A More Honest Assessment of Private Equity

Posted on 09. Jun, 2012 by Stephan Helgesen in Economy

Last week, Jack and Suzy Welch published a no-warts-at-all ‘defense’ of private equity (“Mr. Biden, here’s the truth about private equity”, Reuters, 5-30-12, http://blogs.reuters.com/jack-and-suzy-welch/2012/05/30/mr-biden-here%E2%80%99s-the-truth-about-private-equity/), which was little more than an ad hominem attack on the administration and an endorsement of Governor Romney.

Jack Welch had a stellar 21-year-long run as CEO of General Electric, which ended in 2001 when he became a senior adviser to the large private equity fund, Carlyle Group.

I admire him greatly but for three missteps: his penchant for excessive executive compensation; his stated belief that the best manufacturing environment would have every plant placed on a barge and towed to wherever the labor costs are the lowest; and frankly his latest op-ed.

Take my word for it, Jack, private equity has plenty of warts, and I say this from first-hand experience dating back to 1988, when I started one of the first PE funds exclusively committed to the media industry.

The primary objective of private equity funds is to earn profits for themselves and their investors.  There is nothing wrong with making money.  But since Governor Romney claims his private-sector experience uniquely qualifies him to create jobs as president, it is fair to ask whether his track record demonstrates that experience.

But the managers of these funds  who continue to defend the outrageous and intellectually fraudulent way that they – me included – are individually taxed on the bulk of their income, should immediately be taken to the woodshed.

In America, we believe strongly in investment as the backbone of economic growth and job creation.  This is why President Obama and the Vice President have been strenuously arguing for a National Infrastructure Bank that would greatly expand investment in our country’s infrastructure and help restore our global competitiveness.

Similarly, most of us believe that a person who invests his money in an enterprise should pay lower taxes on any gains he makes because he is taking on risk and providing capital that makes our economy prosper.  We can debate the rate at which capital gains should be taxed – I think it should be much higher than the 15% it is currently – but the principle of a lower tax rate on such gains is sound.

Yet since the mid 1980s the tax code has – very unfairly to all other taxpayers – given the capital gains tax break to a select group of individuals who manage other people’s money in either limited partnerships or limited liability companies.

Specifically, while these private equity and hedge fund money managers are paid salaries, by far most of their compensation comes in the form of a large share of the net gains earned in the entities they manage, which share is called “carried interest”.

But even though carried interest is no different in substance than the performance or incentive fees which hundreds of thousands of other managers in the economy earn every day from the results of the businesses they oversee, carried interest is taxed as a capital gain.  Everyone else’s performance or incentive fees are taxed as ordinary income.

And because the 15% capital gains tax rate is less than half the 35% maximum ordinary income tax rate, the benefit to the U.S. Treasury and all other taxpayers if this inequity was resolved will be on the order of $10-plus billion a year.  (See “Carried Interest: A Very Big Wolf in Sheep’s Clothing”, Huffington Post, 9-20-11, http://www.huffingtonpost.com/leo-hindery-jr/carried-interest-a-very-b_b_971542.html.)

Yet nowhere in the Welch op-ed that attacked Vice President Biden was there any mention of this huge inequity and of the massive loss in government revenue at a time when every dollar is precious.

And then there are clear examples of the times when private equity funds and their investors – including Governor Romney’s old firm Bain Capital – succeeded simply by manipulating existing companies, not by building businesses and creating jobs.

At its worst, this manipulation takes three consistent tacks: first, leverage up the companies with layer upon layer of debt, which when the economy turns adverse become guillotines on the necks of the employees and their communities; second, pay out egregious fees to the managers and return equity capital long before the companies become more profitable; and third, reduce labor costs as quickly and as much as possible, often by off-shoring jobs to those overseas barges of which Mr. Welch seems so enamored.

It’s not a criticism of capitalism – the system which has made America the greatest country in the world – to say that there is something definitely wrong with unfair and undeserved tax benefits, with deliberate over-borrowing of the sort which GE would never have tolerated, and with treating employees as chattel, with no organizing protections and protections against off-shoring.

It’s also wrong that all too often the underlying premise behind a private equity investment in a particular company is that after it’s been milked once, the company will simply be sold onward to another PE fund for further milking – and further fees payments.

And it’s certainly not a criticism of free enterprise to question and examine Mitt Romney’s experiences – as a private equity manager, businessman and Governor – which he says support his claim to be a great job creator.

We need to keep manufacturing jobs here in this country – our workers and our businesses can compete with any worker and any company anywhere in the world, as long as we have government which will stand up and demand a level playing field for all.

And we need to be looking for ways to strengthen industry, rather than manipulate its capital structures to generate management fees and short-term gains.

A generation ago, leaders in business, government and labor all understood that national prosperity depends on a vibrant middle class growing from the bottom up.  And as Reginald Jones, Jack Welch’s esteemed predecessor at GE, very publicly demanded, corporate responsibility should flow equally to investors and workers.

Our economy and society were much stronger for these views.

This article was submitted by Leo Hindery, Jr. who is chair of the U.S. Economy/Smart Globalization Initiative at the New America Foundation, co-chair (with USW President Leo Gerard) of the Task Force on Jobs Creation, founder of Jobs First 2012, and a member of the Council on Foreign Relations.  He is the former CEO of AT&T Broadband and its predecessors, Tel-Communications, Inc. (TCI) and Liberty Media, and is currently a private equity investor in media companies.  He began his business career at Utah International Inc., and was later at General Electric Company after those two companies merged.

Branding and the Cheesehead Summer: Wisconsin recall fails

Posted on 08. Jun, 2012 by Stephan Helgesen in Economy, Politics, Social/Cultural

Never thought I’d see the day when my beloved Wisconsin was branded!

Last year we were living in what was called, the Recovery Summer. This year it’s the summer of the Cheesehead Revolution and the failure of Wisconsin’s Democrats to unseat and recall their controversial Governor, Scott Walker.

We’re pretty accustomed to branding in the West. Without our brands we’d be rustling and feeding on each other’s livestock.  So, from a practical point of view, the identification aspect of branding makes sense, but the brands have to mean something and stand for something of value.

Re-branding America’s Dairyland

Nothing is immune from branding, not even our states or our state representatives.  I don’t want a brand representing me in Congress or anywhere else for that matter. Nor do I think that states should be branded.

I want representatives and Governors with slightly rough edges who actually say something rather than rolling out a sound-bite, and I certainly don’t want any of our fabulous fifty states straying too far from their beaten paths, creating whole new identities for themselves, either.

Last night, Governor Scott Walker of Wisconsin survived an intense recall effort designed to unseat him. Our normally understated laissez-faire cool as cucumbers Wisconsinites spent $17 million of their hard-earned tax dollars for the pleasure of airing their dirty laundry in public, only to confirm the validity of their initial vote. Result: Walker stays. Status quo wins.

Millions more dollars were spent by the organized labor movement in their propaganda campaign leading up to last night’s vote in an effort to brand Walker as a union-buster and the Republicans as cold-hearted callous anti-democratic storm troopers armed with cattle prods on a search-and-destroy mission bound for Local Teachers’36.

Move over Darth Vader

From the outset, the contest was branded as an epic confrontation between good and evil. It was the forces of darkness (Walker and his gang) against the people (organized labor) – the prize being the power to chart the Dairy State’s fiscal and political course for the future.

The only thing the branders seemed to leave out of their argument were the facts, facts like Wisconsin’s dire economic straits due to the escalating cost of public sector union benefits that were bankrupting the state when Walker took office.

But last winter the branders didn’t let those facts get in the way. Instead, they mobilized both in-state and out-of-state and headed for the Wisconsin Capital Building and occupied it, illegally. They shouted, screamed and in general threw a tantrum in the public square. The real victim, though, was decorum which they successfully trounced during days of heated protests with authorities.

Exit Democrats stage left

Their actions were Act II of the Cheesehead street theatre play which started with eleven of Wisconsin’s Democrat legislators fleeing the state for neighboring Rockford, Illinois to avoid doing their elected duty (voting on the legislation that would enable communities to negotiate pension benefits, locally).

After the legislation passed without their vote, the floodgates were opened. The recall petition drive that followed was impressive (garnering 900,000 signatures), and it revealed the strength of the Democrat Party apparatus and of labor unions’ organizational skills.

The opponents of Walker forgot one thing in their zeal to brand him and his supporters of fiscal responsibility as radicals. They forgot that no matter how well organized you are or how fat your checkbook may be, there is nothing, repeat nothing as powerful as an idea whose time has come.

Maybe the Cheesehead Summer in the State of Wisconsin has come just in time for the rest of us to have a serious discussion about the path our country should take going forward.

Wisconsin did prove one thing, however, that where there’s the whey there’s the will.

- Editor

America’s heartstrings are not for sale

Posted on 04. Jun, 2012 by Stephan Helgesen in Economy, Energy/Environment, Healthcare, Politics, Social/Cultural

I think we’ve finally reached the dead-end on the long political road of seduction. After being subjected to one year of campaign promises and three years of governing promises from President Obama, many Americans have managed to shake themselves awake from a mind-numbing REM sleep induced by the most elementary marketing tactic known to man – appealing to our deepest-seated desires…and fears.

And to be fair, the Obama win was also based on the incumbent fatigue that nearly always occurs after a political party has been in power for eight years, irrespective of its failures or successes.

It’s really pretty impressive how the President and his acolytes constructed a campaign organization whose singular purpose was to win the power of the Presidency, and it’s equally impressive how they’ve kept the campaign going for three additional years! They would all deserve an ‘Emmy’ for their performances if this were a made-for-TV movie. Unfortunately, this is no movie. This is reality, American style.

The great PR victory

And while we must give them all credit for this remarkable PR accomplishment, America cannot afford to swoon in admiration of its theatricality any longer, especially when our country is smarting from unprecedented deficits, obscenely high unemployment, a vacillating and seemingly sophomoric foreign policy, along with a new class war that can only be described as a bait and switch tactic designed to move voters’ focus from the Administration’s many failures.

The Presidents’ men are convinced that Mr. Obama’s personal likeability will save his Presidency, but they forget that the voters didn’t elect a class president. They elected a real President that was supposed to represent all of the people and not just those that subscribed to his own political philosophy (and that goes for his own party that has repeatedly refused to vote for his proposals like the budget)!  This President’s modus operandi has been to avoid working with the opposition, and in some cases even demonizing them.

This is not statesmanship. It is blind stubbornness and a total affront to Americans’ sensibilities and a misreading of their inherent fairness. It is also unworthy of a leader who resolutely adheres to a narrow economic and social philosophy that has effectively stiff-armed the desires of millions of moderate Democrats and independents who cast their votes for him in the hopes that he would bring us together as he so often promised on the campaign trail in 2008.

Leadership not followship

Presidents’ decisions must never be based solely on political polling, nor should they totally ignore them, especially when they concern foreign policy or social issues that affect all Americans. Every President must occasionally swallow his pride and cross the aisle of the political divide to get things done. Stern looks, veiled threats and smugness will not win the day, neither will condoning ramrod techniques to pass massive social legislation (the Affordable Healthcare Act) in the dark of night.

While some may judge his actions as courageous, and encourage him to redouble his efforts and take off the gloves, others will call his intransigence hubris and arrogance, not audacity.

I believe that most Americans are tired of bare knuckle street fighting tactics and want their leaders, starting with the Commander-in-Chief, to unclench their fists and extend their hands in bi-partisanship (though this may be wishful thinking in a political season that can only be described as a free-for-all). That shouldn’t stop us from wanting it, however.

Critics of the President will accuse him of being a totally political animal, one that cares little for the Constitution or the institutions of government if they get in his way. Supporters will say that process shouldn’t stop progress, and that if the President can get what he wants by going off script (Executive Orders, etc.) then so be it.

It’s getting harder to ascribe the best motives to Mr. Obama’s actions when indications of his willingness to go rogue are everywhere. The latest example is the ‘forced contraception coverage’ decision that mandates religious institutions discard their own strongly-held theological beliefs and accede to an overbearing government’s view of what those beliefs ought to be.  If that doesn’t skirt the edges of the First Amendment, I don’t know what does.

Should likeability trump good governance?

In the end, I’m convinced that the likeability factor will loom large in the 2012 campaign for the Presidency, probably accompanied by the have and have-not (the 1%) argument. We’ll have to accept that fact as part of the package, but what we should want to see and hear is a serious discussion of the candidates’ visions for America, absent the usual platitudes and harkening back to shining cities on a hill or I have a dream-like references that sounded much better when uttered by their original authors.

We are electing a leader in November and not a heroic figure conjured up from the wellspring of our own imagination or one that is based on a composite of our own personal desires. If we really want a President that can help get us out of the metaphorical ditch we find ourselves in, then we need to elect one with the skills, talent and the experience necessary to truly lead our fragmented nation into the next four years.

To do that, you and I will need to reboot our decision-making process in favor of a rational, objective assessment of the candidates’ records. There’s an old saying in the entertainment business, “You’re only as good as your last performance,” and performance is the one metric that Americans have traditionally chosen over advertising when buying anything of enduring value.

- Editor-   Opposing viewpoints are always welcomed and may be sent to: editor@newmexicanvoice.com

April Sales Numbers Continue on 2012 Upward Trend

Posted on 01. Jun, 2012 by Stephan Helgesen in Economy

1,234 sales were reported to the REALTORS® Association of New Mexico during April 2012.  This number is just over 11% higher than the number of sales reported in April 2011.  Year to date sales (4,227) are 8.6% higher than 2011 year to date sales and 1.8% higher than 2010 January through April totals.

The 2012 year to date median price of $160,000 is lower than the 2011 January through April median, however, April’s median of $165,000 is higher than last month’s median and equal to that reported during April of 2011.

“Sales of distressed properties are still weighing heavily on median prices in New Mexico,” according to Debbie Rogers, 2012 RANM President.  “RANM leadership just returned from the NATIONAL ASSOCIATION OF REALTORS® (NAR) MidYear meetings in Washington, D.C., where we found optimism for a slow, steady recovery of the market and sales prices.”

While nearly two-thirds of reporting counties showed an increase in the number of sales comparing April 2012 to April 2011, only half of the reporting counties show an increase in median prices for the same period.

Bernalillo County reported an increase in number of sales and an increase in median prices comparing April 2012 to April 2011.  Dona Ana, Los Alamos, Santa Fe and Taos Counties reported an increase in sales numbers but a decrease in median prices.

NAR’s composite quarterly Housing Affordability Index rose to a record high of 205.9 in the first quarter of 2012, based on the relationship between median home price, median family income and average mortgage interest rate.  The higher the index, the greater the household purchasing power.

“Market conditions are optimal for home buyers.  For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” according to RANM Executive Vice President Steve Anaya.

“Home prices are stabilizing and sales are rising, but some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means.  Home sales would be much higher if lending standards would return to normal.”

The trends and numbers reported are only a snapshot of market activity.  If you are interested in buying or selling, consult a REALTOR familiar with your market area; he/she can provide information on specific trends in your neighborhood.

Statistical information and trends are based on information furnished by New Mexico Member Boards and MLSs to U. S. House Stats.  Current reporting participants are: Greater Albuquerque Association of REALTORS, Las Cruces Association of REALTORS MLIS, New Mexico Multi-Board MLS (Artesia, Carlsbad, Clovis/Portales, Deming, Gallup, Grants, Hobbs, Las Vegas, Sierra County areas), Otero County Board of REALTORS, Roswell Association of REALTORS, Ruidoso/Lincoln County Association of REALTORS, Santa Fe Association of REALTORS, San Juan County Board of REALTORS, Silver City Regional Association of REALTORS, and the Taos County Association of REALTORS. Reports represent single family residential data only.  Information does not necessarily represent all activity in any market/county.  Figures based on reports run 5/16/12.  Visit www.nmrealtor.com (housing trends) for county and board statistics.

This article was submitted by The REALTORS Association of New Mexico, one of the state’s largest trade associations, representing over 5,300 members involved in all aspects of the residential and commercial real estate market.





























Re: Jobs. Pick the Low Hanging Fruit – Part II

Posted on 27. May, 2012 by Stephan Helgesen in Economy, Politics

Last September we renewed our earlier pleas to Congress to ‘pick’ the four low-hanging initiatives that would, if the administration and Congress together would only pick them, quickly create millions of new jobs.  They were and remain:

1. Buy-Domestic Procurement Requirements.  All infrastructure projects funded and guaranteed by the federal government should require purchases to be made in America rather than overseas, consistent with our international trade agreements.  As well, in order to qualify as “Made in America,” at least 75% of the content should have to be manufactured within our borders.  Specifically, Congress should:

a) Require review of domestic content calculations to insure their effectiveness  and transparency;

b) Require review of domestic sourcing requirements for all government procurement programs (e.g., Buy American, the Recovery Act) and programs that support U.S. exports (e.g., the Export-Import Bank) to ensure that contracting agencies are obeying and implementing the requirements; and

c) Enact a successor to the 1933 Buy American Act, which is now so dated that whole federal agencies are effectively excused and massive procurement ‘loopholes’ exist.

2. Infrastructure Investment.  After years of under-investing in public infrastructure, America faces an infrastructure deficit of $3 trillion that is impeding economic growth and undermining our economy’s efficiency. We need to spend $2.2 trillion just to meet America’s core infrastructure needs, according to the American Society of Civil Engineers.

The administration and Congress should commit to at least $2 trillion of infrastructure spending over the next 10 to 15 years using the resources of a new National Infrastructure Bank that would be an independent financial institution owned by the government and supported by a soft federal guarantee on the order of $200 billion.

This federal guarantee, appropriately structured, would not need to be ‘scored’ for budget purposes given the numerous layers of investment above it.  In turn, the Bank should be able to invite private investment, notably including state and local government pension plan investments, aggregating about $1.8 trillion.

Each $1 billion of infrastructure spending funded by the Bank would create around 25,000 permanent jobs.  Two trillion dollars of such spending could equate, over the years, to as many as 50 million new jobs.

3. Credit for Small and Medium-Sized Business.  Congress should authorize Federal Reserve-related incentives to accelerate commercial bank lending to small and medium sized enterprises, especially those in the manufacturing sector.  As it is, such lending, albeit hard to determine precisely, appears to be down on the order of 20% (or more) from its 2007 level before the Recession began.  Such incentives could include, most easily, simply an appropriate reduction in the amount of required Tier 1 bank capital.

4. Trade with China.  We need to reform our trading with China, as follows:

a) Enact the Currency Reform for Fair Trade Act (HR 639 and S. 328), which would begin to normalize China’s grossly undervalued currency, which (according to the esteemed economist Peter Morici just yesterday (May 14)) remains as much 40% undervalued.  The House Republican leaders especially are the naysayers on this issue, notably out of step as they are with the Senate leadership and the currency policies of their own presidential candidate, Governor Romney.

b) Stop the U.S. government from entering into a bilateral investment treaty with China until China makes WTO-compliant its Indigenous Innovation Production Accreditation Program.

c) Go after all of China’s illegal subsidies, not just its currency manipulation.

d) Put a halt to China’s persistent theft of America’s valuable intellectual property, which the U.S. International Trade Commission has estimated would immediately create up to 2.1 million new direct private-sector jobs.   Case in point: Microsoft, one of the real gems of American ingenuity, recently sold to a large commercial customer in China one unit of its advanced business software, for several hundred dollars; however, when it sent out an upgrade to the software, the upgrade was downloaded thirty million (30,000,000!) times, which is why Microsoft’s profits from sales in China, with its 1.3 billion population, are no greater than its profits in The Netherlands, with its population of only 16.7 million.

The fundamental problem back in September when we last urged Congress to take the actions set forth above and the one which persists today is simple economic arithmetic: we need to create more than 18 million jobs in order to be at full employment in real terms, and every month that we delay we need to create at least 150,000 more new jobs just to keep up with population growth.  Yet traditional jobs programs – whether training or tax breaks or credits – are by nature ‘smallish’ and can create at most thousands of jobs and certainly not the millions we need.

With the largely jobless recovery continuing – only 115,000 new jobs created in April – it’s far past time for both Houses of Congress to work with the Obama administration to get really serious about large-scale job creation.  Specifically with Congress, President Obama needs to spend his political capital in moving initiatives forward – initiatives that will be central to his reelection campaign and top priority items during the rest of this Congressional year including the lame duck session.

The alternative of totally leaving job creation to the private sector did not work under President George W. Bush, when the Recession was just starting and the magnitude of the impending real unemployment crisis was unknown.  And it certainly won’t work in the still-troubled economy we have today, with all respect to Governor Romney who seemingly believes otherwise.

As we await enactment of the four initiatives above which are still there for the picking – and why PART 2 to our earlier writings is now necessary – must now be added: (1) especially and most urgently, the pending highway bill (S. 1813); (2) President Obama’s largely ignored initiative to immediately repair the nation’s schools in a big way; and (3) expansion of the tax credit program for investments in manufacturing facilities for clean energy technologies, which was part of the American Recovery and Reinvestment Act and has proven highly effective in job creation.

These latter three initiatives, which almost no right-minded policy maker and economist can believe aren’t being acted on, are the 2012 version of “shovel ready projects”.  Depending only on how much is actually committed to the programs, there is nothing in the very short term that could better and more meaningfully jumpstart our still troubled economy and substantially chip away at the nation’s massive real unemployment challenge.

Not only would these initiatives materially jumpstart job creation in the immediate term, but it is likely that they would at once both reignite the debate in Congress on the four ‘low hangers’ that we first began to write about years ago and, as well, give corporate CEOs the confidence they need to start spending, on their own new investments and hiring, some of the $2 trillion now sitting fallow in their own treasuries.  It’s all that eventual combined spending which will sustain long-term job creation.

The school repair and renovation opportunity is such an obvious jobs creator – and moral imperative – that it needs no elaboration and really just a major push from Congress.

As for more clean energy manufacturing tax credits, the original $2.3 billion of credits for advanced energy manufacturing facilities will, when fully used, generate more than 17,000 jobs, while the matching or companion $5.4 billion or so in private sector funding will likely generate up to 41,000 additional jobs.  These are meaningful numbers for sure, but they immediately pale when the magnitude of this energy sector is measured and the number of real unemployed workers is considered.

President Obama just announced (on May 8) that he wants Congress to extend this program and materially expand it.  When Congress has done this, the program will, if it continues to follow its statutorily specified review criteria of greatest domestic job creation (both direct and indirect) and greatest potential for technological innovation and commercial deployment, create not just thousands of great new American jobs but rather millions of them in manufacturing facilities producing everything from solar, wind, geothermal, or other renewable energy equipment to electric grids and storage for renewables to fuel cells and microturbines to equipment for refining or blending renewable fuels.

The big immediate opportunity, however, is the pending highway bill and the projected 2.9 million jobs it would almost immediately create before the summer and fall construction seasons bleed away.  This bill is, in fact, such an obvious massive, immediate job creator that if the Republicans in Congress continue to stall it from passing out of conference, there can be no better example of just how extremist in their governance they have become.

Unless the real unemployment jobs crisis – with 26.7 million women and men still unemployed in real terms and a real unemployment rate of 16.6% – is frontally challenged by pursuing all of the low-hanging job-creating initiatives – of which four has now become seven – it’s not possible to anticipate a sustained economic recovery that fully revitalizes the middle class.  But when they are picked and enacted, then the engines of economic growth will start to turn over and really roar.

This article was submitted by Leo Hindery, Jr. and Leo W. Gerard who are co-chairs of The Task Force on Jobs Creation.  Hindery is also founder of Jobs First 2012 and a member of the Council on Foreign Relations.  Gerard is international president of the United Steelworkers and a member of the executive council of the AFL-CIO.





























Will the feds kill America’s future under a tombstone of senseless regulations?

Posted on 25. May, 2012 by Stephan Helgesen in Economy, Energy/Environment

It is fire season in the West. Reports say the early start is “not a good sign,” and forecasts claim the “combination of heat and dryness will only make western wildfires worse.”

The predictions were made in the same week that US District Judge Frank Zapata made a decision to deny an emergency request by the city of Tombstone, AZ, to repair its water system damaged in last year’s Monument Fire. He doesn’t think Tombstone has a crisis.

Zapata said: “Claims of a drastic water emergency related to public consumption and fire needs are overstated and speculative.”

Though he was born in a small town, seven miles from the third highest mountain in Arizona, Zapata apparently has not lived with the eminent threat of forest fire.

Having grown up in the foothills of Southern California where my family had to evacuate several times as the flames pressed toward our home, I understand the importance of water.

I got interested in the Tombstone story when I heard a promo for John Stossel’s show addressing Tombstone’s water woes. He teased the show saying that Tombstone was told they could fix their broken pipes using horses and shovels.

This piqued my interest. I’ve written a couple of columns addressing the Forest Service’s requirements for mining claims in Montana that included hand tools and pack mules. You’d think they make this stuff up just for TV, but it’s real–as is the threat of fire in Tombstone.

In short, here is Tombstone’s tale. (Click here for a long version.)

Tombstone is a small city in the Arizona desert. They get their water from the nearby Huachuca Mountains through one of the longest gravity-fed systems in the country. Tombstone has an unbroken chain of ownership to the water.

The pipeline that brings the water the 26 miles from the springs to Tombstone goes back to before Arizona was a state, way before there was a US Forest Service, or a federal wilderness act.

Last year, on June 16, the massive Monument Fire and the subsequent monsoon rains destroyed the pipelines that bring the water to Tombstone and boulders the size of Volkswagens blocked access to the springs–with some of the springs being buried under 12-15 feet of rock, gravel, and broken trees.

Jack Henderson, who was Mayor at the time of the disaster recalls, “There was nothing left. It looked like a moonscape. We lost the war up there.”

In fact, the war was just beginning–but the war was not against nature; rather it is against the essential philosophy of our present national government.

In August, Governor Brewer declared a state of emergency for Tombstone, which provided $50,000 to the city to make repairs. The city rented equipment and applied for and received permits–except for those from the US Forest Service.

By the end of October, the city grew tired of waiting. They took an excavator up to the springs. The Forest Service stopped them with the threat of arrest

Kathleen Nelson, acting ranger in charge of the Coronado National Forest, says the Forest Service has been letting Tombstone do some work to restore its water supply “as long as it complies with the 1964 Wilderness Act”–meaning Tombstone can do the work with shovels and haul the pipe up the mountain with horses (really!). More recently, workers were stopped from using a wheel barrow.

Rangers say the wheel barrow is “mechanized” and “might damage wilderness and disturb endangered species.” The feds are blocking emergency repairs that are critical to Tombstone’s survival.

Since then, crews have been able to dig out some of the springs using shovels and pick axes–just as was done in the late 1870s. Thanks to prison inmates carrying pipe, what would have taken the small Tombstone crew six weeks to do, was done in three days.

They have been able to lay PVC pipe above ground to bring water to the city–though only a few day’s supply and not enough to fend off fire. Kevin Rudd, the pipeline project manager, fears that their temporary fix will get washed away in the first rainstorm. Monsoon season in Arizona is now less than a month away.

Rudd reports that since the beginning of March, work has slowed because of the Mexican spotted owl said to be nesting in the peaks above the pipeline. The owl is not the only obstacle. Boulders have been placed in the middle of the trails. Pipeline has been vandalized, and workers have been confronted and threatened.

Steel pipe needs to replace the temporary PVC, but that requires mechanized equipment. When I asked current Mayor Stephen Schmidt why they were using convicts instead of horses to haul the pipe, he said: “Tombstone doesn’t have any horses.”

Tombstone not only doesn’t have “any horses,” they also don’t have enough manpower to restore the springs and re-lay the pipes. They don’t have the funds to fight the feds. Former Mayor Henderson has been at the forefront of the battle.

During a meeting with the rangers, Henderson says he was told: “If you want permission, you’d better lawyer up. If you don’t like the decision, you’d better call Barack Obama.” Permits are needed for nearly two dozen more springs and the town doesn’t have time to wait. If President Obama can fast track renewable energy projects, he could do the same for Tombstone.

Tombstone took the advice and lawyered up. With the help of the Goldwater Institute, the town took the Forest Service to court. At the District level, they lost. Attorney Nick Dranias has already filed an appeal to the 9th Circuit and expects the battle to make it to the Supreme Court.

He is looking for others who can file a “friends of the court,” or amicus, brief. But all of that takes time–which Tombstone doesn’t have. Without the help of the public, Tombstone, thanks to the federal government, will be writing its own epitaph.

This is where you and I come in. June 8 and 9, Tombstone is holding a “shovel brigade” similar to the Jarbridge Shovel Brigade in 2000. Individuals are encouraged to come to Tombstone and help with the restoration work—to, literally, lift a shovel.

If that is not possible, Americans who care about property rights and state sovereignty, who want to fight federal overreach, are asked to send a shovel and a $5 donation. The funds will be used to fight the legal battle.

Since the shovel brigade was announced, 400 shovels were received in the first week–thousands are expected. If thousands of people descend on Tombstone, from all parts of America, it makes a major media event–one the White House cannot ignore. (Imagine miles of motorhomes moving into Tombstone.) Like good neighbors, will the Forest Service mobilize its people to help clear debris and restore the system, or will they continue to sit in their offices and shovel paper?

Nick Dranias says: “If the Forest Service can effectively seize Tombstone’s 130-year-old water rights during a state of emergency– rights that the Service recognized as valid in 1916–no state or local government will be safe from the feds.” The issue is bigger than life or death for Tombstone. It is in the national interest.

Similar battles are playing out across America. I’ve been involved in the Otero County Tree Party where the health and wellbeing of the citizens of Otero County, NM, were threatened by fire due to the overgrown forest–with numbers of trees way beyond the Forest Service’s optimal.

But the Forest Service blocked the cutting of trees. Led by Congressman Pearce (R-NM), who cut the first tree, the county commissioners put their citizens ahead of the one-size-fits-all federal regulations and began cutting trees.

Hundreds of people were present in a remote mountain town to express their opposition to Forest Service policies drafted in far-away Washington. Like the Tombstone tale, the tree cutting is now in court. Also in New Mexico, is the sand dune lizard issue.

Any day now, a decision regarding its listing as an endangered species is expected from the Fish and Wildlife Service, under the direction of Secretary of the Interior Ken Salazar. Opponents of the listing have been told it will have virtually no impact on the oil and gas, or ranching, activity in the area–yet, the spotted owl is preying on the life of Tombstone, as its supposed presence is being used as an excuse to block progress.

Regardless of what FWS decides, the lizard decision, too, will end up in court–making the issue a true attorney-full-employment act instead of ongoing job creation.

In the same week that experts predicted a bad fire season in the West and that Judge Zapata ruled against the town of Tombstone, Government Accountability Office testimony stated that “The Green River Formation, a largely vacant area of mostly federal land that covers the territory where Colorado, Utah and Wyoming come together, contains about as much recoverable oil as all the rest of the world’s proven reserves combined.”

The Green River Formation could truly make America energy independent. Sadly, under the current administration, it is likely a pipedream. As the report points out, the Green River Formation is “mostly federal land.” The same people making decisions on the Green River Formation are also making decisions on Tombstone’s water woes, the Otero Country Tree Party, and the sand dune lizard listing. These federal decision makers have roots in environmental organizations; they are fundamentally opposed to humans, our presence on the earth, and anything we do to use our natural resources. People, bad!

This is why the Tombstone tale is of utmost importance. Let’s flood Tombstone before the monsoon season. Send shovels. Send $5. Show up on June 8 and 9!

Ken Ivory, a state representative from Utah, asks: “Why should this story matter to anyone but residents of Tombstone? If unelected, federal bureaucrats can choke off water to a thirsty wooden town, in the middle of a desert, in the midst of a drought, even despite it being a national historic site, what will they do to towns and cities, counties and private landowners in your state?”

I don’t want to find out, do you? Let’s stop them in Tombstone before the feds write Tombstone’s–and America’s–epitaph.

This article was submitted by the author of Energy Freedom, Marita Noon, who serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). Together they work to educate the public and influence policy makers regarding energy, its role in freedom, and the American way of life. Combining energy, news, politics, and, the environment through public events, speaking engagements, and media, the organizations’ combined efforts serve as America’s voice for energy.






























The shortest distance between two points is a straight line…also in tourism promotion

Posted on 20. May, 2012 by Stephan Helgesen in Economy, Social/Cultural

Tourism promotion is not a science though many experts make a good living by treating it as such with sophisticated computer modeling and creative number crunching.

Even futurists have gotten into the act, convincing us they can divine what will make or break a tourism destination by looking at demographics and possible trends in consumer spending.

Tourism is an art…and a business

Tourism promotion is an artful endeavor and requires a few key ingredients that have more in common with human nature than with science to succeed. One of those is having a good product (destination), and the second is an unwavering dedication to promoting that product in high-potential markets.

I know because I spent 20 years promoting the U.S. as a tourist destination, working the local tourism communities in over 24 foreign markets for the U.S. Commerce Department from the mid 80s to 2004. Initially, I worked with the former ‘U.S. Travel and Tourism Administration’ – the then principal U.S. government organization empowered to promote ALL U.S. tourism destinations.

USTTA was populated by a talented crew of tourism professionals. It has now been replaced by a domestic office (OTTI) located in the International Trade Administration part of Commerce.

It went from a corps of highly-motivated overseas officers to an office of bureaucrats/technocrats in one fell swoop. My point in mentioning this is to underscore that government downsizing doesn’t always result in or guarantee more efficiency or better outcomes.

As the U.S. Embassy Liaison to the ‘Visit USA Committees’ (local private/public sector organizations in the host countries) I saw that tourism promotion is a round-the-clock profession demanding much of its practitioners. Our VUSAs worked closely with local tour group operators, travel packagers, travel agents, and major companies to stimulate travel to the USA.

The USTTA, its people and its programs, were important arrows in the quiver of less well-funded states – those without mega-budgets like Florida, New York and California. It was a real playing field leveler and brought millions of new foreign tourists to many out-of-the-way or lesser-known American cities and towns, some of them in New Mexico!

Re-enter the Feds

I’ve just finished reading the Commerce Department’s National Travel and Tourism Strategy (called Obama’s Initiative) and poured over the glowing press releases from the OTTI and the U.S. Travel Association that cheer the birth of this report.

It appears to address the right points (improvement in visa application processes, more efficient airport screening, infrastructure expansion, etc.). Unfortunately, for all its good suggestions it is short on two critical ingredients necessary to keep the U.S.’ tourism momentum going: money and USG leadership.

Because of the spotlight that’s shining on government spending it seems unlikely that this situation will change in the near future. While I’m not a big government person, I do believe we need to look at our competition – foreign countries and their governments – the ones that routinely support their tourism industries with cold hard cash, and then ask ourselves, “Can we really afford to sit on the sidelines refusing to support our industries with seed money or capital?”

What can the states do? Was Charles Darwin right?

Tourism promotion has taken a turn toward Darwinism as it’s every man for himself in these United States. While some states have managed to create strong public/private partnerships or have just appropriated more money for tourism promotion, others are trying to get by on old relationships and old reputations.

The problem with that approach is, to quote an old show business saying, “You’re only as good as your last performance,” and not many new, first-time, foreign travelers have any idea what kind of performance that was or what the reputations were!

Some states are re-branding themselves, trying to appeal to new and veteran foreign travelers with specialty tourism offerings – and spending money in those markets to carry that message. Ours is not, preferring instead to grow revenues through a domestic tourism policy that stimulates in-state day-tripping.

I never understood this concept of bringing Las Crucesans to Raton or Gallupers to Alamogordo. It’s kind of like check kiting, moving money from one place to another – it looks good and buys you some time but adds no new net revenue.

We need a bold new foreign tourism strategy that focuses on attracting more foreign tourists to the Land of Enchantment, tourists who will leave a large dollar footprint here and then go back and tell their friends.

I know the argument against it; it costs money, but that dog just won’t hunt. There are many ways to get noticed in foreign markets that don’t require taking out a second mortgage.

We could start by swallowing our pride and admitting that maybe we should try something old to get something new.

(Note: All the tourism statistics you could ever want can be found at: www.ustravel.org and www.tinet.ita.doc.gov)

- Editor

Stephan J. Helgesen

Free trade run amok: the “TPP”

Posted on 02. May, 2012 by Stephan Helgesen in Economy

Last summer I described the then three pending free trade agreements (FTAs) with South Korea, Panama and Colombia as “clunkers” (http://www.huffingtonpost.com/leo-hindery-jr/these-three-free-trade-ag_b_895503.html).

Each failed to meet the only standard which matters: Is it in the best interests of American workers and the U.S. economy? Regrettably, these three agreements won Congressional approval last October, despite the fact that the promises of job and net exports growth from all eleven previous FTAs, dating back to the first one in 1985, have proven to be empty ones indeed.

Now the U.S. is aggressively trying to advance, by the end of this summer no less, the ‘mother of all FTAs’ to date:  the so-called Trans-Pacific Partnership (TPP).

The TPP would be an agreement among the U.S. and the eight Pacific Rim nations of Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam.  Every Pacific Rim nation – including, notably, Japan, China, Russia, Indonesia, Canada and Mexico – could eventually be included.

But if advanced, I believe that TPP could very likely dwarf the negative impacts from all prior FTAs combined, including the still notorious multilateral NAFTA (which went into effect in 1994) and the multilateral CAFTA (signed in 2003).

While every promise associated with FTAs is impossible to assess, looking back at NAFTA and CAFTA as primers for TPP, these are the facts:

  • Neither Agreement has come close to meeting the fundamental promises made to the American people about the increase in U.S. net exports and the creation of American jobs which it would produce.
  • “One size never fits all” in multilateral trade agreements, especially when the differences in the states of development are extreme (NAFTA) or when the export mix among the countries is extreme (CAFTA, which includes OPEC member Nicaragua alongside largely agrarian Costa Rica, El Salvador, Guatemala and Honduras).

For example, from 1993 when NAFTA was signed to five years later, the U.S. trade deficit with     Canada widened from $10.8 billion to $16.7 billion; during the same period, America’s trade balance    with Mexico went from a surplus of $1.7 billion to a deficit of $15.9 billion.  By 2011, the U.S trade    deficit with Canada and with Mexico was $35.6 billion and $65.6 billion, respectively, or, in the               aggregate, an almost unbelievable $92.1 billion more than when the Agreement was signed.

FTAs were a popular mainstay of the last three Republican Presidents, and regrettably even President Clinton, urged on by the consummate free-trader Bob Rubin, embraced them as well, especially in his case, NAFTA.

Now the Obama administration, against the advice of economists from the left almost universally and from the right in increasing numbers, seems similarly anxious to drink the free traders’ Kool Aid, with the deeply flawed TPP as the straw in the drink.

In a compelling Council on Foreign Relations posting (“U.S. Trade Policy: Is America AWOL?, 7-18-11), Stewart M. Patrick praised the restraint showed by major trading nations in avoiding “a descent into 1930s-style, beggar-thy-neighbor trade discrimination.” And my criticism now of TPP is not born out of a desire for protectionism.

Rather, like Mr. Patrick, I believe that “the developed versus developing country dichotomy at the heart of the Doha Round [and now of TPP] obscures the surging global importance of the biggest emerging market economies (EMEs),” especially China, India and Brazil.

What the Obama administration should be doing, rather than rushing pell-mell into TPP, with its own extreme mix of economic maturity and exports, is acknowledging the near impossibility of negotiating complex multilateral trade agreements that prove fair to American workers.

Instead it should be spearheading more realistic efforts that reflect the growth of the emerging market economies and demand more burden-sharing by them.  To this point, China’s GDP already exceeds that of Japan and is second only to our own, just as India, now among the world’s largest economies, will soon overtake in the Pacific Basin each of Australia, Canada, Indonesia and Mexico and in the Greater Atlantic Basin the major countries of Europe.

Bilateral and thoughtfully constructed ‘smallish’ regional agreements are always preferable to massive multilateral agreements among widely disparate trading partners.

In fact, the only reasonable justification for such multilateral agreements is to address security and common defense concerns, but this particular justification, no matter how well intentioned, is insufficient to warrant such a dramatic mixing of trade and economic practices as is TPP.

Some fear that the demise of multilateral agreements will erode global support for the dispute settlement mechanism of the WTO, but this concern would be better addressed by reforming and strengthening the WTO than by further capitulating to ill-conceived multilateral FTAs.

The esteemed Jagdish Bhagwati of CFR and Columbia University worries that if multilateral agreements such as Doha and TPP collapse, then the world will be “overtaken by regional trade agreements and other bilateral arrangements which will be discriminatory.”

I dispute his conclusion that such agreements will inevitably be “discriminatory” – they needn’t be – and if effected without discrimination, they are, Mr. Bhagwati, far preferable to inherently and structurally flawed multinational agreements.

President Obama has said that TPP would be a template for a “21st-century [trade] agreement” which would eventually be open to all the countries of the Pacific region.

But the United States already has FTAs with four (Australia, Chile, Peru and Singapore) of the eight other countries included in the current talks, and these four nations plus the U.S. already account for more than 85% of the total trade at stake in the TPP.

Do we really need to start down such a slippery trading slope for codified trade relations with the four disparate countries of Brunei, Malaysia, New Zealand and Vietnam, which while significant in their combined GDP ($891 billion) are relatively insignificant in combined non-energy trading?

The reality is that too many of the eight non-U.S. first-stage signatories see TPP as a way to ensure a long-term American security commitment to the greater Pacific Basin, against the growing military power of China (http://www.huffingtonpost.com/leo-hindery-jr/china-continued-abusive-t_b_1196360.html), while continuing to free ride on America’s more open markets and lock in their access to them.

While it is appropriate to consider non-trade related strategic and security factors associated with small FTAs, provided U.S. values are not compromised, large-scale multilateral FTAs should stand on their own and not be afforded this ‘backdoor’ justification for their promulgation, which is how in part NAFTA and CAFTA were advanced and TPP is now being characterized

In writing about why U.S. trade policy to date has largely failed, Clyde Prestowitz (“The Pacific Pivot”, The American Prospect, 2 April 2012) says that all the trade deals to date – and now TPP – have served two clear purposes.

“The first is the geopolitical grand strategy objectives of the United States. By making the United States the market of last resort, the trade agreements have helped persuade allies to accept U.S. hegemony. The second purpose served is that of U.S. businesses that profit immensely from outsourcing and offshoring to Asia but that need the security provided by Uncle Sam to do so.

These realities reveal the flaws in U.S. trade efforts – misplaced priorities, a false doctrine, and false assumptions.”

The Obama administration is absolutely right to be seeking a comprehensive 21st-century U.S. trade policy.  And it is just as right to be seeking comprehensive 21st-century security arrangements for the greater Pacific Basin.  But neither objective should lead our nation into adopting TPP, which, unless materially changed from the draft now in circulation, appears to have the following major flaws:

It pays short shrift to the issues consumer safety and environmental practices and to the concerns of organized labor.

It breezes through intellectual property protection, regulatory coherence, and antitrust enforcement, especially of state-owned enterprises (SOEs).It allows for even more extreme financial industry deregulation while allowing for equally extreme foreign investor protections that in the past have helped American multinational corporations offshore American jobs.

A proper trade agreement – multilateral or bilateral – should limit the massive investment incentives that many nations (although not the U.S., of course!) now use to draw jobs to their shores and thus have cost America millions of manufacturing jobs in just the last decade.  These indirect export subsidies are nothing more than a highly effective way to circumvent WTO’s prohibition of direct export subsidies.

It bans “Buy American”, which would give all companies operating in any signatory country equal access to U.S. government procurement contracts (even though none of these other government’s procurement comes even close to matching ours in amount).

It gives America’s “Big Pharma” companies patent extensions while at the same time limits our ability to cut costs through ‘drug formularies’, even though such formularies are now deeply embedded in our Medicare, Medicaid and VA programs.  The only possible result is much higher drug prices for American consumers.

It allows TPP’s signatory nations to export the products of their highly subsidized State-Owned Enterprises (SOEs), contrary to the objections of every small and medium sized American manufacturer, all of our non-service labor unions, and every right-minded trade economist in America.  Nor are there likely to be appropriate limits on major foreign SOEs investing directly in the United States.

Compounding the myriad problems and the unacceptable loopholes going in, TPP’s terms, once enacted, will be very hard to change – and yet changes will inevitably have to be made.  And with only the [majority?] consent of the initial signatory governments, any other nation in the Pacific Basin can readily join the pact.

While this latter “all-for-one” premise is in keeping with the administration’s stated objective of TPP being the first encompassing 21st century multilateral trade agreement, it only confirms the fallacy of the “one size fits all” approach to negotiating FTAs.  Japan is not among the original proposed signatories, but neither is Fiji – how can any agreement be considered thoughtful when it can accept at once into membership such diverse Pacific nations?

Speaking of Japan, as I write this, Japanese Prime Minister Noda was expected to meet with President Obama on April 30 (yesterday), and it is thought that TPP was high on the list of topics, since the Prime Minister seemingly wants Japan in TPP, despite the strong objections of affected interest groups in Japan, especially agriculture.  Why the Prime Minister wants Japan in TPP and why we would want to see Japan in are mysteries to me.

Of the nine nations now negotiating TPP, Singapore and Malaysia embrace strategic industrial policy and export-led growth, and Vietnam is dominated by state-owned enterprises.  Should Japan – with its own commitment to export-led growth and to state-influenced (if not necessarily owned) enterprises – be allowed to enter the process, TPP will be even more problematic for American companies and workers.

As Mr. Prestowitz has written, “As a member of the WTO, Japan has long been pledged to follow free-trade rules yet [it] has managed to do so without opening its home market to imports; should it join TPP and still maintain its closed economy, Japan will make the accord even more dangerous to the American economy.”

The United States has no better friend than Japan today, albeit with some serious trade issues around autos and agriculture to be resolved between the two countries.  But TPP is simply not the ‘place’ to seek resolution, and there is no better example of the peril of using a single agreement to establish a fair trading regimen for disparate economies than thinking that TPP could at once fairly address the needs of the United States, Japan and Brunei.

This article was submitted by Leo Hindery Jr.who  is chair of the US Economy/Smart Globalization Initiative at the New America Foundation, co-chair (with USW President Leo Gerard) of The Task Force on Jobs Creation, founder of Jobs First 2012, and a member of the Council on Foreign Relations.  He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. (TCI) and Liberty Media, and is currently an investor in media companies.


New Mexico: The Entitlement State?

Posted on 26. Apr, 2012 by Stephan Helgesen in Economy, Politics

There’s so much talk about America becoming an entitlement culture what with the enormous increase in food stamp clients, welfare and unemployment recipients, but there’s little discussion about how our states have been slowly weaned onto an entitlement mentality through thousands of earmarks, public works projects, military bases and federal facilities like national labs, prisons and satellite government offices of every shape and size.

We all know that our modern economy relies on a combination of public and private investment to stay afloat, and New Mexico is not alone. Just look at the $6.0 billion/year impact our national labs has on our communities, except that our dependency (and that of many other states) on public money is way out of proportion with our population, especially if you look at it like a statistician.

Here in the West, from Texas to California, the Federal Government is very definitely the “800 lb gorilla in the room” with billions of dollars invested in our states and millions of jobs (both public and private sector) dependent upon that investment. Think: suppliers, manufacturers, and service providers – literally thousands of small businesses selling something to Uncle Sam’s many installations.

If we look at the big picture, the U.S. government has around two million employees, excluding the post office, on its payroll. Most of its employees (85%) work outside Washington, DC, but without the Federal ‘footprint’ in DC there would be few ‘Beltway Bandits’ (lobbyists), consultants, non-profits, union headquarters, etc. located there. Instead, a gaping revenue hole would exist for the DC government to fill. Conversely, if there were no national labs or air force bases in New Mexico, we’d have a mass exodus of service providers and suppliers headed out of town.

Where would the small businesses go?

But where would all those small businesses be headed if the Colorado labs like NREL and Argonne or the Lawrence Livermore Lab in California or the vast underground military defense installations in our neighbor states to the north and west didn’t exist? These companies would be like ‘ghost ships’ perpetually sailing an endless sea desperately in search of a safe harbor…or they would sink without government contracts.

Calvin Coolidge said “The business of America is business,” and back in Coolidge’s time, the Federal Government was miniscule (approximately 500,000 civilian government employees) compared to the behemoth it is now at approximately 2.0 million.

If the quote were updated it would probably read: “The business of America is government” as our government dependency has reached epidemic proportions.  If we’re looking for someone to blame we don’t have to look far… our own mirror will do, and then there’s our elected representatives. Generations of Congressmen and Senators have willingly fed at government’s trough at our behest.

We have encouraged them to fight for our fair share of the pork year in and year out, and that pork has taken the form of institutions and installations which have created an addiction that’s been nearly impossible to break.

Going ‘cold turkey’?

The piper must be paid. Many Americans now realize that to continue on the same path of government expansion will eventually create an unbreakable and dangerous dependency on a host that will soon be unable to deliver the goods as our enormous national debt ticks rapidly upward at over a trillion dollars/year AND the largest single social problem in American history kicks in to cripple small business owners – the (Un)Affordable Healthcare Act.

Is our addiction reversable?

There are only a few remedies for America’s addiction to government’s largesse and they all involve reducing our dependency on it and taking a new political path to achieve it. The good news is that most of our Congressional leaders finally realize it, too, and they are beginning to see that business as usual (earmarking) isn’t working. Americans are also waking up to the realization that every sugar daddy expects something for his money.

Government’s price is often our tacit agreement with its decisions and our promise to keep any criticism to ourselves.  Just as votes are bought with campaign promises to fund special projects, our allegiance is often paid for with jobs at government institutions.

Our best hope for survival and indeed prosperity during the time of these massive changes within our public sector is to build a new diversified economy that relies more on private sector growth than government. It’s that simple. And that’s the major disagreement between the two major political parties. If we don’t solve that ideological impasse we’ll run into a brick wall of debt and dependency that will force our hand.

Assuming we have the will to downsize our government, the operational choices will be difficult. Here in New Mexico we’ve seen how the BRAC (Base Realignment and Closure) Commission operates, and while it’s not perfect, it may be the model to use with our labs and other installations as well.

But before any decisions are made to close facilities, there must be objective defensible studies done on the impact closing facilities would have on the local community and the surrounding area. Traditionally, the best choices are not to simply close installations but re-mission them. That way America gets what it wants without the upheaval associated with wholesale shutdowns.

While this is happening, we in New Mexico we’ll need to reset our level of expectations because no government facility lasts forever just as none of us gets out of life alive.  We will need to have a top-down and bottom-up review of our core competencies so that we can  transform them into marketable strengths – to attract all-important outside investment. This will take time and dedication.

After all, building a better mousetrap means thinking like a mouse AND the trap at the same time.

Stephan Helgesen is a former diplomat who has lived and worked in 24 countries. Formerly the Director of the State’s Office of Science and Technology, he is currently an export consultant and Honorary Consul for Germany in New Mexico.

Lessons of MF Global: Stop Starving the Regulators, Especially the CFTC

Posted on 19. Apr, 2012 by Stephan Helgesen in Economy, Politics

Accountability through the “Sustainable Funding Act”

Anyone who thinks we’ve shut the barn door on misdeeds in the financial, commodities and futures markets just because of the well-intentioned Dodd-Frank Wall Street Reform and Consumer Protection Act (that became law on July 21, 2010) apparently has never heard of the latest debacle, MF Global.  The clarion call that arose out of the 2008 financial meltdown is still pealing.

A majority in Congress – regrettably, not all of Congress – quickly saw from the detritus of our broken economy the need for real oversight and meaningful regulation, but the non-majority in Congress who are so obviously beholden to Wall Street have been doing everything they can since to keep the barn door open.  And open it remains, as MF Global has proved.

Genuine futures market accountability is still pending, and the ability of the U.S. Commodity Futures Trading Commission (CFTC) to pursue the four critical areas of its charter is still only a prospect until Congress gives the Agency the permanent funding needed to hire the personnel and develop the resources it requires.

If those personnel and resources had been in place by as late as just last September, the MF Global collapse might well have been prevented, and certainly would have been mitigated.

And the bulwarks would already be up to defend customers and investors against the next similar transgression.  As the CFTC’s extremely able Chairman, Gary Gensler, has made clear, more thorough registrations and product reviews, better examinations, more probing surveillance employing better real-time data, and more rigorous enforcement are still needed.

Fortunately, there are ready answers.  One is called the “Sustainable Funding Act” (HR 3665) which has been introduced by Reps. Rosa DeLauro (D-CT), Leonard Boswell (D-IA) and Peter Welch (D-ME) to provide the CFTC with a permanent funding source, and the other is Reps. DeLauro’s and Welch’s “Anti-Excessive Speculation Act” (HR 3006) to amend the Commodity Exchange Act to prevent excessive speculation in commodity markets in general and on energy contracts in particular.

Currently, the CFTC relies on an annual appropriation to keep its lights on and guns loaded, yet the FY2012 federal budget saw a cut of 33% to the Commission’s operating budget and further cuts are expected for next year.

This is all part of the House Republicans’ effort to accomplish in the budget process what they are unable to achieve on the combined floor of the House and Senate, namely cut every regulatory agency budget to the bare bones so that actual enforcement is emasculated.

In other words, if you don’t like a law, then make sure it’s not enforced by disarming law enforcement.

The Sustainable Funding Act, modeled very simply after the SEC’s own permanent funding mechanism, would collect transaction fees from all futures market participants.

The Act is especially sensitive to the fact that not all futures transactions are created equal, and thus it provides for a thoughtful range of fees covering the entire range of commodity transactions.

Up until now, the CFTC has been something of a blunt enforcement instrument.  It has not been able to develop a meaningful distinction between futures trades that involve real goods and financial products integral to our large dynamic economy versus purely speculative commodity trades and trades in the ‘swaps’ marketplace which have no underlying rationale except speculation.  Dodd-Frank sought to address this persistent schizophrenia, and in response, the CFTC has now identified 32 areas where new rules will be necessary in order to implement the Act.

The most important by far are those related to inherently risky, speculation-based financial instruments and to speculation in energy-related commodities (oil, natural gas and gasoline).

The former are what drove MF Global (and earlier many other financial service firms) out of business and our economy into distress – the latter are responsible for as much as a third of the exorbitant and unjustified price of oil.

Futures are a critical tool for a sophisticated economy, which means few regulatory agencies are more important than the CFTC.  Whether you’re a farmer needing to hedge your crop and livestock prices, a small or medium sized manufacturer needing to hedge the prices of some of your raw materials, or an airline CEO trying to shelter your flying public from the vagaries of oil price swings, the CFTC offers ‘solutions’ not available anywhere else.

But pretty obviously if instead you’re a financier who wants to make big risky bets on the price swings of volatile financial instruments or indirectly drive up the price of gasoline, then you want the CFTC to remain underfunded and unfocused.

For then you can continue your strategies of using the credit of American taxpayers to underwrite your risks in gaming the system, and you can lay the consequences of your gasoline price manipulation off on the backs of the driving public.

Simply put, you must both keep the Commission from enforcing its new Dodd-Frank promulgated rules and block new legislation like Reps. DeLauro’s and Welch’s energy speculation bill.

There is nothing that more destabilizes markets and economies here at home and around the globe than the unchecked combination of ‘spec trading’ in swaps and commodities.

Yet today, the CFTC, with a budget that has left it hitting only about half its performance targets, is trying to regulate both a $300 trillion domestic swaps market – which is nearly eight times the size of the entire futures market – and a commodities market in which speculators, rather than producers, wholesalers and end users, control 85% of the crude oil futures market and 70% of the wheat contracts.

The risks from inadequately funding the CFTC are apparent for all to see, as power without the means to enforce it is actually worse than no power at all.

Unenforced power, even more than pure laissez faire regulatory constructs, says to ‘bad guys’ and ‘good guys’ alike that the nation really doesn’t care about misdeeds.  Repeated analysis has shown that such perceptions by ‘good guys’ very quickly turns them into ‘bad guys’ as well.

The CFTC will finally have the tools it needs when the Sustainable Funding Act and the Anti-Excessive Speculation Act are enacted.  And thank heaven for the likes of Reps. Boswell, DeLauro and Welch, who have never shirked from trying to make Dodd-Frank into the meaningful regulatory response that the Obama administration and the majorities in Congress intended.

Now, let’s just pass these bloody bills!  Let’s have no more using the federal budget process to thwart the intentions of the people, and no more ‘hiding the pea’ when it comes to masking the effects of regulatory non-enforcement.

This article was submitted by Leo Hindery Jr. who is chair of the US Economy/Smart Globalization Initiative at the New America Foundation, co-chair (with USW President Leo Gerard) of The Task Force on Jobs Creation, founder of Jobs First 2012, and a member of the Council on Foreign Relations.  He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. (TCI) and Liberty Media, and is currently an investor in media companies.

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