Why are They in Charge??? A Real Question

I analyze "Senate to Universities: Drop Dead" on a related blog. But on the question of infrastructure, the investment guys at Money Morning stop whaling on dumb and crooked bank execs long enough to raise the question of $35 trillion in infrastructure needs coming up in the next twenty years. See the links in "drop dead" for the opposite work being done in our alleged knowledge economy. CBIC World Markets, who wrote the report, thinks correctly that part of the problem is fake budget balancing that led to skimping on existing needs. Nice backlog for the kids and greatgrandkids to work on, if they aren't sweating too much in the new lizard-skins that protect them from the warmed-up planet.

The Business Genius of the Week story award goes to an NYT piece about Sam Zell. Actually Sam Zell looks like he dumped all 573 of his business properties just in time. But the buyers - classic suckers with very big paychecks and the very best credentials. Crucial moments:

• the middleman who bought the buildings from Zell and then flipped most of them to the suckers was hedge fund Blackstone and its King Genius Steven Schwarzman (who still has his money btw).
• "Buyers purchased buildings at what, in retrospect, were vastly inflated prices."
• "Lenders provided lavish, even excessive, financing based on unrealistic expectations of rising rents."
• "And now that values are tumbling, vacancy rates are rising and credit has become impossibly tight, many on both sides are struggling against default, foreclosure or bankruptcy."

The last three are all one paragraph. But they get at the essential mechanics. These guys were being paid astronomically to not be as stupid as this.

But the gods were stupid:

• "The list of Equity Office buyers reads like a Who’s Who in American real estate. In Stamford, Conn., RFR Properties, a partnership headed by Michael Fuchs and Aby Rosen, who owns Manhattan landmarks like Lever House and the Seagram Building, spent $850 million to buy seven Equity Office buildings that analysts say are now worth less than their mortgages."

Turns out it didn't matter whether they were stupid or not. They got paid either way.

• "The buyers found lenders only too willing to finance as much as 90 percent or more of the purchase price, even as profit margins shrank, on a bet that rents and values would continue to rise. The investment banks, including Morgan Stanley, Wachovia, Goldman Sachs, Bear Stearns and Lehman Brothers, in turn collected their fees as they packaged the loans as securities and sold them to investors."

Remember that the next time you get a lecture from a trader about how big risk-taking deserves the big bucks.

Plus, they were collecting big fees by not using any of their own money.

• "In New York, Mr. Macklowe made a characteristically aggressive gamble when he bought seven Midtown buildings from Blackstone for more than $6 billion, doubling the size of his real estate empire. He put down a mere $50 million, while lining up $7 billion in short-term financing from Deutsche Bank and the Fortress Investment Group for the acquisition."
  

And then, enter the rest of us:

• "If the owners cannot make their loan payments, it could create a financial crisis for the pension funds, hedge funds and insurance companies that hold securities based on Equity Office mortgages."
• "In Austin, when the Thomas Properties Group formed a partnership with the California teachers’ pension fund and Lehman Brothers, which was also a lender in the deal, to buy 10 Equity Office buildings downtown and in the surrounding suburbs for $1.15 billion, it instantly became the biggest commercial landlord in town. Like many of the other deals, it was highly leveraged and dependent on rising rents. The problem is that rents are now declining in Austin, particularly in suburban areas, where vacancy rates have climbed to 14.4 percent as several new buildings are coming on line without tenants."
  

Mumbai Timeline

Reuters has stitched together a partial sequence of events of the guerilla attacks on Mumbai, designed both to kill randomly and receive massive Western media coverage for doing it.

They change nothing about the underlying logic now controlling world events. The logic is sustained by the way leaders sustain conflicts for decades at a time to stay in power, and the grotesque inequality, suffering, and brutality that go with it. The attacks and the carnage simply express that logic.

The carnage is of course completely disgusting and unjustifiable. I feel not only for the victims but for everyone who loves Mumbai in part because it seems like the open and hospitable crossroads of India. And there is almost nothing I abhor more than highly armed religious idiots ushering in the kingdom of heaven by drenching the earth in blood.

But that doesn't mean we have to be stupid ourselves, and regress to the infamous Friedman culture war between the "Lexus" and the "olive tree." A NYT op-ed set it up this way - a Mumbai native defines Mumbai as the center of Lexus culture in India, as gloriously free commerce joining the peoples of the world. He continues like this:

the best answer to the terrorists is to dream bigger, make even more money, and visit Mumbai more than ever. Dream of making a good home for all Mumbaikars, not just the denizens of $500-a-night hotel rooms. Dream not just of Bollywood stars like Aishwarya Rai or Shah Rukh Khan, but of clean running water, humane mass transit, better toilets, a responsive government. Make a killing not in God’s name but in the stock market, and then turn up the forbidden music and dance; work hard and party harder.

This comment confuses wealth and investment-banker partying with social development for all. It then swallows "dreaming" by this morass. If we don't see religion, even the murderous kind, as about a form of dreaming that is neither about mountains of money nor the good society, then we understand exactly zero about religion.

That's one problem. The other is that Mumbai and India in general - and the United States - are monuments to the nightmarish gap between accumulating wealth and creating the good society. The gap today is vastly greater than that which produced the cycles of violence one can read in the Old Testament.

Thus it's really dumb for the NYT columnist to define Mumbai as a temple of progress and not as also at the same time a swamp of unspeakable squalor that drowns the lives of untold millions. I've written before about how the historical Jesus understood the community of the world that could arise in the absence of tyrants and moneylenders - the heaven-on-earth I associate with the all-welcoming Jesus of the tympanum at Vezelay rather than with the weigher-of-souls at Autun. There's no excuse for our not being at least this intelligent, and seeing nightclub globalization as an atrocity visited on tens of millions of people whom we do ignore completely until they fire their guns.

Unneeded Leader #109

At the Vatican last month, Nicolas Sarkozy talked about "France's Christian roots" and invoked the "Church's contribution to clarifying our choices and building our future." This prompted the major French weekly Le Nouvel Observateur to interview the head of the French freemasons, who denounced le Jogger's efforts to "reintroduce religious morality to the heart of society" and to ignore France's other "roots" in ancient Greece, Renaissance humanism, and the Enlightenment. It was nice to read an establishment defense of secularity and non-religious visions of the advancement of humanity. It's too bad it's hard to read similar things in the US mainstream press.

Le Jogger is doing what leaders everywhere are doing: reinforcing a society of deference. This is what post-democracy looks like.

Le J has built a miniature deference society in the French press, much of which is controlled by his close associates. They praised his enormous candor and transparency for putting his new girlfriend Carla Bruni on display on his holiday in Egypt, forgetting, as le J had planned, their denunciations of his lack of transparency on issues of business and governance, such as the "arms for hostages" deal that freed the Bulgarian nurses in Libya.

The US press overdoes it on le J's merits as well. Adam Gopnik made him into the paragon of human courage in his New Yorker profile late last summer (issue of August 27), and wrongly claimed all France admired the bravely of vacationing in New Hampshire and "talking calmly over a hot dog" to Bush. In fact, most of France thought he was desperate, proven when his pals at Paris-Match airbrushed his love-handles out of the canoe shots.

When he stopped revering Sarkozy for a second, Gopnik made a good point about the overall decline in the status of the US.

The Sarkozy-Gordon Brown-Merkel generation is not unsympathetic to America, but American is not so much the primary issue for them, as it was for Blair and Chirac, in the nineties, when America was powerful beyond words. To a new leadership class, it sometimes seems that America is no longer the human bomb you have to defuse but the nut you walk away from.

And he concludes that the Reign du Jogger "may be seen not as the start of a new pro-American moment in Europe but as a marker of the beginning of the post-American era."

As if. The philosopher Marcel Gauchet offered a different version of post-America in an interview in Marianne (issue of 24-30 November). Even as the world faces a form of globalization driven by economics rather than imperial politics (as in 1900), the US has relaunched an imperialism that isn't so different from the kind the world saw then. We can overstate the problem a little bit this way, Gauchet continued: Germany was a leading nation that lost the first round of globalization, and became the problem country of the 20th century. And the United States, which dreams of an empire in a world that is no longer made for them, could become the problem country of the 21st.

What does Gauchet mean, the "dream of empire"? This dream has a means and an end.

The end is to have a share of world wealth much larger than the US share of the world population - this is a goal codified by George Keenan in the 1940s and has stayed close to the heart of US policy since.

The means are many. But the one playing out in the US, Pakistan, and elsewhere is to discredit the multipolar social majority - Pakistan's federal judges, Benazir Bhutto's middle-class technocrats, US "liberals" and college-educated types, the non-aligned US working class, the pro-social left, the many small political parties in France. This preempts any possible alliance between the educated and uneducated, or the "middle" and working classes, or the employed and unemployed, or the regular economy and the "planet of slums."

With a majoritarian alliance made impossible, minority rule settles in, whether constitutional and supported with fraud around the edges - Florida in 2000, Ohio in 2004 - or by massive fraud and/or military coups, as in Kenya and Pakistan. Governance becomes a matter of cowboys vs. Indians - you are with us or with the terrorists - and this justifies not only the use of force but the grossly unjust appropriation of general resources.

Minority rule and growing inequality are major forty-year trends in the West and not just elsewhere - as any issue of Paris-Match will tell you!