Tuesday, September 30, 2008


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 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 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…

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Friday, September 19, 2008


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.

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.

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Monday, September 1, 2008


Through advocacy or inquiry

Arriving at a decision, as far as the concept of advocacy is concerned, is a contest. An advocate enters into a discussion solely for the purpose of convincing the decision makers. An advocate is a spokesman for his position. He will lobby for while defending it at the same time. Dissenters are discouraged or dismissed. Advocates fight to win since the alternative is to lose.

Inquiry, on the other hand, treats decision-making as a problem that needs to be solved. An "inquirer" enters into a discussion for the purpose of evaluating hypotheses. They think critically and present and listen to balanced arguments. Their attitude keeps them open to alternatives even when these viewpoints are submitted by the minority. In the end, this approach leads to a sense of collective ownership of the final decision by the entire group.

Politics, unfortunately, is one of those topics that can inflame the heart. It is hard to maintain an inquiring nature in this subject. Passion has a way of turning people into fierce advocates for their positions.

As my uncle often said, there are two topics of discussion that never end: politics and religion. And he wisely refrains from participating in both.

The presidential election is less than 90 days away and the incumbent president has certainly had a tumultuous administration. It is no wonder that passions run high especially among the Democrats.

I heard Senator Obama, the Democratic candidate, give a rousing speech at his party's national convention. As a former member of Toastmasters, I applauded his masterful delivery of his message. However, sometimes the delivery is so good that it is hard to review the meaning of the message.

I want to do that with both candidates.

I was surprised, therefore, when I read the analysis of Obama's speech in this political opinion article by Mr. Robert Tracinski. Entitled "Obama Offers a Beautifully Packaged Lie," I read it with a critical eye. I was looking for flawed partisan logic but saw none.

Here then, I present for your own review, are excerpts of Tracinski's article:
Barack Obama can fake sincerity, and that, more than the words of a speech or the pageantry that precedes it, is the key to his power as a speaker.

His speech last night was brilliant and perfect. It is too bad that the whole thing was a lie, which depended on the smoothness and apparent sincerity of Senator Obama's delivery to lull the listener into a state of credulity and prevent him from asking too many questions.

Here's an example that is small but revealing. Obama led with the best sales pitch he has to offer: that he is not George Bush. But of course, Obama is running against John McCain, not Bush. So he attempted to justify the substitution by claiming that "John McCain has voted with George Bush ninety percent of the time." This statistic has been used throughout the Democratic convention, but it makes no sense. Bush is not a member of Congress and casts no votes there--so how can you compare his voting record to that of McCain?

But don't examine this folly; ask only what it accomplishes. It allows Obama to run against an unpopular president who will not defend himself because he is not actually in the race.

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