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Israelis doubt Iran is constructing a nuclear weapon

Posted on January 21st, 2012 in General by Robert Miller

Strait of Hormuz (Wikipedia)

Last year, the drums of war began to beat as a result of supposedly new findings suggesting Iran had initiated a program for building a nuclear weapon. I previously wrote on the topic at the time and specifically pointed out the lack of hard evidence supporting such a conclusion: all of Iran’s known nuclear material was accounted for by the International Atomic Energy Agency (IAEA) and none of our intelligence had produced unambiguous evidence that bomb construction was underway. Indeed, our own intelligence estimate as recently as 2010 concluded that Iran was not working on a bomb. Now it seems the Israelis have come to the same conclusion. An article published in Haaretz, a left-leaning Israeli newspaper, began with the following lead: “Israel believes Iran itself has not yet decided whether to make a nuclear bomb, according to intelligence assessment to be presented later this week to U.S. Joint Chiefs of Staff Dempsey.”

A good article summarizing the significance of this report can be found in Juan Cole’s Informed Comment.  When Iran responded to the new military threats and sanctions by threatening to close the Strait of Hormuz (through which 20% of the world’s oil supply flows) if conflict should break out, the Obama administration decided to ratchet down the threat level and perhaps the article in Haaretz reflects the Israeli willingness to do the same. Obama faces a very tight election this year and does not want to see the cost of oil go up by the Iranians following through with their threats. He also apparently expressed his deep dissatisfaction with the Israelis over the recent assassination of an Iranian nuclear scientist.  Now if we can get Mitt Romney to stop fanning the flames of war  against Iran and lower the tension by a couple of decibels, we might be able to have an election without starting a war in the Middle East. We are truly a gifted nation when it comes to starting wars–we don’t have a problem mobilizing the popular support needed to take us into war–but it’s ending them that seems to give us great difficulty. At least for now perhaps the tension between Iran and the United States/Israel can be lowered and the rhetoric of war eliminated.  Our departure from Iraq has served to reduce friction between the U.S. and Iran, but until we have a peace agreement among the Palestinians and the Israelis, the region will always be a flashpoint. The right wing Likud government in Israel is always sounding the alarm about Iran and we have the habit of believing their intelligence more than we do our own.  The full impact of the Arab Spring has yet to achieve a steady state in the region. But that event also reflects joblessness and economic hardship together with trends in food prices and this is a long and deep economic recession. Each time we increase the tension between the U.S. and Iran, we enhance the position of the hard-line ruling clerics and diminish the prospects of bringing the full-throated Arab Spring to that country. This is the same mechanism we used to prolong the Cold War.

Whenever we attach the word “war” to a conflict, like the “war on drugs” or the “war on terror (ism?)”, we tend to make them into a new version of a never-ending story. Imagine how different it would be if be used the label “skirmish on drugs” or “conflict against terror (ism?).” Wouldn’t those terminology examples make it easier to know when to quit? The word “war” seems to demand a winner and a loser, something we rarely achieve or if we achieved it in Iraq, for example, we did so by utterly destroying their culture and devastating millions of lives–all innocent victims of our shock and awe strategy of warfare. But, when confronted with a “skirmish,” it seems more like a cease fire until you can get the whole thing straightened out by some sort of agreement. I am in favor of any congressional act that would outlaw the use of “war” and reserve that for those circumstances where our nation is truly imperiled by circumstances we didn’t create for ourselves. That would mean we can’t have war against terrorism or a war on drugs or a war on obesity. Furthermore we should extend the ruling so that a President cannot make a judgement about whether a conflict should be viewed as “war.” Like the Constitution, only Congress can declare war. With those rules in hand, we might be able to bring to a much faster resolution the conflicts and wars we start by emphasizing that a war by any other name is a “skirmish,”  and if you lose, it will only be a blemish on your war record, nothing more serious.


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Obama cancels Keystone XL Pipeline

Posted on January 18th, 2012 in Climage Change,Environment,Politics by Robert Miller

Alberta Canada tar sand region before and after mining

This afternoon (Wednesday, January 18th, 2012), the Obama Administration announced that they are denying the permit for construction of the Keystone XL pipeline. This news represents a great victory for the environment and our planetary future. In the last Congressional budget action, approval for a two month extension of payroll tax reductions and unemployment insurance was adopted, with a provision tacked onto the bill which forced the President to decide within 60 days whether he would approve the Keystone XL pipeline, presumably feeling confident that putting him in such a box during an election year would increase the likelihood that the project would move forward. The Keystone XL pipeline proposal was designed to carry tar sand oil from Alberta Canada to the Gulf of Mexico, where it was to be refined.  Since big oil supports construction of this pipeline and is used to getting their way through lobbying and campaign donations, it would not have been surprising to anyone if Obama had yielded and approved the 1700 mile pipeline for construction.  But massive demonstrations, largely orchestrated by Bill McKibben’s 350.org, encircling at one point the White House with demonstrators linking arms (attended by arrests),  the environmental opposition beat out the oil lobby and encouraged Obama to deny the permit, an act for which he will face stiff opposition in a re-election year. It is worth noting that our most prominent climate scientist, James Hansen, has termed the Albert Sands project “game over” meaning that with the excessive carbon introduced by burning the dirty tar sands, we will reach a point of no-return on future climate change and very likely see large increases in sea levels as the polar and Greenland ice melts. Although we won the battle, the war isn’t over and it won’t be over until the environment and greenhouse gas emissions are finally recognized as the serious threat they pose to our future climate safety. You can bet that by tomorrow if not sooner, Mitt Romney will jump on this as a major job killer and announce he will reverse the decision once he’s elected to the Presidency. But let’s pause for a few minutes to express our gratitude to Obama for showing the courage necessary to reject the pipeline. It’s a major victory for environmentalists who worked hard to prevent the pipeline from becoming a reality. You can thank him by signing a petition at the NRDC site.


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Bain Capital in color

Posted on January 16th, 2012 in Economy,History,Politics by Robert Miller

American Pad and Paper Company: A Bain Capital Story

Mitt Romney has already made my list for his dangerous, reckless attitudes towards Iran, for which he runs the risk of getting us into another war in the Middle East should he be elected President. But Romney also brings big baggage in his defense of our current casino economic model and that is the subject of this posting. Mitt Romney started and ran Bain Capital from 1984-1999; he still gets profits from the company. It has been estimated that 1/4 of the companies bought or managed by Bain during his tenure were driven into bankruptcy.  One of the companies purchased and managed by Bain Capital, under Romney’s leadership, was American Pad and Paper (AmPad), purchased by Bain in 1992.   The accompanying visual representation of the AmPad’s history under Bain is summarized in the elegant, detailed graphic, put together and available as a pdf by the Boston Globe: you can download it, put it on the wall and distribute as an educational blueprint for how private equity firms operate. The story of AmPad has a beginning, when Bain purchased AmPad in 1992 and it has an ending, when AmPad was forced into bankruptcy and liquidation in 2001. In between those bookends is the story of how private equity firms generate profits for their owners and investors, but fail the company that generated those profits and the workers who ran the business. It tells the story of how a private equity firm ran the company into bankruptcy by forcing it to carry a huge debt load  (measured by the negative numbers and the green line), compared to the company’s sales, indicted by the blue line. The management fees Bain collected are illustrated with bright green circles, while the “other payments” and their amounts are represented by the dark green circles. This graph is not an outlier of the performance of private equity firms and how they manage the companies they buy or control as the major share holder. Rather, this is a graphical template of how private equity firms operate. A decent American, someone who is committed to better equity in America’s income distribution, as well as good management practices for American businesses, should be shocked by this story, but the financial industry of America and the Republican Party as its political representative, celebrate this kind of predatory behavior, because it’s the free market economy at work! If they get their way, the future will be more of the same and then some. A huge failure of our own regulatory agencies, including the SEC,  led to the era of corporate raiding, which forms the basis of our failure to support American manufacturing and the jobs that were slowly created through this process. Private equity firms are a festering wound in America’s manufacturing integrity.

Bain’s initial investment for AmPad was $ 5 million, after which they charged the company “advisory fees” for managerial services. As you can tell from their website describing the private equity branch of the firm, Bain specializes in “leveraged buyouts.” These buyouts are accomplished by putting very little money up front to purchase the company, financing the rest, either by using the companies assets if they have any or saddling the company with a substantial debt load, used to payoff the loan to purchase the company  and provide lucrative profits for the new managers–putting the company in debt is the primary means by which private equity firms generate short-term profit for their investors. Leveraged buyouts should be illegal!

The story of AmPad is hardly unique, but it encapsulates the mechanisms by which private equity firms extract money from the companies they purchase and ostensibly “manage.”  They are not interested in job creation. Their interest is purely in short-term profit-making. For Romney to talk about his work at Bain Capital as one of job creation is absurd–no one else in the private equity industry considers that as one of their motivations (see quote below from the LA Times below). The array of profit-making mechanisms imposed on companies is mind-boggling: no businessman committed to a sensible, strategic growth of their business would ever endanger his company with the kind of debt Bains put on AmPad: debt forms include leveraged buyout loans, management fees and when Bain decided to take the company public, the profits earned from the stock sale, as well as the administrative costs of issuing the IPO (Initial Public Offering) were derived from the stock sales or charged to the company. The purpose of the IPO was to was to generate stock with some value: shortly after AmPad went public Bain sold 40% of their shares, making even more money from their ownership. Private equity firms are also inclined to enhance the growth of the company through the purchase of other companies creating further debt and more job loss through additional downsizing, something usually associated with increased stock value. It should be evident that private equity firms manipulate manufacturing firms without any consideration about the future of the firm–instead they are only interested in short-term profit.

Perhaps the one thing that Texas Governor Rick Perry got right in his political campaign for the Presidency this year, was when he described private equity tactics as “vulture capitalism.” By forcing companies to run up huge debts and charging exorbitant “management fees,” companies lose their ability to make plant investments which would keep them more competitive and modernized. In its eagerness to provide a summary soundbite of private equity firms, the mainstream press is completely incapacitated. I watched on PBS news the other night as someone was trying to explain the value of private equity firms, based on whether they had created jobs or lost jobs. But that is only part of the problem–the major question is what are they doing to companies that secure their future and make them more competitive? What have they done to a company that couldn’t be done better by the ownership of the company and how stable was the company when acquired by the private equity firm?  It’s as if private equity firms and leveraged buyouts are an indication that financial institutions who make money through this sordid mechanism, have given up on American manufacturing and act as though it’s time to sell off the country’s assets and that is  a large part of what happened to the American manufacturing in the Neoliberal era (whose cloud hangs over us today). The first leveraged buyout took place in 1968, but gained momentum in the Reagan era. The practice could have been  stopped by the SEC and financial regulatory agencies, but they progressively proved to be emasculated by the frenzy of the corporate buyouts at the time. In addition, a hidden motivation for this strategy was the benefit of breaking the power of unions, whose presence made it more difficult to downsize companies and reduce wages. Wages, benefits and even whole retirement packages have been swallowed by the mechanisms that private equity firms have used to create wealth for a few investors.

Mitt Romney was hugely successful in running Bain Capital; during the time he ran the company, the investment return averaged 88 percent each year–phenomenal profit levels. These years were the fabulous growth years of our financial industry, which in the 1990s became the largest single sector of our economy and began to outpace manufacturing. In fact, the rise of financial America was created by buying, selling and destroying American manufacturing–that is how the financial sector grew–not by growing something new, but by tearing down what we already had built as a manufacturing economy. At one time America was the envy of the world for its manufacturing base. Where did it all go? And where is it written that a private equity company like Bain has people in their management structure that know how to run AmPad, better than the people running the firm in the first place? It is true that AmPad sales had a period of boom, accompanied by plant acquisitions and closures, but those kinds of performances are typically unsustainable: when a slowdown occurs or if good plant management doesn’t exist to make the appropriate investment decisions for maintaining productivity (and keeping the best people around that know what they’re doing), a company loaded with huge debts will show a drop in profits followed by a decline in the value of the stock, at which time it becomes more challenging for the company to stay afloat, something that AmPad couldn’t achieve. Many of the companies infected with the Bain virus were not new and had been around for a very long time. Take for example, Worldwide Grinding Systems (WGS), established in 1888; the went belly-up less than a decade after Bain became its majority stakeholder. Furthermore, WGS had to turn to a federal insurance agency to bailout its pension system, in large part because Bain  forced the company into a very heavy debt load.

A recent article in the Los Angeles Times describes Bain Capital as follows:

  • Romney and his team also maximized returns by firing workers, seeking government subsidies, and flipping companies quickly for large profits. Sometimes Bain investors gained even when companies slid into bankruptcy.
  • Romney himself became wealthy at Bain. He is now worth between $190 million and $250 million, much of it derived from his time running the investment firm, his campaign staffers have said.
  • Bain managers said their mission was clear. “I never thought of what I do for a living as job creation,” said Marc B. Walpow, a former managing partner at Bain who worked closely with Romney for nine years before forming his own firm. “The primary goal of private equity is to create wealth for your investors.”

Private equity firms are predatory capitalists, willing to force the companies they buy or control to take long-term risks for short-term profits. In the process, part of the short-term profit involves down-sizing the companies they own, eliminating jobs, reducing wages and creating conditions that jeopardize the long-term future of the company. The financial interests who run companies into the ground have absolutely no interest in long-term outcomes, whether it’s related to profits way down the road or our planetary future. They are hooked on short-term profits like junkies in search of a new high. We live in a country turned upside down. Too many economists, those with whom we placed a certain level of confidence that they would be our watchdogs and make certain that the country had a healthy economy, vitalized by a concern for important issues like social stability, equitable income distribution, education opportunities and retirement pensions and programs, have abandoned the ship: our faith in them turned out to be completely misplaced. Most economists are completely supportive of the role that private equity firms play in improving the “efficiency” of companies. This word “efficiency” as derived from their vernacular equates to “downsizing” and increased corporate profitability. Few economists of today have a sufficiently broad enough view of their subject to clearly see the destructive social damage that financial investment organizations like private equity firms have created, not only in terms of our economic future,  but also for the future of our species on this planet. We are badly in need of a new discipline, one that fuses our economic future with the environmental crisis that we are in today. We are deeply in need of new kinds of experts for our badly needed new economy–a new compass that takes into account the needs of a shrinking planet. Where will these new experts come from? Not from economics departments–they had their chance and blew it. We need to build a new economy and put in the kinds of safeguards needed to prevent predatory capitalism from destroying these businesses, while at the same time investing appropriately in the infrastructure improvements needed to place the globe on a better trajectory for the future.

Perhaps we will eventually thank Mitt Romney for the social service he is about to perform as a candidate for the Presidency of the United States. By forcing the public as a whole to get better educated on the sinister motivations of greed that characterize companies like Bain Capital and how private equity firms create so much wealth for their investors, while actually diminishing the wealth of the Middle Class, Americans might finally wake up to the nature of the country we have become. Americans will also need to come to grip with their own naive trust of financial leaders and see the destructive swath that unfettered capitalism has reaped upon the stability of our society and the uncertain future we face as practicing humans trying to make it on this planet. We do not know how much of our manufacturing base was destroyed by the crazy leverage buyouts over the past thirty years and we can only imagine what kind of country we would have today if our government had intelligently stepped in and prevented these corporate disasters from ever taking place–they helped bring on the casino economy we have today.

In closing, I want to quote from a book by Walter Adams and James W. Brock, Dangerous Pursuits: Mergers and Acquisitions in the Age of Wall Streetpublished in 1989, reflecting on the impact of leveraged buyout and the absurdity of the practice:

  • “In 1983, Esmark, marketer of Swift meats, Butterball turkeys, Playtex products, and STP oil treatments, spent $1 billion to acquire Norton Simon, producer of Hunt’s tomato products, Wesson oil, Reddi-wip, Orville Redenbacher’s popcorn, Johnny Walker Scotch, the Avis car retinal service, and Max Factor cosmetics. The next year, Esmark-Noton Simon was acquired by Beatrice Foods, maker of La Choy, Rosarita, Tropicana fruits drinks, Jolly Rancher candies, Milk Duds, Air Stream motor homes, Samsonite luggage, Stiffel lamps and Culligan water softeners. Two years later, in 1986, Beatrice-Norton Simon-Esmark (which now ranked as the nations’s 26th largest industrial concern) was bought out by Kohlberg Kravis Roberts in a $6.2 billion deal. And for what purpose? To sell off the various Beatrice-Norton Simon-Esmark divisions that had just been consolidated.”

Leveraged buyouts and corporate merger mania made no rational sense for building continuity in manufacturing experience and expertise. The government under Ronald Reagan helped to issue a new gaming license for a new kind of sport: corporate raiding. The new sport was aided by Reagan’s abandonment of antitrust enforcement, his corporate tax cuts and his relaxation of securities regulation. Reagan followed through with his political slogan that “government was the problem, not the solution.” These forces accelerated a reduced motivation to invest in America for fear of corporate takeover. The financial industry of America  had no problem adapting to this new gaming license and showed no concern for jobs lost, companies shattered or assets sold off for profit. The original corporate raiders and arbitrageurs had names like Ivan Boesky, T. Boone Pickens and Carl Icahn, who became the new robber barons preying on companies whose stock had been devalued by economic hard times and foreign competition, some of which was induced by the actions of these robber barons themselves. Bain capital is simply another version of the corporate raiders from an earlier era. We can’t afford to allow the continuation of this silly, but destructive behavior. Too much of our future depends on eliminating this disastrous “free-market” childish behavior and getting serious about human survival and our own economic well-being.

If you want to see how private equity funds have endangered the Danish Economy see my article “Borrowing From Denmark



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