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    Gordon Book Review Blog

    Red Notice by Bill Browder - Bonnie Lea Book Club review

    Posted by Geoffrey Gordon on Mon, Oct 23, 2017 @ 10:46 AM

    Red Notice is the story of big finance in Russia by Bill Browder, founder and driving force behind Hermitage Capital, a uniquely successful mutual fund that took advantage of undervalued, recently privatized Russian companies' assets in the early to mid 1990's.   As well as a story of power, greed and corruption in Russia today.
    We began with a few personal experiences with Russia.  Bill had visited USSR in the 1970's: gray, dingy, repressive. No children to be seen anywhere.  Bill told a more recent story about the son of a friend who was held at Russian border only 3 years ago, for a $65,000... 'exit fee'. The U.S. State Department said to pay it before the boy became an embarrassment and disappeared. Such was our single direct contact with Russia before beginning our discussion of the book, the book about systemic human abuse, greed, corruption. Russia is a dangerous place, run by nasty people.

    The book begins with Browder's arrival to Sheremetyevo Airport in Moscow, toward the end of his run in Russia at Hermitage. On the flight he had read a story about another American in a foreign country, China, which had imprisoned a fellow Stanford MBA, Jude Shao; this was troubling foreshadowing, as Browder was then held at the airport, unlike hundreds of prior flights. The opening scene was tense, setting the stage for the strong arm of the Russian legal system.

    The privatization program where Browder was in the right place and the right time, with the right drive and intellect and willingness to be on the ground floor, was one of the greatest arbitrage opportunities in modern investing history.  Dealing with the Russian state was another matter.

    Browder began his valuing and investing career in Poland, where he saw an opportunity to buy ownership in a company for a nickel on the dollar, as that country was trying to de-nationalize many former state-owned industries. Opportunity soon brought him to Russia, where his efforts led to a ‘eureka moment’ in Murmansk.  Consider this: a fishing company with about 100 ships, each costing about $20,000,000. The fleet was roughly half depreciated, meaning the fleet – the physical assets alone - was worth about $2,000,000,000 new, or a billion dollars after 50% depreciation (average age was 7 years).  Management had an opportunity to purchase this billion dollar business for $25 million, or about 12 ½ cents per hundred dollars of value. Just for the physical assets.

    Kremlin image.png

    What Browder learned, and was struck by, was that very few people in Russia had any idea how to value a business.   These owners had no idea, no background, and no experience in determining a value.  After all, after a hundred yeears of 'state-owned' industries, value was unimportant..

    In another example, consider the distinction between "preferred shares" and "ordinary shares"; this distinction is different from the U.S. differences.  Preferred shares paid 40% of profits by contract; and ordinary shares paid nothing.  Ordinary shares had voting rights, but preferred shares were selling at a 95% discount to these ordinary shares.   These too were bargains that may never exist again on such a scale in world capital markets.  Nobody alive in Russia had ever needed to know the concept of value.

    These incredible arbitrage opportunities were not known to brokers in western cities: The realization could only be understood by being there on the ground, talking to business owners, learning the nascent equity markets. Doug concurred with the hard work described: as a consultant, he described the heady days of consulting overseas trying to stay ahead of the client's understanding. Bad food, bad accommodations, cold winters.   Bill Browder was there.

    Some other amazing stories we discussed centered on the people Browder was able to connect with: Edmund Safra, a world famous investor early in the book; a meeting with John McCain later.  Bill Browder could open doors.

    Joel questioned the credibility of several of the story lines, including Browder's luck. One example was when Vadim bought a CD on a street corner, full of information about public company structure in Russia. This was full of crudely organized data about corporate control, sold on the street corners of Moscow: a virtual Rosetta Stone of corporate ownership in Russia.  But Jeff reminded us on his professional respect for the work that Browder did from the ground up, the street work, understanding how things got to be the way they were.  This tedious work created opportunities and understanding.  The data would be useless to most people; Browder and his team recognized its value, and leveraged it.

    Within Russia, a small group of other people did recognize the opportunities.  These people today are Russia’s richest people. Vast fortunes were created by aggregating assets – often through entirely phony ownership transactions – in the early days of privatization,  Putin was among these, but was separately slowly securing his own power.  We all recalled the scene in the book where an oligarch is sipping champagne and sampling caviar on his yacht in the Med; he sees Mikhail Khodorkovsky on TV in a cage in a Moscow courtroom.  Putin had consolidated power.  Oligarchs asked, what did it take not to be stuffed in a cage?  Putin: Fifty per cent.

    Putin is Russia's new tsar. It took 100 years of interim, but he's the tsar.  His financial value is difficult to quantify because so many assets are held nominally by others, but U.S. News estimates $200 billion.  Forbes has ranked him as the most powerful man in the world for the past six years.   He is 65; what is his end game?

    We believe that Browder’s own drive for justice was based on measures of guilt, lost justice, and need for revenge.   As the powerful began circling, how could Browder put others in his team at so much risk?  The escape of some employees juxtaposed to Magnitsky’s failure to escape was reminiscent of Jan Karsky (Secret State).  We questioned whether they all truly understood the danger of making money in Russia.  Clearly, Sergei Magnitsky overestimated the power of law and justice in his own country; and Russian traditions of criminals using the government as a tool to their personal ends prevailed.

    The opportunities were limited to natural resources companies. Trawlers, oil, No intellectual property or businesses providing services. Such is the nature of Russian assets.

    Sergei Magnitsky's brutal treatment by the government was systemic, built into foundation of the system itself.  Russia’s long history of human abuse is blossoming under Putin.  Nothing was fair or right.

    The book's last chapters followed the tedious and circuitous route to passing the Magnitsky Act, which now appears to be an effective thorn in Putin’s and his oligarchs' sides.  Witness the meeting arranged by Natalia Veselnitskaya with team Trump in 2016.  Browder himself testified before Congress that the effort to repeal the Magnitsky Act was orchestrated by high level Kremlin officials.  Browder also testified that opposition research company Fusion GPS lobbied against the Magnitsky Act as well. These are big, well fimded influence peddlers.

    An overall takeaway from this book is the absence of a rule of law, no independent court system, no check on the theft, the abuse. The foundational flaw is the lack of effective checks and balances, permitting cover, deception, and lack of accountability. Here in the U.S., there is a level of expectation, rarely perfect, but within a range of predictable and reasonable, that truth eventually emerges.  Russia still denies these truths exist.  Learning this through an interesting, but tragic Russian story made this book selection one of our favorites of the year.

     

    Get it here        Our next book is Machine Platform Crowd: 

    Tags: Red Notice, Bill Browder, Sergei Magnitsky

    Agent Storm by Morten Storm with Mark Cruickshank and Tim Lister

    Posted by Geoffrey Gordon on Wed, Jul 19, 2017 @ 12:33 PM

    Agent Storm is the story of a Danish man's personal transformation from street thug, to jihadist, to secret agent for Danish, British, and American intelligence agencies. It provides a bird's eye view of Islamic terror networks, the links injecting Middle Eastern Islamic beliefs into European societies, as well as the personal allure and ultimate rejection of Islam by the Dane, Morten Storm.

    Young Morten Storm grew up in a poor, dysfunctional home, with a violent alcoholic step-father. By 18 he found brotherhood with the Bandidos, a drug running gang of Danish miscreants, and was in and out of jail. A fellow prisoner introduced young Morten to Islam, and the transformation, right at the library, was swift. Almost too swift for credibility. His embrace of Islam prompted him to rid his body of drugs and alcohol, and drove a hunger to learn from the clerics in his Danish, and later Birmingham (UK) neighborhoods. The allure of Islam to someone living with chaos and deprivation was strong, but Islam also justified and provided a release for his violent temperament.

    We explored the evolution of the world's religions, the co-evolution of societies and governments and their delivery of economic stability and opportunity, intolerance of religious differences where social order is fragile, and other broad topics. Deviating from the book itself was easy and frequent. This first conversion was the first notable example of the credibility stretch in this book. There were several examples where we questioned the veracity, if not the 'whole story' of the narrative. This is Storm's story; the basic story was clear.  However, we all often wondered if events cited in the book were really just as described, or if they were bent by perspective.

    The book never provides specific violence against 'kaffir', non-believers, but it is difficult not to believe his ascendancy into the inner circles of worldwide terror networks didn't include plenty of illegal muscle along the way. Selective omission is the writer's prerogative in an autobiography, but many absences were noticeable.

    Storm's first trip to Sana'a in Yemen begins his deeper conversion to Islam, absorbing the philosophy of Salafism, a transnational religious - political movement rejecting of all things non-Muslim, further along the path to jihadist. This spectrum of belief was central to this topic: the allure of Islam as a religion of submission to God's will is not far from the allure of violence on others, especially amongst societies where violence or lawlessness are already extant. And while the book never described killing soldiers or civilians, such actions are entry level for Mafia, drug gangs, and other violent organizations, so expected within a jihadist community.

    Having read Reza Aslan's No God but God and more recently Andrew Bacevich's America's War for the Greater Middle East, Chuck asked whether a national strategy of active containment - including targeted assassinations - is effective against a religious based threat. The question has gained importance with collapse of Libya and Syria, and the rise of Daesh / ISIS, and unprecedented migration. While America's physical distance, restrictive immigration policy, and a history of integration into the American ideal provides greater protections against the migration overwhelming Europe, the threat from conversion of society's disenfranchised into jihadists may be as dangerous here, and clearly more challenging to identify and intervene. Will AI and its expected employment disruption create more fertile opportunities for this avenue? Is Islam fundamentally incompatible with democracy?

    Storm had become committed to two particularly important operations: delivering Aminah, the wife for Al Awlaki, and later his assassination. After Al Awlaki was successfully incinerated, the CIA told Storm his operation was not what led to the Awlaki kill, no payoff. Beyond the details of the Awlaki operation and subsequent non-payment, what does the evolution of the relationship say about Storm's emotional ties to these people, and Storm's ultimate goal?

    His subsequent trip to Jaar and Azzam in Yemen gave further insight into the loose and disparate worldwide network of al-qaeda. Unlike national entities defined by borders, the glue that holds al-qaeda together is the draw to kill Kaffir, non-believers, and to instill sharia law throughout the world. As one character had said, 'we love death more than they love life'. This adds additional perspective of the nature of Salafism and jihad.

    The book also gave a good look into three foreign service operations: PET (Dansih foreign service) paid him while the police watched him to keep a seat at the table with CIA and MI5. When Chuck asked if Storm's fear of the CIA was well founded, we all agreed he was an expendable asset, that his fears were probably well founded. His tell-all book is a statement in itself.

    We closed with Bill's question: when is the movie coming out? While there are many forces eager to keep this story from broader distribution, it prompts important questions, and is full of action and intrigue. Morten Storm probably needs the money, having gone dark. Who will play Morten Storm in the movie?

    Next book is Bill Browder's Red Notice. Browder was the force behind sanctions against Russia for murdering his lawyer Sergei Magnitsky, and in the news recently.

       Next Book:

     

    Tags: best selling books, agent storm

    America’s War for the Greater Middle East by Andrew Bacevich

    Posted by Geoffrey Gordon on Wed, Apr 19, 2017 @ 09:53 AM

    The book America’s War for the Greater Middle East is a four decade chronology of America's military involvement in the Middle East, taking military and civilian leaders to task for a strategy that has cost trillions of dollars and thousands of American lives, with little to show for it.   Colonel Bacevich does not offer any easy solutions to the crisis in the Middle East today, but argues persuasively that the efforts of the past four decades has produced no discernable positive results, likely creating more problems that it has solved.  Colonel Bacevich joined us for about forty minutes of our two-hour discussion, adding depth and a personal connection.  For me personally, it moved the needle on my perspective toward military action in the Middle East.

    The war began with the Carter Doctrine, based on the premise that American demand for predictable oil out of the Middle East had to be protected from outside interests, at the time primarily Iran and Russia.  As Rob pointed out, the gas lines of the mid-70’s made Americans feel vulnerable to foreign forces that threatened our way of life.  Efforts to prevent disruption in oil were politically defensible.   While Bacevich begins his timeline with President Jimmy Carter, several agreed that the time line could have begun decades before or after Carter.  Reagan pursued military involvement as an extension of the Carter Doctrine and was president when a force of U.S. Marines in Beirut were bombed in 1983, resulting in over 300 deaths.   Reagan pursued his own small scale war against Libya' Moamar Gadhafi for his involvement in the Lockerbie and Berlin bombings, and played both sides of the long running Iran - Iraq war, including the convoluted and illegal affair known as “Iran-Contra”.  As an aside, one of our member’s brother was a U.S. Navy fighter pilot painted by a U.S. manufactured air defense missile system operated by Iran during Operation Preying Mantis naval battle in the Persian Gulf (1988), illustrating the absurd complications present in the Middle East even in the 1980’s.   In retrospect, the 9 year Iran-Iraqi war stalemate might have been one of the most stable times for the region in the past 40 years, an idea resurrected in our conclusion.   George H.W. Bush was at the helm when our former ally Saddam Hussein decided to annex Kuwait, violating the premise of the Carter Doctrine, and placing the supply of Saudi oil in jeopardy.   Desert Shield was employed to protect Saudi oil fields (though tactically limited to Kuwaiti fields), soon followed by Desert Storm, all under the same basic premise of the Carter doctrine: the political demand for a predictable oil supply.

    Clinton took a different approach, siding with Muslims in Kosovo during the Balkans conflict, while never securing Islamic appreciation for U.S. engagement there.  To his credit, the focus on air support limited U.S. casualties unlike any previous conflict.   George W. Bush went back to Afghanistan and Iraq big:  After 9-11, Congress’ transfer its constitutionally derived war powers through the “Authorization to Use Military Force” Act (AUMF) to remove Saddam Hussein from that country and to remove the Taliban and Islamic militants from safe havens there.  The Bush Doctrine took a step beyond Carter Doctrine with a focus on pre-emptive action, taking the war on terror to them.  George Bush's greatest mistake in Iraq may have been the false optimism that we could impose or insert democracy into a place like Iraq.  The ‘nation builders’ never adequately considered the impact of religion, cultural, tribal and ethnic forces.   More recently Obama turned back to Afghanistan, while trying to disengage from Iraq, but returning there and making the same mistakes Johnson made in Vietnam, gradual escalation by half steps.  Obama also amped up use of drones as tools of assassination inconceivable thirtty years ago, while opening up new fronts in Somalia, Pakistan, Yemen, and Libya, and offering US military assets to over 50 African nations in an attempt to preempt radical Islamic influence. His legacy was to expand the fronts of war geometrically.  The story behind the detailed and meticulously referenced chronology is consistent: continued involvement of United States military assets, for objectives rarely clearly articulated to the American people.

    The book spares no one. Civilian leaders never took a long view, often swept along by political winds and politically motivated decisions, and military planners focused on military solutions, killing or degrading, while Middle Eastern societies crumbled and new leaders, often worse than their predecessors, emerged.  The demonstrable effects of this decades long war has been political instability, social degradation in, and most recently, a humanitarian disaster of migration from the area.  One of the known sources of instability are the legacies of western incursion.

    Much of the book reads as Monday morning quarterbacking, with scathing criticisms of many American military leaders including Stan McCrystal, David Petraeus, Norman Schwartzkopf, to name just a few.  Mal wondered whether Colonel Bacevich is still on the Christmas card list of anyone at the Pentagon.  Not likely.

    The premise of the wars’ earliest justification, predictable oil, has since been turned upside down, as American engineering ingenuity and competitive solutions to oil price pressure have given us a $60 bbl oil price ceiling.  The Bakken Shield in North Dakota alone has rendered imported oil merely a pricing mechanism.  The original need for oil price stability and supply predictability have been solved, without the military.

    Could we roll back to Carter's famous malaise speech, and question whether disengagement would have produced any better results for America?   Had we let market forces develop alternatives thirty years earlier, would the Middle East be a better place?   And more relevant, now that oil predictability is not held hostage by foreign nations, can we leave now?  American armies have a way of showing up but not leaving.  Should this always be the case?  Looking forward, the candidate Trump was critical of wars in the Islamic world: America First.  But the Syrian tomahawk missile strike was a questionable legal act, and accepted by Congressional leaders from both parties.  Dare we hope that this strike in Syria and the MOAB in Afghanistan will be the closing bell on militaristic solutions to the Middle East?

    As a group, we discuss and ague about paths forward to help us define our own positions on these topics. While the book offers a few closing thoughts on how diplomacy and military disengagement are better solutions, they lacked depth.  Our discussion with Colonel Bacevich on what a successful strategy would look like in his mind was much clearer from him directly.   Simply stated, success looks like the absence of war and a balance of power contained within the region.  This balance, with an absence of a broader war does NOT necessarily include democratic governments, respect for human rights, or tolerance for many of what many Americans consider social imperatives.   Nor can we expect an ambitious Iran or adventurist Russia to play along.   A strategic objective should be to persuade and facilitate countries to manage their own affairs better, without spilling out broadly beyond the region. Change to a region skeptical of any change happens at a slow pace.   In the west we’ve figured out how to reconcile faith with politics.   In the Islamic world, that social contract appears unrealistic.  At best, it will be a long time before any peace comes to the area, but great limits of American military solutions would be a good starting point.  

     

                                           Our next book :

    Tags: War in the Middle East

    “Our Man in Charleston” by Christopher Dickey

    Posted by Geoffrey Gordon on Fri, Jan 20, 2017 @ 11:54 AM

    “Our Man in Charleston” is a story of Britain's consul in Charleston, South Carolina in the several years before, and into the War Between the States… The Civil War.

    Robert Bunch was 32 years old when he arrived in Charleston, an aspiring diplomat originally assigned to Philadelphia, a more agreeable and cultivated assignment. He had roots in America, born in New York to an American mother and gunrunning British father.  He did all he could to delay his assignment from Philadelphia, as Charleston was "sickly" in the summer: people did not understand that yellow fever, a form of encephalitis, was carried by mosquitoes. Plus it was oppressively hot.  They knew New York was a better summer residence for anyone who could move there.

    His first charge as consul was to amend or terminate the Negro Seamen Act 1822, whereby any black seaman landing in Charleston could be arrested. The Act had been passed after an insurrection, but was harsh and particularly offensive to black British seamen, who could not leave their ships when in port for fear of becoming slaves.  Bunch's predecessor George Matthew had taken an adversarial legal approach, but Bunch preferred to learn about the local society first.  This made him incredibly effective.

    Britain had been trying to limit slavery and particularly the 'middle passage' since the early 1800s. It took several years before Bunch saw the Act amended, but he learned much about Charleston, its economic and political leaders, and its soul, along the way.

    His ability to insert himself was more remarkable given his personal (and British) view toward slavery.  A mere 10 days after his arrival he wrote to The Foreign Secretary, Lord Clarendon "Even people who were on other issues sensible and well informed wanted to hear nothing about slavery is inconveniences its injustice or its atrocities."  That opinion on the depravity of slavery as an institution never wavered.  His effectiveness and his value to locals increased throughout the book as the importance of British recognition increased.   All this while he took ever greater chances of penning unencrypted correspondence to Washington or London by post and private courier.  He was always just a breath away from being caught.

    Bunch's insightful analyses undermined the Confederacy's desire to be recognized by European powers, while maintaining an air of sympathy locally.   We don't fully accept the idea that his efforts to undermine Confederate recognition by European powers changed the direction of history, but history is rife with 'what-if's'.   Some have argued that if Pickett's charge had succeeded and Lee had won at Gettysburg, the Union would have sued for peace, England would have recognized the Confederacy, and our country would now be two, or many.  

    Insurrections were on the minds, and arguments, of many whites, but the truth was, insurrections were rare.  John Brown's attack on the federal arsenal at Harper's Ferry Virginia was conceived to inspire a slave revolt, but was quickly suppressed.  More common were massacres of slaves, such as the massacre of freed slaves that followed Sherman's march across Georgia at Ebenezer Creek.

    We have all read enough history to avoid making moral or ethical judgments based on our contemporary mores.  And yet reading the accounts of the 'Middle Passage', the term for Africans shipped from Africa to Cuba, or illegally to the United States, involved such indecency, we had to ask, did supporters of slavery believe that God saw slavery as the natural order of humanity?  And did people really believe that Africans were better off working plantations in America than they would have been in Africa?  Bill posited that the better educated, upper levels of society had enough education and understanding of the world that they certainly should have recognized these as mere rationalizations.  For the less educated, less traveled parochial farmers, perhaps these arguments resonated. But the bigger picture, including exposure to the Middle Passage, treatment of so many with no legal protection, it is difficult to find any common ground with the Fire Eaters, the political protectors of slavery, even through the lens of history.    Descriptions of the conditions were horrifying.  The description of that 'unique human stench', emanating from the slaver Echo, brought to Charleston harbor after its interdiction by the U.S. Navy, was powerful prose.  Scenes of what other boarding parties found on slavers were equally disturbing.

    Our discussions took us across the economic, cultural, and political forces that were converging in the United States, often centered in Charleston.  By joining Robert Bunch, we caught a deeper glimpse into those forces.

    The economic forces are not complex.   In 1807 importation of slaves became illegal, as part of a compromise to get the Constitution ratified in 1787.  While the population of African slaves increased 150 percent from 1807 to 1850, cotton production increased 3,000 percent.  The price of human laborers – slaves - increased accordingly.   Thus much of a slave owner's wealth was measured in the number of slaves he owned.   On this topic, Chuck brought up our earlier discussion of Frederick Law Olmstead who reflected after his trip across the South how cheap labor left the South little incentive to innovate on labor costs.  It was a doomed economic system, but many fought its demise.

    Insight into politics was highlighted in the Democratic convention of 1860, which could not resolve a candidate after some 57 ballots, reflecting the divide between Pro-slavery Fire Eaters such as Rhett and Yancey, and the Douglas crowd that would have been content with territorial sovereignty.   The convention gave up and adjourned to Baltimore six weeks later.

    Secession was disorderly and took time.  The states were not unified after South Carolina seceded.  There was no plan, only a few states leading, others came in eventually, but nobody seemed to appreciate what it was all leading to.  Fire Eaters were not unified by anything other than an economic need and cultural desire to keep other humans in bondage, a shaky foundation for a new country.

    We also learned more about the many characters in Bunch's life, including: James Petigru, the lawyer who argued for amending the Negro Seaman Act, Foreign Secretary Lord Palmerston, then Lord Clarendon when he became foreign secretary, Lyons, the consul in Washington, who, in spite of his initial dislike of Bunch for his overstepping British bounds, quickly recognized his diplomatic skills and insight into South Carolinian ethos.  Lawyer Judah Benjamin understood how South Carolina was so out gunned by the North, but his insight couldn't persuade others to see into the future so clearly.

    While the book rarely mentioned Lincoln, it did cast unfavorable depictions of James Buchanan, who saw conflict coming, and was relieved to have delayed it until the final days of his presidency, and of William Seward, a presidential aspirant whom we agreed may have simply lived ahead of his time.  He was after all the same Seward who bought Alaska.

    Finally, some insights into our contemporary lives that this examination of history prompted:

    there is a natural trend to social progression, pushed along by younger generations, but limited by people whose personal experiences influence their worldviews, neither of which are effectively accelerated by external admonishments.  We agreed that these forces move faster today facilitated by faster communication and greater migration, but these social trends still encounter broad resistance that only time dissipates.  Our parents' formative years were different from ours, as our children's world is different from ours.  Social progression has a natural evolution, with differing speeds in different places, as new generations grow and experience their respective worlds.   But progression is subject to the same forces of inertia as physics: when pushed by external forces, equal and opposite pushback occurs.  The recent ascendancy of the 'unenlightened', blue collar, less educated so-called 'deplorables', and a Trump presidency, is today's manifestation of that trend.  The Civil War was a far bloodier result in its day.

    All this aside, man's inhumanity continues; last week in Lynn MA, an arrest was made for human trafficking: the sex trade is alive and thrives today.  But today, most people are deeply offended, and no justification for today's slavery withstands scrutiny.

    Overall, while the prose was dense, and perhaps described more detail than was needed, this book gave a far deeper insight into slavery from its epicenter and the forces leading to our Civil war than most books do, by chronicling the work of an extraordinary diplomat.  

     

     

    Next Book:

    America's War for the Greater Middle East 

    by Andrew Bacevich

    Tags: book review, Our Man in Charleston

    5 Easy Theses by Jim Stone

    Posted by Geoffrey Gordon on Wed, Oct 26, 2016 @ 11:19 AM

    Jim Stone's book about five problems that challenge America, and his solutions, resonated with the whole group. Only half of Bonnie Lea Book Club were able to make tonight's meeting, but that turned out to be OK.   Jim joined us by teleconference for a half hour early in the meeting.

    The book addresses problems facing our country from an economic perspective, acknowledging and challenging positions on both sides of the political spectrum.

    The first chapter is Fiscal Balance, addressing our government's income, expense obligations and debt. To demonstrate the current imbalance, he apportions the federal debt burden to all Americans, and then to all taxpayers, with obligations of $55,000 and $100,000 respectively. We discussed after the call that when one includes the unfunded liabilities - SSI and Medicare - and apportions these liabilities to the top10% of taxpayers, the debt per person exceeds a million dollars per taxpayer. Jim focused on two topics in particular: how improving lifespans threaten the future of Social Security, and why interest deductions should be phased out for both businesses and individuals.

    On Social Security, Rob added that his sons, in their late 30's and early 40's, would welcome later retirement ages to strengthen the system. But the political danger is well known: politicians who promote changes to this sacred program become stars of political ads pushing grandma down the stairs. It will take a crisis to address.

    On interest deductions for businesses, Jim pointed out that the majority of interest expenses in big business goes to M&A financing; why should this be subsidized by the taxpayer? To protect small businesses who benefit from debt financing of capital to grow, Jim had no objection of a reasonable cap, say a million dollars, to restrict this particular subsidy.

    On interest deductions for individuals, Jim showed how this deduction truly benefits such a small group of homeowners, roughly million dollar homes, that it unfairly subsidizes this small group. After the call we discussed the importance of housing starts on fueling the nation's economic engine, as well as the reach of the real estate and construction lobbies; but mostly came around to the idea conceptually.

    Income Inequality is the second essay, and Mr. Stone's concern is the long term: on its current trajectory, we are headed to economic disparity such as those that existed in the middle ages (the Dark Ages?) in Europe. Trusts now enable generational transfer of wealth, which undermines the founders' vision of wealth not by heredity, but by effort and thrift. But we diverge on the current state of inequality, if measured by consumption as opposed to income, as addressed in my review of Capital in the 21st Century, here.

    We all agreed that a nation with no middle class is not a society we aspire to live in, and that intergenerational wealth transfer should be limited.  We are more skeptical about the taxing of unrealized gains.   The devil is in the details on these.

    On health care, Jim reiterated his clarification in the book that his proposal for so-called single payer is not government control of the delivery of health care, but rather consistent systems - removing multiple insurance companies - and better governmental negotiations for pharmaceuticals.  Disproportionately costly end-of-life expenses could be addressed by asking all patients, when healthy, what kind of care they wanted. Today this care involves emotional decisions by families, and economic incentives for providers, an expensive combination. Reminder to all: get a health care proxy executed so individuals can make these decisions for themselves, not leaving to others.

    We did not discuss HSAs with Jim, but Geoff continues to believe that removing the insulation of insurance carriers from the economic decisions works well at both the micro and macro level, given a chance.

    Chapter 4 on finance outlines the financial history of the past century, highlighting the laws passed under FDR in the wake of the stock market crash of 1929.  These laws provided the regulatory backbone of our nation's extraordinary financial system, regulating banks and the mutual fund industry.  Unregulated hedge funds operated quietly for private wealth until the '70's, but their assets grew from $120 billion in 1997 to 1.2 trillion just seven years later.  As the hedge fund industry is populated by 'the same spectrum of integrity' as other professions, there are many who employ outright criminal activity, plus non-fundamental investment activity as that described in Michael Lewis's Flash Boys.

    After the conference call, we also discussed Graham Leach Bliley, ending Glass Steagal's separation of commercial banking from investment banking.  Banks have grown to a stage where oversight, management, and protecting the rest of the market from the effects of a failure become impossible.  To critics who argue that additional regulation will chase capital away, Stone argues persuasively that strong regulation is a net magnet for capital.  Rob L remarked that the time spent on compliance in the financial sector is excessive, and Joel added that the paperwork for a recent construction loan was comical.  Simple, clear regulations for all players could be an improvement both systemically and operationally.

    The derivatives market was originally conceived to reduce risk in commodity and agricultural markets but derivatives markets opened to unregulated financial forces.  Open derivatives of the country's ten largest banks approximate $200 trillion, about three times the GNP of the planet.  It is an opaque market, with unrestricted leverage, and by nature, a zero sum game; thus great risk for no apparent net economic gain.   Jim's solution: Reduce scale and risk of largest banks, regulate hedge funds as mutual finds, and limit derivative leverage with capital requirements that other businesses are subject to.

    We did not spend as much time on education as the other topics, but had talked about the universal national service before and during the teleconference. Jim pointed out that of the many radio shows he has done, this topic elicited the greatest interest ...and support.  While the idea is new to today's political discussions, it has been employed successfully here in the US in the past, and is successful in many other countries.  A well conceived program could address many ills: social stratification, education expense, and vocational training to name just a few.

    Overall, while several of us are skeptical of the government's ability to handle our money effectively, the solutions offered in 5 Easy Theses deserve active discussion and promotion so that our political leaders can attend thoughtfully the risks we face as a nation.

     For our next book, we decided to go back to historical fiction, and selected Our Man in Charleston, about an ante-bellum British spy.

    Tags: health care, finance

    Dynasty - Tom Holland

    Posted by Geoffrey Gordon on Wed, Jul 20, 2016 @ 12:07 PM

    file0001776616142.jpgThis book was a slog, and only began to flow with the arrival of Caligula past the book's halfway mark.  Nero seemed to be Holland's favorite Caesar.   So began our book club review of Dynasty.

    The book chronicles, in detail that seemed difficult to believe in many passages, the lives of Rome's great line of Caesars, from Julius Caesar to the august Augustus Caesar, Tiberius, Caligula, Claudius, and Nero.  The writing was dense, characterized early on by sesquipedalian (long winded, characterized by long words) prose.  And yet it was another book most of us were glad to have read.

    The early part of the book chronicled extensively the intrigues of family and political maneuvering of Rome, from the wolf's enduring influence beginning with Romulus and Remus, past the brutality of Tarquinius the Proud, the politics of the First Triumvirate, and into the second Triumvirate.  The second Triumvirate included Marc Antony, Julius Caesar, and Marcus Lepidus, and most of us know how Marc Antony's trysts with Cleopatra worked out (not well for him), better for Julius Caesar.  Until the Ides of March.

    With that background set, much of the early book was duly dedicated to the ascension of 'the young Caesar", Octavius.  When Octavius decided he wanted Nero's wife, Livia, whom we had met in an earlier chapter, we had an early sense of how raw power worked in Rome.   At least the young Caesar waited for Livia's child to be born before marrying her.  

    This was the Caesar who would take the name Imperator, Princeps, Pontifex Maximus, and ultimately “Augustus Caesar”.  His early brutality to his enemies and skillful consolidation of power with the Senate’s guarded blessing, was masterful.   Jeff reported that he is considered the richest man in the world, ever, having been assigned a current-day wealth of some $3-4 trillion.  He owned Egypt, after all.  Under his leadership, he expanded Roman control to Hispania, Germania, and Egypt, and the wealth transferred from those vanquished places, plus the continued taxes extracted annually, permitted lavish spending on his family, and of course, on Rome. He was by most accounts, the greatest of all the Caesars, and no doubt the most enduring.

    His moderated way had limits, however, as the exile of his daughter Julia to Pandateria demonstrated as well as Ovid’s exile to Tomis.

    In reflection of the building during Augustus' reign, we discussed the infrastructure, and particularly the vulnerability to famine Rome often faced, due to vast sourcing of grain, imported primarily from Africa.  Today Italy is a leader in farm-to-table food sourcing and culinary arts, but Rome was not so well developed, the Appian Way notwithstanding. 

    We also marveled at Roman engineering, particularly aqueducts, wishing that the book had explored Roman engineering further.  Pompeii, the novel by Richard Harris is one such source offered by Geoff.

    In a similar vein, and based on Ovid's observation that no art nor peace can exist without the art of war, we all would have liked to have known more about the Roman war machine.  We did learn the soldiers could not marry, but did have license to kill, unlike Roman citizens.  And learned a little about discipline: order a soldier to go, he goes.  Order a soldier to come, he comes.  Until discipline breaks down and centurions or other leaders are horribly killed by their troops.  But the discussion of the military was relatively superficial.

    We made comparisons between then and today, and talked about the predisposition to make judgments about mores of the past throughout own contemporary lenses.  Geoff offered that his long reading of history kept him from making judgments while simultaneously describing many Roman practices as brutal, depraved, or odd.  Such are our prejudices, based on our unique personal experiences.  Rick offered that his extensive travel has helped him appreciate different ways of behaving or thinking for what they are: different, and we all agreed.   That understood, the sexual activities of Caligula and Nero in particular, were hard to accept as anything but weird.  

    Comets, monsters, and myths presented as reality were also part of life in early Rome.

    The women, Livia and Agrippina in particular were noteworthy in their influence, particularly given the male dominated society on so many other ways.  We wondered how effective ordinary women were; not just the wives of Caesars.  This thought line brought up another sense, that the book could have been more readable if it had developed even slightly topics beyond the Caesars and the people directly within their sphere.  Again, Richard Harris’ novels, including Imperium and Lustrum do that job suitably. 

    Otherwise the treachery among people of power was noteworthy: At its extreme, consider Nero, who killed his brother Britannica, took his confidant, Otho's wife, then killed his own mother Agrippina, then kills his wife Octavia to marry Poppaea Sabina, whom he kills “accidentally” by kicking her in the stomach while pregnant. 

    Overall, the book read as an academic tome, and we all agreed that while it was interesting and full of facts, it felt like a professor’s imposition, and could have been better presented.  Online reviews, however, disagree with our take, and almost exclusively praised it.

    Next Book: Our next book is Five Easy Theses by Jim Stone, a Boston insurance executive and respected economist.  This should make for good discussion of our country’s direction when we meet next on the third Tuesday in October, October 18 at 7:00 PM at Bonnie Lea.

    Tags: book review, dynasty, tom holland, caesar

    The Big Short by Michael Lewis

    Posted by Geoffrey Gordon on Wed, Apr 20, 2016 @ 02:57 PM

    The nominator for this book was Jeff C, so he led our discussion. He began by asking everyone what we personally and professionally remembered from the financial crisis of 2007 to 2008.   A few of us were aware of the crisis only through news reports; some of us were involved in tangential economic or business fields, and a few worked in the financial services industry (including Bear Stearns), and were on the ship so to speak, if not in the boiler room.  The mortgage and re-fi engine pushed a lot of real estate activity, which in turn drove many other business activities.  Our office witnessed energetic economic forces in urban settings that were otherwise deserts of economic opportunity, and we fully bought into the 'Home Ownership is Good for America' pitch while that run lasted.  But we were also skeptical of a new system that led many people into debt obligations well beyond their ability to re-pay.  Even on Main Street, the math didn’t seem to work.  Jeff C recalled how home ownership is not necessarily right for many people: those who are a broken dishwasher away from a missed mortgage payment.  With 0% down, nor did m any of the Alt-A and other sub-prime borrowers have any equity at risk, skin in the game.

    Several of us have read other Michael Lewis stories about the financial services business, including Liars Poker and Flash Boys. Lewis has an extraordinary knack for explaining somewhat complicated financial issues in ways that most readers can understand.  He also spent time on Wall Street before becoming a full-time writer, so his understanding is experiential, not academic.

    Early discussions centered around blame for the crisis, veering from details in the book.  There is no shortage of blame, and broadly blame can be cast to five categories: government policy, the rating agencies, the financial institutions, the mortgage brokers and the borrowers themselves.   Government regulations including new interpretations of the 1977 Community Reinvestment Act, which established quotas for lending to lower income groups and in lower income neighborhoods.  Continued pressure into lower and lower rated borrowers was a large contributor.   Jeff C felt that the failure of the rating agencies to rate the portfolios accurately should take the greatest blame.  The systematic destruction of a broadly competitive rating agency business, to the few agencies favored by Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac was another, leading to only a few remaining rating agencies preferred by those institutions.  Those businesses became more about getting the business than rating the business.   The book assesses the greatest blame to the financial institutions themselves.   At one point in the book, one of the risk managers asks rhetorically what the effect could be if housing prices did not continue to rise, and was told that the model couldn't calculate negative growth.  Does anyone think that a multi-billion dollar financial business couldn't have found a programmer who could model using a negative number?  The 35 year decline in interest rates has provided a 3% average annual tailwind to home values over these past three and a half decades.  Did anyone consider what could happen when that trend slowed, or reversed?  There were simply too many people who were making money off the mortgage brokerage machine and the repackaging and securitization machine, to think to pursue those questions.  'Get this year's bonus' was the overriding theme on Wall Street.  Nor were regulators at the SEC were not up to the task of regulating the complicated securities that facilitated the securitization machines.  Many of the people working in these oversight capacities were agling for the far higher paying jobs in the institutions they oversaw.

    We mostly agreed that the political class has abrogated economic leadership in the US, leaving the sole quasi-governmental economic leadership at the Federal Reserve.  Today the Fed exerts outsized influence on stock and other assets values.   Our historically low interest rates have been good for owners of capital (we read Thomas Pikkety, Capital in the 21st Century), and those in the financial services business, but not so much for retirees, or savers.  We mostly agreed there is a coordinated effort to keep US interest rates low (monetary policy) to help manage fiscal policy, as a broad rise in interest on dollars would balloon the debt service needs, and place government in an ability-to-pay corner.  But we digressed once again.

    We drifted into whether there is a solution to the dysfunction, incompetence and false leadership in government, but eventually came to the conclusion that no, we cannot count on government to lead, create positive incentives or useful regulations: it is the nature of the beast.  The real question is what can we do to prepare for the unknown future, possibly crash, possible abyss.

    As asset classes are more and more correlated, even drifting into real estate is subject to tremendous downside risk.  Geoff offered that owning a profitable small business, where one relies heavily on your own efforts, is one way.   Investible assets are a challenge today.

    Back to the book, we had varying opinions on the level of known fraud that was committed during the run-up.  Chuck placed us all on the board room, where the Chief Risk Officer makes observations, asks a few questions, while the guys who are delivering huge corporate profits are seated at the table knowing that they delivered the bonuses.  The C-suite of all these institutions had to have a sense of the fraud in pricing (as illustrated by the failure of Credit Default Swaps prices to move after the first big wave of non-performing loans), in credit ratings, and in the assembly of the Collateralized Debt Obligations to mask the true risks.  If not the details of the fraud, certainly the top leaders knew the impact of small fraud at many levels.

    Some of us had also seen the movie, which was good.  The movie was better at character development and personal drama, but the book was better in its explanations of the financial details. 

    We returned to one of the main points of the book: hindsight is 20-20, but why was the clarity of the problem so unimaginable to so many people in the business?   Why were there so few people who knew to “Short the Housing Market”, when the signals appear (20-20) so clear?

     

     

     Next Book: Dynasty: The Rise and Fall of the House of Caesar - Tom Holland

     

     


     

    Tags: financing, bonds

    Saving Lives in Their Finest Hour

    Posted by Geoffrey Gordon on Mon, Jan 25, 2016 @ 11:27 AM

    Storm.jpg

    The Finest Hour is the story of one of the greatest rescue operations in the history of the US Coast Guard, and it happened out of Chatham, in February, 1952. There were actually four rescues that fateful night, as two T2 tankers, the Pendleton and the Fort Mercer, broke in half off the east coast of Cape Cod, stranding 84 seamen on the bows and sterns of both vessels.   And four young men from Chatham risked their lives to save seamen they never knew.  All told 70 were saved; 14 perished. 

    The Pendleton was a 503' oil tanker on its way from Louisiana to Boston when a gale blew out of the northeast.  Waves up to 70' with a cargo of 122,000 barrels of kerosene in its belly were too much for the tanker and its Captain John J. Fitzgerald, a veteran of the North Atlantic from Roslindale, MA.  The tanker was just outside Boston Harbor on the evening of February 17, but Captain Fitzgerald chose not to try to risk navigating the treacherous harbor and its 34 islands as the weather worsened, choosing instead to ride out the storm on the open sea.  The ship rode the storm though the night, but at approximately 5:30 in the morning, she broke in two. 

    Captain Fitzgerald, and the radio room, was in the bow, but the ship's power was cut so the captain and seven men with him were without radio, without power, and adrift in monstrous seas. None would survive.

    In the stern, Chief Engineer Ray Seibert found himself in charge of the remaining 32 men. The sound of the ship breaking to two brought all hands together.  They still had power, and the water tight doors throughout the wreckage kept her afloat, but without a radio, they were drifting southerly down the east coast of Cape Cod, from off Race Point toward Monomoy in a monster nor'easter, with no idea how long she would continue to remain afloat.

    The Fort Mercer was another 503' tanker, built hastily in WWII with high sulfur steel and weak rivets, headed also from Louisiana toward Portland Maine.  Her captain, Frederick Paetzel was German, and had been at sea since age 14, but had never seen seas like these with 50' and 60' waves, nor heard the thunderous roar of a ship breaking in-half.   Voice by radio in 1952 was only good to 40-50 miles, but Morse code could communicate much further; Coast Guard icebreaker Eastwind heard the distress call from 150 miles away.  In addition, the Yakutat, a Coast Guard cutter out of Provincetown was dispatched to the Mercer’s approximate location.

    Immediately, Coast Guard stations on Nantucket and in Chatham were notified of the Mercer's breakup, as they were closer than the Eastwind and Yakutat to the drifting tanker.  Knowing that sending men out in 36' wooden lifeboats into seas twice their length put their lives at risk, and many remembered the Guard's slogan: You have to go out.  You don't have to come back.

    Meanwhile a resident of Nauset had heard seven horns off-shore, and soon the Pendleton was positively identified drifting south just off shore from Chatham.

    Earlier that morning, Bernie Webber and Seaman Richard Livesay had been helping fishermen secure their crafts in Chatham’s Old Harbor in the wooden 36500. They were exhausted and cold to the bone when they returned to Chatham station.  Station Chief Daniel Cluff told Bernie they had just gotten word that the Pendleton had broken up just outside the Chatham Bar, and Bernie needed to get a team together and take the 36500 out to rescue the seamen on that ship.

    Webber asked Richard Livesay, who had been helping him on Old Harbor, and engineer, Andrew Fitzgerald.  Seaman Ervin Maske just happened to be in the station between jobs, and volunteered to join the men in the CG36500 out to rescue the men on the Pendleton.

    The book follows the incredible journey out to the Pendleton's stern, and the wild retrieval of over thirty souls.  A post-disaster inquiry revealed that emergency procedures were severely lacking: inadequate flares, only a single Jacobs Ladder, a rope and wood ladder, which had only three rungs.  One by one men descended the ladder onto the deck of the 36500.  Only the cook, Tiny, was swallowed up by the sea.  The CG36500 was designed to hold about a dozen men. It brought 36 back.

    The book describes the other three rescue efforts in bone chilling detail, including the failure to locate Captain Fitzgerald or anyone else stuck in the bow.  The Fort Mercer rescues were from 100' cutters, Acushnet, Eastham, and Yakutat, and while these would be among the most difficult at sea rescues ever, were eclipsed by the four Guardsmen who saved the 31 from the Pendleton.

    The book also described the post-rescue lives of the reluctant heroes, including a poignant description of Webber's threatened refusal to accept the Gold Lifesaving Medal decoration, unless the other three seamen would be decorated as well.  Most preferred not to re-live their harrowing experience, but did enjoy a 50th reunion in 2002.

    The book could have read more richly if the author had taken artistic license and expanded the narrative about the actual rescue. Instead it read as a chronicling, and while the drama of the rescue and the story of unselfish courage and heroism speaks for itself, the movie could actually provide more depth and character development to bring it closer to life.

     

     

     

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    Tags: risk, 36500, risking lives, Coast Guard Rescue, Finest Hour, Cape Cod, Pendleton, Fort Mercer, Yakutat

    War of the Whales- Gordon Book Review

    Posted by Geoffrey Gordon on Wed, Jan 20, 2016 @ 02:59 PM

    War of the Whales - Gordon book review

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    War of the whales was a book that validated our book club’s desire to read books that we would not ordinarily read on our own.  This story moved the needle for me on the proper balance between national security and environmental considerations important to a democracy.  Unfortunately, while it was a good story, and the foundation for a worthy national debate, the writing was only mediocre.

     The book opened with a reminder that once the whales left the land and re-entered the water, they ruled the ocean as its top predators for over 30,000,000 years.  About 150 centuries ago, a relative blink of an eye, a new predator emerged to rule the land.   A few hundred years ago the land predator came to the oceans. 

     This is a David versus Goliath story of a cetologist (Ken Balcomb) and environmental activist lawyer (Joel Reynolds) taking on the United States Navy on behalf of the oceans' whales.  It begins with the mass beachings of a dozen or so beached whales right on Balcolm's front door from his research station on Abaco in the Bahamas.  Coincidentally the United States Navy had just completed exercises in the Great Bahamas Canyon, just offshore from Balcolmb's tropical research station.   As a former sailor and Navy contractor, he understood the relevance of the destroyer he saw in the water only a few miles from the mass beaching.  And also faced a personal quandary, facing down his occasional employer and powerful adversary.

     While this is a work of nonfiction, it often read like fiction, while lacking the crisp texture or organization of fiction.  Re-creation of dialogue was one example, and the back stories to several of the main characters, including cytologist Ken Balcomb, lawyer Joel Reynolds, and ocean mammal expert Darlene Ketten, were left open.   But where fiction could have closed the loop on certain threads, particularly Ketten’s autopsy of one of Balcomb's beaked whales, this completion was lacking in the story.   Some examples were credible, including the dramatization of the new admiral's learning about the naval exercise proximity to the whale beachings: we’ve got a PR problem.  But repeated reference to “warships”, instead of more descriptive destroyers, cruisers, or assault ships, further muddied the water. 

     One reason suggested for this missing completion of details was that so much of what we know is held secretly by the US Navy.  We learned that the Navy will go to great lengths to understand exactly how something went wrong, but will never divulge its findings to anyone outside of the Navy.  National security is a valid reason for this secrecy, but accountability needs to have a home for the health of any institution.

     An incredible amount of fisheries and oceanographic research is funded by the Navy's Office of Naval Research (ONR).   This gives the Navy tremendous leverage over important characters, including marine bioacoustics program manager Bob Gisiner, and whale pathologist, Darlene Ketten. 

     We agreed that in times of peace, the Navy will project and image of ocean stewardship to protect funding for its myriad programs.  During times of war, on the other hand, the Navy can do whatever it needs to do to keep our country safe.

     The Navy's obsession with submarines coming close to our shores has a long history.  Chuck recalled meeting a German fellow who admitted his only visit to the US was to Mobile AL, when he ventured well into Mobile Bay, as a sub commander, to a small German town to re-provision during WWII.  The risk of foreign submarines shadowing our coastline in World War II forever changed the strategic geographic value of an ocean buffer.  The emergence of nuclear weapons and Soviet subs followed, with quieter subs able to shadow noisier Russian subs... until the blade technology was stolen and sold to the Soviets by John Walker and Jerry Whitworth in the 1980's.  Today, Russian subs are quieter than many in the US fleet, and older Soviet subs have been sold to a long list of nations unfriendly to the US, including Iran, North Korea and who knows which other rogue nations or organizations.  El Chapo had his own submarine.  Thus, technology to find and track unfriendly subs is a high priority defense initiative.

     Unfortunately the science in the book was superficial.  We infer that beaked whales had been driven out of the water and onto Bahamian beaches (and untold additional numbers drowning or dying of the bends), the reader never learns enough details from the autopsy performed by whale pathologist Darlene Ketten.  We learn the volume of mid-range frequency is as high as 235 decibels, but have no reference as to what that really means mentally or biologically.  One inference drawn is that the Navy, through the ONR, controls almost all the oceanographic research, meaning it has effectively withheld information which could be useful for a broader national discussion about mitigation techniques or the damage actually cause to this family of highly intelligent mammals.

     This discussion worked its way into how much trouble institutions have when they are no longer accountable to the public, its funding agents, or any outsiders; we also pondered techniques that could be used for naval exercises.   Jeff proposed better simulation technology, but Chuck countered that naval exercises involve so many personnel, north of 10,000 in various capacities within a carrier group exercise.  And setting up 'ping-free zones' near the coast would be as ineffective as gun-free zones are at stopping killers with guns targeting soft target kill zones.

    Another thought was to bring back trained whales and dolphins to do some of the dirty work needed to protect us from subs.  Fascinating achievements back in the day.  But this approach comes with a price deemed too high back in the ‘60’s and ‘70’s and Day of the Dolphin, and probably would not pass muster with the animal protector crowd.

     The main characters, Balcomb and Reynolds were the classic David (vs Goliath) fighters, the scientist and the lawyer.  We learn that this unlikely team is not ultimately successful at the Supreme Court, but do have an effect on Naval environmental assessments.

     We posed the question, with unstoppable military developments into ever greater offensive threats and defensive challenges, do ocean dwelling mammals stand a chance?  SOSUS was developed in the 1960’s and has been dismantled and replaced with…?  We don’t know.   Considering the preponderance of recreational soundings alone (i.e. motor boats up and down the coast and into inland estuarial waters), how do the marine mammals stand a chance?   With people like Ken Balcomb and Joel Reynolds on the edge, disrupting old beliefs and challenging the Goliaths of the world. 

     

    Next book: The Big Short, meeting April 19th, the third Tuesday.

    Tags: Whales, War of the Whales, Gordon Book Review

    Storyof a Secret State: My report to the world, by Jan Karski

    Posted by Geoffrey Gordon on Wed, Oct 28, 2015 @ 10:07 AM

    This book is the autobiographical account of Jan Karski, young intellectual, optimistic young soldier, prisoner to the Russians / Soviets, POW, escapee, refugee, spy, and finally, member of the Polish Underground.  This story was written in 1944, to chronicle Karski's report on Poland under German occupation to the world.  Aside from the incredible story of Karski's own life in occupied Poland from 1939 to 1942, the book is a testament to the organization and effectiveness of the Polish underground, as well as firsthand chronicling of an occupation so deprived, so evil, that it disturbs our sense of what a modern society could or should become.

    The writing style changed and evolved, reflectingt Karski's personal development throughout the book.  Rick remarks the first couple chapters were characterized by bureaucratic European stiffness describing the mechanics of society, the narrative on the preparation for war, and the Blitzkrieg.  The style shifted with Karski's personal experiences as an escapee, where the story and the prose became personal, more compelling, and real.

    Karskis story itself is extraordinary.   Consider how many times he cheated death. Even in the beginning of the book, during and after the Blitzkreig in 1939, he escaped from the Germans, escaped from the Soviets, and travelled easterly around Germany toward France, over incredible distances to escape capture, and to move information for his country, Poland.

    The descriptions of his capture were especially notable.  He could have painted the story of his capture differently, blame the guide, blame others, but his description was so personal, so self-critical, the reader can not challenge its credibility.  Clearly he was a man of integrity; a reflection of so many Poles during occupation.

    We talked a lot about German domination of Europe, how it began with the systematic strangulation of Poland, with the ultimate goal that Poland would not exist.  One example was the intentional corruption of the youth, beginning with the withholding of education.  Some took great risks simply to educate the children, as many took risks for their country.

    The amazing thing about the underground was the zero Quislings, or collaborators.  The Underground accomplished this partially with their own harsh code of loyalty, but could not have achieved such success without an extraordinary sense of country by ordinary Poles.

    The women suffered in silence, as so many others, but often had it worse than most of the men.  Women were given supportive roles where they were subjected to greater risks, often with unspeakable retribution by the occupiers.

    Discussion of the communal responsibility, and how do you allow the German practice of killing many innocents for every German killed.  One specific example was at the printing press - 82 people killed for one printing press operating surreptitiously in a neighborhood.  In smaller towns, Germans also would hold a single person, an identified community leader, responsible for actions of the whole town.  The leadership of the Underground was extremely well organized and actively decided to accept the concept that the German community killing was worth the price to resist.  The pride of the Polish people meant incredible sacrifice for the country, by her countrymen.

    Karski's credibility, the acceptance of his story, seemed to diminish the further he got from the underground environment.  As a leader, his word carried great value.  But as he traveled to London, and to the U.S., the less seriously his audiences took him. Roosevelt was inquisitive, but didn't seem to do anything about Poland or the Jews.  Churchill wouldn't have an audience with Karski.  We talked about this, mostly coming to the conclusion that the horrors inflicted on people in war are distracting to the prosecution of the war effort itself: Roosevelt and Churchill may have cared about the Jews being systematically collected and exterminated, but cared more about German bombers over London, or preparing for D-Day.

    The surreptitious visit to the extermination camp was another example of Karski's strength.   He learned from Jewish leaders that one cannot understand the depth of evil until you've seen the machinations inside the camp.  Auschwitz was a series of camps: gas chambers for Jews where 1.3 million were systematically killed throughout the war.  There were plenty of other places were camps where Polish, Czech, Hungarians and others were sent to die of neglect, starvation and mistreatment.

    How could an entire society be that cruel? To be clear, the barbarity, the atrocities were NOT directly a result of war, but of an occupation: once occupied, but this was modern day Genghis Khan, prosecuted with modern German efficiency ...at murdering 6 million Jews, millions of Poles, and other eastern Europeans, under occupation.  Millions more through the conflict of war.

    One can't read this book and have lived in Europe since the war without pondering the effect of this indelible stain on the 20th century of German behavior.  Rick commented that in his business, an international financial consultancy, efforts to create cross-european offices were thwarted by lingering regional (national) memories: the French work just fine with the Belgians, and the Poles with the Czechs, but no so well with the Germans...70 years later.   It's worth contemplating, is the German contribution to the EU be driven by guilt for the atrocities of the 1940's?  

    Another lesson for today is evident with ISIS strategy: appeal to the basest dregs of Arab society, promote killing the Jews first, then conquer the world.  History repeats itself yet again.

     



     

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