oftwominds-Charles Hugh Smith

Three Comments

March 24, 2009

Before continuing Survival+, here are three important reader commentaries on previous topics.

E.P.

I wanted to comment on your recent article on The "Can't Do" Spirit (March 20, 2009) Your remarks on DoD weapons procurement procedure really hit home.

I am rather embarrassed to note that I was once a government bureaucrat, working for DoD (2002-2008), "ensuring the best systems for our warfighter" and other such public-relations nonsense.

You can't possibly imagine how much money is spent in the name of "government oversight." In my work as a systems cost estimator, we would normally add 100% as a good rule of thumb. 100%! That is, let's say Program X, The Super-Duper Missile Program, is advertised in the MSM as being a $1 billion dollar program. That "$1 billion" is just the money that gets paid to the contractor, say Blockhead-Marteen, for development and production.

There's also at least an additional $1 billion dollars that needs to be spent to oversight the spending of the $1 billion that's going to the contractor. E.g., for cost estimation, integrated logistics support, systems and software engineering, contracting, legal, security, information assurance, not to mention the veritable army of support contractors that file all the relevant DoD paperwork - the reports and baselines and earned value data and the like.

This "oversight" money, however, is never included in the cost performance data of any contract. It just exists in the ether - in our cost estimation work we would always simply assume that the money for government oversight would be supplied. As a corollary, this oversight function was performed, at least during my tenure, not by civil servants, but by support contractors (e.g., Booz Allen, MITRE, CACI) - a bonus of Bush privatization in the vein of Blackwater. How can one pay a for-profit company for oversight? It's an absurd, Kafka-esque proposition.

The term 'military-industrial-congressional complex," which I had previously needed awareness of simply to get one question correct on my AP US History exam, took on a whole new meaning for me after this job. I also became familiar with "iron triangle" and "rent-seeking behavior," which describes what goes on in DoD procurement to a 'T.' That we can accurately define the ills that plague us, yet continue to engage in the same behavior, makes me want to believe that we are stuck in The Matrix. It must be the only logical explanation.


Oliver K.-S.

RE: Mr. Geithner's new bailout plan:

This plan is sheer genius. The bank executives have earned their bonuses again. Here is what I would be doing if I were Citi.

Step 1: I would set up a new entity, say a Structured Investment Vehicel (SIV) and call it $chiti. I doubt the banking regulators will think there is anything strange with this name.

Step 2: I would place 10 billion dollars of TARP funds into $chiti. This money, which the government gave Citi, comes in handy for setting up these off balance sheet companies.

Step 3: I would instruct my lackey at $chiti to bid on $250 billion dollars of bad assets in Citi. These assets are not worth $250 billion, that is their face value. That means, that Citi paid $250 billion dollars to buy these assets. The problem is they are only worth between 7 and 10 billion dollars. $chiti would not bid $250 billion dollars for these gems. No, anyone could tell these mis- understood assets must be worth at least $300 billion dollars. So $chiti places a bid for $300 billion dollars.

Now at this stage, one of two possibilities can occur. Some fool may bid more than $300 billion for the bad assets at Citi, or option 2, $chiti wins the bid and gets the assets.

Let's go with option 2 first. $chiti wins the bid, and now needs to come up with $290 billion dollars (remember it only has $10 billion in it right now) to buy Citi's bad assets. This is where the government comes in. Tim's plan lends and "invests" the other $290 billion.

So, now at Citi, I make $50 billion dollars of profit as I get $300 billion for assets that were originally worth $250 billion.

$chiti does not fair quite so well, as the assets it bought are worth no more than $10 billion dollars. So over time the loan the government gave me through Mr. Geithner goes bad, and $chiti goes bankrupt. Unfortunately Citi loses its $10 billion investment in $chiti.

So to recap. I get to shift $250 billion dollars of stuff that is probably worth only $10 billion dollars, to you the tax payer. Citi gets a $50 billion dollar profit from the sale, and $chiti gives Citi a $10 billion dollar loss. As a result I (Citi) make $40 billion dollars. Not bad, and definitely worth a $1 billion dollar bonus for engineering that plan.

Now let's look at that first option. Someone else bids more than $300 billion for Citi's assets. I know it is unlikely, but you never know. Assume they bid $310 billion. Well then, Citi makes $60 billion in profit and it quietly shuts down $chiti and takes back the $10 billion in it. So overall I make $60 billion in money (the $10 billion coming back from $chiti does not count as profit it is really just moving an asset).

So either way, Wall street can now engineer enormous profits for this year. Bonuses will be back with a vengeance. Everyone is happy. Until that tax bill comes due.

In reality Citi probably won't be so blatant as to buy their own assets. They will collude with Bank Of America and JP Morgan and other banks, with the help of Geithner, to buy each others' assets. This way it all appear kosher, while the taxpayer is fleeced for vast sums of money.


Ishabaka M.D.

It was interesting you published your article yesterday The Migration of Capital and Human Talent (March 18, 2009) as I had been thinking about just the same thing.

As part of my job, I train nurse practitioner students from a nearby University. I am now training Mrs. Ai B., a woman with a very interesting history. Her father was an employee of the C.I.A. in the Vietnam war (he was Viet). After the war the family was captured. Ai spent 6 years in a peasant value re-education camp, and her father 8 years in a hard-core prison.

In spite of this, apparently neither of them are bitter, and still feel Vietnam is their home. Mrs. B. married a Canadian. She told me she would like to go back to Vietnam with him, and that he could teach English - he'd make $1,200 a month, but she said you can live quite well on $100 a month.

Her mother was a pharmacist and was often called upon to diagnose patients, who arrived by dugout canoe if too ill to walk. At age 8 Ai delivered medicines to nearby villages, and became adept at identifying intestinal worms and prescribing the right antihelminthic - no M.D. required, and patients paid gratefully.

The only Viet I know is the different ways to say "hello". I wondered what kind of living we would have if our two families went together - Ai's husband as an English teacher, Ai as a nurse practitioner teacher/translator for me and my wife, who is an optometrist. I bet we could live like royalty compared to our middle class lifestyle in the U.S. I'd use my Canadian passport to avoid political strife. And I bet the authorities wouldn't be too fussy about my qualificiations or my wife's either. I'm moderately good at picking up languages, and would probably have serviceable at least medical Vietnamese in a year.

And we'd all be doing GOOD for really suffering patients!

Again, if I was the only doc in a 100 mile radius I bet the local Communist Party Cadre would take real good care of me.

I'll give you one example - a friend of mine, now deceased, R.I.P., fell in love with Costa Rica. He set up a free clinic in a remote area. He got all his medical supplies donated from local hospitals and clinics. He had doctors come as "medical vacations" - work half the day, fish, jungle treck or surf half the day, stay at an old mansion donated for the clinic and write the stay off your taxes.

Costa Rica is relatively cheap, but they do have one BIG expense - there is a 100% duty on any imported vehicle. That's right - you buy a $25,000 4wd truck in the U.S., you pay $25,000 customs duty to take it into Costa Rica. My friend did this. When it came time to pay the duty the customs man was "You're from the free clinic? You pay nothing, Senor!"

Then he went to get a license plate from the local Police - again: "You're the doctor from the free clinic - you don't need a license plate - I tell all my men to watch out for your truck!" This doesn't happen in the U.S.A. No malpractice or license fee either. Serious crime is rare in Costa Rica but petty crime, especially theft from vehicles is very common. Nobody touched the truck.

One happy note - there was a man who had lost both legs in an accident, and got around on a wooden platform with roller skate wheels. My friend got a local ortho prosthesis company to make him two legs - now he can walk. THAT kind of stuff is what international peace is made of. You think a lot of Costa Ricans didn't hear about that? shock and awe. Give a legless man a pair of legs. Better yet, give the legless child of a family a pair of legs. You think this wouldn't work with the Taliban?

Lastly, another good friend of mine who died prematurely R.I.P. was a hospice nurse who made house calls. She'd go to the ghetto in the middle of the night with a doctor's bag full of narcotics. Anyone hassled her, the local crack thugs would come out: "You don't mess with her - she taking care of my Momma!" Leastways, that's what she told me.

Thank you, readers, for sharing these ideas and experiences.


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