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Steve Jobs Biography by Walter Isaacson

by John Lawrence

Streve Jobs, the book by Walter Isaacson, is of course about Steve Jobs, the person, who died last year at age 56 after a long bout with pancreatic cancer. He was the founder, along with his partner Steve Wozniak, of Apple Computer which is today the largest corporation on the planet in terms of market capitalization. Jobs and Wozniak were both college dropouts who had a passion for technology. After having developed and sold a "blue box" which allowed people to make phone calls anywhere in the world at no charge, they were among the first to develop personal computers after the Altair came out in 1976. Wozniak was the technical genius who developed the circuit boards and Jobs was the visionary who thought of himself as being at the "intersection of technology and the humanities."

Jobs was adopted by Paul and Clara Jobs shortly after his birth in 1955. Later in life he found his birth mother, and found out the fact that he had a full sister, Mona Simpson, with whom he developed a relationship. Although he had information about his birth father, Jobs decided that he never wanted to meet him, but had actually unknowingly shaken hands with him at a restaurant in Cupertino that his father had managed.

Apple Computer was started officially in 1977 based on the Apple II designed by Wozniak. Three years later they went public and Jobs went from having a net worth of zero to having a net worth of $256 million overnight. After touring the Xerox PARC plant, Jobs got the idea for the graphical user interface and the mouse which were embodied in the first Macintosh and constituted a truly revolutionary development. Even though the Mac never garnered the market share of the IBM compatible PCs, it was a product which expressed Jobs passion for great design principles that extended to not only the case of the computer and the angles of its bevels but also to the packaging. Bill Gates's criticism of Jobs was that he couldn't code, and Jobs criticised Gates as having ripped off the Windows interface from the Macintosh for Microsoft. Despite the rivalry, Gates continued to provide application software for the Macintosh.

Jobs was probably one of the few CEOs of a major corporation that maintained throughout his life that one of his three or four greatest experiences was dropping LSD. Jobs didn't suffer fools gladly and didn't mind calling them bozos and assholes to their faces. His "reality distortion field" was responsible for his being able to convince anybody of anything and winning in most negotiations including getting the music industry to disaggregate record albums and sell individual songs for 99 cents which were to be purchased by consumers from Apple's iTunes store. He didn't endear himself to people by calling their ideas the "biggest piece of shit I've ever seen", but could turn around and be irresistably charming when it suited his purposes. Having started with nothing his passion was primarily to create excellent products rather than to make huge profits. This caused both successes and failures. His behavior at times was so erratic that Apple hired John Sculley, the CEO of Pepsi-Cola, to be CEO at Apple in 1983 just prior to the introduction of the Macintosh which revolutionized personal computing. His main purpose was to rein in Jobs and to impart some sense of order at Apple. It wasn't long before they were at odds with each other, and Jobs ended up being forced to leave Apple, the company he founded, in 1985. Wozniak had long since gone his separate way.

After Jobs left Apple he started NeXT Computer with his own money, a venture that never really got off the ground thanks in part to Jobs perfectionism. Apple did not prosper either under Sculley continually losing market share to Microsoft. Jobs wanted complete control over every aspect of his products from the ground up including both hardware and software, and he wouldn't license the software to clone makers as Microsoft did. The Microsoft strategy was the more successful as it turned out that the market would rather have cheaper, clunky computers than more elegantly designed expensive ones.

While at NeXT, Jobs had the opporetunity to buy Pixar, a small struggling digital animation firm. He was able to cut a deal with Disney to produce Toy Story and took Pixar public right after Toy Story became a huge commercial success. All of a sudden Jobs was back in action. Both NeXT and Pixar might have been failures, but Jobs passion for excellent products resulted in Pixar's huge success. After Apple's slide into decreasing market share for the Macintosh, Sculley was eventually replaced as CEO in 1993. In 1996 Jobs came back to Apple at the Board's request initially as an unpaid consultant. Eventually, he again took full control as CEO. He was able to turn the company around with the iMac whose case he and his design team spent an enormous amount of time on getting just right. Design considerations were primary and the hardware guys had to cram their electronics into the unorthodox case in the best way they could.

Jobs managed to get Apple to buy NeXT thus ending that dead end. Meanwhile, he was CEO at both Apple and Pixar, a fact that he felt contributed to his health problems. Eventually, Pixar was sold to Disney, and a lot of Jobs' weallth came from Pixar rather than Apple. In fact when Apple gave him stock options, they ended up being worthless due to the depreciation of the stock value. During this time Jobs was working as CEO of Apple for $1 a year, something that appealed to his countercultural identity and his professed lack of concern about money.

Jobs' greatest success came in the 2000s, after he was diagnosed with cancer, with the introduction of the iPod, the iTunes store, the iPhone and the iPad. He took Apple from a computer manufacturer to a company that revolutionized the distribution of music, created the smartphone and brought other greatly popular consumer devices to market. Finally, Jobs passion for design and total control over product development paid huge dividends in ways that other companies couldn't match.

Jobs lost his battle with pancreatic cancer in 2011; Tim Cook took over the CEO position at Apple. This article in the New York Times about Apple tells the sad tale about how most of Apple's production is now done overseas. At one time Jobs built factories in the US which he designed himself right down to the color of white paint on the walls and the $20,000. office chairs. Those factories have long since gone to China. As the article points out, it is not only more profitable for Apple to contract out its production to Foxconn in China but it is also more expedient as Foxconn can provide workers who can be rousted out of their dormitory beds in the middle of the night to make last minute changes in products and work incredible numbers of hours to meet product launch dates.

Foxconn's penchant for working its workers to their limits has drawn unfavorable publicity like the following:

In 2010, there were 14 suicides and 18 attempts at Foxconn’s complex. In response, Foxconn raised salaries by one-third, from 900 yuan a month to 1,200 yuan, and set up an in-house counseling service -- complete with music therapy rooms. Buddhist monks were brought in to cleanse the factory of evil spirits. Most famously the company put up nets around workers’ dormitories, and created a somewhat dubious “no suicide” contract all employees were required to sign...

While Apple CEO Tim Cook will make $378 million this year, Foxconn workers are forced to live in squalid dormitories as reported by ThinkProgress:

Apple CEO Tim Cook will receive a $378 million pay package this year, consisting of a $900,000 base salary and $376.2 million in stock options. This is a six-fold increase over his compensation last year, and could very well make Cook 2011′s highest paid CEO.  At the same time that the company is handing such a huge package to its chief executive, though, the workers in China who make Apple’s most well-known products continue to toil in tough conditions. Last year, a report from Students & Scholars Against Corporate Misbehaviour (SACOM), a Hong Kong-based advocacy and research group found that the Chinese workers at the Taiwanese-based company FoxConn — who assemble the iPad, as well as other high tech gadgets for Apple, HP, Microsoft and others — were forced to work loads of overtime, stand on their feet 14 hours a day, and live packed together in squalid dormitories.

Such is the result of globalization. Consumers in the US and other advanced countries snatch up fancy tech gadgets which are produced by exploited workers in China while the richest 1% continue to receive huge paychecks. American workers are left out of the loop entirely. Jobs and his original Macintosh development team were willing to work 90 hour weeks to produce "insanely great" products. But now this work ethic or rather overwork ethic is being forced on Chinese workers who won't reap the financial rewards that Jobs and his original team reaped for their overwork efforts. Is this the real legacy of Steve Jobs and American entrepreneurialism?

 

Moyers & Company: How Big Banks are Rewriting the Rules of our Economy

Published on Saturday, January 28, 2012 by Moyers & Company

 

 

Moyers & Company Show 103: How power and influence helped big banks rewrite the rules of our economy. from BillMoyers.com on Vimeo.

Big banks are rewriting the rules of our economy to the exclusive benefit of their own bottom line. But how did our political and financial class shift the benefits of the economy to the very top, while saddling us with greater debt and tearing new holes in the safety net? This weekend on Moyers & Company (check your local listings), Bill Moyers talks with former Citigroup Chairman John Reed and former Senator Byron Dorgan to explore a momentous instance: how the mid-90's merger of Citicorp and Travelers Group and a friendly Presidential pen -- brought down the Glass-Steagall Act, a crucial firewall between banks and investment firms which had protected consumers from financial calamity since the aftermath of the Great Depression. In effect, says Moyers, they put the watchdog to sleep.

© 2012 Bill Moyers Media

The Shadow Banking System: A Web of Financial Fraud

Published on Friday, January 27, 2012 by Common Dreams

by Ellen Brown

The Wall Street Journal reported on January 19th that the Obama Administration was pushing heavily to get the 50 state attorneys general to agree to a settlement with five major banks in the “robo-signing” scandal.  The scandal involves employees signing names not their own, under titles they did not really have, attesting to the veracity of documents they had not really reviewed.  Evidence reveals that it was an industry-wide practice, dating back to the late 1990s; and it may have clouded the titles of millions of homes.  If the settlement is agreed to, it will let Wall Street bankers off the hook for crimes that would land the rest of us in jail – fraud, forgery, securities violations and tax evasion. 

To the President’s credit, however, he seems to have shifted his position on the settlement, in response to protests before his State of the Union address.  In his speech on January 24th, he did not mention the settlement but announced instead that he would be creating a mortgage crisis unit to investigate wrongdoing related to real estate lending. Of course, only the future will reveal if this investigative unit will be given the necessary authority or mandate when it comes to criminal prosecutions.

The Deeper Question Is Why 

Investigation is needed into not just whether massive robo-signing occurred but why it was being done.  The alleged justification—that the bankers were so busy that they cut corners—hardly seems credible given the extent of the practice.   

The robo-signing largely involved assignments of mortgage notes to mortgage servicers or trusts representing the investors who put up the loan money.  Assignment was necessary to give the trusts legal title to the loans.  But assignment was delayed until it was necessary to foreclose on the homes, when it had to be done through the forgery and fraud of robo-signing.  Why had it been delayed?  Why did the banks not assign the mortgages to the trusts when and as required by law? 

Here is a working hypothesis, suggested by Martin Andelman: securitized mortgages are the “pawns” used in the pawn shop known as the “repo market.”  “Repos” are overnight sales and repurchases of collateral. Yale economist Gary Gorton explains that repos are the “deposit insurance” for the shadow banking system, which is now larger than the conventional banking system and is necessary for the conventional system to operate.  The problem is that repos require “sales,” which means the mortgage notes have to remain free to be bought and sold.  The mortgages are left unendorsed so they can be used in this repo market. 

The Evolution of the Shadow Banking System

Gorton observes that there is a massive and growing demand for banking by large institutional investors – pension funds, mutual funds, hedge funds, sovereign wealth funds – which have millions of dollars to park somewhere between investments.  But FDIC insurance is designed to protect individual investors and covers only up to $250,000.  The large institutional investors want an investment that is secure, that provides them with a little interest, and that is liquid like a traditional deposit account, allowing quick withdrawal.

The shadow banking system evolved in response to this need, operating largely through the repo market. “Repos” are sales and repurchases of highly liquid collateral, typically Treasury debt or mortgage-backed securities—the securitized units into which American real estate has been ground up and packaged, sausage-fashion. The collateral is bought by a “special purpose vehicle” (SPV), which acts as the shadow bank. The investors put their money in the SPV and keep the securities, which substitute for FDIC insurance in a traditional bank. (If the SPV fails to pay up, the investors can foreclose on the securities.) To satisfy the demand for liquidity, the repos are one-day or short-term deals, continually rolled over until the money is withdrawn. This money is used by the banks for other lending, investing or speculating.

All Behind the Curtain of MERS

The housing shell game was made possible because it was all concealed behind an electronic smokescreen called MERS (an acronym for Mortgage Electronic Registration Systems, Inc.).  MERS allowed houses to be shuffled around among multiple, rapidly changing owners while circumventing local recording laws.  Title would be recorded in the name of MERS as a place holder for the investors, and MERS would foreclose on behalf of the investors.  Payments would be received by the mortgage servicer, which was typically the bank that signed the mortgage with the homeowner.  The homeowner usually thinks the servicer is the lender, but in fact it is an amorphous group of investors.          

This all worked until courts started questioning whether MERS, which admitted that it was a mere conduit without title, had standing to foreclose. Courts have increasingly held that it does not.   

Making matters worse for the servicing banks, Fannie Mae sent out a memo telling servicers that in order to be reimbursed under HAMP—a government loan modification program designed to help at-risk homeowners meet their mortgage payments—the servicers would have to produce the paperwork showing the loan had been assigned to the trust. 

The hasty solution was a rash of assignments signed by an army of “robosigners,” to be filed in the public records.  But the documents are patent forgeries, making a shambles of county title records.   

Complicating all this are tax issues.  Since 1986, mortgage-backed securities have been issued to investors through SPVs called REMICs (Real Estate Mortgage Investment Conduits).  REMICs are designed as tax shelters; but to qualify for that status, they must be “static.”  Mortgages can’t be transferred in and out once the closing date has occurred.  The REMIC Pooling and Servicing Agreement typically states that any transfer significantly after the closing date is invalid.  Yet the newly robo-signed documents, which are required to begin foreclosure proceedings, are almost always executed long after the trust’s closing date.  The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS but because the trusts purporting to foreclose do not own the properties by the terms of their own documents. 

Systemic Risk 

Not only has the system destroyed county title records, but it is highly vulnerable to bank runs and systemic collapse.  And that is what happened in September 2008 following the bankruptcy of investment bank Lehman Brothers.  Gorton explains that it was a run on the shadow banking system that caused the credit collapse that followed.  Investors rushed to pull their money out overnight.  LIBOR—the London interbank lending rate for short-term loans—shot up to around 5%.  Since the cost of borrowing the money to cover loans was too high for banks to turn a profit, lending abruptly came to a halt. 

Interestingly, countries with strong public sector banking systems largely escaped the 2008 credit crisis.  These include the BRIC countries—Brazil Russia, India, and China—which contain 40% of the global population and are today’s fastest growing economies.  They escaped because their public sector banks do not need to rely on repos and securitizations to back their loans.  The banks are owned and operated by the ultimate guarantor—the government itself.  The public sector banking model deserves further study. 

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. She is president of the Public Banking Institute, http://PublicBankingInstitute.org, and has websites at http://WebofDebt.com and http://EllenBrown.com.

Is Our Economy Healing?

by Paul Krugman

Published January 22, 2012 by the New York Times

How goes the state of the union? Well, the state of the economy remains terrible. Three years after President Obama’s inauguration and two and a half years since the official end of the recession, unemployment remains painfully high.

But there are reasons to think that we’re finally on the (slow) road to better times. And we wouldn’t be on that road if Mr. Obama had given in to Republican demands that he slash spending, or the Federal Reserve had given in to Republican demands that it tighten money.

Why am I letting a bit of optimism break through the clouds? Recent economic data have been a bit better, but we’ve already had several false dawns on that front. More important, there’s evidence that the two great problems at the root of our slump — the housing bust and excessive private debt — are finally easing.

On housing: as everyone now knows (but oh, the abuse heaped on anyone pointing it out while it was happening!), we had a monstrous housing bubble between 2000 and 2006. Home prices soared, and there was clearly a lot of overbuilding. When the bubble burst, construction — which had been the economy’s main driver during the alleged “Bush boom” — plunged.

But the bubble began deflating almost six years ago; house prices are back to 2003 levels. And after a protracted slump in housing starts, America now looks seriously underprovided with houses, at least by historical standards.

So why aren’t people going out and buying? Because the depressed state of the economy leaves many people who would normally be buying homes either unable to afford them or too worried about job prospects to take the risk.

But the economy is depressed, in large part, because of the housing bust, which immediately suggests the possibility of a virtuous circle: an improving economy leads to a surge in home purchases, which leads to more construction, which strengthens the economy further, and so on. And if you squint hard at recent data, it looks as if something like that may be starting: home sales are up, unemployment claims are down, and builders’ confidence is rising.

Furthermore, the chances for a virtuous circle have been rising, because we’ve made significant progress on the debt front.

That’s not what you hear in public debate, of course, where all the focus is on rising government debt. But anyone who has looked seriously at how we got into this slump knows that private debt, especially household debt, was the real culprit: it was the explosion of household debt during the Bush years that set the stage for the crisis. And the good news is that this private debt has declined in dollar terms, and declined substantially as a percentage of G.D.P., since the end of 2008.

There are, of course, still big risks — above all, the risk that trouble in Europe could derail our own incipient recovery. And thereby hangs a tale — a tale told by a recent report from the McKinsey Global Institute.

The report tracks progress on “deleveraging,” the process of bringing down excessive debt levels. It documents substantial progress in the United States, which it contrasts with failure to make progress in Europe. And while the report doesn’t say this explicitly, it’s pretty clear why Europe is doing worse than we are: it’s because European policy makers have been afraid of the wrong things.

In particular, the European Central Bank has been worrying about inflation — even raising interest rates during 2011, only to reverse course later in the year — rather than worrying about how to sustain economic recovery. And fiscal austerity, which is supposed to limit the increase in government debt, has depressed the economy, making it impossible to achieve urgently needed reductions in private debt. The end result is that for all their moralizing about the evils of borrowing, the Europeans aren’t making any progress against excessive debt — whereas we are.

Back to the U.S. situation: my guarded optimism should not be taken as a statement that all is well. We have already suffered enormous, unnecessary damage because of an inadequate response to the slump. We have failed to provide significant mortgage relief, which could have moved us much more quickly to lower debt. And even if my hoped-for virtuous circle is getting under way, it will be years before we get to anything resembling full employment.

But things could have been worse; they would have been worse if we had followed the policies demanded by Mr. Obama’s opponents. For as I said at the beginning, Republicans have been demanding that the Fed stop trying to bring down interest rates and that federal spending be slashed immediately — which amounts to demanding that we emulate Europe’s failure.

And if this year’s election brings the wrong ideology to power, America’s nascent recovery might well be snuffed out.

CONTINUATION: ECB BANKING SYSTEM SHOULD NOT BE SEEN AS A MONEY PRINTING PRESS

by Frank Thomas

We mustn’t forget that Carmen Reinhart and Kenneth Rogoff in their massive economic research highlighted in part in a paper entitled, “Growth in a Time of Debt,” came up with the central conclusion that nations grow slower when their public debt levels rise above 80-90% of GDP. Another conclusion was that private debt tends to fall off sharply after financial crises which is also another factor slowing down growth.                                                                                                                           

U.S. total private and public debt exploded from $26 trillion in 2000 to $53 trillion in 2008 or 9.5% annually – private non-financial debt rose from $17.5 trillion to $36.4 trillion and public debt from $7.2 trillion to $ 12.3 trillion in same period – increasing to $17.8 trillion now, including government debt needed to replace funds confiscated from the Social Security Fund. Public debt has risen over $5 trillion since the end of 2008. During 2000-2008, household debt rose from 68% of GDP to over 100% by 2008. On the positive side, private debt has fallen almost $5 trillion since the end of 2008. Since the 3^rd quarter of 2008, there have been 12 consecutive quarterly declines as total household debt has fallen by almost $1 trillion. (data from Ned Davis Research) But, this ongoing private debt deleveraging process, while vitally necessary, simultaneously slows GDP growth made worse by a 100% plus public debt to GDP ratio (as Reinhart/Rogoff concluded in their study that countries face limits for Debt/GDP levels above which the effects on economic growth are non-linear). 

This brings up point noted earlier that I believe U.S. is afflicted with an inherently, unstable out-of-balance economic model where GDP growth must be achieved by an excessive, debt-inducing  dependence on Consumption (at 70% of GDP) in combination with low savings, stagnant wages, soaring trade deficits from unfair trade, loss of manufacturing base knowhow, relatively low public and private investments, and declining rate of tax revenue growth – all together accelerating public debt, credit card debt, and consumer spending beyond our means. Resulting U.S. huge trade balance deficits have been contributing a negative 3-4 percentage points  to annual GDP growth … driving the vicious cycle of  high Consumption with stagnant wages, and ever higher export deficit  to the next worse financial crisis. We critically need to counter gross unfair trade practices and to shift R&D and productive investment resources to a more export led growth pattern. This requires a vast improvement in the contribution of net exports to GDP growth even if this means a 1% percentage point  negative impact on GDP growth rather than historical 3-4%.

TABLE 5 gives a rather shocking picture of just how far our nation has become addicted to debt to achieve GDP growth. Note particularly that starting in the early 80s, total U.S. debt relative to GDP took a gigantic jump upwards!   

During the period 1949-1959, total debt of $337.6 billion was incurred to generate $268 billion of GDP – resulting in a Debt/GDP ratio of 1.36. In simple language , this means that in the decade 1949-1958 it took $1.36 of total debt to generate $1.00 of GDP. As stated, the last three decade trend of total Debt to GDP ratios showing how much debt is necessary to generate $1.00 of GDP is truly disturbing to say the least:

________________________________________________________________

TABLE 5:  TRENDS IN RATIO OF DEBT TO GENERATE $1.00 GDP –1959-2009

1959 to 1969                             1.53  = $1.53 Debt to generate $1.00 of GDP

1969 to 1979                             1.68

1979 to 1989                             2.93     

1989 to 1999                             3.12

1999 to 2009                             6.02      (deregulation, stock, housing bubbles)

Source:  Ned Davis Research Using Data from Commerce & Labor Departments

During the 1980s and beyond, the amount of U.S. total debt sharply accelerated relative to GDP as consumers were pressured to buy, buy, buy – at 70% of GDP using flaky consumer credit vehicles accompanied by stagnant wages – more goods and services than they needed. This was facilitated by convenient necessity to buy artificially cheap (often low quality) Chinese products thanks to that country’s grossly undervalued currency and “the devil’s contract” of buying our Treasury bonds to finance resulting huge national trade deficits and persistent federal budget deficits … with debt growing much faster than GDP.

Ned Davis Research confirms the correlation between an increase in total debt (public and private) as a % of GDP and the growth rate in real GDP as follows:

                                                                       

• 1947-1980:  total debt was less than 160% of GDP and GDP  growth averaged 3.7%
• 1980-2000:  total debt was 270% of GDP and GDP growth           went south to 3.2%
• 2000-2011:  total debt has risen to 350% (vs. 375% in 2008)           of GDP and annualized GDP growth has plummeted to less         than 1.8%.

Conclusion? Our over-debted and undercapitalized financial system spells slower average growth over next few years until sensible debt to equity and deficit ratios (budget deficits past three years have been at a sky-high historical level of +-10%) are effectively implemented and enforced … precisely what the EU 27 nations have recently agreed to do with the appropriate legislative adjustments and sanctions.

Contrary to what Paul Krugman is saying about the financial failure of EU countries as a whole to date, the total debt relative to GDP ratios of EU mature countries over last 30-40 years are not anywhere near the U.S. development shown above. Yes, there are 5 financially very troubled EU countries, but how does this compare to 48 troubled states whose budgets are in the red with many also near insolvency … where in a number of states public employees are being fired and scanty social nets are being further marginalized left and right? How does this compare to a EU credit card use and debt level far below that of the U.S.? How do household debt levels of the mature EU countries compare when taking into consideration the millions of U.S. home foreclosures vs. the relatively tiny number of foreclosures in most EU countries? How does the U.S. debt situation compare to that of the mature EU countries whose austerity measures do not also include cutting back on continued strong investments in education, R&D, innovation, infrastructure? The EU social-economic picture is not as black as reputable economists are painting with exception of the problem countries.

We need new policies to correct the structural, destabilizing imbalances in the GDP growth components at work in our economic model. We need to listen much more closely to Reinhart and Rogoff’s warning that, “The sharp run-up in public debt will likely be one of the most enduring legacies of the 2007-2009 financial crises in U.S. and elsewhere. High debt levels of 80-90% of GDP and above are associated with notable lower growth outcomes. Seldom do countries grow themselves out of deep debt burdens.” 

In short, our excessive reliance on a mounting pyramid of public and private debt to achieve GDP growth is a formula for repeat financial crises, carrying the middle-class further down the bare survival-wage, poverty line.

Why No Responsible Democrat Should Want Newt Gingrich to Get the GOP Nomination

by Robert Reich

Thursday, January 26, 2012

Republicans are worried sick about Newt Gingrich’s ascendance, while Democrats are tickled pink.

Yet no responsible Democrat should be pleased at the prospect that Gingrich could get the GOP nomination. The future of America is too important to accept even a small risk of a Gingrich presidency.

The Republican worry is understandable. “The possibility of Newt Gingrich being our nominee against Barack Obama I think is essentially handling the election over to Obama,” says former Minnesota Governor Tom Pawlenty, a leading GOP conservative. “I think that’s shared by a lot of folks in the Republican party.”

Pawlenty’s views are indeed widely shared in Republican circles. “He’s not a conservative – he’s an opportunist,” says pundit Joe Scarborough, a member of the Republican Class of 1994 who came to Washington under Gingrich’s banner. Gingrich doesn’t “have the temperament, intellectual discipline or ego control to be either a successful nominee or president,”says New York Republican representative Peter King, who hasn’t endorsed any candidate. “Basically, Newt can’t control himself.”

Gingrich is “an embarrassment to the party,” says New Jersey Republican Governor Chris Christie, and “was run out of the speakership” on ethics violations. Republican strategist Mike Murphy says “Newt Cingrich could not carry a swing state in the general election if it was made of feathers.”

“Weird” is the word I hear most from Republicans who have worked with him. Scott Klug, a former Republican House member from Wisconsin, who hasn’t endorsed anyone yet, says “Newt has ten ideas a day – two of them are good, six are weird and two are very weird.” 

Newt’s latest idea, for example – to colonize the moon – is typically whacky.

The Republican establishment also points to polls showing Gingrich’s supporters to be enthusiastic but his detractors even more fired up. In the latest ABC News/ Washington Post poll, 29 percent view Gingrich favorably while 51 percent have an unfavorable view of him. (Obama, by contrast, draws a 53 percent favorable and 43 percent unfavorable.)

Independents, who will be key to the general election, are especially alarmed by Gingrich.

As they should be. It’s not just Newt’s weirdness. It’s also the stunning hypocrisy. His personal life makes a mockery of his moralistic bromides. He condemns Washington insiders but had a forty-year Washington career that ended with ethic violations. He fulminates against finance yet drew fat checks from Freddie Mac. He poses as a populist but has had a $500,000 revolving charge at Tiffany’s.

And it’s the flagrant irresponsibility of many of his propositions – for example, that presidents are not bound by Supreme Court rulings, that the liberal Ninth Circuit court of appeals should be abolished, that capital gains should not be taxed, that the First Amendment guarantees freedom “of” religion but not “from” religion.

It’s also Gingrich’s eagerness to channel the public’s frustrations into resentments against immigrants, blacks, the poor, Muslims, “liberal elites,” the mainstream media, and any other group that’s an easy target of white middle-class and working-class anger.

These are all the hallmarks of a demagogue.

Yet Democratic pundits, political advisers, officials and former officials are salivating over the possibility of a Gingrich candidacy. They agree with key Republicans that Newt would dramatically increase the odds of Obama’s reelection and would also improve the chances of Democrats taking control over the House and retaining control over the Senate.

I warn you. It’s not worth the risk.

Even if the odds that Gingrich as GOP presidential candidate would win the general election are 10 percent, that’s too much of a risk to the nation. No responsible American should accept a 10 percent risk of a President Gingrich.

I’d take a 49 percent odds of a Mitt Romney win – who in my view would make a terrible president – over a 10 percent possibility that Newt Gingrich would become the next president – who would be an unmitigated disaster for America and the world.

For Greece, the Outlook Is Still Grim

By LANDON THOMAS Jr.

Published: January 26, 2012 by the New York Times

Greek coins are displayed on an advertisement in Athens, where the new Greek government is in dual-track talks with private and public sector creditors.

LONDON — Even as Greece tries to convince creditors that its debt-reduction efforts are on track, gloomy new International Monetary Fund forecasts about its long-term economy are threatening to derail talks meant to secure the nation’s next big installment of bailout funds.

The concerns, stemming from an analysis that the I.M.F. has been quietly sharing with European officials and Greece’s creditors in recent weeks, come at a crucial time for Athens.

The new Greek government is in dual-track talks with private and public sector creditors, trying to make the case that its program for reducing long-term debt is working. The government seeks to persuade private creditors to provide relief by taking some losses on their bond holdings, and to persuade its public sector lenders to release a scheduled allotment of bailout money, possibly as much as 30 billion euros ($39 billion).

Without that next payout, the nation is almost certain to default when a bond repayment of 14.4 billion euros ($18.7 billion) comes due in March.

The repercussions of a default would be hard to predict. But it could create a contagion of financial fear that could spread to other weak euro zone economies and force Greece to become the first nation to leave the 17-member euro currency union, a departure whose social and political ramifications might also defy prediction.

A key to securing the next bailout payment could be Greece’s reaching a new debt-revamping agreement with its private sector bondholders. Charles H. Dallara of the Institute of International Finance, the group representing the private creditors, was to meet Thursday evening in Athens with the Greek prime minister, Lucas D. Papademos. There was no word about the status of those talks by late Thursday.

Negotiations between the two sides have foundered twice already over disagreement on how much loss private investors should be willing to absorb on bonds.

As Greece’s woes have escalated, so have its demands on the amount of loss the creditors should accept. While creditors have said they would be willing to accept a loss of 70 percent on their new bonds, Greece and its backers have been pushing for more by demanding that these securities carry an interest rate below 3.5 percent.

Greece is effectively bankrupt, staggering under a debt load that the I.M.F. now estimates as equal to about 160 percent of its gross product, with an economy so weak the government can no longer meet debt payments on its own. That is why it is to receive as much as 130 billion euros ($169 billion) in bailout money under an agreement struck last October with the so-called troika: the European Union, the European Central Bank and the I.M.F.

In return for regularly scheduled installments of that money, however, Greece is supposed to be meeting strict economic reform and budgetary targets.

Greece’s last bailout package was underpinned by an I.M.F. analysis that forecast a debt-to-G.D.P. ratio of 120 percent by the year 2020. Now the I.M.F. is forecasting a ratio that could rise to 135 percent by that year, largely because of a collapsing economy that shows no sign of reversing course.

The new projections cast new doubt on whether Greece can ever escape its downward financial spiral without defaulting on its debts.

Greece’s economy is estimated to have shrunk by more than 6 percent in 2011. Some specialists say they believe that the downturn for this year could be as much as 5 percent. And the general sense among economists from the troika of public institutions financially supporting Greece is that the economy has not yet found the floor.

“We have become much less optimistic on growth,” said one official from the group, who was not authorized to speak publicly. “And if growth falters, the debt-to-G.D.P. ratio goes up. One cannot be in denial of this reality.”

Bankers familiar with the details of the new I.M.F. forecast say it has been held up as the main reason private sector bondholders should be forced to accept a larger loss on their Greek securities. In recent days, top European officials and the managing director of the I.M.F., Christine Lagarde, have talked about how European institutions might have to contribute more funds to keep Greece afloat.

Adding to lenders’ worries is the possibility of trouble in other heavily indebted parts of the euro zone. Borrowing costs in Italy and Spain — the big economies whose debt loads have caused the most worry after Greece —have been coming down lately. But the yield for 10-year Portuguese bonds are near 14.3 percent. The high yield reflects growing concern that Portugal, another recipient of bailout funds, might default as well.

Greece’s most recent bailout agreement was based on two assumptions: that the private sector would voluntarily accept at least a 50 percent loss on its debt, and that these savings, together with other changes to be undertaken by the government, would bring Greece’s debt down to 120 percent of G.D.P. by 2020.

But the new I.M.F. forecast for Greece presents the disturbing prospect that even after years of spending cuts and tax increases, Greece will have a debt burden in 2020 that is not sufficiently lower than its current load.

The fund’s gloomier outlook has been influenced by three primary factors, bankers and officials say. One is the economic slump within the entire euro currency region that I.M.F. economists are forecasting for 2012, a problem that economists refer to as an external shock for Greece beyond its control.

But the other two elements stem from the nation’s continuing difficulty in meeting targets set for it by the European Union and the I.M.F.

The second element is Greece’s budget deficit, for which a target had been set at no more than 8 percent of G.D.P. for 2011. Economists now estimate that the actual deficit number was around 10 percent, because of weak tax collection and continued high spending within the public sector.

The third factor is the new Greek government’s continued difficulty in passing legislation that would lead to the long-term economic change its European rescuers are demanding. This week, for example, Greek legislators rejected a proposed law that would have forced the nation’s pharmacies — long seen as a symbol of the protected and uncompetitive local economy — to stay open more hours each day.

Although the Greek Parliament did pass other laws that liberalized areas of the economy, the defeat of the pharmacy bill, and continuing union opposition to government demands for lower wages, underscore how difficult it will be for Greece to return to a path of economic growth.

 

The State of Our Disunion: A Globalizing Private Sector, A Government Overwhelmed by Corporate Money

by Robert Reich

Monday, January 23, 2012

Who should have the primary strategic responsibility for making American workers globally competitive – the private sector or government? This will be a defining issue in the 2012 campaign.

In his State of the Union address, President Obama will make the case that government has a vital role. His Republican rivals disagree. Mitt Romney charges the President is putting “free enterprise on trial,” while Newt Gingrich merely fulminates about “liberal elites.”

American business won’t and can’t lead the way to more and better jobs in the United States. First, the private sector is increasingly global, with less and less stake in America. Second, it’s driven by the necessity of creating profits, not better jobs.

The National Science Foundation has just released its biennial report on global investment in science, engineering and technology. The NSF warns that the United States is quickly losing ground to Asia, especially to China. America’s share of global R&D spending is tumbling. In the decade to 2009, it dropped from 38 percent to 31 percent, while Asia’s share rose from 24 to 35 percent.

One big reason: According to the NSF, American firms nearly doubled their R&D investment in Asia over these years, to over $7.5 billion.

GE recently announced a $500 million expansion of its R&D facilities in China. The firm has already invested $2 billion.

GE’s CEO Jeffrey Immelt chairs Obama’s council on work and competitiveness. I’d wager that as an American citizen, Immelt is concerned about working Americans. But as CEO of GE, Immelt’s job is to be concerned about GE’s shareholders. They aren’t the same.

GE has also been creating more jobs outside the United States than in it. A decade ago, fewer than half of GE’s employees were non-American; today, 54 percent are.

This is all good for GE and its shareholders, but it’s not necessarily good for America or American workers. The Commerce Department says U.S. based global corporations added 2.4 million workers abroad in first decade of 21^st century, while cutting their US workforce by 2.9 million.

According to the New York Times, Apple Computer employs 43,000 people in the United States but contracts with over 700,000 workers abroad. It makes iPhones in China not only because of low wages there but also the ease and speed with which its Chinese contractor can mobilize their workers – from company dormitories at almost any hour of the day or night.

An Apple executive says “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.” He might have added “and showing a big enough profits to continually increase our share price.”

Most executives of American companies agree. If they can make it best and cheapest in China, or anywhere else, that’s where it will be made. Don’t blame them. That’s what they’re getting paid to do.

What they want in America is lower corporate taxes, less regulation, and fewer unionized workers. But none of these will bring good jobs to America. These steps may lower the costs of production here, but global companies can always find even lower costs abroad.

Global corporations — wherever they’re based — will create good jobs for Americans only if Americans are productive enough to summon them. Problem is, a large and growing portion of our workforce isn’t equipped to be productive.  

Put simply, American workers are hobbled by deteriorating schools, unaffordable college tuitions, decaying infrastructure, and declining basic R&D. All of this is putting us on a glide path toward even lousier jobs and lower wages.

Get it? The strategic responsibility for making Americans more globally competitive can’t be centered in the private sector because the private sector is rapidly going global, and it’s designed to make profits rather than good jobs. The core responsibility has to be in government because government is supposed to be looking out for the public, and investing in public schools, colleges, infrastructure, and basic R&D.  

But here’s the political problem. American firms have huge clout in Washington. They maintain legions of lobbyists and are pouring boatloads of money into political campaigns. After the Supreme Court’s Citizen’s United decision, there’s no limit.

Who represents the American workforce? Organized labor represents fewer than 7 percent of private-sector workers and has all it can do to protect a dwindling number of unionized jobs.

Republicans like it this way, and for three decades have been trying to convince average working Americans government is their enemy. Yet corporate America isn’t their friend. Without bold government action on behalf of our workforce, good American jobs will continue to disappear.

How U.S. Lost Out on iPhone Work

People flooded Foxconn Technology with résumés at a 2010 job fair in Henan Province, China.

By CHARLES DUHIGG and KEITH BRADSHER

Published: January 21, 2012 by the New York Times

When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.

But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Apple has become one of the best-known, most admired and most imitated companies on earth, in part through an unrelenting mastery of global operations. Last year, it earned over $400,000 in profit per employee, more than Goldman Sachs, Exxon Mobil or Google.

However, what has vexed Mr. Obama as well as economists and policy makers is that Apple — and many of its high-technology peers — are not nearly as avid in creating American jobs as other famous companies were in their heydays.

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple’s contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. Instead, they work for foreign companies in Asia, Europe and elsewhere, at factories that almost all electronics designers rely upon to build their wares.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.

But while Apple is far from alone, it offers a window into why the success of some prominent companies has not translated into large numbers of domestic jobs. What’s more, the company’s decisions pose broader questions about what corporate America owes Americans as the global and national economies are increasingly intertwined.

“Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice,” said Betsey Stevenson, the chief economist at the Labor Department until last September. “That’s disappeared. Profits and efficiency have trumped generosity.”

Companies and other economists say that notion is naïve. Though Americans are among the most educated workers in the world, the nation has stopped training enough people in the mid-level skills that factories need, executives say.

To thrive, companies argue they need to move work where it can generate enough profits to keep paying for innovation. Doing otherwise risks losing even more American jobs over time, as evidenced by the legions of once-proud domestic manufacturers — including G.M. and others — that have shrunk as nimble competitors have emerged.

Central Bank Becomes an Unlikely Hero in Euro Crisis

The European Central Bank, under its new president, Mario Draghi, has quietly made emergency loans to European banks.

By NICHOLAS KULISH

Published: January 20, 2012, by the New York Times

BERLIN — Throughout the month, countries caught in the eye of the European financial storm, including Italy, Spain and France, have repeatedly defied expectations, selling big batches of bonds to the public at interest rates significantly lower than investors demanded at the height of the euro crisis late last year.

The surprisingly successful auctions owe little to improving economic data around the region. On the contrary, many of the countries that use the euro as their currency appear to be confronting a renewed recession, and pessimism about their growth prospects remains abundant. Just last week, Standard & Poor’s stripped France of its coveted AAA rating for the first time in recent history and downgraded eight others.

Instead, most of the credit seems to go to the European Central Bank, which in late December under its new president, Mario Draghi, quietly began providing emergency loans to European banks — hundreds of billions of dollars of almost interest-free capital that the banks have used to come to the rescue of their national governments.

The central bank, based in Frankfurt, used typically understated and technical language to describe its actions, but it appears to have done what its leadership said throughout 2011 that it would not do: namely, flood the financial markets with euros in a Hail Mary attempt to make sure that the region’s sovereign debt crisis does not lead to a major financial shock.

Though on a smaller scale and in a subtler manner, it has in many ways taken a page from the United States Federal Reserve’s playbook for the 2008 financial crisis, which has been roundly criticized in Europe as a reckless bailout that risks setting off uncontrolled inflation. And, at least for now, the effort has worked. Spain’s 10-year bonds carry interest rates that hover around 5.5 percent, compared with 7 percent and higher in November, and Italy’s five-year bonds are approaching 5 percent, down from nearly 8 percent at their peak.

There have been moments before when European leaders declared the crisis contained, only to see it return with renewed fury. But the central bank’s incentives, combined with a push from the private banks’ home governments, seem to have convinced investors that this time may be different, and financial markets in Asia, Europe and the United States have responded with strong gains this year.

Fears of a bank collapse — the so-called Lehman Brothers moment, when one financial institution’s failure threatens the stability of the entire system — have subsided. And Greece appears to be closer to a deal with its creditors to pare back its debt obligations rather than a disorderly default that could plunge the financial system back into chaos.

That encouraging situation seemed highly unlikely as recently as early December, when panic over the European debt crisis was reaching a peak, just before a European Union summit meeting in Brussels. While national leaders postured and pursued their parochial interests, Mr. Draghi, told reporters at the central bank’s headquarters that he would conduct “two longer-term refinancing operations” (in plain English, emergency financing) for cash-starved banks for three years instead of one year.

The European economy was on the brink, and threatening to take the rest of the world with it, and Europe’s new top central banker did not seem to get it. “Why is it so impossible for the E.C.B. to act like the other central banks, like the Federal Reserve system or the Bank of England?” a reporter asked him. “Why do you not act more directly to help European countries by buying up the debt on a massive scale?”

Mr. Draghi said he was bound by the European treaty, which “embodies the best tradition of the Deutsche Bundesbank,” the German central bank, code for strict inflation-fighting and the furthest thing from a wholesale emergency bailout.

European stocks fell. Financial experts declared that Mr. Draghi had disappointed. The world demanded a bazooka, but he had shown up with a water pistol, or so it seemed.

Less than two weeks later, on Dec. 21, the bank announced the results of its technical maneuver: the banks had taken $630 billion as part of the program. In the weeks that followed, the banks appear to have used a sizable share of the cash to buy the European bonds so desperately in need of customers. It was as if the European Central Bank had injected lenders with steroids, then asked them to do the heavy lifting. The strategy appears to be paying off. Even in the face of recession warnings and the agency’s downgrades, the European debt market keeps improving.

Financial experts say the central bank’s intervention seems to have catalyzed a virtuous circle: As new governments come in and promise to deliver spending cuts, tax increases and balanced budgets, once gun-shy banks have an added incentive to tap new financing from the central bank and jump back into bond markets that they were running from just a few months ago.

The question now is whether the E.C.B.’s action merely delayed the inevitable reckoning for the euro zone’s weakest members or whether falling interest rates and improved growth will become entrenched, bringing the critical phase of the Continent’s debt crisis to a close.

“I think that they have mastered it to the extent that this isn’t going to get a whole lot worse,” said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. “We do have in my opinion fairly credible signs of stabilization.”

The central bank under its previous chairman, Jean-Claude Trichet, had long resisted more aggressive action, unwilling to flood the market with money the way the Fed did in 2008 until governments committed to reining in spending and deregulating their economies. “By refusing to act decisively at an early stage, they in a sense perpetuated the crisis, creating a situation where in the end the euro-area politicians had no other choice than to do the right thing,” Mr. Kirkegaard said.

The central bank is preparing another infusion in February, and many banking experts expect it to be even bigger. The unspoken quid pro quo — that banks need to buy government debt in exchange for the central bank’s largess — seems to be working.

The strategy is not without risks, warned Thomas Mayer, chief economist at Deutsche Bank in Frankfurt. “It may please some of the purists as it looks purer, but the banks may become addicted,” Mr. Mayer said. There is a limit to how much of this debt the banks can buy, he said. “Near-term relief of government bond deals may come at the cost of making the banks’ balance sheets more toxic.”

Policy makers say they are aware that all the central bank has done is give them breathing room to set their houses in order; the bonds are due in just three years. So the summit meeting of European leaders scheduled for Jan. 30 is likely to focus on finding ways to spur growth as well as on reining in budget deficits.

“The fetishizing of austerity by European leaders, clamping down on growth so severely, may create political backlash that will not be manageable,” said Kathleen R. McNamara, director of the Mortara Center for International Studies at Georgetown University. “But I give kudos to the E.C.B. for managing what really has been a tightrope situation.”

The amounts the central bank has spent directly are much smaller than some economists and political leaders would like, but over time have grown substantial. It has spent $280 billion intervening in government debt markets since May 2010. Last week alone, it spent nearly $5 billion in bond markets.

The political deliberations and negotiations in Brussels and, increasingly, in Berlin have been as important as the central bank’s moves. They were a precondition for the bank’s actions, and continue to carry importance.

“I don’t think it’s a coincidence that this happened only after we had a change of government in Italy and Spain,” said Mr. Kirkegaard, the research fellow. “From the perspective of the E.C.B., they have fairly consistently in my opinion not done anything big in this crisis without getting a big juicy quid pro quo,” he said.

Jack Ewing contributed reporting from Frankfurt, Landon Thomas Jr. from London, and Steven Erlanger from Paris.

Romney Admits His Tax Rate is 15%