A colleague of mine yesterday posited the question: What will happen to the countries of the Middle East when oil runs out? His initial position surrounded their fall from power, on the global playing field once their primary asset of global prominence dries up. Further, he pointed out that those governments have not invested significantly in alternative energy either to continue their dominance in energy markets. And so the story plays out that CHINDIA would be the only obvious powerhouses in 50-100 years.
Upon further inspection, however, the trends speak to the opposite: our dollars spent buying oil today will finance the Middle East's potential global dominance of the next century, regardless of oil's staying power. With a barrel of oil trading above $90, oil-rich nations are accumulating dollars at an astounding rate. These dollars, combined with the dollars in State Investment Vehicles in Singapore, China, and elsewhere, are building what American firms have historically affectionately called 'warchests' for aquisitions. Historically, US firms enjoyed free reign in the global buying binge, consuming the world's best assets and intellectual property.
But the tide is turning: this growth in global dollar harvesting from the insatiable appetite of Americans to feed their cars is leaving the US incredibly vulnerable to outside investment; it is a free market after all, isn't it? Recently, a spate of deals have been announced whereby firms from the East are taking major stakes in damaged firms in the West. Citibank recently accepted a major offering of $7.5 Billion from Abu Dhabi, and this surely won't be the last of this type, but quite the opposite.
Therefore, as oil runs out, these countries will use the oil dollars accumulated today to buy major assets in OTHER industries, positioning themselves to be global owners of major strategic assets OUTSIDE of oil. That is far more intense a proposition than simply being able to control the short term price of oil. And assets in the US are seen as cheap...Even European companies aren't immune: UBS just announced today an $11 billion injection from the East because of it's exposure to credit woes in the US.
This all stems from American's over-exposure to debt, via education, credit cards, automobiles, and mortgages. This debt is increasingly owned by the East, who will now begin to own more and more of the actual industries, and hence the intellectual property associated with them, as well! They extended us too much debt, our assets now are falling in value, and then it is the very debt holders whose checkbooks are ready to buy the aforementioned distressed assets.
The countries in the Middle East and the Far East are using their coffers to set themselves up nicely for the next century and it will turn out that the American Worker will be working for foreign owners, a true reversal of the Banana Republics of yester-century!
-Alok Appadurai
Monday, December 10, 2007
Tuesday, November 27, 2007
Two Unknown Drivers of the Housing Boom
http://www.marketwatch.com/news/story/credit-rating-agencies-return-crosshairs/story.aspx?guid=%7BAFB9C89A%2D9AE3%2D4718%2D8817%2D39918E371C23%7D
The article above investigates the role that Fitch, Standard & Poors, and Moody's played in the recent housing boom and the current credit market meltdown.
These agencies are not significantly known by the average American but they played a vital role in the recent housing boom by continually rating Debt Obligations attached to housing higher and higher, with little scrutiny of the actually obligation's credit worthiness. And why would they? These agencies are also publicly traded companies whose sole purpose is to maximize profits: if they didn't go along with the bankers, one of the other agencies would receive the business.
Similarly, appraisers are equally to blame: without them, neighborhood's per-square-foot-averages would not have budged!! The common practices for appraising a home are to judge a) what the costs of replacing the home would be or b) what did similar homes within a one mile radius sell for within the previous six months. It isn't hard to guess that option B is most often embraced by the appraisers. But here's the rub, appraisers can only put dinner on the table if banks keep calling them specifically to go appraise a potential lending opportunity for the bank. In the frenzy of the past five years, banks were handing out mortgages to everyone and their kitty cat, desperate to give each potential borrower as much debt as possible.
In previous writings, I have noted that the banking industry created numerous new mortgage products to allow more and more borrowers to be eligible for higher amounts of debt (interest only, adjustable rate, subprime, Alt-A, document-less). But part of that cycle is by law the home must be appraised. So what happens to appraiser A if he regularly appraises home lower than appraiser B in this past market frenzy? A doesn't ever get called again by the bank while B can't appraise enough of the bank's new borrowers' potential properties. B then continually raises the values for homes in a given area, and those higher values are then used by other appraisers to raise the value of the homes they are appraising.
In both cases, the appraisers and debt-credit ratings agencies were responsible for the extreme national bloat in values of either homes themselves or the underlying debt obligations the banks created out of those vary mortgages.
To explain that, I need to explore with you what is a CDO or collateralized debt obligation: During this real estate boom, bankers realized that could turn mortgages into sellable securities (otherwise known as stocks). Given mortgage holders were paying a consistent ~6% on their household mortgages, the bankers pooled those loans together, sliced them up, and sold these bundles off to investors. But what happens when it turns out that the actual mortgage holders CAN'T pay that 6% mortgage payment and then default? The value of the CDO plummets!
But did Moody's or Fitch or Standard & Poor's wave any red flags about these products? No. Instead they did the opposite and continued to tout these products' credit worthiness.
Without these two darkhorses in the real estate world, this recent boom could not have occurred! Yes, there were other major factors like historically low interest rates, change in tax laws to allow sellers to avoid capital gains every two years as opposed to once in a lifetime, and new shady mortgage products. But none of that would have meant a thing if the national army of appraisers hadn't gotten on board and helped skyrocket homes' values.
It is clear that both the credit/debt ratings systems and appraisers systems are in need of overhaul. Let's start by making these ratings agencies actually have to do due diligence on the mechanisms they are rating: currently they all openly admit that there may be NO DUE DILIGENCE behind their actual ratings! This is absurd that the markets actually use their services at all.
-Alok Appadurai
The article above investigates the role that Fitch, Standard & Poors, and Moody's played in the recent housing boom and the current credit market meltdown.
These agencies are not significantly known by the average American but they played a vital role in the recent housing boom by continually rating Debt Obligations attached to housing higher and higher, with little scrutiny of the actually obligation's credit worthiness. And why would they? These agencies are also publicly traded companies whose sole purpose is to maximize profits: if they didn't go along with the bankers, one of the other agencies would receive the business.
Similarly, appraisers are equally to blame: without them, neighborhood's per-square-foot-averages would not have budged!! The common practices for appraising a home are to judge a) what the costs of replacing the home would be or b) what did similar homes within a one mile radius sell for within the previous six months. It isn't hard to guess that option B is most often embraced by the appraisers. But here's the rub, appraisers can only put dinner on the table if banks keep calling them specifically to go appraise a potential lending opportunity for the bank. In the frenzy of the past five years, banks were handing out mortgages to everyone and their kitty cat, desperate to give each potential borrower as much debt as possible.
In previous writings, I have noted that the banking industry created numerous new mortgage products to allow more and more borrowers to be eligible for higher amounts of debt (interest only, adjustable rate, subprime, Alt-A, document-less). But part of that cycle is by law the home must be appraised. So what happens to appraiser A if he regularly appraises home lower than appraiser B in this past market frenzy? A doesn't ever get called again by the bank while B can't appraise enough of the bank's new borrowers' potential properties. B then continually raises the values for homes in a given area, and those higher values are then used by other appraisers to raise the value of the homes they are appraising.
In both cases, the appraisers and debt-credit ratings agencies were responsible for the extreme national bloat in values of either homes themselves or the underlying debt obligations the banks created out of those vary mortgages.
To explain that, I need to explore with you what is a CDO or collateralized debt obligation: During this real estate boom, bankers realized that could turn mortgages into sellable securities (otherwise known as stocks). Given mortgage holders were paying a consistent ~6% on their household mortgages, the bankers pooled those loans together, sliced them up, and sold these bundles off to investors. But what happens when it turns out that the actual mortgage holders CAN'T pay that 6% mortgage payment and then default? The value of the CDO plummets!
But did Moody's or Fitch or Standard & Poor's wave any red flags about these products? No. Instead they did the opposite and continued to tout these products' credit worthiness.
Without these two darkhorses in the real estate world, this recent boom could not have occurred! Yes, there were other major factors like historically low interest rates, change in tax laws to allow sellers to avoid capital gains every two years as opposed to once in a lifetime, and new shady mortgage products. But none of that would have meant a thing if the national army of appraisers hadn't gotten on board and helped skyrocket homes' values.
It is clear that both the credit/debt ratings systems and appraisers systems are in need of overhaul. Let's start by making these ratings agencies actually have to do due diligence on the mechanisms they are rating: currently they all openly admit that there may be NO DUE DILIGENCE behind their actual ratings! This is absurd that the markets actually use their services at all.
-Alok Appadurai
Sunday, November 25, 2007
The Deeper Debate about 'Food v.s. Fuels'
This article is from Forbes Online and is a more sophisticated article on the 'Food vs Biofuels' debate. Although the author's title sets the piece up to be simply another rant against biofuels, the article actually speaks to many sophisticated ancillary issues which are driving food prices up. As stated before, I do agree that biofuels derived from food crops certainly are aiding in food prices globally, I don't think it alone are the driving factor.
I want to focus on one element in the article which I think is quite pertinent: As Chindia comes online, a historical axiom plays out in that growing middle class incomes lead to growing sophistication of consumption, most notably of coffee, sugar, but for our purposes, meat-poultry-fish. To meet that demand, the animal industry requires a growing percentage of corn and wheat for animals.
It is imperative that biofuels be met with a fair dose of negative news, and NOT become the whipping post for the ill effects of numerous other variables.
Food Vs. Fuel
Michael Maiello 11.15.07, 6:00 PM ET
Source: Morningstar. *Goldman Sachs fund charges a 4.5% load.
As a slowing U.S. economy threatens to bring down oil prices, but wheat and corn prices probably won't drop because of scarce supply. In fact, the U.N.'s Food and Agriculture Organization warns that wheat production is falling and could be off 10% to 142.6 million metric tons in 2008. And in the U.S., an increasing amount of corn is being diverted from the food chain to be processed into ethanol, for reasons frankly more political than environmental.
I want to focus on one element in the article which I think is quite pertinent: As Chindia comes online, a historical axiom plays out in that growing middle class incomes lead to growing sophistication of consumption, most notably of coffee, sugar, but for our purposes, meat-poultry-fish. To meet that demand, the animal industry requires a growing percentage of corn and wheat for animals.
It is imperative that biofuels be met with a fair dose of negative news, and NOT become the whipping post for the ill effects of numerous other variables.
Food Vs. Fuel
Michael Maiello 11.15.07, 6:00 PM ET
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The world's poor spend twice what they did on food just seven years ago, yet still starve in greater numbers. An eight-year-long drought in Australia, the lengthiest in 200 years, has helped keep global supplies of wheat and corn tight. Concern about climate change has led to biofuels subsidies that pit hungry mouths and empty gas tanks against each other.
A rising middle class in Asia is developing a taste for meat, so crops that might go to feed people are being diverted to cows and chickens. Within the next year, China will become a net wheat importer, driving food prices up just as it's driven up other commodity prices this decade.
For the poor, this booming commodities market means more famines the United Nations and the World Bank simply can't afford to alleviate.
Yet investors might find some opportunity amidst the misery. Two years ago, Deutsche Bank (nyse: DB - news - people ) started work on a global agribusiness strategy that debuted in September 2006. It's managed by 37-year-old Ralf Oberbannsheidt, who has $2.6 billion in portfolios available to investors in Japan and Europe. He's up 48% so far, buying stocks like Monsanto (nyse: MON - news - people ), Archer Daniels Midland (nyse: ADM - news - people ) and Bunge Limited (nyse: BG - news - people ). He also invests in fertilizer companies and some shipping concerns. The boom in this sector is akin to the boom in oil, but more sustainable.
Food Funds
| Name | YTD Performance | Expenses | Assets (Millions) |
| Goldman Sachs Commodity Strategy (nasdaq: GSCAX - news - people ) | 12.10% | 0.95%* | $282 |
| iPath Dow Jones AIG Commodity Index (nyse: DJP - news - people ) | 14.10% | 0.75% | $2,400 |
| PowerShares Dynamic Food and Beverage (nyse: PBJ - news - people ) | 10.30% | 0.64% | $32 |
| 23.20% | 0.75% | $1,400 | |
| 11.30% | 0.75% | $722 |
As a slowing U.S. economy threatens to bring down oil prices, but wheat and corn prices probably won't drop because of scarce supply. In fact, the U.N.'s Food and Agriculture Organization warns that wheat production is falling and could be off 10% to 142.6 million metric tons in 2008. And in the U.S., an increasing amount of corn is being diverted from the food chain to be processed into ethanol, for reasons frankly more political than environmental.
The implications for the world are grim. If the U.N. is right, the global population will reach 9 billion people by 2050. Meanwhile, the Earth is running out of farmland because of population growth and sprawling cities. Fifty years ago, there was an acre of arable farmland per person--there's half that now. That's why Oberbannsheidt is interested in aquaculture. Before he became a securities analyst and portfolio manager, Oberbannsheidt worked for a freshwater shrimp farm in Northern California, and he remains fascinated by how well the critters can be manipulated for flavor and durable shipping.
"You take away land so that people can live in the city," Oberbannsheidt says. "When you live in the city, you have a greater life expectancy and your income is probably higher."
When incomes reach between $3,000 and $5,000, as they're approaching in India and China, people tend to give up rice and cereal in favor of meat, poultry and fish, generally in that order. Protein intake rises 15 grams a day. "If people would only eat wheat and corn the [potential food shortage] problem would be solved," he says. "But I'm not a vegetarian, don't get me wrong." Half of the wheat and corn crops produced every year go to cattle. He does see opportunity in fish, though, since it's generally a cheaper source of protein than beast and fowl.
Two years ago, when Oberbannsheidt started looking seriously at agribusiness, nobody on Wall Street had even factored biofuels into the equation. Now governments have to make a choice between feeding people and fighting global warming. "The first job of government is to feed its people," Oberbannsheidt says, but in the European Union, where mass starvation isn't a looming problem, politicians can--and are--meddling.
The E.U. is hurting from high wheat prices, which are threatening to cause inflation on the continent. But the E.U.'s own subsidies for biofuel are contributing to the rising prices. The E.U. could have both enough food and enough biofuel if it allowed genetically modified crops to be used for biofuels. Or even better, says Oberbannsheidt, the E.U. could lower trade barriers against importing biofuels from Brazil, which is about the only place on Earth where biofuels make economic sense, anyway. But neither option seems politically viable in the near term, so Oberbannsheidt expects European commodity food prices to remain high.
One thing the world obviously needs is greater productivity from its existing farmland. Oberbannsheidt believes it's possible through fertilizers, particularly potash and phosphate--but don't expect miracles. He recently went to Montegrosso, Brazil, because he thought that companies with Brazilian land holdings would be worth buying. Brazil is a kind of El Dorado for agricultural commodities investors, because its climate allows for three growing seasons rather than just two. Farmers there can quickly capitalize on global demand by switching from wheat to corn to soybeans more quickly than farmers in the rest of the world.
Oberbannsheidt returned disappointed. The soil quality wasn't that good, he said. Even if it had been, there's only one rail line that can be used for shipping to ports. There's no point in increasing yields if the product can't get to market. He found the same problem in Vietnam, where rice yields have been increasing 10-15% a year, but the infrastructure for shipping it can't keep up.
Everything would be fine, he says, if the world's governments would "solve the infrastructure bottleneck, invest in research, allow for GM in biofuels, and build better water and irrigation systems." That's exactly what Oberbannsheidt doesn't see happening. Instead, he sees a "biofuels versus feeding the world" scenario. That's a frightening prospect for the world's poor, and potentially, for everyone. But it should keep Oberbannsheidt's portfolio humming along.
Saturday, November 24, 2007
Who Loses when Big Oil Marries Higher Education
For the past few years I have begun to look at the role of the university in various capacities: mainly I have been curious about the onerous effects of the extreme and growing debt loads that colleges and universities increasing place on their graduates. With rising consumer debt, the costs associated with higher education are compounding the crippling issues of American debt. Also, after my trip to Cuba some years back, I began to look at the role that universities play, in collaboration with myriad Governmental agencies like USAID, where taxpayer dollars are used to lay subversive groundwork against governments our government would like to alter, especially in this hemisphere.
This article surrounds yet another developing niche for the university: aiding Big Oil to develop biofuels, and in the process privatize the academic process in certain arenas for the gain of a single corporation.
-Alok
http://www.commondr eams.org/ archive/2007/ 03/24/60/ print/
Published on Saturday, March 24, 2007 by The Los Angeles Times
Big Oil Buys Berkeley
The BP-UC Berkeley Research Deal Pushes Academic Integrity Aside For Profit.
by Jennifer Washburn
On Feb.1, the oil giant BP announced that it had chosen UC Berkeley,
in partnership with the Lawrence Berkeley National Laboratory and the
University of Illinois at Urbana-Champaign, to lead the largest
academic-industrial research alliance in U.S. history. If the deal is
approved, BP will give $500 million over 10 years to fund a new
multidisciplinary Energy Biosciences Institute devoted principally to
biofuels research.
Gov. Arnold Schwarzenegger, UC administrators and BP executives
immediately proclaimed the alliance - which is not yet a done deal -
a victory for higher education and for the environment. But here's
another way to see it. For a mere $50 million a year, an oil company
worth $250 billion would buy a chunk of America's premier public
research institutions, all but turning them into its own
profit-making subsidiary.
This is shameful. The core mission of Berkeley is education, open
knowledge exchange and objective research, not making money or
furthering the interests of a private firm. In the last two decades,
however, Cal and other universities - increasingly desperate for
research dollars - have signed agreements that fail to protect their
essential independence, allowing corporations excessive control over
their research.
The BP deal magnifies this trend. Most corporations sponsor
university research one study and one lab at a time. With the Energy
Biosciences Institute, BP would exert influence over an entire
academic research center (spanning 25 labs at its three public
partners), bankrolling and setting the agenda for projects that cut
across many departments.
What's more, BP would set up shop on campus: 50 scientists employed
by the company would work on joint projects with academic scientists
at Berkeley and the University of Illinois. BP also would set up
private labs on these campuses, where all the research would be
proprietary and confidential.
Robert Reich, former secretary of labor and now a professor of public
policy at Berkeley, has warned that - because of its size and
commercial scope - the BP alliance could be either "a huge feather in
Berkeley's cap or a huge noose around Berkeley's neck." The question
is, do rules and practices set up to safeguard academic integrity and
independence stand up to a corporate deal of this magnitude?
The fine print of the plan, which UC made public only after it was
leaked, doesn't create much confidence. Californians need to know
that their public university is dedicated to pursuing the best
science, not just science that generates profits for BP.
Unfortunately, the plan indicates that narrow commercial criteria
could guide much of the Energy Biosciences Institute's research.
Normally, even when university research is corporate sponsored,
professors alone direct and shape it. Often, funds are assigned and
research proposals are accepted through an independent, peer-review
process. In the BP deal, however, the institute - with a director to
be "proposed" by BP and other high-level positions to be filled by BP
employees or appointees - would play a major role in setting research
agendas and controlling purse strings. The plan touts the company's
role: BP's "business industry leadership will strongly differentiate
the EBI from other primarily academic research enterprises. "
The plan also would hand unusual control to BP in other areas. A
bedrock principle of academia is that campus-based research should be
published. That's why Berkeley bans classified military research from
campus; the open exchange of information is fundamental to the
advancement of science and education. But those 50 BP scientists on
campus would, according to the plan, have "no obligation to publish."
Universities also, as a rule, hold the intellectual property rights
in their research, no matter how it's funded. In order to foster
competition and innovation, they generally allow more than one
company to use their discoveries for commercial purposes. This plan
allows BP to co-own intellectual property in some instances and to
receive exclusive (albeit time-limited) commercial licenses as well.
The plan itself notes that such terms "deviate from standard policy"
and "require exceptions to policy in order to be implemented. "
Ultimately, there is an even more basic question to consider. Would
the institutionalizatio n of BP at Berkeley call into question the
essential objectivity of the research generated by the collaboration?
BP is clearly investing its $500 million not just in public-good
research; it's hoping to advance an energy source it's already
committed to commercially. Given that there is nothing in the plan
that calls for truly independent selection of research proposals, can
the Energy Biosciences Institute be trusted to pursue research that
might prove that biofuels are the wrong alternative- energy choice?
Would its social sciences arm freely investigate potential ecological
and economic downsides?
UC President Robert Dynes has characterized the BP deal in telling
words. "It is my belief," he said, "that we are reinventing the
research university in this public-private partnership. "
Five hundred million dollars is a nice chunk of change, but does any
amount of money justify "reinventing" UC Berkeley's academic
integrity? That's what UC officials should ask themselves before they
sign this deal.
Jennifer Washburn is a fellow at the New America Foundation and the
author of "University Inc.: The Corporate Corruption of Higher
Education."
Copyright 2007 Los Angeles Times
Article printed from CommonDreams. org: http://www.commondr eams.org/ archive
URL to article: http://www.commondr eams.org/ archive/2007/ 03/24/60/
Click here to print.
This article surrounds yet another developing niche for the university: aiding Big Oil to develop biofuels, and in the process privatize the academic process in certain arenas for the gain of a single corporation.
-Alok
http://www.commondr eams.org/ archive/2007/ 03/24/60/ print/
Published on Saturday, March 24, 2007 by The Los Angeles Times
Big Oil Buys Berkeley
The BP-UC Berkeley Research Deal Pushes Academic Integrity Aside For Profit.
by Jennifer Washburn
On Feb.1, the oil giant BP announced that it had chosen UC Berkeley,
in partnership with the Lawrence Berkeley National Laboratory and the
University of Illinois at Urbana-Champaign, to lead the largest
academic-industrial research alliance in U.S. history. If the deal is
approved, BP will give $500 million over 10 years to fund a new
multidisciplinary Energy Biosciences Institute devoted principally to
biofuels research.
Gov. Arnold Schwarzenegger, UC administrators and BP executives
immediately proclaimed the alliance - which is not yet a done deal -
a victory for higher education and for the environment. But here's
another way to see it. For a mere $50 million a year, an oil company
worth $250 billion would buy a chunk of America's premier public
research institutions, all but turning them into its own
profit-making subsidiary.
This is shameful. The core mission of Berkeley is education, open
knowledge exchange and objective research, not making money or
furthering the interests of a private firm. In the last two decades,
however, Cal and other universities - increasingly desperate for
research dollars - have signed agreements that fail to protect their
essential independence, allowing corporations excessive control over
their research.
The BP deal magnifies this trend. Most corporations sponsor
university research one study and one lab at a time. With the Energy
Biosciences Institute, BP would exert influence over an entire
academic research center (spanning 25 labs at its three public
partners), bankrolling and setting the agenda for projects that cut
across many departments.
What's more, BP would set up shop on campus: 50 scientists employed
by the company would work on joint projects with academic scientists
at Berkeley and the University of Illinois. BP also would set up
private labs on these campuses, where all the research would be
proprietary and confidential.
Robert Reich, former secretary of labor and now a professor of public
policy at Berkeley, has warned that - because of its size and
commercial scope - the BP alliance could be either "a huge feather in
Berkeley's cap or a huge noose around Berkeley's neck." The question
is, do rules and practices set up to safeguard academic integrity and
independence stand up to a corporate deal of this magnitude?
The fine print of the plan, which UC made public only after it was
leaked, doesn't create much confidence. Californians need to know
that their public university is dedicated to pursuing the best
science, not just science that generates profits for BP.
Unfortunately, the plan indicates that narrow commercial criteria
could guide much of the Energy Biosciences Institute's research.
Normally, even when university research is corporate sponsored,
professors alone direct and shape it. Often, funds are assigned and
research proposals are accepted through an independent, peer-review
process. In the BP deal, however, the institute - with a director to
be "proposed" by BP and other high-level positions to be filled by BP
employees or appointees - would play a major role in setting research
agendas and controlling purse strings. The plan touts the company's
role: BP's "business industry leadership will strongly differentiate
the EBI from other primarily academic research enterprises. "
The plan also would hand unusual control to BP in other areas. A
bedrock principle of academia is that campus-based research should be
published. That's why Berkeley bans classified military research from
campus; the open exchange of information is fundamental to the
advancement of science and education. But those 50 BP scientists on
campus would, according to the plan, have "no obligation to publish."
Universities also, as a rule, hold the intellectual property rights
in their research, no matter how it's funded. In order to foster
competition and innovation, they generally allow more than one
company to use their discoveries for commercial purposes. This plan
allows BP to co-own intellectual property in some instances and to
receive exclusive (albeit time-limited) commercial licenses as well.
The plan itself notes that such terms "deviate from standard policy"
and "require exceptions to policy in order to be implemented. "
Ultimately, there is an even more basic question to consider. Would
the institutionalizatio n of BP at Berkeley call into question the
essential objectivity of the research generated by the collaboration?
BP is clearly investing its $500 million not just in public-good
research; it's hoping to advance an energy source it's already
committed to commercially. Given that there is nothing in the plan
that calls for truly independent selection of research proposals, can
the Energy Biosciences Institute be trusted to pursue research that
might prove that biofuels are the wrong alternative- energy choice?
Would its social sciences arm freely investigate potential ecological
and economic downsides?
UC President Robert Dynes has characterized the BP deal in telling
words. "It is my belief," he said, "that we are reinventing the
research university in this public-private partnership. "
Five hundred million dollars is a nice chunk of change, but does any
amount of money justify "reinventing" UC Berkeley's academic
integrity? That's what UC officials should ask themselves before they
sign this deal.
Jennifer Washburn is a fellow at the New America Foundation and the
author of "University Inc.: The Corporate Corruption of Higher
Education."
Copyright 2007 Los Angeles Times
Article printed from CommonDreams. org: http://www.commondr eams.org/ archive
URL to article: http://www.commondr eams.org/ archive/2007/ 03/24/60/
Click here to print.
Modern Tidal Wave: China Slowly Unleashes Its Investors
I want to bring your attention to something I think isn't getting enough press but could be a marked moment in China taking center stage on a global economy. It is openly noted that China's Central Bank is incredibly concerned about the bubble brew in the equity-market pot, with a sizzling GDP growth of over 11%. The government is trying to intervene without overtly doing so, leaving many wondering if a fallout is in the making, what effects will that have only local economies and markets...
Today China announced it will open qualified institutional investors FROM China to invest in stocks around the world! Realize this: Foreign companies were only allowed to invest in Chinese equities in 2005! Now for the first time the Chinese Government is relaxing its rules and are letting Chinese money flow the opposite direction.
In doing so, they are dove-tailing with another albatross: they want to diversify their foreign currency holdings, especially into dollars, but other assetts as well...It currently stands at $1 trillion!
For investors, the question becomes a) how much will flow into the myriad stock (equity) markets around the world and b) which markets? It's like a tidal wave of capital that has been pent up behind a gigantic concrete dam and finally was cracked today. Where will the Chinese want to invest? What is the psyche of the average chinese investor as eventually, like me sitting at my laptop who can trade global funds, adr's, and eft's, so will the 200,000+ new daily online brokerage account holders in China have the ability to trade US stocks. Which ones will they want to buy? Currently there are rules on how much of a foreign company a Chinese company to buy, but this is the beginning I feel of a real moment in the history of the Global Economy. China not only consumes the world's commodities at a growing pace and fuels trade in the region and globally, it now can consume the world's equities!
When you add the changing demographics and diaspora of jobs, especially as noted in the recent jobs data, our economy is slowing just as global attention shifts to the Bric's of Change...
Throw in a sacking of Blaire, and we have to scratch our heads. I was hoping for Royal in France. Hopefully Guilliani won't receive the same fanfare here in the US for being a voice box for the Bush camp. His pro-war banter just hopefully won't sit well with an American public tired of coffins, no WMD's, and the conservative estimate of 450,000 dead Iraqis. If nothing else, Bush spent $100's of Billions of our money unwisely. He should be held accountable for all of these things, and the saddest part is he'll finish his term and his brother might run?
My hope is that Bloomberg runs as an Independent and ask Obama to be his Vice (if Hillary beats him on the Democratic side); that ticket would be unstoppable. Bloomberg is best equipped to find a solution for Social Security, the health care mess, and negotiate with the Chinese rumble economically. Right now we don't need a military president, we need an economic genius to realize the adage now is the familiar 'If you can't beat em', Join em'. Bloomberg is the only one running who could put in place the staff to help smoothe China's entrance, rather than fight it with Tariffs on goods such as the recent Shiney Paper fiasco.
Please follow this story...
Republicans Now Say Free Trade is Bad for the US!!
The Wall Street Journal poll released today illustrates that a whopping 60% of Republicans feel free trade is BAD for the US economy. It is amazing how convenient protectionism's blanket can be now that the rest of the world is dismantling the US at our own game. The past decade has been marked by NAFTA, CAFTA, FTAA, unilateral, and bilateral agreements that forced global economies to open up to our cocktail of democracy melded with capitalism. The World Trade Organization used to be the weapon of choice for US corporations to hold international governments hostage in their own countries, using tort to extract as much profit from those economies, and flooding markets with subsidized US goods and services, such as corn, which dessimated the Mexican domestic corn market which may never recover. Then Brazil took the US to task in the WTO over those very subsidies, arguing that there is nothing remotely 'free trade' in such subsidies as they give the US farmer an unfair advantage to be able to sell their products at below-"market" rates.
Economists who argue for free markets are merely voiceboxes for protectionism. Now that jobs 'swam' across both oceans, Americans are screaming for Uncle Sam to beef up security, not in the form of rifles and bombs, but in terms of regulating deals. They argue that US companies should not be bought up by certain foreign countries' firms. This can be seen in the CNOOC deal for Unical, the Dubai Ports deal for NYC harbors, or the protection over investment in US telecom companies so that 'no one else gets our technology'. Let's face it: there is NO SUCH THING as a FREE MARKET. It doesn't exist. It's laughable that people still like to wrap themselves in the myth that democracy and free markets is best, when inside, we Americans secretly know we want unidirectional open markets, meaning protect our workers while forcing the rest of the world to open up.
Republicans are now arguing that imported goods should be taxed higher. What's free and open about that? If foreign economies can produce cheaper goods or do services for lower wages, that's the market baby. It is abhorent that many Americans 'resent' the Chinese and Indians for 'taking their jobs' when in reality, it is the CEO's of US corporations who FIRED those Americans and actively sent the jobs overseas. It wasn't some poor Indian who 'stole' that job at all and jobs don't passively migrate overseas: they are actively shipped their at the behest of Big Business.
The joke is that protectionism will only HURT the US economy: tariffs on foreign goods will only make the price of goods in general go UP not down. That will force the US consumer to spend more of their disposable income for less goods and services in exchange. Lowered buying power will lead to lower spending, which translates to lower corporate profits, which leads to missed earnings for companies, which leads to lowered stock prices, which hurts major pension funds, which hold the retirement accounts of millions of those very US consumers.
What is evident, therefore, is the US has painted itself into a corner: without protectionism, the US is seeing its assets being bought by internationals who salivate at the freefall of the US dollar's value, are able to buy such assets on the cheap, and able to play the game once dominated solely by the US. With protectionism, the economy will falter. The reality is we are seeing a major shift in global capital towards the east. In a reversal of America's 'Go West Young Man' ethos: It's now "Go East Bold Dollars".
Do I think America is 'going down' tomorrow. No. Do I think a massive tidal wave of economic change is underfoot? Absolutely. The Chinese will not be pushed around, nor will the Indians, or the Europeans (who are finally working more and being more productive after years of 35-hour-workweeks and 6-weeks-vacation-time historically).
Bush has grossly dimished America's position in the world and it is a shame that American's tolerate it and haven't impeached him. It has been leaked that we absolutely support torture, have killed hundreds of thousands in Iraq and Afganistan, spent $100's of billions on wars for nothing, and now face a malaise in the credit markets that could send the country into recession. Where is the fiscal conservancy? America needs a leader who can adequately navigate the tidal shifts in the global economy, which is why I am hoping Bloomberg joins the race. He is by far the ONLY potential candidate who could guide the US internationally economically while also finding solutions to healthcare and social security.
Protectionism is the latest Republican rally and it will never work. We have opened the markets up and it is time to play by the very rules we imposed on the world, not cower and run home to mommy. It would be like the Yankees screaming that the Royals shouldn't be allowed to jack up their payrolls now to compete...(Sorry, Yankee fans, I know these days are tough for you...)
Economists who argue for free markets are merely voiceboxes for protectionism. Now that jobs 'swam' across both oceans, Americans are screaming for Uncle Sam to beef up security, not in the form of rifles and bombs, but in terms of regulating deals. They argue that US companies should not be bought up by certain foreign countries' firms. This can be seen in the CNOOC deal for Unical, the Dubai Ports deal for NYC harbors, or the protection over investment in US telecom companies so that 'no one else gets our technology'. Let's face it: there is NO SUCH THING as a FREE MARKET. It doesn't exist. It's laughable that people still like to wrap themselves in the myth that democracy and free markets is best, when inside, we Americans secretly know we want unidirectional open markets, meaning protect our workers while forcing the rest of the world to open up.
Republicans are now arguing that imported goods should be taxed higher. What's free and open about that? If foreign economies can produce cheaper goods or do services for lower wages, that's the market baby. It is abhorent that many Americans 'resent' the Chinese and Indians for 'taking their jobs' when in reality, it is the CEO's of US corporations who FIRED those Americans and actively sent the jobs overseas. It wasn't some poor Indian who 'stole' that job at all and jobs don't passively migrate overseas: they are actively shipped their at the behest of Big Business.
The joke is that protectionism will only HURT the US economy: tariffs on foreign goods will only make the price of goods in general go UP not down. That will force the US consumer to spend more of their disposable income for less goods and services in exchange. Lowered buying power will lead to lower spending, which translates to lower corporate profits, which leads to missed earnings for companies, which leads to lowered stock prices, which hurts major pension funds, which hold the retirement accounts of millions of those very US consumers.
What is evident, therefore, is the US has painted itself into a corner: without protectionism, the US is seeing its assets being bought by internationals who salivate at the freefall of the US dollar's value, are able to buy such assets on the cheap, and able to play the game once dominated solely by the US. With protectionism, the economy will falter. The reality is we are seeing a major shift in global capital towards the east. In a reversal of America's 'Go West Young Man' ethos: It's now "Go East Bold Dollars".
Do I think America is 'going down' tomorrow. No. Do I think a massive tidal wave of economic change is underfoot? Absolutely. The Chinese will not be pushed around, nor will the Indians, or the Europeans (who are finally working more and being more productive after years of 35-hour-workweeks and 6-weeks-vacation-time historically).
Bush has grossly dimished America's position in the world and it is a shame that American's tolerate it and haven't impeached him. It has been leaked that we absolutely support torture, have killed hundreds of thousands in Iraq and Afganistan, spent $100's of billions on wars for nothing, and now face a malaise in the credit markets that could send the country into recession. Where is the fiscal conservancy? America needs a leader who can adequately navigate the tidal shifts in the global economy, which is why I am hoping Bloomberg joins the race. He is by far the ONLY potential candidate who could guide the US internationally economically while also finding solutions to healthcare and social security.
Protectionism is the latest Republican rally and it will never work. We have opened the markets up and it is time to play by the very rules we imposed on the world, not cower and run home to mommy. It would be like the Yankees screaming that the Royals shouldn't be allowed to jack up their payrolls now to compete...(Sorry, Yankee fans, I know these days are tough for you...)
Sell Your MUTUAL FUNDS NOW!!
ARROYO GRANDE, Calif. (MarketWatch) -- No, I'm not kidding. That's the advice one of America's biggest financial advisers is telling his clients about "the lies that are placing your financial security in jeopardy."
Who's lying? Everyone involved with mutual funds, says Ric Edelman in his new book "The Lies About Money: Achieving Financial Security and True Wealth by Avoiding the Lies Others Tell Us, and the Lies We Tell Ourselves."
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Ouch, that hurts! His indictment is brutal: "There's no greater pitfall than the one created by the retail mutual fund industry. [They] are ripping you off. You are incurring greater risks, lower returns and higher fees than you realize, and as a result you are in danger of not achieving your financial goals. The situation is shocking, and no one is more astonished than me."
Astonished? Yes, for over two decades Edelman's firm was building his credibility and reputation as one of America's best-known financial advisers: "On my radio and TV shows, through my books, newsletter, Web site and seminars, I've been the retail mutual fund industry's biggest proponent ... I've said that retail mutual funds are the best way to save ... No longer."
Why? "The demise of the retail mutual fund industry ... When I started investing in mutual funds in the 1980s, the industry's top concern was serving shareholders. Today, though, the industry is more concerned with making profits for itself than serving its shareholders. This comes at the expense of people like you and me who have invested our life savings in mutual funds. As a result, owners of retail mutual funds today earn lower returns, incur higher risks and pay more in fees and taxes than we should."
He details 25 ways funds scam their investors.
True, the fund industry has been fair game for critics given its massive, widespread illegal shenanigans in recent years. Unfortunately, things may be worse today than three years ago when former Sen. Peter Fitzgerald, author of the Fund Reform Act of 2004, warned that "the mutual fund industry is now the world's largest skimming operation, a $7 trillion trough from which fund managers, brokers and other insiders are steadily siphoning off an excessive slice of the nation's household, college and retirement savings."
Back then I wrote 68 articles exposing fund scandals. But I finally realized the futility of challenging the industry when the Senate Banking Committee caved to special-interest money and killed reforms. At the time the fund industry's lobbying group had a budget reported to be roughly $50 million and was staffed by five full-time, 30 part-time and 75 outside lobbyists.
My response was "The Lazy Person's Guide to Investing," a book about how Main Street investors can avoid the rip-off by using no-load index funds. Edelman's solution is far more dramatic, even shocking and risky. He put everything on the line, not just with a new book and an indictment of the fund industry, he made an incredible bold statement with this move: We "have sold all our investments in retail mutual funds. All my colleagues at Edelman Financial have done likewise and our clients are following our advice. You need to sell all your retail mutual funds too."
You heard right, he sold and says "you need to sell all your retail mutual funds too."
And what if all advisers and all their clients sold their funds too? Would the industry finally wise up and realize that being "more concerned with making profits for itself than serving its shareholders" doesn't cut it any more?
Now folks, that's a truly bold, shocking and risky solution. And what an indictment of the mutual fund industry's coming "demise," as he calls it. We are at a crossroads, a turning point, a watershed moment in financial history, and we may be seeing the beginning of the end of the fund industry.
What pushed him over the edge?
How did Edelman go from strong advocate to arch-enemy of the fund industry engaged in a sell-off. What pushed him? He was betrayed. Remember back in the 2003-2004 era, the massive scandals? Not just Edelman, we were all betrayed -- you, me and the rest of America's 95 million Main Street investors were betrayed by the illegal and immoral behavior of the entire fund industry, which continues even today.
How bad is it? Obviously outrageous enough that one of America's top financial advisers would actually sell all his funds! Check out the book: You'll find a 40-page "timeline" exposing around 400 "allegations of misconduct," with sleazy details, many ongoing through 2005, 2006 and 2007 and still under investigation:
"Since the mutual fund scandals started making headlines in 2003, nearly every retail mutual fund company has been ensnared; and investigators from the NASD, SEC, New York Stock Exchange, and several state attorneys general, most notably those in New York and Massachusetts, continue to uncover mischief and wrongdoing in the retail mutual fund industry." Yes, he felt betrayed, outraged.
And yet, in spite of this widespread, massive and ongoing fraud, guess what? The assets of the fund industry increased about 43% from $7 trillion to $10 trillion in the three years since the Mutual Fund Reform Act of 2004 was killed by the Senate Banking Committee.
Why? Two reasons: First, in the four years since the scandals were exposed, the fund industry as a whole and the individual funds have spent huge sums on advertising and marketing (using their shareholders' own money against them) flooding the media with ads rebranding themselves as good guys.
Yep, they are reducing your returns, using your money to cover over their "sins," to convince you they're not crooks. And it's been effective. Recent studies show that a large majority of investors couldn't remember the names of funds involved in corrupt behavior. Get it? Investors are brainwashed, oblivious, numb about the fairly recent corruption and scandals.
Where to put your money?
The second reason: America's 95 million passive investors have had few real alternatives. What's Edelman's solution? After all, if you sell funds you need someplace to reinvest the proceeds plus someplace to put new money.
Read his book for the details; he puts a lot of emphasis on a very simple and easy way to customize a well-diversified portfolio that fits your personal needs today and can be modified as things change in the future. He emphasizes exchange-traded funds and institutional funds such as Dimensional Fund Advisors.
I still say that "Lazy Portfolios" of no-load index funds make sense. Like Edelman, I see huge problems with the actively managed funds that are 90% of the industry's total, but not with the other 10% in index funds. Read more on lazy portfolios.
But where you put your money (once you decide to sell your mutual funds) is not as important at this moment as the fact that Edelman has made such an incredibly bold rejection of the entire $10 trillion retail mutual fund industry ... by actually selling all his mutual funds, asking his staff to sell and then recommending to all his clients that they do the same ... and then, advise the American investing public to "sell all your retail mutual funds too!"
Folks, something is deeply wrong with the American mutual fund industry when one of our best and the brightest financial advisors makes such a strong indictment of corruption in the entire $10 trillion fund industry, and then not only sells all his funds but wants everyone else to sell too. Think about it, maybe you should sell! 
Credit-cruch and the Subprime Roadplan
I suggest the best option for dealing with the subprime mess is as follows: sell your real estate, rent for four years, develop a cash reserve, and get ready to buy once the reported 2 million subprime foreclosures come to roost by 2009. As Naomi Kline comments, disaster IPO's explode with each incident: it was openly voiced on NPR yesterday by a westcoast professor that the current Southern Cal wildfires will be a longterm net positive for the region, in terms of stimulus to construction demand. That's an insane way to view disaster! The subprime issue is another method through which big corporations are able to create a 'brushfire' of foreclosures: these leave the banking institutions sitting on ALL of that real estate on the cheap! They created the alternative products such as ARMS and interest only loans, or my favorite, the interest-only-ARM, at the exact time that rates cratered, thanks to Alan. People were not told the realities of the potential rate adjustments as they were eagerly offered these insane products. All the while, the banking giants know for a fact that many of the borrowers in recent years WOULD NOT be able to handle a 40% increase in monthly mortgage cost 3, 5, or 7 years down the road, given their incomes doubtlessly would not keep pace with such inflation. Those who took such loans should refinance immediately into longterm fixed rate loans (30 years), given rates are still historically low.
This shake-out is incredibly enormous, fiscally, with a major amount of wealth being centralized from the national many to the corporate few. Follow the money: a low or middle income family scrapes together 5% for a downpayment + closing costs. Over the past five years, that was enough to get yourself 'into a home', especially as per ads hawking developments in the poconos. That money could be around $10-15,000 if not more, of hard-earned labor. Now the banks did three things: they lowered the credit-worthiness of the lending standards, making more people eligible for more loans, stopped asking for wage documentation (W-4's, Bank Statements, these loans are called Paperless loans or document-free), and created interest-only ARMS (so that the buyer never pays down any more principal, only interest, for the first five years, then the rate adjusts up AND you have to pay principal + interest, so the payment skyrockets!!).
The other point here is that my figures don't take into account the millions of middle class Americans who awash in debt, who similarly face major financial hurdles as their mortgage payments catch up with them. There is a brilliant commercial that has a White guy in suburbia smiling on his lawnmower, viewing his two cars, big house, rolex, and CREDIT DEBT he can't even make his monthly payments on. That is the face of debt in this country, not only subprime borrowers.
If we assume that each family who faces subprime foreclosure has at least $5,000 of equity in their home, and multiply that times 2 million = $10,000,000,000 leaving the accounts of average americans who are left with destroyed credit, but now the bank is sitting on roughly $900 billion - $1.8 trillion in real estate nationally (assuming that $10mil in equity lost by the foreclosed-upon was equal to roughly 5-10% of the actual value of the property).
This transference of monies from the masses to the private is mirrored neatly in the colluded-dilapidation of our national power-grid and highway system. As is being seen, highways and toll roads are being leased off to private companies at the expense of the taxpayer. The national power grid has been shown to be in disrepair and arcane in technology. These set us up for more major disasters, through which private companies with get public dollars to rebuild. As my father says, they should call it "Weapons of Mass Construction". Let the grid fail, is the unspoken concensus among the powerful.
This privatization of public funds is immense. A report came out yesterday citing the probable costs of the Wars in Iraq and Afganistan at being ~$2.3 TRILLION! That is astonishing given Bush claimed the war would cost only $50mil. And where will all that money have been spent? $700 billion of taxpayer dollars will be interest payments alone.
And the beauty is this is all happening right in front of our eyes.
This shake-out is incredibly enormous, fiscally, with a major amount of wealth being centralized from the national many to the corporate few. Follow the money: a low or middle income family scrapes together 5% for a downpayment + closing costs. Over the past five years, that was enough to get yourself 'into a home', especially as per ads hawking developments in the poconos. That money could be around $10-15,000 if not more, of hard-earned labor. Now the banks did three things: they lowered the credit-worthiness of the lending standards, making more people eligible for more loans, stopped asking for wage documentation (W-4's, Bank Statements, these loans are called Paperless loans or document-free), and created interest-only ARMS (so that the buyer never pays down any more principal, only interest, for the first five years, then the rate adjusts up AND you have to pay principal + interest, so the payment skyrockets!!).
The other point here is that my figures don't take into account the millions of middle class Americans who awash in debt, who similarly face major financial hurdles as their mortgage payments catch up with them. There is a brilliant commercial that has a White guy in suburbia smiling on his lawnmower, viewing his two cars, big house, rolex, and CREDIT DEBT he can't even make his monthly payments on. That is the face of debt in this country, not only subprime borrowers.
If we assume that each family who faces subprime foreclosure has at least $5,000 of equity in their home, and multiply that times 2 million = $10,000,000,000 leaving the accounts of average americans who are left with destroyed credit, but now the bank is sitting on roughly $900 billion - $1.8 trillion in real estate nationally (assuming that $10mil in equity lost by the foreclosed-upon was equal to roughly 5-10% of the actual value of the property).
This transference of monies from the masses to the private is mirrored neatly in the colluded-dilapidation of our national power-grid and highway system. As is being seen, highways and toll roads are being leased off to private companies at the expense of the taxpayer. The national power grid has been shown to be in disrepair and arcane in technology. These set us up for more major disasters, through which private companies with get public dollars to rebuild. As my father says, they should call it "Weapons of Mass Construction". Let the grid fail, is the unspoken concensus among the powerful.
This privatization of public funds is immense. A report came out yesterday citing the probable costs of the Wars in Iraq and Afganistan at being ~$2.3 TRILLION! That is astonishing given Bush claimed the war would cost only $50mil. And where will all that money have been spent? $700 billion of taxpayer dollars will be interest payments alone.
And the beauty is this is all happening right in front of our eyes.
BioFuels: A Convenient Scapegoat for Big Industry
I am attaching an article about a UN statement that crops grown for biofuels must be regulated to ensure they weren't grown in substandard methods or locations (pointing to Indonesia's deforestation for palm oil). It is true that countries in South East Asia are cutting down rain forests to grow crops for biofuels and this is horrific. My companies avoid using feedstocks that put pressure on the food supply for precisely this reason and others. But I have a huge problem with biofuels taking the primary pummeling for issues of deforestation and water depletion alone.
The role of biofuels in the saga of global depletion is TINY in comparison to the role of Big Industry as a whole. Coca-Cola has depleted the world's water supplies more than biofuels production. The logging industry has devastated rain forests for years, yet it keeps on occurring. Yet, no one seems to demand that all paper originating from trees in rainforests be monitored. Instead, with biofuels, it is yet again easy to get public opinion to believe it is a driving factor in global deforestation and the cause therefore also for food prices rising.
I raise this point because I am fascinated with the sophistication of the average person's knowledge NOT about biofuels in general, but SPECIFICALLY: the average person knows incredibly detailed CRITIQUES of biofuels. For example, often, in super markets or parking lots, when talking with random people, I hear this "Oh, ethanol? Doesn't it take more energy to produce ethanol than that ethanol actually produces?" Do you realize how sophisticated this question is for a contractor from Jersey? When I say to them "How much energy does it take to produce one unit of energy in petro oil or home heating or natural gas?", they have no clue? They shrug and don't care that the fact is for every ONE unit of energy that goes into producing petro-oil, barely ONE unit of energy is produced. That's a one-to-one ratio; conversely, our biodiesel produced from waste cooking oil is a ratio of one-to-five, meaning for every one unit that goes into production, five units of energy are produced in the form of biodiesel.
My point is: people now say 'biofuels are making corn more expensive, making food more expensive, destroying rainforest' but they have no clue how small a role the biofuels industry is playing in the global destruction that has already resulted from and continues to result from corporate raiding globally, which makes their lifestyles possible in the first place.
Why is it so easy for such negativity to attach itself in the public opinion leading to such sophisticated critique by the masses?
If the UN wants to advocate that crops used for biofuels should be regulated to ensure ethical production standards, then the UN should make such a mandate for virtually every manufacturing industry. How about coming out against the numerous companies that Bloomberg Magazine exposed for using pig ore and steel produced in Brazil on slave plantations in the middle of the Amazon? There are doubtlessly countless other industries that dwarf the biofuels industry in size of their role in global depletion yet they occur with little public scrutiny, and certainly little to no condemnation from such high pulpits as the UN.
Corn is used for vastly more than simply the production of ethanol: it is a foodstuff in thousands of products and other uses, and its demand therefore has skyrocketed overall. High oil prices have also pushed up ancillary costs in the market place leading to pressure on the food supply. Yes, biofuels produced from crop-based feedstocks have the chance of having some downside consequences but I would rather see the UN clean up other industries and make available those lands for the production of biofuels.
It is true that down the road, second generation fuels will come online (my company is working on two: biodiesel from algae and ethanol from waste products) and the value of crop-based fuels will virtually vanish given the feedstock costs. But for now, I would prefer that the lens be broadened to look at those industries MOST responsible for deforestation and global water shortages, and I believe biofuels will be very far down on that list!
-Alok Appadurai
The role of biofuels in the saga of global depletion is TINY in comparison to the role of Big Industry as a whole. Coca-Cola has depleted the world's water supplies more than biofuels production. The logging industry has devastated rain forests for years, yet it keeps on occurring. Yet, no one seems to demand that all paper originating from trees in rainforests be monitored. Instead, with biofuels, it is yet again easy to get public opinion to believe it is a driving factor in global deforestation and the cause therefore also for food prices rising.
I raise this point because I am fascinated with the sophistication of the average person's knowledge NOT about biofuels in general, but SPECIFICALLY: the average person knows incredibly detailed CRITIQUES of biofuels. For example, often, in super markets or parking lots, when talking with random people, I hear this "Oh, ethanol? Doesn't it take more energy to produce ethanol than that ethanol actually produces?" Do you realize how sophisticated this question is for a contractor from Jersey? When I say to them "How much energy does it take to produce one unit of energy in petro oil or home heating or natural gas?", they have no clue? They shrug and don't care that the fact is for every ONE unit of energy that goes into producing petro-oil, barely ONE unit of energy is produced. That's a one-to-one ratio; conversely, our biodiesel produced from waste cooking oil is a ratio of one-to-five, meaning for every one unit that goes into production, five units of energy are produced in the form of biodiesel.
My point is: people now say 'biofuels are making corn more expensive, making food more expensive, destroying rainforest' but they have no clue how small a role the biofuels industry is playing in the global destruction that has already resulted from and continues to result from corporate raiding globally, which makes their lifestyles possible in the first place.
Why is it so easy for such negativity to attach itself in the public opinion leading to such sophisticated critique by the masses?
If the UN wants to advocate that crops used for biofuels should be regulated to ensure ethical production standards, then the UN should make such a mandate for virtually every manufacturing industry. How about coming out against the numerous companies that Bloomberg Magazine exposed for using pig ore and steel produced in Brazil on slave plantations in the middle of the Amazon? There are doubtlessly countless other industries that dwarf the biofuels industry in size of their role in global depletion yet they occur with little public scrutiny, and certainly little to no condemnation from such high pulpits as the UN.
Corn is used for vastly more than simply the production of ethanol: it is a foodstuff in thousands of products and other uses, and its demand therefore has skyrocketed overall. High oil prices have also pushed up ancillary costs in the market place leading to pressure on the food supply. Yes, biofuels produced from crop-based feedstocks have the chance of having some downside consequences but I would rather see the UN clean up other industries and make available those lands for the production of biofuels.
It is true that down the road, second generation fuels will come online (my company is working on two: biodiesel from algae and ethanol from waste products) and the value of crop-based fuels will virtually vanish given the feedstock costs. But for now, I would prefer that the lens be broadened to look at those industries MOST responsible for deforestation and global water shortages, and I believe biofuels will be very far down on that list!
-Alok Appadurai
Biofuels bonanza facing 'crash'
| By Roger Harrabin Environment Analyst, BBC News, Valencia |
The biofuels bonanza will crash unless producers can guarantee their crops have been produced responsibly, the UN's environment agency chief has said. 
Mr Steiner warns that Indonesia palm oil may never be sustainable
Achim Steiner of the UN Environment Programme (Unep) said there was an urgent need for standards to make sure rainforests weren't being destroyed.
Biofuel makers also had to show their products did not produce more CO2 than they negated, he told BBC News.
Critics say biofuels will lead to food shortages and destroy rainforests.
They point to the destruction of Indonesia's peat swamps as an example of biofuel folly.
The swamps are one the richest stores of carbon on the planet and they are being burned to produce palm oil.
Mr Steiner implied that because of Indonesia's inability to police its land use, biofuels from palm oil grown by the nation might never be deemed to be sustainable.
But he said some biofuels could be considered sustainable. He highlighted ethanol production in Brazil, and a dry land crop called jatropha, which is resistant to pests and droughts.
Mr Steiner urged investors not to turn their backs on developing second or third generation fuels that would use non-food crops and burnable waste.
He feared that beneficial biofuels might be lost as part of a consumer backlash.
Mr Steiner made his comments in response to criticism from a group of independent scientists who said they had written to the Intergovernmental Panel on Climate Change (IPCC) complaining that the climate body's comments on biofuels have been naive.
The independent scientists pointed to two phrases in reports by the IPPC, of which Unep is a co-sponsor, which the scientists said could not be substantiated.
One stated that biofuels were an effective solution in at least a number of countries, while the other suggested that biofuels in the transport sector would generally have positive social and environmental benefits.
False economy
One of the scientists, Tad Patzek from University of California Berkeley, US, said: "In the long-run, the planet cannot afford to produce biofuels because we're going to run out of the land and water and environmental resources.
"In addition, because of the land use changes, drying up peat-swamps, burning tropical forest, these biofuels involve up-front enormous emissions of greenhouse gases that will never be recouped by their later use," he told BBC News.
Professor Patzek also doubted Mr Steiner's confidence in Brazilian ethanol. "The [IPCC] description of Brazilian sugar-cane ethanol production as 'highly advanced' and 'a model' is somewhat of an exaggeration.
"It's neither good nor a model," he said.
Brazilian producers are adamant that their bio-crops are not grown on rainforest land - but the environmental group Friends of the Earth Brazil claim that peasant farmers - dispossessed by biofuel conglomerates - are moving to the Amazon to seek new land.
Mr Steiner said Brazil had enough land to ensure that biofuel cropping could be sustainable.
The group of scientists said their letter to the head of the IPCC, Professor Pachauri, had not been answered.
BBC News has not been able to obtain a comment from Professor Pachauri, though this may be hardly surprising given that the final summit on the IPCC Fourth Assessment Report (A4R) is currently underway in Valencia, Spain.
Mr Steiner said Unep had set up a high-level task force to study the life-cycle implications of all biofuels. The group is expected to publish its findings next year.
By then much of the Indonesian peat swamps - one of the most valuable stores of carbon in the world - will have been torched.
The only way of stopping may not be through the UN or the Indonesian government, but through one or more private philanthropist with a burning desire to own an Indonesian swamp.The US is Losing at Its Own Game: Free Markets
Below I am attaching another story that feeds to broader shift in global capital that I have been following for the past two years now. The US is setting itself up to be taken over, piece by piece. Without xenaphobia, protectionism, and racist policies, the US will find itself a nation of Sharecroppers as the author below states, with 'the others guys being the owners'.
Capitalism requires the system to house the 'haves' and the 'have nots' (or as George Bush said at a dinner, we are the 'have more's). Through the WTO, we have forced an agenda of open borders for trade down the world's collective throat. But watch the cycle: real estate has collapsed leaving those assets dangling like ripe cherries in the summer. US publicly-traded-corporations' stock values are trading at historical LOWS given profits. Finally, our insatiable appetite for oil, combined with the pathetic dollar, have sent oil through the roof! What this means is that dollars from our payrolls literally migrate to the Middle East. Those countries are now dollar rich and are on buying sprees. Isn't that what the US meant by free markets? Free flow of capital, goods, and services?
Two major deals in the past three years were scuttled because of 'national security': the Chinese effort to buy Unical (oil company) and Dubai Port's efforts to by harbor space in the US. If the world is a free and fair economy, why shouldn't those companies be allowed to buy them if they have enough cash and debt?
Instead, the US will doubtlessly head to 'protect itself' and close itself off to free trade. This would be disastorous for the economy: the price rise of goods and services would vastly outpace the growth of wages if we start taxing goods from China...
The US has a problem with these sales because they are tied to investment companies connected to foreign governments, arguing that these government investments are for their national security and may not have any economic sense, as if foreign governments shouldn't invest in their own security.
The joke is that many argue that the US GOV has done precisely the same thing for the past two hundred years: protecting and expanding the rights and roles of US corporations around the globe. The difference is that the US GOV doesn't directly own these corporations: no, instead, the US GOV goes out of its way to help these corporations and no chance of profiting on them, and then actually subsidizes these corporations with no ownership in return. The effect is the same however, as repeatedly in history, the US GOV has done everything in its power militarily and diplomatically to expand the nation's security interests through corporate tyranny abroad. The Banana Republics are an early example and Iraq is a modern one.
The sad part is that the game of cheating and pilaging is finally coming home. Foreign cash hordes are gobbling up US assets from slices of companies like Blackstone to chunks of real estate in NYC and elsewhere...
I see no easy solution.
AA
The Deal Story of 2008:
![[Sovereign Wealth]](http://online.wsj.com/public/resources/images/MI-AN958A_TheGa_20071119191219.gif)
Capitalism requires the system to house the 'haves' and the 'have nots' (or as George Bush said at a dinner, we are the 'have more's). Through the WTO, we have forced an agenda of open borders for trade down the world's collective throat. But watch the cycle: real estate has collapsed leaving those assets dangling like ripe cherries in the summer. US publicly-traded-corporations' stock values are trading at historical LOWS given profits. Finally, our insatiable appetite for oil, combined with the pathetic dollar, have sent oil through the roof! What this means is that dollars from our payrolls literally migrate to the Middle East. Those countries are now dollar rich and are on buying sprees. Isn't that what the US meant by free markets? Free flow of capital, goods, and services?
Two major deals in the past three years were scuttled because of 'national security': the Chinese effort to buy Unical (oil company) and Dubai Port's efforts to by harbor space in the US. If the world is a free and fair economy, why shouldn't those companies be allowed to buy them if they have enough cash and debt?
Instead, the US will doubtlessly head to 'protect itself' and close itself off to free trade. This would be disastorous for the economy: the price rise of goods and services would vastly outpace the growth of wages if we start taxing goods from China...
The US has a problem with these sales because they are tied to investment companies connected to foreign governments, arguing that these government investments are for their national security and may not have any economic sense, as if foreign governments shouldn't invest in their own security.
The joke is that many argue that the US GOV has done precisely the same thing for the past two hundred years: protecting and expanding the rights and roles of US corporations around the globe. The difference is that the US GOV doesn't directly own these corporations: no, instead, the US GOV goes out of its way to help these corporations and no chance of profiting on them, and then actually subsidizes these corporations with no ownership in return. The effect is the same however, as repeatedly in history, the US GOV has done everything in its power militarily and diplomatically to expand the nation's security interests through corporate tyranny abroad. The Banana Republics are an early example and Iraq is a modern one.
The sad part is that the game of cheating and pilaging is finally coming home. Foreign cash hordes are gobbling up US assets from slices of companies like Blackstone to chunks of real estate in NYC and elsewhere...
I see no easy solution.
AA
The Deal Story of 2008:
Will the U.S. Get LBOed?
November 20, 2007; Page C1
China and the Gulf states are hungry, and they've just sat down for an American buffet. In the last few months alone, state-affiliated funds and companies have taken bites of American icons, picking up small stakes in Advanced Micro Devices, MGM Mirage, Nasdaq Stock Market, Blackstone Group and Bear Stearns.
The deals were designed to be small enough to avoid scrutiny from the U.S. government. This conveniently played into the hands of sellers, who were able to offload pricey positions while giving virtually nothing in return, such as board seats or veto rights.
But the mergers-and-acquisitions story of 2008 will be how these foreign sovereign funds -- sitting on an estimated $2 trillion to $3 trillion of reserves -- direct their appetites. Fattened by the U.S.'s own trade imbalances and encouraged by favorable currency rates, they aren't likely to stay so compliant for long. Further down the buffet line sit entire U.S. companies.
Seven sovereign funds, including those of Abu Dhabi, Kuwait, China, Singapore and Russia, now sit on piles greater than $100 billion. Outside the U.S., these funds have proven more adventuresome, with a Dubai company recently moving to take ownership of the airport in Auckland, New Zealand.
This foreshadows some uncomfortable economic and cultural reckonings for the U.S. The modern gamesmanship of corporate interests is beginning to look more like "The Great Game" of national interests, where capital, as much as armies, can be deployed for strategic effect. And on this field of play, the U.S. looks caught off guard -- not unlike the cocksure Olympic basketball squad, run out of the gym by ostensibly weaker teams.
"When governments act in this field, the motives are different," says Deszo J. Horvath, Dean of the Schulich School of Business at Canada's York University. "The motives are longer-term security issues, which can have nothing to do with current economics."
Sen. Evan Bayh captured the new concerns at a congressional hearing last Wednesday. "The definition of national security interest is broader than it used to be," he said. "[Y]ou'll see the Chinese going around the world acquiring what they view as strategic energy interests, and it is not impossible that financial positions might be used in a similar vein."
That's why this incoming wave of foreign money will reveal more about the U.S. than about countries initiating the deals. Laws overseeing foreign investments were just given a much-needed overhaul. But at its core, the issue is as much about emotion and pride as it is about process, says Ivan Schlager, a partner in the Washington, D.C., office of Skadden Arps, who handles cross-border transactions.
Foreign investments touch a nerve, especially when so much American economic power appears at the mercy of China, which holds U.S. Treasury bills, or the Gulf states, which have such a big say over U.S. energy costs. For 2007, foreign buyers have accounted for 20% of M&A in the U.S., according to Dealogic, the second-highest level since 1995.
"We have not fully grasped what is happening here, and we have no counterstrategy," said Patrick Mulloy, Washington representative of the Alfred P. Sloan Foundation, a group studying technology, business, and economics.
Can the U.S. accept the foreign investments as an essential element for lubricating a dynamic economy? Tighter economic ties create less incentive for war and terrorism. And below the radar, a recent series of foreign investments have closed without incident. "No one raised serious objections when Sabic [a state-owned Saudi Arabian company] bought GE Plastics in a competitive auction. Are we culturally ready? We're a very welcoming and open society," adds Mr. Schlager.
Until it's not. Already the country has proven touchy, famously fretting when a Japanese businessman overpaid for the Pebble Beach golf resort back in 1990, or when a Dubai-backed company looked to take over a series of U.S. ports in 2006, setting off a talk-radio furor that squelched the deal.
It's easy to find conspiracies in these governmental funds, in part because they have such little transparency. The Group of Seven leading nations recently called upon the International Monetary Fund and World Bank to study ways to improve disclosure and accountability.
With a weak dollar and the ever-enriched positions of petro-based economies, it's inevitable that the worries will continue to stew. And it's inevitable that they will one day interfere with a big sovereign-fund investment plan.
The irony is the U.S. is, in essence, funding its own potential takeover. In Wall Street parlance, they call it getting LBOed. "We're moving to a sharecropper economy," said Mr. Mulloy in an interview. "The other guys are going to be owning, and we're going to be working for them."
Email dennis.berman@wsj.com. For a daily comprehensive look at the world of deals visit wsj.com/deals.
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