Monthly Archive

Barak Obama Is Not Andrew Jackson..Alas.

Why 2012 is Not 1832

By Shlomo Maital  

  Andrew Jackson

Once upon a time, America had strong presidents with clear values and strong principles.  Take, for instance, Andrew Jackson.  He took on the banks, the moneyed interests, and the Republicans whom they supported – and defeated them all, and won re-election in 1832. Here is the story.

  Nicholas Biddle ran the Bank of the United States, the heavyweight US bank (like Citibank and Bank of America combined) at the time.   He was supported by Henry Clay, from South Carolina, the Republican Presidential candidate.  The bank’s charter was about to expire, and had to be renewed by Congress.  President Jackson thought the bank was a ‘monster’ and that it was corrupting America.  Biddle had the Republicans table a bill to renew the charter, in Congress. The bill passed.  Biddle exulted. Biddle assumed Jackson would not have the guts to veto the bill. He was wrong.  Jackson vetoed it.  Here is the reason he gave:

     From presidentialprofiles.com:  “Jackson scored the bank for its “exclusive privileges,” claiming that most of its stock was held by foreigners and Americans “chiefly of the richest class.” He accused it of operating inequitably, particularly against the West, and of “gross abuse” of its charter. Most especially he warned that the principles embodied in the bill contravened the basic principles of republican equality. Government, Jackson proclaimed, should confine itself “to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor.” It should not add “artificial distinctions” to the inevitable natural and just differences among men and “make the rich richer and the potent more powerful.””

   The Republicans assumed that this veto would lead to Jackson’s defeat, for certain, in 1932.  But the Democrats rallied and the people re-elected Jackson in a near-landslide.  Clay never did become President.  And Jackson went on to call South Carolina’s bluff, prevent it from breaking Federal law, and kept the Union (of U.s. states) together.  And the Bank of the United States?  Jackson broke it. He withdrew Treasury gold and money from it.  And the bank withered and so did Biddle. 

     Oh – by the way – Jackson paid off ALL America’s national debt. Every cent. It was the last time America was out of debt.   

   Once, there were presidents with courage.  It’s why Jackson’s portrait is on the US $20 bill.  Today there is Obama.  He bailed out the banks, rather than take them on.  We could put his image on a $3 bill.  But, then, it would be phony.

Gene Therapy for Cystic Fibrosis: New Hope

By Shlomo Maital

  CF Gene Therapy…new hope!  

 Cystic fibrosis is an awful disease, inherited genetically. It is caused by a single faulty gene. Some 90,000 people suffer from it worldwide.  Their prognosis is bleak.  Average age at death for a CF sufferer is 41.  The disease causes a painful buildup of mucous in the lungs. 

    With all we know about genes and gene splicing, why not just replace the faulty gene with a healthy one?  It turns out to be a massively difficult task. The body itself is designed to keep out foreign stuff, including new and healthy genes.   Now, a team led by Prof. Eric  Alton at London’s Imperial College is about to try.  The BBC reports that a clinical study has begun, with 60 CF sufferers being given gene therapy monthly, while 60 other CF sufferers will be given a placebo, every day for a year. In two years the results will be known – it works, or it fails.   

  How does it work? Cells are taken from the patient’s cheek.  The offending gene is cut out in the laboratory. Bacteria are introduced into the cell, that manufacture the healthy gene, lots of them.  Then the cells are breathed into the lungs with a ‘nebulizer’.  Evolution, and the lungs themselves, are the problem. Human lungs have evolved to keep out bacteria.  So the researchers have had to employ every trick in the book to keep the body’s immune system from rejecting the healthy genes.  The healthy genes have to be introduced into the body every month, because they need to keep displacing the old, sick gene that remains in the lungs.  

   The British team spent a decade working on the problem. They did it using highly cooperative science – convening all the scientists in Britain, all the doctors in Britain, and brainstorming for different ideas, tricks and approaches to get the job done.      

    “Think what the Wright Brothers did in 1903,”  Alton says.  “They flew 50 yards. We’re trying to prove the concept first time,  doing gene therapy for the first time in the world,   and   we have another product coming through… this is really difficult science… “

Let the Cat Guard the Cream – And You Get LIBOR Fraud, or

Don’t Blame Barclay’s, Blame Ourselves!

By Shlomo  Maital   

The Cat Guards the Cream..Great Idea!

What in the world is LIBOR? 

 It is an acronym that stands for “London Interbank Offered Rate”.  It is the average of the perceived rate of interest banks pay when they borrow from each other.  It is calculated by officials of the top London banks with “cash” responsibilities, just before 11 a.m. daily. 

Why is it so important?

Because, LIBOR is used as the basis for calculating the rate of interest on a very wide and large range of assets, including  forward rate agreements, short-term-interest-rate futures contracts,  interest rate swaps, inflation swaps, floating rate notes, syndicated loans, variable rate mortgages, and currencies. You do not have to know what all those are; enough to know, as the BBC says, that LIBOR impacts $550 trillion (!) worth of assets (about 10 times the annual world GDP). 

Why is it in the news?

 On May 29 2008, The Wall Street Journal reported that banks were systematically understating the LIBOR rates,  in order to pretend they could borrow much more cheaply than they really could.  They did this,  because in the face of huge losses on subprime mortgages and credit default swaps, they had to pretend their balance sheets were better than they really were.   According to WSJ, “) “Citigroup said it could borrow dollars for three months at about 0.87 percentage point lower than the rate calculated using default-insurance data.”   Is that a lot?  You bet!  0.87 per cent on, say $550 trillion, is $4.35 trillion (twice the GDP of Italy!). 

On 27 June 2012, Barclays Bank was fined $200m by the U.S. Commodity Futures Trading Commission, $150m by the United States Department of Justice and £59.5m by the British FSA manipulation of the LIBOR and EURIBOR rates. 

Why Barclay’s?

Because the CEO of Barclay’s Bob Diamond was the first to admit wrongdoing.  (You can bet he is kicking himself, because his reward for being the only one to tell the truth is to be humiliated, busted, fired and discarded).  But many other banks did the same thing.  And it was obvious they were doing it.   How come we let the bank cats guard the cream? If they have every incentive to mis-state the true LIBOR rate, if millions of dollars and pounds in bonuses are at stake, why would they not do it?  Especially when, as author Michael Lewis recounts, the bank culture is not that of kittycats but ferocious tigers:

   “An investment banker is a breed apart, a member of a master race of dealmakers. He possessed vast, almost unimaginable talent and ambition. If he had a dog it snarled. He had two little red sports cars yet wanted four. To get them, he was, for a man in a suit, surprisingly willing to cause trouble.”

   Bob Diamond is an investment banker. So are most of the other Masters of the Universe (cf. Jamie Dimon, JP Morgan, etc.).  Maybe he did not know his workers were falsifying LIBOR.  But given the culture he represented, why would they NOT?

 What is the solution?

 Here is a serious suggestion I heard on the BBC.  Treat every bank product or service as a pharmaceutical drug.  Act like the FDA – insist that banks prove that every new proposed product or service creates real value for human society, like medicine.  And make them do ‘clinical trials’ to provide evidence.  Because otherwise, we will continue to get poisonous products like manipulated LIBOR.

   But at the very least, let’s stop being so stupid.  Calculate LIBOR with a team of Bank of England experts who use objective data from real borrowing deals, not ‘perceived’ estimates from bank kittycats who have a vested interest in lying.  If we let them do this, we deserve what we get.    

 What Money Can’t Buy: End the Tyranny of Markets Now!

By Shlomo  Maital  

 The Mastercard elephant:  Priceless???

In a Mastercard commercial, an elephant keeper in a zoo catches cold and goes home. His elephant picks up his Mastercard credit card, and with it buys tissues ($4), cold medicine ($11), soup ($4) and a warm blanket ($24),  and brings it to his keeper’s home. 

    After quoting all those prices, the narrator says,   “Making it all better….priceless”. 

    The problem is, with the overwhelming dominance of capitalism and free markets, thanks to us economists, everything today has a price, including things that should not.  Even ‘making it all better’.

     Princeton Univ. Professor  William Baumol, who taught me microeconomics nearly 50 years ago, once observed that “a price is a relationship between people, expressed as a relationship between things [money and goods].”  Harvard University Professor Michael Sandel believes that at least some relationships between people should NOT have a market price, precisely because they are priceless.  “Markets crowd out morals,” he writes, in his new book What Money Can’t Buy: The Moral Limits of Markets. 

   He is absolutely right.  In another of their destructive ideas, economists teach that when you create a market for something, you make it efficient.  Here is a wide variety of things that now have prices: 

    * Kids in schools are paid for grades or achievement.

    * Criminals in prisons buy luxury cells ($82 a night).

    * Sheriffs are paid by the number of prisoners they incarcerate (Lousiana).

  * Lobbyists pay people to stand in line for them, to get seats in Congressional hearings. (They charge $36-$60/hr., often reaching $1,000 a seat, and pay $$10-$20/hr. to those standing in the queue).  

   * Doctors offer ‘concierge service, for up to $25,000 a year, giving people priority in service, and no waiting. 

    * Airlines offer no-queue service, even in security lines.

   * In theme parks, a premium ticket lets you jump long queues.

  What’s wrong with all this?  Simple.  Today, in capitalist America, you can buy anything and everything. Despite Mastercard, nothing is priceless.  Once queues were the great equalizer…rich and poor waited for Grateful Dead tickets. No longer. If you have money, you jump almost every queue.   Today, whether you are at Universal Studios theme park or waiting for a rock concert ticket on-line, if you have money, you get what you want, if you don’t, you probably don’t. Because those who pay to jump queues push those who don’t far back to the end of the line.

     It’s just another case of rampant raging capitalism, out of control, guided by economists who have put their ethical judgment into the drawer…permanently. 

     If you think it’s just and sensible to have lobbyists’ deep pockets capture all the seats in a Congressional hearing, if you think Congress should allow this obscene practice, well, ignore this blog.  [A Democrat Congresswoman tried to ban it – the Republicans foiled her attempt.]   If you think there things that, like Mastercard says, should forever remain priceless,  let me know.   If you think that not every relationship between people should be capable of expression in terms of things, let me know.

    As Sandel says, “we live at a time when almost anything can be bought and sold.  The logic of buying and selling governs the whole of life.  It is time to ask whether we want to live this way.”  

    I don’t.  Do you?

The Snuggle for Survival: Darwin is Not What You Thought

By Shlomo  Maital  

 Evolution: It’s NOT always like this….

  The July cover story in Scientific American is by Harvard scholar Martin Nowak.  It is titled “Why we help”.  The theme?  If Darwin is right, if both humans and animal and plant species struggle for survival,  and if indeed it is “survival of the fittest”,  if big fish eat little ones, why then do we help one another?  Is there some evolutionary advantage to cooperation?  Why don’t we just ‘eat’ one another?  Nowak coins a lovely phrase: “the snuggle for survival”, rather than “the struggle for survival”.

   The answer, of course, is that mutual assistance and love helps those who offer it to survive and thrive.  Societies, tribes, cultures that are cohesive and that help and support one another are more likely to survive than those that do the opposite.  Take ant colonies, for instance.  Ants (which, incidentally, are all female – the few males fertilize the queen and then die) act for the good of the colony.  This social behavior, which is true of termites as well, has evolved through evolution.  Ant colonies have been selected for this pro-social skill. 

   Nowak, in his article, lists five reasons people help one another. First, direct reciprocity, or ‘tit for tat’.  You help me, I help you.  Even animals evince this type of behavior.  Second, neighborly effects.  Neighbors help one another, and a culture of sharing spreads.  I grew up in a small rural town in Saskatchewan; with fiercely cold winters this type of mutual help is vital for survival.  Even yeast does this; ‘cooperative’ yeast cells make enzymes that digest sugar, at a cost to themselves but creating value for the whole colony.  Third, kin selection. Because our kin share our genes (first cousins have 12.5 % of our genes), by helping our kin, we preserve our own genes.  Fourth,  “indirect reciprocity”. This one exists even in monkeys.

  “Those who have a reputation for assisting others who fall on hard times might even find themselves on the receiving end of goodwill from strangers when their own luck takes a turn for the worse. Thus, instead of the “I’ll scratch your back if you scratch my mine” mentality, the cooperator in this situation might be thinking, “I’ll scratch your back, and someone will scratch mine.” Among Japanese macaques, for example, low-ranking monkeys that groom high-ranking ones (which have good reputations) may better their own reputations—and hence receive more grooming—simply by being seen with the top brass.”

Finally, the fifth reason is one Darwin himself understood, group selection. 

    “Darwin himself, who observed in his 1871 book The Descent of Man that “a tribe including many members who … were always ready to aid one another, and to sacrifice themselves for the common good, would be victorious over most other tribes; and this would be natural selection.” 

  The 2007-2012 global financial and economic crisis was driven by two forces: selfish self-seeking destructive behavior that took on excessive risk, and a system that permitted this behavior.   Are we now seeking a ‘natural selection’ process, in which societies that pursue such selfish behavior (America, parts of Europe, particularly Germany) are sinking, while other societies (Scandinavia, Asia) are rising?