A MOTHER'S BIRTHDAY

TABLE TENNIS

To see this sport played competitively, one has to watch Asian and European players. Another sport that’s best appreciated in similar manner is badminton. In Asia and Europe, table tennis and badminton are taken seriously.

When I was in high school, I was a pretty good table tennis player. My classmate happened to be the national champion and although he did beat me in straight games I did give him a good workout. That’s how I knew that I was a decent player. The national champion told me so. ;-)

At any rate, look at the two videos below. The first one is for laughs and you’ll see why. The second one baffles me. Is he playing table tennis with a nunchaku for real? A nunchaku is a deadly weapon but in the video the man wields it like a racquet. Enjoy the videos!

For laughs



For real?

IMPOTENT NAVIES ENCOURAGE MORE PIRACY

Back in September I reported what was then the most serious piracy incident—the hijacking of MV Faina, a Ukrainian-owned freighter that happened to be carrying 33 Russian T-72 tanks. The US Navy promptly dispatched the USS Howard and Russia followed by sending the missile frigate Neustrashimy (Fearless).

A few days later, on 2 October, I provided an update. (1) I simply had to repeat what the New York Times reported:

In a 45-minute interview, the pirate spokesman explained what the pirates wanted (“just money”) to why they were doing this (“to stop illegal fishing and dumping in our waters”) to what they had to eat on board (rice, meat, bread, spaghetti, “you know, normal human-being food”).

He said that so far, in the eyes of the world, the pirates had been misunderstood. “We don’t consider ourselves sea bandits,” he said. “We consider sea bandits those who illegally fish in our seas and dump waste in our seas and carry weapons in our seas. We are simply patrolling our seas. Think of us like a coast guard.”

IMPOTENCE

Well to my disbelief I have to report that the MV Faina is still in the hands of the pirates. It has been surrounded by four US warships and the Russian warship for the last six weeks. I am at a loss for a rational explanation for the impotent behavior of these major powers.

There are currently 14 warships in the Gulf of Aden. Eight of them come from the combined task force of the coalition that is fighting the war in Afghanistan. NATO has four. Russia has one. And India has one. (2)

NAVIES HAVE THEIR HANDS TIED

ABC News recently reported that most of the navies have declared that shipping companies must protect themselves:

There is no consensus among the world's powers, however, to go after the pirates despite the fact that the ships that have been captured are anchored in clear view off the coast of Somalia.

The U.S. Navy said Wednesday that it’s not about to use its military might to free a giant oil tanker or any other ship captured by Somali pirates because if naval forces recover one ship, they would have to recover them all.
Besides, a Pentagon official asked, what would they do with all the captured pirates?

The U.S. Fifth Fleet has dozens of ships patrolling the pirate-infested waters off the Somali coast in the Gulf of Aden and in the Indian Ocean. They have been joined by warships from several other nations trying to create a safe corridor through the busy shipping lanes. (3)

But so what? I wonder why President Bush hasn’t made a decision. This is so unlike him. The presidential elections are over. His administration will be in power for just two more months. (The presidential inauguration of Senator Obama is scheduled for 20 January 2009.) Does he intend to hand over this problem to his successor?

BAD EXAMPLE

This impotence can only make the pirates bolder. Thugs like them only understand one language and that is the language of power. Apparently while they don’t understand the lack of action, they’re not wasting time pondering this. Since the MV Faina incident, about 15 more vessels have been hijacked.

According to the same ABC News article, 95 ships have been attacked so far this year and 39 have been captured.

A TIMELY EXCEPTION

Last week, on 19 November, Wednesday, the only Indian warship took offensive action at the first opportunity. (4) The INS Tabar first saved two merchant vessels on 11 November and followed it up on the 19th by destroying one of the mother ships of these Somali pirates.

INS Tabar encountered the pirates’ mother ship with two speed boats in tow and there were about 20 pirates on board the ship, it is learned.

“This pirate vessel was similar in description to the ‘Mother Vessel’ mentioned in various piracy bulletins. INS Tabar closed in on the vessel and asked her to stop for investigation,” a Navy spokesperson said.

But the pirates threatened to blow up the warship if it sailed closer to their mother ship, despite repeated calls from INS Tabar to stop and let the Navy personnel to inspect the ship, he said.

The Navy noticed that pirates were roaming on the upper deck of the vessel with guns and rocket propelled grenade launchers in hand, and they continued the threats and subsequently fired upon INS Tabar.

In their retaliatory action in “self-defence,” INS Tabar opened fire on the mother vessel of the pirates. “As a result of INS Tabar's guns booming, fire broke out on the pirate vessel and explosions were heard, possibly due to exploding ammunition that was stored on the vessel,” he said.

Congratulations to the Indian government and its navy for setting a good example.

THE LARGEST INCIDENT YET

Today, the Swiss news website, swissinfo.ch, reported that:

Somali pirates holding a Saudi supertanker after the largest hijacking in maritime history have reduced their ransom demand to $15 million (10 million pounds), an Islamist leader and regional maritime group both said on Monday.

The November 15 capture of the Sirius Star—with $100 million of oil and 25 crew members from Britain, Poland, Croatia, Saudi Arabia and the Philippines—has focused world attention on rampant piracy off the failed Horn of Africa state. (5)

Hopefully this will prod the powers to finally take action. The cry has been building:

Tom Barnett of ScrippsNews—a major US media conglomerate—wrote an op-ed (opinion-editorial) that plainly said “when piracy threatens global commerce, great powers need to fight back—collectively.” (6) I might add that the US navy should be able to do it by itself if the President ordered it. After all, if the US can invade two countries, surely it can exterminate several thousand pirates.

Admiral Vladimir Vysotsky of the Russian Navy was quoted by the Russian News & Information Agency (Novosti) as saying that warships from all of the Russian Navy fleets will be involved in measures to fight piracy in the Horn of Africa region. (7)

And back to the good-example-maker, India. Outlook India claims that India has been given the UN’s blessing to take on the pirates:

With international maritime nations identifying Somalian waters as the source of increasing piracy threats, India today said the UN Security Council has granted it permission to “suppress” the sea brigands there.

“So far India’s encounter with the pirates has been in the international waters. Our desire to fight piracy through the UN route has been conveyed and confirmed through the UN Security Council via the UN Permanent Representative of Somalia in UN,” Ministry of External Affairs Secretary (East) N Ravi told reporters here.

Navy officials, on their part, said the UN has given permission to navies operating in that area to take action against pirates, as enshrined in the UN Security Council (UNSC) Resolutions 1814, 1816 and 1838.

They said the go-ahead came after the Transitional Government of Somalia approached the UN welcoming action against pirates in their territorial waters. (8)

As my daughters would say, "whatever!" Let’s see what happens next.

REFERENCES

(1) “PIRACY UPDATE - 2 October 2008.” Retrieved from http://philosophytoastronomy.blogspot.com/2008/10/piracy-update-october-2-2008-when.html on 22 November 2008.
(2) “FACTBOX: Foreign ships off Somalia.” Retrieved from http://www.reuters.com/article/topNews/idUKTRE4AK4M020081121 on 22 November 2008.
(3) “Shipping Companies Must Protect Themselves.” Retrieved from http://abcnews.go.com/print?id=6292014 on 23 November 2008.
(4) “Indian Navy Sinks Pirate Ship in Gulf of Aden.” Retrieved from http://www.outlookindia.com/pti_news.asp?id=635226 on 23 November 2008.
(5) “Somali pirates want $15 million for Saudi ship.” Retrieved from http://www.swissinfo.ch/eng/swissinfo.html?siteSect=105&sid=10005525&ty=ti on 24 November 2008.
(6) “Barnett: Fight the pirates.” Retrieved from http://www.scrippsnews.com/node/38139 on 23 November 2008.
(7) “Warships from all Russian Navy fleets to fight piracy off Somalia.” Retrieved from http://en.rian.ru/russia/20081123/118473138.html on 23 November 2008.
(8) “India gets UN nod to take on piracy in Somalian waters.” Retrieved from http://www.outlookindia.com/pti_news.asp?id=636464 on 23 November 2008.

NINE MONTHS RACING AROUND THE WORLD

10 legs. 9 months. 8 competitors. And 37,000 nautical miles. It started at the port town of Alicante, Spain and will finish at the port city of St. Petersburg, Russia.

The race began 40 days ago and is expected to finish in late-June of 2009.

All eight racers finished the first leg safely (from Alicante to Cape Town, South Africa) and had departed from Cape Town six days ago.

The race began in 1973 and was known back then as the "Whitbread Round the World." In 2000, Volvo became the primary sponsor and renamed it the Volvo Ocean Race (VOR).



The boats are essentially giant surfboards because of the way they perform. These are huge vessels, 70 feet long (21 meters), and manned by 11 maniacs. The maniacs come from Britain, Russia, China, Ireland, Spain, Sweden, Norway, Brazil, Australia, New Zealand, Canada, Uruguay, etc.



From the official website:

During the race the crews will experience life at the extreme: no fresh food is taken onboard so they live off freeze dried fare, they will experience temperature variations from -5 to +40 degrees Celsius and will only take one change of clothes. They will trust their lives to the boat and the skipper and experience hunger and sleep deprivation.

The race is the ultimate mix of world class sporting competition and on the edge adventure, a unique blend of onshore glamour with offshore drama and endurance.

It is undeniably the world’s premier global race and one of the most demanding team sporting events in the world.

After looking at these videos, tell me if you don't fall in love with the sport!

A DISCOURAGING NOTE ABOUT THE DECISION TO LAUNCH A WAR IN IRAQ

Earlier, I explained the concept of marginal analysis. Although marginal analysis is an economic concept, it can be applied to many situations-war included.

The question I want to answer is this: are we getting our money’s and lives’ worth in the ongoing war in Iraq? In other words, after $350 billion (although estimates vary widely) and the lives of 4,500 troops, what has America really accomplished? Has America received the benefits it expected? What, in fact, are those benefits?

On March 9, 2008, MSNBC.com reported that a Nobel Prize-winning economist (J. Stiglitz) reported that the US government is burning through $12 billion a month to fight that war.

I recently concluded that this was a totally unnecessary war. And before I proceed, note that this entry discusses contemporary US politics. And politics, as my second favorite uncle said, is one of those topics where the discussion never ends. (The other is religion.)

VOICES OF DISSENT

Shortly after the US invaded Iraq, various politicians—most of whom come from the Democratic party—described the Iraq War as a “war of choice” or phrases to that effect. (President Bush belongs to the opposing party-the Republican party.) Various political commentators echoed the same observation.

USA Today reported on August 26, 2004 that:

“Iraq was a war of choice, and the United States is bearing virtually all of the cost,” according to John Podesta. Mr. Podesta was the chief of staff of former President Clinton. He now heads the Center for American Progress, a liberal think tank. He is, unquestionably, a liberal Democrat.

Boston Globe reported on September 9, 2004 that:

CINCINNATI —— Senator John F. Kerry, campaigning at the same site where President Bush laid out his case against Saddam Hussein two years ago, yesterday called the Iraq war a “catastrophic choice” that has cost $200 billion while inspiring terrorist groups and yielding “the most incalculable loss of all”—more than 1,000 US military deaths.

“George W. Bush’s wrong choices have led America in the wrong direction in Iraq, and they have left America without the resources we need so desperately here at home,” Kerry said, in a bluntly worded attempt to contrast his views on Iraq with the incumbent’s war policy. “I call this course a catastrophic choice that has cost us $200 billion because we went it alone, and we’ve paid an even more unbearable price in young American lives and the risks our soldiers are taking. We need a new direction.”

TIME WILL TELL

For my part, I withheld judgment about the wisdom of waging war in Iraq until I read Scott McClellan’s book. Scott’s book explains his belief that the Bush administration fabricated evidence to justify the assault on Iraq.

Who is McClellan? He’s the former Press Secretary of President Bush. Mr. McClellan was a loyal worker for the president since 2000. He became the Press Secretary-the official mouthpiece of the White House-on July 2003 until he resigned on April 2006. In June 2008, his book, "What Happened: Inside the Bush White House and Washington's Culture of Deception," was published.

I found the book credible. I don’t think Mr. McClellan had an axe to grind. Instead, I think his conscience was weighed down by his knowledge and he wrote it to both clear his conscience and to inform the American people of his belief that the president deceived the American people. It was this book that clinched the case and convinced me that America did not have to invade Iraq.

According to the Washington Post (October 10, 2004), the rationale behind the invasion was...

In announcing 19 months ago that the United States was poised to invade Iraq, President Bush told the nation:

• Intelligence gathered by this and other governments leaves no doubt that the Iraq regime continues to possess and conceal some of the most lethal weapons ever devised...
• The people of the United States and our friends and allies will not live at the mercy of an outlaw regime that threatens the peace with weapons of mass murder.

But the argument that the United States faced a moment of maximum peril in early 2003 from Iraq has been greatly weakened by the release last week of the comprehensive report of chief U.S. weapons inspector Charles A. Duelfer. Click on any of these links: Link-1, Link-2, or Link-3.

The report found that the 1991 Persian Gulf War and subsequent U.N. inspections destroyed Iraq's illicit weapons capability, leaving it without any chemical, biological or nuclear weapons.

Saddam Hussein hoped to someday resume his weapons efforts, the report said, but for the most part there had been no serious effort to rebuild the programs.

I looked for corroborating evidence and found it in the official press release by the White House on October 7, 2002:

1. Tonight I want to take a few minutes to discuss a grave threat to peace, and America’s determination to lead the world in confronting that threat.
2. The threat comes from Iraq. It arises directly from the Iraqi regime’s own actions-its history of aggression, and its drive toward an arsenal of terror.
3. Eleven years ago, as a condition for ending the Persian Gulf War, the Iraqi regime was required to destroy its weapons of mass destruction, to cease all development of such weapons, and to stop all support for terrorist groups.
4. The Iraqi regime has violated all of those obligations. It possesses and produces chemical and biological weapons. It is seeking nuclear weapons. It has given shelter and support to terrorism, and practices terror against its own people. The entire world has witnessed Iraq’s eleven-year history of defiance, deception and bad faith.
5. We also must never forget the most vivid events of recent history. On September the 11th, 2001, America felt its vulnerability—even to threats that gather on the other side of the earth. We resolved then, and we are resolved today, to confront every threat, from any source, that could bring sudden terror and suffering to America.
6. Members of the Congress of both political parties, and members of the United Nations Security Council, agree that Saddam Hussein is a threat to peace and must disarm. We agree that the Iraqi dictator must not be permitted to threaten America and the world with horrible poisons and diseases and gases and atomic weapons. Since we all agree on this goal, the issues is: how can we best achieve it?

We know now that the answer was war.

ONE OF THE UNIQUE THINGS ABOUT AMERICAN DEMOCRACY

America is unique in the sense that its leaders must convince its people that its military action is justified. America’s military power is such that it can win practically any war. Its military’s weakness-if that’s what it should be called-is the American people’s attitude towards any military action. The American people must support it since public attitude will ultimately support or undermine the might of the military.

I thought the president did a fine job during his first term but he really screwed up his second. Most of that screw-up revolves around the war in Iraq.

I also think that he capitalized on the trust that he had built after he led the post-9/11 America. I believe that the evidence supports the deception. And I am discouraged to acknowledge that the president did what many others have done before him—betray the public trust.

Next, let’s see if marginal analysis can determine the benefit of waging the war in Iraq. It can. And the conclusion is terrible. I would like to submit a suggestion. It’s an illegal suggestion unless Congress can be convinced to change the law. It’s a pragmatic suggestion that makes a lot of economic sense. By that, I mean that the cost-to-benefit ratio will be low and that's a good thing. We want the most bang for the buck. It should cost considerably less than a hundred million dollars. Compared to the war effort, this is a simple operation. The beauty of it lies in the likelihood that it will deliver most or all of the benefits that were originally expected.

What are those benefits anyway? Answering that question will require answering two more. Who should own these expectations—the American people or the government? And what benefits does an aggressor typically derive from a victorious war?

To be continued in a few days...

SAILING ON LAKE MICHIGAN
Listen to Anthony! He is just so alive!

Boat: J22
Total cruise: 3 hours
Destination: Chicago Water Crib

A DECEPTION OF GARMENT SIZES

A previous blog entry discussed the epidemic of obesity that exists now in America. Concurrent with this is an unspoken but accepted agreement betwen suppliers to "benevolently deceive" the American market.

The original article was reported by CBS News in 1995. Click here for the full text of the article. Salient points follow:

A common way of making overweight people feel smaller is by expanding the world around them. Architectural designers call it “framing.” What is its relation to garments? Well, clothing designers “frame” constantly. Garment sizes depend heavily upon perception so fashion designers frame sizes to project the image that consumers want.

Garment sizing is a major topic in fashiom design. Over the past 20 years, the American fashion industry has manipulated clothing sizes to accommodate its widening public, especially women. To show how sizing has changed over time, size-eight dresses from the 1980s, 1990s, and today were compared. The waist circumference on a 1984 dress was 25 inches. On the 1995 dress, it was 26 inches. And on a 2004 dress, it was 27-1/2, a two-and-a-half inch difference from 1984 to 2004. Furthermore, “the sizing deception is a product of American ingenuity. Sizing standards in other parts of the world have remained constant. The Europeans have an entirely different view of fashion and their sizing hasn’t changed.”

The deception is intentional, because although the woman has gotten bigger, her garment size stays the same or gets even smaller.

AN EPIDEMIC OF OBESITY

There were far fewer overweight people in 1985 when I arrived in America. That recollection didn’t come to me until I read the following article: Ten things the food industry doesn’t want you to know.

Another investigation behind the scenes. Okay, it was worth skimming. Unfortunately, as I went down the list I slowed down. Hence this entry.

Yes, 23 years ago there were far fewer overweight Americans. I do remember that.

So I let my curiosity do the walking and I unearthed one article. It was a sign of the times and also quite disturbing.

THE WIDENING OF AMERICA

CBS News reported it in 2005. The original article links here. Here are the salient points.

Note that this article was written just before the housing bubble burst (brought about by the sub-prime crisis). Its significance? McMansions. Sorry but this is a high-context entry. These two links will explain the term but it’s up to you to connect the dots. Link-1. Link-2.

Here are the salient points:

NEW YORK, July 24, 2005

(CBS) All over America, the buzzword is big: big houses, big malls, big cars, and big Americans inside them.

“Sixty-five percent of Americans are overweight or obese. Overweight is the new average," observes International Design magazine. Designers and urban planners are creating an America that accommodates its increasingly overweight population, but you'd never know it.”

“There is tremendous profit potential out there for companies and designers who cater their products to obese people. The challenge, though, is to give them that product that allows them to function in everyday life more easily and more comfortably without making them feel disabled, without calling attention to themselves. Fat is a four-letter word.”

One of the most common ways of making overweight people feel smaller is by expanding the world around them. Architectural designers call it “framing.”

“A person who is big does not want to look big. So if their house is bigger, they will look of a more average proportion.”

Big homes, bathrooms, beds and cars can provide a large frame for people in private and now, when they go out to public spaces, architectural regulations make it so everyone fits most anywhere, anywhere, that is, that was designed recently.

A stadium seat from 100 years ago like Soldier's Field in Chicago might have been 16 or 17 inches, maximum. When they designed the new Soldier’s Field the expectation for new seats was many inches more than that.

The same applies to public transportation around the country. It has become roomier.

AN INHERENT CONFLICT OF INTEREST

Now, go down that list with me. For brevity, each item was stripped of further explanation. You can read the entire article by clicking here.

Ten Things the Food Industry Doesn’t Want You to Know
by Adam Voiland, Oct. 20, 2008

Two nutrition experts argue that you can’t take marketing campaigns at face value.

With America’s obesity problem among kids reaching crisis proportions, even junk food makers have started to claim they want to steer children toward more healthful choices.

In a study released earlier this year, the Centers for Disease Control and Prevention reported that about 32 percent of children were overweight but not obese, 16 percent were obese, and 11 percent were extremely obese.

Food giant PepsiCo, for example, points out on its website that “we can play an important role in helping kids lead healthier lives by offering healthy product choices in schools.” This page offers to provide nutrition information for all Pepsi products. The company highlights what it considers its healthier products within various food categories through a “Smart Spot” marketing campaign that features green symbols on packaging. PepsiCo's inclusive criteria—explained here—award spots to foods of dubious nutritional value such as Diet Pepsi, Cap'n Crunch cereal, reduced-fat Doritos, and Cheetos, as well as to more nutritious products such as Quaker Oatmeal and Tropicana Orange Juice.

But are wellness initiatives like Smart Spot just marketing ploys?

Such moves by the food industry may seem to be a step in the right direction, but ultimately makers of popular junk foods have an obligation to stockholders to encourage kids to eat more—not less—of the foods that fuel their profits, says the pediatrician co-author of a commentary published in the Oct. 15, 2008 issue of the Journal of the American Medical Association (JAMA) that raises questions about whether big food companies can be trusted to help combat obesity. The other author, a professor of nutrition at New York University, both of whom have long histories of tracking the food industry, spoke with U.S. News and highlighted ten things that junk food makers don’t want you to know about their products and how they promote them.

COMMENT: There is, in other words, an inherent conflict of interest. It doesn’t mean that these companies are doing wrong. It just means that there is a natural conflict of interest.

1. Junk food makers spend billions advertising unhealthy foods to kids.
2. The studies that food producers support tend to minimize health concerns associated with their products.
3. Junk food makers donate large sums of money to professional nutrition associations.
4. More processing means more profits, but typically makes the food less healthy.
5. Less-processed foods are generally more satiating than their highly processed counterparts.
6. Many supposedly healthy replacement foods are hardly healthier than the foods they replace.
7. A health claim on the label doesn't necessarily make a food healthy.
8. Food industry pressure has made nutritional guidelines confusing.
9. The food industry funds front groups that fight anti-obesity public health initiatives.
10. The food industry works aggressively to discredit its critics.

THE FIVE SECRETS YOU MUST DISCOVER BEFORE YOU DIE

This is one of those special messages that should mean something to everyone. Normally, I’m skeptical about unsolicited or chain letter-type messages but I clicked on this one because I’m familiar with the publishing house, Berrett-Koehler (BK) Publishers. BK is an independent publisher with an ambitious mission: to create a better world.

But back to the five secrets. The content was created by John Izzo. It’s a six-minute movie with musical accompaniment so confirm that your speaker is turned on. Click here for the message that I think will touch you.

A BIG BET ON RUSSIA: BP's PREDICAMENT

BP—formerly known as British Petroleum—is currently facing the largest crisis in its storied 99-year history. The crisis is full of superlatives. By any measure, it’s enormous. It involves tens of billions of dollars and the direct employment of almost 100,000 Russians. It’s being closely watched as a harbinger of Moscow’s real intentions—economically and militarily. It has the potential to bring down a giant company. And it involves numerous ethical and legal issues.

Befitting the largest British company, BP shares trade primarily at the London Stock Exchange. Energy is currently a hot industry. Last year, BP was the fourth largest company in the world measured by revenue, preceded only by Exxon-Mobil and Royal Dutch Shell.

In 2003, BP bet big. For starters, it invested $6.15 billion for 50% ownership in a joint venture called TNK-BP. This was just for starters. BP took this gamble not only because of the enormous potential of Russia’s Siberia but also because it’s traditional haunts in the North Sea, Gulf of Mexico, and Alaska had become prohibitively expensive, its proven reserves were perilously low, and its global oil production (on which its revenue depended upon) was declining. In short, BP was desperately looking for new fields (literally) to mine.

But why Russia? Virtually all the other oil majors, with the exception of Royal Dutch Shell, had steered clear of it. BP’s peers had concluded (and it appears, rightfully so) that Russia’s legal fabric was still unproven. Why is its legal fabric so important? Russia has historically been an autocratic state. Its recent behavior in Georgia is indicative of the way the Russian government pursues its objectives. It shoots first and then presents the world with a fait accompli.

BP was undeterred. It forged ahead. The promise of enormous gas and oil reserves, low cost, and the advantages of vertical integration—from the ground through the pipes to the consumer—was irresistible. It was willing to risk bad governance, a corrupt judiciary, venal bureaucracy, combative local partners, organized crime, and capricious legislation. It boldly proclaimed that Russia is changing for the better. Russia’s fledgling democratic society is becoming stable. Russia needs foreign investment and will give its investors at least a level playing field. It has to behave like a civilized country of laws for it to retain its status as an inviting place for investment.

It seems to have fooled itself. Whether or not it deluded itself, this is a dangerous type of managerial delusion. It puts a lot of jobs, not to mention resources, at risk—if the decision, in fact, was a product of managerial delusion.

A HISTORICAL PERSPECTIVE

I think Senator McCain, the current Republican candidate for the US presidency, said it best. In a campaign interview last month, he said:

Let me put a little bit of historical perspective on this. I think all of us had [developed] a kind of a romanticized view of the world after the fall of the Soviet Union. There was a period of time when we saw dramatic progress around the world of countries attaining democracy [referring primarily to the former vassal states of the USSR]. Many assumed that it was almost automatic that China and Russia would inexorably [follow] a path toward democratic and free societies. Then we saw Tiananmen Square, the chaos [including the attempted coup d’état] in Russia and their diminished stature in the world. Now Vladimir Putin and company are eager to reassert [their centuries-old self-image of being one of the major powers in the world].

So, in other words, great economic progress did not mean the diminishment of autocracies. I still believe that history will show that democracy and freedom go hand in hand with economic development, sophistication, and the technologies that enable the free flow of information. I think we all are realizing that progress is not going to be as rapid as we may have thought it was going to be in the halcyon days of the 1990s.

Assassination continues to be one of their tools (referring to Alexander Litvinenko), oil, brazen attacks on civilians (in Chechnya, etc.), outright attacks on the pretext of protecting its citizens (in the breakaway provinces of South Ossetia and Abkhazia in Georgia).

I don’t think we’re going to reignite the Cold War. I don’t think there’s going to be a nuclear confrontation with Russia. I do think there’s going to be a dramatically different relationship.

We should always try to maintain relations and communications with every country in the world. But never confuse national interests with personal relationships.

Comment: Incidentally, that’s what President Bush did back in 2001. His famous remark was “The more I get to know President Putin, the more I get to see his heart and soul ...the more I know we can work together in a positive way.” Sorry George, you’re very wrong on that one. Putin is a former KGB agent. What were you thinking?

Three short years later, by 2006, TNK-BP went on stream. In its 2007 Annual Report, BP announced that TNK-BP accounted for 25% of its global oil production and contributed 15% of its net income. From 2003 to 2006, BP claimed that it had earned enough dividends to recoup its initial investment. Indeed, by the third quarter of 2006, BP’s share of revenue amounted to $6.9 billion. (I’m not clear on the source or nature of these “dividends.” The term might be used generically.) Not so prominently mentioned was the fact that BP has no other major projects on stream that could take TNK-BP’s place.

The economic climate turned around in 2007. Russia had tasted the wealth and power that comes with being the major supplier of Europe’s energy needs. Now the real Russia came out.

RUSSIA MAKES ITS MOVES

In December 2006, it forced Royal Dutch Shell along with its Japanese partners, Mitsui and Mitsubishi, to sell its controlling stake in Sakhalin-2. This was a $22 billion stake. This is not an amount to trifle with—even for the oil majors. Russia was able to impose its will anyway. How? It used a government environmental agency (just like the EPA of the US government) to threaten to freeze work on the project.

Since then, Russia has focused its efforts on harassing BP. It uses a combination of tactics—the same environmental agency, the tax revenue police, the justice police, and, most ominously, the FSB (the modern-day successor of the KGB).

The results were predictable. There is no contest between one of the largest companies in the world against the largest country in the world.

By June 2007, BP agreed to sell one of TNK-BP’s prize assets—one of the world’s largest natural gas fields—to Gazprom. The latter is a Russian state company and a monopoly. The leverage used by the Russians was typical: the threat to revoke the company’s license to develop the gas field. The Russians window-dressed the transaction. Gazprom would “buy” it from BP for $700 to $900 million. BP will take a huge opportunity loss on this. Analysts estimate that the gas field, called “Kovykta,” was capable of earning between $1.5 to $2 billion. Furthermore part of BP’s compensation will be the opportunity to invest another $3 billion and form a joint venture with Gazprom.

Comment: Thank you very much. First, you force me to sell at a loss. Second, you’re generous enough to give me another opportunity to lose more money.

BP’s reaction was puzzling, to say the least. Its CEO welcomed the arrangement as the start of a new strategic partnership with Gazprom. Furthermore, in the same speech (given in Moscow, incidentally), BP’s CEO praised BP’s business progress and encouraged other companies to invest in Russia. He called the gas field dispute just “one of those bumps in the road.” Of course, this was probably smoothing the crisis on the surface. Wait and see and until then, pretend everything is going smoothly.

Thirteen months later, in July 2008, BP-TNK’s CEO was effectively ousted. Moscow’s tactic: the non-renewal of the expatriates’ work permits. Affected with the CEO were 150 senior engineers of BP. Moscow presented BP with one small consolation—the CEO was still the CEO and could continue to run the company albeit from overseas.

CAN WE DRAW SOME CONCLUSIONS?

Would you agree that the following conclusions can be drawn from this story?

1. Russia is pursuing a policy of state control. It lures Western oil companies and, over time, makes them junior partners. It needs Western investment and technology and is only intent on building its own capabilities.
2. It will not use bald-faced tactics to expropriate Western investments. Instead, Moscow uses its entire arsenal of laws and regulations to harass its foreign partners until it achieves its goals. Time and location are on Russia’s side.
3. Russia’s power elite, led by Putin, will not hesitate to apply these same tactics to domestic enemies. The former owner of Yukos, Russia’s first large oil company, dared defy Putin in 2003. Yukos was looted and eventually absorbed by Russia’s state owned oil company, Rosneft. As for the billionaire who defied Putin, he now languishes indefinitely in an obscure penal colony close to the Russian-Mongolian-Chinese border. Apart from him the other big losers were Western banks who were owed more than $1 billion.
4. It’s obvious that Russia is leveraging its power as the single largest fossil fuel producer (second after the entire OPEC cartel) to re-arm itself. Russia’s goal is to return to its place as one of the world’s superpowers. This goal can only be attained by developing its industrial and military capabilities. To this end, it is vital for Russia’s oil and gas to stay within Russia’s border until it reaches its European customers. This is a major reason for its hostility to the West and to its former satellite states for daring to build a trans-Caucus pipeline.

WHY DID BP MAKE THIS DECISION?

Why did they take such an enormous risk especially since most of their peers, save another one (Royal Dutch Shell), played it safe?

It won’t do much good to second guess the board’s decision. The agreement to go ahead was signed with much publicity. Putin even flew to London for the event. BP’s decision doesn’t seem like it was made secretively.

A clue may be found in the reported condition of BP’s board in 2001 till 2003. It seems that BP’s board was dysfunctional. The CEO, Lord Browne, led autocratically and not by consensus. He was forced out in 2007—for reasons unrelated to BP’s Russian investment. Various unflattering portraits of him can be found on the Web. Four examples are:

• The Houston Chronicle - BP is the largest investor in US energy development. Most of that is in Texas.
• USA Today
• BusinessWeek
• Wikipedia about Lord Browne

I mentioned decision-making delusions that plague executives earlier. Click here for a link to a blog entry that discusses the subject. It’s based on a critical review of a book entitled The Halo Effect.

Click here for a link to a guide for making good decisions:.

Bottom line: The shareholders (among many other observers) probably held their collective breath for the first few years. They must have been pleased, even euphoric, at the results as reported by the 2007 Annual Report. The rapidity of successive setbacks that began in 2007 to the present day must be shocking them.

I suspect the board fulfilled its responsibilities—ethical and legal—to its shareholders and to the greater society. Fortunately for management, the results from the first few years validated their decision. I wonder if any activist shareholders plan to file a derivative suit or the equivalent in the UK. But what would the suit’s legal theory be based on?

A final note about Lord Browne: he was rewarded with a parachute (a very, very modest one by US standards—it was only $4 million!) when he retired.

THE ROCKY RELATIONSHIP BETWEEN THE US AND RUSSIA

The relationship of the US with Russia has always been rocky. The US helped Russia beat back the Nazi onslaught. It wouldn’t be an exaggeration to say that without the help of the US, Russia would’ve fallen.

After the USSR fell in 1991 and the US poured billions into assisting the former adversary, I wondered what the heck was going on. I could understand our assistance in so far as the USSR’s former nuclear arsenal was concerned; we certainly don't want any of those weapons to fall into the wrong hands. Unfortunately the technology, i.e., the skills, is more difficult to control. Witness the rogue Pakistan physicist who shared his knowledge with countries whose relationship with US is currently on edge (North Korea, for example).

WHAT NEXT?

In retrospect, it appears that BP was reckless (or bold, depending upon how things would turn out) in investing in Russia. A capitalist-based economy is still new to them. The majority is not used to democracy or freedom. Their present system is merely a continuation of the corrupt system of Communism.

A badly skewed socio-economic system invites corruption on a massive scale. Russia’s entire wealth is concentrated in the hands of about 100 families. It has a population of almost 150 million and a GDP of about $2 trillion. There is a very thin middle class. In many ways, despite its imposing military, Russia is a third country. (National Geographic, 2008)

So returning to BP and its current predicament, it’ll be interesting to see what happens in the next 24 months.

CAN WE OBJECTIVELY MEASURE THE BENEFIT OF FIGHTING THE WAR IN IRAQ?

I believe it’s possible. There’s an economic tool called marginal analysis that can do it. After reading both parts of this blog entry, tell me if you agree.

Are you familiar with the concept of marginal analysis?

It’s an economic concept that you actually apply in everyday life. We make important decisions based on the concept all the time. Let’s use a real-world example.

How many laptops would you like to have? One or two? For most people, one laptop is sufficient, would you agree? You enter a store with $10,000. This is more than enough money to buy two powerful laptops. Would you buy one or two? If you’re like most persons, you’d buy only one and either save the remainder or spend it on another toy. The additional benefit you would derive from a second laptop is marginal (i.e., minimal). That’s the reason why you probably wouldn’t buy a second one. But let’s say you bought that second laptop anyway. How likely is it now that you would buy a third laptop? You probably wouldn’t, would you? In fact, only a very few would.

MARGINAL ANALYSIS EXPLAINED

This is the concept of marginal analysis. The marginal utility (i.e., the additional benefit) you would derive from a second laptop is minimal compared to the marginal utility you would derive from a first laptop. A third laptop will provide even less utility than second.

Marginal analysis, therefore, is concerned with analyzing the value of additional benefits compared to the cost of additional resources. In this case, your resources consist of $10,000. If each laptop cost $3,000, your marginal benefit from the first laptop exceeds the marginal cost of $3,000. In other words, you felt that you gained more—a lot more—by exchanging $3,000 for a laptop. Will you feel the same gain if you bought a second laptop? Probably not. If you’re like most, you would decide that one laptop is enough. In other words, the marginal cost of exchanging another $3,000 outweighs the marginal benefit of owning a second laptop. But let’s say you bought the second laptop anyway, would you take it another step further and buy a third laptop? At this point, 99% of you would say “No.” In other words, 99% of you will decide that the marginal cost of spending another $3,000 outweighs the marginal utility (or benefit) of a third laptop.

Instead of laptops, you can substitute your weekly grocery money and your list of groceries to buy. You could also substitute your appetite. Would you fill yourself up on one dish and not leave room for another? Or would you rather have one of this so that you leave room for that.

This is marginal analysis in action and as this example illustrates, you use it every day.

Marginal analysis is useful because it determines the optimal or best combination of goods and services for a given amount of resources. How about another example? This time we’ll use your hunger as the resource. You sit down to eat. There are three kinds of equally tasty and nutritious dishes on the table. Would you satiate your hunger by eating all of one dish or by eating some of all three? If you ate only one dish, you would deny yourself the benefit of the other two. If you ate two dishes, you would have a tastier and more balanced meal. But if you ate some of all three dishes, you would have eaten the tastiest and most balanced possible meal. It’s in your best interest, therefore, to eat moderate portions of each food in order to have the most satisfying meal. Would you agree?

Marginal analysis determines the point where your marginal benefit is equal to your marginal cost. At that point, you have optimized your choices. Each dish adds to your marginal benefit. Each dish also “costs” you something in the sense that it partially satisfies your hunger.

Marginal analysis can be applied to many things. It can be applied to complex decisions. Like war. Should you wage war on an enemy or find another way to resolve your conflict?

Continued here.

PIRACY UPDATE - 2 October 2008

When a religion doesn’t have a defined center, it can become a problem. Islam doesn’t have an equivalent to the Catholic Pope. Instead Islam has a multitude of holy men called imams.

From Wikipedia:

An imam is an Islamic leader, often the leader of a mosque and/or community. Similarly to spiritual leaders, the imam is the man—an imam is always a man since female imams never have been recognized in Islam—who leads the prayer during Islamic gatherings. More often the community turns to the mosque's imam if they have an Islamic question. In smaller communities an imam could be the community leader based on the community setting.

There are conservative imams and there are radical ones. An extremist would have little difficulty finding an imam to support his cause. Need to justify the violence that will kill innocent Muslims during a suicide bombing? Well, try that imam. He doesn't agree? Try that imam instead. You can just keep on going until you find one to justify it.

THE HOLY WAR

In the ongoing piracy, the Christian Science Monitor reported that the French news agency...

Agence France-Presse (AFP) reported that those militants have urged the pirates to destroy the ship and its cargo if they do not get the $20 million ransom they are demanding for the release of the cargo and crew.

A spokesman for the militants told AFP they had no links to the pirates, but would gladly use the tanks in their “holy war” against the Somali government if given the chance.

“It is a crime to take commercial ships but hijacking vessels that carry arms for the enemy of Allah is a different matter,” added Robow [spokesman for Shabaab], whose movement nearly stamped out piracy when it controlled southern Somalia last year....

“The Ukrainian ship is loaded with military hardware that is very important for our holy war against the enemy of Allah and it would have changed the war in Somalia if that military shipment falls in our hands,” he said.

What a convenient excuse, isn’t it?

PIRATES ARE ALSO HUMANS

Let’s not forget that these thugs are also human beings. Today's New York Times quoted the pirates’ spokesman as saying...

NAIROBI, Kenya — The Somali pirates who hijacked a Ukrainian freighter loaded with tanks, artillery, grenade launchers and ammunition said in an interview on Tuesday that they had no idea the ship was carrying arms when they seized it on the high seas.

“We just saw a big ship,” the pirates’ spokesman, Sugule Ali, said in a telephone interview. “So we stopped it.”

The pirates quickly learned, though, that their booty was an estimated $30 million worth of heavy weaponry, heading for Kenya or Sudan, depending on whom you ask.

In a 45-minute interview, Mr. Sugule spoke on everything from what the pirates wanted (“just money”) to why they were doing this (“to stop illegal fishing and dumping in our waters”) to what they had to eat on board (rice, meat, bread, spaghetti, “you know, normal human-being food”).

He said that so far, in the eyes of the world, the pirates had been misunderstood. “We don’t consider ourselves sea bandits,” he said. “We consider sea bandits those who illegally fish in our seas and dump waste in our seas and carry weapons in our seas. We are simply patrolling our seas. Think of us like a coast guard.”

Imagine that! The pirates are the volunteer Coast Guard of Somalia! They just saw a big ship and decided to stop it.

They must think we’re as stupid as they are.

MODERN DAY PIRACY

Several days ago, a Ukrainian freighter bound for Kenya was hijacked by modern-day sea pirates.

The latest criminal exploit of these thugs has now made front-page news. There is nothing romantic or movie-like about these sea-going terrorists.

Consider this. At sea, the dynamics of a group change. No longer does the group feel subjected to the rule of law. Instead real and perceived authority switch to the officers in command. The captain, the head honcho, is the ultimate authority. He can put offenders in the brig (jail). Or he can marry a couple.

Once pirates capture a boat, they become the authorities. Can you imagine how absolute their power becomes at that moment?

Curious, I did some Internet research about piracy and learned several interesting facts.

THE ORIGIN OF THE PRESENT-DAY US NAVY

The present US Navy came into being in order to fight the pirates operating in what was then called the Barbary Coast. There was a Continental Navy that was established during the American War of Independence against the Kingdom of Great Britain but it was disbanded after the US won its independence.

The US Congress passed the Naval Act of 1794 that formally created the present US Navy. It consisted of six frigates—one of which is still an active commissioned ship of today’s navy, the USS Constitution.

This is a photo of the USS Howard, the first US Navy ship that responded to the hijacking.

The US Navy fought two Barbary Wars. The first one—from 1801 to 1805—ended after the pirates seemed soundly defeated. The second one, in 1815, finally defeated the Barbary pirates for good. The US from the early 1790s had been paying tribute to the pirates—a tax, if you will—and it stopped doing so after 1815. The US paid taxes to pirates for nearly 25 years!

The Barbary wars also created the fighting reputation of the US Marine Corps.

THE ORIGIN OF THE PRESENT-DAY US MARINES

The nickname for the US Marines, “leathernecks,” originated from the battles that the marines fought against the pirates. To protect their necks, the marines wore uniforms that had a high and stiff leather collar. This collar was meant to protect their necks from cutlass blows delivered by the pirates in the one-on-one combat between the marines and the pirates.

The opening verse of the well-known Marines Hymn—From the Halls of Montezuma to the Shores of Tripoli—makes reference to the First Barbary War.

Without words


Tripoli, the capital of Libya, is one of the modern-day nations that comprise the Barbary Coast. The other countries are Morocco, Algeria, and Tunisia.

With words


THE CURRENT SITUATION (as of 0700 GMT, September 30, 2008)

Returning to the ongoing story, the Somalian pirates happened to seize a cargo ship that was carrying 33 Russian T-72 tanks and (literally) a boatload of ammunition.

This is another photo of the USS Howard.

The latest—from BBC News—states that the US Navy has surrounded the hijacked ship. Furthermore, reports now indicate that despite the Kenyan government’s claim, the ship was bound for Sudan. A Russian warship is part of the flotilla guarding the hijacked Ukrainian freighter.

What drama on the high seas…

THE RECENT BAIL-OUT OF FANNIE MAE & FREDDIE MAC

Draw your own conclusions from this video.

The first part shows the interim CEO of Fannie Mae speaking in front of the Congressional Black Caucus (CBC). The speech was delivered in 2005, the year that the housing bubble peaked. It's interesting to hear the CEO admit the existence of serious problems already brewing inside Fannie Mae.

It's followed by a Fox News commentary and analysis that explains the relationship of the CBC to Fannie Mae. It also reveals Senator Obama's role in the Congressional Black Caucus.

At the end of this post, is a copy of the article that appeared in the website of Washington State's Herald newspaper. (I do this to minimize the frustration of clicking on a dead link.)

The article explains the significance of this two quasi-government institutions and why they had to be bailed out.

FANNIE MAC, FREDDIE MAC BAILOUT HAD TO HAPPEN
Published Sunday, September 14, 2008 by James McCusker

The story was that Fannie Mae and Freddie Mac had no choice. They would either agree to a federal government takeover or, alternatively, the federal government would take over anyway.

The back story, though, is that the Treasury Department didn't have a choice, either.

Two factors forced the decision to take over the mortgage giants. The first was that a review of Freddie Mac's books revealed that its accounting methods had overstated its capital position. When this information was made public the financial markets would again be in turmoil, something the Treasury Department neither needed nor wanted.

The significance of the accounting issue should not be understated.

Both Freddie Mac and Fannie Mae had made a point of their capital adequacy as each presented its best face to the markets and the public. And, in fact, both of the mortgage giants appeared to have capital levels that not only met but also exceeded regulatory requirements.

If the capital accounts were built on sand, though, lenders and investors would feel that they had been deceived. A reputation for deception is not a good thing to have in financial markets. And an accounting mess is certainly not a good thing to reveal while the Treasury Department was inside these organizations and backing them up. Its reputation would be smeared, too.

We should not underestimate the importance of human nature, either. Almost certainly Freddie Mac's accounting made the feds wonder, "What are we going to find next?"

Financial markets do not like the unexpected and have been on edge ever since this mortgage finance mess began to give off its distinctive odor. Clearly, the Treasury Department could not afford to play a losing game of "Whack-A-Mole" with either Freddie Mac's or Fannie Mae's accounting surprises.

The second factor was not raucous Wall Street, but the quiet, paneled rooms of central banks in Europe and Asia, which together hold nearly $1 trillion in mortgage-backed debt guaranteed by Fannie Mae and Freddie Mac. China alone holds an estimated $300 billion of this debt and has reportedly made it very clear that it has no taste for either accounting surprises or the legal subtleties of government-sponsored-entities. As far as China was concerned, it held the U.S. government's IOUs and expected to be paid in full. Europe has been quieter but, we would guess, no less insistent.

The net effect was that the Treasury Department had no choice. In order to take responsibility it had to take over.

The takeover means that stockholders in Fannie Mae and Freddie Mac are moved to last place in terms of their claims on the companies' assets—effectively rendering the stock worthless. There will be few tears shed for those who hold common stock. After all, the bad news and the precipitous decline in the mortgage companies' share prices over the past few months, it would be a singularly uninformed investor who did not consider the stock to be speculative.

The preferred stock, however, is another matter, and some steps may need to be taken to deal with the takeover's collateral damage. Preferred stocks do not carry voting privileges, so the owners bear no direct responsibility for Freddie and Fannie's bone-headed management.

Many banks that hold that preferred stock will be looking at big holes in their balance sheets. The losses are so significant that analysts estimate as many as 40 smaller banks around the country will be forced to find replacement capital to stay afloat.

Even banking giant Wells Fargo, widely praised for its skillful avoidance of the sub-prime credit mess, finds itself staring at a $480 million loss from its Fannie and Freddie preferred stock holdings. It is not a big enough loss to impair its capital position, but it's no fun, either.

Treasury's takeover of Fannie Mae and Freddy Mac was organized as a conservatorship, a flexible structure which allows for a considerable exercise of judgment. Perhaps the government will review the unintended consequences of its takeover and make some adjustments to accommodate the holders of preferred shares. Certainly, the Treasury Department does not wish its takeover action to bring further woe to the banking system.


The final cost to the taxpayers of this takeover may not be as much as now projected. If the takeover calms the financial market waters and gives hope to the housing market, the write-downs may not be as severe as predicted. And as the critics of the takeover come out of Wall Street's woodwork, we need to keep our perspective: Treasury, in fact, had no choice.