Georgia's Russian Problem
The awesomely awful Stalin Museum and other Georgian delights.

Michael C. Moynihan

Gori, Georgia—In the city of Gori, 50 miles north of the Georgian capital of Tbilisi, there are few tourists attractions to satiate the curious traveller, so the occasional non-Georgian that passes through this grim post-Soviet city invariably finds himself at the large, white marble museum dedicated to its most famous son, the former Soviet dictator Josef Stalin. The museum, constructed in 1957, four years after Stalin's death, was commissioned by the Kremlin, who then lorded over the Caucasuses. At the moment, more than 6,000 Russian troops occupy neighboring South Ossetia (and the breakaway province of Abkhazia), in the northern part of this prospective NATO country.

Two days into a trip to Georgia, sponsored by the Georgian government, a group of American and British journalists visited Gori's monument to tyranny. When it was all over—after the 20 minutes of droning and unenthusiastic eulogy, the sleep-inducing celebration of patriotic wars and five year plans—I asked our museum guide the obvious question: “If someone asks about the purges or the Ukrainian famine, or the brutality of his rule, can you answer honestly?”

“Well, no.” This was said with a bit of a scoff, a slight are you kidding me?

“So, are you a fan? Posters on the bedroom wall and all that?”

She pursed her lips and lowered her brow, in an honest expression of surprise.

“It’s just a job.”

No two government officials in Georgia can agree on current unemployment figures, but all identify joblessness as the biggest problem facing the country—bigger than those Russian troops in Abkhazia and South Ossetia—so I can’t muster any moral outrage at her decision to plump for one of history’s greatest monsters. In tough economic times, perhaps we all discover our inner Walter Duranty.

The Stalin Museum is an unsubtle celebration of Georgia’s most famous son, funded, curiously enough, by the otherwise wonderfully anti-communist Ministry of Culture in Tbilisi. Every government official I spoke with expressed embarrassment at this state-funded shrine to Uncle Joe (“Seriously, why did you go there?”), though all were cagey about why it continues to receive operational funds. “It’s a complicated issue,” one said, while denying that the people of Gori are fond of the Dictator Formerly Known as Dzhugashvil.

I thought of offering advice to the ministry, suggesting they bypass the most famous Georgian, and instead build a mausoleum celebrating, say, the achievements of the second most famous Georgian. After a bit of consideration, though, it became clear that this too was unsatisfactory, as it would require the people of occupied Abkhazia to erect a monument honoring Lavrenti Beria, Stalin’s brutal chief of the NKVD.

It seemed unintentional, but our I-do-it-for-the-money guide—an elfin young women outfitted, oddly, in what appeared to be shiny black riding pants—captured the Soviet mood perfectly, reciting fabricated history by rote. While we hurried through the exhibits, it was initially unclear if she spoke English, or had merely learned some key phrases phonetically: "Stalin, he grrr-ate scientist." "Stalin, he grrr-ate military leader." And so on. The high school yearbook-style photos of Stalin and Trotsky, displayed throughout the museum, are pointed out, though no mention is made of Lev’s rather unfortunate incident with the ice axe.

The problem of the Stalin Museum, though, is not just one of selective historical memory—no gulags or show trials; many mentions of Stalin’s son, but none of his father’s willingness to abandon him to a short life in a German concentration camp—but the utter boredom of hagiography. Who killed Kirov? Why were all of those Jewish doctors plotting against Comrade Stalin? Were there any production problems on the White Sea-Baltic Canal? Don’t expect answers here. Instead, many of the exhibits look like flea market stalls in 1950s Leningrad. Mawkish paintings of Stalin being kind to children and old women hang on the walls, tea cups with his repulsive visage sit behind glass. In the gift shop, it is much the same. Stalin bottle openers, ash trays, paper weights, mugs, and postcards of the dictator being chummy with various party officials he would later send to the gallows.

In the center of Gori, in front of the city hall, stands a hulking gray statue of Stalin, who appears, from a distance, to be wrapped in an ill-fitting winter coat. According to one government official, during the August 2008 war, the Georgian military suggested to their Russian counterparts that, in their shelling of the city, they might train artillery on the Stalin statue, thus solving a contentious political issue. The Russians declined, he sighed, and instead hordes of drunk soldiers made pilgrimages to the statue during the brief occupation of Gori.

Recent events in Moscow make the stories of soldiers gathering at Uncle Joe’s feet, drunk and begging locals for cigarettes while cheering the savior of the Motherland, sound plausible, but one is advised to be skeptical of such tales of the Russian military’s Stalinophilia. Russian teaching guides, under the malign influence of President Vladimir Putin, nudge teachers into apologetics, advising them "to show that Stalin acted in a concrete historical situation" and acted "entirely rationally—as the guardian of a system, as a consistent supporter of reshaping the country into an industrialized state."

To further underscore Georgian skepticism of Russia, our minders take us to the line of occupation, just outside of Gori and south of the Ossetian city of Tskhinvali. On the terrifying bus ride to this artificial border—a sort of Caucasus version of The Cannonball Run, with our psychopathic driver dispensing irritated grunts rather than hilarious quips—one fast understands that, since the war, the local pastime (for men, anyway) has become standing by the road, smoking. If you aren’t military age out here in these border towns (that, only two years ago, were towns plopped in the middle of the country), there isn’t much to do.

As the bus roars down the street, being waved through checkpoints, it is easy to find houses with roofs blown off, with smashed windows, walls missing, and flame-licked exteriors. Across the verdant and beautiful plains sit thousands of identical houses, hastily constructed in 2009 to accommodate the tens of thousands of “internally displaced people”—those Georgians ethnically cleansed from their homes in South Ossetia. Our guide explains that this is good territory on which to engage the awesome might of Russian armor—an eventuality, I can’t help thinking, that would mark the end of independent Georgia.

The average Georgian is obsessively concerned about Russian power and influence in the region (which helps explain the overwhelming victory for President Mikhail Saakashvili’s party in recent municipal elections). When I asked an American pollster associated with the National Democratic Institute if there was a single issue upon which the people of Georgia were united, he responded, without a moment’s hesitation, the Russian occupation of South Ossetia and Abkhazia.

As every politician and intellectual in Tbilisi is quick to point out, “many problems remain”—this is repeated like a mantra—with this nascent Georgian democracy and, as one of Saakashvili’s confidants admitted, civil society is not “fully formed” here, but is on the right track. “The war with Russia didn’t help, but it couldn’t be avoided.”

When I asked the Georgian writer and intellectual Alexander Rondeli about the government’s mistakes—in the concentration of presidential power, regarding the war with Russia—he nods in agreement and chuckles, “We came from the Soviet Union. What do you expect of us?” The Georgians have done a lot in a little time, he says. Corruption and mismanagement were rampant, and the country was—and this is also repeated like a mantra—on the verge of being a failed state in 2003, before the Rose Revolution. But Georgians need more time, Rondeli says, explaining that the Soviet occupation turned the country into a race of “mutant, lobotomized people.”

The type of people that still allows government funding of a museum adulating Josef Stalin?

“Insane, isn’t it?”

Michael C. Moynihan is a senior editor of Reason magazine.

The Big Ten and Midwestern Identity

The Big Ten and Midwestern Identity
Why college sports should stop messing with the Big Ten

Steve Chapman

In the Midwest, we don't have damp, blustery fall days: We have Big Ten weather. We don't have mammoth land-grant universities: We have Big Ten schools. You may insult our climate, our politicians, or our Miss America contestants, but not the Big Ten.

Right now, people in high positions are talking about expanding the nation's oldest collegiate athletic conference. What they may overlook is that it's not just a sports association. It's an identity in a region that needs one.

New Englanders know where New England starts and ends. Southerners have been sticking together since before the Civil War. The residents of Seattle and the people of San Diego all have the Pacific Ocean in common.

But the Midwest is harder to define. Midwesterners have a vague sense of it, which is reflected in, and validated by, the historic reach of the Big Ten.

There are few things that create a sense of common cause in this part of the country. From Manhattan or Malibu, it may look like an unvarying mass of stolid, overall-wearing meatloaf eaters, but underneath our placid exterior, deep differences abound.

The inhabitants of Madison, Wis., don't vote like the citizens of Terra Haute, Ind. The accents in northern Minnesota bear no resemblance to those heard in southern Illinois. Parts of Michigan get 20 feet of snow in a typical winter, while Cincinnati is lucky to get two.

You will not find many parents in Council Bluffs, Iowa, sending their children to receive a higher education in Columbus, Ohio. But on a fall afternoon, a lot of them can tell you whether Ohio State won or lost.

Other Americans want nothing more than to go to heaven. A Midwesterner is someone who would trade it for a trip to the Rose Bowl.

The advocates of conference realignment, however, are willing to blow up this comfortable, unifying framework. In pursuit of more television exposure and revenue, they are casting their eyes far beyond our region to identify potential new members.

Among the schools mentioned as possible additions are ones where most students couldn't find Minnesota on a map, such as Rutgers, Syracuse, Connecticut, and Texas. Any of these additions would be as natural as the Tea Party nominating Nancy Pelosi. The first three belong to the Eastern seaboard. The Big Ten is the heartland.

Texas? Why, of course. And while we're at it, let's grant statehood to Guam. Bringing in the Longhorns would be like releasing alligators in Duluth, Minn.: not comfortable for either party.

The Big Ten already has some experience with trampling over its natural boundaries, from admitting Penn State in 1990. Nothing against the Nittany Lions, but it was a mistake.

Penn State is now and will always be the equivalent of your cousin's ex-husband who keeps on coming to the family reunion 20 years after the divorce. He's greeted politely then but forgotten any other time. But what good could have come from squeezing 11 schools into a conference with "Ten" in its name?

The battle to keep the Big Ten at 10 is lost, but a few rules should guide any expansion. If your students can harvest oysters without leaving the state, you are not a Big Ten school. If they can leave class and be standing in a cornfield within 20 minutes, you are.

Does summer smell like salt water? Out. Is it fragrant with cow manure? In. Mountains and beaches? Let's think about this. Flat vistas that go on longer than the Academy Awards telecast? Now we're talking.

The University of Missouri is located in a state that had slavery, which is not a Midwestern thing, but it stayed in the Union, which is. Lots of people in Iowa and Illinois already feel an affinity because they root for the St. Louis Cardinals and share the Mississippi River.

Nebraska and Iowa State? Their athletes wouldn't need cultural orientation classes to prepare for trips to West Lafayette, Ind. Notre Dame, as everyone else knows, is a Big Ten school that just refuses to accept its obvious destiny.

In the end, there is something inseparable between the conference and the region where it grew up, and we tinker with it at our peril. So my advice to university presidents: If your students are happy to be called Midwesterners, you belong in the Big Ten. If they would take it as an affront, look elsewhere.

Euro-Area Rescue Fund Is Established

Euro-Area Rescue Fund Is Established to Combat Debt Crisis

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By Jonathan Stearns and Meera Louis

June 8 (Bloomberg) -- European finance ministers put the finishing touches on a rescue fund being backed by 440 billion euros ($524 billion) in national guarantees, seeking to halt the spread of Greece’s debt crisis.

The European Financial Stability Facility would sell bonds backed by the guarantees and use the money it raises to make loans to euro-area nations in need, the finance ministers agreed yesterday in Luxembourg. The new entity would sell debt only after an aid request is made by a country.

The ministers aim for ratings companies to assign a AAA rating to the facility, whose bonds would be eligible for European Central Bank refinancing operations. The fund will be based in Luxembourg.

“We’ve sent a clear signal of stability,” Austrian Finance Minister Josef Proell told reporters at the Luxembourg meeting. “We’ve opened the rescue umbrella and I’m convinced it’s working.”

The fund, being created for three years, is the main part of a 750 billion-euro aid package that European Union finance ministers hammered out a month ago to combat a sovereign debt crisis. Another 60 billion euros will come from the European Commission -- the EU’s executive arm -- and 250 billion euros from the International Monetary Fund.

Prodded by the U.S. and Asia to stabilize markets, European governments approved the unprecedented financial backstop on May 9-10 in a bid to end speculation that the euro area might break apart because of a debt crisis that started in Greece. A 110 billion-euro loan package for Greece unveiled on May 2 after the country was cut off from markets failed to stem a surge in Portuguese and Spanish borrowing costs.

Aid Model

Governments abandoned the aid model for Greece, based on national loans, when crafting the euro-area fund, which is simpler because it avoids the need for domestic action on disbursement. Delays by Germany in approving its share of the rescue for Greece led to speculation that the Greek package might falter.

All euro-area countries plan to be shareholders of the European Financial Stability Facility, or EFSF. The holding of each country will correspond to its share of the ECB’s capital.

“National legal procedures to participate in the facility are well on track,” the euro area said in a statement on the fund’s operations.

The obligation of euro-area countries to issue guarantees for EFSF debt instruments will enter into force as soon as nations representing 90 percent of the shareholding have completed domestic parliamentary procedures, according to the statement.

Credit Rating

Luxembourg Finance Minister Luc Frieden signed an act legally establishing the fund yesterday. Its board will be composed of euro-area government representatives and a chief executive officer “will be appointed shortly.”

To ensure the highest credit rating for debt sold by the facility, the finance ministers approved a 120 percent guarantee of each country’s pro rata share for each bond issue, according to the statement.

In addition, the ministers authorized the creation, when any loans are made, of a “cash reserve to provide an additional cushion or cash buffer for the operation of the EFSF,” according to the statement, which held out the prospect of more measures to improve creditworthiness.

“Other mechanisms would be adopted if needed to further enhance the creditworthiness of the bonds or debt securities issued by the EFSF,” according to the statement.

EU Economic and Monetary Affairs Commissioner Olli Rehn said last week that he hopes the “sheer size” of the fund, along with the extra 60 billion euros in possible support from the commission, “will help to stabilize markets” and make aid unnecessary.

‘No Euro’

“No euro has been yet consumed and I hope that no euro will have to be consumed,” Rehn told a June 2 conference in Brussels.

Any loans from the EFSF would impose the kinds of budget- austerity conditions on recipients that Greece faces as part of a program for receiving quarterly aid disbursements under the May 2 accord, he said.

“In case any country would have to resort to this European financial stabilization mechanism, it would work in the same principles as we are now working with Greece,” Rehn said.

S&P 500 Tumbles to Seven-Month Low

S&P 500 Tumbles to Seven-Month Low; Copper, Euro Retreat

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By Rita Nazareth and Daniel Tilles

June 7 (Bloomberg) -- U.S. benchmark stock indexes slid to seven-month lows and copper and the euro fell amid concern the European debt crisis will hurt economic growth. Treasuries rose.

The Standard & Poor’s 500 Index lost 1.4 percent to 1,050.47 and the Dow Jones Industrial Average sank 115.48 points, or 1.2 percent, to 9,816.49 at 4 p.m. in New York, the lowest levels since Nov. 4 for both. The Stoxx Europe 600 Index slipped 0.7 percent. The euro weakened 0.4 percent to $1.1920 after touching $1.877, a four-year low. Copper sank to an eight- month low and has plunged 25 percent from a 20-month high in April. The 10-year Treasury note’s yield fell six basis points to 3.14 percent and German bund yields held near a record low.

Banks and computer companies dragged the U.S. equity market lower as Goldman Sachs Group Inc. was subpoenaed as part of the financial-crisis probe and Apple Inc. and Google Inc. slumped. Group of 20 finance chiefs, meeting in South Korea, said the global rebound faces “significant challenges” and economists have begun to lower their growth forecasts for the first time since the recovery began.

“It’s still a very fragile market,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. “Investors are fearful and reacting quickly to both negative and positive news. There’s just a lot of noise in the market right now.”

German Manufacturing

European stocks pared losses and U.S. equity benchmarks opened higher after manufacturing improved in Germany for a second month in April as the euro’s plunge against the dollar, which totals 17 percent in 2010, made prices for European goods more competitive in world markets. Sentiment also improved after Hungarian officials toned down comments about a potential default that rattled investors and helped send the S&P 500 down 3.4 percent on June 4.

Bank stocks turned lower in the U.S. after the panel investigating the causes of the financial crisis issued a subpoena to Goldman Sachs and said the Wall Street firm failed to hand over documents in a “timely manner.” Goldman Sachs slumped 2.5 percent. Citigroup Inc. lost 4 percent, JPMorgan Chase & Co. fell 2.4 percent and Bank of America Corp. retreated 3.4 percent.

The cost to protect Goldman Sachs bonds jumped, with credit-default swaps on Goldman Sachs climbing 8.7 basis points to 183.1 basis points, according to CMA DataVision prices.

Swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 4.3 basis points to 130 basis points, according to Markit Group Ltd., the highest level in 11 months.

Apple Retreats

Apple shares tumbled 2 percent after Chief Executive Officer Steve Jobs’ introduction of a new iPhone failed to further boost the stock that has risen 19 percent this year after more than doubling in 2009. Google slumped 2.7 percent as Connecticut Attorney General Richard Blumenthal demanded the company provide information about data gathered from the state’s residents and businesses without permission.

The S&P 500 has tumbled 14 percent from a 19-month high on April 23 amid concern the global economic recovery will slow as some European nations struggle to finance budget deficits. The Stoxx 600 has lost 11 percent since its high on April 15.

The S&P 500 extended last week’s 2.3 percent drop, which was triggered by a June 4 report that showed private employers in the U.S. added 77 percent fewer jobs than the median economist estimate.

‘Significant Headwinds’

Janet Yellen, President Barack Obama’s pick to be the Federal Reserve’s next vice chairman, said that while there appear to be improvements in the global economy, “significant headwinds to stability remain.”

“Although signs of recovery do abound, there are obviously significant headwinds to stability that remain,” Yellen, president of the San Francisco Fed, said in opening remarks at the district bank’s Asia Banking and Finance Conference in San Francisco. She did not comment on the outlook for monetary policy. “Those headwinds come from structural imbalances from financial sector weaknesses and uncertainties from unanticipated environmental and political events.”

The Stoxx Europe 600 Index pared a loss of as much as 1.7 percent after the report on German factories. Europe’s sovereign debt crisis has pushed the euro down about 20 percent against the dollar since late November, making exports to countries outside the 16-nation currency bloc more competitive. While budget cuts across the region may crimp economic growth, German factories are ramping up production to meet booming foreign orders and a rebound in domestic investment.

BP Disaster

BP Plc reversed gains in London after Goldman Sachs Group Inc. cut its rating on the oil producer to “neutral” from “buy.” BP said more oil is being recovered from its leaking Gulf of Mexico well with a cap device, although the commander of the U.S.’s response team said it’s unknown what percentage of crude is being captured in the worst oil spill in U.S. history.

Greek stocks tumbled for a second day, with the ASE Index falling 5.5 percent to its lowest level since 1998. Hellenic Telecommunications Organization SA dropped 12 percent in Athens after saying it will cut its dividend. global recovery.”

German 10-year bond yields held near a record low as concern the euro-region’s debt crisis may spread boosted demand for the perceived safety of the 16-nation currency’s benchmark securities.

The yield on the 10-year bund, Europe’s benchmark government security, declined two basis points to 2.56 percent and touched 2.54 percent according to Bloomberg generic data, the lowest since at least 1989.

Asian Stocks Slump

The MSCI Asia Pacific Index slumped 3.3 percent, its biggest decline since March 30, 2009. Asian markets closed before the U.S. jobs data was released on June 4.

Copper futures for July delivery fell 5.35 cents, or 1.9 percent, to $2.766 a pound on the Comex in New York, after touching $2.72, the lowest level for a most-active contract since Oct. 5. The metal declined for a sixth straight session, the longest slump since early December.

Crude oil was little changed, falling 7 cents to $71.44 a barrel in New York. Earlier, it touched $69.51, the lowest price since May 26. Oil has risen 4.4 percent in the past year.

Gold futures jumped the most in four weeks on demand for an alternative to the euro. Gold futures for delivery in August rose $23.10, or 1.9 percent, to $1,240.80 an ounce in New York, the biggest gain for a most-active contract since May 12.

U.S. Stocks Drop as S&P 500 Posts Worst Two Days in 14 Months

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By Esmé E. Deprez

June 7 (Bloomberg) -- U.S. stocks declined, sending the Standard & Poor’s 500 Index to the biggest two-day loss since March 2009, as Google Inc. and Apple Inc. led a drop in technology shares and Goldman Sachs Group Inc. was subpoenaed in the financial-crisis investigation.

Apple lost 2 percent as the introduction of a new iPhone failed to boost the stock. Google sank 2.7 percent as Connecticut demanded information about data collection. Goldman Sachs slid 2.5 percent as the Financial Crisis Inquiry Commission said the bank had not complied with requests for documents. Autodesk Inc. fell 4.4 percent after Goldman Sachs removed the software company from its “conviction buy” list.

The S&P 500 slipped 1.4 percent to 1,050.47, the lowest level since Nov. 4, as of 4 p.m. in New York. The Dow Jones Industrial Average decreased 115.48 points, or 1.2 percent, to 9,816.49. Benchmark indexes rose earlier following growth in German factory orders and toned-down comments from Hungarian officials about a potential default.

“Despite some mildly positive news from Germany and Hungary, there’s been a lack of anything too positive to give the market a push and give investors more confidence to step in and do some bargain hunting,” said Richard Sichel, who oversees $1.4 billion as chief investment officer at Philadelphia Trust Co. “The U.S. economy is an attractive place, but our economic recovery is going to be slow.”

‘Significant Headwinds’

U.S. stocks fell last week as lower-than-estimated jobs growth and a worsening government debt crisis in Europe fueled concern the global economic recovery will slow. Janet Yellen, President Barack Obama’s pick to be the Federal Reserve’s next vice chairman, said in a San Francisco speech today that while there appear to be improvements in the global economy, “significant headwinds to stability remain.”

Benchmark U.S. indexes advanced in early trading after German factory orders unexpectedly jumped for a second month in April as the weaker euro boosted export demand and companies increased investment. Hungary’s government pledged to control the budget deficit and make structural changes to overhaul the economy as it further distanced itself from suggestions the country was facing a Greece-like crisis.

“This is a small glimmer of hope that Europe might be doing better,” Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital Advisors in Indiana, Pennsylvania, said of Germany factory orders. “A lot of the issues affecting markets have been coming from Europe, so this is an encouragement.”

Goldman Subpoena

Financial stocks turned lower as the U.S. panel investigating the causes of the financial crisis issued a subpoena to Goldman Sachs after the Wall Street firm failed to hand over documents in a “timely manner.”

The Financial Crisis Inquiry Commission “has made it clear that it is committed to using its subpoena power” if firms under review don’t comply with information requests, the panel said in a statement today. Moody’s Corp. and Warren Buffett have also received subpoenas from the commission.

Goldman Sachs fell 2.5 percent to $138.68. Citigroup Inc. lost 4 percent to $3.64.

Bank of America Corp. slid 3.4 percent to $14.83 after the Federal Trade Commission announced Countrywide Financial Corp., the mortgage company bought by the biggest U.S. bank by assets in 2008, will pay $108 million to settle U.S. claims it charged excessive fees to struggling home buyers. The Commission described the penalty as one of the largest in the agency’s history.

Apple, Google

Apple lost 2 percent to $250.94 after Chief Executive Officer Steve Jobs introduced the iPhone 4 today at the Worldwide Developers Conference in San Francisco. The iPhone is now one of Apple’s most important products, raking in more sales than the Macintosh computer last quarter. Apple has sold more than 50 million iPhones in the past three years, accounting for 40 percent of revenue.

“There’s usually expectations with Steve Jobs getting up on stage -- and we have a weak environment with light volume and not a lot of investor enthusiasm -- so Apple turned lower after the unveiling of the new iPhone,” said Michael O’Rourke, chief market strategist at BTIG LLC in Yardley, Pennsylvania, which serves institutional investors. “Apple being the second-largest tech company in the S&P means any volatility can have a noticeable influence on the broader indexes.”

Google slipped 2.7 percent to $485.52. Connecticut Attorney General Richard Blumenthal is demanding Google provide his office with information about any data the company collected from the state’s residents and businesses without permission.

Information-Gathering

Google has been ordered by a judge in Oregon to turn over similar data there, and is giving data to regulators in Germany, France and Spain. The company said last month it mistakenly gathered information while it was capturing images of streets and houses for its Street View service, a product that lets users view photographs of an area online. Autodesk fell 4.4 percent to $26.69. The shares are still rated “buy” at Goldman Sachs.

Alcoa Inc. declined 3 percent to $10.51 as industrial metals slumped. Freeport-McMoRan Copper & Gold Inc. lost 6.6 percent to $58.66. Copper futures for July delivery fell 5.35 cents, or 1.9 percent, to $2.766 a pound on the Comex in New York, after touching $2.72, the lowest level for a most-active contract since Oct. 5. The metal declined for a sixth straight session, the longest slump since early December.

CVS, Walgreen

CVS Caremark Corp. dropped 8.1 percent to $31.04 for the biggest decline in the S&P 500 after Walgreen Co., the largest U.S. drugstore chain, said it will stop participating as a provider in new or renewed prescription drug plans awarded to CVS’s pharmacy benefit manager.

Equities in the U.S. have plunged since April 23, with investors battered by the widening debt crisis in Europe. The S&P 500 fell 13 percent through June 4, led by 17 percent slumps by gauges of energy and commodity producers. Confidence in stocks is sinking to record lows in the options market even with the U.S. economy poised for its fastest growth in six years, a sign to Blackstone Group LP’s Byron Wien that it’s time to buy.

Contracts that pay off should the benchmark index for U.S. stocks plunge more than 23 percent from its April high cost 75 percent more than those speculating on gains, the biggest premium ever, according to data compiled by Bloomberg and OptionMetrics LLC. The 10-day average difference exceeded 50 percent 34 times since 1996. In those cases, the S&P 500 gained a median 7.2 percent in six months.

No ‘Double Dip’

Templeton Asset Management Ltd.’s Mark Mobius said the global economy will avoid a “double dip” recession and falling stock prices have created buying opportunities in east European countries including Hungary.

“Globally there will not be a double dip,” Mobius, who oversees about $34 billion in emerging markets as Templeton Asset Management’s Singapore-based chairman, said in an interview today on Bloomberg Television. In Hungary, “we’ve seen falls of 20 percent or more and in that kind of scenario there are great opportunities to buy from a longer-range point of view,” Mobius said.

Bristol-Myers Squibb Co. climbed 6.3 percent to $23.86 for the top gain in the S&P 500. The leukemia pill Sprycel worked better at eliminating malignant cells than Novartis AG’s Gleevec, the standard treatment, a study found. The drug ipilimumab kept about a quarter of melanoma patients alive for two years --about twice the proportion with current therapies, another trial showed. The shares were raised to “buy” from “neutral” at Goldman Sachs.

Celgene Corp. increased 4.4 percent to $53.82 as it was raised to “buy” from “hold” at Jefferies & Co. Inc. after releasing released studies on its treatments for patients with non-Hodgkin’s lymphoma.

National Oilwell Varco Inc. added 1 percent to $35 after the Houston, Texas-based company was raised to “outperform” from “neutral” at Credit Suisse by equity analyst Brad Handler.

Investors Pick America Over BRICs

Investors Pick America Over BRICs in Global Bloomberg User Poll

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By Mike Dorning

June 8 (Bloomberg) -- The U.S. has supplanted China and Brazil as the most attractive market for investors as confidence in the global economic recovery wanes in the wake of the Greek debt crisis.

Investors are putting their money on President Barack Obama’s stewardship of the U.S. economy even as his job- approval rating has declined, according to a global quarterly poll of investors and analysts who are Bloomberg subscribers.

Almost 4 of 10 respondents picked the U.S. as the market presenting the best opportunities in the year ahead. That’s more than double the portion who said so last October, when the U.S. was rated the market posing the greatest downside risk by a plurality of respondents.

Lawrence Summers, director of the White House National Economic Council, said this attests to Obama’s success in “restoring the United States to strong economic fundamentals.” He added that “while there remains much to do, the U.S. economy is growing.”

“We’ve seen the bottom; we’re firm, and the United States is slowly moving forward,” said Wayne Smith, 51, managing director of fixed-income trading at Uniondale, New York-based Northeast Securities, which manages $3.5 billion.

Following the U.S.’s 39 percent rating as the most promising market were Brazil, chosen by 29 percent; China, 28 percent; and India, 27 percent. Those are three of the four so- called BRICs, large emerging markets that also include Russia. Just 6 percent chose Russia.

In a poll taken in January, China was the favorite followed by Brazil. Respondents were allowed to pick multiple countries.

‘Least Dirty Shirt’

The U.S. is one of the few relative bright spots in a global market rattled by the Greek debt crisis. Bill Gross, co- chief investment officer of Pacific Investment Management Co. and manager of the world’s largest bond fund, called the U.S. “the least dirty shirt,” in a Bloomberg Radio interview.

Forty-two percent of investors now believe the world economy is deteriorating, double the 21 percent who thought so in January. U.S. investors were the most pessimistic about the global economy, with 58 percent saying it is getting worse versus 31 percent of Europeans and 35 percent of Asians. Europeans were the most pessimistic about their own region, with 40 percent viewing it as deteriorating; 21 percent of U.S. investors viewed their home region negatively, while 9 percent in Asia felt that way.

International views of the European Union have declined sharply. More than half of respondents believe the EU offers the worst investment opportunities, up from a third who said so in January, when Europe also ranked at the bottom.

Debt Crisis

The crisis in Greece, where soaring deficits have stirred fears of a government default, has rippled throughout Europe, with credit agencies downgrading sovereign debt in Portugal and Spain. On June 4, stocks slumped as a comment by a Hungarian official that his nation’s economy is in a “very grave situation” fanned concern the debt crisis will spread.

The turmoil has drawn a flood of international money into U.S. government debt, with yields on 10-year Treasury notes dropping from 3.99 percent on April 5 to 3.15 percent at 4:18 p.m., New York time yesterday. While the Standard & Poor’s 500 Index has declined more than 13 percent since its April 23 high, the benchmark U.S. stock index is up more than 30 percent since Obama took office.

Can’t Keep Up

“While American companies cut down the workforce at their plants as fast before as they are now hiring workers back, European companies were not able to respond in a similar way,” said poll respondent Ofir Navot, 35, of Tel Aviv, head of global investments for Ramco Mutual Funds, which manages about $400 million.

Investors’ rising confidence in the U.S. economy isn’t reflected in their appraisal of Obama: The poll shows his job- approval rating dropped to 51 percent from 60 percent in January.

Investors remain bullish on China’s long-term prospects. More than 6 of 10 believe China will replace the U.S. as the world’s largest economy within 20 years. Almost a quarter believe it will do so within a decade.

Respondents don’t share Treasury Secretary Timothy Geithner’s optimism that China will revalue its currency soon. A majority said it will be at least a year before the country does so.

Making Money

The quarterly Bloomberg Global Poll of investors, traders and analysts on six continents was conducted June 2-3 by Selzer & Co., a Des Moines, Iowa-based firm. It is based on interviews with a random sample of 1,001 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 3.1 percentage points.

Even with the pessimism over the global outlook, more investors see a chance to make money in this environment. Thirty-five percent said they are seeing opportunity and taking risks, up from 27 percent who said so in January. Asian investors were especially likely to see rewards ahead, with 48 percent saying they are taking more risks.

With poll respondents confident in U.S. growth prospects, the emerging doubts about a global economic recovery haven’t translated into major shifts in views toward asset classes. As in the January poll, stocks are considered the most attractive asset class for the coming year. While commodities were second, the portion of investors choosing them declined to 23 percent from 31 percent.

Bearish on Bonds

Bonds were chosen as the asset class likely to offer the worst returns, with 36 percent of respondents saying that. Real estate was rated next worst, chosen by 24 percent.

Investors in Asia, where there are fears that China’s property market is overheated, were the most pessimistic about real estate, rating it the worst asset to hold.

Poll respondents by an almost 2-to-1 margin expect to increase rather than decrease holdings of stocks during the next six months.

More than half of investors believe the S&P 500 index will be higher in six months, though sentiments are bearish on the Euro Stoxx 50 index and Britain’s FTSE index.

Investors are also bullish on crude oil prices, which usually rise along with economic activity. Forty-nine percent believe oil prices will be higher in six months compared with 24 percent who say they will be lower. The rest expect little change.

Gold Seen Rising

By a margin of 47 percent to 30 percent, respondents say they expect the price of gold, a traditional hedge against political and economic turmoil, to rise in six months. By a margin of 50 percent to 25 percent, they see yields on the 10- year Treasury note rising.

Fears of inflation are muted. Only a little more than a quarter consider it a major threat in “the next couple years.” The regions considered most at risk were China, cited by 19 percent of respondents, followed by the U.S., cited by 17 percent, and the Euro zone, picked by 10 percent.

To see the methodology and exact wording of the poll questions, click on the attachment tab at the top of the story.

The Cruise Business, Post–Financial Meltdown

Mises Daily: by Doug French

"At over 225,000 tons and capable of accommodating nearly 6,300 passengers, serviced by 2,165 crewmembers, the Oasis is the size of five Titanics."

Just what is the ultimate symbol of excess that signals the peak in a market? The point when hubris takes over. When, as Christopher Wood writes about boom-time Japan in The Bubble Economy, "a collective self-confidence that too often bordered on arrogance" manifests.

When the buildings reach too high and the ships become too big, the boom has begun to unravel.

Optimism had already turned sour in capitalism's newest outpost in the Middle East when the 162-floor Burj Dubai tower was completed on January 4 of this year, becoming the world's tallest building — and this in the wake of the fact that Dubai's debt woes had just come to light the previous Thanksgiving weekend. Just one more example explained by Mark Thornton's prescient 2005 article "Skyscrapers and Business Cycles."

As Thornton points out, the skyscraper index's predictive power began with the Panic of 1907, which was presaged by the building of the Singer Building and Metropolitan Life Building. Meanwhile, the modern cruise industry wasn't born until the 1960s, and it only really captured the imagination of the American public when they began watching the weekly antics of Gopher, Doc, and Captain Stubing on The Love Boat TV series, which ran from 1977 until 1986.

In the early days, cruisers were mostly the "newly wed or the nearly dead." But in the 1980s the industry really set sail with a number of giant ships capable of carrying over 2,000 people with the message of "luxury for the masses." And the masses were ready to splurge — after all, the credit-card industry was newly born. "If, in the early decades of the century, it was impossible for a working man or woman to secure a loan from a legitimate lender, in the 1980s he or she could hardly refuse one," writes James Grant. "The descendents of the clientele of loan sharks became the valued credit-card 'members' of leading banks. In the 1980s the home-equity loan proliferated, and personal bankruptcy lost its stigma."

It's been spend, spend, spend ever since. And as credit lines increased, so did the size of the ships. In 2003, the Mariner of the Seas was launched by Royal Caribbean International as one of the largest cruise ships afloat at 138,000 tons, with a capacity of just over 3,100 passengers and nearly 1,200 crewmembers.

From 1980 to the end of 2008 the average annualized growth of the North American cruise industry was 7.4 percent, according to Cruise Lines International Association (CLIA). The CLIA estimated that 13.2 million travelers cruised in 2008, up from 12.56 million the previous year. Back in 2000, CLIA member-line passenger volumes were 7.2 million, so annual passenger volume increased nearly 80 percent from 2000 to 2008.

Despite the recession, through the second quarter of 2009, passenger nights were 1.5 percent ahead of the pace of 2008, according to the United States Department of Transportation Maritime Administration. But to fill the ships, average fares were down 10.7 percent.

Since then, more capacity has come online. Ships like the Mariner aren't big anymore. The world's largest cruise ship set sail late last year as the finishing touches were being completed at the Burj Dubai tower. The Oasis of the Seas is the talk of the industry. At over 225,000 tons and capable of accommodating nearly 6,300 passengers, serviced by 2,165 crewmembers, the Oasis is the size of five Titanics. The Oasis was ordered in February 2006 with the US economy going full bore and the personal savings rate in America at negative one percent.

"Ships like the Mariner aren't big anymore."

But at the same time the Federal Reserve was dousing the overheated economy with a higher federal-funds rate that would reach 5.25 percent that summer after being as low as 1 percent in 2003 and 2004. Total household debt would reach $13.7 trillion the next year at the same time the bubble in home prices peaked.

At the same time it ordered the Oasis, Royal Caribbean had STX Europe start work on the Allure of the Seas, the sister ship to the Oasis. The Allure cost a little less to build at $1.2 billion and made its maiden voyage about the same time as the Oasis.

The Oasis and Allure are raising the bar for cruise entertainment. Hairspray made its oceanic debut aboard the Oasis, and the Allure is set to feature the Tony-winning revival of Chicago: The Musical, in the ship's 1,380-seat Amber Theater.

Both of these behemoths sail from South Florida, contributing significantly to what Cruise Industry News calls the first major capacity increase in years. As the US Department of Transportation Maritime Administration points out, "Capacity is based on two passengers per stateroom. A stateroom with two passengers is considered 100 percent occupied. Since many double staterooms can accommodate three to four people, occupancy rates are generally above 100 percent." And the Oasis and Allure are booked solid until next year.

If the cruise lines had it their way, their full passenger load would be fully loaded for the entire trip. Once on board, cruisers instinctively head straight to the buffet. But standing in their way are crewmembers offering alcohol to "get the trip/party started right!" Of course, the staff aren't offering to ply the just embarked with a neat ounce or two of 16-year-old Lagavulin in a clean rocks glass. No, they thrust a tall hurricane tumbler in your direction, containing some fruity concocted nonsense adorned with a cherry and tiny umbrella.

For cruise ships to make money they must leave the port full, because, as CNBC reports, a quarter of all revenue from passengers is spent after they are on board. Booze, Botox, jewelry, spa treatments, acupuncture, gambling, and high-priced art are for sale at all hours. Not to mention shore excursions to shop, snorkel, make salsa, or zip-line across canyons and rappel down waterfalls in the Sierra Madres. "Shore excursions are our number one gross revenue producer," says Paul Goodwin, senior vice president of onboard revenue and tours at Holland America. And for the ports, as Julio Galindo, minister of tourism for the Bay of Honduras, told CNBC, "Every time a ship comes in, it's like Christmas."

The food (with some exceptions), entertainment, sun, and great service are all provided with the cost of the cabin. Everything else, including soda pop, is for sale. Unlike the Love Boat, you won't find many Americans working on cruise ships. The ships are registered in places like Nassau, Panama, or Liberia so US employment regulations don't get in the way of serving customers. So, you might see your assistant waiter from dinner busing tables during the breakfast buffet rush. Most of the crew work 6 to 12 months at a stretch, 12 hours or more a day, with one day a week off at most. Most of them are supporting families in places like India, Turkey, and Jamaica.

Despite the long hours, these employees are amazingly cheerful and accommodating, many speaking perfect English despite it being a second language. These folks are quick to remember names and what their customers like. At the last dinner seating of a cruise there are hugs, handshakes, and plenty of tearful goodbyes between waitstaff and passengers.

During dinner service on my recent cruise aboard The Mariner of the Sea, the 200+ serving staff were from 37 different countries. They performed a rousing rendition of "O Sole Mio" although no Italians were waiting tables. There were 10,000 meals a day served on the Mariner as we cruised the Mexican Riviera, stopping at Cabo, Mazatlán, and Puerto Vallarta.

High-rise condos overlooking the Pacific are prominently for sale in all three port cities, but business is reported to be slow. Even after prices were slashed 30–35 percent for units in Puerto Vallarta last year, one local real-estate agent laments, "From my perspective the buyers are still few and far between." Mexico is said to be a haven for American expats and our exuberant and energetic guide in Mazatlán, Alejandro, told us 10,000 expats resided there. Tourism clearly drives these economies, but, unfortunately, there is "declining demand for the Mexican Riviera, attributed to media coverage of drug wars," reports CIN. We saw no evidence of the drug wars, but were told the Mariner will be moved from Los Angeles to Houston soon, ceasing its Riviera runs. Christmas will be coming less often to the western ports of Mexico.

Despite headwinds like a weak economy, the proposed Emission Control Area (ECA) for North America, the heavy-fuel ban in Antarctica, and the $50 head tax in Alaska, the cruise industry is upbeat. Cruising is only five percent of the vacation market, they claim, and only 17 percent of Americans have taken the plunge.

However, the cruise industry is tied to the financial health of the American consumer. According to GlobalSecurity.com, 80 percent of cruisers are from North America. The industry loves Americans. One head waiter on a cruise last year told me that he wished all passengers were Americans "because they spend money." He fondly remembered the free-spending boom-time Americans and couldn't wait for them to return, displacing the tightwad Europeans that dominated that particular post-financial-meltdown voyage.

Cruiser Deanna Forbush rappels in Mexico

But now Americans (and their creditors) are paying the price for living it up. US consumer bankruptcies totaled more than 136,000 in May, nine percent more than May of 2009. Close to 390,000 people filed bankruptcy in the first quarter, so personal bankruptcies could reach 1.6 million for 2010. The official unemployment rate still hovers near 10 percent, but, more telling, chronic joblessness is the highest it has been since 1948, when the Labor Department started keeping track.

Our waiter was a delightful man with a family back in India he hadn't seen in months but that he tries to call at least once a week. We asked him if he was going to try and work on one of the new big ships, the Oasis or the Allure. "They can't even fill this boat," he said pointing to the empty seats in his station, "why would I want to work on a ship that, after the newness wears off, will have even more empty dinner seats?"

The ships are getting bigger, but Americans are getting poorer.

Milton Friedman and the Human Good

Mises Daily: by Tibor R. Machan

[First published in Libertarian Papers.]

Milton Friedman has argued that the crucial question that anybody who believes in freedom has to ask himself is whether to let another man be free to sin. If you really know what sin is, if you could be absolutely certain that you had the revealed truth, then you could not let another man sin. You have to stop him.[1]

He also wrote, in Capitalism and Freedom,

The liberal conceives of men as imperfect beings. He regards the problem of social organization to be as much a negative problem of preventing "bad" people from doing harm as of enabling "good" people to do good; and, of course, "bad" and "good" people may be the same people, depending on who is judging them.[2]

It is well known that Friedman was a champion of human liberty and he denied that we can "really know what sin is" since he couldn't champion liberty "if you could be absolutely certain that you had the revealed truth," in which case "you could not let another man sin."

I wish to consider whether this skeptical stance on "sinning," or virtue and vice, is correct, and if not, whether it follows that liberty must be sacrificed and we "could not let another man sin." I also wish to argue that Friedman's subjectivist stance on "'bad' and 'good' people" is misguided.

First, then, what is it that Friedman had in mind by "sinning?" Without committing to a religious viewpoint, the term "sinning" can mean doing something wrong, immoral, unethical, and this is the sense in which Friedman appears to have used the term. He argues that if one absolutely knows that another is doing something immoral, unethical, morally or ethically wrong, then one has to stop this person. But why would one hold this view?

The main reason is that it is everyone's responsibility to promote the good and Friedman accepted this while also denying that one can know the good. So, supposedly, if one is failing to do what is good or is doing what is not good, and another knows this and has the opportunity to remedy matters, the obligation to promote the good would impel one to do just what Friedman suggests — namely, interfere with the agent, stop the individual from sinning or make him or her do what is right.

This is the view that would follow from the belief that in the case of human moral agents, what counts for most is whether they produce something good or fail to do so. An action is then judged good or bad on the basis of whether some result is being promoted or not promoted, produced or not produced.

Thus, say, someone is morally obliged to produce greater health in the world than there exists now. Such a person would be doing good or the right thing by bringing about greater health than would otherwise exist. This is a consequentialist view of goodness — goodness lies in certain consequences (and badness in others) that human beings can bring or abstain from bringing about.

"Morally significant action has to be freely chosen."

If, then, another knows that someone is failing to produce what is good when that person might by behaving differently from how he or she is behaving, and this other person can make the person behave as he or she should without foregoing doing something even better, than this person ought to make the other behave as he or she should.

However, this view has a problem. It disengages the good that is to be brought about from the intention or choice of the agent. All that seems to count here is whether some good result is or is not being produced. But if this is the way that human beings are good, then they can be good entirely accidentally, just as they can be bad entirely accidentally.

Someone behaves in a certain way and this happens to bring about a result that is good, although that is not what the agent intended to do. Yet by Friedman's account of good actions, this person is doing good. But doing good cannot amount to producing something good by accident. No one can be credited with good deeds that are good by virtue of having results that are accidentally good.

So as to avoid this result one would need to reject Friedman's position and embrace one quite different from it. One bonus of doing so would be a way to preserve human liberty without the paradoxical skepticism of Friedman.

This skepticism is paradoxical because Friedman evidently considered respecting other people's sovereignty, self-rule, a good thing. He evidently thought not intruding on others, not robbing them of their freedom of action is something valuable, even morally praiseworthy.

Why else prefer the free to an unfree society? If that preference isn't something arbitrary, a matter of, say, flipping a coin, it must have some justification. And that would be a sound moral or ethical argument. It could not produce the kind of paradox found in Friedman's position, which combines moral skepticism with the belief in the morality of respecting other people's sovereignty or independence.

Such a view is available provided the idea of the human good that is valid is one that ascribes to people free will, the capacity to choose between right and wrong conduct, and conceives of morally worthy conduct as chosen, not anything accidental. By this approach we can know what is the right or wrong thing for others to do but it would be a non sequitur to infer from that knowledge the authority to force them to act accordingly. Right and wrong conduct would need to be freely chosen.

To put it differently, morally significant action has to be freely chosen, not mere proper behavior.

Of course the ascription of free will to people is, and has always been, quite controversial. If, however, criticism of human conduct is ever to be valid, even intelligible, there has to be something to the idea that people have free will. This is so even if the criticism addresses only their logic or grammar or manners. To fault someone for bad reasoning assumes the person might have engaged — had been free to engage — in sound reasoning instead.