Sunday, November 27, 2011

Keystone and the Decision to Depend On Mideast Oil

Though America has said it wants to rely less on imported oil from the troubled Middle East, it is a shame that America in the Keystone decision has elected not to buy oil from its economically and politically stable neighbor.

Nearly two weeks ago the Obama administration announced that it was delaying approval of the Keystone pipeline as yet another study needed to be conducted (reminds me of governments pushing a topic into an endless series Royal Commission as a means to delay something unduly or even kill it without saying so). The Obama administration has made a misstep on this matter. Studies have been done which have addressed various environmental concerns.

True no pipeline is risk free of spills occurring. No off-shore or even on-shore, oil rig is risk free of spills, nor are tankers that come along our shores and to our ports. The hundreds of thousands of gasoline trucks that travel contain higher risks of that a modern pipeline using the state of the art technologies. Do we stop trucks from traveling the road, tankers bringing crude to our shores, or do we stop drilling? No. Instead we manage risk in a thoughtful manner by learning from past miscalculations and utilize the best technology that is reasonable.

Will the Obama’s administration stall the development of the Alberta oil sands? Anyone who is an opponent of the Keystone is badly mistaken if they think it will end or even slow down the development of the oil sands project. Let’s make no mistake the oil in the tar sands will be coming out of the ground! It is a matter of to whom will the oil be sold, to the USA or to Pacific Rim countries which have robust economies that rely heavily upon imported oil such as Japan, China and Australia.

The question Canada should be asking of the American administration is simple, is the United States prepared to take delivery of the oil within five years? If the answer is not yes, but maybe eventually after we study the matter further for a few more years, then the Canadian response should be straight forward…announce that Canada will sell elsewhere and to that end will be adding to its pipeline infrastructure to the west coast as Canada has made a commitment to sell its oil to Japan, China and other Pacific Rim countries. Of course the American reaction to loosing such a quantity of oil so close at hand will be negative. The Canadians can readily reply that America was the preferred buyer but when America was not willing to commit, Canada elected to allow the free market determine that the oil would be going to other countries.

For Canada there are two economic advantages for selling tar sands oil to China and Japan. Both countries are willing to pay a significantly higher price than the Americans. Hence, Canada would have more net income, some of which could be used to decrease the crude it sells for internal consumption. Lower internal crude prices would enable Canada to have lower gas prices than the US and thereby giving Canadian firms another competitive advantage as a result of lower energy costs. Also, the pipeline would travel further across Canadian soil and the tanker port would be on Canadian shores all of which mean more jobs for Canadians than would be an pipeline running to the USA.

Sunday, November 20, 2011

Penn State Football and Joe Paterno

Yesterday, Penn State won its first game in almost 46 years without Joe Paterno as its coach. People in the know saw signs that this day would come either at the beginning of next season or the next. That it came mid-season after being fired is the shocker and the reason is heart-breaking.

The press has been all over the Sandusky sex story and Paterno’s illustrious career is forever tarnished. Questions regarding when he knew, what he did, why he did not do more will continue to be analyzed and debated. Those who are strong Paterno fans will continue minimize his culpability. On the other side, there will be those on the opposite size who will forever consider Paterno guilty of a tremendous crime and held just short of being the actual perpetrator of the sex acts. The truth likely lies somewhere in the middle.

One thing that concerns me somewhat is that Paterno’s actions are being judged by 2011 expectations and standards, not by the American understanding and standards of the mid 1990s. While most of the existing laws regarding reporting of suspicions were already in place when Paterno was informed about Sundusky showering with young boys, what had not been fleshed out in the public’s mind was what is “reasonable” suspicion and how aggressive one should be on reporting that suspicion. In the intervening years “reasonable” has become defined more broadly and clearly so as to include that which was reported to Paterno. Only in the last five to ten years have background checks, working with children and reporting processes come into place at the street level.

Today, any suspicion or concerns must be reported and when reported it is expected that authorities will conduct a complete investigation. Today, it is expected that reporting something generally to one’s superior and walking away is not acceptable conduct. If one’s superior does not contact the authorities, then the reporter is responsible for taking such a step. Clearly Paterno did not meet these standards and he should have done more. Back then, such action were being done, but the expectation to do so was not at today’s level.

Throughout his career Paterno has preached doing the right thing in all aspects of one’s life even when it is most difficult and could cost you dearly. Paterno has noted he should have done more, and that statement may be his lasting epitaph. Child abuse is very significant, and must be taken seriously. We must not dismiss accusations lightly and when work related they must be reported not only to our supervisors but also to the authorities. Regardless of the laws and the understanding of the laws a decade or more ago, aggressive reporting has always been the right thing to do. In that regard Paterno did not measure up to what he drilled into his teams. With the score tied in the dying seconds of the game, Paterno fumbled the ball on the 1 yrd line with a poor handoff.

It would have been nice if Paterno had recognized the significance of his inaction and announced his immediate retirement, but he did not do so possibly because he thought he could ride out the storm or that not doing more to protect the children was not a major misstep. I commend Penn State’s Board of Trustees for dismissing Paterno. It needed to happen.

Paterno’s firing also sends a strong message, that no person regardless of his/her accomplishments, reputation or accumulated power is immune from being dismissed for a single egregious action. This is a good signal to send and reinforces a good message, that one egregious action outweighs all one’s accomplishments and can bring forth one’s dismissal.

Paterno no longer at the head of the Penn State football program also signals the end of an era, the coach for life. Very few coaches at the top tier schools in the NCAA have been in their positions for more than twenty years. I may need to be corrected on this but I think the new Dean of top tier coaches are basketball’s Jim Boeheim at Syracuse with 36 years and in football Frank Beamer at Virginia Tech with 25 years…neither of whom has anyone close to that number of years as coaches. Today the pressure to win each year is powerful. Alumni and fans will accept one or two bad years if you have been consistently at the top, but having three, people will start to call for your dismissal. Hence, head coaches with twenty or more years at the same school which is the past was not that uncommon will become increasingly rare.

Are shorter tenures a good thing? I’m not sure as it signals that the almighty dollar and winning are king principals that stand well above graduation rates, character building and players not running afoul of laws and NCAA regulations. I fear that we will all be poorer in the end with the win at all cost measure.

Sunday, November 13, 2011

Right To Privacy

Strict Constitutionalism, interpreting the United States Constitution strictly within its initial understanding and context, is a judicial philosophy has increasingly held sway in the United States and is reflected in the judges appointed by both Presidents Bush. This week the United States Supreme Court heard arguments in a case which not only demonstrates that the shortcomings of that philosophical position but the outcome will have major significance to the nature and future of a person’s right of privacy.

The police secretly installed a GPS tracking device to the car of Jones, a man they suspected to be a major drug dealer. For a month from afar and well out of sight the police tracked Jones’ movement. His vehicle became a 24/7 surveillance tool of the police. The police did not need to task teams to watch and follow Jones. After a month the tracking led the police to a large cache of cocaine.

In United States v. Jones, Jones is arguing that the government improperly and without a court issued warrant invaded his privacy. The government argues that they did not need to have a warrant as that provision only pertained to tapping telephone calls, and besides Jones was moving along public roads and functioning various other tasks in other public space.

On the surface the government’s argument seems logical. Using such devices frees up resources and saves the tax payers money. The government no longer needs to task a dozen or more officers to follow suspects in cars and wait outside buildings watching for a suspect to leave. Now the police can place a device on a car, allow a computer to track movements and have one officer review in minutes a day’s worth of movements. One officer could monitor hundreds of people’s movements, instead of it taking many to monitor one.

Forty something years ago when the Supreme Court ruled that wiretaps were required, similar arguments to those of today’s government were used. Today’s Court is facing the ramifications of modern technology and processes that were never dreamed as possible by the original authors of the Constitution. Holding to a strict reading and holding to original context would do a disservice to the Constitution and common sense. The Court was established for the purpose of not as a bulwark against change but as a vehicle to make rulings in light of fundamental principles within an evolving social, political and technological context.

Privacy is a fundamental principle. At issue is whether technology like cell phones, GPS devices, computers, online monitoring, can be used to negate a person’s privacy within a free society. The Court has long held that it is a reasonable expectation for a person to hold that their telephone conversation is private. In its telephone wiretap ruling the Court ruled that as a check against widespread and unwarranted listening to our private conversations. Once again the Court is dealing with these issues. If the Court accepts the government’s position, there is nothing to prevent the government from using our cell phones, OnStar, car engine monitoring devices, GPS devices and other current and future technologies to track our movements second by second. If the government wins, employers and others could then do the same. In short, the Fourth Amendment’s right of privacy will become minimal.

Friday, November 04, 2011

SunTrust and Distrust

A few weeks ago Bank of America announced that they were going to charge a debit card fee of $5/mo. The BoA got into financial difficulty started when subprime loans it got stuck with as markets for buying up such mortgages froze as default rates climbed. BoA’s difficulties increased as derivatives and other risky overly leveraged investments (many leveraged as much as 40 to 1) decreased in value. High flying profits turned into mega losses. To avoid the collapse of the American financial industry BoA, along with other major national and regional banks, were bailed out by the federal government.

With the downturn on the economy, many banks have had a downturn in their profits. Decreased retail sales means fewer transaction fees they collect from retailers on credit card and debit card transactions. Decreased bank deposits mean lower deposit value for the bank to use for investments. Decreased car sales and home sales create decreased income from loans. On top of that add increased loan and mortgage defaults.

Using changes in credit card regulations BoA decided to institute a $5 debit card fee by collecting from account holders a fee, thereby collecting on both sides of the transaction. The transaction fees are being instituted to help return the profit margins of the bank back to its pre 2008 levels. Let’s be clear BoA, who along with several other national and regional banks, is a major factor behind the current economic difficulties being experienced in the economy. Seeing an opportunity to increase their profits, several of banks followed BoA’s lead and quietly instituted their own debit card fees.

SunTrust was one such bank to follow BoA’s example. After SunTrust started to receive a high volume of customer complaints and account lost (many smaller banks were not following BoA’s lead), SunTrust announced Wednesday that it was refunding debit card fees already charged and have no debit card fees. The bank quietly engaged in a slight of hand…it modified its fee structure significantly, a modification that will yield it even more money. SunTrust increased is account maintenance fee to $17, from $15 (up from $10 in the pre-2008 period).

The account maintenance fee at SunTrust was waived if you had payroll direct deposit (that is only if the accountholder asked as some accountholders were still charged the fee when they had payroll direct deposit). Maintenance fee can still be waived if you maintain $5,000 in the account throughout the month (the account pays no interest).

Hence, through elimination of the payroll direct deposit waiver and the increase in the monthly maintenance fee, the bank will start to make even more money than just from the $5 fee. The changes hit the blue collar, entry level white collar worker and students. The changes keep goal of upper management at the bank intact, to keep their own mega bonuses as strong as possible.

Like the debit card fees, the new fee structure was not announced in any email to customers, posted on any signs at the bank or in any press releases. Instead, like the debit card fee, the new fees were quietly listed on the fee structure and customers will only discover the change in mid December, when they receive their November account statements are released.

Evie and I have been SunTrust customers since moving to DC from Iowa. On balance we were happy. In watching what has happened with debit card fees and the new account fee structure, we find ourselves unable to do what is central to SunTrust’s name, trust. If we cannot trust a firm with how it handles its fees then we cannot trust it to hold our accounts. Therefore we are moving all out banking to TD Bank, which is the American branch of Toronto Dominion.