Iraq and Greenhouse Gases

Now what would Iraq have to do with global warming? Good question. Very few of our leaders have been willing to say that the war in Iraq is about oil. But recently a major exception was Alan Greenspan now retired from the Federal Reserve Bank. In his new book of memoirs, The Age of Turbulence, he flatly states that the “Iraq war is largely about oil.” He said that it might be politically incorrect to say it but it nevertheless was true.

A primary goal of U.S. foreign policy has been for decades the control of Middle Eastern oil. The invasion of Iraq and the unseating of Saddam Hussein finally gave Washington the opportunity to plant its feet firmly in the oil deposits of Iraq and with the intention of remaining there permanently. After all, we are the largest user of a non-renewable source of energy, i.e. oil and therefore the largest producer of “greenhouse” gas emissions. Thus we make overwhelmingly the largest contribution to global warming.

So in order to support our need for oil as a source of energy we chose military force to seize that energy and control its use indefinitely.

Now we all are aware of the negative impact of that war in terms of death, permanent disability and destruction. But what is the impact of the war on global warming? Believe it or not, the war in and of itself is producing huge amounts of greenhouse emissions. How is this so? Aircraft, motorized vehicles and naval vessels, to name just a few, all necessary to military operations use 3 million gallons of oil per day. This is, according to one estimate,16 times more than that used in WW II.

Now let’s look at the cost. The latest figure is over $600 billion for the war but does not include medical supervision of the wounded and mental health patients. We are not paying for the war through increased taxes but rather by borrowing to pay and running up a huge debt for the future. It is further estimated that the war will cost this country over $2 trillion. On the other hand, this administration has appropriated only $1.5 billion to deal with the problem of global warming. This is totally inadequate to develop replaceable fuels. As long as this war continues there is no way that funds will be available to replace petroleum as a source of energy.

Endless Chatter

We hear endless chatter about “exit strategy” called by some devious personalities as “precipitous withdrawal.” But no one has the courage to ask why we are building huge military bases in four different locations of Iraq if we are planning to leave? Well, we are told they are not permanent rather they are “enduring bases.” The truth, of course, is we are not really leaving. Bush and Cheney have no intention of leaving. We cannot give up our authority over Iraq and lose control over the 2nd largest oil deposit in the world. That’s it in a nutshell. We are not there to bring liberal democracy to the Middle East. That’s window dressing. We are there for one reason only—the oil. And we “ain’t” leaving. Probably never—ever. Talking exit strategy is plain unadulterated B.S. Oh, we might take a few troops out but we will leave at least 50,000 or more and they will live in there “self-contained” military bases with more amenities and conveniences than at home.

In order to move any troops at all requires that the client state be stable and does what it is told. A free election alone is not democracy. But real popular democracy is too dangerous. Once the occupier has control then withdrawal of some sort is possible but the fully manned military bases remain.

Further, in order to gain stability, we need to restore Iraqi civil society and reconstruct the economy. We need to stop privatization for the benefit of outside investors. The Iraqi Oil Law which gives control of oil and royalties to foreign oil companies must not be implemented. The General Assembly of the UN is the body that might be able to apply these principles along with the Iraqis participating in the reconstruction.

Since the odds are very long indeed for our pulling out, we don’t need to worry about a blood bath. Nevertheless, the Iraqis maintain there is already a blood bath and if it worsened, they intend to handle it. 80% of the Iraqis want us out and they are going to do everything possible to achieve that goal however long it takes.

Reference:

Znet

The Paradigm of Democracy

As we all know WWI was the death knell of the antediluvian monarchies of Europe. And in the case of Germany out of its defeat came a golden experiment in democracy. There were, of course, many problems in the beginning. The Weimar Republic was a socialist democracy that the left wing communists wanted to destroy. There were bloody battles on the streets of Berlin. The onerous reparations placed on Germany by the Treaty of Versailles almost destroyed the economy. We all know about the hyperinflation. Paper money was worthless and was used to burn in home stoves for warmth. Eventually the left wing leaders were assassinated and the reparations were reduced to a level that Germany could handle. Chancellor Stresseman who took over the leadership was able to develop a functioning economy and government that became known as the golden age of the Weimar Republic (1924-1929).There are Jewish historians still alive today who recall that period as closely comparable to the Italian Renaissance. The extraordinary production in the fields of science, philosophy, psychology, painting and architecture happened no where else in Europe.

So what in the world happened? Why did the grand experiment plunge into barbarism?

By 1930 Hitler and his Nazi thugs had arrived on the scene and introduced their propaganda techniques to win support for their political party. Goebbels, Hitler’s propaganda minister, crowed that he would use American advertising techniques to sell National Socialism to the people of Germany in the same way that American business sold toothpaste, candy and drugs. Symbols and political slogans repeated over and over whether true or not will sell products or ideology. It worked in Germany and it is working in the US. It destroyed the Weimar Republic and the Bush administration is very effectively destroying our American democracy. If Bush and Cheney are not stopped before the end of 2008, the American Constitution will be a shambles.

Unfortunately, so far I do not see any evidence of articles of impeachment for Bush and Cheney.

Reference: Chomsky, Noam. Failed States. 2006.

The Circus Is Back

The circus is back in town but the clowns haven’t changed. The other night on Jon Stewart’s show a 3 month old tape of Tony Snow, the administration press secretary, was viewed in which he stated emphatically that the lawyers in the justice department had been fired for incompetence. At a recent press conference a reporter asked a question regarding those lawyers and prefaced it with Tony Snow’s statement that they had been fired for incompetence. Snow immediately interrupted and said that we had never said that those lawyers were fired for incompetence. Jon Stewart then ran the two tapes side by side. Who are you going to believe? Tony Snow or Tony Snow? Which one is lying?

Now let’s look at a sad viewer of an unfunny circus. A retired NYC cop lost a son in 9/11. He was told at the time by his President that the Iraqis were responsible for the disaster. Being old fashioned (as he says) the cop accepted everything his President told him because he (the cop) believed that his President “walked on water.” So if the Iraqis destroyed those buildings and killed thousands of people and his son then, let’s go get them. Then another thought occurred to him. He would like to have his son’s name put on one of the “smart bombs” that our Air Force was dropping on Iraq. After much hassle he managed to get it done and the Defense Department sent him a picture of the bomb with his son’s name on it with the date that it was dropped.

Despite that it wasn’t true over half the country believed that it was the Iraqis who destroyed the towers. All the soldiers fighting in Iraq believed it. Sometime afterward the President is shown on a video tape saying that he never said that Iraqis were responsible for 9/11.When the cop heard this, he went into shock. He could not believe it. When the realization that his President had lied, hit him, he was dumfounded. When asked if he was sorry that his son’s name was on a bomb, he was unable to reply. He was just bewildered.

During the invasion of Iraq some 50 or more “smart bombs” were dropped none of which hit their military targets. They did destroy homes and people but no soldiers. The mainstream press did not report this. Rumsfeld and the Defense Department steadily maintained that the “smart bomb” does not cause “collateral” damage. As an American that’s all you need to know.

King George the Second

In one of her last columns before her death, Molly Ivins in answer to King George’s claim that he was the “decider” pointed out that "no, George, we are the deciders , the people and the Congress elected by the people". It happens now that only 36% of the people support his policies. So who are the 36% who applaud him so enthusiastically? They are in large part men and women of the New York Stock Exchange. When he visited the exchange recently, the reception was over whelming. These are his champions. These are the leaders of mega-corporations and world finance whose profits have gone through the ceiling since this administration has been in office. And they were showing their gratitude. George has made them richer than ever. The petroleum industry which is tied firmly to the administration has had unbelievable profits this past year. For example, Exxon-Mobil had a profit of $35.9 billion, breaking all records in our history. Chevron topped out 3 years in a row. Conoco Phillips broke all records. Shell increased its profit to $25 billion. Boeing has reached new heights earned from the production of military aircraft and other hardware. And as long as this administration relies on war rather than diplomacy to implement its foreign policy, the military budget will continue to grow and the petroleum and military industries will continue to profit shamefully. Obviously wars are great for the families who don’t have to fight them and the rich continue to get richer. Note that the top 1% of income earners own 35% of the wealth of the country, but the lower half (50%) own only 2.5% of the wealth. And the gap gets wider.

Reference:

Znet

Breaking News

If you watch CNN and your attention is captured by “breaking news”, here is the latest but you won’t see or hear it on CNN. Not yet, anyway. A number of states are seriously considering passing a resolution to impeach both Bush and Cheney and to send that petition to the House of Representatives to begin the proceedings. According to the House Rules all it takes is one state to petition Congress and one representative to accept receipt of the petition, then impeachment begins. The state that may be the first to do this is New Mexico which has the strongest popular backing.

A number of states have introduced resolutions to impeach but have not as yet passed them. Many cities have actually passed resolutions already but they cannot petition Congress.

There appears to be a growing popular movement to impeach and as long as the President continues to nullify the laws of Congress with his “signing statements” the movement to impeach will grow even stronger. In addition the Iraq war has been so successful that Bush is seriously considering starting a war with Iran and Syria without Congressional approval. He has tossed into the waste basket the Baker-Hamilton study that certainly offered a series of proposals that had a better chance of success than Bush’s “troop surge”.

Well it has been unusually cold in Albuquerque this winter but it has not cooled off the popular movement against Bush.

Reference:

Znet.

Same Circus

When you consider the delusional and incompetent leadership that made decisions in Europe prior to WWI and compare it to the delusional and incompetent leadership in Washington today, we can only say that it is the same circus, just different clowns.

In 1900 the monarchs of Europe were the clowns. The insane regimes of Germany and Russia were lead by autocratic airheads who had tunnel vision, were duplicitous and just plain stupid. German megalomania was verbalized by the Kaiser who was essentially a blowhard with a temperament and uncontrolled anger. His personal need to expand German influence was the central focus of his ideology. (Hitler’s aims were similar but his mantra was “living space”.) Add to this a sizeable helping of religious puffery to the extent that the Kaiser believed, as does Bush, that he too spoke for God.

Leaders of the French Republic were not much better. For example, at the battle of the Marne, Marshall Foch was loudly calling “attack, attack” when actually retreat was indicated. When asked why he called for attack, he didn’t really know except that his men were there, he had the will, and God was present. These were soldiers on the ground attacking automatic machine gun emplacements. And, of course, huge numbers of men were needlessly lost on that day. [1]

It is mindful of the 1850’s when Britain was fighting the Russians and the famous cavalry unit known as the Light Brigade was ordered to make a frontal assault on Russian heavy artillery emplacements. In a situation like this the usual attack would have been from the flanks but because of the geography this was not possible. The British should have retreated but instead were defeated. As a result, they lost in essence the whole Brigade. The commanding generals blamed each other. No one was willing to take responsibility.

As for WWI the Kaiser wanted Belgium as an ally. King Leopold, however, refused. The Kaiser’s reply was that “anyone not with me is against me.” Now where have we heard that before? It was Bush’s favorite mantra when he was trying to put together a coalition to invade Iraq. Both Bush and the Kaiser confused themselves with God. In fact the Kaiser deluded himself into believing that the Germans were “the chosen people”. Sound familiar?

We can learn a great deal from history but we tend conveniently to forget the lessons and the country suffers.


[1] Tuchman, Barbara. The Guns of August. Random House, 1962

Get Over It

When Bush was told that Hezbollah had attacked Israel, his immediate reaction was to announce that a phone call telling Iran to “cut that sh-t out” would take care of the problem. In short, whatever the cause of the conflict, just get over it. It’s mindful of how people dealt with mental illness before the advent of drugs. The mentally ill person was told by their families as well as some physicians to just get over it. The present administration believes that the answer to all the problems in the Middle East is “democracy”. Encourage free elections and the masses will vote in a parliamentarian government with a cooperative leader who will deal with the U.S. and Israel in an acceptable and peaceful manner. This fantasy is also the proposal of the think tanks in Washington as well as everybody else in Foggy Bottom. As we know, in Iraq we are forcing a false “democracy” on the country at the point of a gun. When Bush proposed more democracy for Russia, Putin cleverly replied that he certainly would not want the Iraqi version.

So what happens in the Middle East when the people are given the vote? In Iraq because of our presence there is now a civil war between the Sunnis and the Shias. However, in the Palestine authority Hamas, the Islamic party, won the election and is now in control of the government. In Lebanon Hezbollah now has 14 seats in the Lebanon parliament. None of this makes Washington very happy. Obviously give these countries “democracy” and they will vote for an Islamic state. On the other hand, the remaining countries in the Middle East except for Israel are autocracies. Our dependable allies in the region still remain Saudi Arabia, Jordan and Egypt, all autocracies. So the belief that “democracy” would be the cure-all is in reality a tooth fairy’s delusion. To give any of these autocratic countries the vote would undoubtedly place in power a hostile Islamic government, assuming that the present power brokers would even consider such a change. And the democracy that we would implant would be a myth. (See Iraq and Afghanistan) It would be a puppet government controlled by Washington. Keep in mind that the last thing Saudi Arabia would want is a popular vote. That would be the end of the monarchy. The powerful people who run that country want Saudi Arabia to remain just as it is so that they may use the money gained from oil in any despicable way that they see fit.

One comment on the conflict between Israel and Hezbollah that appears to have ended: It was Israel’s intention by hitting the civilian populations very hard to turn them against Hezbollah and Hamas. But instead of destroying these authorities they have gained overwhelming support to the extent that 80% of the people polled endorsed both parties. Israel’s extreme violence has caused a severe blowback.

References:

Baer, Robert. Sleeping With The Devil, Crown, 2003
Wall Street Journal. 8/8/06. Mixed Message

King George

We all learned in school as we sat in our places with sunshiny faces that the Constitution provides for three branches of power, viz. the executive, the legislative and the judiciary. And there is a balance between them. Bush may have been absent on that day. Nevertheless, George is aggressively increasing the power of the executive and weakening the legislative branch. When Congress passes a law, George maintains that he will interpret that law as he sees fit. And often that is the exact opposite of what Congress intended. He does this with a “signing statement” that he files separately and states that he will interpret the bill as he wishes. Bush has maintained repeatedly that he is the decision maker and that he has the power to ignore the laws as written. In short, he is above the law. If so, he has unilaterally overturned the Constitution and he is now King. It’s great to be King. Something the founding fathers anticipated by writing a Constitution that provided for a balance of power.

According to a number of psychiatrists, Bush is a psychopathic personality demonstrating definite signs of megalomania. Monarchs suffering from megalomania can be very dangerous to the world. Check out the causes of WWI. (See Tuchman, The Guns of August.) As the late Senator Fulbright wrote, wars are caused more often by pathology than politics.

But Bush has other pathological problems as well. Primarily, his behavior demonstrates the pattern of the “dry drunk”. This is a term used by Alcoholics Anonymous to refer to individuals who have stopped drinking but are not really sober. Their patterns of thought are still similar to when they were drunk. Bush loses focus easily and therefore has an attention deficit disorder. Bush drank for 20 years and at some point also used cocaine. At age 40 he became a “born again Christian” and stopped drinking. However, he was never treated for alcohol abuse. Typically he denies he was an alcoholic. Long periods of drinking, according to experts, do cause brain damage and can be permanent. A good example is his inability to talk coherently when he is not reading a script. Another illustration is his tendency to repeat constantly a thought as though his brain was stuck in a groove. One member of his cabinet who resigned some time ago was appalled by his lack of attention at meetings and his apparent inability to even ask questions regarding a topic that he might have known very little about.

His reliance on Cheney and Rumsfeld indicates his need for constant advice and reassurance. He is the puppet and Cheney is his handler. His simplistic understanding of right and wrong as expressed in his repeated mantra “If you are not with us, you are against us”, is another example of his inability to distinguish between reality and fantasy.

Finally, he claims he is compassionate and patient, but he is neither. It is another personality deficit of a “dry drunk”.


References:

Drew, Elizabeth. Power Grab. N.Y. Review, 6/22/06.
Frank, Justin, M.D. Bush on the Couch. Harpers, 2004.

God’s Chosen

My brain may possibly have a Teflon coating when it comes to religious dogma. What little I was exposed to never really stuck. But one thing I do remember is that the Israelites were considered by Old Testament scholars to be God’s chosen people. So it came as quite a shock when our President, an ex-alcoholic and a born again Christian, tells us that God speaks through him and that his administration is literally following God’s will because Americans are God’s chosen people. Obviously Bush is suffering from the delusion that he is a prophet that speaks for God. He preaches the gospel of “freedom and liberty” that he imputes to God and he uses these words repeatedly in his speeches to the point that he deludes his listeners into believing that Christ speaks through him. Observers are convinced that he is an evangelical fundamentalist who believes in the truth and infallibility of the Bible, that Christ died for our sins and that the second coming, according to the Bible, will occur in Israel, the battle of Armageddon. But our troops are presently stationed in Iraq opposing the power of the Moslem national resistance insurgency whose stated purpose is to resist the American occupation of their country and to fight until the American coalition forces leave. What will happen to Iraq afterwards will be up to the Iraqis. One option is that the country could split into three independent sections. After all, the British, after their occupation failed in 1920-21, stitched together these same sections and called it Iraq. Ethnically there were no similarities and it required a strong fist to hold it together, viz. Saddam.

However, in the eyes of the American evangelical fundamentalists, Iraq is the second Babylon and Saddam the modern Nebuchadnezzar. These religious fanatics of whom there are millions in this country and all of them voters were not concerned about oil in the Middle East. Rather they saw Iraq as the anti-Christ and the possible route to Heaven through the coming of the Rapture. This non-Biblical event known as the end-times is when Christ appears and pulls all believers up to Heaven. Non-believers will be left behind as recounted in the novels of Tim LaHaye (Left Behind Series).

Now since these delusional beliefs are linked to America as the chosen Imperial society, it is clear that the fundamental evangelical knows very little about history. History does teach important lessons which most of us tend to forget. Some call it national amnesia. For example, all Imperialist societies before their fall referred to themselves as unique and God’s chosen people, i.e. Britain, Spain and the Netherlands. Based on this past history it is not likely that our experiment as an Imperialist country will last too much longer. The sensible secular people in this country will have to turn back the evangelists at the voting booth and that includes Bush and his supporters. Once having done that we may be able to apply a rational foreign policy to the serious problems of the world.

Since 2/3 of the secular population of the U.S. reject evangelical theology, it should eventually become clear that Rapture as prophetic theology is nonsense. It is difficult to comprehend how fundamentalists who believe in the literal truth of the Bible can accept Rapture as a belief when not one word can be found in the Bible. Rather it was a delusional fantasy of an English ex-priest named Darby who was tossed out of the Anglican church and then came over here in the 19th century to preach the doctrine. He planted the seed and for some unintelligible reason it took root.

However, there is a fly in the ointment. The call to withdraw our troops now creates a serious problem for the evangelists. According to the literal Biblical prophecy Armageddon will occur in the Middle East. Withdrawal of the troops returns the country to the Moslems and it is their decision as to what happens next. But according to the fundamentalists if our troops remain, they become the soldiers of Christ opposing the anti-Christ, the Moslems. This is the battle Jerry Falwell and Pat Robertson and their supporters envision in their end-times fantasy.

Unfortunately those who believe in this twaddle have a major influence in Washington and many take the attitude that they are not concerned about such issues as global warming, environmental deregulation, or the approaching end of oil because the second coming is imminent. So what does it matter? Attention non-believers, try sleeping comfortably with that one. Instead of taking Ambien, relax with Bush’s latest poll numbers at 31%.


References:

Phillips, Kevin. American Theocracy. Viking, 2006.
Lincoln, Bruce. Holy terrors. Chicago, 2003.

Oil and the Military

As we all know the reason given for the invasion of Iraq was the alleged existence of WMD but when it became apparent that no such weapons existed, the reason for the invasion became the gift of democracy and freedom to this poor backward country. At no time was it ever mentioned that the real reason was to gain possession of its oil fields. It seems historically that whenever the subject of oil arises, our leaders feel compelled to lie. In the case of the American invasion of Iraq the President’s press secretary stated with a straight face that the occupation had nothing to do with oil. The Secretary of Defense asserted shamelessly that the attack was in no way connected to the existence of oil. And the Prime Minister of England stated the same bald faced lie.

It was interesting that at the time our army reached Baghdad a cordon was thrown around the oil ministry building to protect it from harm but the outstanding archeological museum and library filled with rare artifacts and antiquarian books stood totally unprotected from shameless looting.

Before 9/11 Osama bin Laden made it clear that since Saudi Arabia was a center for religious worship for millions of Muslims, American military bases had to go. So the occupation of Iraq played a dual role though not admitted publicly. The military bases were in time moved from Saudi Arabia to Iraq, sitting on top of the 2nd largest oil preserve in the world. Could it get any better than that?

It is not only in Iraq but the military is also being used world wide as protection for oil fields particularly in unstable nations from which we import oil. Nigeria is in the news at the moment. Others are Venezuela, Columbia, Angola and Indonesia. All of these countries rely almost totally on energy exports for income. Such one sidedness perverts their political institutions and restricts their economy. Bribery and cronyism are endemic and wealth remains in the hands of the powerful few. Finally when the economic stress becomes intolerable, a popular arising occurs accompanied by or led by insurgent terrorists. And frequently these uprisings are put down by outside military intervention. Imperial oil must continue to flow irrespective of the needs of the poor.

However, it wasn’t until the first Gulf War that the word oil was used as a reason for military intervention. Bush, Sr. said at the time that our way of life would be threatened if Saddam continued to control the huge oil resources of his country. Then in 2002 when invasion of Iraq was again on the agenda, oil was never mentioned. Freedom and democracy became the new spin; the pipedream of the neocons.

Enduring Camps

This administration has repeatedly stated that we have no intention of maintaining permanent military bases in Iraq. In support of this spin we now have an administration engaging in withdrawal propaganda because of the upcoming Congressional elections and the concern of a number of Republican Party members about the increasing national debt to pay for the war. There is also increased pressure from the states that are desperate for revenue sharing to pay for needed upgrades to the states’ infrastructure. Rebuilding Louisiana is one very good example. Billions are being spent for the war and the states are left begging.

Rumsfeld has stated that there are no plans for permanent bases in Iraq. The military commanders have stated the same. Other administration spokesmen have restated ad nauseam that we want to bring the boys home after the job is done. When would that be? Ten years from now?

So after absorbing all this administration spin, what are the facts? Since 2003 billions of dollars have been spent building enormous military bases in Iraq. In a country that has inadequate electricity, undrinkable water, gasoline shortages and unreliable sewer systems, we are building military bases that resemble hometown suburbia. There are Pizza Huts, Burger Kings, Subway sandwich shops, Popeye’s, air conditioning, football fields, rent-a-cars, movie theatres, Px’s, swimming pools, internet connections and much, much more. Some bases are at least 15 square miles. And there are four of these huge American military towns. If that is not indicative of permanency, tell me what is. Incidentally, the Pentagon was calling them “enduring camps” but that sounded a little too permanent. Now let’s say that another administration comes along and decides to really withdraw as was the case in Vietnam. What happens to the bases and all its expensive equipment? Why, it is just left behind to rot and rust, looted, or bulldozed by the local population and it becomes in accounting terms a “sunk cost” to the American taxpayer? Just another budgetary fiasco. O-hum.

Saudi Arabia Spin

We have been living in harmony with Saudi Arabia for longer than most of us can remember or even care. Only geopolitical buffs would be aware that the Saudis were sitting on 60% of the world’s known oil reserves, and that the US is more dependent on the cheap oil produced by the Saudis than any other country because we use more. However, the industrial economies of the world are also dependent on the oil of the Arab states and if those oil fields were rendered useless by Islamic insurgents, the economies of the world including the US would be devastated.
The administration spin machine spreads the myth that Saudi Arabia is politically stable, their borders are secure, their police efficient, reliable and tough and their population well educated and well fed. In actual fact the Al Saud family that rules the kingdom is constantly threatened by the radical religious fanatics, i.e. the Muslim Brotherhood and the Wahabis, a dangerous organization of religious extremists. The kingdom is “protected” by a well organized and very well trained police force, many of whom were trained in the US. They have a very strong military force with the latest hardware purchased here in the US and the military personnel were also for the most part trained in the US. A small segment of the population is well educated and well fed whereas 30% of the young males are unemployed. These are the men who are recruited for suicide attacks. Fifteen of these Saudis along with four others hijacked the commercial jets that destroyed the World Trade Center on 9/11. Despite administration spin no Iraqis were involved in this suicidal mission. Soldiers who volunteered for the military to avenge 9/11 by killing Iraqis have been deceived by Washington and the Pentagon. It is now clear that it was administration spin that deluded our fighting forces into believing that the Iraqis were responsible for 9/11. If we are looking for answers, perhaps we should look more closely at the manner in which the State Dept issued visas to young Saudi men.

Since we and the Saudis are strange bedfellows, the State Dept allowed young unemployed Saudi men to apply for tourist visas at a designated travel agency in the capital city of Saudi Arabia (Riyadh). They were not required to apply at the US embassy and as long as they paid their fees and presented a valid passport, they could buy an airline ticket to the US and they were on their way. It was called “Visa Express”. But their visas were illegal since the men were classified as immigrants who had no intention of returning home. They had no job, no money and no family. Obviously they intended to remain in the US. As Bob Baer points out they could work in a 7/11 and be better off financially than in Saudi Arabia. So fifteen unemployed Saudis bent on a suicidal mission were allowed into the US illegally, thanks to the State Department. Furthermore, in view of the history of Saudi “terrorism”, where was the political know-how of the State Department? Osama bin Laden was a well known Saudi. The Saudis were involved in hundreds of terror atrocities in many different countries, i.e. the Khobar Tower barracks bombing, the bombing of the Cole, the National Guard barracks and the hijacking of a plane to Iraq to just name a few. The State Department did not pressure the Saudis for any real investigation of these events. They were considered merely aberrant behavior and accepted the Saudi government’s affirmation that they were seriously combating terrorism, which was of course a lie. They were doing absolutely nothing. At the same time the fifteen potential hijackers were being recruited.

So as it turns out the kingdom of Saudi Arabia is in deep trouble. Corruption is rampant, birth rates are high and per capita income is down by 60% or more. Unemployment is 30%. And the very rich members of the Saudi ruling family of which there are many are wanton and wastrel. In fact the regime is so unstable that it fears that it will be overthrown by the religious fundamentalists and therefore it is funneling huge amounts of dollars (hundreds of millions) to the fanatics as protection against a possible coup that would end the monarchy. From 1996 on, Saudi money was actually supporting Osama bin Laden and Al Qaeda as well as many other extremists in the Middle East. The Saudi kingdom is so unstable that its oil reserves are liable to attack by fanatics and thereby becoming a real threat to US political and economic interests in the Persian Gulf. The situation has not changed. In fact there is a continuing power struggle within the ruling family regarding corruption and control of money and a ceaseless crisis revolves around staying in power.

After 9/11 spokesmen for the Saudi regime invoked repeatedly the mantra of denial that it had never contributed to Islamic fundamentalist groups. The press had reported that monies given to Islamic charities had somehow gotten to fanatic terrorist groups. The Saudi spin was complete denial. However, the intelligence community through intercepted telephone conversations knew that Prince Salman, the Governor of Riyadh, had contributed millions to certain charities which in turn transferred the money to the religious fundamentalists. Salman was well known as a supporter of fanatic causes. The Bush administration has repeatedly insisted that the Saudis have been totally cooperative in its refusal to support terrorist organizations in the Middle East and in helping in the investigations to collect names and backgrounds. In 1996 when bin Laden was holed up in Sudan, that country offered to turn him over to the Saudis. But the Saudis refused to take him because, they said, he was too popular in Saudi Arabia. They feared that his arrest might provoke a popular uprising. As a result, not one useful piece of information has come out of Saudi Arabia. Even the FBI has not been allowed to interrogate possible suspects or the families of the hijackers. The Saudis have not been willing since 9/11 to provide passenger lists for flights to the US, a major violation of our security. Most American journalists are not allowed into the country and the few that manage to get in are watched very carefully by secret police. Today the religious police control education and the press. As a result, the Saudi press is filled with anti-American tirades.

References:
Baer, Robert. See No Evil. Three River Press. 2002.
Baer, Robert. Sleeping With The Devil. Crown, 2003.
Hersh, Seymour. Chain Of Command. Harper. 2005.

The Five Hundred Pound Gorilla

Everyone knows what a 500 lb gorilla can do. It does anything it wants to. But what about an 800 lb gorilla, viz. the pharmaceutical industry? This industrial behemoth for the last 25 years has been doing pretty much what it wants to do. And as a result it has become a $ 200 billion Fortune 500 industry ranking third in profit. How was this accomplished? Why, by raising prices of drugs so that no one can afford them let alone poor people. As the economy shrinks employers cut health care benefits so that the employee is forced to pay more and more of his drug bills. As a result, the patient does not fill the prescription given to him by the doctor or he shares a prescription with his spouse. Sometimes the patient just takes the prescribed pill less often. The doctor thinks what he gave the patient is not working so he prescribes another drug. Thus, worsening the patient’s problem.

When the complaints come in regarding the high prices of drugs, the drug companies reply that those prices are necessary because the cost of research and development (R & D) of new drugs is enormous. This excuse is, of course, corporate spin, more familiarly known as b.s. In actual fact most of the industry’s expenses go into administration and marketing. Note, for example, all the TV ads touting old drugs presented as new as well as public relation messages to offset the complaints of high drug prices. R& D is a small part of their budget. Most of the research is done by academic institutions, small biotech companies and the NIH (National Institute of Health). In reality the drug companies are not as creative as they claim. There have been very few new drugs brought to the market in the recent past. As Marcia Angell, M.D. points out most “new drugs” are not new at all but rather a variation on old drugs which she calls “me-too” drugs. For example, there are six drugs available that lower cholesterol, all variations of the first one. All that is required is to make a slight molecular change in the original drug, get a new patent after the first runs out and the drug company has another 14 years of fabulous profit with very little expenditure on “research”. The old drug is a sure fire hit so why spend tons of money looking for something new that involves huge risk.

As Dr. Angell further points out, the drug industry is not a very good example of free-enterprise as it claims in its ads. It actually has a monopoly on its drugs granted to it by government patent rights and the Food and Drug Administration both of which give it “exclusive marketing rights”. And those rights are global. However, many foreign drug companies like to present themselves as American whether they are or not because we do not regulate drug prices as do foreign countries. Also the research is practically free here since universities and the NIH provide the development at taxpayer expense.

There are a number of other ways that drug companies promote their me-too drugs that you and I pay for in increased prices. One is the old tradition of giving “free samples” to doctors to the tune of $11 billion a year. In recent years these drugs are the most expensive “me-too drugs” and the point is to ensnare the doctor and patient into using them on a continuing basis. Obviously they are not “free.” Also the drug companies send sales representatives known as detail men to visit the doctors and personally hand out the samples along with a pitch promoting the drug as well as free lunches and other gifts. There are 88,000 sales reps employed by the companies at a cost of $5.5 billion which you and I pay for.

Another hot market for promotion is “erectile dysfunction”. And the medium is sports. In order to compete with Viagra the drug company that produces Levitra made a deal with the NFL for $20 million to promote the drug. Levitra signs were posted at the stadium and one coach even gave a pitch on TV. Viagra can be seen on the Nascar circuit and even on a yacht in the America’s cup race. The cost is on you.

Then there are the so-called stealth ads. A prominent celebrity is paid to do video spots for the drug company that are supposed to be news casts and are actually drug promotions. Also Dr Angell refers to an interview of Lauren Bacall who talks of a friend with macular degeneration and mentions the name of the company and the drug used for that condition. What was not revealed was that Bacall was paid by the drug company for
that promotion. The cost was included in your drug price.

These are all marketing expenditures that far exceed the costs of research and development. Marketing expense is the largest item on the drug company ledger. It can be as high as 35% of total revenue.

Another marketing gimmick used by the drug companies is to go directly to the doctor. After all he writes the prescription. So the detail men roam the hospital corridors looking to buttonhole doctors and provide technical information about the drugs they represent. They also visit the doctors in their offices. Many visit the doctor several times a month and the doctors look forward to these visits to keep up with the new drugs. Along with the drug information comes the free samples and many other goodies distributed to the doctor’s staff as well. Many doctors are invited to dinner at first class restaurants, given tickets to athletic events and invited to champagne receptions. Family vacations in expensive resorts are not infrequent and even gifts of cash have been reported. And the doctors for the most part do not hesitate to accept these lavish gifts. In other industries gifts of this magnitude would be considered bribes but many doctors have no problem accepting them.

Another marketing device is to use the doctor himself to market the drug. The pharmaceutical company invites a large number of doctors to come to a week-end symposium to learn about a new drug. The company pays their expenses and gives each doctor $500 to attend. If any are willing to give talks about the drug to other doctors, they receive another $500 each time they talk. Sometimes competitors will pay as much as $1000 to each doctor who attends. Obviously conflict of interest is endemic. But no one seems to care. The physicians deny that they are being influenced by the endless gifts and meals. But it must pay off since the drug manufacturers continue to pour money into this kind of influence peddling. The drug reps maintain that what they do educates doctors to prescribe knowledgably. And the reps push the newest and the most expensive drugs on the doctors.

Let’s now look at the latest sham perpetrated by the 800 pound gorilla. In the late 1990’s Prozac, a widely used anti-depressant was about to lose its patent and the drug company in this case, Lilly, would lose millions of dollars. So Lilly invented a new mental illness called PMDD (premenstrual dysphoric disorder) that could be treated with Prozac. It turns out that this sham illness is nothing but normal premenstrual difficulties with some symptoms of mild depression. Outside this country it is not accepted as a disease. Even in this country it is not fully listed in the “psychiatrists’ manual of diseases” (DSM) despite the efforts of Lilly and the FDA. In its ads Lilly is attempting to convince young women that the mood swings associated with normal premenstrual cycles is actually a mental illness that requires treatment with an anti-depressant, viz. Prozac. Unfortunately the FDA after much delay and discussion has approved the use of this drug for this “disease”. Lilly is now off and running once again toward huge profits. Advertising a disorder that does not exist in order to promote the use of a drug which can have serious side effects for some people is a very risky business

One more example of the powerful influence that drug companies have on the federal government was the passage in 2003 of the “prescription drug benefit” to be included in Medicare. Ostensibly it was done to assist seniors who were taking multiple drugs daily at a huge personal cost. But Medicare owing to the powerful lobby of the drug companies was not allowed to contract for lower prices. The Veterans Administration, insurance companies, auto manufacturers and many other large employers, for example, are allowed to bargain for lower prices but Medicare by far the largest buyer cannot under the new law influence drug prices. This means that costs will go up and seniors will get very little benefit from the law. In fact it will cost seniors more because monthly premiums and deductibles will increase to pay for the rise in drug costs. The total cost was estimated before the bill was passed at $550 billion. And the taxpayer will pay the bill with huge profits going to the drug companies.


References:

Angell, Marcia, MD. The Truth About The Drug Companies. Random House. 2004.
Kassirer, Jerome, M.D. On The Take. Oxford. 2005.
Nation Magazine. Oct. 17, 2005. Moynihan & Cassels. A Disease For Every Pill.

The Snowman

We are in a country governed by spin. We are whirling in a Category 5 hurricane of lies, fabrications and disinformation and reported by the mainstream media as truths. In 1964 LBJ ordered the bombing of North Vietnam after Congress passed the Gulf of Tonkin resolution which gave the President authority to repel any attack against U.S. forces. Congress passed the resolution because it was believed and reported that Vietnamese gunboats had fired upon American destroyers in the Gulf not once but twice, an obviously aggressive act. But in reality there was no second attack simply because there was no first attack. The supposed truth was that we, that is to say, South Vietnamese gunboats secretly operating under our direction had fired on North Vietnam coastal islands as part of an intelligence gathering operation. It was then that the Pentagon concocted the distortion that North Vietnam PT boats had fired on us a second time. Following that, LBJ went on TV and spun us into war, calling for bombing of North Vietnam. We were “retaliating” for a North Vietnam torpedoing that never occurred. The media picked up the story, continued the spin and lauded the President for his firm stand. The American people once more were spun into war based on official lies and disinformation spread very effectively by the American press and TV pundits.

According to Norman Solomon, later at the Senate Foreign Relations committee hearings, Secretary of Defense McNamara continued the fabrication. He maintained that our destroyers had fired back at the North Vietnam gunboats after the attack. When asked by the committee whether the North VN had “initiated” the attack, McNamara lied and said, “Yes.” The General sitting next to him replied, “That’s correct.” At that time Senator Wayne Morse of Oregon was on the committee and he had received from an anonymous Pentagon source the information that one of our destroyers, the Maddux, had played a role in the South Vietnam raids. When he asked McNamara about this, McNamara lied once more saying that our Navy had played no role in any such action if it had occurred at all. He ended his testimony by emphatically declaring: “I say this flatly. This is a fact.” On the other hand, Daniel Ellsberg revealed later that the Tonkin Gulf events were “entirely U.S. operations.” The South Vietnamese were involved in a very limited way. The U.S. owned the boats, hired the crews and controlled the whole operation. The CIA and the Navy trained the crews.

In May of 1962 McNamara had just returned from Vietnam and he reported that the Vietnam operation was progressing extremely well and the future looked excellent. By 1964 Daniel Ellsberg, compiler of the Pentagon Papers, was working as a special assistant to the Assistant Secretary of Defense, McNaughton. Ellsberg was therefore privy to all Defense Dept secrets. In Oct 1966 McNamara had again returned from Vietnam and at a press conference described the extensive progress being made in Vietnam. Ellsberg, on the other hand, said that McNamara made this statement to the press just a few minutes after he had told Ellsberg in confidence that things were much worse that the year before. This kind of deception continued from LBJ down. The President himself frequently stated publicly that peace was near. So the American people were victims of ceaseless spin. Not even the mainstream media saw through the duplicity. They reported whatever they were told.

Unfortunately the American public because of their political naiveté suffer like the Swiss from amnesia. But the Swiss amnesia is based on greed. The American amnesia is based on ignorance of the facts and possibly a false optimism. As one observer pointed out, “Despite how many times in the past we have been lied to, we still think that the present government will tell us the truth.”

Now let’s fast forward to approximately 40 years in the future to the meeting of the U.N. Security Council in February 2003. It was in that month that Colin Powell, our Secty of State gave a speech in support of a war against Iraq that should have won him an Academy Award for his snow job par excellence. Powell was originally presented to us as a man of character, i.e. honest, trustworthy and dependable. The press had crowned him with a halo and never questioned or challenged his statements. He was in a secure bubble protected from the mainstream media. So in his speech he was able to fabricate, invent and hyperbolize. For example, taped phone calls in Arabic were exaggerated as to their intention. He further referred in detail to Hussein Kamel, who was in charge of the development of chemical and biological weapons under Saddam. He defected in 1995 and told the CIA and British Intelligence that those weapons had been destroyed after the Gulf War. Powell chose in his speech to ignore that fact. It happened that Kamel was Saddam’s son-in-law and was well versed in the Iraqi weapons program. Powell further maintained that Iraq was a serious threat to the Middle East but in fact no Arabic country made such a complaint. The only aggressive act that Iraq had taken was the invasion of Kuwait 12 years prior and at that time Saddam was given the go ahead by our Ambassador to Iraq under instructions from Secretary of State Baker. Our attitude was that we do not get involved in Arab to Arab hostility. Powell also mentioned Saddam’s use of chemical weapons against Iran but ignored the fact that we had provided intelligence and financial and military assistance to Iraq to carry out those attacks. None of these statements were challenged by the media. In fact the media fell all over themselves in support of the speech. Even the liberal columnists were convinced by his speech that war was an absolute necessity. But only in the U.S. was this so. In Britain the speech “went over like a lead balloon.” British journalists did not buy his allegations and proceeded to tear apart his arguments.

Another argument used in support of the Iraqi War was the relevance of the U.N. If the U.N. did not support the war it became irrelevant. The logic of that position implies that the U.N. is relevant only to the extent that it supports what ever the U.S. wants. In that regard it is a defeat if the U.S. doesn’t get its way. But there are many political and economic favors that the most powerful country in the world can employ to convince small countries to support our position. For example, before the Gulf War began Yemen voted against the resolution to attack. Three days later the U.S. punished Yemen severely for that negative vote by stopping financial aid in the amount of $70 million. Yemen happens to be one of the poorest countries in the world. The World Bank and the IMF also put economic pressure on Yemen. And to make matters even worse thousands of Yemeni workers were banished from Saudi Arabia.

Later it was revealed that the U.S. was spying on certain UN Security Council delegations in order to gain support for the Iraqi war. We were engaged in surveillance operations, e.g. tapping phones and intercepting e-mails of UN delegates. This operation was directed specifically toward six delegations that were crucial in gaining votes for the Iraqi war. It happens that the information was in a secret memo that was leaked by a British newspaper and caused acute embarrassment to the Bush administration. The news circulated world-wide except in the U.S. Another example of our main stream media’s refusal to challenge the duplicitous policies of the Bush administration.

After 9/11 the President did not have a clue as to why anyone would want to attack us. He asked, why do they hate us? It must be our way of life, our democracy that they hate. It never would occur to him or the media that it might be our foreign policy that enrages most of the third world countries. If they have oil or other natural resources, we want to control those resources. We do that by building military bases in their country. We control and dominate their country by suppressing popular uprisings and in the process violate their human rights. When they persist in misbehaving, we send in the World Bank and the IMF to warp their economy and invite the corporate investors to assume control of the economic resources. Once we have control we remain there and we call it “democracy building.”

Gore Vidal believes that the “war on terrorism” is nonsense. He says it’s like declaring “war on dandruff.” Any government should protect its citizens from terrorism but why call it a war. The reason is simple. It is in wartime that the president has maximum power and can ignore the checks and balances of the Constitution, as well as ignoring the Bill of Rights. 9/11 was committed by well organized individual extremists not a nation. Wars are fought by nations not zealots who are willing to die for their cause. So this administration has established war time powers but there is no war. We are flooded with lies to support this fallacy.

Thus, the war on terrorism becomes essentially spin to convince the American public that all other possibilities, e.g. international negotiations, have been tried when in actual fact nothing else has been considered. According to the administration, war on terrorism is meant to protect our way of life and since it is, as Rumsfeld stated, open-ended, it meant that the U.S. is “waging virtually perpetual war.” And we can’t win it. Suicidal bombing is a response to the occupation of a national homeland. And the only solution is withdrawal.

References:
Ellsberg, Daniel. Secrets. Viking, 2002.
Solomon, Norman. War Made Easy. Wiley, 2005.
Vidal, Gore. Imperial America. Avalon, 2004.

The Gnomes of Zurich

On those rare occasions when some of us thought about Switzerland, we saw a democratic oasis in the middle of Europe that was, aside from being a beautiful mountainous country, moral, tolerant and respectful of the truth. We believed it was a country that most people saw as a haven in times of need and that refugees were welcome to enter and stay as long as needed. But these were beliefs that stemmed from political naivete and we have since discovered that those perceptions were a myth perpetuated by the crafty gnomes of Zurich. Today there is overwhelming evidence to the contrary and it all began with World War II in 1940. But before going into the events of that period let’s consider Switzerland as a nation.

As one observer has said: “Switzerland is not a country – it is a defensive alliance.” And the alliance is made up of autonomous people that have their own language and culture. Yet the Swiss confederation does not rely on its so called multiculturalism. That is another myth. There are French, German and Italian cultures within its borders but there is no real bond or tie between them. They are totally diverse. What holds them together is defense against foreigners. But because the Swiss tend to be xenophobic, they refer to foreigners as the “damn foreigners.” Nevertheless, the foreigners do hold the Swiss alliance together as a defense against the outsider. Furthermore, Switzerland is not a state. It is a confederation made up of self-governing cantons. Another point of view is that Switzerland “is not a real country.” “It is a business and it is run like a business.” It is always on the defensive and has been for 700 years. This would tend to explain the secrecy laws of the banking industry which made it a popular depository for stolen goods as well as a turntable for laundering stolen gold and looted art works during the war.


The Swiss also suffer from amnesia. For the Swiss there is no past. In fact they are very adept at suppressing the past. Particularly is this true when the Swiss are accused of involvement in Nazi war crimes. It is interesting that in the field of psychiatry patients are taught through the discipline of cognitive therapy to forget the past. The past is gone and to relive it will only create more anxiety. The Swiss developed this procedure into a tradition and they are experts.

Another myth that the Swiss very skillfully preserved was the myth of neutrality. Outsiders have always identified Switzerland with the perception of neutrality. And this was a very important aspect of the Swiss identity going as far back as 1648. But with the
advent of World War II the myth of Swiss neutrality was eventually destroyed.


The Swiss avoided the destruction of World War II by becoming an integral part of the German economic system, but at the same time maintained its bogus neutrality. In this way it avoided the saturation bombing of the Allies and was able to continue the manufacturing of munitions, optical instruments, precision equipment and other military equipment, all of which was delivered to the German military machine. Then the Swiss bankers acted as “fencing” agents in the exchange of looted gold for Swiss Francs and in this way the Swiss manufacturers received payment for their materiel. At the same time the secret bankers were receiving huge fees for their services. In short the cunning bankers were laundering gold stolen from all the occupied countries of Europe, as well as gold teeth and jewelry taken from Jews in the death camps and stolen art work from the Jewish galleries of Paris. The Germans needed exchange currency to pay for the raw material necessary for the production of arms. The countries that had the required raw materials would not accept looted gold in payment. The Swiss fenced the gold and exchanged it for Swiss Francs. Since the Swiss were “neutral” their currency was accepted everywhere in Europe. The Germans had run out of their own gold reserves by 1940. The looting of gold was the solution, and Swiss cooperation was their salvation. Bank officials of Switzerland saw a tremendous opportunity for huge profits as the intermediary for the Nazis. The gnomes filled with unrestrained greed became the willing puppets for the Wehrmacht. While Europe burned, the bankers were accumulating gold and foreign exchange reserves at an exponential and unbelievable rate. As a word of explanation: Gnomes are little people who live under the surface of the earth and guard its treasures. This is exactly where all the “filthy lucre” is buried in the underground vaults of the banks in Zurich, Basel and Bern. Much of it is still there. After the war the clients were no longer Hitler, Goring or Goebbels but rather Mobutu, Ceausescu, Saddam, Noriega, Suharto and Marcos. The banks are still making exorbitant profits from transfers of capital, looted gold, fencing or laundering. Because of these essentially illegal transactions Switzerland is now the “second richest country in the world.”

When Hitler took power and harassed the Jews, the Jewish people deposited gold, money, jewelry and art works in the secret numbered vaults of the Swiss banks. The assumption was that since the Swiss were neutrals and the accounts were secret, there would be no problem claiming the deposits in the future for either themselves or their survivors. After the war because many of these Jews had been murdered in the camps, there were no death certificates. In order to claim the deposits the Swiss insisted on a death certificate. Since the surviving family members had no proof of the death of their relatives it was not possible to retrieve their wealth. This of course increased the reserves of the bank and added to the monumental Swiss wealth.

Almost immediately after the occupation of France in June 1940 the looting of art by the Germans began in Paris. At that time the art world centered in Paris on the rue de la Boetie in the 8th arrondissement. New York and London were relatively unimportant. The most famous art dealer in Paris was Paul Rosenberg. He had the most impressive collection of modern and impressionistic paintings and was known throughout Europe and America. Picasso lived across the street with his wife.

Hitler made a grand tour of Paris and two days later swept all art owned by Jews into German hands supposedly for “safekeeping”, but in actuality that was one of the many lies employed by Hitler to cover illegal acts, in this case looting. In fact, Hitler set up an organization known as the ERR to find works of art. There were those who did the raiding and collecting aided by art historians and appraisers. They went, of course, immediately to the rue de la Boetie. They seized Paul Rosenberg’s gallery, the Rothschild collection, the David David-Weill collection, the Schloss collection of Dutch painters among many others owned by Jews.

Both Hitler and Goring had a passion for the “Old Masters” and considered modern and impressionistic paintings degenerate art. However, they recognized the value of these paintings and by confiscating them they were able to ship them to Switzerland to exchange for Swiss Francs. Or they used them to buy Old Masters from Swiss dealers. The most famous art of the Old Masters was in the Rothschild collection and that was plundered by the ERR. Some was sent to Hitler’s private museum and some went to Goring’s personal collection in his hunting lodge.

The ERR used the Musee Jeu de Paume in the Tuilleries Garden for storage of looted paintings. A staff catalogued and appraised the tremendous amount of art work that fell into their hands. Some went to Germany for Hitler’s collection and the modern works were kept for exchange or sale. Goring had access to the Jeu de Paume and visited there frequently taking paintings for exchange, e.g. Van Gogh, Degas, Cezanne, Renoir, Monet, Matisse, Modigliani, Leger, Braque, Picasso and many others. Most of these went to the Swiss for fencing and for some their whereabouts are still unknown. Some paintings were deposited in the secret vaults and others were sold immediately to galleries and private collectors. The laws of Switzerland protected the buyer of stolen art. If a collector buys art in good faith, after five years even if it was stolen to begin with, it belongs to the buyer. On the other hand, if a Swiss dealer finds that he has in his possession a stolen painting and the original owner discovers the painting he must pay the dealer the value of the painting before he can repossess it. Trying to reclaim the art work through the courts was not very successful either because by 1945 much of the art had been in possession of the buyer for at least five years.

Paris was liberated in Aug.1944 and by that time it had been the most plundered in all of Western Europe. One third of all the art in private collections had been stolen. Tens of thousands of art works were looted and many of these are still missing. One of the more interesting sagas is the pillaging of the Rothschild family collections which included over 5000 works of art. The Nazis looked upon the Rothschild collections as the most noted and important works in France. The Rothschilds were an “aristocratic dynasty” that came to Paris in 1800. James established the French branch. By 1940 there were three branches of the family headed by Baron Edouard, Baron Robert and Baron Edmund. Banking was the family’s main occupation but it also controlled French and European railroads, Russian oil, Bordeaux vineyards and a number of racing stables.

As for the art collection Baron Edouard’s contained the most works including Vermeer’s Astronomer, Boucher’s Portrait of the Marquise de Pompadour, Raphael’s Man With A Red Hat, several Rubens, one Titian and two Watteaus among others. Baron Robert’s collection was not as large but most important including such pieces as Jan Van Eyck triptych, Virgin and Child with Saints and Donors ( it is presently in the Frick collection in New York), and Rembrandt’s The Standard Bearer among others.

The Rothschilds had no idea of the kind of plundering that eventually occurred but were more afraid of bombardment at the start of the war. Therefore they packed up the collections and sent them to chateaus that they owned in the rural areas of France. Other portions of the collection were stored in the Louvre with the cooperation of the Director of the French National Museums. Then the families left Paris. Edouard went to the U.S. Robert followed. A British cousin, Henri, had his very special collection of Chardins shipped to the City of Bath in England. All of those who resided in Paris lost their French citizenship and all their possessions were confiscated.

The ERR went immediately to work to locate the Rothschild incredible collections with true German efficiency and vigor and they managed to locate most of the hidden art still packed in crates. They were then put on Goering’s personal train in 1941 and 19 crates went to Hitler and the rest to Goering. These crates contained the most prized of the collection. There were some items that escaped the ERR in Paris. Baron Robert had built a secret room in his residence before WWI. The room was sealed and the walls whitewashed and then hidden behind huge armoires. The house was used by Luftwaffe officers during the occupation as a residence with no idea of the treasures stored there. The hidden art remained safe until the liberation. Most of the collections were either sitting in air raid shelters in Munich or in ERR warehouses. They were never opened. The American Army eventually found them. One positive thing about all this was the fact that the collections were pretty much kept together and not sold and scattered. They were intended for Hitler and Goering and they wanted the collections intact. So it was relatively easy to track down the works after the war and were eventually returned to France with very little loss or damage.

After the war Paul Rosenberg discovered that many of his paintings were in the hands of Emil G. Buhrle, the largest armaments manufacturer in Switzerland. He had made a fortune providing the Nazis with military equipment. He was also one of the biggest buyers of looted art in Switzerland the source being the Fischer Gallery. This Swiss gallery had a direct connection to the Nazi looters. After a personal interview with Buhrle and much negotiation with the Swiss government, Rosenberg was forced to sue Buhrle and Fischer to recover his paintings. He had the good fortune to win the case in the Swiss courts and for the most part got his paintings back. Many others have not been so fortunate. However, Rosenberg, at Buhrle’s request, did allow Buhrle to buy back the paintings that he had in his possession. They are today exhibited at Buhrle’s foundation. The catalogues of these Swiss collections in most cases do not give an accurate history of the paintings, concealing the fact that they were confiscated by the Nazis during the war. Another example of Swiss amnesia.

References:
Feliciano, Hector. The Lost Museum. BasicBooks, 1997.
Silva, Daniel. The English Assassin, Signet. 2003.
Ziegler, Jean. The Swiss, the Gold, and the Dead. Penguin. 1998.

Some Like It Hot

George W. Bush ran for the presidency the first time as a “compassionate conservative”. The program emphasized community over profit and riches. “Family, church and neighborhood” were more important than the market place. But as the administration progressed Bush still emphasized repeatedly the above concepts but the compassionate conservative gradually disappeared and instead we found his administration destroying the forests, polluting the air and poisoning the waterways. It was a disturbing example of “bait and switch”. And Americans fell for it. Of course, more than half of the country knew Bush was no environmentalist but no one anticipated that in the four years of his first term he would break environmental regulations that had been in force for 100 years originating first with Teddy Roosevelt.

According to Bush’s own pollster, Frank Lutz, the American people did not want Bush’s anti-environmental changes. So Lutz proposed to the administration that they change the wording when referring to environmental issues. For example, the “Healthy Forests Initiative” gave the forests back to the logging companies for “protection against wildfires”. Another example was “Clear Skies”, which allowed mercury and sulphur pollution at dangerous levels

Let’s look now at Bush and global warming. There is no way possible to ignore global warming. The final 10 years of the last century was the warmest in history. In Montana’s Glacial National Park there are only 35 glaciers left of the original 150. Arctic temperatures were the warmest in 400 years since 1990. Alaska is 5 degrees warmer than 30 years ago. In the last 40 years sea ice at the North Pole has decreased by 40%. And in the Antarctica temperatures have risen by 4 ½ degrees in the last 50 years. So Bush’s pollster advised him to stop referring to “global warming” but rather to use the term “climate change” because it has less emotion attached to its use. Also Bush has repeatedly stated that there is no scientific certainty supporting “global warming”. Lutz advised him to continue to emphasize that point publicly as a primary issue. Of course it isn’t true that there is no scientific basis for global warming. Scientists are convinced that green house gases, i.e. carbon dioxide, methane and water vapor in the atmosphere do raise the temperature of the planet. And CO2 emissions from power plants in America alone contribute 10% of the global emissions.

Bush doesn’t use the term global warming very often anymore and he has attacked the Kyoto Protocols which every nation in the world has signed except the U.S. and Russia. Kyoto required the signers to reduce greenhouse gases to 5% below 1990. As for Russia, off the north coast of Siberia, average temperatures have risen 5 degrees Celsius since 1970. This has caused the Arctic ice to shrink by 3%. There is now a channel of ice free water along the coast. Melting ice inland is exposing rock and dirt. Since the dirt is darker than ice, it absorbs more heat and raises temperatures more quickly. This in turn melts more ice and bares more soil, and the temperature rises more quickly. Therefore Siberia is warming much faster than other areas of the world. Not everyone is unhappy about this situation, particularly Mr. Putin. Warmer temperatures in Siberia is a definite plus for Russia. And it explains why he refused to sign the Kyoto agreement. Putin likes it hot.

Obviously not everyone is shocked by the frightening climate changes. Despite drought, famine, flooding and unsuccessful farming caused already by global warming, there are those in the north such as Russia that see the changes as an advantage. In Siberia there would be “longer growing seasons” and “milder winters” that would improve timber growth and farming. Particularly potato crops would increase by one third. An ice free northern sea route would make it possible for oil tankers to travel from Europe to Japan faster than through the Suez Canal.

Oil companies in Russia would benefit from warmer temperatures making it possible to drill more easily offshore in the Russian Arctic. There are billions of barrels of oil and trillions of cubic feet of gas buried offshore. This could be reached at lower cost and at greater efficiency if there were thinner ice and less icebergs. Arctic oil will be of tremendous help to the Russian economy suffering from a serious lack of liquidity. Russia depends on its oil for a third of its revenue. As oil depletes in other areas Arctic oil will have to replace that depletion.

Unfortunately Russia produces 17% of all carbon emissions mainly because its factories are so obsolete making Russia number three in the export of carbon, the U.S. and China being first and second. The Russian economy still has not recovered from the economic catastrophe of the 1990’s when the government nearly collapsed. Therefore, saving the climate is not on the agenda when their economy cannot support its pensioners, veterans and soldiers. To reduce fossil fuel emissions would require hundreds of billions of rubles to replace their polluting industries and cut the use of energy. The negative impact on their GNP would be cataclysmic. In the U.S. the problem is similar in that any change in the use of energy could cost the U.S. “one percentage point of its GNP every year for the next century”. The Bush administration is, therefore, not enthusiastic about making that kind of change despite the fact that to burn a gallon of gas produces 5 pounds of carbon. By driving a car most Americans produce in a year a ton of carbon.

Up until 500 years ago green plants extracted from the atmosphere so much carbon dioxide that the level was very small, i.e. 270 parts per million (ppp). This kept the temperatures very low and thus lowered the “green house effect”. As we all learned in our high school biology class that plants capture and store carbon dioxide and then through a process called photosynthesis convert it into oxygen and carbohydrates. At that time the “carbon cycle” was roughly equal. The CO2 released by nature was absorbed by forests. In fact, it stayed a little ahead, i.e. nature released 210 billion tons of carbon dioxide and the forests and jungles took in 213 billion tons. Thus there was a “safety margin” of 3 billion tons. By the year 1500 ,however, things began to change. Because of the decrease in forests the plants ability to absorb CO2 decreased. Then with onset of the Industrial Revolution the burning of fossil fuels increased enormously. Over time CO2 emissions increased to 6.3 billion tons per year, twice what the planet can absorb to the point that carbon in the atmosphere has increased to 370 ppm today. And this, according to climate scientists, will continue to increase no matter what we do because “reabsorption can take centuries”. Scientists have maintained that the line should be held at 550 ppm. But it may not be possible to stay at that level since the carbon level is rising so fast. Above this level warming is extremely hazardous. Shorelines disappear, multiple hurricanes occur, as do floods, droughts and forest fires. Staying below 450 ppm would certainly help in that the destruction would be less. However, for that to occur would be unrealistic. Just to keep the line at 550 ppm would require the U.S. alone to reduce carbon emissions by 70% by the end of the century. And that’s with a much larger population and a bigger economy. As long as we continue to rely on fossil fuels environmentalists agree that it is impossible. At the moment it appears that we will hit the 550 ppm by 2050. We have four decades to reduce the use of fossil fuels.

Let’s now travel from Russia across the Bering Sea to Alaska. The Arctic National Wildlife Refuge has been an environmental issue for 2 decades. It is the home of huge herds of caribou, musk oxen, grizzlies and polar bears. But it also contains insignificant oil deposits that have become a political football. Since the world produces 75 million barrels of oil per day and the U.S. uses 20 million per day, the Arctic Refuge would give us possibly one million per day. Hardly a significant factor toward “energy independence”. And , of course , that amount would be used up fairly quickly. The Bush administration and the former Alaska Senator, Frank Murkowski, now Governor of Alaska, pressured Congress to pass an act that would allow drilling. The administration supported drilling because it could be a wedge toward allowing drilling in other restricted areas. In short, it would set a precedent. Murkowski as we shall see had other motives. However, a very important reason Congress has not passed any act to allow drilling is the cost. Domestic oil production whether in Alaska or off-shore costs between $5 and $7.50 per barrel, while in Saudi Arabia it costs $1.50. So the refusal to drill on domestic land has nothing to do with our dependence on foreign oil.

So who has been paying the lobbyists pressuring for Arctic oil? None other than the state of Alaska itself. The oil companies did not care. They were really more interested in the Caspian Sea deposits. It turns out that Alaska is the “last great Welfare State”. Alaska retains ½ of the royalties from the sale of oil produced on public lands. A percentage of this is distributed to each resident every year. In 2003 it amounted to $1107. This is in addition to no payment of state income tax or sales tax. No one wants to give up this largess. However, the Republicans do not have the votes in congress to despoil the refuge. At the moment it appears to be a dead issue.

References:
Pope, Carl. Strategic Ignorance. Sierra Club Books. 2004.
The New York Review. 6/10/04. Bill McKibben. The Real Climate Crisis.
Roberts, Paul. The End Of Oil. Mariner Books. 2005.

Beetles and Bacteria Revisited

Not too long ago a respected biologist posed an interesting question: Is it better to be smart or stupid? For example, beetles and bacteria are much more successful as survivors than humans. Since the average life expectancy of a species is only 100,000 years, humans may be coming to the end of their time on earth. As we have evolved we have become extremely proficient at destroying ourselves both through our attacks on the environment and our cruel attacks on each other.

The Bush administration appears to be ignoring the serious environmental problems world-wide. But one governmental agency is taking the problem seriously. And who might it be? Believe it or not, the Pentagon. In direct refutation to the right-wingers in this administration, the Pentagon has issued a report declaring that climate changes, i.e. global warming, is a serious security threat to the U.S. It is most urgent, the Pentagon declares, and it requires immediate attention. Climate change can occur much sooner than originally thought and very quickly. For example, it could occur over a period as short as 3-5 years causing droughts and starvation. Incredibly it could cause another Ice Age. Europe could freeze over, our mid-west could become another dust-bowl and Southern California would be without water. Even the World Bank is debating a possible recommendation to stop financing oil and coal development both emissions of which can cause climate change. Investors in the fossil-fuel and auto industries aren’t going to like these conclusions but can they continue to ignore them? A special review commission involving third world governments and “indigenous people” has recommended that the World Bank stop all coal loans now and all oil loans by 2008. It also suggested that the bank increase renewal energy (wind and solar) loans by 20% per year. As it stands now the World Bank is lending 94% of its funds for fossil-fuel and only 6% for renewables. So far the bank has refused to change because fossil energy is the cheapest energy to pull third world countries out of poverty. But what good is it if the world is headed for weather changes that will cause chaos and starvation?

Individuals in the Bush administration and their conservative think tank cohorts, viz. the American Enterprise Institute and the Heritage Foundation, who may still believe the earth is flat and that evolution is not a fact but only a theory, are re-writing science. They are blacklisting scientists whose work threatens the profits of mega-corporations and who are major supporters of the Bush administration. In addition any scientist or engineer who disputes the anti environmental beliefs of the neo-conservatives is immediately suspect and viciously attacked. So extreme has this been that, according to Robert Kennedy , Jr., who works as an environmental lawyer, approximately 60 scientists, many who are Nobel Laureates have accused the Bush gang of distorting scientific facts “for partisan political ends.”

Let’s take, for example, the air quality in downtown New York City after the 9/11 tragedy. The EPA released nine press releases between September and December stating that the air was safe to breathe. We have since learned the EPA’s data was being doctored by the White House in order to re-open Wall St. as quickly as possible. So once again our government was lying to the public. Also shortly after 9/11 the E PA maintained that the asbestos level was very low in that area and perfectly safe to breathe. An independent study done by UC Davis at the time indicated that the levels of asbestos particulates were the highest ever seen world-wide. Another study showed that 78% of rescue workers had lung ailments and 88% had ear, nose and throat problems for months, sometimes a year, following the disaster.

Another extremely dangerous problem that the Bush administration is ignoring is global warming. The Bushites have consistently altered the facts regarding the serious case of global warming. Since the beginning of this administration there have been at least a dozen government studies on global warming that the White House has suppressed or discredited as a favor to the mega-corporations whose industrial emissions are a major contributing factor to the problem of global warming. The National Research Council, the National Academy of Sciences and NASA have all presented studies on the effect of fossil fuel emissions on global warming to the administration and are ignored.

Halliburton, VP Cheney’s former company, has given millions to the Republican Party to protect itself from interference by government in a process that the company employs to extract oil and gas. Benzene is injected into the ground to aid in the process. The EPA discovered that the process could contaminate drinking water beyond the usual acceptable drinking water standards. Shortly after this was reported to a Congressional Committee, the EPA backed off saying that the benzene did not exceed government standards. EPA finally admitted that industry pressure had forced them to change their position.

The coal industry introduces large amounts of mercury into the environment. The EPA delayed for nine months a report on the tragic effect of mercury on the health of children. One in 12 women are carrying mercury in their blood stream to cause neurological damage and a lower IQ in their unborn children.

Or let’s take the case of Atrazine, a commonly used weed killer in America. Back in 1980 it was identified as a carcinogen that could cause prostate cancer. Tests by government scientists found large concentrations of Atrazine in the drinking water across middle America, primarily in the corn belt. UC Berkeley found that this chemical at “one thirtieth the government’s ‘safe’ 3 parts per billion” causes major deformities in frogs. Recently the University of Missouri found that male semen counts in farm communities were 50% below normal. What did the Bush administration do about this? It did not ban the chemical as was done in Europe but rather turned control and monitoring over to the manufacturer. With a perfectly straight face the spokesman for the manufacturer said, “This is one way we can ensure it’s not presenting any risk to the environment.”

Before going any further with the anti-environmental agenda of the Republican administration, let’s take another look at the Pentagon report on global warming and the resulting green house effect. The climate changes that are sure to occur if the use of fossil fuel continues would cause the Arctic ice to melt and since it is “less dense” than salt water would then flow into the Atlantic. This in a very short period would shut down the warm Gulf Stream. As a result, Western Europe and Eastern North America would become very much colder and Europe’s climate would become similar to Siberia. Now the reason the Pentagon is so concerned is the effect it would have on agricultural harvests. Thus, widespread starvation becomes a reality. Wars would then change in character and become struggles over natural resources rather than over ideology. Any changes in the causes of war would affect the way in which wars are fought. And that, of course, interests the Pentagon. Therefore, we need to look at some of the problems caused by the use of fossil fuels and what, if any, are the solutions?

So let’s start with the preeminent but problematic fossil fuel of our day—oil. Whenever I drive my compact car into the parking lot of the local supermarket, I invariably windup between a huge sport utility vehicle (SUV) on one side and an oversized pickup truck with huge tires and an exposed chassis on the other. I feel as though I have been dropped into the maintenance bay of a Greyhound Bus terminal. My visibility is totally obstructed and backing out requires a great deal of courage. The other day I was on foot and a “Grandma Moses” type approached me, believe it or not, in a Hummer and impatiently waved me out of the way so she could park this tank in a “Disabled Parking” space. Now these vehicles were originally designed for off the road use for people who need to use truck for that purpose. But studies indicate that only 1 in 20 owners take the vehicle off the road and only 1 in 10 carry anything in the back of the pickup. So these people are using the “gas guzzlers” (as low as 5 miles to the gallon and as high as 18 or any number in between) to carry a couple bags of groceries or to take the kids to the soccer field or a Little League baseball game. If they think they will be any safer in these tanks, safety studies show that the SUV in a crash is more likely to kill the occupants of the other car and it is also a danger to its occupants because it tends to roll over. Incidentally, the new Volkswagon bug introduced a few years ago actually has proved in tests that it is the safest car on the road and gets the best mileage.

So what is the American public seeking when it buys these huge vehicles. It appears to be a combination of conspicuous consumption, the desire of urbanites to appear macho and tough and for some just plain stupidity. The average fuel economy of all vehicles has dropped to less than 21 mpg, the lowest level since 1988, the peak year for fuel efficiency. The increased use of these vehicles has caused oil consumption to grow in the US from “17 million barrels per day in 1990 to 20 million today”. This could rise to 32 million in the year 2020.

The use of oil in the world by 2035 will leap to almost twice what it is today. Today we use 80 million barrels per day and that will increase to over 140 million barrels. Natural gas usage will increase over 120 % and coal by 60%. In countries like China and India, which are in the process of emerging industrially, consumption will grow exponentially. In a recent auto show in China it was reported that the crowds were elbow to elbow. No one had ever seen such a turn out. China is fast becoming “the hottest car market in the world.” The Chinese purchase of autos alone will raise the use of oil by 2 million barrels per day.

So are we going to run out of oil? And how soon? Let’s check out the Saudi oil fields where ¼ of the world’s oil is produced. Unquestionably modern civilization owes its development to the fossil fuel industry, i.e. oil, gas and coal. But what most people who live this comfortable life and take the energy for granted don’t realize is that the most popular energy, oil, has its limits. Some of the biggest oil deposits in the world, e.g. Saudi Arabia and the Baku deposits of the former Soviet Empire have already peaked. Once that happens production slows and eventually produces nothing. It’s at that point that a new oil deposit must be found. When the ground is broken and the new deposit is released the natural pressure is so intense that the oil shoots out similar to a geyser. But then after decades of use the pressure subsides so that in order to get the oil out of the ground water is injected to force the oil out. The oldest and largest oil field in Saudi Arabia first dug in 1953 originally produced 6 million barrels per day. Today that well requires water injection that produces oil with a “water cut” of 30%. A new well will produce almost pure oil with natural gas and only a trace of water. Eventually the well that requires water injection and produces as much as 30% water will in time produce nothing but pure water and the well has to be abandoned.

The world today requires more and more energy and there appears to be no end to our requirements. So oil production world wide is peaking. Take, for example, the oil wells on the Caspian Sea. 20 years ago the oil wells 2 miles into the Sea were gushing seemingly endlessly until they peaked and then depleted. Now there is nothing but rusted pipe lines and empty buildings. However, new wells were sunk but production is nowhere near the peak production of 1986. Given a few more years and all oil from that region will be gone permanently. There will be nothing left of the old Soviet Oil Empire. The same problem exists in Texas, Pennsylvania and Borneo. Self pressurized oil wells producing millions of barrels per day gradually deplete and new wells are dug elsewhere to replace the oil already used.

The problem is that it is getting harder to find oil deposits world-wide that are easy to produce. The oil that exists in the ground is in most cases today located in very difficult environments, i.e. under Arctic ice, Siberia and unstable African countries. As demand continues to rise, the cost of production also rises and so does the price of gasoline.

So what does “peaking” mean? It means that when half the oil in the ground has been pumped, we have peaked. Once half the oil is gone world-wide we cannot produce the same number of barrels required per day and we are faced with falling production. If we continue to use increased amounts of oil at the rate of 2% a year, we will reach our peak in 2030 if the estimates of oil in the ground are accurate. However, the numbers are suspect. The oil companies tend to conceal impending peaks in their current wells. And they do this for political or economic advantage. Therefore, most of the time their estimates for reserves are bogus. In reality, since 1995, the world has used much more oil than it has found in new deposits. (24 billion barrels annually vs. 9.6 billion barrels per year.) One study indicates that the energy industry is finding less than 40% of the new oil needed to support the known reserves. Thus depletion continues because there is less and less oil to be found despite improved technology. Oil producers continue to pump more oil than they can replace. And most of the world’s oil is still in the Middle East controlled by OPEC, a not very friendly cartel that controls production and prices.


References:

The Nation. 3/1/04. Mark Hertsgaard. A New Ice Age.
The Nation. 3/8/03. Robert Kennedy, Jr. Bush’s Jungle Science.
The New York Review. 6/10/04. Bill McKibben. The Real Climate Crisis.
Roberts, Paul. The End of Oil. Mariner Books. 2005.

Corporate Conspiracy

Four years later it is still difficult for many people to understand how huge companies like Enron and WorldCom with billions of dollars in revenue and stock prices close to the ceiling could in a matter of weeks declare bankruptcy. And the people who should have been able to predict the fall, i.e. the investment bankers, the rating agencies, the analysts and the most prestigious accounting firm in the country did not appear to have a clue. Most shareholders upon receiving the beautiful annual report assume that the company is in fine financial shape since one of the largest and most respected accounting firms in the country has signed off on the report. Now accountants are just people including the lead partners who actually supervise the audits. But they are as corruptible as anyone because in order for fraud to occur, as one financial observer commented, there has to be “complicity”.

So now the question arises, how can a “company manipulate its earnings?” For example, during the annual audit one of the young outside accountants assigned to the company discovers that the company’s internal accountants have been “booking something incorrectly”. It doesn’t “conform to generally accepted accounting procedures”. It may not appear on the surface to be a major problem but it is significant enough to put downward pressure on the earnings per share if it is corrected. The company, therefore, will not look as good to the Wall St. community and the share price will drop. This inevitably happens when the street analysts publicly downgrade the stock. The smallest decrease in earnings per share (EPS) can cause a rush to sell and the stock price drops like a stone.

Now the Chief Financial Officer (CFO) and the Chief Executive Officer (CEO) are concerned for another important reason. They own millions of dollars in options and since the stock price has been going straight up, these options are worth millions more. But if the EPS drops, the options will drop also and could possibly end up worthless. The executives have probably made financial commitments based on the future value of the options and now they are faced with losing it all and having to deal with the financial embarrassment that follows. When the lead partner of the accounting firm informs the CFO of the problem, the CFO is in shock. He had been relying on his internal accountants who in turn were relying on the outside accounting firm who told them that what they were doing was O.K. The lead partner is now saying they were wrong. Oh, my! It is at this point that the CFO involves the lead partner by telling him that the Board of Directors had been considering switching accounting firms and that the CFO had talked them out of it. The CFO had told the Board that he and the lead partner had a very good working relationship and didn’t advise changing. Now the lead partner was on the spot. A client of this size represented millions of dollars in fees and to lose it would mean personal financial loss for him. Furthermore, any reduction in the EPS could mean the loss of the CFO’s job. In that case the lead partner would lose his support and the client would go to another accounting firm to say nothing of the possibility of the lead partner being degraded. So he tells the CFO that he won’t press the issue this time but let’s not do it again.

So what happens the following year? Is it fixed? Of course, not. A young accountant points out the “inconsistency” once again but this time the lead partner tells him to keep his mouth shut. The lead partner is now inextricably involved in the company fraud. And the EPS would drop even more if the books are corrected. Now the young accountant is caught in the trap because he has financial commitments also that he cannot jeopardize. Nothing more is said about the discrepancy. The books are bogus and the shareholders are fleeced. The executives, on the other hand, are making a pile. It is outright fraud. When the annual report is published once again the following year no one says a word and the stock continues to rise. Everybody involved gets a bonus.

Now specifically how does the company continue to support the rising EPS figure? The simple answer is to “book fraudulent revenues.” You claim you made more sales than you really did. How does the company get away with this? Well, large corporations normally book income when they ship the product not when they get the cash. Many corporations wait 90 days or more for their cash. So any fraudulent sales reported goes immediately into the income statement, the net income increases and therefore the EPS increases. Then a bogus receivable is recorded on the balance sheet. But payment is never received because the sale was never made. It is difficult for any outsider to determine that some receivables are bad since the bad are included with the good. The ordinary investor looking at the financial statements at the end of the year could not possibly detect the fraud. And bogus receivables will be on the balance sheet every year in increased amounts because in some years business is bad, but the EPS has to go up. The catch is that eventually all the receivables are bad and there is no cash. Somebody knowledgeable eventually snoops around and discovers the fraud, discloses it publicly and the banks begin demanding payment on their loans. Even worse they refuse to make any further loans to carry the company over. The house of cards collapses. Enron, for example, was selling 30 year energy contracts and booking the total sale on day one. The income came in slower than the expense outgo. In addition huge Enron revenues were being drawn down to support “lousy” business deals organized into limited partnerships with the CFO, Andrew Fastow, acting as general partner. This in itself was a conflict of interest ignored by Fastow. However, he also was collecting huge management fees as the general partner and Enron was footing the bill. Enron was being milked by Fastow and this contributed to the astronomic Enron debt. Much of this money was going to members of his family and friends. Actually it was Fastow’s responsibility to keep an accounting of the debt and when asked at one point what the extent of the indebtedness was, he was unable to say. He did not know.

Another serious problem that disturbed some of the smarter people in Enron was the fact that Enron itself was often borrowing billions of dollars for short periods of time, i.e. weekly or monthly and then using the cash for long term projects. These had to be repaid long before the project produced any revenue. This could cause a liquidity crisis if a loss occurred at which time the banks might refuse any further short term loans. Enron could not stay in business without these loans. This eventually, of course, happened. It is interesting to note that the savings and loan industry toppled in the 1980’s for the very reason that it was using short term loans for long term investments. It was considered a “classic financial blunder.” And so with Enron.

Enron was able to function in the way that it did because the stock market “bubble” that produced high stock prices made it possible to use “aggressive accounting” (fraud) to push the stock prices even higher. This is done by inventing “phantom profits” which make the company grow even more and the bottom line to look even more outrageously profitable. Enron, WorldCom , Adelphia and Tyco to name just a few were in reality gigantic Ponzi pyramid schemes. They used slightly different accounting methods but in essence they were using money from new investors to pay off old investors. This was the way Fastow operated his limited partnerships. As the price of the stock rises, more investors are attracted and the capital gains to the initial investors increases hugely. Thus more investors are attracted and so on. Until eventually the seemingly successful business implodes because you’ve “run out of suckers” and cash. Enron, for example, invited their banks to invest in “the shell companies they used to hide debt and siphon off money.”

The Enron scandal did not emerge suddenly for it was building for a decade. Enron started out as a natural gas pipeline company but when deregulation came on the scene much through the efforts of Ken Lay, the CEO of Enron and a personal friend and supporter of the Bush family, the company became one that “dealt in contracts.” It became more like a Wall St. investment house and was the market maker for the deregulated natural gas industry. From there it began making markets in electricity and selling long term contracts. This, of course, lead to the California catastrophe caused by energy company market manipulation to drive prices up. One dirty trick was to pull energy companies offline to create shortages and prices went through the ceiling. Much to the anger and consternation of Californians. There are actually Enron memos that show that Enron was without question “rigging the markets” to harm the state of California. In addition there was a division in Enron that produced fraudulent profits in order to puff up its stock price. And it also devised bogus energy transactions to again puff up Enron’s profits “at the expense of the state of California”.

So what we have here was a method of operation that completely ignored ethical standards. It was an environment of callous greed and criminal behavior but also startling incompetence and shocking arrogance. The executives were inadequate and blinded by avarice. The bankers, accountants and lawyers were more interested in their huge fees than investigating the company’s questionable policies. Brokers and investors did not have a clue as to what was going on and were interested only in making huge profits. The CFO and his cronies supported by the CEO and the Board of Directors indulged in bad business practices and spent much of Enron’s huge revenues supporting them.

The end result to those involved was devastating. Arthur Anderson, the prestigious accounting firm that was signing off on fraud, went up in smoke. Thousands of innocent employees who had nothing to do with Enron lost their jobs. Andrew Fastow, the Machevellian mind behind much of the bogus business deals, has pleaded guilty to all counts and will serve 10 years in prison. His wife has already completed a year sentence. Still to be tried and sentenced are Ken Lay, the founder and CEO and Jeffrey Skilling, the replacement CEO when Lay moved on. Incidentally, shortly after Skilling appeared on the cover of BusinessWeek as the new brilliant CEO, he resigned ostensibly for “personal reasons”. Some time later he admitted that he left because the company stock had dropped 50% but denied that anything was amiss in the company. Not too long after, the company declared bankruptcy.


References:


Eichenwald, Kurt. Conspiracy of Fools. Random House. 2005.
Frey, Stephen. Shadow Account. Ballantine Books. 2004.
Krugman, Paul. The Great Unraveling. Norton. 2003.