Inspiring Quotes

Posted by Shyam Moondra


"I have become my own version of an optimist. If I can't make it through one door, I'll go through another door - or I'll make a door. Something terrific will come no matter how dark the present." - Rabindranath Tagore


"Strive not to be a success, but rather to be of value." - Albert Einstein


“The only real failure is the failure to try, and the measure of success is how we cope with disappointment.” - Deborah Moggach, "The Best Exotic Marigold Hotel"

“I can accept failure. Everyone fails at something. I can’t accept not trying.” - Michael Jordan

“It’s not the will to win that matters. It’s the will to prepare to win that matters.” – Paul “Bear” Bryant

"I am responsible for who I am, not for what others think of me" - "The Big Country"


"Science is organized knowledge. Wisdom is organized life." - Immanuel Kant

 “Education is the ability to listen to almost anything without losing your temper or your self-confidence.” -Robert Frost

"Forget injuries, never forget kindnesses." - Confucius


"Humans have immense capacity to suffer and yet prevail and thrive." - Rabindranath Tagore


"When we are offended at any man's fault, turn to yourself and study your own failings. Then you will forget your anger." - Epictetus


"Life becomes harder for us when we live for others, but it also becomes richer and happier." - Albert Schweitzer


"It does not matter how slowly you go so long as you do not stop." - Confucius


“Everything will be all right in the end. If it’s not all right, it is not yet the end” - Deborah Moggach, "The Best Exotic Marigold Hotel"


"All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope." - Winston Churchill


"When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much the old man had learned in seven years." - Mark Twain


"Those who make peaceful revolution impossible will make violent revolution inevitable." - John F. Kennedy


"Everything comes to us that belongs to us if we create the capacity to receive it." - Rabindranath Tagore


"Imagination is just as important as knowledge." - Albert Einstein


"Nothing is particularly hard if you divide it into small jobs." - Henry Ford


"Nearly all men can stand adversity, but if you want to test a man's character, give him power." - Abraham Lincoln


"The more difficult the victory, the greater the happiness in winning." - Pele


"I know that I'm never as good or bad as any single performance." - Charles Barkley


"The mind is everything; what you think, you become." - Gautama Buddha


"Give me six hours to chop down a tree and I will spend the first four sharpening the axe." - Abraham Lincoln

“Change is like a wave in ocean. Resist, and you'll be knocked over. Dive into it, and you'll swim out the other side. Change should not be feared, but embraced.” - Deborah Moggach, "The Best Exotic Marigold Hotel"

Congress is the weakest link in the government - we badly need reforms‏

Posted by Shyam Moondra

The Congress hit the lowest approval rating on record of 14% not long ago. The people view the Senate and House as the weakest links in the government. The Congress has become a burden on the tax payers with very little positive to show for.

The Congress was created to reflect the views of the American people, to make it a government of the people, by the people, and for the people. Today, the Congress is a mess; it has largely become a non-productive institution that exists only because it's in the constitution and not because people really want it. If the Congress were run as a corporation, it would have been dismantled already.

A majority of senators and congressmen are corrupt; they are there not because they truly want to serve their country but they are there to make a comfortable living. Very few members are hard-working people in the mode of the late Sen. Ted Kennedy; most of them are either deadwood or they are just getting a free ride. They spend most of their time scheming how to raise campaign money through lobbyists to get reelected. Most of the work is done by a handful of hardworking members, who do care about the country and the people.

In the last eight years, the influence of the businesses in the Congress has increased tremendously via their intense lobbying efforts and campaign contributions, but mostly at the expense of the ordinary Americans.

We need drastic changes in the role of the Congress and how it operates. We badly need constitutional amendments to reform the Congress and make it more productive and responsive to the people's needs and not their own re-election needs. There are a number of things that could be done such as:
. Imposing term limits. Public service should not be used as a way to make a living.
. Banning corporate and industry lobbying.
. Banning corporate and industry campaign contributions.
. Requiring the members to spend more time in Washington, DC working the public policy issues rather than taking frequent recesses and time off in the name of campaigning.
. Holding the members accountable for non-performance immediately and not by voting them out only after their term has expired.

Now the million dollar question is if the reformers would agree to be reformed.

Recent price increases by drug manufacturers show the need for a government option

Posted by Shyam Moondra

The drug manufacturers recently increased the drug prices in anticipation of the new health care legislation, thereby taking back some of the cost reductions they had promised only two months ago. This demonstrates why any health care reform must include a government option that would keep the service providers' greed in check. In the absence of a government option, it's very likely that the health care reforms would in fact increase the cost rather than reduce it as is hoped for by the legislation supporters.

If a government option is not included in the final health care bill, as an alternative, the bill must include a new regulatory frame-work for the entire health care industry (drug manufacturers, hospitals, insurance companies, and doctors) in which their rates and profits would be regulated by the government commissions just like public utility commissions today regulate telephone, gas, electricity, and water companies.

If the health care bill requires every American to buy health insurance, then it is imperative that prices are reasonable and that means either we have a non-profit government plan or the government regulates the prices and profits of the service providers. It would be unconstitutional to force Americans to buy health care insurance at artificially inflated prices.

In the interim, the drug manufacturers should be punished for their bad behavior. The Congress should immediately consider:
1. Changing the patent laws permitting the marketing of generics sooner.
2. Allowing reimportation of drugs from Canada and Mexico.
3. Suspending the tax subsidies given to the pharmaceutical industry.

Dow Jones Industrial Average headed to 11,000

Posted by Shyam Moondra

In the past few days, the stock market has been very volatile, up 200 points one day and then down 200 points the next day. Some of this volatility may have been caused by the year-end window-dressing by mutual and hedge funds whose fiscal year ends in October. The market had gone up quite a bit since it bottomed out last March, so it was inevitable that some investors would want to take profits and short sellers would move in aggressively to create a downward momentum.

There are people who think that the market correction of the last few days may in fact be an exceptional buying opportunity for the long-term. Some of the stocks, that did exceedingly well since March, have been hammered down in recent days by as much as 25%. The bulls point out the following positive trends that suggest that the market is headed much higher:
· The recent quarterly earning reports exceeded analyst expectation by a wide margin. Most companies increased their guidance for the future.
· The latest GDP report showed that the economy grew at a faster rate than anticipated.
· The corporations have strong balance sheets, hoarding a lot of cash to support future capital investments.
· The corporations did a marvelous job in managing their cost structure during the recession and they have never been more lean and mean. That means their profit margins will expand rapidly as the economy recovers.
· The inventories are at historically low levels, suggesting that the industrial production may move into a higher gear (even if demand does not increase significantly), which means more jobs down the road. Recent industrial production report, showing better than expected increase, supports that belief.
· The stimulus spending was back loaded; as much as $585 billions worth of stimulus still remains to be spent through 2010.
· The Federal Reserve Board has indicated that money supply will remain bountiful and interest rates will remain low for the foreseeable future. Historically, liquidity and low interest rates have always favored the stock market in general and the financial sector in particular.
· Weak dollar has enhanced competitiveness of multi-national corporations that will garner a bigger market share as the global economy recovers. Weak dollar is also helping to reduce the trade deficit.
· Recent labor force reductions have considerably improved productivity that will expand the profit margins of the corporations in the near future.
· Since the capacity utilization remains low and demand is still weak, inflation is not going to be a problem in the foreseeable future. This gives the Fed some flexibility to keep interest rates low at least until the second-half of 2010.
· Recent housing reports suggest that the housing market has bottomed out, as indicated by the recent increases in home sales and home prices.
· The consumers have done a much better job in controlling their spending and saving more during this recession than any other recession in the past. This bodes well for the economy because as soon as the economy picks up some speed, the consumers will be ready to start spending freely again.
· The stocks are by no means over-valued with the average forward PE ratio in the low 10's. Recent merger and acquisition activity and share buyback announcements (e.g., by IBM) affirm that equity valuations are very attractive.

The bears have their own reasons for being pessimistic for the near-term. They cite the following trends that make them cautious:
· The stock market has gone up over 50% since March, making it the largest up move in a short period ever. It should be kept in mind though that the market went down too much in March because of the fear that some of the biggest financial institutions could go bankrupt, causing a systemic breakdown of the entire financial sector. However, that never happened and we are past that possibility now. One could argue that the market should not have gone down so much in the first place, and, therefore, it's misleading to keep harping on the 50% appreciation. Had market not gone down as much as it did because of sheer panic, the resulting appreciation would have been quite modest and considered normal in the aftermath of a severe recession.
· The unemployment rate will remain high at least through 2011, making it a jobless recovery. High unemployment rate will keep consumer spending in check. Since consumer spending fuels two-third of the economy, we may not see a quick recovery from recession any time soon. The counter argument would be that, while it's true that the lagging employment indicator would be slow to recover, the consumers are not going to wait for full recovery before they start spending again. All they are waiting for are the signs of a recovery-trend which will become obvious within the next six months, a lot earlier than 2011.
· Recent government spending (e.g., stimulus package and bailouts) has significantly added to the federal debt and budget deficit is widening. This will eventually lead to higher interest rates, choking off the economic recovery. We should, however, note that as the recovery takes hold, treasury revenues will increase and the budget deficit will eventually abate. Nevertheless, President Obama and the Congress would have to come up with a credible plan to address the issue of debt and budget deficit through a combination of spending cuts and tax increases for the wealthy individuals and corporations (shutting down off-shore tax havens and closing tax loop-holes).
· Weak dollar will lead to higher inflation because imports will become expensive which, in turn, will induce the domestic producers to increase their prices.
· The credit card losses and commercial real estate losses will keep the financial sector under pressure for the foreseeable future.

The stock market always looks ahead and most economic indicators (GDP growth, corporate earnings, housing sales and prices, industrial production, etc.) point to economic recovery from the worst recession of our times. While the recovery may be erratic, its direction is not in dispute. Early this year, industrial production was declining which led to layoffs, which, in turn, led to lower consumer spending, and that led to lower corporate profits, thereby creating a downward spiral in which each economic calamity was feeding into the others. But now we are in the process of an upward spiral that will restore employment, corporate profits, and stock prices over time. While there are very few plausible hazards that could choke off the recovery, there are many more potential catalysts on the horizon that could in fact propel the stock markets to new yearly highs in the coming months. The Dow Jones Industrial Average at 11,000 before the end of 2009 is not a far fetched possibility. One thing unique about Americans is that they are driven by a sense of optimism and hope. They thrive in adverse conditions and turn calamity into opportunity.

Proposed health care bills will not reduce costs

Posted by Shyam Moondra


The health care bills passed by various committees in the Senate and House will cover many, if not all, of the 40 millions or so people who are presently uninsured, thanks to the subsidies provided by taxpayers' money at a cost of little less than $1 trillion over ten years. However, these bills will most likely increase the costs for those who presently do have the insurance coverage and/or the quality of health care will go down. All in all, none of the bills being currently considered by the Congress is satisfactory and the American people have a reason to worry about the future.

The following are the major weaknesses of the health care bills being considered and what needs to be done to improve them:

· The main problem is greed and profiteering among the service providers. We need to regulate insurance companies, hospitals, and drug companies as utilities. Health care is just as essential as electricity, gas, water, and telephone service. The state public health care commissions (structured in the same way as state public utility commissions are structured) should decide on the rates and profit margins of the health care providers. This approach will ensure that the health care costs remain under control.

· The final plan must have a non-profit government option to keep the competitive pressure on greedy health care providers. This option will provide an added protection if the other methods of cost reductions don't produce the desired results. Without this option, it does not seem fair to require people to buy mandatory insurance at inflated rates from the profit-hungry providers. This mandatory imposition on the public without a means to buy the insurance at a reasonable rate may even be unconstitutional.

· The inflated health care costs are partly due to exorbitant malpractice claims and huge malpractice insurance premiums hospitals and doctors have to pay that induce them to over-prescribe tests and treatments just to protect themselves. Without an effective tort reform, it's very unlikely that any of the proposed health care plans will result in lower health care costs.

· The current patent laws make it difficult for competing drug manufacturers to bring out inexpensive generics to the market place. The final health care plan should change the patent laws shortening the duration of exclusivity to enable generic offerings sooner. Also, the plan should allow re-importation of drugs from Canada and Mexico.

The best Afghanistan strategy: Give what Gen. McChrystal wants and then negotiate with the Taliban from strength

Posted by Shyam Moondra


The U.S. focus on Afghanistan began in 1993 after Al Qaeda operatives exploded a bomb in the underground garage of the World Trade Center in New York that killed six people and injured 1,042. The WTC attack was followed by the 1996 Khobar Towers bombing in Saudi Arabia and 1998 attack on the U.S. Embassy in Nairobi, Kenya that resulted in the murder of hundreds of people. In 1998, President Bill Clinton ordered cruise missile attacks on Al Qaeda training camps in Afghanistan. The Clinton administration demanded that Taliban, the rulers of Afghanistan at the time, expel Al Qaeda from Afghanistan but the Taliban refused. On September 11, 2001, Al Qaeda terrorists hijacked three commercial jetliners in the U.S. and crashed them into the twin towers of the WTC, the Pentagon, and the countryside of Pennsylvania, killing about 3,000 people. That attack led President George W. Bush to issue an order to invade Afghanistan, remove the Taliban from power, and install Hamid Karzai as the President of Afghanistan. Osama bin Laden, the head of Al Qaeda, escaped and is now believed to be hiding in the tribal area of Pakistan bordering with Afghanistan. Right after the removal of the Taliban from power, the U.S. efforts in Afghanistan were scaled down to support the war in Iraq. The vacuum created by the withdrawal of the American forces couldn't be filled by the corrupt and inept government under Karzai that led to the comeback of the Taliban. The Taliban now controls 80% of the country and they are on the offensive while the casualties of the NATO forces are mounting.

Gen. Stanley McChrystal, the commander of nearly 60,000 U.S. troops in Afghanistan, believes that he would need at least 40,000 more troops to stop the Taliban from taking over the country. His proposed strategy combines the military actions with the rebuilding efforts to win over the support of the general population. These requests are coming at a time when the U.S. government can least afford to increase the war spending because of the balooning budget deficit.

First, let us look at the players in the Afghanistan conflict:
· The Taliban (from the Arabic word for student, “taleb") are fundamentalist Sunni Muslims, mostly from Afghanistan’s Pashtun tribes. The Taliban dominates large swaths of Afghanistan and a large part of Pakistan’s Federally Administered Tribal Areas. They scorn democracy and consider any secular or pluralistic political process as an offense against Islam. The Taliban’s version of Islamic law, or Sharia, is deviant from prevailing interpretations of Islamic law and practice. They have been fighting foreigners for centuries – modern armies of Britain and Russia couldn't win there. They are tenacious, they know the terrain, and they can fight with limited resources. The history tells us that Afghanistan can't be governed without their support.

· Al Qaeda is a militant Islamic terrorist movement that is run by Osama bin Laden. It started out as an organized populist effort to dethrone the Saudi royal family. The Taliban, a quasi-political movement within Afghanistan, gave Al Qaeda shelter in Afghanistan, where Al Qaeda trained for and planned terrorist acts around the world, mostly against the western countries and Saudi Arabia. The two movements had similar outlooks except that the Taliban's terror activities were inflicted mostly on its own citizens.

· President Hamid Karzai, by most reports, is a corrupt and inept politician, who may be involved in drug trafficking and who is believed to have stolen money from the international aid funds. Karzai is accused of winning the recent presidential election fraudulently and he is not very popular among the people of Afghanistan, especially outside Kabul. Unfortunately, the U.S. is in a bind because constitutionally Karzai is the only person the U.S. can deal with. If the U.S. exit strategy is to stabilize Afghanistan before leaving, Karzai is hardly a part of the solution.

The U.S. conflict with the Taliban did not begin because of any ideological differences, although the U.S. strongly opposes Taliban's treatment of women and their application of extreme medieval Sahira laws. The main U.S. complaint against the Taliban is that they provided a safe haven to Al Qaeda that continues to plan terrorist attacks against the U.S. and its allies even today.

The current situation on the ground favors the Taliban. Given that they are gaining strength, the U.S. cannot just walk away, as some Democrats are suggesting. A total withdrawal of the U.S. forces would amount to conceding defeat, which will have negative policy consequences elsewhere in the world, especially with respect to the Middle East, North Korea, and Iran. The U.S. will lose credibility and moral standing if they just pack and leave; the people of Afghanistan will suffer immensely. Besides, Osama bin Laden has not been captured yet, so if NATO pulls out, Al Qaeda will move back into Afghanistan. Therefore, withdrawing from Afghanistan is strategically a bad idea. At the same time, given the history of Afghanistan and Taliban, it's a wishful thinking that NATO could eventually win militarily. A negotiated settlement with the Taliban may be the only viable end-game. However, any negotiation with the Taliban at this juncture, when the U.S. position is relatively weak, is not advisable.

Given the way things stand today, it makes sense to go along with the McChrystal approach and send more troops to Afghanistan. After a year or so, assuming NATO is able to get the upper hand, we could then initiate negotiations with the Taliban and make a deal that incorporates the following terms:
· Change their certain attitudes – such as role of women in the society, education of women, respect for individual liberties, democracy, etc.
· Eliminate opium farms and stop drug trafficking.
· Help find Osama bin Laden and eliminate Al Qaeda.
. Do not support the Pakistani Taliban and destabiliize Pakistan. Cooperate with Pakistan to root out Al Qaeda.
· In return, the western countries and other oil-rich countries would offer financial aid – not in the form of cash but in the form of contracts to American and European companies to build roads/bridges, hospitals, schools, water treatment facilities, power stations and electricity grid, and democratic institutions (don't give cash because most of it will end up in the pockets of the Taliban rulers). The objective must be to make a difference in the lives of the people of Afghanistan.

Excessive executive compensation vs risk taking

Posted by Shyam Moondra

Last week, the Federal Reserve Board disclosed that it is reviewing the compensation practices of the financial sector for the CEOs, traders, and loan officers. It's a well known fact that top-notch traders and loan officers can walk away with tens of millions of dollars in performance-based compensation that invariably leads to excessive risk taking. The housing bubble of 2007 was partly created by mortgage loan officers, who routinely approved mortgage applications of credit-unworthy home buyers; the more mortgages they sold, the more money they made. The investment bank Lehman Brothers collapsed because their traders took excessive risks in trading mortgage-based securities that led to crushing losses. Many of the investment banks and hedge funds were leveraging themselves by as much as 40:1, creating the potential for severe consequences if their bets didn't go their way. The failure of Lehman Brothers and the possible failure of another financial giant AIG forced the federal government to risk taxpayer's money by aggressively infusing liquidity into the largest financial institutions to avoid a catastrophic systemic failure of the entire financial system.

The aggressive actions taken by the Congress and regulators helped avoid a massive failure of the credit markets, although they couldn't save the economy from slipping into the most severe recession since the depression of the 1930's. Now that credit markets are steadily coming to normalcy and economy is gradually recovering, the question everybody is asking is could this happen again. President Obama has made it clear that if financial institutions take extreme risks and get in big trouble again, the government will not bail them out, even if they are too big to fail.

The former Fed Chairman, Alan Greenspan, said that unless a way can be found to change human nature (about greed), another financial crisis is inevitable. The root of the problem is the present compensation system, which rewards excessive risk taking exorbitantly. Some of the top-performing traders are known to have earned hundreds of millions of dollars a year. Recently, the Citigroup CEO Vikram Pandit disclosed that Citi's top trader would earn $100 millions this year and he admitted that that kind of compensation is excessive. In fact, the largest five financial institutions have put aside $50 billions for bonuses this year.

One of the easiest ways to bring discipline and sanity in compensation practices of the financial sector would be to impose caps on the compensation of the CEOs, traders, and loan officers. However, Republicans and conservative Democrats vehemently oppose such caps because that would amount to direct government interference in the free-market capitalist system.

Here are a few things that Congress and regulators could do:
· All financial institutions with assets of more than $1 billion must not be allowed to have a leverage of more than 4:1. The capital ratios of the financial institutions must be closely monitored and enforced by the regulators.
· In the second quarter of 2009, Goldman Sachs reported unexpectedly large profits; however, a big chunk of those profits came from trading in stocks, bonds, and commodities and not from traditional investment banking functions (such as mergers and acquisitions, IPOs, etc). These trading profits don't directly contribute anything positive to the economy. Big players manipulate markets, cause market volatility, and make money at the expense of less sophisticated small investors. It's time the Congress put restrictions on computerized day trading by large financial institutions. Specific restrictions could include: limiting short sales in a company's stock to 1% of its outstanding shares, banning naked short selling, reinstituting the "up-tick" rule for short selling, limiting how much trading they can do in derivatives (e.g., stock options), requiring the financial institutions to hold the stocks they buy for a certain minimum period (e.g., 20 business days), and imposing a hefty 80% tax on capital gains realized by financial institutions from short-term trading. In fact, former Fed Chairman, Paul Volcker, has suggested that banks be barred from trading with their own money (they can trade in their client's account but not in their own account).
· Regulate hedge funds in the same way as mutual funds are regulated. Many of these hedge funds are funded by large banks, so if hedge funds fail because of excessive risk taking, they might bring down their sponsoring banks.
· Impose corporate governance rules that would require compensation plans for executives, traders, and loan officers to be approved by the shareholders.
· Impose a tax surcharge on companies that pay their CEOs and other highly paid employees more than a pre-specified limit. Also, the excessive compensation could be made non-deductible for tax purposes.

Democrats: Either exercise power and govern or get lost

Posted by Shyam Moondra

The White House, Senate, and House of Representatives are all controlled by the Democrats and yet they are unable to move forward on a number of defining issues such as health care and regulatory reforms. The Democratic Party lacks discipline and unity. They have wasted so much of their time bickering on health care that other important issues including regulatory reforms, executive compensation, Afghanistan, energy independence, climate change, and education still remain to be tackled.

Most of the blame for non-performance of Democrats, of course, lies with their leaders:
· President Obama has not done much to unify his party. He lacks strong leadership skills. He is way too conciliatory (President Lincoln once said, "Be sure you put your feet in the right place, and then stand firm"). Being the president means you listen well, but it also means you lead based on your convictions and twist some arms if you have to. So far, on health care, Obama has been more of a follower of a chaotic process characterized by Democrats going in thousand different directions and there is no one with a strong personality to bring them together. Obama shouldn't hesitate to withhold money for states (or threaten to close military bases in those states) whose senators and congressmen have been creating obstacles in the passage of his agenda in the Congress.
· The Senate Majority Leader, Harry Reid, is a total disaster. He is very weak and he has almost no control of his senate caucus. Reid should immediately step aside. The Senate Democrats need to elect a new leader, someone with the hardedge political skills of the late President Lyndon B. Johnson, who became the Senate Majority Leader in 1955 when Democrats had a majority by just one vote.
· The Speaker of the House, Nancy Pelosi, is one of the most polarizing political figures in the country. She is extremely disliked not only by the House members but also by the population at large, as is evident by her very low approval rating. On most issues, Pelosi tends to be far left of the center where most of Americans are. It's no coincidence that many Democrats and almost all of Republicans in the House mostly vote against her. If Democrats elect a new Speaker, it will help them immensely to unify the Democrats and also win over at least some of the Republicans in the House.
· DNC Chairman, Tim Kaine, is the most invisible Chairman in the history of the Democratic Party. No one really knows where he is and what he is doing. Kaine needs to be more proactive in playing a leading role in bringing in the strayed senators and congressmen to the fold by using campaign money and other prerogatives as bargaining chips.

With the Democratic control of the White House and both houses of the Congress, they should be able to move on most issues simultaneously with a lightening speed, especially when Republicans are bogged down with their ideological tendencies (that most Americans don't agree with) and they have nothing new to offer. Unfortunately, every Democrat is playing his or her own tune - that's not the way to get things done. The so-called "Blue Dog Democrats" may get self-gratification by showing off their power but they should remember that they can't govern if they are not united. And if they can't govern then the American people are less likely to put them in power the next time around. The Democrats have a golden opportunity to get big things done but only if they could unify and work together for the good of their party and country.

President Obama's speech on health care was effective – the ball is now in the Congress' court

Posted by Shyam Moondra

President Obama did a good job in outlining his health care plan in an address to the joint session of the Congress last night. The speech was well crafted and effectively delivered. Now the ball is in the court of the Congress that must deliver the legislation by the end of the year.

Prior to this address to the Congress, Obama was steadily losing ground in terms of public opinion because of his aloofness from the legislative process that many viewed as exhibiting lack of leadership. Also, his inadequate engagement with the Congress led to a lot of misinformation propagated by those, primarily conservative Republicans, who wanted to kill the initiative altogether.

This is what I liked in Obama's speech:
1. He articulated clearly that something had to be done on health care this year or else the whole economy will suffer in the long-term.
2. For the first time, he talked about tort reform that is essential to stop over-prescription of tests and treatments. The doctors and hospitals tend to order excessive tests and treatments just to protect themselves from potential malpractice lawsuits. These excessive tests and treatments significantly add to the cost of health care. The trial lawyers, who contribute heavily to the Democratic Party, generally oppose any changes in the malpractice laws; therefore, it was significant that Obama brought it up in his speech.
3. His three examples of how the late Sen. Ted Kennedy partnered with the prominent Republican senators to pass health care laws for children were particularly effective. Those examples will sway the attitude of many moderate Republicans who will now work harder to pass the health care legislation this year.
4. He successfully laid to rest misunderstandings about "death panels," government plan coverage for abortions, and the government plan driving insurance companies out of business - conservative Republicans had been using these misunderstandings to drive the public opinion against the health care reforms.
5. The government option will be started in a limited way, accounting for less than 5% of the total population.
6. The reasons for making health care coverage mandatory (just as most states require all drivers to buy no-fault car insurance) were explained better than before.
7. The proposed plan will be paid for without adding to the budget deficit.
8. He stated that he was open to adopting any new innovative ideas, Republican or Democrat, to make his proposed plan better.

This is what I didn't like in Obama's speech:
1. He listed three main goals of his plan: reduce the ranks of uninsureds, stop insurance abuses, and reduce costs. During the campaign, he always emphasized reducing costs as the primary goal of reforms, which I thought was right on the mark. If health care costs are brought down, many uninsureds will be able to afford to buy insurance and thus the problem of uninsureds will go away over time.
2. His price tag for the plan, $900 billions over ten years, will continue to turn off conservative Republicans and Democrats, especially at a time when federal budget deficit is running at record levels. Most Americans think that any tax increases should be used to reduce budget deficit and not for starting a new entitlement program.

Overall, Obama's speech was very helpful to Americans in understanding clearly what he was proposing and why. I am very optimistic that his speech will prod Democrats and Republicans to work together and hammer out a health care reform bill before the end of this year. Should Congress fail to pass a health care bill this year, Republicans will be blamed for this failure and they will pay a price in the mid-term elections of 2010.

So far, not so good - Obama needs to retool

Posted by Shyam Moondra

President Barack Obama and his team have badly stumbled on the health care proposal. Here are some observations:
· President Bill Clinton's health care proposal failed because the Clinton administration pretty much took over the job of writing the legislation and the Congress rebelled. This time, the Obama administration just outlined the key requirements and then became completely aloof from the process of writing the bill that was prepared by the members of the Congress with the help of lobbyists. This approach resulted in a draft bill riddled with loopholes diluting the reforms that were originally envisioned. Obama's lack of participation made him look like lacking leadership skills and it became impossible to have a unified message. The critics tore the plan apart, fueling a grass-root rebellion as witnessed at many town-hall meetings across the country.
· During the election campaign, Obama presented himself as a centrist, but the Democrat health care proposal in the House made it apparent that Obama is really a leftist in disguise. A vast majority of Americans are either at the center or slightly to the right of the center, so once it became clear that Obama was really a liberal, his support among the Democrat conservatives and Independents plummeted.
· During the depression of the 1930's, when people were suffering tremendously, President Franklin D. Roosevelt was able to push through his liberal agenda of starting new entitlement programs or creating what he called a "safety net." Some on the Obama team thought that, given the suffering among the masses because of the current financial crisis, they could push through a health care entitlement program costing $1 trillion for the first ten years. That approach seems to have backfired.
· Obama's superb speech making skills are not enough – he needs to be more hands-on. He needs to roll-up his sleeves and sit down with the Congressional leaders to hammer out the details of new bills rather than become completely detached from the whole process. In other words, he needs to do more walking than talking – people are tired of his speeches, press conferences, video blogs, and on-camera pronouncements.

The poor performance by the Obama team on the health care has far reaching consequences:
· Democrats could lose the control of the Senate and House in 2010, as happened during the Clinton's first term when his plan for universal health care coverage was rejected by the Congress. If Obama loses the support of Independents, he would not be able to win re-election in 2012, although it's too early to talk about that.
· Obama's other initiatives on climate change, education, regulatory reforms, energy independence, etc. may now be in jeopardy.
· If Obama is perceived as weak at home, it will embolden our adversaries abroad that would have negative security consequences for us and for our allies.

In general, the American people have the following core beliefs:
· They believe that the government is too inept to be able to run a program efficiently. Case in points, Amtrak and United States Postal Service – they both would go bankrupt if the government didn't bail them out. Even Medicare and Medicaid are fraught with corruption and fraud by service providers.
· The government can't be entrusted with their personal data and they would certainly not like the government to make any life and death decisions. The people simply don't like governmental intrusion in their personal lives, period.
· Those who work hard must be allowed to reap the fruits of their labor. They vehemently oppose the idea of government's taxing the rich and using that money to provide "free" services to the poor. They reject the idea of income re-distribution by the government in any form.
· They don't like a welfare state. The best thing that Clinton did was to dismantle the welfare programs that made many poor people too dependent on the government welfare checks, to the point that many poor people found it more profitable to remain unemployed. The American people oppose any Obama attempt to resurrect a welfare state.

So, where do we go from here?
· First, some changes within the White House are inevitable. To regain the trust of the American people, Obama needs to make personnel changes amongst the ranks of his advisors and perhaps some cabinet secretaries.
· Obama will be helped if the House Speaker Nancy Pelosi is replaced. She is far more to the left than Obama is and that's a real political problem because most of the population is more centrist. It would also help if some of the committee chairpersons in the House and Senate are also replaced by more younger, energetic, and innovative leaders.
· Scrap the existing health care proposals and start all over. Obama needs to focus on reducing health care costs and reforming insurance abuses and guarding against their greed. Obama should refrain from proposing any new expenditures (the people are not at all in the mood of starting any new entitlement program when the budget deficits are running at record levels – if we ever become prosperous again, we can reconsider new health care expenditures at that time but not right now).

Proposed health care plans are off track - intense opposition is genuine

Posted by Shyam Moondra

Most Americans thought the objective behind the proposed health care reform was to reduce costs by at least 30%. That means, a family that spends $6,000 on health care today would spend no more than $3,500 under the new plan. The idea was that if the costs came down, many uninsured people, who can't afford to buy medical insurance today, would be able to afford insurance and thus the ranks of uninsured will shrink. However, now it looks like the health care initiative has been hijacked by those who are pushing for universal coverage (read that as creating new entitlement programs). Rather than focusing on how to reduce costs, the debate is now centered on how to pay for new spending of $1 trillion over the next ten years (and perhaps more later) to cover every American. The universal coverage will be achieved by expanding the existing Medicaid program for the poor and by providing subsidies to those who are not "poor" but can't afford to buy medical insurance. Mandated health care would also lead to financial difficulties for those who don't qualify for Medicaid or other subsidies. The people are genuinely concerned that the proposed plan will in fact increase their health care costs and they will be worse off than today.

An overwhelming majority of Americans don't want any new entitlement program and they certainly don't want to spend $1 trillion, especially at a time when the federal budget deficit is running at a record level. And that explains the intense opposition by a majority of Americans to the proposals currently under consideration by the Democrats. As the people learn more and more about the details of the proposed reforms, the opposition grows exponentially, as is evident from the recent opinion polls. It would be a mistake to label the growing dissatisfaction as something instigated by the Republicans.

President Obama says that either we do the proposed health care plan or maintain the status quo (meaning costs will keep rising). However, that's a false choice. The American people are saying that we need to do health care reforms but without creating a new costly entitlement program - they just want to make some structural changes that will bring down the health care costs.

The present bills being considered in the Democrat controlled Senate and House should be scrapped and the lawmakers should go back to the drawing board. The Congress should focus on how to bring down costs by making appropriate structural changes in how health care is delivered to the American people. Below are a few examples what the Congress could do:

· Offer an optional government plan to induce more competition in the industry. This option will provide an added protection if the other methods of cost reductions don't work.
· Change the mal-practice laws so that doctors and hospitals will be able to lower their charges and they will not have to over-prescribe tests and treatments, thereby reducing costs. The current House bills do not touch upon the issue of tort reform, apparently because of the opposition of the trial lawyers who contribute heavily to the campaign coffers of the Democrats.
· Change drug patent laws to enable generic offerings sooner. Allow re-importation of drugs from Canada and Mexico. Under the government plan, negotiate lower drug prices.
· Reform insurance industry and regulate their profit margins (just like profits of utilities are regulated). Ban unfair practices such as charging more for or denying insurance for pre-existing conditions.
· Make the necessary changes in how the insurance is structured, so that the patients would be induced to weigh in the costs involved when choosing service providers or making decisions on treatment alternatives, just as they would when buying any other product or service. Incentives to save money will encourage patients to shop-around which would create a truly competitive environment and keep a lid on the prices.
· Eliminate health care system inefficiencies. Today's record-keeping procedures tend to be cumbersome that add to the health care costs. The government could help develop a comprehensive solution that takes advantage of the modern information technologies.

I don't think we need to undertake a grand plan and waste tax dollars. The widespread opposition to the Obama approach is genuine and if Democrats go ahead with this ill-conceived approach of universal coverage, they will pay dearly in 2010 when they could lose the control of the Senate and the House.

Investment strategies for the near-term

Posted by Shyam Moondra


Emerging economic trends are very encouraging. While unemployment rate remains high and consumer confidence is still in the doldrums, there are many signs that suggest that the recession may be over. For example:
· In the second quarter of 2009, the GDP declined by only 1%.
· New and previously owned home sales in June increased, thanks to low mortgage interest rates and about 30% lower prices from the peak set in 2007. The latest housing report showed a small increase in the average home price, indicating that the long slide in home prices have finally come to an end.
· Leading indicators went up three months in a row, strongly suggesting that the economic recovery is underway.
· Inflation remains under check, enabling the FED to keep interest rates low for the foreseeable future. Low interest rates will fuel the economic growth.
· The banking system has stabilized, as is evident from better than expected profits reported by many banks and steadily improving credit markets. Some banks are still in poor condition (but less critical than six months ago) because of continuing foreclosures and losses in commercial real estate and consumer credit card markets.
· In general, in the first half of 2009, corporate profits far exceeded analyst estimates. The private sector has done an excellent job in controlling inventories and costs. The mean and lean private sector is well positioned to rapidly expand profit margins as demand perks up in the coming quarters.

Looking forward, the federal stimulus program will continue to boost the economy. The $787 billion stimulus package was to be spread over the 2009-2010 period; therefore, as much as 80% of the stimulus money still remains to be spent in the coming six quarters. A big part of the remaining stimulus program will be directed to infrastructure projects that will create new jobs. The Congress just added another $2 billions to the enormously successful "cash for clunkers" program, which gives as much as $4,500 to consumers if they trade-in their old gas guzzlers for new fuel-efficient cars. This program will give a much-needed boost to the auto industry. In spite of the encouraging economic trends, the unemployment rate will not decline any time soon. However, consumers, who have been lately saving more than spending, will loosen-up the strings of their purses and thus provide the fuel for the economic growth engine.

Given that we are on our way to recovery, the stock market is again attracting investors that have trillions of dollars sidelined in safe investment vehicles such as Treasury bills and notes. That money will steadily move into the equity markets. A Dow Jones Industrial Average of 12,000 by early 2010 does not seem far fetched.

Many stocks are currently priced very attractively for the long-term gain, starting with the companies in the consumer sector. Companies that have had the steepest decline in their stock prices over the last twelve months will likely appreciate the most. Investors should start nibbling at selected stocks every time the market dips. Following are some of the segments to focus on:

· Consumer non-durables and discretionary goods/services including fast food restaurants.
· Travel and leisure: Airlines, hotels, and casinos.
· Machinery: Stimulus spending for infrastructure projects will increase profits for heavy machinery companies.
· Industrial: Aluminum, chemical, aircraft manufacturers.
· Media: Television networks and Internet companies (ad revenues will gradually increase).
· Selected financials: Financial companies that were beaten down hard will provide the best returns, although they may still be somewhat risky.
· Transportation: As the economy improves, air frieght, railroad, shipping, and trucking companies will do well.

Future challenges remain just as daunting as they were six months ago. As the economy starts growing, consumer and industrial demand will steadily grow, increasing inflationary expectations. Starting next year, the FED will have to start raising interest rates; it will be a challenging job for the FED to not increase interest rates too fast or too early that might choke off the economic growth. That balancing act will require the brilliance of the FED Chairman, whoever that might be coming January of 2010. The Obama administration and the FED will have to wind down financial stabilization programs and stimulus expenditures, and start focusing on how to reduce the budget deficit. Increasing income taxes for the super rich and closing-down tax loopholes for the corporations (e.g., off-shore tax havens) will be necessary to balance the federal budget.

A beer party at the White House

Posted by Shyam Moondra

Today, President Barrack Obama is meeting over beer at the White House with his friend Henry Louis Gates, Jr., a Harvard professor, and Sgt. James Crowley of Cambridge (Mass.) Police Department to smooth over any misunderstandings resulting from the June 16th incident that ended up in Crowley arresting Gates for disorderly conduct, a charge that was later dropped.

On June 16, 2009, Gates (a black man) returned from a trip to China. He couldn't open the jammed door of his home so he and his car service driver (a black man) tried to push the door with their shoulders. A passerby, Lucia Whalen (a white woman), saw what was happening, so she made a 911 call to report this as a possible break-in attempt. A few minutes later, Crowley (a white man) came to investigate by which time Gates was already inside his home and the car driver had already left. Gates, a race relations expert, was angry at being asked to prove his identity in his own home and perceived this as a case of racial profiling. Crowley ended up arresting Gates for disorderly conduct and led him away in handcuffs. A few days later, Cambridge Police Department dropped the charge. Obama, when asked by a reporter at his press conference about the arrest of Gates, commented that he didn't have all the facts but he thought that the police acted "stupidly." That comment led to a huge political uproar drawing protest from law enforcement organizations and conservatives, drowning out Obama's message on his number one priority, the proposed health care plan. Obama returned to the White House briefing room and admitted that he could have worded his reaction better and revealed that he invited Gates and Crowley to meet over beer at the White House to talk about the incident and smooth over any misunderstandings.

Based on what we know, this is what I think about the persons involved in this whole thing:

· Obama: Being a black president, it is understandable that he is very sensitive to the issue of racial profiling, especially when one of his friends is involved. However, he was wrong to draw a conclusion (that the police acted stupidly) before he had all the facts. The choice of word ("stupidly") was not appropriate – it made him look un-presidential. However, once Obama realized that his remarks created a political backlash, at a time when he was trying to drive his message on his health care plan, he promptly met with the reporters to admit that he made a mistake. That was a gutsy move because presidents rarely admit that they made mistakes. Some people have questioned whether he should have commented at all on a local police incident. I think if it were proven that the incident involved race profiling then it would be appropriate for the president to talk about this. However, organizing a beer party at the White House seems like going too far – Obama has lot more important things to do than to try to smooth things over between Gates and Crowley. Well, now he has to deal with yet another controversy surrounding his choices of beer that will be served at today's meeting - domestic brewers are upset that the White House will be using beer manufactured by three foreign owned companies. I give Obama a "B."
· Gates: As an expert on race relations at Harvard, he saw his confrontation with Crowley as a case of race profiling. That thought led him to behave uncooperatively at a time when he should have been more understanding and he should have kept his cool. Crowley received a tip on a possible break-in, so he had no choice but to verify Gates' identity – that was proper police work. I give Gates a "C."
· Crowley: He may have acted by the book, but, clearly, he fumbled his job here. He should have been more patient and tolerant. He should have been mindful of the fact that Gates was angry because he was being asked to prove his identity in his own home (would not Crowley feel the same way, if he was in Gates shoes?). There is no indication that Gates was violent, so after he showed his identification cards, Crowley went too far in arresting Gates and hand-cuffing him for disorderly conduct – a charge that would not have stood a chance in a court of law (the police department was wise to drop the charge a few days later). You can't arrest a man because he is rude to the police. Would Crowley have arrested Gates, if Gates were a white man? Was Crowley simply showing off his police power or was he being racist? We will never know. Crowley wrote in his report that Whalen told him at the scene that she saw two black men – an assertion not supported by the 911 call transcript released by the Cambridge Police Department. I give Crowley a "D."
· Whalen: It's not clear if she did the right thing by reporting what she saw to the police in a 911 call. The call transcript indicates that she saw two pieces of luggage on the porch and she even speculated that the men could be living there and they may have been just trying to open the jammed door. The transcript also indicates that she didn't know if Gates was white or black or Hispanic, although she did say that one man (the car driver) looked like a Latino. The question I would have is if she would have done the same thing had she seen two white men trying to open the jammed door. We know how she would answer that question. Since we don't yet know much about her motivation in making the 911 call, I give her an "Incomplete."

Obama's poor execution may sink his approval rating

Posted by Shyam Moondra

Since Barrack Obama became the president, he has been saying all the right things. However, Obama's mode of operation has become an obstacle in achieving the desired end-results of his policies. Consequently, Obama's popularity has declined somewhat and is about to crash down unless he improves his execution.

Bill Clinton's presidential campaign strategy was based on "it's the economy, stupid" that led to his astounding victory over George H. W. Bush. After the election, Clinton exclusively focused on economy and he especially avoided making foreign trips. He even resisted getting involved in Kosovo as long as he could. His hands-on approach in formulating and executing economic policies paid off handsomely - he turned the budget deficit into a surplus and the American people enjoyed the longest period of prosperity in the modern history. Now we have a much more serious economic crisis but Obama has been spending way too much time traveling around the globe. When people are losing their jobs and homes at the fastest rate since the depression of the 1930's, it's hard to justify Obama's extensive travel plans. Surely, Obama has improved the image of the U.S. that was battered during the Bush years, but, at the moment, that's not what the American people want him to focus on - they want him to stop the bleeding of our economy.

One of the other operational problems Obama has is his desire to be in front of the cameras at all times. He suffers from overexposure because of his constant interviews, press conferences, speeches, video blogs, etc. The American people would rather see him working at his desk in the oval office and be focused on execution of his economic policies. Obama likes to tell Congress that he wants this or that by so and so date, and then becomes somewhat aloof from the process. The Congress then writes the legislation with the help of lobbyists, who are likely to insert all kinds of loopholes, diluting the reforms that were expected from the legislation. The case in point, the health care legislation - we keep hearing that Obama's original vision has been riddled with all kinds of concessions sought by the lobbyists that raise the question if the proposed legislation will achieve its originally stated goal of significantly reducing costs (in fact, the Congress is talking about imposing new taxes worth $1 trillion to pay for this proposed plan!). During the campaign, Obama promised he would reduce the role of lobbyists in the government, but right now just the opposite is happening. Why not Obama roll up his sleeves and sit down with the Congressional leaders and hammer out legislation rather than let the lobbyists write the laws? The American people want a more hands-on approach from Obama in lieu of his non-stop TV appearances and pronouncements.

Obama has been busy proposing a million different things but in the absence of focus and hands-on approach, nothing much is being accomplished – his emphasis is on quantity of things he proposes as opposed to getting things done right in a timely manner. Congress is not used to working on multiple things that fast, so what will come out would be half-baked goods that will not achieve the reforms that were originally envisioned. May be Obama could get done more by focusing on a fewer things at a time so that he can devote more time in executing things as opposed to proposing things.

Here are some examples of how Obama's poor execution is becoming an obstacle in achieving the desired results:

· In spite of huge stimulus spending, the economy continues to lose jobs and the unemployment rate continues to rise. The loss of jobs means more and more homeowners are joining the ranks of who can't keep up with their mortgage payments. That leads to more foreclosures and lower home prices. The American people would like to know why economy is not getting a lift from increased government expenditures – is it because the stimulus money is not being spent fast enough or the stimulus package was flawed? The proposed budget will sharply increase the national debt, so it is important to properly analyze why increased expenditures are not generating more jobs. Shouldn't Obama be focusing on analyzing the stimulus package and deciding what to do next?

· Foreclosures continue to be at near record levels. Shouldn't Obama take another look at homeowner assistance programs and come up with changes in the approach? Mortgage rates went up in recent weeks shutting down the refinance market - shouldn't Obama do something to bring down the mortgage rates to stimulate the demand for the houses? Economic turn around is contingent upon stabilizing the housing industry first.

· Oil prices have doubled in the last few months. Congress had a lot of hoopla when oil hit $150-a-barrel and it talked about reforming CFTC, limiting investment by speculators in oil and other commodities, eliminating the "Enron loophole" etc but nothing has happened. Why is Obama not doing anything about this? When commodity prices on the futures market go up and down by 100% or more in short periods without any change in the underlying fundamentals, then clearly something is very wrong with the way the markets operate.

· The outlandish executive compensation was a major issue during the campaign, but Goldman Sachs and Morgan Stanley just announced that they would put aside tens of billions of dollars for 2009 bonuses that is 50% more than the amount set aside for 2008 bonuses. Why has Obama not done anything on this issue? We need a law to limit CEO compensation at all publicly held companies, not just TARP companies.

· Everybody knows that investment banks and hedge funds manipulate the stock markets. There have been a lot of talk about twenty-first century regulatory reforms but nothing concrete has yet come out and market volatility continues to be an obstacle in getting the economic house in order. We need to clamp down on computerized day trading by investment banks and hedge funds that are destroying our markets.

· With the huge increase in government spending, the budget deficit is ballooning rapidly that almost guarantees that interest rates will go up in the coming months. Why has Obama not announced concrete plans on how the budget deficit and national debt would be brought down?

If Obama doesn't change his mode of operation and exclusively focus on deteriorating economy, his approval rating will crash in coming weeks and months. Obama has a real opportunity to be a great president but he is blowing it away by not being on the top of things in seeing that the economy rebounds quickly.

The U.S. foreign policy challenges for the world's troubled spots

Posted by Shyam Moondra

President Barrack Obama's handling of four major foreign policy challenges generally gets high marks. By nature, Obama tends to be cautious which usually is the right way to handle crises, except in some cases where his overly cautious approach makes him appear timid. Overall, Obama has demonstrated an even temperament and is on the right track. Following are the troubled spots, starting with the one with the most successful execution and ending with the one that could have been handled a little better.

Pakistan-Afghanistan:

Obama's firm policy on Pakistan, making financial and military aid conditional upon Pakistan's getting tough on extremists, is paying off. Of course, this policy was helped with the Taliban's strategic blunder in attacking Islamabad that triggered the alarm among Pakistanis and the rest of the world that the nuclear arsenal could fall in the hands of Islamic extremists. Pakistani civilian and military leaders deserve credit for rising up to the challenge and doing an incredible job in driving out the extremists from the Swat Valley. Many of the local tribal militias, fed up with the destruction that the Taliban brought to their communities, are also teaming up with the Pakistani military in driving out the Taliban from their villages and cities. Pakistan is now focusing on South Waziristan, the stronghold of the Pakistani Taliban and Al Qaeda, so this is still work-in-progress. If Pakistan continues to show resolve and finishes the job of flushing out the militants there, the U.S. should resume financial and military aid to Pakistan, as promised. However, the aid must be focused on strengthening the Pakistani democratic institutions and providing services to the Pakistani people. The U.S. must refrain from using the aid money to provide offensive weapon systems to Pakistan that could potentially be used against India and destabilize the region. The U.S. should also insist that Pakistan dismantle the training camps of Kashmiri extremists that carried out the terrorist attacks in Mumbai recently, thus paving the way for peace talks between India and Pakistan to finally settle the Kashmir issue.

Obama is correct in strengthening the military capabilities of NATO to root out the Taliban extremists from Afghanistan. Obama is also correct in impressing upon the Afghanistan's government that Afghanistan's future depends on eliminating government corruption, strengthening Afghanistan's security apparatus, providing services to the people of Afghanistan, and dismantling the drug trafficking infrastructure. Like in Iraq, we need to have an exit strategy so that eventually we can leave that area and let Afghanistan's people govern themselves without the presence of the NATO forces. We need to develop a plan which would enable us to start withdrawing our forces within five years.

Middle East Conflict:

Obama deserves credit for drawing a line in the sand on the issue of the Israeli settlements in the occupied territories. Israelis have consistently behaved as if they want to maintain the status quo, meaning continue to build settlements on occupied lands and keep collecting billions of dollars in the U.S. aid without giving any consideration at all to the suffering of the Palestinian people. That policy has served the interests of Israelis, as is evident from the considerable improvement in their living standard, but at the expense of Americans (who paid a heavy price over the years including the September 11, 2001 attack on our soil) and Palestinians, who have been forced to live in sub-human conditions. Obama is right in taking a more impartial and moral approach in resolving this longstanding conflict in a fair way. Israel must surrender the occupied territories in exchange for recognition of Israel by all Islamic countries in the region. Palestinians must have their own free sovereign country because that is the right thing to do. Obama should make financial and military aid to Israel conditional upon achieving the two-state solution as soon as Palestinians are ready with the governing institutional infrastructure in place – we need to increase the cost to Israelis for any unreasonable delay in achieving a comprehensive solution in the Middle East. Resolution of this conflict is essential for improving the relations between the U.S. and the Muslims and for de-radicalizing the Islamic world. Obama must be prepared to impose a solution if Israelis and Palestinians fail to achieve one on their own.

Now that the Obama administration has decided to reestablish diplomatic relations with Syria, it's important that Israel and Syria settle their conflict over the Golan Heights. If Obama continues to proceed on all Middle East issues in a fair and impartial way, it is conceivable that a comprehensive agreement involving Israel, Palestinians, and Syria could be hammered out within the next two years. If that happens, all Arab countries and Iran should recognize Israel and establish diplomatic relations with the Jewish state.

Iran:

A vast majority of the younger population of Iran is challenging the unelected mullahs that took over the government in the aftermath of the 1979 revolution. The Islamic revolution is failing because it has not evolved with the changing times of the Internet era and because of its rigidity that's unacceptable to the younger generation. Iranian authorities appear to have successfully used extreme violent means against its own people to stop people's peaceful protests against the fraudulent election that gave the incumbent President Mahmoud Ahmadinejad a big victory. However, the country is now fractured. The dreadful image of Neda Agha Soltan, a young woman, who was shot dead by a government militiaman, is way too powerful for the people to ignore. Only time will tell if the sacrifices made by the courageous Iranian people will bring any positive changes in Iran. If history is any guide, dictators, who oppress and terrorize people using their militias (or thugs, as many people would call them), eventually fall. It would be hard for Ahmadinejad to survive as a president, if he is viewed as illegitimate, not just by the outside world but by the Iranian people themselves. Hopefully, what will come out of the popular dissent is a reformed moderate Islamic government that will provide more freedoms to its people and the press and treat women with equality.

President Obama's approach to the Iranian crisis has been the right one. Obama could have used hard-hitting rhetoric, but that would not have changed the situation on the ground there. The fight for freedom has to be fought and won by the Iranian people themselves. Obama's strong condemnation of the violent means used by the Iranian authorities against peaceful demonstrators was all he could do under the circumstances. By not directly commenting on the election process itself and focusing on the brutality of the Iranian police, Obama has taken a high moral road. This approach has given Obama an upper hand in any future negotiations with much weakened Ahmidinejad. There seems to be a good chance that Iran will agree to a deal whereby it continues with the civilian nuclear program with appropriate U.N. monitors and inspectors in place to make sure that they do not pursue a clandestine weapons program. In return, all sanctions against Iran will be dropped and Iran's isolation will end. A country, which is not isolated, is more likely to play a constructive role in addressing the problems of mutual interest.

North Korea:

Obama has had mixed success on the question of North Korea. The U.S. was able to get an anonymous vote in the U.N. Security Council on the resolution that imposes tougher sanctions on North Korea. However, North Korea has not only conducted a second nuclear test but has also fired more missiles in defiance of the demands of the international community.

North Korea has apparently calculated that the U.S. is tied down in Iraq and Afghanistan and thus would have no stomach for initiating yet another bloodier military confrontation with North Korea. North Korea may have planned all along, while still participating in the Six-Party talks, they will continue with their nuclear weapons and medium- and long-range anti-ballistic missile programs. The nuclear weapon and missile technologies may become a trophy in their hugely successful armament export business. By selling illicit technologies and weapons to other countries such as Iran, Syria, and Venezuela, in violation of the Non-Proliferation Treaty, they can earn badly needed hard currency that they use to buy the essentials for their population.

North Korea is militarily much stronger than Iraq with proven missile technology and possibly a few nuclear bombs. A military option is thus not viable. North Korea's economy is in bad shape. Therefore, if the international community is able to choke off the armament sales and thus shutdown this source of hard currency, it would be virtually impossible for North Korea to survive as a self-sustained country for long. Also, the banking sanctions will bite the elite members of the government, making them more agreeable to reach a negotiated settlement incorporating the following elements:
· Nuclear and missile weapon systems and development efforts to be shut down in a verifiable way and North Korea to fully comply with the Non-proliferation Treaty.
· The West to establish diplomatic relations with North Korea and provide security guarantees.
· North Korea be given economic development aid and supplied with much needed food and energy.
· North Korea to agree to respect human rights and grant its people more freedoms.
· Emphasis be placed on people-to-people contacts, cultural exchanges, and tourism (providing another source of hard-currency).

Financial markets today are not random, nor efficient, nor rational, but they are manipulated

Posted by Shyam Moondra

Over the last few decades, the economists have variably characterized the financial markets as random, efficient, and rational. However, in the last ten years, with the emergence of computerized day trading by investment banks and hedge funds and increased trading in derivatives, the true characterization of the markets today would be "manipulated."

It's a well-known fact that today's increased volatility in stock and commodity markets is primarily due to manipulation by investment banks and hedge funds through their frantic computerized trading. Jim Cramer, a TV commentator, once posted a video on his website explaining how he, as a former hedge fund manager, used to throw $25 millions or so and move a particular stock up or down as he wished. The investment banks and hedge funds short sell a stock to push it down (often spread false rumors about the targeted company to aid the process of bringing it down as was done in the case of Bear Stearns and Lehman Brothers) while also trading in options. Then just before the monthly options are to expire, they start covering their short positions and push the stock up. In the process, they may lose some money in trading stocks but they make proportionately more money in options and thus come out ahead. Sometimes they move a particular stock up or down to make the options they wrote worthless and thus pocket the premium the buyers paid. They repeat the process every month in many targeted stocks and make money at the expense of unsuspecting small investors. Some of these big players also use what is known as "pump-and-dump" strategy in which they take substantial long position in a company, usually a lesser-known small-cap company, and then publish inflated views or research reports about those companies that help move the stock price up ("pumping"), enabling them to sell their holding at a profit ("dumping"). Often, investment banks issue a positive research report to pump-up a stock so that their best clients can dump the stock, or issue a bad report on a stock to push it down so that their best clients can buy that stock. Some times these big players use their research departments to make money in the trades for their own accounts. As an example, Goldman Sachs' research department was touting that oil was headed to $200 per barrel while at the same time they reportedly held long positions in oil. It's also reported that some investment banks were selling mortgage-based securities to others while at the same time they were short selling those securities.

The investment banks and hedge funds call the above trading practices as "investment strategies" and deny that they are engaged in unlawful manipulation. The fact is that if a market player can make a stock or commodity move in a certain direction at will, then that's manipulation.

The stock markets were created to help companies raise capital so that they could build new factories and hire more workers and the stock prices moved up or down based on the companies' fundamentals. Now the markets move up or down in a yo-yo fashion without any change in underlying fundamentals. The increased volatility caused by manipulation in the markets has turned the markets into gambling casinos, hurting the free-market economic system.

We urgently need new regulations to stop market manipulation by the investment banks and hedge funds. The government could take a number of actions such as:
· Ban naked short selling, limit short positions to 1% of outstanding shares at any given point in time, and reinstate the "up tick" rule for short selling.
· Regulate hedge funds like any other mutual fund. Their CEOs and other officers must pay taxes at the regular rates as opposed to at the capital gains rate as they do now.
· Investment banks and hedge funds must be required to hold stocks they buy for a certain specified minimum period before they can sell those stocks. Or, as Louis Gerstner, the former CEO of IBM, has suggested, short-term gains should be taxed at a hefty rate of 80%, which will discourage day trading and thus reduce volatility.
· Change the margin rules so investment banks and hedge funds are limited to leverage of no more than 10:1 (in the recent past they have had leverages of up to 40:1).
· Impose a limit on how much options trading investment banks and hedge funds can do in any given stock.
· The investment banks must not be allowed to own research business. Currently, they have arm's length relationship between their trading and research departments which is not enough.
· Pass tough laws to discourage "pumping-and-dumping" so that big players can't make money at the expense of small investors.
· Strengthen SEC resources to investigate and enforce the laws vigorously to stop market manipulation. The CEOs of the companies that are found to violate any of the new regulations must be given mandatory jail terms and their companies must be fined heavily to discourage them from manipulating the markets.
· Change the tax laws to stop investment banks and hedge funds from escaping from paying their fair share of income taxes. In a recent quarter, Goldman Sachs paid only 10% in taxes because they executed their trades through a complex web of offshore subsidiaries and hedge funds that made it possible for them to reduce their tax levies. It's time we close all these tax loopholes.
· Put restrictions on how much commodities investors can buy. It's believed that the recent sharp oil price increase was not because of imbalances in demand and supply but was driven by speculators.

Health care reforms must reduce costs by at least 30%

Posted by Shyam Moondra

President Obama has made health care reform as his number one domestic policy goal. Obama and others talk about two major problems related to health care: the swelling ranks of uninsureds and rapid increase in the health care cost. In fact the sharply escalating health care cost is the primary reason why millions of people can't afford to buy health care insurance. Therefore, if the Obama plan is able to bring down the costs by at least 30%, the problem of uninsureds will dissipate. Those who are too poor to pay for health care could be dealt with as a separate issue as part of the reforms concerning the Medicaid program.

The main reasons why health care costs are increasing at a much faster rate than the overall inflation and what could be done about them are as follows:
· Unchecked greed of service providers such as insurance companies, drug manufacturers, hospitals, and doctors. The industry environment permits the service providers to increase the rates as they please to earn a hefty profit. They are treating health care as a cow they could milk to the hilt. This issue could be addressed by introducing a non-profit government administered plan or by regulating the profit margins of the service providers in the same manner as many of the utilities are regulated today.
· Insufficient competition in the industry. There appears to be a conspiracy among the service providers when it comes to pricing their products and services. If a government sponsored plan is introduced, it will force the competing carriers to moderate their pricing policies. We could also have new anti-trust regulations specifically designed for the health care industry. In addition, we need to reform the patent related laws to permit the introduction of generic drugs sooner.
· Unnecessary tests and treatments. Doctors often prescribe tests not because they are really needed but just to protect themselves from potential malpractice lawsuits. The fear of lawsuits drives them to be 100% sure on all aspects of health care. This "care-to-perfection" is often unnecessary and it adds to the costs enormously. Doctors and hospitals collude to push for expensive surgical procedures that yield more income for them even though there may be cheaper alternatives available that would be just as effective. This issue could be addressed by reforming the malpractice laws and by developing standards for medical treatment.
· Patients' attitude of indifference. The patients often ignore the costs so long as a treatment is covered by insurance (even though this eventually ends up costing them more in terms of higher insurance premium and co-pay/deductibles). We need to come up with a plan which will induce the patients to weigh in the costs involved when choosing service providers or making decisions on treatment alternatives, just as they would when they buy other non-health care products and services.
· Health care system inefficiencies. The paperwork and record-keeping procedures tend to be cumbersome that add to the health care costs. The government could help develop a comprehensive solution that takes advantage of the modern information technologies.
· Lack of medical knowledge on the part of population. People often end up seeing a doctor or not being able to make wise treatment choices because they are not knowledgeable enough about medical care. We should make education about medical care and prescription drugs for common ailments mandatory for most people. If people achieve the required level of understanding about medical care, they should be awarded a certificate which would allow them to get certain medicines (e.g., antibiotics) without a doctor's prescription. If people are able to treat common ailments such as cold, diarrhea, heartburn, constipation, high blood pressure, etc. they will have fewer visits to doctors and thus reduce the cost of health care. If people can learn how to repair automobiles, I am sure they can also learn how to treat common health problems themselves.

The escalating health care costs are negatively impacting families and businesses alike. Up to this point, in the face of government inaction on this issue, many employers are washing their hands off this problem by cutting back employee/retiree's health benefits and increasing co-pay and deductibles. The escalating health care costs are also making American companies less competitive in the global market place. The Obama administration is thus correct in making health care reform as the number one priority. Republicans must work together with Democrats in an objective manner, free from any pre-conceived ideologies, to reign in the health care costs. Any proposal that doesn't reduce the health care costs by at least 30% should be viewed as a sham. In the next round of elections, the American people would not hesitate to punish those who are creating obstacles in achieving meaningful reforms.

Headed for a second round of economic slowdown?

Posted by Shyam Moondra

Economy seems to have stalled. Look at the following trends:

· While the number of new weekly unemployment claims is going down, it is still very high (in the 600,000-range) and the total number of people receiving unemployment benefits continues to rise, currently standing at little under 7 millions. It's now almost certain that the unemployment rate will exceed 10% and may even go over 11%.
· While the latest retail sales data for May shows an increase of 0.5%, that increase reflects a burst of auto demand generated by the tremendous bargains being offered by the auto dealers many of whom are going out of business and are in the process of liquidating their inventory (but these bargains can't be sustained indefinitely) and higher gasoline prices (consumers are buying the same amount of gasoline but paying more). Therefore, the consumer demand is not quite as robust as the retail sales data might suggest.
· In recent weeks, the prices of oil and other commodities have increased substantially, raising the specter of inflationary expectations. These price increases are being driven not by any demand-supply imbalances but because of speculative purchases by investors. Oil and gasoline prices are now double of what they were a few weeks ago, crimping consumer spending.
· Interest rates have started to increase with the 30-year fixed mortgage rate now almost 25% higher than what it was a few weeks ago. Higher interest rates have already stalled the mortgage refinance activity. The number of foreclosures continues to be at near record levels and as the interest rates rise even more, this number will only get worse. All of these trends will have a negative impact on the home sales and home prices in the coming weeks and months. Recent stress tests conducted by the Department of Treasury may require financial institutions to raise additional capital in the future, thereby slowing the financial market's recovery.
· Dollar is plummeting, diminishing its role as the world's reserve currency. The creditor countries such as China may be reluctant to invest in the U.S. securities at the same level as they used to, driving up the interest rates even more which will delay the economic recovery. While a weak dollar may stimulate exports, it will also lead to higher import prices which will aggravate the inflation problem.
· The trade and budget deficits are increasing which means weaker dollar, higher oil and commodity prices, and higher interest rates down the road.

The Obama administration has been too slow in spending the stimulus money. Congress has been too slow in finalizing the regulatory regime for the twenty-first century. Deteriorating economy combined with speculative trading by investment banks and hedge funds could trigger an economic crash. President Obama has been spending too much time on overseas trips and his absence has hurt the economy. In the beginning he was a hands-on president, but lately his execution on economic matters has been sub-par. Obama and Congress need to come up with a new plan, perhaps another stimulus package, or else we are likely to have a relapse of an economic slowdown.