Vampire Pensions

As if we didn't have enough to worry about, the FT's Charles Millard warns us about "vampire pensions":

http://www.ft.com/cms/s/0/5d8b4d42-2ac8-11de-8415-00144feabdc0.html

While economists worry about “zombie” banks holding back lending, vampire pension plans may soon be stalking a company near you. The underfunding of America’s corporate defined benefit pensions poses a daunting challenge, threatening not only their 40m beneficiaries but the entire US economy.

Oh, the many unfunded obligations.

Cash is King

Just keeping my readers posted. I sold most of my stocks and mutual funds today. Tomorrow, April 23, 2009, the government will release two sets of important numbers: one, unemployment claims; and two, Existing Home Sales. It is possible these numbers will be quite good. I doubt it.

On April 1, 2009, I told my readers that government action would make the market rise. As I predicted, it did. The S&P 500 rose from 811.08 to 843.55, a gain of 4% in just three weeks.

I still believe the S&P 500 will, sometime this year, hit my original target of between 920 and 950; however, I don't see much point in being in this market right this second. My personal risk analysis can't countenance holding mostly equities for a potential 10% gain over the next six months. I believe I will have another opportunity to jump back into the market.

If the numbers released tomorrow are good, the market will continue to rise, and I will have missed out on potentially major gains. That is a risk I am willing to take. Staying mostly in equities right now, without knowing the home sales numbers, seems too dangerous.

My short-term trading strategy has limited my losses. My retirement funds have declined approximately 14% from December 7, 2007 to April 22, 2009. (I don't know the exact percentage. Throughout the year, I deposit additional monies in my retirement accounts, which distorts the ultimate percentage even after accounting for the new deposits.) The S&P 500 has declined around 44% during this same time period. Perhaps buy-and-hold investors will laugh last, but for active traders, cash seems like a safer place to be right now than equities.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Ayn Rand's The Fountainhead

I recently watched Ayn Rand's film, The Fountainhead. Overall, the film was excellent. To get a view of Ms. Rand's philosophy, you can read Howard Roark's closing argument to the jury here.

I liked the film, but disliked Ms. Rand's character, Dominique Francon. Ms. Francon seems sexually and emotionally repressed, mostly because her existence seems geared towards achieving an absence of emotional attachment or passion. For example, she destroys a statute she enjoys, and she marries a man she does not love. Gary Cooper, on the other hand, does a fantastic job playing Rand's ideal man, Howard Roark. Part of this may be individualism's bias towards men. Men, more so than women, do well under an individualist philosophy. After all, most women, because of biology, have to think of children. Unsurprisingly, Rand never had children:

It was a responsibility that she was not interested in assuming. When she was writing Atlas [Shrugged], she would sometimes say that she was "with book." The only children she wanted were her books.

And therein we see the problem with too much individualism. Child-rearing is fundamentally a self-less act. It is true that many parents wish to live second lives through their children or have them for other selfish reasons, but at least for the first six years, there is a tremendous amount of sacrifice inherent in being a parent. Thus, when you factor child-bearing and child-rearing, Rand's philosophy doesn't translate well to a growing population or to one where mothers are given additional support.

Yet, it is true that most inventions and advancements have come from a few people. Without Galileo, Marie Curie, Einstein, and other famous scientists, it is unclear how advanced humankind would be at this point. Due to its rigor, science--like writing and other productive enterprises--requires a level of introversion that overwhelms a desire subjugate one's selfish enterprise to others' desires. We can look to the term, "mad scientist," to understand that scientists are generally misunderstood, because most people prefer to spend time with people, not abstract concepts. Indeed, almost every film about scientists depicts them as crazy or eccentric. So Ayn's basic point is true--scientists need to shut out the world and be intellectually independent to achieve results. Societies that protect the scientist and/or the independent intellectual's work create better opportunities for overall advancement (for example, attitudes towards stem cell research may be used as a test study of a society's willingness to allow scientific progress). It is unclear, however, whether selfishness and intellectual independence and progress are necessarily intertwined.

Regardless of the answer to whether selfishness is the sine qua non of progress, there is a balance that must be achieved, and Rand does not seem to know how to achieve it. In fact, there is no greater argument against pure individualism than Dominique Francon, who is made up to look like Rand herself in the film. To see Francon's internal writhing on her own forced island, torn between complete independence and submission to her desires, is to understand that Rand's philosophy is a recipe for unhappiness.

It is possible to have a society that protects mothers, that views child-rearing and child-bearing as honorable acts, and one that also respects the intellectual solitude/selfishness of the scientist or entrepreneur. It is also possible to argue that altruism has an important place in society and is not superfluous. Intelligent libertarians, for example, do not argue that no laws are necessary to protect selfish or independent behavior--just that the least number of laws necessary to achieve stability is desirable. In other words, society needs to establish a balance between selfishness and societal obligation by the least coercive mechanisms possible.

Rand's philosophy of pure selfishness doesn't do much for balancing generally desirable traits, such as altruism, with other desirable goals, such as freedom. As a result, Rand makes it difficult for reasonable people to support her absolutist views.

TurboTax Blog

TurboTax has a blog:

http://turbotaxblog.typepad.com/turbotax_blog/

Definitely worth a look-see.

On Pakistan: Guest Writer Javed Ellahie

While the American media focus on Iran and sometimes on North Korea, Pakistan is looking more and more like the next danger zone. The Pakistani government recently appeased the Taliban by allowing them to enforce "Islamic" law in various parts of the country. Realizing the danger of allowing the Taliban to take over an entire state, various countries pledged billions of dollars to Pakistan to bolster faith in the state's existing government. Will it work? My guest writer, Javed Ellahie, a local Pakistani-American attorney, does not believe so.

I asked Mr. Ellahie for his input on the situation after watching a chilling Frontline episode, "Children of the Taliban," which can be found here. Mr. Ellahie's response to me was not something I've seen in the mainstream media, so I asked his permission to share it. He agreed. His response is below.

U.S. Aid to Pakistan - Billions of Dollars in Paper Cannot Undo Billions of Dollars in Bombs

Pakistan is going through a very trying time. It is a country that lives in a part of the world where China, Russia and India were the neighborhood bullies. With the rise of Al Qaeda and the tit-for-tat response of “take no prisoners” by the U.S., the whole neighborhood has gone bully-whack.

Pakistan’s frontier province has always been a no-man’s land. Pakistan’s control consisted on having the tribal chiefs on her side. This could continue as long as Pakistan was the toughest kid on the block. Now, the tribal chiefs have taken on the Americans and no longer need to bow to Pakistan or anyone else. They believe that they control their own destiny and Pakistan is nothing but a pet of the U.S.

While the U.S. has announced billions in aid, it will go to waste. U.S. Aid is channeled through consultants and corrupt politicians. By the time it gets to the target, it is worth no more than a piece of shrapnel that started as a million dollar cruise missile and now lies in between the blown out limbs of the unsuspecting as they slept in their two dollar mud house.

Pakistan's civil movement holds promise, but it must not be directed at fighting a battle which, by its continuation, will destroy the country. Its energy must be channeled into efforts towards building a civil and just society in Pakistan. The best the U.S. can do is not to send billions into Pakistan but to leave and let Pakistanis and the frontier men run their own lives.

The U.S. and Pakistan's bombing of the tribal areas destroys the village where these fearless frontier men have dwelled for hundreds of years. Having lost their homes, these proud, angry mountain men, whose pride demands that every death be avenged, are descending to the valleys and cities of Pakistan and exacting revenge. How can you convince them that it is wrong to brazenly kill innocent civilians when they themselves have witnessed the wholesale deaths of their innocent family members by unseen (cowardly) drones?

The people of Afghanistan did not consider the U.S. its enemy--Al Qaeda did. By attacking an entire swath of Afghanistan, the U.S. now has made an entire population its enemy and turned ordinary Afghans (and now frontier Pakistanis) into Taliban.

by Javed Ellahie, Esq.

One may call my colleague a cynic. Yet, his plea for the world to let Pakistan alone must appeal to anyone who believes in a nation's right to control its own destiny. In addition, outside interference may encourage more support for the Taliban. It is hard to see how anyone can join such a backwards, violent group. I only understood it after watching the Frontline episode I mentioned above, "Children of the Taliban." I strongly encourage my readers to watch the episode, which can be found on PBS's website.

The Banality of Evil: It Could Happen in America

I recently had lunch in a restaurant and started chatting with three women near my table. I ordered too much food and offered them some of mine, and they invited me to sit with them. After they found out I was a lawyer, they asked me some questions about a fire in their apartment, and I tried to help them out. (They did not have renters' insurance.) At some point, the conversation moved into religion after they asked about my ethnicity.

I know lots of Mormons, lots of Catholics, and lots of people of other faiths who take their religion seriously. I may not agree with everything my friends say, but I respect their beliefs. I am very thankful to live in a country where reasonable people can agree to disagree, and where I can ignore ignorant bombasts. I've never had substantive discussions with fundamentalist Christians before, and after some time, it became apparent all three women were very conservative and very religious Republicans.

These women looked like your average Californians. One was 22 years old, half-white, half-Mexican, and had some streaks of red dyed into her hair. The other was a 26 years old light-skinned African-American. Her father was a pastor. The last woman was a 30 years old Jamaican-American married to a Laotian with a 8 years old daughter. As far as Americans go, this was a pretty diverse group of people.

We talked about George W. Bush, and all three of them liked him. They said you could not blame all of America's problems on one man. I agreed, saying that it was the entire Bush administration that created major problems, including unnecessarily invading Iraq. (I should have mentioned the compliant Democrats, too.) They said they supported President Obama, and even though they did not vote for him, he was now their president and they would try to support him, too. I thought their attitude was very honorable.

On Iraq, I said it was tragic that 100,000 innocent civilians and 3000+ Americans had died. The women responded that Iraq was not a mistake. I confirmed that they understood Iraq had nothing to do with 9/11. Trying to come to a middle ground, I said that perhaps at the time of the invasion, some evidence justified going into the country, but now, it's clear Iraq was never a threat to us. Assuming the only justified war is a defensive war based on defending your people and your country, the Iraq war was unjustified. I asked them again if they agreed invading Iraq was a mistake, based on current information. They still said Iraq was not a mistake.

I then said the war created more enemies. When an errant missile blows up your village, are you going to be pro-American or anti-American? In response to this, one of the women told me, "Why are you hating America? You're here now." I was stunned. I knew some people equated patriotism with total acceptance of everything about one's country, good or bad, but I didn't realize how ingrained this blind allegiance could be. I also didn't realize how many Americans felt that any dissent was somehow unAmerican. It is useful to remind ourselves that America's founding document, the Declaration of Independence, was an act of dissent against America's occupiers, the British.

Thomas Jefferson, for example, said the following:

What country can preserve its liberties if its rulers are not warned from time to time that their people preserve the spirit of resistance?

Most codes extend their definitions of treason to acts not really against one’s country. They do not distinguish between acts against the government, and acts against the oppressions of the government. The latter are virtues, yet have furnished more victims to the executioner than the former, because real treasons are rare; oppressions frequent. The unsuccessful strugglers against tyranny have been the chief martyrs of treason laws in all countries.

John Adams, if alive today, might have said the following about President G.W. Bush:

There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.

Alexander Hamilton, on fighting against one's own government (Hamilton is arguing for federalism, but he implicitly accepts the notion that Americans can use self-defense against their own government when it betrays them):

If the representatives of the people betray their constituents, there is then no recourse left but in the exertion of that original right of self-defense which is paramount to all positive forms of government, and which against the usurpations of the national rulers may be exerted with infinitely better prospect of success than against those of the rulers of an individual State. In a single State, if the persons entrusted with supreme power become usurpers, the different parcels, subdivisions, or districts of which it consists, having no distinct government in each, can take no regular measures for defense. The citizens must rush tumultuously to arms, without concert, without system, without resource; except in their courage and despair.

In short, dissent is American--blind patriotism is not.

On invading Iraq, the women said that we went there to help them. "They [Iraqis] asked for our help." Again, I was stunned. I thought we invaded Iraq to protect Americans from being attacked on American soil and to force the terrorists to fight "over there." In other words, assuming a finite number of terrorists, if we concentrated the war against them in the Middle East, they would have to expend resources fighting there and would be diverted from spending time plotting against Americans on American soil. No one said anything in response. I had in front of me three normally functioning people who believed that causing the deaths of 100,000+ civilians was our way of helping the Iraqis, and also, that they had asked for it.

The only time I got their attention was when I mentioned the 3000+ Americans who died. I told them why they would want to put Americans' lives at risk when it was clear now Iraq was never a threat to Americans. 100,000+ human beings didn't seem human to them because they lived in a different place, spoke a different language, and believed in a different religion--but mentioning 3000+ Americans made the death toll seem more real to them.

I tried a different approach: I asked them if they had to do it all over again, knowing what they know now, would they still have invaded Iraq? I was essentially asking them whether they'd save the lives of 3000+ Americans and 100,000+ Iraqis. After all, we know now that neither Iraqis nor Saddam Hussein posed an imminent threat to America. We know now that the war cost trillions of unnecessary dollars, which has reduced our ability to fight the current recession. The women said they would go to war again if given the chance.

That's when it hit me: normal people will believe and do terrible things, as long as they don't see the direct consequences of their beliefs. Like Germans in 1941 who silently accepted their government's gassing of millions of Jews, my American Christian companions believed that their government was doing the right thing to protect them. Most Germans never saw someone getting gassed and then having their teeth pulled. Most Americans have never seen a bomb land on a village, causing a child's family to be wiped out, severed limbs falling everywhere. It's almost like death has become so routine, our brains digest images as if they were from a Hollywood film (with a happy ending, of course). Even thinking about severed children's limbs, I think of an American film, and then of a PBS documentary showing dead children. Even in my own mind, an imaginary death takes precedence over real ones. So when I mentioned a child dying to my lunch companion, she immediately had to block the image by changing the subject into whether I loved America. The real image interfered with her idea of being involved in a just war. It was her own self-defense mechanism.

Blind patriotism makes no room for mistakes--these women were convinced that our country could do no wrong. After the WMD argument was destroyed and the connection to 9/11 absent--what else could they think of to justify their support of the war, but to assign an altruistic motive to the deaths of 3000+ Americans and over 100,000 Iraqi civilians? Their limited viewpoint--the one where 100,000 people were too far away to be real, and yet real enough to ask for "help"--could not handle any unfavorable information. Their mental paradigm required them to believe that their government, as an extension of themselves, was unable to do anything wrong. I've concluded that the most dangerous people are blind patriots. Whenever you refuse to call the unnecessary deaths of 103,000+ human beings a mistake, there is evil there somewhere. And it's utterly, tragically banal.

After my conversation with these women was finished and they had left, another woman told me she had overheard our conversation. Years ago, she had been in a U.N. refugee camp on the border of Cambodia and Thailand. In the camp she was in, Thai troops would come and shoot anyone who didn't have an ID. With only three or four U.N. personnel there to supervise the camp, these executions occurred on a more than rare basis.

She said that some Americans don't get it. The U.S. military, during Nixon's time, bombed Cambodia, which led to the Khmer Rouge, the opposition political party, becoming popular and gaining power (A similar course of events happened with the Nazi Party in Germany). See "Operation Menu," Nixon's 1969-1973 bombing campaign. As we now know, Pol Pot's Khmer Rouge wiped out Cambodia, which, up to that point, had been a peaceful nation for centuries. Like the Iraqis, the U.S. government saw the people of Cambodia as nothing more than faceless pawns in a grander scheme. I am sure the American government wanted to help Cambodians, too.

Few people will kill another human being without some kind of greater ideal at work; however, it is the duty of responsible, educated people to remember the ravages of war and to demand that an actual threat exists before advocating war. Americans used to be responsible. When we found out about Nixon's bombing campaign, which killed 100,000+ Cambodians, protests broke out all over America's college campuses. College students died at Kent State. Even Congress acted, passing the Cooper-Church Amendment, which was supposed to limit Nixon's activities. (It did not. Like Bush II, Nixon did what he wanted to do, critics and other government branches be damned.)

Today, Americans have either forgotten history or are willfully ignoring it. My three companions, like the young students in the 1960's, should have been protesting the war once they realized Iraq posed little threat to the United States. Yet, even with the benefit of hindsight, they are willing to allow the deaths of 100,000+ civilians and 3000+ American soldiers. These are normal, sane Americans. They go to church, believe in God, and have families. They will not commit any crimes. They are some of the most dangerous people in America today.

We are so fortunate to live in a country with two vast oceans to protect us against invasion and with two allies as neighbors. We should not spoil our good fortune by allowing average or bloodthirsty Americans to dictate foreign policy. The reality of war--with its torn limbs, dead dreams, and dead bodies--will never fully register as long as most Americans continue to view executions on a big screen instead of next door. Our fortunate distance between death and reality should cause us to be more, not less, wary whenever our leaders argue that 100 or 100,000+ people need to die so that we can be safe.

Furthermore, it is every non-native American's duty to try to interact more with native-born Americans in a respectful manner. Most Americans have not traveled outside of North America. Therefore, the only avenue most Americans have to interact with other cultures is through non-native American residents. It is our duty to try to humanize other cultures for native-born Americans. It is our duty to reach out. It is our duty not to be banal.

Civilizations die from suicide, not by murder. -- Arnold J. Toynbee

Bonus: more here. 

John C. Goodman on Health Care

John Goodman (Imprimis, 3/09) delivers a common sense speech about America's financial obligations:

http://www.hillsdale.edu/news/imprimis/archive/issue.asp?year=2009&month=03

He starts off with a bang:

The first of the Baby Boomers started signing up for early retirement under Social Security last year. Two years from now they will start signing up for Medicare. All told, 78 million people are going to stop working, stop paying taxes, stop paying into retirement programs, and start drawing benefits. The problem is, neither Social Security nor Medicare is ready for them. The federal government has made explicit and implicit promises to millions of people, but has put no money aside in order to keep those promises. Some of you may wonder where Bernie Madoff got the idea for his Ponzi scheme. Clearly he was studying federal entitlement policy.

It gets better--well, actually it gets worse:

The Trustees of Social Security estimate a current unfunded liability in excess of $100 trillion in 2009 dollars. This means that the federal government has promised more than $100 trillion over and above any taxes or premiums it expects to receive. In other words, for Social Security to be financially sound, the federal government should have $100 trillion—a sum of money six-and-a-half times the size of our entire economy—in the bank and earning interest right now. But it doesn’t. And while many believe that Social Security represents our greatest entitlement problem, Medicare is six times larger in terms of unfunded obligations.

How much do we owe? Mr. Goodman answers that, too:

[I]f the federal government suddenly closed down Social Security and Medicare, how much would be owed in terms of benefits already earned? The answer is $52 trillion, an amount several times the size of the U.S. economy.

52 trillion dollars. Look at that number again. Fifty two trillion dollars, with a "t."

What makes Mr. Goodman different from most writers is that he actually offers solutions. That's the second part. You can click on the link below for his full speech:

http://www.hillsdale.edu/news/imprimis/archive/issue.asp?year=2009&month=03