Tag: politics

Travelogue: Amsterdam

Note: I took a two week trip to Ireland, the Netherlands and England.  This post is the second in a short series about where I went, along with observations about how Europe and the UK compare to the US.  You can find the first here.

Amsterdam is an amazing city that gets a crazy reputation in the United States because of its portrayal in movies and popular culture.  While there are areas that are about as crazy as it gets, the vast majority of Amsterdam is a laid back, historic, beautiful city.  In fact, if you did not know the red light district was there and did not wander into its few square blocks, you would never suspect anything.

We spent four days in Amsterdam, wandering around the canals, looking at old buildings and people watching.  We stayed about two blocks from the Rijksmuseum and the Van Gogh Museum in a quiet neighborhood on the southwestern side of the city.  We talked with the desk clerk about what we should see and do in Amsterdam and he gave us a bunch of places to go.  Like most Dutch people, he spoke perfect English.  Unlike America where John Kerry was mocked for being able to speak French, most Europeans highly value being able to speak foreign languages.  The hotel clerk could speak Dutch, German, English, Spanish, Italian, Portuguese, French and a little Arabic and he thought it was no big deal.  In the US, his mastery of languages would be extremely rare, but in the Netherlands, its not that rare: many Dutch citizens speak more than three languages.

I love to cook and eat good food, so one of my favorite parts about traveling is eating great local food.  The Netherlands does not have much traditional food to speak of, but has a long history of immigration and foreign food.  Indonesia was a Dutch colony and when it declared independence, the Netherlands allowed hundreds of thousands of Indonesians to immigrate.  One of the best benefits, at least for tourists, is amazing Indonesian food.

A traditional Indonesian meal called Rijjsttafel, or rice table, is the best way to experience this interesting cuisine.  A rice table consists of between 12 and 30 small portions of different Indonesian specialties.  Indonesian cuisine has lots of coconut milk, peanuts and curry used in a myriad of different ways.  My favorite dishes were beef satay with peanut sauce, a spicy hard-boiled then fried egg, Indonesian chicken soup and coconut milk chicken.  We went to two different places and both were really good, but the second place we went was simply amazing.  It was the rated as one of the top Indonesian restaurants in Amsterdam and we could tell.  We ate early and were the only people in the restaurant, so we were able to ask the owner/waiter lots of questions.  We could tell he loved talking to people who liked to cook and after a few questions, he stopped by and told us all about each dish and how to prepare them.  The food was great, but the owner explaining all of the dishes to us made the experience even more memorable.

The Netherlands is a biking country and Amsterdam has more bikes than people, but that has not stopped some from gaining weight.  The Dutch weight problem is no where near American proportions, but it is a growing problem that many have started to pay attention to.  The Dutch also have been revamping their health care system, much like the US is trying to do at the moment.  There is a newer story about how well the system is working that I saw on BBC World News while I was in London, but all I can find is an older Wall Street Journal article explaining the system.  Here is how it works:

Starting in 2006, the Netherlands has required all adults to buy their own health insurance, or pay a penalty. And insurers must offer policy to all comers, no matter how sick or old they are, WSJ’s Gautam Naik reports.

The government subsidizes policies for adults who can’t afford to pay premiums and makes “risk-equalization” payments to insurers that cover the elderly and those with some chronic conditions such as diabetes.

According to the BBC, this plan led to more competition and lower rates for Dutch citizens.  Insurance companies have to compete out in the open and have come up with many interesting ways of attracting customers.  Most companies now have gyms that are included in the health insurance plan.  Customers get swipe cards to use each time they go and work out and receive discounts based on how much exercise they are doing.  Saving money is powerful motivator for people to go to the gym and it would be interesting to see how it would work in the US.  Instead of trying to pass a massive health care bill like congress is trying to do now, it would be interesting to see a more open debate with more time to check out other options.  I will save my health care thoughts for another post, but I think the Dutch solution is a very innovative model for America to at least consider before implementing more changes.  Traveling usually helps showcase different perspectives on problems in the United States and this trip to Amsterdam was no different.  I am thankful that I was able to spend time in Amsterdam.  It is definitely one of my favorite places I have ever been.

It’s the Leverage, Stupid!

With the stock market looking toppy and the unemployment rate still on the rise, the “green shoots” are starting to look rather brown (or more like a mirage) and some are calling for a second stimulus.  For now, leave the ridiculous fact that only a tiny percentage of first stimulus has been spent so far and let’s look at the facts.  The economic crisis was caused by excess leverage, first by consumers, then by companies, now by the government.  Is a second stimulus with more leverage what we really need?  If it is, will the Obama administration make a case for it that doesn’t use phony statistics like “jobs saved or created?”

To borrow from Bill Clinton’s first presidential campaign, Its the Leverage, Stupid!  Consumers borrowed huge amounts of money to live lavish lifestyles or to just keep up with the monthly bills.  The consumer savings rate peaked in the 1970s around 15%, but declined consistantly during the 80s and 90s.  It even went negative in 2007, right before the financial crisis.  This meant that consumers were, on average, spending more than they made.  Consumers resorted to using their homes as ATMs, borrowing vast amounts of money to keep the party going.  Clearly it was not sustainable.

Banks and non-bank banks stoked the flames and let the party rage on.  Banks offered mortgages to people who shouldn’t have had them, manufactured huge bets on CDOs and made billions moving money around.  After the government removed many of the leverage regulations, banks continued to go wild.  Other companies and hedge funds joined the fray, borrowing billions of dollars  for leveraged buyouts that left balance sheets riddled with debt.

When the economy started to slow down and the stock market fell out of bed, companies and consumers who were strapped with debt and little savings faced the brunt of the downturn.  Companies began to deleverage, cuting costs and jobs to be able to stay in business.  US consumers, scared by huge declines in net worth stemming from the stock market collapse and the real estate downturn, started to save, bringing the savings rate up to around 7%.  

The US government, which had started to run larger deficits during the Bush years, stepped in to fill the void.  The Bush administration pushed the first bailouts through and the Obama administration passed even more bailouts and a huge stimulus package.  The $740bn+ stimulus package pushed much of the spending two to three years down the road, funding tons of pork-laden projects that are probably unnecessary and have nothing to do with stimulus.  These programs saddle the government with even more debt at a time when the rest of the world is concerned about the value of the dollar.  The government should have advocated for $200-300b of immediate spending, or better yet, returned money to the people so that they could pay down their own debts.  Instead, we have record amounts of debt and even more leverage, not even taking into consideration the unfunded liabilities of Medicare and Social Security that will require even more leverage.

Now, as the stock market and the economy as a whole are showing signs of getting worse, there are calls for a second stimulus.  I fear that Congress will pass another massive bill, but most of the money won’t be spent fast enough and there will be even more waste.  I’m worried that many of the projects will be useless and ineffective at turning the economy around.

The only way to fix the problem and get through the bear market is to deleverage.  We need to squeeze the leverage out of the system, stop the insanity and go back to more rational debt levels.  With another round of mortgage resets set to take place late this summer, we are likely to have many more foreclosures in the next year.  Instead of spending money on projects in the future, the government should have made it easy for mortgage holders to renegotiate their mortgages in exchange for the bank having the rights to some of the upside of the house when the market turns.  This type of solution removes debt (leverage) from the consumers and bad debt (leverage) from the financial institution and saves consumers money right away, with a lower mortgage payment.  The government will have to spend a little more money, but it would be rational, compared to the huge stimulus package and bail outs that we have seen so far.

The government should be helping (forcing) companies to convert debt to equity in institutions that have bad balance sheets.  Instead of bailing out investors and companies who made bad decisions, the government should be converting debt to equity to shore up balance sheets and make the companies deleverage.

I think we are on the verge of another downturn in the stock market and rising unemployment.  The press seems to think (or hope) that the worst is behind us.  Most people are turing bullish and many Americans have come back into the market.  I fear that we face a repeat of the stock market’s performance during the Great Depression, where there was a prolonged bear market rally and then a second crash that wiped out more market value than the initial crash.

China and the rest of the world are already starting to pick at the reserve status of the dollar.  If the US keeps leveraging and then decides to inflate away the problem, the US dollar may lose its reserve status.  The government must make sure they do not make the crisis worse than it is.  Its not a Republican or Democrat issue. Its an American issue.  I am not confident that the government will make the right decisions.  With GoldmanSachs alums holding many key government jobs, I fear that they will do what they know best: continue to leverage and try to pick up the pieces later.  If you want to go farther, read Matt Taibi’s blog and latest piece in Rolling Stone.

I hope I am wrong, but I don’t see the US coming out of this without lots more pain.  What do you think?

Perverse Government Incentives

In 2001, President Bush decided to lower the estate tax as part of his tax cuts and stimulus after 9/11.  The death tax, as some call it, is a tax on people’s estates valued over a certain amount.  In 2001, the limit was $675,000 and anything over that amount was taxed at 55%.  The Bush Administration’s plan was to phase out the estate tax by 2010 by both raising the amount that was protected and lowering the tax rate.  The yearly table from wikipedia shows that 2009 estate tax limits are $3.5m in assets, above which anything will be taxed at 45%.

In 2010, the estate tax is completely repealed.  The Bush Administration’s plan ends in 2010, meaning that in 2011, the estate tax will go back to $1m and 55%, unless Congress passes another bill to change it, which is doubtful with this economy and the Democrats in power.  Whether you think the estate tax is a good idea or not, the current situation sets up some perverse incentives that could save or cost people millions.

Imagine a person with a father who has $10m in assets who is sickly and may die in 2009.  If the father were to die in 2009, $6.5m of the money would be taxed at 45%, or close to $3m, but if the father were to live until Jan 1, 2010, the person would save all of that money.  The government’s monetary incentive is to keep older, sick people alive, even if it against the person’s best interest.  The father might even try to hold on longer than he normally would, just to save the extra money.

Now fast forward to December 2010.  The same person from the example above would not have to pay any taxes if their father were to die before the end of the year.  If the father were to live until 2011, $9m of the $10m estate would be taxed at 55% or almost $5m.  People would have the incentive to make sure that their parents died before the tax rate changed.  Now imagine super rich people who have billions.  The difference is real money.

Now I don’t think that most people will be influenced by these incentives, as most people care more about their family than money, but I can see situations where someone might (Mom, if you read this, don’t worry!).  The estate tax changes are just another example of government policies creating unintended incentives and consequences.  Hopefully nobody tries to “take advantage” of these changes.

Social Media’s Response and an Iranian’s Possible Last Post

I talked about Twitter’s influence and response to the Iranian uprising compared to Google’s in a post a few days ago here and here.  Google had been removing YouTube videos of the sometimes violent demonstrations because they “contained violence,” which violated their terms of service.

Google has now reversed itself, recognizing the social and political importance of videos about the Iranian protests that have been posted to YouTube.  Iranians and their supporters had been petitioning Google to change its front page logo for a day to show support for the protests.  Instead, Google launched a Farsi to English translator that allows people all over the world to translate Farsi bloggers, tweets and emails.  Google did not want to insert itself into the conflict,  but it did want to help out:

We feel that launching Persian is particularly important now, given ongoing events in Iran. Like YouTube and other services, Google Translate is one more tool that Persian speakers can use to communicate directly to the world, and vice versa — increasing everyone’s access to information.

As with all machine translation, it’s not perfect yet. And we’re launching this service quickly, so it may perform slowly at times. We’ll keep a close watch and if it breaks, we’ll restore service as quickly as we can.

Facebook also realized how its service was being used to help spread information and quickly translated its service into Farsi as well:

Since the Iranian election last week, people around the world have increasingly been sharing news and information on Facebook about the results and its aftermath. Much of the content created and shared has been in Persian—the native language of Iran—but people have had to navigate the site in English or other languages.

Today we’re making the entire site available in a beta version of Persian, so Persian speakers inside of Iran and around the world can begin using it in their native language.

Its clear that Twitter, Google and Facebook all recognize the important role they are playing in the Iranian uprising.  All three have been amazing tools to get information from inside Iran to the outside world.

I’ll leave you with a blog post (translated by google translator) by an Iranian my age who is ready to protest tomorrow, even in the face of the Supreme Leader’s declaration that protesters will be punished tomorrow.  He basically threatened to allow the army and the Basij to violently suppress the uprising.  Many think that tomorrow’s protests will be put down, a la Tienanmen Square. 

“I will participate in the demonstrations tomorrow.  Maybe they will turn violent.  Maybe I will be one of the people who is going to get killed.  I’m listening to all my favorite music.  I even want to dance to a few songs.  I always wanted to have very narrow eyebrows.  Yes, maybe I will go to the salon before I go tomorrow! There are a few great movie scenes that I also have to see.  I should drop by the library, too.  It’s worth to read the poems of Forough and Shamloo again.  All family pictures have to be reviewed, too.  I have to call my friends as well to say goodbye.  All I have are two bookshelves which I told my family who should receive them.  I’m two units away from getting my bachelors degree but who cares about that.  My mind is very chaotic.  I wrote these random sentences for the next generation so they know we were not just emotional and under peer pressure.  So they know that we did everything we could to create a better future for them.  So they know that our ancestors surrendered to Arabs and Mongols but did not surrender to despotism.  This note is dedicated to tomorrow’s children…” 

Hopefully she will be able to do all of these things tomorrow night too.  I wish all of the protestors good luck and hope to see more posts tomorrow.