Hashtag #Don’tFallForIt

In their audited financials, Twitter vividly reveals one of the lessons clearly NOT learned by the market in the faux ‘tech’ bubble of the late 90s.  From 2010 to June 30, 2013, the 140 character “conversation” platform has lost over $181 million on revenue of $705 million.  This money-losing corporate enigma is seeking to raise $1 billion on a projected valuation of nearly $15 billion.  And, if history is any indication, they’ll get a swarm of investor interest for their IPO just in time to have a Facebook-style swoon.  In a time when Facebook, Instagram and others are suffering backlash for pushing advertisements onto social media platforms and in an era where Google and Bing are increasingly ineffective and unreliable given search engine optimization algorithm result manipulations, the Twitter S-1 filing relies on many of these rejected ‘business strategies’. 

Twitter states that it has “6 issued U.S. patents and approximately 80 patent applications on file in the United States and abroad.”  Being a geek, I wanted to check out the Twitter portfolio and, as of October 5, 2013, the United States Patent & Trademark Office records two patents issued to the Assignee Twitter Inc. (8,448,084 and 8,401,009).  To find the rest of their patents, you have to weed through acquisition records that are not publicly indexed – something that the average investor will not do (nor their advisors).  And, the two that they have publicly associated with their name have already drawn the attention of other patent holders (including infringement allegations by TechRadium, Inc) along with a recent lawsuit by Cooper Notification Inc.  Adding sales, promotion, video, or news feed as push features – all contemplated in the S-1, will vastly increase the size of the bulls-eye on Twitter’s little blue tail.

Now Page Mill Road legal sensation Wilson Sonsini Goodrich & Rosati, P.C. has certainly done their customary diligence on the proprietary rights of Twitter, its current, and proposed future business.  But what they may have overlooked is the potential plaintiffs who could be waiting in the wings with rights that a profitable Twitter could experience coming back to pluck their feathers – patent holding firms like Microsoft, IBM, Intel, Research in Motion, Nokia, Cisco and others.  During Twitter’s money-losing launch and ascent, 1,812 patents have been issued to third parties including over 580 that include direct reference to the platform.  Goldman, Sachs & Co, the lead underwriter for the IPO (along with BofA Merrill Lynch, Allen & Company, J.P. Morgan, Deutsche Bank, Morgan Stanley, and CODE Advisors) have no underwriting standard that includes an independent review of S-1 filing’s statements about the proprietary rights surrounding the businesses they promote to investors.  And in a world where fighting over intellectual property is a certainty, this opacity directly harms investors.  However, as the Securities and Exchange Commission turns a blind eye to this issue, they’ve got no reason to care.

Why is it that Twitter, like the hundreds of ill-advised IPOs that have preceded theirs, continue to extoll the merits of unprofitable business models, ignore the proprietary landscape into which their plans are directed, and seduce investors with the siren song of meteoric casino returns?  One simple reason: fees.  If you take a look at the S-1, you quickly see that the “sell-side” promotion of this venture – like many others they collectively promote – generates gargantuan fees for the promoters and advisors.  It lands a couple people on the stage at Davos or TED to talk about “innovation” and the “digital economy”.  The problem is that we don’t need more of these types.  And the only thing that’s digital is the certain loss that investors will experience when the avoidable risks surface.

Twitter’s IPO is another sell-side win with a buy-side yawning loss crater waiting to swallow the blind capital of Vegas-style managers.  #badidea.

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Cost of Nazi Rhetoric

Glasgow Caledonian University 1: Princeton & Harvard 0

Disclaimer:  I went to a “Liberal Arts” college for my undergraduate degree.  And, no, “Liberal” does not connote leftist, godless, pagan, hedonist potheads (though I’m not judging those either).  Instead, it suggests that an educated person, for the sake of general civil engagement and, at times, for elocution, is sufficiently exposed to a breadth of the humanities so as to not be incapable of logical formation and engagement.  One of the values of exposure to the humanities is the resulting capacity to critique your own experience and participate in public debate without coming across as illiterate. 

This week’s alumni performance by the Hon. President Hassan Fereydoun Rouhani of the Islamic Republic of Iran (graduate of Glasgow Caledonian University) and U.S. Senator Ted Cruz (R-TX) of his imagined Evangelical Republic of Texas (graduate of Princeton and Harvard Law) served as an exceptional example of the dysfunction of our ‘civil society’.  The quotes below were both, in part, pandering to an illiterate electorate.  Whether you’re an anti-Semitic revolutionary in Iran or a Bible thumping, tea-swilling patriot in Texas, the likelihood that you’ll spend much more time in contemplation than the few milliseconds it takes to figure out that “that guy sounds funny” as you reach for your god-given-right-to-bear-arms pistol that you’re packing is pretty slim.

When seeking to describe the profound injustice associated with the idea that a society should have a mechanism where the citizens of a country have to pay for their ravenous consumption of industrial medicine (you’ll notice I will not use the term “health” or “care” as we’re not predisposed to either), Senator Cruz compared the Patient Protection and Affordable Care Act (PL 111-148) to a Nazi state behavior. 

"You go to the 1940s, Nazi Germany. Look, we saw in Britain, Neville Chamberlain who told the British people, accept the Nazis. Yes, they'll dominate the continent of Europe but that's not our problem. Let's appease them. Why? Because it can't be done. We can't possibly stand against them. 

 "I suspect those same pundits who say defunding Obamacare can't be done, if it had been in the 1940s, we would have been listening to them. They would have been saying we cannot defeat the Germans."

What Ted apparently failed to attend or flunked out of in Princeton and clearly neglected in Harvard Law School was any course that would have taught him that rhetoric, if designed to be taken seriously and critically, must not be prima facie (that’s Latin for those of you who know who you are) falsifiable.  Neville Chamberlain was actually holding onto a global desire for peace that following the First World War had given rise to the League of Nations.  In 1938, as the Third Reich was seeking to annex Sudetenland (a German majority region of Czechoslovakia that had been created under the Versailles Settlement), Chamberlain desperately sought to avoid an all-out war in Europe.  Advocating for the avoidance of conflict is not cowering.  In fact, Mr. Cruz, it was Chamberlain who actually sought a moral advantage over actual immorality in Germany.  Oh, and Chamberlain was not in the 1940s – his Munich Agreement was in 1938.  But you would have known that if you were a scholar of history.

Which leads me to my second Nazi Germany reference.  When asked if he subscribed to the denial of the Holocaust like his predecessor, President Hassan Fereydoun Rouhani stated that his posture was not to comment on the history (ambiguous in whether he meant the 1930-40s or whether he meant President Ahmadinejad’s reckless rants) but he went on to make a lucid and morally unambiguous response evidencing an argument for apolitical basic human values.

 "I have said before that I am not a historian and historians should specify, state and explain the aspects of historical events, but generally we fully condemn any kind of crime committed against humanity throughout the history, including the crime committed by the Nazis both against the Jews and non-Jews, the same way that if today any crime is committed against any nation or any religion or any people or any belief, we condemn that crime and genocide. Therefore, what the Nazis did is condemned, (but) the aspects that you talk about, clarification of these aspects is a duty of the historians and researchers, I am not a history scholar.”

So here we sit.  We have a U.S. Senator Holocaust trivializer (suggesting the genocide is comparable to having to pay for your x-rays and over-priced pharmaceuticals) and an Iranian President “fully condemning any kind of crime committed against humanity throughout the history.”  Lest you think that this is mere theater and politically posturing, think again.  It is reprehensible to think that the United States Senate is insufficiently constituted to allow hate speak in 2013.  It is even more reprehensible that major news outlets failed to celebrate the substance of President Rouhani’s statement choosing instead to focus on his statement that he was not a scholar of history.  He acknowledge “the crime committed by Nazis both against Jews and non-Jews.”  This is an amazing step forward for a member of the Supreme National Security Council and Expediency Council.

Our world and its economy our destabilized by reckless rhetoric.  When uninformed, we react to hyperbolic diatribes rather than engage in thoughtful discourse, we create schisms which frequently lead to great instability.  Senator Cruz brought dishonor on the American people and the institution of the Legislative branch.  President Rouhani took a giant leap forward for an Iranian President (angering his revolutionary opponents at home) to open a door for appeasement.  Who is Chamberlain?  Who is Hitler?  Who are Germans, Americans, Iranians?  Let’s let history serve as a teaching metaphor so, through it we may learn to build a More Perfect Union.

Final Note.  Near the corner of 25^th and Madison in Manhattan is the Memorial to the Victims of the Holocaust Injustice.  This amazing memorial sculpted by Harriet Feigenbaum is emblazoned with the quote:

“Indifference to Injustice is the Gate to Hell”.

For those of you who still value humanity and the celebration of our finest moments as well as our most despicable, I commend its visiting to you.  Its subtle presence is disarming but its impact reminds us all to be human.

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Supercalifragilisticexpialidocious and the Fed

When Walt Disney allegedly plagiarized a “known variant” of “Supercalafajalistickespeealadojus” from the Gloria Parker and Barney Young 1951 Super Song in 1964, it was, according to the film, a word to say when you have nothing else to say.  Reading the FOMC statement from this week’s meeting, I found myself thinking that a better theme song for the Fed would be Paul Overstreet’s and Don Schlitz’s:

It’s amazing how you can speak right to my heart.

Without saying a word you can light up the dark.

Try as I may, I could never explain what I hear when you don’t say a thing.

The smile on your face lets me know that you need me.

There’s a truth in your eyes saying you’ll never leave me.

The touch of your hand says you’ll catch me wherever I fall.

You say it best when you say nothing at all.

Now here’s the trouble.  I like the whimsical nature of Disney’s Mary Poppins and I love hearing Allison Krauss’ throaty rendition of the Overstreet Schlitz song so I mean neither disrespect by linking them to the Fed or the FOMC statement.  I just couldn’t help but sit in wonderment when I read the same words emanating from the Fed.  Upon close inspection – which I don’t recommend – you’ll notice that the Fed has been incapable of demonstrating a solitary piece of evidence that their intervention is doing ANYTHING for employment or prices.  They are erroneously misreading the housing data as they’re oblivious to the fact that it’s not American homebuyers who are buying real estate.  It’s investors – foreign and domestic – who are hedging future investment volatility at the unwinding of QE (infinity) who are the ones taking advantage of the low Fed Funds rate with their purchase of real estate.  In other words, nothing is working so we’ll do more intervention!?

The only bright spot in the report was the fact that Kansas City’s Esther L. George, an MBA from University of Missouri-Kansas City and a career employee of the Federal Reserve Bank of Kansas City, had the good sense to point out that someone needed to be a voice of rational dissent on the Committee.  While dissent from the consensus made good sense, how she arrived at her conclusions suggest that she’s more concerned about the Fed’s future credibility than convinced of the efficacy of “stimulus”.  Her concern, validated by the Friday repudiation in the equities market following the Fed’s non-statement of non-conviction based on non-facts, was that by continuing its accommodative path, the Fed may be misconstrued as weak and may harm its future relevance.  Yes and Yes.

While I do my best to avoid referencing the nemesis of critical inquiry and thought – Wikipedia – I found their entry on Disney’s nonsense word to be tragically cute.  The etymology of the non-word was loosely, “Atoning for educability through delicate beauty.”  Now while this definition actually resembles poorly translated signage at antiquities sites in China (one of my favorite pastimes), it seems like a suitable bridge from the FOMC to my inspirational songs.  What makes the Fed so charming is their near constant ability to convince everyone of the gravity of their importance while watching asset values dance around their fickle commentary on data that’s more reliquary than relevant. 

In a 1964 world – the world of Walt – the then Federal Reserve was far more credentialed and circumspect.  In their assessment of the preceding 3 ½ years of economic growth, the 1964 Fed highlighted the need to understand the nature of the “circular chain of cause and effect.”  They stated the need to “distinguish between underlying forces of supply and demand that result in changes in bank deposits and credit, and the actual changes themselves, after these underlying forces have worked through the economy.”  The 1964 Fed actually acknowledged that they participate in, not form the basis of, the public economy.  It’s as though the heliocentric wisdom of antiquities has been replaced with New-York-centricity which would make Ptolemaic philosophers scratch their bewildered heads.  The 1964 Fed was famous for measuring their contribution to commercial credit flows – not to agency and non-agency mortgage buttresses.  (For a nostalgic view, make sure you read the New York Fed’s Monthly Review, December 1964.)

Well, just when you thought we had another quarter of inaction supported by incomplete assessment of meaningless data stimulating the inflation of yet another bubble that worries pretty much everyone who actually is in the business of finance (a credential that is not often welcome at the Fed), we’ve got one woman who’s about to shake things up.  And no, I’m not talking about Janet Yellen.  I’m talking about the well alloyed Angela Merkel who just won her third term.  Her victory speech tonight actually sounded Supercalifragilisticexpialidocious.  “We have just done something fantastic.  This is a Super Result.”  Hey, say all this in German and it starts sounding rather precocious!  When Angie shows up in the German parliament fresh off her victory, she’ll have to figure out how the coalition has shifted and, lest you think that she’s going to be cavalier about how the Greens and the Left view the euro, European unemployment and accommodative fiscal policy, think again.  The weeks ahead will be choppy ones.  Thinking that inaction defers the global economy’s desperate need for accountability is for the birds… which reminds me of my favorite song from Mary Poppins…

“Come feed the little birds, show them you care

And you’ll be glad if you do.

Their young ones are hungry,

Their nests are so bare;

All it takes is tuppence from you.

Feed the birds, tuppence a bag….”

Listen to wisdom from 1964 and see if together, We the People can do one better than the birds!

Dear Lawrence, Love The President:

 Thanks, man.  Thanks for taking one for the team.  And by the way, the ending of your letter, that bit about working to support your efforts so that, “no President ever again faces what you and your economic team faced upon taking office in 2009.”  Dude, that was brilliant.  If Joe decides to run, he’ll thank you for that line.  I know it’s MasterCard’s line but man, that was Priceless.  While I know Americans have forgotten the days of W and Lord Voldemort, it never hurts to remind them of the reign.  You’re still my main man.  Ever yours, B.

To read this morning’s Wall Street Journal headline, I was waiting for E&Y’s Mel Masuda to come out in his tux with the envelop.  “And finally, for best Supporting Actor in a melodramatic series, the Oscar goes to Lawrence Summers.”  The headline “Summers Bows Out of Fed Race,” implies that there’s a field of economic Olympians brimming with great ideas lining up outside the Oval Office, resume and business plan in hand.  “The President will see you now Mr. Summers,” summons the librarian-looking attendant outside the door.  “Oh, my god,” he thinks to himself, “really!  Could it be me in front of the long line of esteemed candidates?”  Rushing past the others outside the door down the long hall, hundreds of graduates from Harvard, the University of Chicago, and the London School of Economics, all with their “I love Ben” lapel pins brightly shining, watch breathlessly as yet another aspirant is summoned for their moment with the President.  Just in front of the door, Janet Yellen still sits in a chair, arms crossed.  She thought that she’d be called.  All of her Congressional and industry lobbyists assured her she’d be called.  He looks past her and sees Timmy G sitting with his arms crossed.  “Please don’t let it be me,” he’s thinking.  “I know what we’ve sold the Fed and I don’t want to be the owner of opportunity to try to sell what I couldn’t get anybody to buy when I was issuing debt at the Treasury.”

That scene is NOT what’s happening.  Well, at least all but the Janet and Timmy G. bit which is metaphorically happening.  The problem is that everybody knows one thing.  Absolutely.  That’s the fact that none of the contenders know how to end QE3 and keep the incumbent party holding any chance of electoral victory in 2016.  Summers didn’t “bow out.”  He probably had the integrity of admitting that he’s got no idea how to get out of the tar pit that has claimed the woolly mammoth, the saber-tooth tiger and the human hunter who wanted to get a break from chasing big game.  And to be sure, as much as Janet’s advocates are sure she’ll keep the easy money train rolling for a few more quarters, she can’t answer this question either. 

None of these ‘would-be’ Chairpersons are looking beyond the two and one half year electoral horizon.  If they were, they’d see that their collective policies are compounding the gargantuan iceberg in front of the RMS America – the 11:40pm collision between unfundable entitlement programs and the now 4 year artificial suppression of interest rates which have wrecked the pensions and life insurance actuarial yields for the people upon whom the unfunded entitlement reality will land.  So while the drama is real, the headlines’ promotion of the drama is the real theater.  

Cost of Free

Missing from the Edward Snowden-inspired breathless coverage of the National Security Agency (NSA) surveillance activities on U.S. Citizens, our stated allies, and our stated enemies is a simple, albeit, unavoidable paradox of our modern times.  In a world of “virtual community”, the owners of the matrix make the rules to suit themselves.  Period.  Wagging fingers and accusations pointed at the NSA and its commercial co-conspirators are as pointless as drum circles in Occupy tent cities.  Yes, I’m defending the NSA.  Yes, I’m celebrating the whistleblower Edward Snowden who has clearly provided substantiation that he had evidence of violations of the law by the government – which are NOT protected under Constitutional Oaths or clearances for those of you who are still insisting on calling his actions treasonous – and his former co-conspirator employer Booz Allen Hamilton.  And yes, I’m stating that post facto protests are 100% pointless.

Let’s set the stage for the basic problem.  In the Fall of 1952, then President Harry S. Truman issued the National Security Council Intelligence Directive 9 which mandated that Communications Intelligence (COMINT) and much of the Signal Intelligence (SIGINT) of the U.S. government be consolidated under the NSA.  This was the same year that we officially decided to end the formal occupation of Japan following World War II, the middle of the Korean War, and polio still was ravaging the country.  Like it or not, the majority of Americans, drunk on the victory of World War II and living under the self-inflicted horror of the Atomic Bomb (that Fall, U.S. Operation Ivy uped the ante with the 10.4 megaton hydrogen bomb test in the Marshall Islands) actually supported the idea of having the government monitor Communications and Signals.  Phones, for those Americans who had them, were constantly surveilled during this period.  Switchboard operators were capable of listening in on calls.  Households had ‘party lines’ where neighbors could listen in on each other’s calls and kindly (or not so kindly) ask someone to hang up so that the line could be available for others, you get the point.  We The People were more than willing to give up something we never knew we’d use in the interest of protecting ourselves from an enemy we never knew.  The fact that every President from Truman to Reagan, with full support of the American people’s blind allegiance usurped ever greater imputed power under the NSCID9, is not the fault of the NSA.  It’s the responsibility of the governed who never paid attention.

AT&T and Bell Telephone – the industrial fronts for the U.S. government’s telephonic addiction program – were celebrated as a means to connect people with people.  Like the internet of today, “communications” and “signals” lived in that gray zone between public good and Orwellian ‘Big Brother’.  We The People invested in the companies that were conspiring against our un-valued privacy.  We The People used our pensions to fund the building of telephonic and fiber infrastructures upon which all of our communications and signals would traverse.  And We The People did all of this because it was sold to us as convenient.  Development (shaking that derogatory designation of “rural”) was measured by electrification and telephony.  We did this to ourselves.  And the whole time, if we had paid any attention, we would have been fully aware that the NSA was omnipresent. 

I was recently at a gathering with a number of people who thought themselves to be quite consciously and spiritually advanced.  As I listened to speaker after speaker fawn over the wonderful interconnectedness of the world – courtesy of the internet – which made all forms of collaboration for social evolution more possible, I was dumbstruck.  Which part of the enlightenment punch bowl missed the ‘awareness’ that the sirens of ‘global interconnectedness’ are NOT free and they’re not here to ‘serve humanity’.  Not unlike the prevalence of credit and debit cards replacing currency, the ‘convenience’ myth is the oldest form of seduction and it’s NEVER free.  The internet is a commercial enterprise formed as a state-sanctioned cabal between those who control access and those who harvest the traffic.  Next time you use a “free” e-mail, conference calling line, Skype call, or Google chat, ask yourself the following question.  Is there any chance that I could stream video and audio signals around the world – through fiber optic routers, satellite relays, ground stations and WiFi zones – and not have someone pay for it?  Wake up.  The more you hear the word “FREE” the more you should realize that this term really means – “The beneficiary of my information doesn’t want me to know that I’m feeding them what they want.”

Protesting the NSA is like complaining about a tummy ache after you gorged yourself on too much chocolate cake.  We gave them a charter.  We gave them $3.5 billion a year in budget to spend on building scientific and technical capacity to capture and transmit Communications and Signals and now we’re somehow aghast that they’re doing what we authorized them to do?  Like it or not, the NSA is doing the job that it is paid to do!  Get Real! 

I despise the idea that our collective Red Scare, Cold War, military-industrial complex state enterprises were all authorized by a President to spy on the citizens of the world.  I’m free-spirited enough to bristle at the awareness of just how intrusive our government’s paternalistic impulses go.  And yes, I think that the world would be orders of magnitude better off if we’d just decouple ourselves from our own fear-induced conspiratorial impulse in which we believe that the whole world is out to get us.  That’s all true.  But the way we do this is NOT to rail against a system that we’ve used and abused when it bites back. 

And just to make sure we’re all clear, where was our vitriol when:

•  Congress decided in 1947 that “National Intelligence” meant “all intelligence, regardless of its source from which derived and including information gathered within or outside the United States, that – (A) pertains, as determined consistent with any guidance issued by the President, …(involving) (i) threats to the United States, its people, property, or interests; (ii) the development, proliferation, or use of weapons of mass destruction; or, (iii) any other matter bearing on United States national or homeland security.”
• Truman signed the 1952 Directive;
•  Reagan proliferated the breadth of the NSA’s reach after the original threat (the Cold War) supposedly ended;
• President Bill Clinton, in March 1994, defined U.S. identities as “fair game” for surveillance including the direct enlisting of U.S. corporations with domestic and foreign domiciles; and,
• ... The list goes on.

See the simple point is that we are, courtesy of Mr. Snowden, waking up to the fact that the brave new world connectivity panacea – the celebrated internet – can as easily connect humanity for great benefits as it can be the cattle shoot leading into the abattoir of our liberty. 

So, here’s the drum circle alternative.  If you’ve got something really important to say – say it.  And by that, I mean: (A) prioritize the human or humans with whom you wish to communicate; (B) sit with them across a table, at a campfire, around a conference table, or on blanket on the grass; and, (C) talk.  You see, the one thing that disempowers the fear mongering that justifies the NSA, Edward Snowden, and protests is human-to-human communication.  And this effect happens for two reasons.  First, until tree bark and crickets are bugged, what you say will be heard by your intended audience.  Secondarily, if you’re a high enough value target to be surreptitiously surveilled, spies will see you interacting with friends and foes with civility and grace and might learn a lesson in humanity.  In the end, remember that the reason why I advocate for the use of Integral Accounting has as much to do about honoring the diversity of values as it does in its ability to discern the beneficiaries of those systems that thrive in obscurity and the shadows. 

Free has never been free – only free from inquiry which is the most dangerous freedom of all!

Terra nullius – When not in Rome

For those who seek to rationalize preposterous injustice that serves their expedient ends, the careful selection Latin words or phrases adds a touch of civility to inhumanity.  Need to violate the Geneva Convention with people who we love to hate in Cuba (an island that we officially love to hate unless it serves our expedient ends), easy.  Just claim the jus cogens principle of non-refoulement in which, are you ready for this?, we’re doing the Gitmo prisoners a favor by not exposing them to persecution should we return them to their own homes!  Need to steal mineral filled land in the Pacific, no worries!  Just blame the Romans and their principle of terra nullius – the legal right to take what doesn’t belong to you by stating that it doesn’t belong to anyone.

“Pleased as we are with possession, we seem afraid to look back to the means by which it was acquired, as if fearful of some defect in our title; or at least we rest satisfied with the decision of the laws in our favour.”

-          From Commentaries on the Laws of England (18^th Ed.) Vol. 2.  1823.

Now if you search on-line for terra nullius you will see copious references to the most recent nation-state founded on the principle: Australia.  And lest you think that the Crown conveniently invoked this international standard of land expropriation only on the big island down under – think again.  Under the direct auspices of the League of Nations and then the United Nations, Australia was given carte blanche to pillage the islands in the Coral Sea including the most egregious of all violations – the theft of Bougainville.

Now let’s be clear.  Melanesian communities from New Ireland settled Bougainville over 25,000 years ago and established a persistent social order that predates any of those who promulgate and then abuse “international legal conventions”.  When Louis de Bougainville (anyone still guessing how the island got its modern name?) arrived from France in 1768, he decided to name the place after himself.  Germans took control over it in 1899 and the Catholics (another contender for the gold medal in Latin-based land piracy) annexed the minds of the inhabitants in 1902 rewarding their Lord with some prime cocoa and coconut plantations for the inconvenience of stealing land in the name of god.  Australia got in on the act under the auspices of the League of Nations around the First World War; Japan held it briefly during World War II and then Australia – this time under sanction from the U.N. – took it back in 1946.

As I write this blog post, I’m sitting on land that was stolen from the Monacan under the 1722 Treaty of Albany.  Less than one mile from my dining room table are over a dozen white quartz burial mounds that entomb the remains of Monacan and Tutelo leaders.  The land I live on – like Guantanamo Bay – was not stolen under terra nullius.  In the United States, we are far less creative.  We entered into Treaties and Covenants with absolutely no intention to keep them.  We had the decency of looking Communities of Persistence in the face when we were lying to them!  In the case of Bougainville, neither the Australians, the League of Nations nor the United Nations had that much courtesy.  By invoking the Crown’s (that’s the United Kingdom for those of you who don’t know that the Queen and her off-spring still enrich themselves off of land that they and their ancestors stole) Roman legal conquest principle they actually committed a double crime.  Not just did they steal land and resources but they, by invoking the terra nullius justification, stated that the inhabitants of Bougainville were nobody. 

It’s one thing to maliciously lie, cheat and steal.  It’s still another (more egregious) thing to stipulate that the humanity that exists does not exist.  Terra nullius means, “land belonging to no one” or land that has never been subject to sovereignty.  The Bougainville situation is one in which Australia and the United Nations stipulated that 25,000 years of habitation did not happen.  The High Court of Australia, when challenged on this legal principle in their own backyard, has actually made the right decision.  On December 23, 1996 The High Court of Australia issued the highly controversial judgment acknowledging native title rights co-existent with pastoral leases in Wik Peoples v The State of Queensland.  This decision reaffirmed some of the principles in the 1992 Mabo v Queensland (No.2) in which “aboriginal title” was affirmed over terra nullius. 

Why did the people not exist?  Under the Mabo and Wik reviews, the answer was simple.  Because Communities of Persistence did not organize “land rights” under a system that matched the paternalistic, colonial, Westphalian sovereign models “understood” by occupiers and colonizers, the “leaders” with whom treaties could be signed could not be identified.  If no “owner” could be identified, “no one” existed so the land could be taken.  In other words, if you don’t “own” you don’t exist.  What the Crown and its minions failed to understand – spoiler alert – is that the men who were doing the conquesting were not tuned into the principles of matrilineal land rights that continue to exist in places like Bougainville.  They couldn’t find the “man” in control because the “man” wasn’t in control.  The women were.  And they were not consulted.

This week I sent the following document to the Australian Securities and Investments Commission, the Financial Conduct Authority of the United Kingdom, and the U.S. Securities and Exchange Commission.  I would welcome each of you to read it, consider it in light of this post, and inform others about the need to make a simple proposal:  if Mabo and Wik establish the legal framework to put a stake through the heart of the Roman conquest doctrine of terra nullius than isn’t it time for the doctrine to be retired once and for all?

Think about it.

An Open Letter to the ASIC, FSA, and SEC Re: Rio Tinto and Bougainville Copper Ltd.

Copied to Global Reporting Initiative, Transparency International, International Council on Mining and Metals, World Bank, and IFC

August 15, 2013

Sirs,

I have had two opportunities in the past 12 months to visit the Panguna Mine, the Arawa village and the Six Mine Lease Areas (SMLA) of the property formerly operated by Bougainville Copper Ltd (‘BCL’, majority owned by Rio Tinto with 53.8% of the issued shares).  Most recently, I spent two days at the mine on August 12-13, 2013.  Given the fact that both BCL and Rio Tinto report to their shareholders that, since 1989, they have not been capable of accessing the mine site for security reasons, I felt that it would be helpful to provide you and their shareholders with information that may be helpful clarification to material statements made by both companies.

Rio Tinto’s 2012 Annual Report has a footnote on the BCL project on page 206 which indicates that it’s incapable of safely accessing the mine site.  Rio’s Annual Report preamble statements about The Way We Work (page 14) are inconsistent with direct observations made during my visit to the mine, overburden deposition, and tailings discharge in the only major western riverbed at the Panguna Mine in the Autonomous Region of Bougainville, Papua New Guinea.  Dislocated communities, significant health and safety issues, and profound environmental degradation are evident everywhere.  While it would be convenient for the companies to attribute this to the conflict and post-conflict incapacity to manage conditions at the mine, the physical evidence of mining practice suggests that pre-conflict operations neglected to take appropriate consideration of Rio’s own stated standards.

Figure 1.  An aerial view of the BCL Panguna mine site.  From the mine pit to the end of the lower tailings is approximately 18km and at its widest is about .75km.  The diversion of the river around the mine site rejoins the former natural river bed below the Overburden primary deposition and diverts not more than 40% of the natural river flow (which now runs blue with copper beneath the overburden and through the tailings).

The following footnote is reproduced from Rio Tinto’s 2012 Annual Report.

43 Bougainville Copper Limited (BCL)

Mining has been suspended at the Panguna mine since 1989. Safe mine access by company employees has not been possible since that time and an accurate assessment of the condition of the assets cannot therefore be made. Considerable funding would be required to recommence operations to the level which applied at the time of the mine’s closure in 1989. An Order of Magnitude study undertaken in 2008 indicates that costs in a range of US$2 billion to US$4 billion would be required to reopen the mine assuming all site infrastructure is replaced. The directors consider that the Group does not currently realise a benefit from its interest in BCL and therefore BCL information continues to be excluded from the financial statements. BCL reported a net loss of US$2 million for the financial year (2011: net loss of US$2 million). This is based upon actual transactions for the financial year. The aggregate amount of capital and reserves reported by BCL as at 31 December 2012 was US$137 million (2011: US$139 million).

The Group owns 215,920,089 shares in BCL, representing 53.8 per cent of the issued share capital. The investment of US$195 million was fully provided against in 1991.  At 31 December 2012, the number of shares in BCL held by the Group, multiplied by the share price as quoted in the Australian Securities Exchange, resulted in an amount of US$111 million (2011: US$164 million).

This footnote represents the only material disclosure regarding BCL in the Annual Report.  As is evident, no mention is made of any liabilities that may arise from a closer examination of several important facts surrounding the Panguna Mine’s operation and cessation of operations.  These include:

• a.       Unquantified environmental remediation costs.  To consider re-opening the mine under rudimentary compliance with global environmental best practices would entail reclamation of land that could far exceed the estimated costs in the 2008 Order of Magnitude study.  Given the affected watershed, surface and groundwater damage covers an excess of 18km at depths of over 100m in many locations (Figure 2).

Figure 2.  The Middle tailings deposit completely filling the valley and riverbed.  The riverbed field of view in this image is approximately 3km. 

• b.      Management of landowner claims.  To date, the landowners and ex-combatants have identified several claims against the companies that have not been adjudicated by any court of competent jurisdiction.  In the event that BCL or Rio Tinto are exposed to prosecution for these matters, civil and criminal liabilities arising therefrom could represent material impact on performance. 
• c.       The legality and corporate complicity with the formation of the 1967 Bougainville Copper Act which exists as a supra-Constitutional agreement affording Bougainville Copper Ltd rights in direct conflict with the Constitution of the Independent State of Papua New Guinea.  As evidenced in related cases (including inquiries into Indigenous Rights in Australia), this unilateral agreement benefiting BCL’s interests over those of the right holders under the Organic Law of Papua New Guinea could be subject to challenge potentially opening inquiries into Fraudulent Inducement.  This observation is made from both the facts surrounding the establishment of the Act as well as the incapacity for local landowners to fully understand the structure and consequences of the Agreements into which they entered.  Should improprieties be found, BCL and its shareholders could be liable for considerable financial damages including, but not limited to, complete remediation of the sites impacted by the mine.
• d.      Securities reporting compliance.  Shareholders have been inadequately informed as to the nature of the assets of BCL and may have economic harm arising therefrom. 

At present, the Autonomous Bougainville Government is being advised on its proposed new Mining Act by Australians (including ANU's AusAID funded Anthony Regan) who are advocating for many of the status quo pre-conflict conditions and the possible reinstitution of the conditions similar to the 1967 Bougainville Copper Act.  With no capacity to consider this advice in light of global best practices (another risk of Fraudulent Inducement), the interests of the companies are being advocated at the expense of a fully transparent, globally informed process.  Most problematic is the fact that the negotiations including the companies are being done without competent and complete understanding of the facts on the ground.  A simple example of this is the reported Asset Value of property at the mine.  No single building on the mine site is intact.  No operational equipment remains on the mine site.  The 2010 Annual Report estimated Plant & Machinery depreciated value of PNG K 296,094,000 is grossly inflated.  The most intact building on the site is pictured in Figure 3 below.  Metal is being sold as scrap and infrastructure damage (including considerable landslides) make the asset estimates grossly inflated.

Figure 3.  A view of the location of ball crushers and concentrators. At this location, only one defunct crusher remains on its stand with the others destroyed for metal salvage.  Twenty four years of metal salvage has left the remaining structures damaged beyond reasonable repair.

Setting aside the considerable questions surrounding the establishment, operation, and violent cessation of operations of the Panguna Mine, it is important to note that the companies and their shareholders can now benefit from direct, on the ground observations and photo documentation.  As such, in accordance with the reporting standards set forth by Australian, United Kingdom and United States regulators, it is important for the companies to more accurately state their condition with respect to the Panguna Mine and offer a more realistic assessment of their asset and liability condition.

Given the recent trading activity stimulated by press statements regarding the possible re-opening of the Panguna Mine, it is important that regulators closely monitor this situation.  While regulators and the corporations involved may continue to seek refuge in the reasonability of their defense of misleading and erroneous statements due to their limited access, the availability of that access to an independent third party severely curtails the assertion of insufficient visibility.

I would strongly recommend that an independent inquiry into the matters articulated above be commenced as failure to do so may lead to further damage to shareholders’ interests and those of the affected communities.  I will be delighted to offer a more detailed assessment as and when required.

Respectfully Yours,

Suspend Belief

On the 42nd Anniversary of Bretton Woods

I spent a half day with renowned ‘Experimentalist’ Gerard Senehi a few years ago.  I have often thought of our conversation since then but it wasn’t until I was flying home from my recent trip to 64° N in Sweden that I finally put another one of his puzzle pieces in place.  If you’ve never met an Experimentalist, I highly recommend it.  While the casual observer could dismiss components of Gerard’s art as that of a performance magician, such a conclusion would evidence an acuity deficit. 

Great performance magicians do what no one else can pull off.  If they’re really good, rather than triggering a reflex that seeks to confront the implausibility of the illusion, they actually invite their audience into a yearning for an ever deeper experience.  Most of us, when we see a bent wine goblet conclude that the stem suffered a terrible mechanical malady or was brutally manipulated in its blowing.  Watching a spoon bend while being softly held by the hand of a talented performer, we find ourselves at once puzzled by the impossibility of the observation but, in the same moment, wanting to see just how far the bend can go.  In the midst of the illusion, the vast majority are at once hoping to be dazzled more and wondering why we can’t do it.  In the middle act, few seek to argue with their direct observation based on their knowledge of steel and how ‘it can’t do that’.  And, by the way, if you’re one of those types, get real!  It’s all an illusion after all!

Back to Gerard.  We discussed the conspiracy formed between the performer and the audience in which, through subtle manipulation of the apparent ‘normal’ the apparently ‘abnormal’ can be introduced to the point of having the audience become a willing participant in the expanding experience of ‘unbelievable’.  Performance magicians use this graduating incredulity to build to the crescendo of an act – the Prestige – at which time anything, albeit implausible, is possible.  While skeptics and fans try to work out the “How does he do that?” question regarding the individual acts themselves, my fascination with Gerard had to do with his sensitivity to his audience.

“How,” I asked, “do you know the point at which the illusion will evoke an expansion of possibility vs. the line over which, should you cross it, the audience will reject you and the illusion as too intrusive and too unbelievable?”

Over the course of the remainder of the conversation we entered into a delightful and unresolved inquiry into the evocative responses from individuals and groups which either build an incredible opening for expanded perception or lead to a full shutting down of ‘possibility’.  We discussed the moral implications of navigating the edge between heretofore unconsidered perception and deception.  As Gerard has frequently stated in interviews, it is not his to answer the question but to more thoroughly ask it.

Which leads me to today’s flight.  I spent several hours inside the magic of the illusion brought to commercial scale by William Boeing in 1916 and the U.S. Navy in World War I.  Pushed across the Atlantic from Stockholm to New York in just over 8 hours with a couple of Pratt & Whitney turbofans, I marveled at how, in less than 100 years it had become possible to spend a long weekend in Scandinavia the week after flying 24,700 miles around the globe in the preceding two and a half weeks.  For millennia, flight was the domain of birds and phantasms.  Now, when I board the plane I pay little mind towards the inviscid flow of fluid air over the contoured wing – a notion that would have been considered absolute madness three short centuries ago.  Sitting in row 12, I am entering the persistent illusion that compresses time and space and makes neighbors out of continental divides.

Just prior to boarding the flight in Stockholm this morning I was reminded of the news I had not missed.  Markets across the globe are teetering on the edge of collapse as they seek to divine from employment and durable goods the moment in time when the illusion of interventionist ‘free’ money has to end.  None of the equations work anymore.  We’re not getting a healthier economy.  We’re not seeing more economic activity across the global scene.  We’re holding our breath for the German elections in September after which we know that the Eurozone will seize up.  We know that the U.S. equities bull run has been more golden calf than exodus from bondage.  We know that, without tax ‘advantaged’ abuses, our celebrated cash surpluses would evaporate revealing the abject anemia of our capital circulation.  And we know that the illusion in Washington D.C. and playing out in capitals across the G-20 is neither by nor for the People but for the patrons who seek to dance their marionettes one more time before the strings all fray.

Ironically, we’re living in one of the most pervasive stage magician shows ever assembled.  On stage we see production illusions in which money and balance sheets are created out of thin air.  We see reports of growth while liquidity vanishes.   We see transformation where what used to be faith and confidence is transubstantiated into uncertainty and fear.  We see levitation of balance sheets and prices driven by pure speculation – not for a productive future but for a timed exsanguination.  When the music stops and the curtain falls this theater of the absurd will not leave us yearning for more.

The magic show that began with fledgling conspirators at Bretton Woods during July of 1944 in the midst of World War II began unraveling 42 years ago when the U.S. defaulted on its sacred trust to the assembled throngs at the Mount Washington Hotel.  Then U.S. Secretary of State Cordell Hull set the stage for the act by stating that the accord could eliminate, “the economic dissatisfaction that breeds war, (and) we might have a reasonable chance of lasting peace.”  Did he (or we) ever intend to end economic dissatisfaction, discriminations and obstructions as he stated to the American people.  And now, which of these have we elected to abandon?  Economic dissatisfaction?  Discrimination?  Obstruction?  Lasting Peace?

Yet why do we stay in our seats as if to wait to see if the outcome might actually be something other than the certainty of the curtain falling on the act?  Unlike the Experimentalist who seeks to open unconsidered perception, why are we still stupefied with the deception?  Sadly, I think the answer is that we still desperately want to believe.  We want to know that some beneficent someone is looking out for us and understands things that are too complex for the common man and woman.  We want to know that in our darkest hour, a few intrepid souls have their superhero capes pressed and ready for action and that, despite our banal neglect, we’ll have the just-in-time savior who will make sure that no meaningful harm comes to us.

Gerard’s persuasive show enjoys its magnetism because the consensus illusion is not questioned.  He’s not the mentalist.  Rather, he demonstrates the power of being liberated from illusions that limit experience and perception.  Impossible – whether its bent wine glasses, transoceanic flight, or integral economics – is merely a temporal illusion held vigorously by those who seek to control and constrain.  Bend a glass, soar above the clouds, emancipate wealth from the consensus predatory illusion and just maybe you’ll experience a little magic yourself!