Archive for the ‘Politics’ Category

World leaders’ quotes on Obama election win

November 5, 2008

Democrat Barack Obama won an extraordinary two-year struggle for the White House, beating Republican John McCain to become the first black president in U.S. history.

Following are quotes from world leaders:

GRIGORY KARASIN, RUSSIAN DEPUTY FOREIGN MINISTER

“The news we are receiving on the results of the American presidential election shows that everyone has the right to hope for a freshening of U.S. approaches to all the most complex issues, including foreign policy and therefore relations with the Russian Federation as well.”

HOSHIYAR ZEBARI, IRAQI FOREIGN MINISTER

“I think you will hear a lot of discussion and goals and slogans during the election campaigns. When there is a reality check I think any U.S. president has to look very hard at the facts on the ground.”

TZIPI LIVNI, ISRAELI FOREIGN MINISTER

“Israel expects the close strategic cooperation with the new administration, president and Congress will continue along with the continued strengthening of the special and unshakeable special relationship between the two countries.”

MOHAMED MAHDI AKEF, LEADER OF THE EGYPTIAN MUSLIM BROTHERHOOD, ONE OF THE LARGEST ISLAMIST GROUPS IN THE MIDDLE EAST

“We congratulate (Obama) on the confidence of the American people in him and we hope that he will change the policy of the United States towards the Middle East and towards the crimes which are happening in Afghanistan and Somalia, in other words that he adopts a just policy that restores to America its natural position of respect for humankind and democracy.”

REV, FEDERICO LOMBARDI, POPE BENEDICT’S SPOKESMAN

“Believers are praying that God will enlighten him and help him in his great responsibility, which is enormous because of the global importance of the United States…We hope Obama can fulfil the expectations and hopes that many have in him.”

YOUSAF RAZA GILANI, PAKISTANI PRIME MINISTER

“Your election marks a new chapter in the remarkable history of the United States. For long, the ideas of democracy, liberty and freedom espoused by the United States has been a source of inspiration…I hope that under your dynamic leadership, the United States will continue to be a source of global peace and new ideas for humanity.”

MANMOHAN SINGH, INDIAN PRIME MINISTER

“Your extraordinary journey to the White House will inspire people not only in your country but also around the world.”

ALI AL-SADIG, SUDANESE FOREIGN MINISTRY SPOKESMAN

“We don’t expect any change through our previous experience with the Democrats … When it comes to foreign policy there is no difference between the Republicans and the Democrats.”

JAN PETER BALKENENDE, DUTCH PRIME MINISTER

“The necessity for cooperation between Europe and the United States is bigger than ever. Only by close transatlantic cooperation can we face the world’s challenges.”

NICOLAS SARKOZY, FRENCH PRESIDENT

“With the world in turmoil and doubt, the American people, faithful to the values that have always defined America’s identity, have expressed with force their faith in progress and the future. At a time when we must face huge challenges together, your election has raised enormous hope in France, in Europe and beyond.”

HAMID KARZAI, AFGHAN PRESIDENT

“I applaud the American people for their great decision and I hope that this new administration in the United States of America, and the fact of the massive show of concern for human beings and lack of interest in race and colour while electing the president, will go a long way in bringing the same values to the rest of world sooner or later.”

GORDON BROWN, BRITISH PRIME MINISTER

“Barack Obama ran an inspirational campaign, energising politics with his progressive values and his vision for the future. I know Barack Obama and we share many values. We both have determination to show that government can act to help people fairly through these difficult times facing the global economy.”

MWAI KIBAKI, KENYAN PRESIDENT

“We the Kenyan people are immensely proud of your Kenyan roots. Your victory is not only an inspiration to millions of people all over the world, but it has special resonance with us here in Kenya.”

JOSE MANUEL BARROSO, EUROPEAN COMMISSION PRESIDENT

“We need to change the current crisis into a new opportunity. We need a new deal for a new world. I sincerely hope that with the leadership of President Obama, the United States of America will join forces with Europe to drive this new deal. For the benefit of our societies, for the benefit of the world.”

HU JINTAO, CHINESE PRESIDENT

“The Chinese Government and I myself have always attached great importance to China-U.S. relations. In the new historic era, I look forward to working together with you to continuously strengthen dialogue and exchanges between our two countries.”

ANGELA MERKEL, GERMAN CHANCELLOR

“I offer you my heartfelt congratulations on your historic victory in the presidential election.

“The world faces significant challenges at the start of your term. I am convinced that Europe and the United States will work closely and in a spirit of mutual trust together to confront new dangers and risks and will seize the opportunities presented by our global world.”

TARO ASO, JAPANESE PRIME MINISTER

“The Japan-U.S. alliance is key to Japanese diplomacy and it is the foundation for peace and stability in the Asia-Pacific region. With President-elect Obama, I will strengthen the Japan-U.S. alliance further and work towards resolving global issues such as the world economy, terror and the environment.”

KGALEMA MOTLANTHE, SOUTH AFRICAN PRESIDENT

“Africa, which today stands proud of your achievements, can only but look forward to a fruitful working relationship with you both at a bilateral and multilateral levels in our endeavour to create a better world for all who live in it.”

STEPHEN HARPER, CANADIAN PRIME MINISTER

“I look forward to meeting with the President-elect so that we can continue to strengthen the special bond that exists between Canada and the United States.”

KEVIN RUDD, AUSTRALIAN PRIME MINISTER

“Senator Obama’s message of hope is not just for America’s future, it is also a message of hope for the world as well. A world which is now in many respects fearful for its future.”

HELEN CLARK, NEW ZEALAND PRIME MINISTER

“Senator Obama will be taking office at a critical juncture. There are many pressing challenges facing the international community, including the global financial crisis and global warming. We look forward to working closely with President-elect Obama and his team to address these challenges.”

SUSILO BAMBANG YUDHOYONO, INDONESIAN PRESIDENT

Indonesia especially hopes that the U.S., under new leadership, will stand in the front and take real action to overcome the global financial crisis, especially since the crisis was triggered by the financial conditions in the U.S.”

GLORIA MACAPAGAL ARROYO, PHILIPPINE PRESIDENT

“We welcome his triumph in the same vein that we place the integrity of the US electoral process and the choices made by the American people in high regard. We likewise note the making of history with the election of Senator Obama as the first African-American president of the United States.”

ALI AGHAMOHAMMADI, CLOSE AIDE TO IRAN’S MOST POWEFUL FIGURE AYATOLLAH ALI KHAMENEI

“The president-elect has promised changes in policies. There is a capacity for the improvement of ties between America and Iran if Obama pursues his campaign promises, including not confronting other countries as Bush did in Iraq and Afghanistan, and also concentrating on America’s state matters and removing the American people’s concerns.”

SAEB EREKAT, AIDE TO PALESTINIAN PRESIDENT MAHMOUD ABBAS

“We hope the president-elect in the United States will stay the course and would continue the U.S. engagement in the peace process without delay. We hope the two-state vision would be transferred from a vision to a realistic track immediately.”

VIA

The Funny Side of Work Visas & Job Angst – Page 2

October 29, 2008

Prosperity

Mergers Layoffs

Dot-com workers of America, Unite!

Pink Slips

Nukees – Copyright © 1997 Darren Bleuel

Job Prospects for the Class of 2001 – Migrant Engineering Labor

Threat of Deportation
Say No! To H-1B Visas

Courtesy of

Mad Jack

Immigrant Enginners in – Citizens Out

Photo Courtesy of the

American Engineering Association

Why Did they Lay you Off?

Photo Courtesy of

American Engineering Association

Shortage of American Engineers

Photo Courtesy of

American Engineering Association

Trent Lott[o]

Courtesy of

Mad Jack

What Does Globalism Have to do With Anything?

H-1B Train
H-1Bs Leave for the U.S. Looking for Work

Aliens are Not Pets!

Dot Com Workers: Where They Are Now?

High-Tech Braceros

Hunt For Foreign Professionals

Deportation Hearing

Unemployment Offices – 1 millionth Customer

NAFTA crossed with a GATT = Cheap Labor

Exploring the New Global Economy

Globalization 3050 AD

U.S. Labor Law

Starvation Wages

Worker Pay Rates – China vs. U.S.A.

WTO, NAFTA slave ship

What’s Good for the UAW is Good for the Country

The Funny Side of Guest-Worker Visas, Globalism, & Job Angst

October 29, 2008
Superman Claims He is a Guest-Worker

Harvesters working the Silicon Valley
Multinational Corporate Pledge
U.S. Slave Labor Goods
U.S. Ecomony

Globalization Positioning System (GPS)

Nortel’s New Way to Downsize

CEO Outsourced to India – True Justice

Labor Day Celebration – In Mexico
Graduate of India Institute of Technology (I.I.T.) – Incredible Brain Power
Dilbert Project Manager – Graduate of India Institute of Technology (I.I.T.)

Three Stooges From Arizona
Starring Sen. John McCain as Moe
Rep. Jeff Flake (R-AZ) as Curly
Larry, played by Jim Kolbe (R-AZ)
Authors of the Largest Guest-Worker Amnesy Bill in the History of Mankind

Protest gainst Capitalist Communism
NAFTA Debate
Who Wants to be a Billionaire
If Your Illegal Alien Laborer Acts up – Call INS
Dibert and Outsourcing
Cutting Labor Costs

If you Liked NAFTA, You’re Gonna Luv CAFTA

George Bush – Job Terminator of 3 Million Jobs
Nike Growing Cotton 150 Years Ago
Globalization Theory
Class of 2002
I.T.anic – Thanks To the Programming Wisdom Center
Programmer then and Now – Thanks To the Programming Wisdom Center
H-1B Target: The American High Tech Worker
Cheap Labor Wanted

I Fired You

Stop Skool Standards

You Are Now Entering Mexico

Will Code HTML For Food

New Cubicles

U.S. Immigration Policy

American’s 21st Century Nuclear Defense Shield

Linda Chavez announced her Withdrawal from the Labor Secretary Position, and then her houseworkers were told to leave…

Visa Bill – Ghost of Christmas Past

Illegal Migrant Workers Needed

10 American Financial Meltdowns in the Past Century

October 11, 2008
via:

10 American Financial Meltdowns in the Past Century

Banks failed, stock prices collapsed, and panic descended on Wall Street. Americans were holding their collective breath as a rescue plan was hastily drafted. The 2008 financial crisis? Nope – it was the Panic of 1907, and again in 1929, 1987, and so on.

Since its independence more than 230 years ago, the United States has grown to have the largest economy in the world (GDP of $13.8 trillion as of 2007, by the way. That’s $13,800,000,000,000). But we didn’t get there without quite a few bumps on the road.

To put today’s economic trouble into perspective, let’s take a look at the 10 financial disasters in the United States in the past century:

1. The Panic of 1907


Floor of the New York Stock Exchange in 1907. Photo: Helen D. Van Eaton

Background: At the time, the young US stock market was in a decline – it was off 25% since the beginning of the year and Wall Street was jittery over the tight money supply.

Trigger: Then along came Otto Heinze with his get-(even)-rich(er)-quick scheme. In October of 1907, Otto, along with his brother, a copper magnate named Augustus Heinze, and the ice king (yup, he sold ice – remember, this was before the age of household refrigerators) Charles W. Morse, aggressively bought shares of United Copper, thinking that they could corner the market on the stock. Their plan failed spectacularly, and immediately bankrupted the trust companies and banks that provided the financing.

Runs on banks immediately ensued as depositors pulled their money from banks that had dealings (or rumored to have dealings) with the trio. In a little less than two weeks in the Panic of 1907, a chain reaction had left 9 trust companies and banks bankrupt.

The Solution: At the time, the United States had no central bank (President Andrew Jackson had abolished the Second Bank of the United States some 6 decades earlier), but we had J.P. Morgan.

The 70-year-old financier stepped in to bail out, er … save trust companies worth saving and let those who were too far gone to fail. The infusion of cash helped stop the domino effect of failing trust companies, but more money was needed.

So here’s what he did:

Morgan gathered 50 trust company presidents at his library, told them to come up with $25 million on their own and left them in a large room. He withdrew to his librarian’s office. At 3 a.m., he called in one of his sleep-deprived lieutenants, Ben Strong, for a review of a trust company’s books. Strong gave his report, then headed to the library’s front doors and found them locked. Morgan had the key in his pocket. No one would leave until the trusts ponied up. The presidents continued to talk. At 4:15, Morgan walked in with a statement requiring each trust company to share in a new $25 million loan. One of his lawyers read it aloud, then set it on a table. “There you are, gentlemen,” said Morgan.

No one moved.

Morgan drew Edward King, head of the Union Trust, to the table. “There’s the place, King,” he said, “and here’s the pen.” King signed. The other presidents signed. They set up a committee to handle the loan and supervise the final-stage bailouts of endangered trusts. At 4:45, the library’s heavy brass doors swung open and let the bankers out. (Source)

Aftermath: The government realized that only having people like J.P. Morgan in charge of saving the entire country’s economy was kind of a bad idea, so it created the Federal Reserve System.

2. Wall Street Crash of 1929


The trading floor of the NYSE right after the crash.

Background: In the Roaring Twenties, optimism was everywhere: the Great War, as World War I was called back then, was over and advances in technology seemed limitless. Along with that optimism was an incredibly speculative bull market: stocks went up four fold in value in that decade.

Hundreds of thousands of Americans borrowed money to play the stock market. They bought stocks with just a fraction of the value in cash and financed the rest by borrowing from the broker (“buying on margin,” if you’ve never heard it before). Needless to say, stocks became overvalued fast.

The Crash: What goes up, must come down – but it doesn’t have to come down all in one day. The Wall Street Crash of 1929 came in forms of three “black” days.

In the morning of October 24, 1929 – later nicknamed “Black Thursday“- a massive sell-off happened. More than 3 times the normal amount of shares were traded and stock prices tumbled. Richard Whitney of J.P. Morgan and Company came to the trading floor … and instead of halting trading like everyone expected, he started buying confidently and the market recovered. The market actually went up the subsequent Friday and a little down on Saturday (back then, they traded on Saturdays). And then … the bottom fell off.

On Monday, October 28, 1929, nicknamed Black Monday, the market fell 13% and the next day, nicknamed Black Tuesday, the market fell another 12%. Financiers like General Motor’s William C. Durant and the Rockefeller family stepped in and bought stocks to show confidence, but their efforts failed to stop the slide. (Source)

That week (with heaviest losses over the first two days) the market lost $30 billion, ten times more than the annual budget of the government and more than what the US had spent in all of World War I.

Over the next few weeks, the stock market suffered sharp declines though the true bottom wasn’t reached until July 1932. Over three years, the stock market dropped a staggering 89%. It would take about 25 years for the stock market to recover and re-attain the 1929 level. (Source)

Aftermath: The Wall Street Crash of 1929 led directly to …

3. The Great Depression


Migrant Mother,” a photo by Dorothea Lange depicting Florence Owens Thompson,
a destitute pea picker in California, mother of seven children, age 32. (Source)

Background: Stung by heavy losses on Wall Street, consumers began cutting expenditures. With lowered demand, businesses started laying off people (US unemployment rate rose to 25% by 1933) – which fed an ever-worsening cycle and plunged the US economy into a depression.

As debtors defaulted on their loans, banks began to fail, which led to bank runs as depositors attempted to withdraw their money en masse, triggering even more bank failures. Today, your deposit is insured in the event of a bank failure, but in 1930s, there was no such thing: when a bank failed, its depositors lost all of their money. In the first 10 months of 1930, 744 US banks failed and their depositors lost more than $140 billion. Before the decade was over, about 9,000 banks failed. (Source)


Hooverville in Levittown, New York (Source)

Hooverville: Many people thought that President Herbert Hoover did nothing to save them from the Great Depression. That’s just not true: Hoover did a few things, including deporting about 500,000 Mexicans to Mexico (half of which were actually born in the US and thus were legal citizens) and increasing tariffs on imports – which caused other countries to retaliate and US exports to plunge by more than half, but nothing worked.


Hard Times Are Still “Hoover”ing Over Us, photo of two children in a Hooverville (Source)

Many of the people made homeless by the Great Depression lived in makeshift shantytowns called Hoovervilles. They used “Hoover blanket” (old newspaper) to keep warm, wave “Hoover flag” (an empty pocket turned inside out) and drink “Hoover soup” at restaurants (poor people would pour ketchup, salt and pepper into their drinking water at restaurants, then tell the waitress that they didn’t see anything they wanted on the menu). Those who were relatively better off drove “Hoover wagon” (a car pulled by a horse because the owner couldn’t afford gas). (Source)

Solution: In 1933, the newly elected President Franklin D. Roosevelt initiated the New Deal, which included work relief program for the jobless, financial aid to farmers and business reform, including setting minimum wages and maximum weekly hours. Roosevelt encouraged trade unions and forced businesses to work with the government to set prices (later found to be unconstitutional).

In Roosevelt’s first term, unemployment fell by two third and the economy stabilized; full recovery, however, didn’t occur until the start of World War II.

Aftermath: The Great Depression had a far reaching effect, even until today. Social Security, the Tennessee Valley Authority, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation (FDIC), and the Federal Housing Authorities are direct products of the New Deal that are still active today.

4. 1973 Oil Crisis

Cars waiting in line at a gas station (1979).
Photo: Warren K. Leffler, Library of Congress

Background: In October 1973, Syria and Egypt launched a surprise attack on Israel on the Jewish day of atonement or Yom Kippur. This set off a twenty day war known as the Yom Kippur War (or Ramadan War), in which the Arab forces were defeated.

The embargo: Angry over Western nations’ support of Israel, members of the Organization of Petroleum Exporting Countries (OPEC) as well as Egypt and Syria shut off oil export to the United States, Western Europe, and Japan.

The crude oil price immediately quadrupled to $12 per barrel (I know. Twelve bucks. How quaint when compared to today’s prices!) which led gasoline price at the pump to jump 40% from 38.5 cent to 55 cent per gallon in 1974 (again, I know). The oil shock led to a huge drop in the stock market. The New York Stock Exchange lost $97 billion in value in just six weeks.

US Government responded by rationing gasoline. Long gas lines formed at the pump. In many places, motorists with even-numbered license plates were allowed to buy gas only on even-numbered dates and those with odd-numbered plates could buy only on odd-numbered dates. (Source)

Aftermath: To help reduce consumption, the federal government imposed a national maximum speed limit of 55 mph and mandated fuel efficiency standards for car manufacturers. The government also created the Strategic Petroleum Reserve and the Department of Energy.

5. Black Monday (1987)

The Crash: On Monday, October 19, 1987, the US stock market crashed. The Dow Jones Industrial Average dropped 508 points or 22.6%, the largest one-day percentage decline in the stock market history. At one point during the day, so many shares were being sold that “the New York State Stock Exchange ticker fell behind and TV newscasters couldn’t tell how much the market had fallen.” (Source)

The Culprits: The most popular culprits for the 1987 Black Monday were program trading and a new financial hedging method called portfolio insurance. These two things caused massive stock sell offs and drove down the stock price (note that other factors such as the weak dollar, large US trade deficit, and overvaluations of stock values might have played a role as well) (Source)

Program trading is easy to explain: in the early 1980s, the use of computers became increasingly popular in Wall Street. Traders began to use computers to execute rapid trades based on a pre-determined condition (say, sell when a stock price dropped to a certain point). Dropping stock prices trigger these automated trades, which flood the market with stock shares and caused an even steeper decline in stock prices.

Portfolio insurance is a little bit (okay, a lot) more complex. In 1976, two young Berkeley finance professors named Hayne Leland Mark Rubinstein thought of a way to “insure” a portfolio investments of stocks similar to the way insurance protects an asset. For a price (a kin to an insurance premium), their trading system can guarantee that an investment never loses more than a pre-set (and relatively small) amount.

To do this, portfolio insurance uses financial instruments called derivatives. Most people understand buying and selling stocks – if you buy a share of stock for $1 and sell it for $3, then you’ve made a profit of $2. Derivatives, on the other hand, let you speculate on the future price of a stock (or a commodity, or really anything at all) without ever owning a single share. For example, you can buy a futures contract, essentially an agreement to purchase a stock say a week from now for $1. If the price of the stock is greater than $1, then you’ve made money. If the price of the stock is less than $1, then you’ve lost money. At no point in time do you actually buy the stock!

In the case of portfolio insurance, say you have $1000 in stocks that you want to safeguard from falling in value by next week. Then you sell a futures contract for the stocks. If the value of your stocks dropped, you’ve lost value in your stocks but gained money from the the futures contract. (Yes this is simplistic, but that’s the basic idea).

Without getting into mind boggling technical details, suffice it to say that the portfolio insurance method linked stock prices to the futures index. The whole thing would work but for one teensy flaw: during a panic sell off, there is little market liquidity – you can try to sell stocks, but without any buyer, you effectively can’t sell it at any price.

Aftermath: In response to Black Monday, the New York Stock Exchange instituted trading rules (the so-called “circuit breakers”) to pause trading if the market fell precipitously. The Federal Reserve also get to play a really big role in ensuring liquidity by pumping billions of dollars into the banking system.

Remember the term derivatives. We’ll see that again, soon enough!

6. Savings & Loan Crisis (1989)


Lincoln Savings and Loan, back in its heyday of 1965 (Source)

Background: A Savings and Loan institution is kind of like a bank: people deposit their money in it in the forms of savings, and the S&L gives out mortgages (or loans) to the local community. S&Ls have existed since the 1800s and they were tightly regulated until the late 1970s.

In the late ’70s, the newly available money market funds offered much higher interest rates than the S&L, so people started pulling their money out of S&Ls. As a response, S&Ls asked for government deregulation (which they got*) – effectively, S&Ls could then raise interest rates on deposits and make way more loans than before with little oversight. There was a regulatory body, the Federal Home Loan Bank Board (FHLBB), but it was understaffed and its officers were accused of being chummy with the industry.

The S&L Crisis: In the real estate boom of the early ’80s, many S&L grew extremely large, extremely fast. Between 1982 and 1985, S&L assets (many of which were speculative real estate holdings and commercial loans) grew 56%. In Texas, 40 S&Ls tripled in size, with some doubling each year. (Source) Needless to say, many were overextended (some were technically bankrupt, but according to the new deregulation rules, they could remain open and thus continued to make bad loans).

By 1987, 505 S&L institutions failed. Some, like those in Texas, failed spectacularly – losses in just that one state comprised more than half of all S&L losses nationwide. The deposits were guaranteed by the Federal Savings and Loan Insurance Corporation (FSLIC, just like the FDIC guaranteed bank deposits) – but because of the amount, it turned out that the FSLIC itself was bankrupt!

All in all, by 1995, 747 S&Ls or half of all the S&L institutions in the United States went bankrupt.

The Keating Five: You may have heard of the term “Keating Five,” here’s the story in a nutshell. In 1984, construction magnate Charles Keating bought Lincoln Savings and Loan of Irvine, California. Before then, Lincoln S&L was a profitable yet conservatively run Savings and Loan institution. Keating fired the existing management and loaded up Lincoln’s investment portfolio from $1.1 billion to $5.5 billion by buying land and junk bonds.

In 1986, the FHLBB initiated an investigation on how Lincoln was doing business. Keating, who was politically connected, asked 5 US senators, for whom he had made large contributions, to intervene (which they did). In 1989, Lincoln went bankrupt and more than 21,000 mostly elderly investors lost their life savings (Lincoln had misled them to switch their FDIC-insured holdings to bonds that weren’t guaranteed).

The five senators, namely Alan Cranston, Dennis DeConcini, Donald Riegle, John Glenn, and John McCain, were investigated by the the Senate Ethics Committee. Cranston was reprimanded, Riegle and DeConcini were criticized for acting improperly, whereas Glenn and McCain were cleared of impropriety but criticized for poor judgment.

The Solution: In 1989, newly elected President George H.W. Bush announced that he would rescue the troubled Savings and Loan industry. The bailout was priced at a shocking $60 billion, which actually turned out to be overly optimistic. The total cost of the S&L mess was closer to $153 billion, of which $124 was footed by the taxpayers. (Source)

Aftermath: A whole bunch of reform, including the dissolution of the FHLBB and the FSLIC, to be replaced by other regulatory bodies. Freddie Mac, which had been under control of FHLBB, was put under the US Department of Housing and Urban Development, which gave it one additional goal: to buy subprime mortgages to enable low-income families to afford buying houses (we’ll see this again).

*Note: The deregulation of the Savings and Loan industry happened with the Garn-St. Germain Depository Institutions Act of 1982. The bill was very popular – one of its provisions was allowing adjustable rate mortgages or ARMs. (Yup, you’ve guessed it – we’ll see ARMs again)

7. Long Term Capital Bailout (1998)

Background: In 1994, legendary bond trader John Meriwether left Salomon Brothers and founded his own hedge fund. He attracted the top financial minds at the time, including two Nobel Prize economists, Myron Scholes and Robert Merton. The hedge fund was named Long Term Capital Management. Meriwether raised $1.25 billion in capital from investors to start. It was the largest funding raised for a hedge fund in history.

LTCM, as the hedge fund was commonly known, wanted to make money the scientific way: in leveraged arbitrage.

At this point, it’s probably necessary to define the terms for some people. Hedge fund is a private investment fund that aims to make money using a variety of (often exotic) financial instruments. These funds typically don’t buy stocks or bonds, instead they trade derivatives (see “Black Monday” above). The “hedge” in hedge fund comes from their habit of “hedging” their portfolio – meaning that if they hold an asset, they will also place a bet that the value of the asset would go down. If their asset did go down in value, that “hedge” bet would pay off to offset the loss. In theory, this allows the fund’s investments to be risk-free. In practice, as we shall see, that’s obviously not the case.

Arbitrage is a fancy name for a simple concept: the way to make money by exploiting price differences in two different markets. For example, say that you spot a vase selling for $10 in one swap-meet and for $15 in another. If you buy that vase for $10, then go to the other swap-meet and sell it for $15, you’ve just made a profit of $5 (less cost of gas, of course).

Leverage is another fancy name for a simple concept, namely borrowing. For example, instead of paying $100 to buy $100 worth of stock or derivatives, you can pay $10 (i.e. 10%) and borrow the rest. So, if you have $100 in your pocket, you can “buy” $1,000 worth of stock or derivatives. Say that a week after you bought that stock, it rose to $130. If you bought 1 share at $100, then you’ve made $30. But if you leveraged your purchase, you would’ve “bought” $1,000 worth of stock and you would’ve made $200 (that’s $300 – $100 capital, and of course less borrowing cost). So leveraging lets you amplify your profits but if you lost, it also amplifies your losses.

The arbitrage that LTCM dealt with was in government bonds. Their strategy was complex, but suffice it to say that Myron Scholes famously summarized that LTCM would make money by being “a giant vacuum cleaner sucking up nickels that everyone else had overlooked.” (Source)

From 1994 to 1997, LTCM could do no wrong: it returned 40% in profit per year. In early 1998, LTCM’s managed portfolio grew to well over $100 billion, with net asset of $4 billion, and it was hard-pressed to find enough profitable deals in bond arbitrage. So, with over $1 trillion-worth of arbitrage, LTCM started to look at emerging markets, specifically in Russian bonds.

The Collapse of LTCM: In August of 1998, faced with their own financial crisis, the Russian government did something that no one thought they would: they defaulted on 281 billion rubles (US$13.5 billion) of its Treasury bonds. This resulted in a fiscal panic and a massive loss for LTCM. In two weeks, it lost $1.9 billion in equity. (Source) That’s a rate of about $95,000 a minute!

Then things started to go really bad for LTCM. It had thousands of derivative positions that it couldn’t sell without incurring massive losses. But LTCM wasn’t alone in this: for every deal it made, there was a counterparty that held the opposite position (for every buyer, there is a seller, and vice versa). If LTCM failed, then it would drag down everybody.

In September 1998, just weeks after the whole thing started to unravel, a consortium of banks and investment firms bailed out LTCM. Under guidance from the Federal Reserve Bank of New York, Goldman Sachs, Merrill Lynch, J.P. Morgan, Morgan Stanley, Salomon Smith Barney, UBS, Deutsche Bank, Lehman Brothers … virtually all who’s who in banking contributed to the $3.6 billion bailout (no government money was used).

Aftermath: LTCM wasn’t supposed to fail. It was managed by the rocket scientists of the financial world, and theoretically, in a rational market, it would always turn a profit. Indeed, after the bailout, the market calmed down and the positions formerly held by LTCM were eventually liquidated at a small profit. But, as economist John Maynard Keynes famously said, “the market can stay irrational longer than you can stay solvent.”

8. Dot-com Bubble (2000)

Background: In 1995, the Internet burst into the public’s consciousness. The Internet brought with it a new frontier to do business and everyone and their uncle wanted in on the new gold rush. Venture capitalists poured money into start up firms with poorly thought out business plan (other than “get big fast”), then took them public in an Initial Public Offering.

For a while, it worked: stocks in dot-coms went only one way from 1995 to 2000 and that is up. NASDAQ, the trading market that lists a lot of technology companies, went from 750 in January, 1995 to a peak of 5132 on March 10, 2000.

Despite the warning by the Fed chairman Alan Greenspan in 1996 about the market’s “irrational exuberance” and the then-dowdy-but-now-prophetic refusal of legendary investor Warren Buffet to invest in dot-com stocks, companies with no profit and even those without any viable plan to profitability were valued in the millions.

The Bubble Popped: Then, the party was over. Fueled with easy money from venture capitalists and IPOs, dot-com companies spent their way to bankruptcy: Boo.com spent $188 million in just 6 months in attempt to create a global fashion store. Pets.com raised $82.5 million in an IPO only to go bankrupt nine months later. Computer.com spent $3.5 million, or more than half of its budget, in 90 seconds ads during the Super Bowl. That’s a staggering $38,889 a second!

The biggest dot-com company that crashed and burned was, hands down, WebVan. The company aimed to deliver groceries to homes and businesses. It raised $375 million in an IPO, expanded to 8 cities (with plan to expand to 26 cities), built $1 billion-worth of infrastructure in forms of high-tech warehouses, and spent lavishly on pretty much everything (they bought 115 Herman Miller Aeron chairs at over $800 a piece!), all before turning a dime in profit. (Source)

WebVan forgot that it was actually in the grocery business, which has razor thin margins to begin with. In a mere 18 months the company had spent itself to bankruptcy.

From March 2000 to October 2002, the dot-com bubble crash wiped out $5 trillion in market value of tech companies and more than half of all dot-com companies went out of business.

9. California Electricity Crisis (2001)

Background: In 1996, state lawmakers decided to deregulate California’s energy market. In the old system, prices were set so consumers faced stable prices but because of the price cap, energy companies didn’t find it profitable to invest in new power plants.

The deregulation was supposed to lower electricity price in the long term by attracting new competitions. Indeed, companies proposed new power plants that would’ve increased California’s capacity by almost 50%. But because of the cumbersome approval process, no new plants were actually built.

The deregulation plan, however, was flawed from the beginning: utilities were forced to sell power plants to the private sector (to companies like Enron and Reliant Energy) and then buy back electricity from them to distribute to homes and businesses. Worse, the utilities weren’t allowed to negotiate long-term contracts – rather, they had to buy on the “spot market” where the prices were very high. Furthermore, the utilities couldn’t pass on the cost to the consumers as retail prices of electricity were still regulated.

The Manufacturing of the Crisis: In June 2000, the market condition was ripe for manipulations. A drought reduced the amount of electricity supplied to California by dams in the Pacific Northwest. At the same time, the demand for electricity rose during the hot summer months.

Enter Enron. Traders at the Texas-based energy company manipulated the electricity market by persuading power plants to shut down for unnecessary “maintenance,” laundering electricity (basically, shipping electricity out of California and then charging a higher price by selling it back from out of state), and creating artificial congestions over power transmission lines. The traders called their manipulation strategies by colorful names like “Fat Boy,” “Richocet,” “Get Shorty,” and even “Death Star.” (Source) By these means, traders increased the wholesale price of electricity from $45 per megawatt to over $1,400!

The Crisis: Utilities like Pacific Gas & Electric and Southern California Edison were hit hard. On one hand, they had to pay Enron upwards of 50 cents per kilowatt hours wholesale but could only charge 6.7 cent to their retail customers (Source). PG&E and SoCal Edison racked up $20 billion in debt (PG&E later filed Chapter 11 protection under bankruptcy laws). As a result, rolling blackouts affected millions of households.

Political Fallout: The California Electricity Crisis ended Governor Gray Davis’ political career. Though he inherited the deregulation mess, people blamed him for being too slow to act during the energy crisis. In 2003, he was recalled and Arnold Schwarzenegger was elected Governor to replace him.

The Bankruptcy of Enron: In late 2001, a scandal involving Enron was brewing. Investigations into the company on its role in the crisis revealed that the company had created offshore entities to hide its debt and made it look much more profitable than it actually was. (Again, like the trading manipulations, Enron gave its offshore entities really colorful names like “Jedi” and “Chewco.”) (Source)

Enron’s stock imploded and the company brought down the accounting firm Arthur Andersen, who was found guilty for its role in auditing the company.

10. Subprime Mortgage and Credit Crisis (2007 – )


Photo: respres [Flickr]

Background: To understand the ongoing subprime mortgage and credit crisis, let’s go back a few years. The end of the Dot-Com Bubble was the start of another, even larger bubble: the housing bubble.

From 2000 to 2005, the median sales price of existing homes increased year over year and speculative investment in properties skyrocketed. “Flipping” or buying a house, doing some quick renovation or repair, then selling it for a handsome profit, became sort of a national pastime, with cable TV shows dedicated to it. In 2005 we saw the launch of not one but two shows, one called Flip This House and another – completely unrelated – called Flip That House.

When property values kept on increasing, home loans became very easy to get (after all, if the borrower defaulted on the mortgage, then the bank got the house – which value kept on increasing anyway!). New mortgage products became popular: subprime loans for borrowers who otherwise wouldn’t qualify for loans because of their lack of creditworthiness (hence the term “subprime”) and adjustable-rate mortgage, which, as its name implies, have a variable interest rate. In addition to ARMs, there were also interest only loan – which let the borrower pay only the interest and not the principal on the loan for a period of time, and negative amortization loan (or NegAm) which let the borrower pay a portion of the monthly payment (the rest got added to the total amount borrowed – in this type of mortgage, the amount you owe gets larger year after year!).

How easy was it to get a mortgage? One mortgage provider, HCL Finance (motto: “Home of the ‘no doc’ loan” – no doc refers to no documentation of income required) had a product called the NINJA loan. It stood for No Income, No Job (and) no Assets! (Source)

In 2006, home prices started to go down and a year or so later, borrowers of subprime mortgages started to default on their loans. In 2007, almost 1.3 million properties were being foreclosed – a jump of 75% over the year before. (Source) As late as March 2008, it was estimated that 8.8 million homeowners (about 10.8% of total homeowners) have zero or negative equity in their homes, meaning they owe more than their houses are worth. (Source)

Had that been it, the crisis probably would’ve been isolated. Sure some banks would undoubtedly fail because they made bad loans, but the subprime crisis had since spread to the credit markets and created a massive credit crunch that is larger and far more dangerous than the subprime crisis.

Securitization: To understand the current credit crisis, it’s important to understand something called “securitization.” Securitization is an old process by which an asset that generates a cash flow can be converted into a security (like a bond), that can then be bought and sold in the market just like any other security.

A great example is the Bowie Bond. In 1997, musician David Bowie issued a bond (basically a loan note) secured by the current and future royalty revenues of his first 25 albums (a total of 287 songs … here it was the “asset”). The 10-year Bowie Bonds were bought for $55 million by Prudential Insurance Company, who then would collect on the royalties for ten years. So David Bowie got $55 million up front, and Prudential could either keep the bond (and get the song royalties) or sell the bond for profit. (Source)

Back to the topic at hand. Traditionally, banks hold mortgages until maturity, with profits being interest of the loan. But Wall Street had an idea: why not do to mortgages what David Bowie did to songs? So they (and by they, I mean Freddie Mac, Fannie Mae, and 12 Federal Home Loan Banks) pooled together mortgages and bundled them up into asset-backed securities (ABSs) and sold the package to get up front money (the investor would get the monthly mortgage payments from all of the homeowners whose mortgages got bundled).

But wait – these mortgages all had different risks. Some were safe, stodgy 30-year mortgages whereas others were subprime loans that though were more risky, also had higher interest rates and thus were more profitable. Not to worry: Wall Street split the ABSs into “tranches” (just a fancy word meaning sections or classes): the safest were rated AAA (by rating agencies whose sole job was to gauge how risky something was … and got paid by those whom it rated – talk about a conflict of interest!), the rest were medium and low-rated tranches.

The logic was this: one borrower might default on his loan, but if you bundled them together, there’s safety in number: it’s unlikely that ALL borrowers would default all at once.

But wait – there’s more. The medium and low-rated tranches were riskier investments, but it’s unlikely that all of them would default at the same time. So let’s take all those medium-to-low rated ABSs and pool them together to create something called collateralized debt obligations (CDOs). And through the magic of rating, we once again could turn some of these risky securities into – tada! – A-rated securities fit for pension funds. Repackage these CDOs a few more times and pretty soon you wouldn’t know how much subprime loans were actually in them. (Source)

The Credit Crisis: So how did the housing downturn infect the credit markets? Well, when the housing price dropped, a large number of borrowers began to default on their mortgages. Suddenly, ABSs and CDOs looked very suspicious as no one knew how much exposure to the subprime mortgage mess these securities actually had. The market for ABSs and CDOs dried up and holders of these securities couldn’t sell them. In many cases, these companies leveraged their purchase of these securities, which really amplified their losses.

Just as the market worsened and investment firms and companies found that their holdings of ABSs and CDOs were worth far less than they had paid for them (and thus had to write off that loss in their books – causing a number of hedge funds to collapse), another domino fell: Credit-default Swaps (which took down AIG).

Credit-default Swap: Credit-default Swap (or CDS) is basically insurance on debt. Say that a bank buys a large amount of bonds from a company. As with any debt, there is a risk of the debtor fail to pay the money back. To protect against the company defaulting on its bond payments, the bank would buy CDS. In case of a default, the bank go to the insurer and cash in its CDS.

American International Group or AIG was the creator and the largest seller of CDS. It thought that CDS was an insurance product just like a homeowner’s policy, but obviously it was wrong. “Any one house burning down doesn’t increase the likelihood that lots of other houses will burn down,” explained Adam Davidson of NPR, “That doesn’t apply to bond insurance.” (Source)

In case of bonds, a default can create a domino effect: as investors lose confidence and sell, the price of bonds go down and the interest rates go up. Borrowers who can’t find capital to meet their obligations would start to default on their bonds and the cycle deepens. (Photo: Gone-Walkabout [Flickr])

To make sure that AIG would actually pony up and pay the CDS in case of a bond default, it had to post a collateral. This collateral depended on their credit ranking – as their credit was downgraded, it had to post more collateral. Because of its worthless mortgage-backed securities assets, AIG’s creditworthiness would be downgraded – which meant that it would need to post as much as $250 billion, which of course it didn’t have laying around, in collateral in a matter of weeks!

Why Bail Out AIG? Over the years, the CDS market has grown into a $70 trillion a year business. And since no one knew who has CDS from AIG, the failure of AIG would mean that a lot of companies are holding bonds that are significantly riskier than they first thought. Companies that had “hedged” their bets by buying CDS would find their books suddenly unbalanced, which means they have to sell off assets to cover their risks or they would become insolvent. This failure would propagate throughout the entire economy and create a “systemic failure.” That, by the way, was what the government was trying to avoid by bailing out AIG. (Source)

The Credit Crunch: The basic essence of the credit crunch is this: banks won’t lend because they can’t be sure that they’ll be paid back. Companies with excellent credit ratings found themselves unable to get a loan (after all, all those ABSs and CDOs had excellent ratings, so who’s to say that the ratings are worth anything?). Even some banks find themselves unable to borrow money from other banks!

The Solution? As you well know by now, the White House requested, and the Congress passed a $700 billion bailout program. The idea is to for the government to buy distressed asset, especially mortgage-backed securities, from the nation’s banks, which would inspire banks to lend again. The bailout remains unpopular with the general public, who perceive it as bailing out Wall Street, who caused this mess in the first place.

Whether the bailout will work or not remains to be seen.

________________

I’ll be the first to acknowledge that this article greatly oversimplifies many things that are very, very complex (like derivatives). We’ve also skipped many subjects (like the collapse of Bear Stearns and Lehman Brothers, the bailout of Freddie Mac, and so on). We didn’t talk at all about the international aspects of some of these crises.

In all fairness, it is not meant to be a treatise on these economic failures. Even the experts can’t come to an agreement on some of these stuff. Despite having over 50 years to analyze the Great Depression, economists still can’t agree on what caused it!

Hilarious enviornmental anecdote

July 6, 2008

I just love this guy!!

This is a true story and the account of the investigation makes it even better…

This is an actual letter sent to a man named Ryan DeVries by the Pennsylvania Department of Environmental Quality, State of Pennsylvania .

This guy’s response is hilarious, but read the State’s letter before you get to the response letter.

SUBJECT: DEQ File No.97-59-0023 ; T11N; R10W, Sec.

20; Lycoming County

Dear Mr. DeVries:

It has come to the attention of the Department ofEnvironmental Quality that there has been recent unauthorized activity on the above referenced parcel of property. You have been certified as the legallandowner and/or contractor who did the following

unauthorized activity:

Construction and maintenance of two wood debris dams across the outlet stream of Spring Pond.

A permit must be issued prior to the start of this type of activity.

A review of the Department’s files shows that no permits have been issued. Therefore, the Department has determined that this activity is in violation
of Part 301, Inland Lakes and Streams, of the Natural Resource and Environmental Protection Act, Act 451 of the Public Acts of 1994, being sections 324.30101 to 324.30113 of the Pennsylvania Compiled Laws, annotated.

The Department has been informed that one or both of the dams partially failed during a recent rain event, causing debris and flooding at downstream locations. We find that dams of this nature are inherently hazardous and cannot be permitted. The
Department therefore orders you to cease and desist all activities at this location, and to restore the stream to a free-flow condition by removing all wood and brush forming the dams from the stream channel. All restoration work shall be
completed no later than January 31, 2006.

Please notify this office when the restoration has been completed so that a follow-up site inspection may be scheduled by our staff.

Failure to comply with this request or any further unauthorized activity on the site may result in this case being referred for elevated enforcement action..

We anticipate and would appreciate your full cooperation in this matter.

Please feel free to contact me at this office if you have any questions.

Sincerely,

David L. Price

District Representative and Water Management

Division.

Here is the actual response sent back by Mr. DeVries:

Re: DEQ File No. 97-59-0023; T11N; R10W, Sec. 20;

Lycoming County

Dear Mr. Price,

Your certified letter dated 12/17/02 has been handed to me to respond to. I am the legal landowner but not the Contractor at 2088 Dagget Lane, Trout Run, Pennsylvania.

A couple of beavers are in the (State unauthorized)process of constructing and maintaining two wood ‘debris’ dams across the outlet stream of my Spring Pond. While I did not pay for, authorize, nor supervise their dam project, I think they would be highly offended that you call their skillful use of natures building materials ‘debris.’ I would like to challenge your department to attempt to emulate their dam project any time and/or any place you choose. I believe I can safely state there is no way you could ever match their dam skills, their dam resourcefulness, their dam ingenuity, their dam persistence, their dam determination and/or their dam work ethic.

As to your request, I do not think the beavers are aware that they must first fill out a dam permit prior to the start of this type of dam activity.

My first dam question to you is:

(1) Are you trying to discriminate against my Spring Pond Beavers, or

(2) do you require all beavers throughout this State to conform to said dam request?

If you are not discriminating against these particular beavers, through the Freedom of Information Act, I request completed copies of all those other applicable beaver dam permits that have been issued. Perhaps we will see if there really is a dam violation of Part 301, Inland Lakes and Streams, of the Natural Resource and Environmental Protection Act, Act 451 of the Public Acts of 1994, being sections 324.30101 to 324.30113 of the Pennsylvania Compiled Laws, annotated.

I have several concerns. My first concern is, aren’t the beavers entitled to legal representation? The Spring Pond Beavers are financially destitute and are unable to pay for said representation — so the State will have to provide them with a dam lawyer.

The Department’s dam concern that either one or both of the dams failed during a recent rain event, causing flooding, is proof that this is a natural occurrence, which the Department is required to protect. In other words, we should leave the Spring Pond Beavers alone rather than harassing them and calling their dam names.

If you want the stream ‘restored’ to a dam free-flow condition please contact the beavers — but if you are going to arrest them, they obviously did not pay any attention to your dam letter, they being unable to read English.

In my humble opinion, the Spring Pond Beavers have a right to build their authorized dams as long as the sky is blue, the grass is green and water flows
downstream. They have more dam rights than I do to live and enjoy Spring Pond. If the Department of Natural Resources and Environmental Protection lives up to its name, it should protect the natural resources (Beavers) and the environment (Beavers’ Dams).

So, as far as the beavers and I are concerned, this dam case can be referred for more elevated enforcement action right now. Why wait until 1/31/2006? The Spring Pond Beavers may be under the dam ice then and there will be no way for you or
your dam staff to contact/harass them then.

In conclusion, I would like to bring to your attention to a real environmental quality, health, problem in the area. It is the bears! Bears are actually defecating in our woods. I definitely believe you should be persecuting the defecating bears and leave the beavers alone.

If you are going to investigate the beaver dam, watch your step!

The bears are not careful where they dump!

Being unable to comply with your dam request, and being unable to contact you on your dam answering machine, I am sending this response to your dam office.

THANK YOU.

RYAN DEVRIES & THE DAM BEAVERS

Our minister for youth affairs is 71!

April 22, 2008
How do you define ‘youth’? The median age of our nation is 24.8, and those below fifteen are 31.8 per cent of the population. China, our nearest neighbour, has a median age of 33.2 and only 20.4 per cent of its people are under fifteen. Whichever way you look at it India is a very young nation, something known to Dr Manmohan Singh, who made his living by dabbling in statistics.

So whom does our scholarly prime minister appoint as minister for youth affairs and sports? A man who faces 72 candles on the birthday cake two months from today! Can you think of anything sillier?

Actually, ‘silly’ is not the word for this particular appointment; I think ‘dangerous’ might be the better choice of word. Because the man in question is none other than that former Chief Election Commissioner Dr M S Gill, and in appointing him the prime minister has crossed a line.

It is impossible in a parliamentary system to sever the links between the executive and the legislative wings of the state. Knowing this, the makers of the Constitution set up checks, so that parliamentary democracy would not turn into executive tyranny.

Chief among these, of course, is the higher judiciary (not just the Supreme Court but the high courts too), which were given a large measure of immunity from the whims of the executive. But that was not all, certain other institutions were created to exercise a supervisory role over the government. These include the Election Commission and the office of the Comptroller & Auditor General.

We take it for granted that legislators and ministers are inherently biased, that is part and parcel of electoral democracy. But we also take it for granted that their Lordships and the election commissioners are painfully scrupulous. We may grumble at their decisions but we also accept that they were made in absolute good faith.

That faith has been shaken in the past decade. In 1997, former Chief Election Commissioner T N Seshan stood for the presidency with the backing of the Shiv Sena. In 1999, he crossed the floor, happily taking a Congress ticket to stand from the Gandhinagar Lok Sabha seat against L K Advani.

I suppose taking Bal Thackeray’s blessings in 1997 and then accepting Sonia Gandhi as the supremo in 1999 proves that T N Seshan is completely without prejudice about ideology! But was this really expected of the man who spoke so much on the Model Code of Conduct?

T N Seshan crossed a line; his successor has gone so far that the line is totally invisible. M S Gill happily accepted a Congress ticket to stand from Punjab for the Rajya Sabha. Now he has gone farther down that path, cheerfully accepting a post as minister. Life begins at forty but ministerial life starts at 71, right minister?

What exactly has M S Gill gained? The right to a ministerial bungalow? A few cars with flashing red lights? A score of assistants? But will any of it carry a fraction of the respect he commanded from 1996 to 2001?

We trusted M S Gill to be above politics and he turned out to be just another Congressman. Can you ever again look at Nirvachan Sadan without wondering how many budding Congress, BJP, or CPI-M ministers are sitting inside?

But why should we blame M S Gill alone? Constitutionally, it is the prime minister who chooses his ministerial colleagues. And so, reluctantly, we must cast a spotlight on the political morality of that other ‘MS’, Manmohan Singh.

What exactly, Mr Prime Minister, was the crisis that led you to overturn decades of political tradition to appoint a former Chief Election Commissioner as your minister? One might have understood if there was something of utter urgency that required specific administrative talents that only M S Gill possesses?

But Shri Gill has not been made the Union home minister or the external affairs minister, has he? He has been granted the portfolio of sports and youth affairs, and that too not even as a full-blown Cabinet minister but as a mere minister of state!

It suddenly strikes me that our prime minister might not even understand the implications of his actions. Don’t forget that Dr Manmohan Singh’s instincts are those of a bureaucrat, that he is a prime minister without a mandate.

Dr Manmohan Singh is a Punjabi, but he was sent to the Upper House from Assam, swearing without a blush that he is a resident of ‘House No 3989, Nandan Nagar, Ward No 51, Sarumataria, Dispur, Guwahati’.

We claim to follow the British system of parliamentary democracy. But it has been more than a hundred years since there was a British prime minister from the House of Lords; every single one of them since Lord Salisbury demitted office has been from the House of Commons, which is to say that he or she was directly elected.

Has Dr Manmohan Singh ever stood before the people to ask for votes? He did so just once, in 1999, and went down in flames. Having endured the humiliation of defeat, Dr Manmohan Singh has barely ventured out of the air-conditioned comforts of the Rajya Sabha and South Block.

Dr Manmohan Singh’s scholarly and administrative talents may be immense. His personal incorruptibility is absolutely beyond question. But there is a democratic deficit at the heart of his prime ministership.

In about a month-and-a-half as I write, it will be four years since Dr Manmohan Singh went to Race Course Road — which is to say that it will be four years since India had a popularly-elected chief executive. That would never be tolerated in the United States, or Britain, or France, or any other democracy.

The essence of democracy is allowing the people to choose their own rulers. The mechanism is free and fair polling. There is a pattern in his behaviour, whether refusing to stand for the Lok Sabha or appointing M S Gill as a minister — and it reveals a disturbing disdain for democratic procedure.

In 1804, faced with universal criticism after the execution of the Duc d’Enghien, Napoleon grumbled that he had just followed the letter of the law. To which Talleyrand responded, ‘It was worse than a crime, it was a blunder.’

A prime minister sitting in the Rajya Sabha and a former chief election commissioner joining party politics are not crimes, Dr Manmohan Singh, but they are certainly blunders.