Monday, November 22, 2010

The Paper Hero and The Darkness - Economic Future is The Divisive Present

There’s a legal limit to federal debt which must be raised when the government keeps running deficits, and the limit will be reached again sometime this spring. Otherwise, they say, a government shutdown will stop the provision of “essential services”. More likely, the very public political sh*tstorm that ensues will weaken our currency, our financial markets and what little is left of America’s reputation as a world leader.

Meanwhile, back at the ranch, Fed Chair Ben Bernanke is begging for “a fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits” in order to combat the massive and growing unemployment, while Mr. Alan Simpson rejoices “I can’t wait for the blood bath in April. ... When debt limit time comes, they’re going to look around and say ‘what in the hell do we do now? We’ve got guys who will not approve the debt limit extension unless we give ’em a piece of meat, real meat,’ - And boy, the blood bath will be extraordinary!”

With the aftermath of the current opinion poll (the election) breathing fear into demagogues who are trying to hang on to a public paycheck, some are blocking an extension of unemployment benefits, voting to continue a tax break for the rich and block aid to small business. Other demagogues want money for the new arms treaty, a new bailout and new everything to save us.

I don’t fear a government shutdown – it happened under Clinton and the idiots who thought they wanted it had to turn government back on before Americans realized how little of their government they really needed. And what I fear is not the hardship and dislocation of an economy on the ropes – we got through that one before, too.

I fear the bitter, vindictive, divisiveness – and the total ignorance of what is at stake here – that is taking us over the brink into this Brave New World. That most Americans still don’t understand the reality of our position (thanks in part to government and press “spin” as well as learned ignorance) may presage the angry mobs which govern our future. 

And I guarantee to those who have never seen a mob, you will not like it.

Saturday, October 9, 2010

To Libba R. on her 21st birthday

Libba R., while studying at Dennison
Drank strawberry tea and read Tennyson
But as she "came of age", She
Told her sister (quite sagely)
"I'll trade that book for a bottle of Jameson!"

Limerick to JFW


David Riggi wrote:

"A gentleman-barrister named Wiley
with famous wit, sometimes sharply, sometimes dryly,
did spread much good cheer
and soothed many a fear
leaving his friends happy and smiley"

Tuesday, October 5, 2010

Robert C. Byrd, Senator and Statesman


They tell me that Robert C. Byrd is gone from us this dark day. We will not live to see his like again.
He had recently become the longest-serving lawmaker in our history. "I look forward to serving you for the next 56 years and 320 days," Byrd said in a statement.
His career in Washington began in 1952 with election to the House and elevation six years later to the Senate. Since June 12, 2006, Byrd has been the longest-serving senator and later that year he was elected to an unprecedented ninth term. His colleagues have elected him to more leadership positions than any senator in history.
He cast more than 18,000 votes and, although his deteriorating health had kept him from the Senate floor this year, he had a nearly 98 percent attendance record over the course of his career which, by Byrd's count, had then spanned 20,774 days.
Byrd rose up from ignorance and poverty as a supporter of the Ku Klux Klan to later support civil rights, to write the history of the Senate and other books, to earn of a law degree from American University while serving in Washington, and to live to cheer for the nation's first black president.
He was a champion of Constitutionally-permitted project spending called "earmarks" and he brought $326 million in such projects to West Virginia for 2008 alone.
In October, despite a long illness and hospital absences, Byrd still personally managed a $44.1 Billion spending agreement on security measures against natural disaster, terrorist attacks and other threats.
Friday the 20th of November, 2009 was his 92nd birthday. It was his last.
Byrd wrote in his weekly column that week that his birthday should be about Thanksgiving. What did he give thanks for in his 92nd year? The privilege of representing "our great people in the U.S. Senate." He did so better and longer than anyone.
And he didn't apologize for representing one of the poorest and least developed of these United States.
"They call me 'The Pork King,' they don't know how much I enjoy it. When I was a member of the West Virginia House of Delegates 51 years ago, West Virginia had four miles of divided highway. Four miles. Today the state has about 37,000 miles of highway."
My son in law recently drew my attention to just a few of the many, many items Byrd's Billions in federally funded projects has brought to this once poor State during his tenure:
Robert C. Byrd Drive, from Beckley to Sophia (Byrd's hometown)
Robert C. Byrd National Technology Transfer Center at Wheeling Jesuit University
Robert C. Byrd Highway
Robert C. Byrd Federal Correctional Institution
Robert C. Byrd High School
Robert C. Byrd Freeway
Robert C. Byrd Center for Hospitality and Tourism
Robert C. Byrd Science Center
Robert C. Byrd Health Sciences Center of West Virginia
Robert C. Byrd Cancer Research Center
Robert C. Byrd Technology Center at Alderson-Broaddus College
Robert C. Byrd Hardwood Technologies Center, near Princeton
Robert C. Byrd Bridge between Huntington and ChesapeakeOhio
Robert C. Byrd addition to the lodge at Oglebay Park, Wheeling
Robert C. Byrd Community Center, Pine Grove
Robert C. Byrd Honors Scholarships
Robert C. Byrd Expressway, U.S. 52 near Weirton
Robert C. Byrd Institute in Charleston
Robert C. Byrd Institute for Advanced Flexible Manufacturing
Robert C. Byrd Visitor Center at Harpers Ferry National Historic Park
Robert C. Byrd Federal Courthouse
Robert C. Byrd Academic and Technology Center
Robert C. Byrd United Technical Center
Robert C. Byrd Federal Building (there are two)
Robert C. Byrd Hilltop Office Complex
Robert C. Byrd Library and Robert C. Byrd Learning Resource Center
Robert C. Byrd Rural Health Center
Robert C. Byrd Clinical Addition to the veteran's hospital in Huntington
Robert C. Byrd Industrial ParkHardy County
Robert C. Byrd Scholastic Recognition Award
Robert C. Byrd Community Center in the naval station, Sugar Grove
Robert C. Byrd Clinic at the West Virginia School of Osteopathic Medicine
Robert C. Byrd Biotechnology Science Center at Marshall University
So go ahead and criticize his accomplishments if you wish, while you travel his roads and his bridges, attend his schools, read his books, are treated in his hospitals or in work in the businesses his gracious generosity has provided.
Without his help, God knows the rest of this country would have been content to continue to forget the State that has suffered such an disproportionally high number of deaths per capita serving in our wars, and whose dedicated miners through the years provided more traditional fuels to this nation's production and energy needs than any other.
For myself, I intend to celebrate the life of, and to mourn the loss of one of the greatest statesmen, and the greatest of men.
- And I say God Bless Robert C. Byrd.  

Monday, October 4, 2010

DEDICATION OF THE L. EDWARD FRIEND II BANKRUPTCY COURTROOM

I am truly honored to join you today in dedicating the L. Edward Friend II Bankruptcy Courtroom.

Let me first congratulate the Federal Court of the Northern District of West Virginia and all of its personnel for making this cutting-edge, optimally accessible courtroom a reality.

I also want to congratulate Bankruptcy Judge Patrick M. Flatley for guiding this Court’s proud tradition of helping the poor of West Virginia, and its’ beleaguered businesses to new heights.

Finally, this victory in achieving a dedication at the Wheeling Federal Courthouse could not have been achieved without the help and support of our other Federal Judges here today: Chief Judge Fred Stamp, Judge John Bailey, Magistrate Jack Kaul, and of course the Bankruptcy Judge who heard so many of Ed Friend’s old cases during the ascendancy of Judge Flatley to the bench, Ron Pearson. Your honors, this dedication is a testament to our Federal Court’s tradition of honoring Federal service, and an example to others of what working together may accomplish.

I am also pleased with the Friend Courtroom for the contribution it will make to advance the cause of modern bankruptcy practice. This year we mark the 5th anniversary of the BAPCPA, which aims to eradicate the abuses of the few, and provide a solid system of recovery from financial ruin that the 1.5 Million Americans filing for bankruptcy face every day.

It was my great privilege to serve as Debtors’ (and creditors’) counsel during the tenure of Ed Friend as Judge, and before that as a colleague, a personal friend and neighbor.

For me, Judge Friend’s reign represented a truly unique opportunity to merge my legal practice, my comradeship with financial lawyers, and my personal life.

In 1966, when I was a young boy in my home town of Morgantown, West Virginia,
my family moved to Preston Road, next door to Leon “Dink” Friend, his wife “Louisey” and their growing family. Their oldest son was Ed, and he, his sister
and brother had what seemed an idyllic upbringing to me. Laughter always seemed to be floating down through the trees from the Friend household. In later years we often saw one another at the annual Preston Road Promenade, spent going from house to house on Christmas day, cleaning up any leftover turkey, cookies, fruitcake, and of course, all the eggnog.

Later, after three years of struggle, I somehow graduated from the WVU School of Law, and was lucky enough to get a job with another alumnus of the Preston Road Promenade, Steve Shuman, whose devotion to work was also marked by affinity and affection for a young trial lawyer with offices across the street, L. Edward Friend II. We all practiced on some cases together, and it was with them as lead counsel that I filed my first Chapter 11 bankruptcy in 1981.

It is because of this close upbringing and practice that it has often been said of me that the only smart thing I ever did was to grow up next to Steve Shuman and Ed Friend. My wife is quick to point out that I also married her. She says that was the other smart thing that I did.

It was only a few years later that Ed Friend left for the U.S. Attorney’s office in Wheeling, and from there was nominated to the office of federal bankruptcy judge. No one could have been prouder than Steve Shuman and I, and we immediately inundated him with reams of completely baseless, disaster-coursed cases in which he was proud to rule against us. In doing so he captured something of that personal style which produced such a remarkable tenure for him and his Court family. Because of course that was what we were all treated as – as if we were family. But more on that in a moment.

You could also see Ed Friend’s deep interest in achieving some measure of justice for those without, those on the ropes, and those commencing the long climb back from financial ruin. Ed’s actions were always – and obviously - grounded in a deep concern about people and their right to begin their lives again after a business failure, the loss of a job, a long illness, or a divorce. One of the driving forces behind the judgeship of Ed Friend was an awareness that people with financial problems face feelings of personal unworth, of societal stigma and unwarranted stereotypes that can affect their future ability to contribute to our society. We who saw him in action are all proud of the way he bolstered courage in those who asked his help, and he had a kind word for just about everyone while he heard the endless litany of requests for justice.

Thus, the Friend Bankruptcy Courtroom to me doesn’t simply acknowledge the achievements of Ed Friend, or provide Court access for our poor, though that is monumental in its own right. It goes so much further.

The Friend Courtroom also does more than send a message about how we treat our poor. It signals the bringing together of two important groups: The first is a powerful Federal system more often associated with dealing swift justice to federal criminals, and deciding issues affecting large enterprises and the larger considerations of Federal law; and the second group is common people and small businesses with financial difficulties.

AND the Friend Bankruptcy Courtroom is an example not of what our Court family has done, but what it can do. Over a Million people depend on this odd and unlikely relationship between them and a powerful Federal entity. In the last few years we have seen a large shift in our financial landscape here in America, and we cannot afford to neglect the needs of a rapidly growing class of once entitled persons who have lost their jobs, are losing their homes, and for perhaps the first time ever must receive support services.

These are issues close to my heart. And I promised you the rest of Ed Friend’s story earlier on. Ed Friend came to Wheeling with a lot of enthusiasm and a couple of Brother computers with less memory than I now have in my phone. He somehow convinced the entire staff – and all of us - that the modernization efforts would be secondary to the good works that his Court family would somehow accomplish together. And they did. Whether you worked in the Clerk’s office or as a lawyer or just were someone who needed his help, Ed made you feel like your voice was heard, that your view was important, and that, even if he ruled against you, or corrected a mistake that you had made, you were an important person – and important to the judicial process. He was rewarded with a staff that was both loyal and constant, and with all the cases requiring equity that we lawyers could throw at him. And to him, we were all like one big, sometimes dysfunctional family. And any family with me in it is dysfunctional by definition.

With the increasing pauperization of the current generation and the continuing hardships which face us all in these years ahead, we are going to need to be a real family, a real team, to deal with the far-reaching issues of insolvency and people in financial distress. Our Federal judges, our attorneys, our administrative staffs, and ALL OF US: Let us answer that call together. 

Ed Friend might have laughingly described his job as something he did between fishing expeditions, but I would describe it as “helping poor people.” Thanks Ed, for all the efforts of judgeship, for meeting one challenge after another, and mostly for reminding us that contributing to the welfare of others is not a burden, it is family fun.

The road to helping the poor is not one that began or ended with Ed Friend; we must continue to make sure that people with financial difficulties know there is somewhere they can go and something they can do about it without fear of being belittled.

We best measure the success of our civilization not by the prosperity of the well-to-do, or spoiled rich gadflies like me, but by the way we treat those who are most disadvantaged and most in need. Margaret Mead said: “Never doubt that a small group of thoughtful committed citizens can change the world; indeed, it’s the only thing that ever has.”

The Friend Bankruptcy Courtroom will be a proud example of how a “family” effort can help change the world. Thank you for including me in its dedication. 

Friday, October 1, 2010

Where are we going?

The debt level in this country has pushed our economy past a critical milestone. This 2009 analysis was intended to address the impact of accumulating debt as a method of revitalizing the economy.  We have successfully used this technique for about 70 years. The natural inclination is to keep using that tool. Hugh McCoy's analysis has shown that tool is no longer useful after 2008. Any discussion of where to go from here is naturally speculative. 

Am I missing important details and implications? My fear is that there is no way to perform the required market correction which does not also imply that 90% of Americans will then live below the poverty level.

It appears that the people who have been selected for this task have no clear idea how to get us out of this mess. If we also have no clue how to proceed, then we have effectively sanctioned their blunder into the ‘Disordered Correction’, or the even more disastrous ‘Debt Relief’, scenario.

Background:
Our last experience with an economic crisis has been called the Great Depression. The Great Depression also started out as a credit crisis. As one after another financial instruments froze up, the economy effectively stopped. Herbert Hoover believed that this market correction would be a short term phenomena, and required no intervention. His reasoning was based on lessons learned for previous recessions. 'Left alone, markets will stabilize themselves.'

What had changed was the invention of new credit instruments which allowed people to easily incur much more debt than could ever be paid. They could gamble with money they did not have. We have now repeated that mistake and compounded it.

Once initiated, the Great Depression refused to correct itself. Manufacturers reduced salaries and work force to accommodate the reduced revenue. Businesses failed as both credit and revenue dried up. As the customer base shrunk, monopolies like the utility companies raised their rates to maintain revenue.

FDR is often credited with ending the depression. It is not clear whether his policies would have actually worked in the long term, though several were very innovative. WWII came along and solved the problem for him. 

The idea of raising prices to combat reduced demand does not make much sense to us today, but seemed to make perfect sense to these companies at the time. One of the most innovative policies for turning around the economy at the consumer level was forcing the utility companies to reduce their rates. The justification for this forced price reduction was that the utilities were an 'elastic market'. The concept of the 'elastic market' was still a new concept that had never been tried on a large scale. In an elastic market, reducing price creates such an increase in demand that overall, profit increases.  We are all familiar with the concept today, but it was probably a revelation at the time. Obviously we need a new generation of innovative ideas for new times. We cannot expect to get these new ideas from people who still think we can simply spend our way to prosperity.

Our economy has a fundamental problem with productivity. Our products cost too much, and we prefer to buy stuff cheap.  If we pursue a free market strategy then, at some point, a correction to work force compensation must occur. If, however, we pursue a protected market then the fundamental nature of our marketplace changes dramatically. If we pursue the current “spend to prosperity’ approach, then we are forced to consider a debt relief correction.

Free Market Correction:
In an ordered correction, the work force accepts a steady reduction in pay, as the price of our goods is reduced. A positive trade balance is created. The dollar stays strong and foreign investment is undisturbed. The average household is crushed under a debt load that will never be repaid. Businesses, however, are able to pay down their debt. This is the solution the financial sector would undoubtedly wish to pursue. It reduces the majority of Americans to debt servicing machines, while keeping large investors happy.  This does not seem to be a likely scenario.

In a disordered correction, a few key sectors default on their debt. Foreign investors attempt to sell off their US assets. The value of the dollar falls through the floor.  Triple digit yields are tacked onto bonds and T bills to slow the exodus of foreign cash. Double and triple digit inflation kicks in as a response to this market freefall.

When the dust settles, the dollar has about 10% of its current value, the US based financial sector is in shambles  and the average worker has about the same inflation compensated wage as their Chinese counterpart.  The total debt is much reduced in Yen, but is still the same percentage of the average American income as it is now. We buy substantially less foreign made products simply because they are too expensive. We cannot afford to buy very much, in any case. With a positive trade balance, however, it becomes possible to pay off corporate debt.

Protected Market Correction:
If we pursue a protected economy then different measures are taken. Extreme tariffs are placed on foreign goods to minimize domestic demand. These include goods manufactured by US companies in foreign countries, and components sent to the US for final assembly. In retaliation, few US goods are accepted abroad. All of our borders are fenced in and guarded to prevent the transport of cheap Black Market merchandise. Wages are protected, but prices rise dramatically because a larger percentage of goods have US manufacture.  As a consequence, we experience double digit inflation. Foreign confidence in the US market falters as the country pursues economic isolation.

Those companies which can, will divest themselves of US holdings and move their capital to the developing Chinese market. It is difficult to estimate the impact of US economic and political isolation on the world economy. It will definitely be different.

Debt Relief Correction:
In this scenario the US has attempted to pursue the “spend to prosperity” policy for another 15 years. Our financial position is so precarious that no one will touch our T Bills or Bonds. In a desperate attempt to save ourselves we simply eradicate most of the debt and claim a clean slate.  It is difficult to imagine this portion of North America existing as the United States for much longer after that. Such desperate measures seem unthinkable now. However, these measures will look like the only way out, if we attempt to ignore the debt crisis. 

HHMcC - 2009 correspondence