40 percent of the global economy and one-third of world trade.

That’s the good news. But there are plenty of things about this deal that should give us pause.

TPP has been negotiated in secret since 2009. According to Vermont Sen. Bernie Sanders, the minimum wage in Vietnam- one of the parties to the deal- is 56 cents per hour.

TPP is the economic cornerstone of President Obama’s pivot to Asia. China is not part of the deal. Indeed, the pact is seen as a way to bind Pacific trading partners closer to the United States and counter China’s growing power in Asia.

Prospects for approval advanced last week with the Senate’s 62-37 vote to give this president and his successor so-called trade promotion authority, also known as “fast-track.” This authorizes the president to negotiate the trade agreement and bring it back to Congress for an up or down vote – no amendments or filibuster allowed. And you thought legislative power was vested in Congress. This approach is taken because if Congress were to amend the trade package, it would have to go back to the 11 other countries for approval.

The battle now shifts to the House of Representatives, where a tougher fight is expected. The president’s effort to pursue TPP has split his own party due to labor’s concerns that previous trade deals have cost jobs and depressed wages for American workers competing with low-wage countries.

The draft TPP document is under wraps. If lawmakers want to read it, they and a staff member can go to a security office in the Capitol as long as the staff member meets certain security requirements, but they cannot discuss the details of what they read.

Industry executives and their lobbyists, on the other hand, have had direct access to the text, advising administration negotiators on terms and provisions while the public is excluded from reviewing the draft. It’s not exactly a process that rewards collaborative behavior and promotes transparency.

What the public has learned about the TPP has come from documents publicized by Wikileaks. About 18 months ago, Wikileaks published a draft of the “intellectual property” chapter of the text that would likely lead to higher drug prices because the pharmaceutical industry gets stronger patent protections, which would delay cheaper generic versions of drugs.

Even better, an “investor-state dispute settlement” (ISDS) provision would allow multinational corporations to sue countries over laws that might reduce the corporations’ “expected future profits.” Foreign investors can also sue if a regulation gets in the way of their ability to profit from an investment. Picture Phillip Morris suing Australia for passing laws to discourage children from smoking.

And the court ISDS creates to hear such a suit consists of three private-sector attorneys serving as judges.

Sen. Elizabeth Warren, D-Mass., is especially concerned that allowing foreign companies to sue national governments in special tribunals would infringe upon American sovereignty and could unravel financial sector regulations. The president played junkyard dog on her in an interview with Yahoo Politics when he said: “Elizabeth is, you know, a politician like everybody else. She’s got a voice that she wants to get out there. And I understand that. And on most issues, she and I deeply agree. On this one, though, her arguments don’t stand the test of fact and scrutiny.”

The more you learn about the TPP, the worse it looks. Is it any wonder that the draft has been kept under lock and key?

Perhaps the only thing more improbable than the Seattle Seahawks passing on second and goal from the one-yard line in the Super Bowl is the notion that the American public benefits from the lack of transparency surrounding the Trans-Pacific Partnership.

originally published: May 30, 2015

Time to limit immigration of low-wage workers

Posted on by j.giglio

Politicians often remind us that we are a nation of immigrants. For much of America’s history,
immigration strengthened the nation’s economy. But that’s far less clear today.

In an era of global competition, the intake of low-wage immigrant workers who benefit big businesses at the expense of workers by depressing wages and increasing income inequality should be limited. The  war on terror also raises concerns about just who is coming to our country.

The French philosopher Auguste Conte is reputed to have said “demography is destiny.” American demographics have certainly changed dramatically over the last several decades.

According to the Census Bureau, in 2013 there were 41.3 million immigrants (legal and illegal) living in the United States, an all-time high and double the number in 1990, nearly triple the 1980 number, and quadruple the 1970 count of 9.6 million. Immigrants make up nearly 13 percent of the population, the highest share in 93 years. In 1970, fewer than one in 21 residents were born abroad. Today it is about  one out of eight.

When you add in their U.S.-born children, this group numbers about 80 million, or one-quarter of the overall U.S. population. The U.S. represents the destination of choice for the world’s migrant population. With less than 5 percent of the world’s population, we attract nearly 20 percent of its migrants .

In 2013, close to 47 percent of immigrants (19.3 million) were naturalized U.S. citizens. The remaining 53 percent (22.1 million) included lawful permanent residents, legal residents on temporary visas such as students and temporary workers, and illegal immigrants. The latter category is estimated at 11-12 million and represents about 3.5 percent of the American population.

Mexican-born immigrants accounted for approximately 28 percent of all immigrants to the U.S., making them by far the largest immigrant group in the country. India was the second largest, closely trailed by China, the Philippines, Vietnam and El Salvador. All told, the top 10 countries of origin accounted for about 60 percent of the immigrant population in 2013.

The demographic diversity of today’s United States is in many ways a direct result of the Immigration and Nationality Act amendments of 1965, which shifted U.S. immigration policy from a historic ethnic European population bias to one that favored a new stream of immigrants from developing countries in Asia and Latin America. Under the old system, admission to the U.S. largely depended upon an immigrant’s country of birth. The new system eliminated the nationality criteria and family reunification became the cornerstone of immigration policy.

The act was shepherded through the Senate by Ted Kennedy and signed by President Johnson at the foot of the Statue of Liberty on October 3, 1965. At the signing Johnson said, “This bill we sign today is not a revolutionary bill. It does not affect the lives of millions. It will not restructure the shape of our daily lives.”

But the law did change the immigration flow. For example, the European and Canadian share of legal immigration fell from 60 percent in the 1950s to 22 percent in the 1970s. By contrast, the Asian share of legal immigration rose from 6 percent in the 1950s to 35 percent by the 1980s and 40 percent in 2013.

Years later, Theodore White, the Pulitzer Prize-winning journalist and historian called the legislation “noble, revolutionary and one of the most thoughtless of the many acts of the Great Society.”

The evidence now suggests that immigrants are entering the U.S. faster than the economy can absorb them. An oversupply of low-wage immigrant workers has saturated the job market and depressed wages, thereby exacerbating income equality and the wage stagnation that has been a fact of life in the United States for over 40 years.

The time has come to tailor American immigration policy to the 21st century and put the economic interests of American workers at the center of immigration policy. For starters, this means limiting the entry of low-wage workers before the second coming.

originally published: May 23, 2015

When multiculturalism clashes with women’s rights

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Some forms of the multiculturalism many Americans favor can only intensify the challenge of reducing the various forms of gender discrimination still common in mainstream America. Consider the insistence by some groups that the cause of multiculturalism is best served by granting special “group rights” to cultural minorities (especially those composed of non-European immigrants) to help them preserve their distinctiveness in a society that emphasizes the white bread, homogenized, sitcom ideal of “real America.”

The problem is that part of the distinctiveness of these minority cultures sometimes stems from their traditional abuse of women by permitting oppressive practices such as forced marriage, female genital mutilation, and physical abuse. While we condemn atrocities done to women abroad, we largely ignore or rationalize discrimination at home.

Rosa Parks must have been spinning in her grave in 2011 when we learned that a Brooklyn public bus catering to a predominately Orthodox Jewish ridership had special rules requiring all women to sit in the back of the bus. Also, signs written in Hebrew and English directed women to use the back door during busy times.

Closely related, last month, a New York-to-London flight was delayed by an ultra-Orthodox Jewish man who refused to sit next to a woman because his religion precludes him from sitting next to a woman who is not a family member. The woman agreed to move. It wasn’t the only such incident of its kind. It’s another example of religious rights trumping a woman’s civil rights.

Apart from numerous instances of domestic violence and discrimination justified by religious beliefs and cultural practices, we witness the closing of the academic mind when Brandeis University last year rescinded its offer of an honorary degree to the Somali-born Ayaan Hirsi Ali because of her scathing criticism of Islam.

She experienced it firsthand when she says she underwent female genital mutilation at 5 and was targeted by the same Islamic militant who murdered Theo van Gogh. A note was pinned to his body saying she was next because of her criticism. For sure, Ms. Ali, author of the memoir “Infidel,” is a controversial public figure who has spoken and written powerfully about the culture of oppression affecting women in the Islamic culture at great personal danger. But universities are supposed to be about learning more, not less, and entertaining dissenting views.

Any government action to preserve these discriminatory practices among minority groups living in America is no more defensible than officially sanctioning discrimination in any form. Such actions would interfere with the already too-slow process of weaning mainstream America away from its historical patterns of male-imposed discrimination against women.

Government should insist that everyone living in the United States observe and obey all American laws regarding human rights without regard to membership in certain cultural minorities, religious sects or golf clubs. In short, no special treatment for any group that seeks to defend its abuse of women because it’s part of the group’s cultural distinctiveness.

Put differently, immigrant cultures with ingrained behavior patterns that are contrary to prevailing secular humanist views about the rights of women should not be tolerated. Such groups should not be exempt from American anti-discrimination laws. Minority groups living in America should not receive special rights to discriminate against women as a means of preserving their cultural distinctiveness.

The special rights case for allowing U.S. minority groups to continue practicing their own brand of discrimination against women is claimed by adherents as being consistent with liberal principles. Their main argument seems to be that liberal values require (among other things) tolerance and respect for diverse cultures.

If such tolerance and respect are to have any practical meaning, the practices of these diverse cultures must be consistent with tolerance and respect for all people.

Indeed, one argument for expanding women’s rights in America could well be its potential for restricting the ability of certain religious or cultural groups to encourage discrimination against individuals for reasons such as gender, race, sexual preference, lifestyle or business practices.

Feminism, therefore, could turn out to be nearly as liberating for men as for women.

originally published: May 16, 2015

The allure of Wall Street’s lusty pleasures

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Many people believe that a relatively few individuals were the real villains behind the financial heart attack of 2008: Those on Wall Street; in banks and other financial institutions; on the faculties of the nation’s leading graduate business schools, writing financial jabberwocky for small-circulation journals; setting policy in the West Wing of the White House and on Alan Greenspan’s Federal Reserve Board.

It’s popular to believe they hijacked the free market ideal because they could. It was American as handguns. They then proceeded to twist it to serve personal agendas at great cost to the. American people. Enough financial violence was done to make Attila the Hun look like Mother Teresa.

Some of these hijackers could have been hopeless psychopaths whose brains were wired in such a way that they actually got more pleasure scamming $10 from widows and orphans through elaborate Times Square shell games than by honestly earning $100 selling Bibles door-to-door.

In fact, everything needed to understand them is contained in several film noir classics.

Presumably, the only defense against such psychopaths is to isolate them before they can do too much damage. But the overwhelming majority of those assumed to have turned the free market ideal into a rip­ off of the American public probably started as fundamentally decent individuals, as morally straight as church deacons.

So what turned these Boy Scouts into shameless hustlers eager to sell their mothers 10 times over for a fast buck? The answer is clear enough to anyone who’s ever been bedazzled by Billy Wilder’s corrosively breathtaking  1944 movie “Double Indemnity,” with Barbara Stanwyck’s pathologically definitive scarlet woman promising poor schnook Fred MacMurray riches and sexual ecstasies beyond his wildest dreams if he helps her with a murderous insurance scam, all while working her own angles and making her own rules. If only he would bend a few rules. Just a little. Even for a short time.

Now imagine Stanwyck is America’s free market and MacMurray  is the Wall Street schmuck who should have known better.

Money and sex are hopelessly tangled in the male consciousness. So when a scarlet woman strutting in capitalism’s strapless red gown turns her wet-lipped allure loose on them and moves in close enough to fill their lungs with her dizzying perfume, what hungry Wall Street player is strong enough to resist her? Or even care when their homes and hearths and panoply of family values go rushing down the drain?

And if worse comes to worst, they can always stand up in court and plead the equivalent of Adam’s excuse when God scolded him for having eaten the forbidden fruit.

Barbara Stanwyck’s definitive portrayals of scarlet women throughout her .long career make these performances especially relevant in helping us appreciate why so many men in our male-dominated society remain confused little boys who get sex and money all mixed up. They become ·ready prey for the allure of money and power and all too eagerly sacrifice their careers, families, and very lives for the promise of a tainted dollar.

To our good fortune, many of these classic films noir are now available on DVDs and various video ­ streaming services. So be on the lookout for “The Lady from Shanghai,” “The Maltese Falcon,” “Out of the Past,” “Touch of Evil,” “The Killers” and many others.

Nothing beats movies from the classic noir era when it comes to exploring the darker side of human nature and providing us with psychological insights into why so many Americans are driven to behave like schmucks. Or at least they offer some convenient and reassuring explanations. 

originally published: May 9, 2015

How Wall Street execs cook the books

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One reason no one much likes corporate America these days is executive compensation. The subject is rarely out of the headlines and serves as compost for many articles and books written in pornographic detail.

CEO compensation discussions have struck a particularly pessimistic note since the 2008 financial crisis, when the high cicerones of finance rolled the dice, pocketed their winnings and relied on taxpayers to make the markets right again.

In the 1970s and ’80s, public corporations began adding stock options to already generous CEO salaries and bonuses, with the hope of giving them an incentive to boost corporate fortunes as measured by increases in the company ‘s stock price. Instead of promoting shareholder interests, the approach has created an incentive for executives to manage corporate resources to maximize management’s wealth.

Overall executive compensation jumped from a median of $1 million in 1980 to $10.8 million in 2013 for CEOs of companies listed on the Standard & Poor’s exchange, with stock-based compensation accounting for two-thirds of median CEO compensation. The ratio of executive pay to that of average workers has grown from 29.9-to-1 in 1978 to 295.9-to-1 in 2013.

American firms spent nearly $1 trillion last year on stock buybacks and dividends that elevate a firm’s stock price to new highs and help fuel a bull market in which captains of industry flourish regardless of a company’s underlying health.

For example, several weeks ago, General Electric announced that it will return $90 billion to shareholders through a series of dividends and share buybacks. Apple pursued a $90 billion stock buyback last year, Exxon Mobil spent $13 billion on stock repurchases, and IBM has spent $108 billion on buybacks since 2000.

But there are clouds. Does this strategy make productive use of the firm’s resources and create long­ term value? Should increased CEO compensation be tied to improvements in firm performance that result from factors such as low interest rates or an expanding economy that have nothing to do with an executive’s performance?  What is the overall impact of this incentive for senior management to “manage earnings” or to artificially  inflate profits?

Here’s how it works:

“Why do you suppose professional athletes are forbidden from betting on the games they play in?” “That’s easy. So they won’t be tempted to make their bets pay off by shaving points and so on.” “And yet we allow senior executives to bet on their games.”

“By buying stock in the companies they run?”

“Sure. We even encourage that kind of betting by showering them with stock options.”

“Even as they can manipulate the final score by cooking the books to drive up the company’s stock price.”

“All in compliance with Generally Accepted Accounting Procedures. So shouldn’t we prohibit managers from buying and selling stock in their companies, just like we prohibit professional athletes from betting on the games they play in?”

“Makes sense when you put it that way. How would you pay them?”

“Give them big cash salaries, plus generous bonuses based on how profitable their companies are over a longer period like five years. In other words, they don’t get paid for making decisions; they get paid for living with the consequences of their decisions. As an incentive for them to manage their companies wisely.”

“So their bonuses would be deferred?”

“Yes. That’s what you want -to encourage them to manage for the future.” “Not to mention removing the incentive to cook the books.”

“That goes without saying.”

There may be some cause for optimism. In an effort to restore public trust, the 2010 Dodd-Frank financial legislation gives stockholders of public corporations an advisory vote on the pay packages of CEOs and senior management. This power, known as “say-on-pay,” is a baby step toward reining in excessive CEO compensation that is disguised as performance based.

Perhaps it would make sense to make this provision mandatory. Sunlight, as the saying goes, is the best disinfectant.

originally published: May 2, 2015

Greed isn’t the only game on Wall Street

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Anyone who has read the surfeit of books on the meltdown of the financial system will know that the burden of patience chiefly falls on the reader. The authors, whose lives were barely buffeted by the Great Recession, seem infinitely addicted to the notion that lust for short-term profits was the major contributing factor in the lead-up to the 2008 financial crisis.

The reason we know this is because they keep telling us.

Greed is always a popular scapegoat when something goes wrong. We assume it’s inherent in human nature; ubiquitous. It’s embedded far more deeply in the American capitalist system than are the benefits that flow from resisting the temptations of immediate gratification..

However inherent greed may be, lost in the frenetic discussion is the notion that it takes particular incentives to make it burst forth in full glory. These perverse incentives are an essential point that is often overlooked.

On a macro level, are government housing policies flawed for providing incentives to borrow too much to buy a home? Do U.S. tax policies promote short-term investment? Are stock option-based executive compensation schemes promoting a fixation on quarterly earnings?

Let’s consider two simple examples. Suppose you hire me to sell your line of Christmas cards door-to­ door and offer me a lucrative commission on the retail price of all the cards I sell. Do I have an incentive to push the cards that generate the highest profits for you or to push the ones that can generate the highest retail sales volume, even if they’re loss leaders?

You already know the answer to that one. Now, let’s switch places.

Suppose we work on Wall Street and I hire you to sell the glitzy derivative securities our brilliant rocket scientists have packaged up from pools of solid and not-so-solid home mortgages. And your year-end bonus -which can often be the largest part of your compensation – is based on the dollar volume of these securities you’ve sold during the year.

Is this arrangement likely to make you act responsibly, to sell high-priced derivatives backed by not-so­ solid mortgages only to savvy investors who understand the risk that accompanies their higher yields, while focusing on selling less-savvy investors the lower-price derivatives that offer modest yields but are backed by solid mortgages? Or does it reward maximizing your sales volume, pushing the high­ priced derivatives across the board by touting their “fabulous yields” without mentioning the risk?

You know the answer to that one, too.

So when judgment day comes and the value of all those risky  high-priced derivatives collapses, leaving stunned investors holding the bag, are you at fault because you gave in to your inherent greed? Or am I the culprit because I gave you an irresistible incentive to push toxic, high-priced derivatives to all and sundry, never mind the consequences?

Many of you remember Gordon Gekko’s “Greed is Good” speech from Oliver Stone’s 1987 movie, “Wall Street.” Greed is a powerful tool; only the desire for more, more, and more and to get ahead generates economic growth. But there’s a much more articulate and compelling defense of greed in Ayn Rand’s classic libertarian novel, “Atlas Shrugged” in which entrepreneur John Galt insists that greed is the only thing we can really depend on to move society forward.

Or is all this just the old story of Satan conning Faust to sell his soul?

Good intentions alone cannot constrain greed. If government and business fail to provide the right kind  of incentives to channel legitimate self-interest, capitalism is as appealing as letting a pack of rabid dogs loose on the American worker. Until the incentives are changed, the hard truth is that most of you should reach for your wallets.
 

originally published: April 25, 2015

General Electric’s shift is a light bulb moment for economy

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Last week General Electric announced plans to drastically downsize GE Capital, for years a key earnings driver, to focus on its core industrial businesses that range from jet engines to medical devices. The company will shift away from running the diversified financial services firm that wiped billions off its balance sheet during the financial crisis and escape the post-financial crisis regulatory burden that has weighed down GE’s stock price.

A company statement noted that “The business model for large, wholesale- funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward.” In other words, this business is the financial equivalent of a boxer who has taken way too many shots to the head.

Over the next two years they plan on selling off most of GE Capital, the country’s seventh largest bank holding company with about $500 billion in assets. Part of the strategy involves selling off $165 billion of loans and a $26.5 billion portfolio of commercial real estate investments and loans.

As GE CEO Jeff Immelt explained in a CNBC interview, “You really have a perfect market to be selling financial service assets … you’ve got slow growth, low interest rates, lots of liquidity, people searching for yield.” He added: “We think it’s good for the regulatory world, it’s good for investors and that’s been more or less recent. Now’s the time to do it.”

After the 2008 financial crisis, GE began surgically pruning GE Capital, which was founded in 1933 as a subsidiary of the General Electric Co. to provide consumers with credit to purchase GE appliances. The firm sold its domestic consumer finance business last year and earlier this year it sold its lending units in Australia and New Zealand.

Last fall, Immelt announced that the firm planned to reduce the size of GE capital to represent about 25 percent of the company’s earnings, down from nearly half at its peak. Under the new plan, GE Capital will account for less than 10 percent of profits by 2018.

But the company plans on retaining key units like GE Capital Aviation Services, Energy Financial Services, and Healthcare Equipment Finance. These financial operations provide GE with an advantage over its global competitors in these market segments by helping customers finance equipment purchases from the company.

For example, customers want GE CT scanners, MRI equipment and other medical devices because they are high-quality products that offer cutting-edge technologies. But they also want GE’s Healthcare Equipment financing arm to help fund a large capital outlay because it can give customers cheaper access to money. Each GE business benefits from the ability to provide customers with tailored financial solutions.

The firm is reshuffling GE Capital’s financing portfolio with an awareness that certain financial resources are integral to the success of its core businesses.

The firm also announced that it will pass some of the proceeds from scaling back GE Capital on to shareholders in the form of a share buyback program.

The company believes that buying back up to $50 billion of its own shares will help rejuvenate its moribund stock price and regain favor with investors, who have been complaining that GE’s stock has been stagnant for over a decade.

Investors loved the strategic move and sent shares up 11 percent. But even after the bump, GE’s stock price is down 22 percent over the past decade while the market as a whole is up 73 percent.

These returns are a far cry from those delivered so brilliantly during Jack Welch’s two-decade tenure as CEO, when he captured Wall Street’s fancy by delivering a 23 percent per annum total shareholder return and increased the firm’s market capitalization from $18 billion to over $500 billion. As the good times rolled, this performance made GE the most valuable company in the world-by 2000.

Only that great sculptor Time will tell if GE’s latest strategic shift will yield similar returns.

originally published: April 8, 2015

Fast food food fight

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Fourteen years after the publication of “Fast Food Nation” by Eric Schlosser, with its fierce indictment of the industry, consumers prefer a healthier brand of fast food. This is especially true of millennials, those 18-to-34-year-olds who have increasingly busy work lives and eat out a lot.

This spells trouble for traditional fast food restaurants like McDonalds, which need to make up for lost time when it comes to adjusting to new customer preferences.

In addition to wanting the convenience of paying for purchases with mobile devices, this generation’s preference is for locally and humanely sourced meats, seafood, and produce; natural ingredients; and freshly prepared, bespoke food.

Fast food behemoths such as McDonald’s have dominated the fast food landscape for decades with an industrial model defined by providing cheap and convenient food in a way that maximizes volume and reduces costs.

McDonald’s has been around for more than 60 years and operates more than 36,000 restaurants worldwide, of which about 14,000 are in the United States. The company feeds nearly 69 million customers in over 100 countries each day. While the beef and potatoes may not be locally sourced, more than 80 percent of their restaurants are franchised, owned and operated by independent local business persons.

McDonald’s named a new CEO last month amid a worsening sales slump. In 2014, the firm posted one of its worst performances in years. Revenue fell 2.4 percent to $27.44 billion as net income declined 15 percent to $4.76 billion. It was the first time both measures have declined in the same year since 1981. Its same-store sales, a key metric for restaurant chains, fell by a stunning 4 percent in the United States and 1.7 percent worldwide, which suggests that interest from existing customers is declining.

One major factor contributing to McDonald’s disappointing performance is its failure to evolve with a new generation that has different attitudes about what they buy and how they buy it. The changes add up to a new playing field for traditional fast food firms. Being slow to respond to changes in customer tastes has created an opening for so-called fast casual restaurants that have responded to changing expectations of what fast food can be.

Restaurants like Chipotle and Panera offer fresh ingredients and customized food at prices that are higher, but still affordable. While these restaurants still make up a much smaller portion of the market than their traditional fast-food counterparts, they have grown very quickly, spreading like kudzu across the land. A food fight is brewing for sure.

The three largest segments of the restaurant industry are full service, fast food and fast casual. While the fast casual segment is the smallest of the three, it accounts for $34 billion of the overall $710 billion restaurant market. It is also the fastest-growing segment, with an 11 percent growth rate. And while the average McDonald’s customer spends about $5 a visit, the average Chipotle customer spends more than twice that amount.

McDonald’s and the other traditional fast food firms will have to make some difficult decisions if they hope to attract regain their historical rate of revenue growth Millennials, that fast-growing demographic of young, single, health conscious professionals who earn above-average incomes and eat out twice a week or more, represent a gold mine of sales and profits. Appealing to such new market segments may well require McDonald’s to develop its own fast casual concept in the United States.

One thing is for sure, when it comes to satisfying changing consumer tastes and expectations, announcements like those recently made by the McDonald’s new CEO that all the chicken served at its restaurants will be free of antibiotics used to treat humans and that the 120 menu items in its 14,000 United States restaurants will be rationalized are unlikely to do the trick.  

originally published: April 4, 2015

An inconvenient fix to America’s immigration problem

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Most of the discussion about our broken immigration system centers on those who enter the country illegally over the porous 2,000-mile southwest land border that stretches over four states. But that is only a partial picture of illegal immigration in the United States.

Overlooked in the discussion are the security risks presented by the estimated 40 percent of the 11 to 12 million unauthorized residents who came here legally, then stayed after their student, business or tourist visas expired. In other words, these immigrants did not jump a fence, cross a river, or pay to be smuggled into the country. To borrow Vice President Biden’s words, “This is really a big deal.”

The number of visitors who come to the United States legally each year but pose a potential national security or public safety threat is unknown. Under current law, those who overstay their visas are committing only a civil violation of federal law, while those who sneak across the border are committing a federal crime.

Addressing the large number of foreign visitors who have entered the United States legally but then overstayed has been a long-standing challenge. Tracking the arrival and departure of foreign visitors is an essential part of protecting Americans from those who would do us harm.

While the Department of Homeland Security takes fingerprints and photos of foreigners who enter the United States, their ability to track immigrants who stay past their visa expiration in real time is severely limited, especially when you consider that any state with an international airport is a border state.

Perhaps it is time to simply issue people American Express cards because they seem to have no problem tracking their customers. The persistent problems of visa overstays are not given the same priority in allocating resources as efforts to blockade the border states. It may be because overstays don’t make for good 10-second sound bites like those who cross the Rio Grande river in search of a better life do. These Mexican immigrants are building houses, not bombs.

The government has known for some time that the visa process is vulnerable to terrorist exploitation. The General Accounting Office has reported that 36 of the roughly 400 people convicted of terrorism­ related charges since 2001 overstayed their visas.

In 2007, Hosam Smadi arrived from Jordan on a 90-day tourist visa but never left. Two years later he plotted to blow up a Dallas high-rise with a car bomb.

Another tourist, 29-year old Moroccan Amine El Khalifi, overstayed his visa and conspired to detonate a bomb at the U.S. capitol in 2012.

Lest Americans forget, on 9/11, 19 foreign terrorists came right through America’s front door on legitimate visas, hijacked four planes and murdered almost 3,000 innocent people. On the day of the attack, four of them were living in the shadows even though their visas had expired.

Fifteen of the 9/11 terrorists were from Saudi Arabia, but that did not dissuade the federal government in January 2013 from adding the country to the U.S. Global Entry trusted traveler program, which streamlines the airport screening process.

With the United States at war against terrorism, it may be time to consider Michael Corleone’s  11th commandment: Protect your family at any cost. Even if it means antagonizing those such as the airlines and tourism industry concerned about reduced travel to the United States or those who worry about the privacy issues involved in cracking down on visa overstays with increased monitoring of visitors.

If the United States is ever going to get serious about fixing our broken immigration system, we need to be willing to take on some of the interests who might be inconvenienced by the fix.

originally published: April 1, 2015

Billions in bonuses on Wall Street at the expense of Main Street

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Seven years after the traumatic 2008 financial crisis, millions of Americans still have not recovered. But a few others are doing quite well, thank you. One of the first signs of the impending implosion in financial markets occurred in the summer of 2007 when two Bear Steams hedge funds with major investments in mortgage-backed securities collapsed. It was the beginning of the end for the world’s fifth largest investment bank, which, during its 90-year run, had developed a maverick reputation in the white-shoe culture of investment banking.

During the wee hours of March 24, 2008, just before Asian markets opened, the federal government forced Bear to announce its sale for a few pennies on the dollar to JPMorgan Chase, an offer that would not have been made without government assistance.

The deal was backstopped by the Federal Reserve’s commitment to buy upwards of $30 billion worth of mortgage-based securities in Bear’s portfolio that Morgan regarded as “too toxic to touch.” It was hoped that the Bear rescue would stem any fallout from spreading into the larger financial world, which many policymakers viewed as likely following the failure of a major investment bank.

Bear’s collapse was a critical event signaling the start of a great unraveling. One of the things that made Bear’s demise such a watershed event was the federal government’s direct involvement in orchestrating the deal that saved the company from having to file for bankruptcy.

Previously, the federal government would become so intimately involved only when a deposit-taking commercial or savings bank got into financial trouble.

If they screwed up and failed? Others would learn from their mistakes. That’s what was supposed to happen under capitalism. That is until the federal government got bushwhacked by Bear, a “don’t get no respect” underdog, and found itself in a jam.

So the feds had to throw out the standard game plan, even if it meant the Federal Reserve buying $30 billion worth of mortgage-backed securities from Bear that nobody else would touch as the financial tsunami of 2008 began rolling across the globe.

Bear Steams may have ceased to exist on March 24, 2008, but it continued to haunt the financial world like Marley’s ghost for months thereafter as the global meltdown continued, marked by formerly solid financial institutions turning into basket cases that could no longer survive on their own – after years of shooting up on short-term borrowings and boozing away on risky trades that blew up in their faces.

At the beginning of 2008, Merrill Lynch, Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear were the five largest stand-alone investment banks in the world. By the end of the year all would be gone.

Goldman Sachs and Morgan Stanley were converted to bank holding companies while Lehman Brothers filed for bankruptcy and Merrill Lynch was acquired by Bank of America. These supposedly omnipotent institutions proved to be giants with feet of clay.

The financial crisis precipitated the worst economic downturn since the Great Depression, costing millions of Americans their jobs, homes, life savings and hopes for decent retirements. Since then, workers’ median incomes have effectively stayed unchanged while inequality between the top and bottom of the income scale has risen sharply.

Meanwhile, we recently learned from the New York State comptroller that Wall Street banks handed out $28.5 billion in bonuses in 2014. The average bonus was $172,860, more than three times the median household income of about $52,000. To say that anyone is surprised would be selling the truth below wholesale.

It’s reassuring to know that some folks have recovered very nicely from the financial crisis. But Main Street America will apparently have to learn to live with the wounds from the financial crisis.

originally published: March 28, 2015