Dissing the Dollar

Who is this smarty-pants Brazilian with the German-sounding name and why is she giving up on the greenback?  Gisele Bündchen – the highest paid model in the world, according to Forbes Magazine – made news last August when she insisted that her contract with the Proctor and Gamble shampoo brand Pantene be paid in Euros instead of the falling Dollar.

"Currently, contracts in Euros are more attractive, because we don’t know what will happen to the Dollar," said Patricia Bündchen, her business manager and twin sister in an interview with the German magazine Der Spiegel.

More recently, Gisele Bündchen has said that she was misunderstood about demanding to be paid in a more reliable currency. Americans want to know how the pieces of the puzzle will  fit together. We know that her country’s president has recently joined Hugo Chavez in starting a new development bank for Latin America. And, isn’t her boyfriend the star quarterback of the "Patriots" football team? And as the Sunday Times reported - wasn’t it the perfidious Bank of England governor Mervyn King who advised her?

To make matters worse, the real "smartest guys in the room" at McKinsey Research are saying America is all washed-up, second-rate, and overtaken as the "dominant financial market"— by Europe, no less.  According to the Financial Times, U.S. bankers and policy wonks simply "assumed their domestic markets were the largest and most sophisticated in the world" and that other countries would eagerly adopt their model.

Why, we cannot even find peace at the World Economic Forum at Davos, where our CEOs outnumber those from the entire rest of the world combined.  There, Americans have been upbraided by the G-24 developing countries for the far-reaching effects of the sub-prime lending fiasco.

Could it be that we’re really facing Rude Awakening III?  The original Rude Awakening, you’ll remember, took place in the 1960s, when the Germans and Japanese began to produce high-quality cars, steel and refrigerators after two decades of dominance by the U.S..  A wide-open global market for American goods allowed the country to prosper and build a huge middle-class under the terms of what may be quaintly described as a "social contract."

Once our businesses had to compete, however, the gloves came off; unions were busted, wages stagnated and benefits and job security began to disappear.  Credit-card debt replaced salary increases, most households needed a second wage-earner and former factory workers scrambled to find whatever work they could in the service sector – often without pensions or health insurance.

Rude Awakening II was during the "oil shocks" of the 1970s.  The vulnerability of the U.S. economy led directly to the disastrous policy of cozying up to the reprehensible regime in Riyadh and catapulted huge energy firms into positions of far-reaching influence in Washington.  Lobbyists proliferated, pressing the corporate agenda on Congress and the executive branch, a trend that was exacerbated by Big Oil.

Deregulation became fashionable and the deep dismantling of the supervisory agencies began, leading to losses in consumer safety that can be observed today in the inability to protect children from toxic toys and everyone from drugs that are inadequately tested and over prescribed.  Not protecting coal miners and not even collecting fines from the mining companies that are found to be in serious violation bespeaks a rot which won’t be easy to reverse.

Where America stands now – on the cusp of another Rude Awakening – was summed up nicely by the columnist, Paul Krugman in a January article, "Wobbled by Wealth."  He describes the Senate’s late-2007 refusal to tax the income of "hedge fund" managers at normal tax rates, in effect giving them $6 billion in extra income annually, with one-third of that going to just 25 individuals. Fortune magazine senior editor Allan Sloan called it a "display of total cowardice."  It is little wonder that Congress has an even lower approval rating than President Bush.  ( plus the fact that only 3 Senators opposed the Bush military budget of $700 bil.!)

Sloan also shed light on the sub-prime mess, observing that two-thirds of a 2006 issue of mortgage securities by Goldman Sachs was comprised of "second-mortgage loans that were individually ‘toxic waste.’" This malodorous package was rated AAA by Moody’s and Standard & Poor’s and he continues:

"Goldman, being Goldman, figured out early in the game that these markets were heading south and made a fortune betting against them. However, also being Goldman, the firm didn’t pass that insight on to buyers of the securities it underwrote."  Caveat emptor, indeed.