The Daily Reckoning October 25th
In this clip from RT’s Capital Account, Joel Bowman blows the whistle on the whistleblowing process itself — specifically, the none-too-surprising biases of the process. Pro-government whistleblowing: good; anti-government whistleblowing: bad.
To illustrate this bias, Joel and Lauren revisit the tale of “two Bradleys” — Bradley Birkenfeld, convicted tax-cheater-turned-whistleblower for the IRS, and PFC Bradley Manning, Iraq War-veteran-turned-whistleblower against the Pentagon.
Joel first examined this alarming contrast here in The Daily Reckoning last month. (“A Tale of Two Whistleblowers”) “One [whistleblower],” Joel remarked, “was awarded $100 million from the United States Internal Revenue Service for revealing information to the government that was decidedly not in private citizens’ interest. The other has been locked in a cage for 28 months, and counting, for revealing information to private citizens that was decidedly not in the government’s interest.”
Joel and Lauren revisit this story below:
I was strolling along the wharf in Bodrum, Turkey, and I was intrigued to see some natural sea sponges on a table with a merchant behind the table telling me something about them in Turkish.
I vaguely recall seeing an item like this when I was a kid but I long ago dismissed them as some kind of goofy, hippy thing. Sea sponges are for the Flintstones. The Jetsons use the cool stuff in the grocery store.
Still, I bought a couple of them anyway. Then I got them home and that’s when my sponge love took off. These things are just amazing. Big, scratchy, and solid, they look and feel great. They soak up the soap and water, distribute it all quickly, and then drain fast. The guy at the wharf told me it will last 50 years, which seems extreme but maybe not. I’m dedicated to these things.
So once stateside, I decided to get more. I shopped and shopped and found nothing out there, not even in the hippy health stores. Finally, I landed at “Bed, Bath, and Beyond,” and picked up a sea sponge that was lighter colored. It was from the Caribbean, not the Aegean Sea like mine. But how could this really matter? Surely a sea sponge is a sea sponge. So I shelled out $20 for it.
It turns out to be pathetic. Once the water hits it, it turns to a blobby mush. You might as well try to wash with a raw egg yolk. What’s the deal with the Caribbean and its wimpy sponge plants or animals or whatever they are? Is this the best that place can do is produce such a sorry excuse for a sea sponge?
I went online where all things are available. I looked everywhere for a sponge from Turkey or Greece or just from the Aegean Sea generally. You know, seas that produce robust and manly sea sponges. No luck. Surely I was mistaken. I returned to the Internet night after night pursuing my treasure. Nothing.
How can this be?
Sure enough, statistics from the U.S Trade Representatives office confirms. We get plenty of spongers from the Bahamas, Philippines, and Caribbean but none (none!) from Turkey and only a few from Greece. Incredible. It seemed obvious to me that Turkish sponges are far better so why can’t we buy them in the U.S.?
We live in a world in which everything is available. If some tiny choir in Amsterdam sings a 15th century motet, I can snag a recording of that in a matter of minutes. Most of the stuff sitting on my desk comes from China. My shirt has parts and labor embedded within it from a dozen countries around the world. Why can’t I get a sponge from Turkey?
This is when I start making calls. I rang up the leading importer of sponges with a business that has been in the family for three generations, starting long ago with imports from Turkey. Now the company only imports from places closer to home. This is how the conversation began. I told him what I had found and he confirmed it point by point.
The conversation lasted 20 minutes. It was filled with fascinating detail about varieties of sponges, places of origin, sponge farming techniques, import restrictions, wholesale pricing deals, big-box contract restrictions, sponge longevity, and trends in sponge usage across industries. This man lives and breathes sea sponges, just as his father and his father’s father did.
I gotta say it: I love conversations like this. They are too rare. Experts are amazing people. Real experts, people who know a sector like no one else. And if you want a real expert, you have to go to a business person. These are the people with the strongest passions, the depth of knowledge, the on-the-ground (or in-the-sea) experience, and vast knowledge about stuff that no normal person could acquire through any known means. Wikipedia is ignorant by comparison, and the professor who thinks he knows knows nothing.
Speaking on deep background, he admitted that the Turkish sponges are vastly better and that the floppy mush from the Caribbean is a sorry excuse for a sea sponge. He said that consumers have been denied serious sponges for so long that they no longer expect anything else.
Why can’t he get them from Turkey? He said that he has tried and tried for years but, as best he can tell, there just aren’t people harvesting them on a scale to enable the volume of imports that would make importing them economically viable. There are no restrictions on importation, so far as he could tell, but he still can’t make it work and be profitable.
I just laughed and laughed over this comment: “A few years ago, a guy in New Jersey managed to get some. But he kept them!” I’m not sure if he meant that he declined to sell them to wholesalers or if the guy retained them for use by his children and his children’s children. In either case, it was a funny comment because it illustrates just how much my new friend knows about this market.
That still leaves the question why so few boats are willing to go out and harvest these things. It could be that there is not enough demand to justify it, but I doubt that. This is an ancient profession — literally dating back to the ancient world when divers would plumb the depths of the ocean to drag up this amazing things and sell them on the streets to all classes of people.
I can’t confirm this with absolute certainty but I suspect that modern sponge divers in the Aegean Sea region have lobbied for and achieved a cartel status, restricting capitalized companies from planting and harvesting on grounds of job protection. Again, I can’t confirm but I’ve found enough material about the supposed sad plight of traditional sponge farmers to make me suspicious that the hand of the state is somehow involved in forming them into a tiny guild to keep their wages and profits high. Hence, the small quantity available on the market.
My temporary mania to discover the secret of the sponge took place right in the thick of the presidential debates just before the national election. Each of these debates feature extremely impressive actors who purport to have vast knowledge of all things sufficient to give them the intellectual capacity to manage the country and the whole world. They rattle off statistics and pronounce on all aspects of everything. We are supposed to believe that they are like that character in the movie Megamind. They are all knowing!
Anyone with bit of sophistication can detect the truth. These guys are pulling sponges over our eyes. They know how to get elected. That’s their main talent. If you want to gain actual working knowledge of something, you have to talk to a person — like this sponge importer — who lives and breaths the sector and puts his own property on the line, and tests his knowledge daily by the ultimate crucible of the balance sheet. It is in the commercial sector that you find real expertise.
Of course my sponge merchant is not presuming to run our lives or run the world. His mission is more realistic and humble: get people stuff they can use to improve their lives. This is a humble calling, an honest profession, a heroic endeavor. It is social service. It is a model of how to live a good and productive life.
Admire not those who lie and trick us into believing they are god like! The merchants are the people we should be admiring because they are exactly what they purport to be, and, in a market economy, they are always and everywhere willing to be correct, ready to change plans, and happy to be deferential to the tastes and demands of others. This is the market at work: humble expertise in the service of humanity.
If you are ever in a position to advise young people, steer them in this direction. Merchantcraft is a life well lived. A mind is a terrible thing to waste on politics.
Original article posted on Laissez-Faire Today
Having crossed the feds already, the plucky rating agency Egan-Jones is going all in… and joining up with the Chinese and the Russians.
Egan-Jones is the lone rating agency that’s paid by the buyers of the securities it rates — unlike S&P, Moody’s and Fitch, who are paid by the issuers. Or as author William D. Cohan wrote at Bloomberg recently, Egan-Jones is “the one rating firm not on Wall Street’s take.”
Thus did Egan-Jones downgrade U.S. Treasury debt last year weeks before S&P.
Readers with keen memories will recall Egan-Jones was rewarded earlier this year for its ethical business model and forthright opinions… with a Securities and Exchange Commission investigation. It is ongoing.
One of the SEC’s main complaints is that Egan-Jones appears understaffed.
The firm is proceeding to address that concern… by launching a joint venture with the Chinese rating agency Dagong and Russia’s RusRating.
Dagong made a splash when it issued its first sovereign debt ratings in 2010… putting the United States two notches below AAA. And it downgraded Uncle Sam further last year.
The joint venture will be based in Hong Kong. “It is an historic imperative,” reads a statement from the three companies, “to establish a new type of international credit rating system which follows the inherent requirements of credit rating and which is aligned to the common interests of human society.”
Florid rhetoric aside… Nice job on Egan-Jones’ part of sticking a finger in the feds’ eye.
In this clip from RT’s Capital Account, federal tax practitioner, David Selig, blows the whistle on the US government’s nascent efforts to sink its talons into the gold holdings of American citizens:
Right around this time last week I was over 1,000 feet underground at the Modder East gold mine, near Johannesburg, South Africa.
Actually, for as “cool” as the visit was, the mine was kind of warm.
After a couple hours walking — and at times crawling — underground, my T-shirt was soaked with sweat. I skipped the hotel gym that day.
The Modder East mine is one of the newest gold mines in South Africa. In May 2006, the site was a wheat field. By late 2009, the shafts were sunk, equipment was installed and operators pulled the first gold out of the ground. By mid-2010 the mine was cash-flow positive. Easy, right? No. Not at all. No way!
There are innumerable angles to this story. For now, I’ll just say that despite what I told you in the last paragraph, it’s hard — and I mean REALLY hard — to mine gold. You’ve got to see it to believe it. But then, that’s why we publish letters like this one — because if you can’t get out into the field, I’ll do it for you…
Do you want to see real, deep, hard-rock, gold-chasing mining?
First, you suit up in safety clothing — Nomex overalls with lots of reflective patches and rubberized, steel-toed boots. Then you strap on about 25 pounds of other safety gear — headlamp, battery (one size — like a brick!), emergency breathing pack (one size — bulky) and more.
Suitably garbed in battle rattle, you go down an elevator shaft to the first level. The nonstop ride down takes you about as deep as the Empire State Building is high. At Modder East, you then travel through a long, dark, wet, rocky tunnel about 12 feet wide by 15 feet high — the main adit.
Eventually, you get to what are called “side panels,” where eight-men (and a few women) teams of miners chase “gold reefs” far into the crust of the earth. Using water-powered tools, they drill holes into the rock. Then a guy called the “blaster” comes along and emplaces charges. Twice a day, the earth shakes with energy from explosions.
After blasting is over, a few brave souls go in to check rock stability. Later, after the all-clear signal, miners move in to haul out the debris. At Modder East, the pay zone is called the “Buckshot Reef.” It’s a quartz pebble conglomerate heavily infused with gold-laced pyrite (and yes, of course, I have a sample).
Look at the photo above. Now consider that the Buckshot Reef ore zone is about 8-12 inches thick, at best. Sure, it’s rich in gold — around 40 grams per tonne (g/T). But you can’t just mine a 1-foot seam. There’s no technology for that.
You have to remove a lot of rock — mostly below the ore zone, just to get the pay dirt out. But you can’t dig out too much barren rock, because you’re paying for every hunk that you break up and move out. It’s all about cost per tonne.
Thus, this kind of mining involves digging relatively thin “panels” out from the side of the large main tunnel. How thick are the side panels? Well, just to get things started, there’s a very tight, perpendicular, man-sized hole where the driller stands.
This more or less perpendicular hole strikes out from the main tunnel. And off that hole, miners dig out into the ore zone, creating an opening about 4 feet high. All along, the miners have to support the roof with thick timbers.
During the mining and clearing process, large chunks of Buckshot ore (gold-infused pyrite) go straight into the mine carts, to be hauled to the surface. But after that, there’s a lot of fine detritus as well — it’s the remnant debris of the blasting-mining process.
This detritus is sandy, gritty stuff, but it’s also where a lot of fine gold settles out. That is, gold is much heavier than the rest of the minerals in the Buckshot pebble conglomerate. So gold tends to concentrate down toward the bottom of the sandy material — kind of like panning for gold in a stream.
Miners have to get down on hands and knees and literally shovel the fine stuff sideways for collection (see photo above). Still, it’s worth the effort because that gray sand is among the most valuable ore in the mine. It’s chock-full of gold (microscopic, to be sure). So by the time the side panel is cleaned out, the bottom surface has literally been swept with a broom, to get every grain and fraction of a gram.
Then the ore goes topside for crushing, separation and concentration. Modder East has no set schedule for final refining and pouring gold, because they don’t want to make it easy for anyone to plan a heist.
Still, it’s accurate to say that about once every week or so, they pour gold. Then the yellow metal is promptly picked up by a helicopter and transported to South Africa’s Rand Refinery for final treatment. That’s where the gold bars, ingots, Krugerrands and such come from.
As a new mine, Modder East incorporates every form of advanced safety feature. From what I could discern, the mine owners spared no expense in designing safety into the system from the beginning — starting with a mine manager who embodies safety as an ethic and value.
For example, in terms of mine design, all human access is via dedicated elevators. And all ore is removed via separate access tunnels. Thus there’s much less likelihood of someone getting run over by a hauling truck in a dark tunnel.
In terms of operations, and for a variety of reasons that I won’t lay out in detail, the water-powered (hydraulic) equipment tends to be safer than pneumatic or electrical equipment.
On the human factors side of things, Modder East fosters a culture of safety, with an unstinting management focus on safe operations. At the heart of things, the entire pay and incentive system is designed around safe mining, versus a “hurry up” approach that leads to people cutting corners. Indeed, this particular pay scheme has become a model for deep mining across South Africa.
Topside, there’s a full-time doctor (a real MD) on site. The doc deals with every manner of medical issue — from worksite injuries to ailments like the flu or a skin rash. The idea is to instill a sense of medical respect — related to respect for safety — within the entire workforce.
There’s much more to say, but time constrains me just now. I’ll end by noting that the next time you want to bellyache about your job, consider coming to South Africa and trading places with some of these shovel-swinging miners for a couple of days.
You want hard, hot, sweaty physical labor? Where you’re stooped over for hours at a time, swinging a shovel full of heavy rock and grit? Hey, there ain’t no whining and crying in the mines, OK?
The foregoing is just a taste of what I learned on my visit to the Modder East Gold Mine. There’s more to say, later on. For now, let me thank my host, Gold One, Ltd, and mine manager Izak Marais, for allowing me on the property, and being so open to an inquisitive outsider. Many thanks, also, to my South African Agora colleagues from Fleet Street Publications — FSP Invest — who were instrumental in arranging the visit and tour.
Thanks for reading. Best wishes…
Byron W. King
Original article posted on Daily Resource Hunter