Havana Nocturne: How the Mob Owned Cuba…and then Lost It to the Revolution

T.J. English’s book is a fascinating one.  It chronicles the “Havana Mob” and how they controlled most aspects of Cuba, prior to the Revolution.  In the post-World War II years Cuba received nearly $1 trillion dollars in American investment.  That’s truly incredible for a country roughly the size of Tennessee.  Unfortunately, all of this financial capital didn’t go towards ameliorating Cuba’s problems including hunger, illiteracy, subhuman housing, high infant mortality, and vast rural poverty.  Instead it was used to fill the pockets of corrupt politicians and American investors.  These two groups were commonly referred to as the “Havana Mob”. 

The book is filled with interesting anecdotes about celebrities and politicians.  One that caught my eye was a story about John F. Kennedy, then Democratic Senator from Massachusetts.   He was quickly gaining national attention for his political achievements as Senator and his Pulitzer Prize winning book Profiles in Courage. He travelled to Cuba many times, but it was his first trip that made into the pages of Havana Nocturne.  Notorious mobster Santo Trafficante knew that Kennedy had an appetite for women and decided to set him up with several prostitutes.  As it turned out, the orgy would take place in a suite at Trafficante’s Hotel Comodoro.  The mobster installed a two-way mirror that allowed Trafficante and his friends to watch Kennedy’s escapades with the prostitutes.  Trafficante later said that he regretted not filming the orgy so that he could use it for blackmail.  Yikes…

The Takeaway:  Havana Nocturne is busting at the seams with these sorts of stories.  I recommend it for everyone who’s interested in history.  It’s a fun and relatively easy read.   Enjoy!

Is Pirating a Real Problem?

Everyone scoffs at adverts before movies warning viewers of the seriousness of electronic piracy.   Are  SOPA and PIPA – two pieces of federal legislation aimed at combating this problem – the teeth that officials need to reduce piracy or do they go too far in limiting the freedom of internet users? (note: much of the following information was taken from http://bit.ly/zCsGDg)

So what exactly are SOPA and PIPA?

Media companies are always looking for new ways to fight piracy. They've tried suing individual users, getting Internet service providers to take action against subscribers, and working with the U.S. government to shut down domains based in the United States. But none of those actions can stop overseas websites like The Pirate Bay and MegaUpload from infringing copyrights, or prevent Internet users from accessing those sites.

Enter SOPA, in the U.S. House of Representatives, and PIPA, in the U.S. Senate. Both bills are aimed at foreign websites that infringe copyrighted material. The bills are commonly associated with media piracy, but may also apply to counterfeit consumer goods and medication.

Originally, both bills provided two methods for fighting copyright infringement on foreign websites. In one method, the U.S. Department of Justice could seek court orders requiring Internet service providers to block the domain names of infringing sites. For example, Comcast could prevent its customers from accessing thepiratebay.org, although the underlying IP address would still be reachable. This ISP-blocking provision was a major concern among Internet security experts, and both SOPA and PIPA have dropped it.

The other tool would allow rights holders to seek court orders requiring payment providers, advertisers, and search engines to stop doing business with an infringing site. In other words, rights holders would be able to request that funding be cut off from an infringing site, and that search links to that site be removed. The site in question would have five days to appeal any action taken.

Although the House and Senate bills are similar, SOPA is the more extreme of the two. It defines a "foreign infringing site" as any site that is "committing or facilitating" copyright infringement, whereas PIPA is limited to sites with "no significant use other than" copyright infringement.

Arguments Against SOPA and PIPA

Opponents of SOPA and PIPA believe that neither piece of legislation does enough to protect against false accusations. As the Electronic Frontier Foundation argues, provisions in the bill grant immunity to payment processors and ad networks that cut off sites based on a reasonable belief of infringement, so even if claims turn out to be false, only the site suffers.  Because this can get pretty technical, I'd suggest checking out the PCworld.com link above for more details on this. 

Meanwhile, sites that host user-generated content will be under pressure to closely monitor users' behavior. That monitoring already happens on larger sites such as YouTube, but it could be a huge liability for startups, the EFF argues.

Arguments For SOPA and PIPA

SOPA and PIPA supporters argue that tales of a broken Internet are overblown. Cary Sherman, CEO of the Recording Industry Association of America, writes that SOPA clearly defines infringing sites based on Supreme Court holdings and the Digital Millenium Copyright Act, and requires rights holders to follow a strict set of rules when trying to get payment cut off to an infringing site.

What’s Next?

Support for both bills has waned this week.   The authors of the bill have decided to remove the provisions that require Internet service providers to block the domain names of infringing sites. SOPA, has stalled.  Voting on PIPA, however, is scheduled to begin in the Senate on January 24

The Takeaway:   The idea behind SOPA and PIPA – that copyrighted content shouldn’t be stolen – is a good one. Unfortunately, the way that SOPA and PIPA are written, there could be serious unintended consequences if they were passed.   It was only a matter of time until issues like ownership and free-access collided in the cyber world.  Moving forward, this struggle will most likely continue, albeit in different forms.  However, for now it seems that SOPA and PIPA will not pass.

Back to Work

How has the America’s anti-government ethos evolved over the past four years?  

I got Bill Clinton’s new book Back to Work for Christmas and have just now been able to pop it open.  The opening section in his first chapter is wonderful.  He outlines how America’s growing opposition to the role of its own government doesn’t jive with reality.  Clinton writes that the 2010 midterm elections – which were the manifestation of such anti-government sentiments – “seemed to occur in a parallel universe of inflated rhetoric and ferocious but often inaccurate attacks that shed more heat than light”.  Republicans, or at least those that turned out for the elections, argued that the financial crash and the recession that followed, as well as the failure of the U.S. to fully recover from it less than eighteen months after the economy bottomed out, were caused by too much government taxing, spending and regulating, and that life would be restored if the government got out of our way.  As Clinton argues, these attacks were effective, but not all together accurate.  Here are three reasons why:

First, the financial meltdown happened because banks were overleveraged.  In other words, banks had too many risky investments, especially in terrible mortgages called “subprime” mortgages.  There simply wasn’t enough government oversight to prevent the banks from being too risky. If you want to understand the concept of leverage in the banking industry in two minutes click here. 

Second, the meltdown didn’t become a full-scale depression because the government acted to save the financial system from collapse.  The Federal Reserve made massive investments of about $1.2 trillion to stop the financial collapse.  Many people criticize the bailout, known as the Troubled Asset Relief Program (TARP), because of its cost.  In reality it didn’t cost much at all.  It was originally authorized to spend up to $700 billion.  In the end it only spent about $400 billion.  That’s still quite a bit you say?  As it turns out all of it has been paid back!  In fact, we’ve actually made a profit.  How many people walking down “main street” know this?  See Treasury article here.  Criticizing TARP for its cost just doesn’t match with reality. 

Third, according to most economic studies, the stimulus and the rescue of the auto industry succeeded in keeping unemployment 1.5 to 2 percent lower than it would have without it.  Most people inaccurately think that the stimulus was designed to restore the economy to normal levels.  This is partially the Obama Administration’s failure to effectively communicate with the America people. The stimulus wasn’t designed to do this. After the financial meltdown and damage that ensued, the total net loss was several trillion dollars.  The stimulus was $800 billion.  Once again, it wouldn’t make sense for a stimulus to return the economy to normal levels if it is less than half the size of the “hole” it’s trying to fill.  Rather, the stimulus was designed to put a floor under the collapse and begin the recovery. 

It’s an old argument now so I’ll keep it short, but it’s important to remember that those who are “anti-government” now, were painfully silent during the Bush Administration’s tenure in Washington.  They cut taxes and increased spending at roughly twice the rate that it had increased during Clinton’s eight years (thought I know these eight years were marked by unusually high economic growth for some reasons that might have been out of political control).    Also, by the end of Bush’s eight years we had doubled the national debt.  This all occurred before the financial meltdown.  I’m not writing this to blame President Bush.  I am simply asking where the anti-government enthusiasts were for those eight years.

The Takeaway:  While this is probably old news to a lot of you reading this, I bring it up because it is impossible to get out of the economic conundrum we’re in if we don’t understand how we got into it. 

World's Worst Dictators

            2011 saw the fall of four dictators: President Honsi Mubarak of Egypt, Muammar Gaddafi of Libya, Zine El Abidine Ben Ali of Tunisia and Kim Jong-Il of North Korea.  Still, there more than 40 countries that remain under authoritarian rule.  It got me thinking.  Who are the worst of the worst?

I recently found two articles discussing this topic.  One is from Parade Magazine and can be read here.  The other is from MSNBC.com and can be read here.  I’ve decided to rearrange the order somewhat, and my results can be seen below.

Robert Mugabe, (Zimbabwe, 31 years in power): Mugabe, 87, keeps a stranglehold on his people, who face a staggering unemployment rate of more than 85%. In 2008, Mugabe agreed to hold an election, but it became clear that he would accept the result only if he won. His supporters launched attacks on the opposition, killing 163 and torturing or beating 5,000. He ultimately signed a power-sharing agreement with opposition leader Morgan Tsvangirai, but since then Mugabe has broken its terms and installed his own people at the head of every ministry. Meanwhile, health conditions have reached crisis levels. Thousands of Zimbabweans have died from cholera in recent years.

Isaias Afewrki (Eritrea, 20 years in power): Afewerki, 65, once led Eritrea to independence, but today he deprives his citizens of all freedoms. There is no formal constitution, and every male starting at age 18 must enter “national service,” which is forced labor of indefinite length (evaders are jailed or killed). People with unsanctioned religious beliefs are imprisoned and tortured, as are journalists and activists. More than 50,000 Eritreans have escaped to refugee camps in Ethiopia. Western officials allege that Afewerki is aiding Al Qaeda–linked militants in Somalia.

Bashar al-Assad (Syria, 11 years in power): Assad, 46, a trained ophthalmologist, succeeded his father as Syria’s tyrant in chief. As part of the Arab Spring, Syrians began revolting in March, and he responded by ordering the military to bomb and fi re on crowds. Over 3,500 demonstrators (including more than 250 children) have been killed, with over 10,000 jailed or missing at press time. The U.S. and Europe have condemned Assad’s actions, imposing sanctions and calling for his resignation. In an unprecedented move, the Arab League placed economic and political sanctions of its own on member nation Syria after Assad refused to end attacks and to let in monitors.

Omar al-Bashir (Sudan, 22 years in power): Although al-Bashir, 67, took power in a bloodless coup, his reign has been marked by extreme violence. Some progress occurred in 2011—the country was successfully partitioned into two entities, Sudan and the Republic of South Sudan—but the strife continues. In regions under dispute with South Sudan, al- Bashir’s military has bombed civilians, killing untold numbers and causing at least 100,000 to flee. The International Criminal Court (ICC) has charged al-Bashir with genocide, war crimes, and crimes against humanity in Darfur, where an estimated 300,000 have been killed since 2003. The ICC also alleges that he has embezzled billions of dollars.

Islam Karimov (Uzbekistan, 21 years in power): Raised in an orphanage, Karimov, 73, rose through Communist Party ranks to control this former Soviet republic. Activists, journalists, and anyone practicing a religion other than the accepted form of Islam are often jailed, and about 7,000 prisoners are currently being held and tortured. Each fall, university students, teachers, civil servants, and children as young as 9 are forced to live in barracks and harvest cotton under in humane conditions. Karimov’s health is thought to be poor, and some believe his eldest daughter is being groomed to rule.

Thein Sein, (Myanmar, 50 years in power): Since seizing power in a coup nearly 50 years ago, a succession of juntas made up of present and former high-ranking military officials have brutally mismanaged this country and its economy, with its 55 million inhabitants living in starvation. Ethnic minorities continue to suffer—beatings, rapes, bombings, even murder—at the hands of the authorities. But recently the leaders of the Asian nation seem to be taking tiny steps in the right direction. Last year, they held elections, which, although neither free nor fair, resulted in retired General U Thein Sein becoming president and iron-fisted dictator Than Shwe stepping down. (Some observers believe that Than Shwe still wields considerable influence behind the scenes). A parliament was also convened for the first time in 20 years. What’s more, the government has somewhat eased up on the press, rebel groups, and activists like Nobel Peace Prize winner Aung San Suu Kyi, who was released in November 2010 after nearly 20 years of house arrest. Recently, U.S. Secretary of State Hillary Rodham Clinton—the first American in that position to visit in nearly 50 years—traveled to Myanmar and met with Suu Kyi and with the country’s leaders about reforms and improving diplomatic relations. However, soon after she left, the government’s talks with the Kachin, a minority ethnic rebel group, fell apart, leading to violent clashes, displacing some 26,000 people, and demonstrating that any progress in Myanmar is halting and uncertain.

Teodoro Obiang Nguema Mbasogo, (Equatorial Guinea, 32 years in power): Mbasogo, now 69, became president after he overthrew his own uncle, another dictator, in a bloody coup. Under his rule, he has funneled the country’s wealth into private bank accounts which he and his son, the country’s current Minister of Agriculture and Forestry, spend on mansions in the U.S., fast cars in Paris, and the one of the world’s largest super-yachts. While this oil-rich country’s per capita GDP is comparable to Denmark’s, a shocking 80 percent of the population lives on less than $2 a day and it has the second-highest child mortality rate in the world, according to a 2010 report from the University of Washington. Elections are periodically held, but the outcome is inevitably rigged.

Raul Castro (Cuba, 5 years in power): Raul, 80, the younger brother of frail Fidel, 85, has generally maintained his sibling’s legacy of repressive leadership. Raul was named acting President of the Council of State of Cuba in July 2006, assuming presidential duties, and he was officially elected president of Cuba in 2008. The Communist Party of Cuba controls all aspects of the government, and there is no free press. The island nation’s 11.3 million citizens are not allowed to leave the country without permission, which is often denied. However, the number of political prisoners has decreased significantly in the last couple of years, and Raul has introduced some economic reforms, including privatizing some agricultural land and other real estate. Yet unjustly punitive laws persist, including a selectively-enforced prohibition on the unauthorized assembly of more than three people, which is punishable with up to three months in prison and a fine, and a “dangerousness” provision that allows the government to imprison people who seem like they might commit a crime in the future.

Hugo Chavez (Venezuela 12 years in power): In 1992, the first time Chavez tried to take over the government of Venezuala, he was put in prison. Upon being released after serving two years, he founded the Fifth Republic Movement, a socialist democratic party, and he was elected the country’s president, taking office in February 1999. Since then, he has built a military dictatorship in an area that has been historically plagued by them. Now 57, Chavez has largely squelched freedom of the press, persecuted members of the political opposition by arresting and jailing them, stripped power from once-autonomous universities, and turned the independent judiciary into an instrument to hand down heavy sentences to political opponents. Although reportedly suffering from some form of metastatic cancer, Chavez has shown little sign of slowing down and intends to run for re-election next year.

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The Takeaway:  Throughout the world, 2011 was a transformational year for the balance of power between people and their governments.  Hopefully in 2012 we’ll take another step in this rebalance.

2011: Trends and Observations

What will historians write about 2011?

In the U.S. and Europe the merger of globalization and the Information Technology revolution are putting a crunch on the middle-class while in the Middle East and Africa it’s reversing centuries of authoritarian rule. 

That’s a bit of an oversimplification, but it’s the best I could do to put it into one sentence.  

What’s Happened This Year?

1.  Activists protest and burn sections of London.

2. The Arab Spring produces popular rebellions against dictators across the Arab world. To varying degrees Tunisia, Egypt, Libya, Syria, Yemen, Bahrain, Algeria, Iraq, Israel, Jordan, Kuwait, Morocco, Oman and Saudi Arabia have all experienced unusual amounts of protest.  Former Egyptian President Honsi Mubarak, former Libyan President Muammar Gaddafi and former President Zine El Abidine Ben Ali of Tunisia were all driven out of power.  Combined they had had ruled their countries for 96 years.

3.  The Israeli Summer brings 250,000 Israelis into the streets, protesting the lack of affordable housing and the way their country is now dominated by an oligopoly of crony capitalists.

4.  Cities in Greece, Italy, Spain, Ireland and Latvia are overrun by young people protesting against unemployment and increasing economic inequality.   

5.  The Tea Party continues to control the dynamic of American politics by using leverage on the debt ceiling debate, resulting in an unprecedented S&P downgrade of U.S. credit.   
The Eurozone nearly collapses amid worries that Greece and Italy will default.  There are talks of Germany bailing these countries out, but only if a significant fiscal union can be established to ensure this doesn’t happen again. 

That’s enough isn’t it?  I didn’t even mention all the drama with Lindsay Lohan…  Just kidding.

Clearly, it’s been a busy year.  After all, Time Magazine’s Person of the Year was the “Protestor”.  That’s rather unusual.  So, how has the merger of globalization and the Information Technology revolution created the context for these events to occur?  Consider the recent advances in communications technology:  cloud computing, robotics, 4G wireless connectivity, Skype, Facebook, Google, LinkedIn, Twitter, the iPad, and cheap Internet-enabled smartphones.  Together these technologies have allowed more people around the world to get their hands on a piece of the pie. Therefore, to get into the middle class now, you have to study harder, work smarter and adapt quicker than ever before. All this technology and globalization are eliminating more and more “routine” work — the sort of work that once sustained a lot of middle-class lifestyles. This includes the famed manufacturing jobs that were once abundant in America.  Decades ago, you could secure one of these jobs with a high school diploma and they’d provide the means for the American Dream:  a house, wife that stayed home, a couple of kids, a dog, money to pay for your children’s education and a decent retirement.  Not the case anymore.  Even if these sorts of jobs did come back to our country, they wouldn’t pay enough to attain these desirables

Tom Friedman writes that the merger of globalization and I.T. is producing gargantuan profits, which is a bit ironic since we did just escape “The Great Recession” (have we really escaped though?) . He writes that “employers are finding it easier, cheaper and more necessary than ever to replace labor with machines, computers, robots and talented foreign workers. It used to be that only cheap foreign manual labor was easily available; now cheap foreign genius is easily available. This explains why corporations are getting richer and middle-skilled workers poorer. Good jobs do exist, but they require more education or technical skills. Unemployment today still remains relatively low for people with college degrees. But to get one of those degrees and to leverage it for a good job requires everyone to raise their game. It’s hard.”  He’s entirely correct.  The stakes have been raised. 

Take Grinnell College, a rural Iowa college with 1,600 students.  New York Times columnist Jacques Steinber writes that at little Grinnell College in rural Iowa, “nearly one of every 10 applicants being considered for the class of 2015 is from China.” The article noted that dozens of other American colleges and universities are seeing a similar surge as well. And the article added this fact: Half the “applicants from China this year have perfect scores of 800 on the math portion of the SAT.”  Read the full article here.

That’s remarkable. 

Friedman sums up this trend quite nicely:  “We are increasingly taking easy credit, routine work and government jobs and entitlements away from the middle class — at a time when it takes more skill to get and hold a decent job, at a time when citizens have more access to media to organize, protest and challenge authority and at a time when this same merger of globalization and I.T. is creating huge wages for people with global skills (or for those who learn to game the system and get access to money, monopolies or government contracts by being close to those in power) — thus widening income gaps and fueling resentments even more.”

I can’t wait to see what “2012: A Year in Review” will look like.

On a personal note, I’d like to thank anyone who’s reading this post.  Writing this blog has been intellectually and even emotionally satisfying. It’s allowed to me put to paper (wait, that phrase probably won’t exist in 50 years…) what’s been running through my head.  Or should I say “going on in my little grey cells”.   Thanks-

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The Takeaway: There’s no arguing that 2011 wasn’t a historically significant year.  I’m fascinated to see what next year will bring. 

"America Will End in 2011"

Screen shot of video "End of America 2011"

A video widely advertized on TV and circulated on the internet claims the biggest economic crisis in American history will hit within a year, drastically altering American life as we know it. Is there any truth to this?

This video, titled “End of America” was created by Porter Stansberry the founder of Stansberry & Associates Investment Research and editor of Porter Stansberry's Investment Advisory.  You can watch the full video 77 minute video here.  First, I’ll explain his credibility, and then deconstruct a few of his reasons for the “looming economic” disaster. 

Credibility: 

Porter Stansberry begins the video by building his credibility.  He claims that – to his knowledge – he was the only financial advisor to correctly predict the 2008 financial crises.  That “prediction” includes the bankruptcy of Fannie & Freddie and General Motors.  If this is true, he certainly sounds like some sort of guru. However, he did fail to mention that in 2007, he and his investment firm, then called "Pirate Investor," were ordered by a US District Court to pay $1.5 million in restitution and civil penalties, the court stating "Stansberry's conduct undoubtedly involved deliberate fraud, making statements that he knew to be false."  So, it seems that Stansberry has a history of deliberately misleading people, presumably to turn a profit.  Not that this completely discounts any credibility he might have, but it is worth noting.

Stanberry’s Claim:

Stansberry essentially cites one significant catalyst for the inevitable economic disaster: The United States losing its hold on the reserve currency of the world. 

Most people don’t know what the “reserve currency” means, so I’ll give a quick explanation.  Since global commodities like oil and gold are sold throughout the world, it makes since to price them in one currency.  This is just for simplicity’s sake.  After World War II, the U.S. dollar became the currency that was used to price all of these global commodities. 

Therefore, when a country other than the U.S. wants to buy a global good like oil, they must first exchange their particular currency for dollars.  Then, with those newly exchanged dollars they can buy oil.   Stansberry gives an example of this in his video about Germany. If Germany wants to buy oil from Saudi Arabia, it can’t go directly to Saudi Arabia and purchase the oil with Euros, it first must exchange it for dollars.  Then, once it has the newly exchanged dollars it can purchase the oil.

Here’s the rub: When countries exchange their currency for dollars there is a transaction fee.  Most of the time, this fee is insignificant, but over time for many countries (especially smaller ones) this cost can accrue.  Conversely, the U.S. never has to pay this transaction fee.  Therefore, the U.S. can by these global commodities – most notably oil – at a relatively cheaper price than other countries.  No transaction fees for us!  Also, it allows the U.S. to borrow money (which we do a lot…) at a better rate, because there are more dollars hanging around in the world than any other kind of currency.  These are the reasons that the dollar is known as the world’s “reserve currency”.  It’s kind of a difficult concept to understand, so don’t feel bad if you don’t have your head 100% wrapped around it.  I’m not quite there yet either.

Stanberry’s Claim Revisited:

So, now that we know what it means to have the world’s reserve currency is (or at least sort of know) we can look at Stanberry’s claim that the world will give up the dollar as the reserve currency.  As with many doomsday predictors, Stanberry takes a piece of information or a possibility and extrapolates it to point that people are rioting in the streets and children starving. 

The truth is that the dollar could be renounced as the world’s reserve currency – but not in the near future.  The types of fallout that Stanberry describes in his video could happen to the United States and the rest of the world if the reserve currency was changed from the dollar.  But the world won’t get rid of the dollar any time soon for this very reason.  There are no good alternatives right now for a reserve currency.  The Euro is failing, the English pound is too closely tied to the Euro, and the Japanese Yen probably wouldn’t work.  The only other possibility would be the Chinese Yuan.  There have been rumblings in China throughout the past several years about trying to replace the dollar with the Yuan, but it seems unlikely.  China currently has $2 trillion worth of American dollar assets (that’s called a trade deficit ladies and gentlemen!), and if the dollar were to be replaced as the world’s reserve currency it would significantly hurt the U.S. economy and devalue the dollar.  The Chinese don’t want the dollar to be devalued because then their $2 trillion of American dollar assets would lose value. 

I suppose this is one positive aspect of the world economy being as connected as it is. For better or worse!

In other words, there’s no plausible situation where the U.S dollar will be replaced as the world’s reserve currency in the short term or even the medium term.  Seventy-five years from now? Perhaps.  No can know for sure.  Let’s go back seventy-five years.  In 1936, would people have been able to predict what the world would be like in 2011?  Not a chance! It’d be another three years until Poland was invaded for goodness sakes.  If you asked the most brilliant and forward thinking economists at the time what a subprime mortgage, credit swap or – gasp! – The European Union was they wouldn’t have a clue.  Today we’re in the same situation for predicting the future.  We can be sure, however, that the dollar won’t lose its status as reserve currency anytime soon.  Stansberry’s claim that this will happen by next August is hyperbole. 

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The Takeaway:  All of Stansberry’s doomsday predictions are predicated on the dollar losing its status as the world’s reserve currency.  That may happen someday, but not in the short term or medium term.  Take deep breath and let’s start investing in education, infrastructure, and research, reforming our immigration policies, and creating better rules to encourage capital investment.  This will allow the U.S. economy to thrive once again.