Desert Rat Democrat

I'm Shocked, Shocked, I Tell You

Who even knew he had a heart?

Cheerleaders and Con Artists.

I've really been meaning to put the convictions of Ken Lay and Jeffrey Skilling into a broader context for over a week now, and a combination of other interests, burnout, work load, and family have pretty much killed it. But its been running through my head for a week, and I think it is time to record my thoughts.

The Lay and Skilling convictions were pretty much the last act in a series of high profile trials of the robber barons of the last decade of the 20th Century. Like the Rigas Family (Adelphia), Bernie Ebbers and Company (MCI/Worldcom), every individual charged was ultimately convicted.

But there's so much more to this story that really ought to be examined, because it was really only in the culture of the late 1990's that this could have happened.

If there was any variable that enabled Ken Lay, Bernie Ebbers, etc. to bilk ordinary investors on a scale that would have made the robber barons blush, it was the rise of internet-based stock trading. Like the Roaring 20's saw a lot of Americans enter the stock market who had absolutely no idea what they were doing, the 1990's saw the rise of the Internet, both as a target of big dollars in venture capital, and also with lots of money chasing it in the markets. Most of the frenzy was driven by small traders making stupid trades. The money didn't get any smarter anytime soon.

This led to the creation of two things that really were new. The massive phenomenon that was CNBC, which was to the late 1990's internet trading boom what CNN was to the first Iraq war. While Desert Storm made Wolf Blitzer a star, the internet boom, and CNBCs hunger for ratings made Wall Street Analysts like Henry Blodgett into stars. Markets hung on their very words, and that word, even when the Internet boom was long over, was always buy. Blodgett is gone now, along with a host of others who essemtially acted as highly-paid publicists for a whole host of companies with questionable viability, business plans, and even worse management. All this is well documented fact.

CNBC in the late 1990's was little more than pornography for the terminally greedy, and particularly the greedy that were terminally stupid. interviews with an analyst pumping whatever stock his company had just signed an investment banking deal with in the morning, followed by more such analysts at noon, followed by recaps of all the money people had made, all of it on paper, of course, in the evening. CNBC had the kind of ratings no business news program had ever enjoyed, or willl ever enjoy again. Frankly, I blame Jack Welch almost as much as I blame the Ken Lay's of the world for the fraud and corruption on Wall Street in the 1990s.

The third part of this perverted triangle of naked greed was the Republican Congress and Democratic President at the time. Bill Clinton, for all the Republican gnashing of teeth, was essentially a moderate Democrat on social issues, and pretty much dead center to center right on economics (Exhibit A: Signing NAFTA). While this certainly made him a lot better than the economic tyros who've sat in the White House as bookends (Bush I & Bush II), it also meant that he wasn't all that concerned about investors or workers as long as big business kept cutting those checks to the DLC every month.

And from 1994 onward, to make matters worse, he had to deal with the current nut job Republican Congress, who saw nothing but dollar signs as far as the eye could see. For over a decade, this Republican Congress has gleefully cut enforcement funding for the SEC. To make matters worse, when things started to melt down in 2001, the Bush Administration didn't exactly pursue the investigations with enthusiasm. It took a Democratic New York Attorney General, Elliot Spitzer, to really start to look at the financial services industry and shame the SEC into action.

But the truth of this is that there are a lot more Ken Lays out there, who were never caught, who slipped under the radar, and still lurk. It's something worth remembering. Because Enron operated for close to a year under the Bush Administration when the warning signs were abundantly clear. They bankrolled his travel for the 2000 campaign. They encouraged the White House to leave the citizens of California in the dark of rolling blackouts. They almost certainly played a role in the Bush Administrations largely successful efforts to shape energy policy to the benefit of the coal, oil and gas industries.

And they did all of this under the nose of a Republican Congress that was uninterested in funding enforcement efforts, and a Republican President who himself was once the subject of insider trading allegations (Harkin Energy) and a Republican Vice President who still draws bonuses from an oil service company (Halliburton).

Corruption doesn't happen in a vacuum. This one didn't. And the political conditions for that corruption, with the same Republican Congress and President as that of 2001, if anything, are more ideal now than they were in the late 1990s.

Something to think about as we continue to read stories of this case going through the appeals process, I think.

Coruscant, Trantor, Rome, Constantinople, Corn, and Oil

No Blood For Oil.

Such has been the chants we've heard from portions of the Anti-War Left during both Iraq Wars, as well as numerous other times in the past 25 years. Truthfully, it's a smug argument, which falsely claims the moral high ground, without ever explaining or caring to think about how to get out from under the oil portion of the equation.

Annoying as the shriller parts of the antiwar left can be, however, there has always been a kernel of truth to the simplistic chant, and its something as a country we need to face, or it will bring us to our knees.

That was the reason I truly enjoyed Billmon's post from yesterday, dragging out the classic science fiction series of Isaac Asimov, the Foundation Series and in particular, the peculiar fate of Trantor, the totally urban capital world of Asimov's Galactic Empire, and likening it to an American foreign policy which increasingly is being dictated by the price and availability of oil.

It's a little disconcerting to think that gas prices — not Iraq, not Katrina, not the extra-constitutional power grabs — could decide whether Shrub's presidency recovers or collapses into complete irrelevancy for the next three years. But the good Dr. Pollkatz has already plotted the relationship, and it's statistically suggestive, to say the least.

This should be enough to make any would-be president (Demopublican or Republicrat) extremely nervous, since it seems high energy prices are likely to be a major fact of life for years to come — and maybe forever. If that turns out to be the case, then an absolutely necessary condition for future presidential success, or even survival, might be making sure the go juice keeps flowing at prices that won't drive the average American SUV owner onto the war path.

But that isn't going to be easy — not in a world in which everybody and their Chinese cousin is scrambling to lock up the available supply, where a number of major oil producing countries are a coup away from becoming failed states (if they're not there already), and that is already producing about as much of the light, sweet cheap stuff as it ever will.

Given the political incentives, it's possible to look a ways down the road — not a long ways — and see a U.S. military policy (formerly known as a foreign policy) that begins and ends with the protection of the oil lifeline. This could leave America in roughly the same position as Trantor, the world city and imperial galactic capital in Isaac Asimov's sci-fi classics, the Foundation trilogy. (George Lucas later shamelessly ripped off Asimov's idea and turned it into his own galactic world city, Coruscant, in the last three Star Wars movies.)

Like Coruscant, the surface of Trantor is just one big urban 'hood, meaning the planet's inhabitants — including the imperial court — must rely on a ring of neighboring star systems for their food supply. In his mythical Encyclopedia Galactica, Asimov explains the strategic implications:

Its dependence upon the outer worlds for food and, indeed, for all necessities of life, made Trantor increasingly vulnerable to conquest by siege. In the last millennium of the Empire, the monotonously numerous revolts made Emperor after Emperor conscious of this, and Imperial policy became little more than the protection of Trantor's delicate jugular vein.

Substitute oil for food and Saudi Arabia, Mexico, Venezuela and Nigeria for the "outer worlds," and you can begin to see where our own dependence may take us. If you've read the Foundation trilogy, you know that the galactic empire soon crumbles, first at the edges, then the core, until only those precious agricultural planets remain.

But Asimov's fictional emperors actually had it easy by comparison. Trantor's jugular vein connected it to a handful of nearby star systems — the imperial backyard, in galactic terms. These could still be held, even after the rest of the empire had slipped away.

By contrast, America's oil lifeline spans the earth (our imperial "galaxy"). All of it has to be watched and guarded, stabilized and supervised. Even a partial loss of control could turn into a disaster, since in a global market supply disruptions anywhere can send prices soaring everywhere. And yet some of the most serious threats — like the separatist movement in the Niger delta — are outside the U.S. security "umbrella," traditionally defined.

(Emphasis to Asimov's passage is added).

Frankly, I hesitate to place too much stock in a future history as written in an admittedly classic work of science fiction, until you stop to consider that Asimov himself was looking to Edward Gibbon's Decline and Fall of the Roman Empire for his inspiration.

For those who've read Gibbon's history, or for that matter, a good general history of the Roman Empire, as well as its Eastern successor, the Byzantine Empire, one is struck by the critical effect that grain supplies had on the fate of numerous Roman and Byzantine Empires over the centuries. Rome was a large city, whose size made her dependent on foreign imports of grain (or corn, as it was called by the historians of the day, though not the stuff we call corn these days). Cut off the supply of corn to the capital, and soon, the Emperor would face rebellion within his city walls.

Since the Empires had no formal procedure for succession, the death or enfeeblement (or in some cases rank incompetence) of an emperor inevitably led to a civil war, usually between the leaders of one or more factions of the Army, the Praetorian Guard, and the Senate, usually ending in some clash of arms and the deaths or suicide of all but one of the contenders for the throne. In many instances, such Imperial contenders were felled not because of a great defeat, but simply because their opponents cut off the corn shipments. As Rome in the West, and later Constantinople in the East lost their outlying provinces, maintaining the corn shipments literally dictated Roman (and Byzantine) policy, literally making the later Emperors of both empires mere puppets under the control of barbarian kings from distant lands.

As Billmon points out, our lifeline spans the globe. And I'd suggest to you that Billmon underestimates the effect foreign oil has already had on US policy for a generation.

One of my earliest memories is the 1973 oil embargo. Long gas lines. Soaring gasoline prices that look incredibly tame by today's tandards. Gas not available at any price at times. Since that time, US foreign policy, even Cold War foreign policy, was conducted with one eye towards the oil fields of the Middle East.

In the 1970's, other than a feared Warsaw Pact invasion of Western Europe, the one thing that kept foreign policy hawks and doves awake at night alike was a drive by Soviet armored divisions into the oilfields of Iran, Iraq, Saudi Arabia, and the other Gulf States.

The fear of oil no longer flowing has inspired fiction, both science fiction, and military thrillers alike.

This fear has also been the elephant in the room of US foreign policy continually since 1973. Even when it isn't spoken, its been on the minds of foreign policy experts, liberal and conservative, dove and hawk. It dictated military policy. It warped foreign policy in a myriad of ways. It led the US to continue to prop up the crumbling regime of Iran's Shah Reza Pahlavi long past the point of common sense. Ultimately, a fear of Iranian oil interests led us to first arm Saddam Hussein in the 1980's, and later, to drive him out of Kuwait when he appeared to become a threat to the Saudi oil fields in 1991. And ultimately, while the present Iraq War has been the war of a thousand feeble justifications, the one that sticks, that truly has legs, was a desire to bring Iraqi oilfields under US control. We know how well that has worked. And now, it seems, it may be the turn of Iran.

So, ultimately, Billmon's nightmare scenario doesn't get recent history correct. US Presidents, Democratic and Republican, have been hostages to the flow of the oil pump for 30 years now. The difference, now, is that the margins are much tighter. There are more nations, and more people competing for a resource that is finite. And the endgame, when crude oil supplies start to decline, is at hand. Wars have been fought, and civilizations have collapsed for reasons like this.

The only way to reverse that trend, is to cut dependence on oil. Conservation, developing alternative sources, and just plain taking a serious look at flawed urban planning that leads to Buckeye to Tucson urban sprawl, and beyond. Because if we don't cut that dependence now, simple economics will do it for us. But the dislocation will be much worse the longer we wait. The cost in terms of foreign policy, and if necessary, war will spiral out of control. And ultimately, in that situation, we may all shed blood for oil.

It is worth noting that I do not believe Republicans, and particularly this Republican administration (which is made up almost wholly of oil men and women) will ever have the political will to put the interests of the country over the interests of Exxon. It will take a strong, effective Democratic President, with a Democratic Congress to have any shot of changing this formula. It's one of the primary reasons Democrats need to make gains in November.

We're Going to Cut Our Dependence On Oil, Bitches!

Um, maybe not so much.

One day after President Bush vowed to reduce America's dependence on Middle East oil by cutting imports from there 75 percent by 2025, his energy secretary and national economic adviser said Wednesday that the president didn't mean it literally....

The president's State of the Union reference to Mideast oil made headlines nationwide Wednesday because of his assertion that "America is addicted to oil" and his call to "break this addiction."

Bush vowed to fund research into better batteries for hybrid vehicles and more production of the alternative fuel ethanol, setting a lofty goal of replacing "more than 75 percent of our oil imports from the Middle East by 2025."

He pledged to "move beyond a petroleum-based economy and make our dependence on Middle Eastern oil a thing of the past."

Not exactly, though, it turns out.

"This was purely an example," Energy Secretary Samuel Bodman said.

As I said to Mrs. Rat last night, just about every senior official in the Bush Administration, including the President and Vice President, came from the oil industry. The likelihood that these men and women are going to cut oil consumption is about the same as a drug dealer deciding to stop selling cocaine.

Hat Tip to Kos & AmericaBlog

Looking for Another Insider

I guess now we know why the CEOs for Big Oil were allowed to testify under oath last week. They were having to lie their asses off to protect Dick Cheney.

A White House document shows that executives from big oil companies met with Vice President Cheney's energy task force in 2001 -- something long suspected by environmentalists but denied as recently as last week by industry officials testifying before Congress.

The document, obtained this week by The Washington Post, shows that officials from Exxon Mobil Corp., Conoco (before its merger with Phillips), Shell Oil Co. and BP America Inc. met in the White House complex with the Cheney aides who were developing a national energy policy, parts of which became law and parts of which are still being debated.

The release of documents detailing the exact mmembership of this Energy Task Force were the subject of Freedom Of Information Act lawsuits that made their way to the Supreme Court, where Cheney won the case, allowing him to keep the documents secret. Clearly, somebody in the White House is leaking documents like mad these days.

The task force's activities attracted complaints from environmentalists, who said they were shut out of the task force discussions while corporate interests were present. The meetings were held in secret and the White House refused to release a list of participants. The task force was made up primarily of Cabinet-level officials. Judicial Watch and the Sierra Club unsuccessfully sued to obtain the records.

Sen. Frank Lautenberg (D-N.J.), who posed the question about the task force, said he will ask the Justice Department today to investigate. "The White House went to great lengths to keep these meetings secret, and now oil executives may be lying to Congress about their role in the Cheney task force," Lautenberg said.

For those who followed the farce that was those hearings in the Senate a couple of weeks ago, in a move that mirrored a famous scene of the Tobacco Executives testifying before Congress as chronicled in The Insider, each of the Big Oil executives testified that they were not a member of Cheney's Energy Task Force.

And now we know why, unlike the tobacco executives, unlike the ballplayers, the Senate allowed the Big Oil CEOs to testify without being under oath.

Shameful, really.

Those cheaper gas prices

Don't get too used them. They aren't destined to last:

The American public's failure to pay attention reached supernatural levels this week as our mass media gloated over falling gasoline prices -- down 24 cents, average, to pre-hurricane levels. The news media took this to mean that all the end-of-the-summer trouble is over with and things can now get back to normal, including especially an economy based on trade in suburban houses.

What they failed to notice is this: since the hurricanes shredded our Gulf of Mexico oil and gas capacity, Europe has been sending us 2 million barrels of crude oil and "refined product" a day from its collective strategic petroleum reserve. The "refined product" includes 800,000 barrels of gasoline, plus diesel, aviation, and heating fuel. Meanwhile, US domestic production has fallen to around 4 million barrels of conventional crude a day. America uses close to 22 million barrels of oil a day. Bottom line: post-hurricane, total imports have accounted for 80 percent of America's oil consumption.

Now, the important part of all this is that last week the International Energy Agency (IEA), Europe's energy security watchdog, declared that it would now end the 2 million barrel a day shipments to the US. Not because they are hateful meanies, but because, after all, it is Europe's strategic reserve and they can't sell it all to us because, well, some strategic emergency might come up for them, too.

It will take a few weeks for the last of Europe's tankers to offload supplies and for the various fuels to work their way through the US fuels retail system. With US production and refining still crippled, we can look forward to watching the price of gasoline, heating oil, diesel and aviation fuel kick back up through Thanksgiving and on into the heart of the Christmas shopping season. At the same time, homeowners will be getting their first substantial heating bills of the season.

Heating oil prices are going to be a real shock in places and poor folks may be faced with making a stark choice between food, medicine, and heat this winter. It may not be much easier for some families here. With natural gas facing average 47% price increases, those Arizonans with natural gas heating may be in for a shock around the beginning of January as well.

Just one more piece of good news from the Bush economy, it appears.

(Hat Tip to Naum at AZ Place).

Nostalgia

Remember, just a couple of years ago, when Phoenix motorists were pissed that they had to pay $2 a gallon for gas, and wait a half hour in lines because of a burst pipeline?

Funny how one's perspective changes in the short space of 24 months, isn't it?

Mission Accomplished

Well, at least George Bush accomplished something in Iraq...

Image courtesy of TBogg.

$60

The price of oil has set another record, breaking through the $60 a barrel level.

SINGAPORE (Reuters) - Oil prices jumped over 1 percent Monday, setting a new record, as robust U.S. demand, apparently unimpeded by high fuel costs, strained global production and refining capacity.

Light sweet crude for August delivery rose 70 cents to settle at $60.54 a barrel on the New York Mercantile exchange, a new record closing high. Crude also set a new close month trading high of $60.95 earlier in the day. Monday's new record extends a rally that has increased prices 12 percent in two weeks and 39 percent since January.

U.S. crude contracts are trading above $60 for every month until August 2006, with December 2005 settling at $62.09 a barrel.

..

Dealers were undeterred by OPEC's largely symbolic output hike earlier this month, and now producers are consulting on another increase, cartel president Sheikh Ahmad al-Fahd al-Sabah said Saturday.

But another increase of 500,000 barrels per day is unlikely to make much difference. Traders say it is a shortage of refining capacity, not crude, that is driving prices higher. And Saudi Arabia, the only OPEC producer with any spare capacity, says it is already meeting customer demand for crude.

$60 a barrel is significant only because human beings believe it is important. A large library full of theses and books have been devoted to, and businesses have been built and lost due to the vagaries of mob psychology as applied to financial and commodities markets. But suffice it to say that $60 may not be as high as it goes, for not only have we broken through a resistance level, but the summer driving season is upon us.

Truthfully, I'm not all that interested in how high it goes politically (my wallet, of course, as it is with every other American, would undoubtedly think differently), but I'm more interested in what point the American public makes the connection that a sane policy exploring alternative fuels, and perhaps looking at our own bad habits as a society could make a huge difference.

Recently, I saw a poll (wish I could remember where, and who, but unfortunately that memory has since been killed by fine English ales at George and Dragon) that showed a number of expected results, but made it clear that the vast majority of Americans weren't connecting the fuel inefficiency of all those Explorers, Suburbans, Escalades, and Hummers on the price of oil, when in fact they are the lion's share of the problem.

It will also be interesting to see when oil prices actually alter driving habits. We saw it briefly in the late 70's with the embargoes (I remember the 1979 embargo quite well as a teenager growing up in Phoenix), but so far, all signs point to it not having had a whole lot of effect. Will it be $70, $80, or $90 before it starts pinching people seriously enough to just leave the SUV or car in the garage?

That, of course, is the big question, the proverbial elephant in the room of Bush's economic non-recovery.

Something to think about the next time you fill the tank

David Sirota highlights a story from Fortune Magazine that ought to give every American pause about what passes for energy policy in the Bush Administration.

The rest of the story is subscription only (and I refuse to give money deliberately to TimeWarner in light of Mann Coulter-Cover Ghoul), but the lede alone is eye opening:

Exxon Mobil CEO Lee Raymond should be enjoying a victory lap right about now. But instead of celebrating the fact that surging energy prices have brought his company to within shouting distance of the top spot on this year's FORTUNE 500 (it's No. 2 again), the soon-to-retire CEO suddenly has a new anxiety: how to spend the windfall wrought by $55-a-barrel oil. By the end of April, Exxon will have a cash hoard of more than $25 billion. And if crude prices stay...

Oh, but don't worry, like he promised in the 2000 Preznitual campaign (the one Al Gore won, if you may recall), he'll be jawboning the Saudis to get those prices lowered. In fact, here he is jawboning Crown Prince Abdullah yesterday: