A Brief History…

UPDATE: Sad news today (1/16/08). John Nagl is retiring. His doctoral thesis became one of the textbooks of COIN warfare. He has been on Petraeus’ staff in Iraq but why is he still a LT colonel ? The Army was reluctant to adopt COIN tactics. Now he is leaving. Remember that Aaron Bank retired as a colonel. He founded Special Forces but that was not what the Army rewarded in those days. Nothing has changed.

 The lefties, once again, are crowing about how the Army is having problems retaining junior officers. There is a similar problem with senior noncoms. The left would have you think it is all about Iraq. Some of it is. Some of it is much older than the present war. Prior to 9/11, I read a critique of the US Army that pointed out reasons why we were losing high quality junior officers. Nothing, or little, has changed. Iraq has, in fact, improved morale and retention as war fighters are reluctant to leave comrades behind when they seek out high paying jobs and better career opportunities. Another interesting book is The $ 5 Billion Misunderstanding about the Navy’s A 12 program and, indirectly, about the problems of the procurement system that gives more power to appropriators like Murtha, who slanders US Marines, than the troops who fight the wars. Now, a new report points out some of the real issues. To anyone who has read WEB Griffin novels about the military, they will sound familiar. Not all senior officers are wise and not all junior officers are willing to put up with illogical promotion systems and personnel practices. Military bases have tended to be in the boondocks (read Griffin’s novels about Fort Rucker in the early days of Army aviation) and military families, especially of highly intelligent and educated young officers, may chafe at the lack of cultural amenities. In addition, the booming economy offers alternatives, not just to officers with college degrees, but to well trained and educated noncoms with language skills and other technical training in great demand. A high tech Army must be aware of the competition for its highly qualified personnel. It’s probably no more of a crisis than it was ten years ago but we need the Army more right now, especially the cadres to build a larger Army. The Air Force has another problem. The manned aircraft is going away even faster than I previously believed.

The NY Times today has a story that the bail-out plans for the “liar loans” is not going to happen. The 1980s S&L crisis was another crisis created by reckless lending. My ex-wife was a mortgage banker and worked for the RTC for a while. She found lots of bad behavior in the institutions she reorganized or liquidated. This all began some years before when the Jimmy Carter inflation was raging. Fernand St Germain was a Congressman from Rhode Island. I don’t agree with everything in that link but it has this right.

One night in 1980, Representative Fernand St Germain (D-Rhode Island), whose $10,000-to-$20,000-a-year restaurant and bar tab was paid for by the S&L industry’s chief lobbyist, proposed raising federal insurance on S&L savings accounts from $40,000 to $100,000- even though the average size of an S&L account was $6,000. He waited until after midnight, when only eleven representatives were still on the floor of the House; they approved his proposal unanimously. But St Germain was just getting warmed up. In 1982, he cosponsored a bill that removed all controls on what S&Ls could charge for interest and released them from their century-old reliance on home mortgages.

This version is a bit less emotional. The reason why this bill was passed was not just St. Germain’s bar bill. The S&L industry was founded in the Depression to support home ownership. The movie “It’s a Wonderful Life” tells the story of the origins. Here is a law professor’s version of the movie. It makes the same point. The S&L paid 4% interest on savings and the money was loaned at 6% to finance homes. The deposits, as depicted in the movie, were supposed to be long term savings. This worked well until inflation took off in the 1970s. Then we had the consequences of what is called “lending long and borrowing short.”

My medical partner built a new home in 1978. His construction loan had an interest rate of 19%. When the home was finished, the permanent financing had an interest rate of 21%. His neighbors on either side, both professionals, could not qualify for the permanent financing of their homes and both houses went into foreclosure. How did this happen ?

It began with Lyndon Johnson and his decision to fund the Vietnam War at the same time he expanded the welfare state with The Great Society. The pressure on the currency eventually resulted in Richard Nixon taking the country off the gold standard. The effect, as noted in that link was to confound the Keynesians. Maybe gold was not really an archaic relic, after all. Anyway, the result was wild (Not of Weimar magnitude but unique in US history) inflation. This produced huge pressure on interest rates and efforts to take a middle course resulted in “Stagflation” or a combination of inflation and a weak economy.

The effect on S&Ls was disastrous. Regulation Q limited the interest rates that S&Ls could pay depositors. If inflation was 10% and interest rates on deposits was 4%, the depositor was losing 6% per year on his money. I remember this time well. New vehicles appeared for investment. Previously, only banks and major corporations could find higher returns on investments. What happened was a surge in buying of houses, with corresponding inflation of home prices, and of art objects and gold.  I put much of my pension plan into second trust deeds on homes in Mission Viejo that paid 20% interest. I had US Trasury bonds that paid 16% interest.  The ownership of gold, except for jewelry, had been illegal for US citizens since 1933. Many friends of mine put money into gold coins in Switzerland, even at negative interest rates.

UBS History   1972- In Switzerland new restrictions on bank lending enter into force combined with new negative interest rates of up to 10% per quarter (40% p.a.) on the growth of foreign deposits in Swiss Francs with domestic banks. The restrictions are in force until 1975/1979.

The S&Ls hemorrhaged money. Congress came to their rescue with the St. Germain law. Not only would they be allowed to pay higher interest rates to keep depositors, the FDIC for S&Ls (called FSLIC) would now guarantee deposits to $100,000. The train wreck was now inevitable.  It arrived on Reagan’s watch, a timing that has confused many people (some purposely) about the origins. It began with government subsidy and the failure to allow the bad decisions to result in bad outcomes has resulted in more bad decisions.Let’s hope that wiser heads will prevail now. The bailout of the S&Ls guaranteed the “liar loan” crisis we have now. Maybe somebody learned something. I wish I was more optimistic.

The Economist has a piece this week on Dmitry Medved’s role in the “succession” going on in Russia. I previously posted on this issue, which has some qualities of farce. Russia is a country being run by the former secret service of the USSR. Our own CIA, as demonstrated by the recent NIE, has ambitions along this line but nothing like the competence of the old KGB

The political left has opposed nuclear power just as it tried to ban nuclear weapons. Of course, it didn’t matter to them that the Soviets were not going to comply. It was enough, or maybe the real purpose, to disarm the west. The Cold War ended with the Soviet Union collapsing. Opposition to nuclear power remained a remnant of the old “Ban-the-Bomb” mentality. The fact that the ban added to generation of greenhouse gases (Not that I believe they are a major factor in climate), was not important. Nuclear power was evil because….. Well, it was just evil.

Aside from the emotional aspect, the left has claimed that it is unsafe and too expensive. The safety question is often answered with the riposte that more people have died in Ted Kennedy’s car than from nuclear power, at least in the US. The Soviet accident at Chernobyl was due to the general crudity and disregard for safety that was true of most of the Soviet Union. They, and even the post-Soviet Russians, have lost nuclear submarines to such bungling right up to the last decade. Now, with the global warming hysteria, there might be some common sense appearing on the political left. It probably doesn’t mean that real knowledge and judgement are appearing, just that they are now more afraid of global warming than of nuclear power. Still, I don’t require the motive be correct if the action is desirable.

It makes no sense to see natural gas used to generate electricity when natural gas prices are climbing and it is the ideal fuel to heat homes. Nuclear power is an ideal method for generating electricity but is blocked by ignorant emotion. Interestingly enough, before global warming was attributed to CO2, Scientific American, a popular science journal, unfortunately contaminated by left wing politics, was expressing worry about the waste heat from nuclear plants as source of global warming. That 1960s theory has been superseded by the current dogma.California has now become dependent on natural gas for electricity generation. A recent report states: “California’s electricity and natural gas markets have become closely inter-related since natural gas has become the predominant fuel for electricity generation. The growing demand for electricity is, in turn, driving the increasing need for natural gas supplies throughout California. The role of natural gas in electricity generation affects how the natural gas systemmust be designed and operated.”

This is not healthy. One reason is that natural gas is also derived from unstable political areas like the Middle East. Huge liquified natural gas carriers are floating bombs that may attract terrorist attention. Natural gas is not the answer. Will the political left allow the industry to recover?

They complain about cost when a large share of the cost is due to perpetual litigation generated as a rear guard action by themselves. The legal costs are chiefly those of litigation-driven regulatory actions. Perfect safety is demanded while other energy systems have less than a perfect record. Coal, for example, has a major role in chronic respiratory disease and deaths. The other major issue is spent fuel but this is technology and, given a revived interest in building and using plants, it will eventually respond to renewed research. Reading these left wing blog comments, one can see that opposition is still intimately tied to opposition to nuclear weapons. Unfortunately, 30 years of inaction in energy production has seen a proliferation of nuclear weapons all over the world that did not require nuclear power plants to produce the fuel. Ask Iran.

UPDATE: The Bali Conference is going on but they have probably not considered this. The article is here and the conclusion says: “The observed pattern of warming, comparing surface and atmospheric temperature trends, does not show the characteristic fingerprint associated with greenhouse warming. The inescapable conclusion is that the human contribution is not significant and that observed increases in carbon dioxide and other greenhouse gases make only a negligible contribution to climate warming.”

Oh oh.

Another UPDATE: This essay says pretty much what I believe about global warming. The linked article is interesting, though.
” But throughout the 20th century, solar cycles had been increasing in strength. Almost everyone agrees that throughout most of the last century the solar influence was significant. Studies show that by the end of the 20th century the Sun’s activity may have been at its highest for more than 8,000 years. Other solar parameters have been changing as well, such as the magnetic field the Sun sheds, which has almost doubled in the past century. But then things turned. In only the past decade or so the Sun has started a decline in activity, and the lateness of cycle 24 is an indicator.

Astronomers are watching the Sun, hoping to see the first stirrings of cycle 24. It should have arrived last December. The United States’ National Oceanic and Atmospheric Administration predicted it would start in March 2007. Now they estimate March 2008, but they will soon have to make that even later. The first indications that the Sun is emerging from its current sunspot minimum will be the appearance of small spots at high latitude. They usually occur some 12-20 months before the start of a new cycle. These spots haven’t appeared yet so cycle 24 will probably not begin to take place until 2009 at the earliest. The longer we have to wait for cycle 24, the weaker it is likely to be. Such behaviour is usually followed by cooler temperatures on Earth.”

Here comes the new Ice Age.

End UPDATES

Recently, I posted a piece about the loss by John Howard to Kevin Rudd in the Australian election. Part of Rudd’s campaign platform was “immediate action on climate change.” They disdained the Howard coalition government’s caution and said: “Unlike the Coalition’s Climate Change Fund – which starts in 2012 alongside an emissions trading scheme – Labor’s plan is fully costed and will start next year.”

Rudd is now PM and attended the Global Warming jamboree in Bali. What did he learn between the election and now ? The cost of his good intentions. Note the headline. “Rudd made progress towards Kyoto ratification his first executive act, a sharp way to symbolise the break from Howard’s era. Delegates to the UN conference in Bali applauded when informed (most such delegates represented nations that have no binding targets under Kyoto anyway). But by week’s end the reality of climate change policy was superseding the switch in Kyoto symbolism. As expected, Rudd said his Government’s 2020 emissions target would not be decided until the mid-2008 report from Ross Garnaut. Australia has no intention of being trapped into the 25-40 per cent emissions cut by 2020 that the Intergovernmental Panel on Climate Change proposed for developed nations.

This betrayed the real political moral of the week: how quickly the gulf is opening between the Rudd Government and the scientific or green lobby groups in Bali and elsewhere demanding radical outcomes. This conflict, sooner or later, will assume epic dimensions.”

Well, that may set a record for the appearance of reality after an election.