Olive 8 Status?

On or about January 31, 2007 the Seattle Times reported that "The developer of Seattle's tallest residential tower and its general contractor are parting ways".

The article is in reference to the 39-store hotel and condominium project on Olive Way and 8th Ave (the "Olive-8").

The contractor, Skanska USA, will continue construction through mid-March 07. Supposedly at that time another contractor will complete construction - although the developer has not released information on who this contractor will be.

Curious minds want to know, will the Olive-8 actually finish construction or will we be left with a huge construction pit for years to come?

If the Olive-8 developer cannot find a replacement contractor for Olive-8, then Rolandovich predicts the beginning of the end for Seattle's Condo Market.

A poster on UrbanLiving explained that the parting of ways between the developer and contractor had been planned for months and that the press release was a mere marketing ploy.

Why would any developer want to advertise that they can't keep their construction contract together? If I had pre-leased a condo in the Olive-8, then I would be worried about what is actually going on... and hopefully the "reservation fee" was paid to escrow and not directly to the developer (as has actually happened with past projects in Seattle).

Iran

The justifications of our foreign policy in the Middle East have been clearly documented and freely available from many sources. To say that we are in Iraq because if oil, or that we will not leave because of oil is a simplification, but nonetheless, it is true.

However, the saber-rattling over Iran requires some brief examination. The United States is currently attempting to keep the Middle East's resources (oil) out of the control of the Asian powerhouses of China and India.

Russia has been providing or selling technology to Iran to the objection of the United States.

China and India just want to keep growing exponentially (greed works in the ancient cultures too).

Russia, China, and India all want Iran on their side. Iran is much more likely to oblige them considering the recent accusations that have flown from the West. Moscow has recently been making noise about a gas and oil exchange to tip the scales further away from western exchanges.

It seems that the last six years in Iraq have resulted in little more than fewer options for bush to position himself (and us) in an exceedingly hostile world. Iraq? We cannot leave because the Shia will take over and align themselves with Iran with or without the Kurds. That leaves the oil producing Middle East making China and India the new U.S. The U.S. is relegated to UK status.

That's the best case scenario, if the rest of the world continues to switch out their dollars for Euros or whatever else, and the superficially inflated wealth of millions of flipped houses becomes worthless, well then you might even have the old new Russia.

Tags: oil, Iran, China, Iraq, India, Russia, housing bubble

LLCs and Small Investment Properties

In a comment posted on seattlebubble it was asked why someone would quitclaim a home into a Limited Liability Company.

This is truly a pet peeve for us at Lawgavulon. Almost every other week Rolandovich gets a call which invariable has the following tale: "Hi, I'm a small investor in real estate. I want to shield my personal assets from liability and therefor transfer my home/duplex/tri-plex into an LLC. My real estate agent said it really wasn't a big deal, can you quitclaim my home/duplex/tri-plex to my LLC? What, ohh, you want to know whether my loan is in the name of the LLC. Well actually it's not. You see my real estate agent told me that it would be cheaper to obtain an owner-occupied FNMA loan. As a result we couldn't close in the name of the LLC, but I saved a lot of money. My loan officer even helped me set up the LLC and said I should quitclaim the property after closing. Why, is there a problem?"

Here are the problems:
(1) DUE ON SALE CLAUSE. Practically every single loan has a "due-on sale" clause in it. These clauses state that if the current property owner sells the property without seeking lender approval, then the lender may call the loan due. Thus, a transfer of your home/duplex/tri-plex into an LLC will violate the due-on sale clause and the lender could foreclose on you on any time.

"But Rolandovich, it's not illegal to transfer my home without lender approval."

Yes, that's true. It's not illegal. You are merely breaching your contract that you have with your lender. So feel safe, you won't go to jail, you might just lose your investment property.

"But Rolandovich, everyone tells me that banks have no way of knowing that I've transferred the investment property."

Yes and No. It's true Lenders generally have no knowledge of what is recorded subsequent to their loan. They generally do not check the recorder's office after the loan is collateralized and the lender has earned their points. But one should be careful. Back in the last 1970's when interest rates were rising and lenders had nothing to do they decided to "audit" their loan files. Invariably they found many properties that had been transferred without their approval. This allowed the loan officers to "call due" the loan and force the borrower into a much higher interest rate loan. (i.e. you are in default. So we will foreclose and you the investor will have to refinance). During the late 1970's interest rates had shot up to 15-18%. Thus the incentive was high for lenders to get people out of those loans that didn't earn much money for them.

Lenders receive a copy of your homeowner's insurance policy. If you want to keep any kind of insurance on the property then the "named insured" would have to be changed to the LLC and as such the lender will find out that the property was transferred when they receive their certificate of insurance coverage. This could be the trigger forcing the investor to refinance. Or I suppose we can all hope that lenders receive so much paperwork that they just won't read or review the insurance certificates sent to them.

"But Rolandovich, I was told that the Gairn-St. Germain Act allows me to transfer my property into an LLC without lender approval."

No. That is false. The Gairn-St. Germain act is a federal law that allows borrowers to transfer their homes into a Revocable Living Trust of which they are the trustee without the loan being called due. This federal law does not apply to LLCs or other corporate forms and a living trust is an estate planning tool, it doesn't actually protect any of your assets from creditors.

(2) HOMEOWNERS INSURANCE. As briefly mentioned above, your homeowners insurance will have a "named insured" and that will be the property owner. Once you transfer your property into an LLC, you need to either change the insurance policy to cover the LLC or you will be paying insurance that does not actually cover you. For example, if you transferred your investment property into an LLC and did not change the "named insured" and then the property burned down - well I can almost guarantee you that the insurance company will not pay that claim as they never insured your LLC - only you and you no longer own the property.

So as an alternative you can transfer the investment property into an LLC and change your homeowner's insurance - but then you run into potential problems with your lender, as explained above.

As a result some people transfer their properties into an LLC without lender approval and continue paying homeowner's insurance which won't actually cover them if a claim is filed. I'm sorry, but isn't that just ludicrous?

(3) TITLE INSURANCE. At closing you will have received Title Insurance insuring you against loss from title defects. That insurance will also be issued in your personal name. If you transfer the property into an LLC without obtaining a "rider" on your Title Insurance policy to insure the LLC, then once again you will be without insurance if there is a title claim.

This problem can be remedied relatively easily. A Title Insurance rider to cover your LLC should only cost $75.00 or so and the good news is that such a rider is not sent to your lender and so you won't inform your lender of what you have done by this move.

(4) DO YOU REALLY HAVE LIABILITY PROTECTION? The whole purpose of transferring the investment property into an LLC was to create a liability shield. However, if you transfer property into an LLC but the loan on the property is in your personal name, are your personal assets actually protected? In most states a plaintiff who sues you will check to make sure that you have met all corporate formalities. The easiest way to "pierce the corporate veil" is to show that someone has not kept their personal finances separate from their business finances. If your loan is still in your personal name but the LLC own the property, I posit that your liability protection is more illusionary than anything. It's a corporate veil waiting to be pierced.

So the lesson is to either (1) Form an LLC prior to closing on an investment property + get the lender on board with the concept. Do not obtain an owner occupied FNMA loan, but rather an investment grade loan that will close in the name of the LLC. You will be above board. There will be liability protection and far less risk; (2) Don't close in the name of an LLC. Just buy the property in your own name and carry a good insurance policy. Don't bother transferring into an LLC. It's just not worth it.

The above is not to be construed as legal advice. Do no rely on it. Seek the advice of an attorney before closing a real estate transaction. Relying on the advice of your attorney will keep you out of hot water much better than relying on the advice of your real estate agent or loan officer whose only true goal is to close the deal and thereby earn a commission. The attorney, who is generally paid by the hour, will only have your best interests in mind.

Tags: LLC, Real Estate, Investors, housing bubble, limited liability, corporate veil, due on sale, insurance

There's nothing worse than a dead blog...

Another Soviet Farewell

Though I never saw the Soviet Union when it was actually the Soviet Union, I had my turn to view its rotting carcass in the mid-90's. As the economic picture in Moscow continues to brighten, more and more of the old believer's relics are falling victim to the wrecking ball. In many ways, I should not be sad, but rather should rejoice in the return of Russia to the Soviet Capitol. However, I still get a touch of nostalgia when I read articles like this one from the Moscow Times.

Most of what makes the personality of a city is the view it gives you to its past, in my opinion. Moscow become a city officially in 1147 so its history is long and depressing; perhaps no period more so than during the Soviet Union. All the same, part of me wishes I could see it during that time without all the western brands screaming at you down Tverskaya or the Casinos down New Arbat. I suppose a happy medium is sufficient and I doubt anyone will miss this corner of the Soviet Union.

Tags: Russia, Soviet Union, Moscow, Dom Kino

The Brothers President

The Clinton and Bush supporters each have their own version of who is most responsible for allowing Osama Bin Laden remain at large. According to those who support Bush, Clinton did not take advantage of a chance he had to take him out. The Clinton supporters allege that that Bush let him go in Tora Bora in order to prepare for the invasion of Iraq. I have my own ideas.

I believe that Osama Bin Laden's capture would impede the Bush Administration's policies. If OBL were captured, the people would immediately begin clamoring for a declaration of victory in the war on terror which would immediately make the prospect of invading Middle East countries less palatable for the American people. OBL has much more value at large than in captivity. If he is captured, the allegations of a coming terrorist attack would carry less weight and people might begin to turn attention to issues that are more important to ordinary people than terrorism. I can hardly imagine a less favorable climate for the Bush administration.

For an oil man, like Bush or Cheney, the last six years have been an unending dream. They have been able to dispense with every hint of fiscal responsibility since the war on terror began. What's more, this money has not gone to the traditional sources of government spending but to an already bloated military on arms that are not designed to fight terrorists. Even better for them, if anyone asks any questions they get to accuse them of treason or anti-Americanism. No other administration has had that power since the possibly the second Roosevelt Administration.

All of this could stop if OBL were captured. These benefits vastly outweigh any short-lived support the administration might experience as a result of his capture. It would take a couple of months before that would wear off and then we would all be left with the same administration looking other places to rouse up fear. The cold war lasted a half a century--and to whose benefit? The people were never any safer, in fact they could not have been less safe. There were proxy wars conducted in places like Korea and Vietnam that we were told were necessary to keep us safe, and during these wars there were elements in the military hounding for expansion of hostilities. In fact, in both wars these elements urged the use of nuclear weapons.

Between these two wars, there were constants attempts make war, against Cuba for example. The reason was always that there was a threat that had to be dealt with. Had any previous administration had the opportunity to play on the fear that 9/11 brought, there is no question they would have--I cannot imagine that even Carter would have been able to respond any differently than Bush did after 9/11.

I believe the reason is simply that the defense industry represents the most powerful element in the U.S. government. As you know, the defense industry is a collection of corporations that produce weapons of war that they sell to governments--mainly the U.S. and Israel, but generally any country with which the United States has friendly relations. These corporations are often, but not always, publicly traded making them subject to the market just as any other company would be. Because their business model benefits from war, they naturally seek opportunities to prosecute war wherever possible.

The think tanks are the other critical link which has taken over the role of policy formulation in the absence of governmental organs that did so in the past. The think tanks are often funded by the corporations which in turn benefit from the policy the think tanks produce.

I suppose it is possible to look at this as some kind of conspiracy. The Carlyle Group receives plenty of criticism for alleged designs on world domination. I think that is a simplistic analysis. Every single corporation in existence has designs on world domination because their single concern is for profit maximization, without concern for anything else. What other conclusion can possibly be drawn? Profit maximization by definition has no limits.

Tags: corporations, think tank, Carlyle Group, Carter, Bush, Cheney, Korea, Vietnam, Osama Bin Laden, Clinton, Tora Bora

U.S. Corporate Governance, Part VI: Footprints

My last couple of posts were about some of the worst case scenarios that I envision resulting from excessive intermingling between the political and business entities of our state and federal governments. That is simply a tension that will always exists and probably always has to some degree. (In ages past, people tended to look at the monarch as their advocates against lesser lords, landed gentry, and wealthy merchants.) Today, people look at the government as one of the few means to reduce the oppression that "apolitical" businesses might cause.

The more those two power structures merge, the fewer options for people to enforce any rights they may have. Of course, it is not inevitable that corporations will take over the country and enforce their desires with private armies. However, it is difficult to argue that it is impossible when you read stories like this one. I am with most Americans when I say that terrorism is something that concerns me. I don't worry about it more than cancer, auto accidents, climate change, and many other things because the chance of dying in a terrorist attack is about as great as being struck by lightening. It is certainly something to worry about, but it is not even close to even the hypothetical threat that the Soviet Union posed. The difference is it is easier play on terrorism because there is no warning and the perpetrators are not usually white people with innocuous religious beliefs.

On the other hand it is fairly obvious that the beneficiaries of the war on terror are the largest corporations and that makes me very suspicious. While it may be that people are safer as a result of the war on terror, there is very little indication that such security is anything but coincidence. The only group that ever set out to study this with the sanction of the U.S. Government was the 9/11 Commission whose recommendations have not satisfactorily been implemented.

There is a business model in place that depends on the circulation of oil throughout the Western World. That business model is promulgated and implemented by the modern business corporation. You and I are its end-users. While we can certainly blame the corporations for some of this; ultimately, the consumers have the responsibility of not playing along. It's simple enough, but we have few options when the corporations want us to play along, and our public officials are complicit. That allegedly leads to results that were documented in this film. The MBA president is much more than complicit. His VP is one of the architects of this model, and of course, one of its greatest beneficiaries.

I think it necessary to point out, again, that the people involved in any one of these organizations, even Dick Cheney himself are not bad people, or evil. People make bad decisions in desperate circumstances. However, our system of corporate governance actually pushes people to make those poor decisions, or as I hesitate to reiterate again, put profit ahead of all other considerations.

Tags: Cheney, Bush Administration, Corporation, Corporate Governance

U.S. Corporate Governance, Part V: The Invisible Individual's Political Connections

We left off with one of the possible result of our current governance of corporations. Of course, it is not inevitable but it is difficult for me to imagine results that are too far off. Another reason for this, aside from the profit maximization obligation, is the intermingling of our political organizations with our business entities.

This intermingling takes the following forms, as well as others:

1.) Leaders from the business sector become elected officials. This is not inherently a bad thing. Leaders exhibit certain useful qualities whether in the business field or public office. However, these business leaders operate under conditions which are not acceptable as public officials. Further, they often serve in one capacity to benefit their private undertakings. Dr. Bill Frist, George Bush, Rumsfeld, Cheney, and many many others are prominent examples.

2.) Corporations have the means to contribute to the campaign coffers far beyond those of individuals. There is no reason to give examples of this here. While there are certain constraints on this process that are beyond the scope of this post, the fact is corporations have a voice much louder any person can ever hope to have.

3.) The lobbying system allows for the proliferation of corporate friendly causes to receive much more attention on Capitol Hill than any people friendly cause can have. In fact, most of the time this phenomenon serves discredit the people friendly causes through various forms of smearing.

4.) U.S. policy formulation anymore takes place in think tanks and similar organizations that receive grants and forms of patronage from corporations with the goal of creating influence in the political structures. If they cannot buy their politicians in the campaigns, often it pays to get involved during at the policy level. It's an efficient method of outsourcing that conveniently cuts regular people out.

Corporations must turn a profit. One of the overt ways this is done is by cultivating close ties to the structures political power in every state capitol as well as in Washington D.C. The revolving doors of leadership in addition to the process of buying causes leads the nation to pursue causes that are extremely beneficial for the corporations, and therefore, their owners, but extremely offensive to everyone else.

I discussed the telecoms in the last post. As an example here, I would like to use Blackwater USA. As you can read, Blackwater is a private security firm whose value grew exponentially after 9/11. One of the functions of the group is providing a private military force. It receives government contracts to operate in Iraq and wherever else there are wealthy people to pay for them. Its largest client is the U.S. Government which pays Blackwater hundreds of millions of dollars every year. That means you and I pay hundreds of millions of dollars every year for this private military force to exist, in addition to our regular military.

Blackwater USA benefited from 9/11 in ways that ordinary people cannot imagine. Think about this for a moment. There is a private army that answers only to its shareholders. That obligation to its shareholders demands that it attempt to influence foreign policy if that is the area in which the corporation operates. A private army is useless without trouble spots. A powerful corporation's CEO is liable to its shareholders if it does not maximize the corporation's profits even if those profits depend on the existence troubled spots. A tiny corporation will just go out of business. However, a powerful corporation, with billions in market capitalization, and access to the White House is going to find trouble spots whether or not they actually exist.

In another bleak scenario, the current system of corporation governance ensures that such private military groups will be deployed against its own population to stamp out dissent, crush protests, take organizers prisoner, and execute people who try to exercise their constitutional rights. This brings to mind the clones in Star Wars Episodes II & III. At the right time the person who has such a force at his/her disposal will wipe out all dissent. Truly the founders of the Gestapo, and SS could, which did the same thing last century, would be jealous. We will see this in our country before too long if we do not revise the governance of our corporations. I would doubt this could be a possibility under other administrations, but the Bush administration has shown little regard for law, extreme hostility for dissent, and a shamefully poor record for humane policies. (By that I mean, under his administration, the U.S. practiced torture, disregarded international and domestic law, and followed many of the other abuses of the Soviet Union and Nazi Germany.)

No one is a bad person because he/she works for a corporation or founds a corporation. However, under our current system of governance, no one can stop a corporation from repeating some of the most terrible events of human history.

How could this happen? Wouldn't national outrage percolate after people see this stuff on the news? Next time I will discuss the news outlets.

Tags: corporations, corporate governance, Blackwater, SS, Gestapo, Bush Administration, Nazi Germany

U.S. Corporate Governance, Part IV: The Worst of the Invisible Individual

To summarize the last three posts:

1.) A corporation is a legal person with Constitutional due process protections.
2.) The actual owners of the corporation are generally not liable outside a few exceptions that are rarely applicable.
3.) A corporation is legally obligated to attempt to influence the law to better suit its revenue-generating models.
4.) The resulting law does not also benefit real people, or the vast majority of the population--this includes the people who cause it. (Remember, their fiduciary duty puts their own interests behind the interests of the corporation.)

Again, many do not see the connection between these motivations and our every day lives. Let me illustrate one possibility:

I believe one of the more frightening examples of a terrible confluence of these factors involves the NSA spying program, which seems to indiscriminately record, or troll for data (without warrants). This was carried out with the help of the large telecom corporations. Please excuse my lack of links on the subject. The legal implications of the NSA program are well documented on Unclaimed Territory. While privacy is not the issue on the forefront here, it is the one that will be most easily swept away once the provisions of FISA have been gutted and that may occur later this year provided the GOP keeps control of the Congress. Even so, as I mentioned previously, a corporation has a strong incentive to act unlawfully. The corporation cannot be sentenced to jail and any regulatory fines can be justified as a cost of doing business should a judge and often, the Supreme Court, disagree with its conclusions.

I think it is obvious that the technology exists, and it appears that the once these legal hurdles have been cleared, the entities branded as friendly and responsible citizens will be poised to dramatically change the nature of our society. Remember, a corporation is not a person. It cannot stop at the edge of the cliff and think about looking down. If there is anyway to make money by jumping, it will go over the edge without ever slowing down. In fact, the directors are legally obligated to make sure it jumps at full speed.

First it's swiping your card with Paypass. A receipt comes to you in the mail letting you know what they charged. The convenience is the most ultra of all comforts. No worry about ID theft. No thought of losing your credit card and showing up at the bar the next day to pick up your lost Visa.

The level of security in government buildings will be the first to install these advancements. The cost of ensuring the safety of our elected officials and our independent judiciary is easy to justify. However, the largest corporations will soon follow suit under the same justification, which is much more tenuous. Soon enough, you will be scanned and electronically searched when you walk into the grocery store. You will be told that the social value of protecting the local supermarket is higher than any inconvenience you experience. If you don't like it, you will be told to stay out of the store.

The convenience is mind-blowing, but comes with a sinister cost. Everything you own is also scanned: everything in your pocket, your clothes, description, possessions, and everything else is documented. Your position is mapped and recorded; every action that makes up your life can be known. Crime will virtually disappear. Political dissent will dry up before anyone notices. Free elections will become unnecessary because we will be able serve the state through other means. The only remaining corporation and the government will finally merge in an effort to protect us, keep us secure, rid the world of evil-doers. You can imagine the efficiencies that will be created.

It's not a revolution or a takeover--rarely do tyrannical regimes usurp power transparently with the tacit approval of the people. It's a process, all leading toward a terrible finale. Complete security will arrive at the cost of complete tyranny, complete control, complete uniformity, and a completely mediocre, banal, and uneventful world. It will be a gradual process and if you don't believe it can happen in the U.S., you are not paying attention. It is happening right now. And about 50% of us welcome this result blissfully.

U.S. Corporate Governance, Part III: The Mind of the Invisible Individual

After the Civil War, and the ratification of the 14th Amendment which prohibits any state from depriving life, liberty, or property, without due process of law. Of course, the railroad companies at this time (1860-1880's) became larger than any company had ever dreamed--perhaps for good reason, as they provided transportation in a vast country. However, with this capital, they became more able to avail themselves of legal protections that were intended to protect newly freed slaves.

In a slight detour, I would like to editorialize on the nature of our legal system because it is entirely appropriate. Each citizen in the United States is free to have his day in court, or file a lawsuit to enforce their rights. However, this freedom is limited, and too often, completely diminished because most people cannot afford to pay lawyers to enforce those rights before a judge. Of course, corporations can afford those rights, and large railroad companies can script their own.

In 1886, the Supreme Court determined that corporation is a person under the U.S. Constitution, and that they are entitled to due process. This happened only because there were, and still are, enough corporations with enough money, to create legal fictions that while not completely without merits, probably do not belong in the Constitution. Corporations certainly have value and may have tremendous value, but at no time did a group of elected officials in our country determine that a corporation should be a person. Over the last 140 years, however, our elected officials have ratified that result by their inattention to this detail.

Our nation suffered through the worst conflict of our history and the lasting results were the eradication of the sanctioned institute of slavery, but the rise of invisible individual. For all intents and purposes, the modern corporation is now a person under the law with all the benefits but none of the obligations. Because a corporation isn't really a person it cannot reason, it was never intended to consider any other obligation but profit maximization, it exists in perpetuity, and can even kill other people. However, that corporation will never be sent to jail, or even executed. The most that can happen is it can shut itself down, but the people who were responsible for the actions of the corporation are certainly not prosecuted as murders or most of the time even criminals.

It is certainly a paradox. Why do we care?

Tags: corporate governance, corporation, 14th Amendment, due process

U.S. Corporate Governance, Part II: Inside the Invisible Individual

I left the last post by writing that the corporation's duty is to maximize profit.It is unfair to term it thusly because it makes the corporation sound like a heartless generator of nothing but money.Of course, people work in and ultimately control the corporation and as we know that people are not heartless machines, a paradox seems evident. However, it is completely accurate to say that the one responsibility of a corporation is to maximize profit.The board is responsible as a steward over the investment of the shareholders to maximize their investment.The directors of a corporation owe a fiduciary duty, not to any other person, but to the corporation itself. We already know that technically means to the shareholders so in some sense, that is to other people, but the ultimate responsibility they owe is to the company. All other interests or considerations for anyone acting as a fiduciary are secondary to the duty that director owes to the company itself.

Let me illustrate with a common if not incendiary example. Imagine a chemical corporation in the operation of its business model produces by products that it must dispose. It has two options: 1.) ship it to a chemical waste dump 400 miles away, or 2.) dump it into the local river. The first option is expensive; the second, cheap. We know that the duty of the board is to make the most money possible. So the decision is not a difficult one considering that none of the directors will be liable for any wrongdoing. There are exceptions for this which are so narrow that they are rarely applicable, and of course, the business judgment rule almost always gives the officers and directors "get out of jail free" status.

At most the corporation will have to pay some sort of fine for the violation, if they are caught at all. Therein lies the truly frightening aspect: if the directors and officers determine it is less expensive simply to dump into the river and pay the fine than it would be to ship the by-products to the disposal site, there really isn't much of a decision to make. If that chemical eventually kills someone, it isn't murder. It's the cost of doing business and it is a completely acceptable, if not encouraged tactic under U.S. Corporate Governance.

Tags: business judgment rule, corporations, corporate governance, fiduciary duty

U.S. Corporate Governance, Part I: An Invisible Individual

It is difficult to miss that we are in perhaps the most contentious election season in our lifetimes. I think it is important to look at the larger picture of the U.S. political scene before getting too excited about the prospect of Democratic gains in November. Of course, I look forward to the day when many of the GOP congressmen turn in their public official status for pricey jobs as think tank consultants, pundits, lobbyists, or corporate directors, but I have to be realistic. Any Democrat, and most conservatives, would be far superior to the current class of rubber stampers (to follow GWB's wordmaking). However, the nature of political discourse in this country is limited to a very small portion of what is actually legitimate debate.

The reason for this, I believe, lies in the legal structure of our corporate governance. It will take some time to explain, but I refer to this concept often in many other posts and I want to make sure that at some point, I explain exactly and clearly what I mean.

The corporation is a group of people, but is a separate entity from those people. In our legal system, we have afforded that entity the legal status of a person (more on that to come).

Back to the people who make up the corporation, there are several classifications of people in the corporation. The most important distinction to make is between 1.) the people who own the corporation (who can be called members, investors, owners, shareholders) and 2.) the employees of the corporations. Either of these groups can be members of the other, but that is not necessary. Often an employee, or a board member (which we will come to soon) will own shares and be a member of both groups. In large corporations until recently employees often participated in ownership through stock option programs. It is not mandatory for an employee to own shares in a corporation.

Now that we have some idea of the people in the corporation, let's spend a minute on which of those people control the corporation. Under all of the corporate governance statutes in the U.S. ,the board of directors is responsible for the conduct of the corporation's business. However, the corporation's board of directors usually delegates the day-to-day responsibility to the officers and employees (who may or may not also be its owners, remember). The chair(man or woman) of the board is the person who runs the meetings of the board of directors and usually has somewhat elevated status thought not necessarily any more authority than any other director.

The title of President or Chief Executive Officer (CEO) is bestowed upon the person who manages the day-to-day responsibility, hired by the board. The CEO is responsible for hiring the staff and implementing the policies that the board sets.

Finally, a few words are due about the owners or shareholders. While they technically own the corporation, they have very little say in the operation of it. In theory, they have certain checks on the operation of the corporation such as they can vote for directors, initiate derivative lawsuits, or sign letters to the board demanding a CEO be fired, but their real power is essentially limited to selling off their shares if they disagree. Obviously, if enough people do this, the share price drops and the board is forced to change course (which usually means laying off 5,000-10,000 employees). However, a single shareholder, while technically a partial owner, has virtually no power.

There are publicly traded corporations whose shares are available on exchanges and closely held corporations which cannot be bought and sold on the open market. A corporation is formed with its founders or promoters incorporate, meaning they create a separate entity through which they can continue to do business, but for which they cannot be held liable. There are many reasons people form corporations but most of them have to do with protecting their investment which ultimately means maximizing their profit. Therefore, the corporation is an ideal way to do this although some tax implications may make a Limited Liability Company or Limited Liability Partnership more appropriate. Often an insurance carrier will only agree to ensure a business if it is a separate entity like an LLP, LLC, or a corporation.

Another word or two is necessary about the theory and practice of a corporation.These organizations are often very large with millions of dollars of capital and thousands of employees, but in the end, they always start with few member, promoters, or employees. Therefore, most of them reach the highest peak of the corporate world--to become a publicly traded, through the personality cult of its founders. They are often visionaries for good or for evil.See Apple, Microsoft, Cisco, or HP. You can safely include Enron in this group as well. These individuals are required to adhere to strict regulations from the Securities and Exchange Commission. Often these regulations do not fit well into the management structure that existed before the corporation become publicly traded.

When laws make powerful people feel oppressed, they agitate for change. Of course, that is not the only reason these people influence laws. They also do it in order to create environments in which their investment will flourish--to maximize their profit. The subject of Part II will discuss the legal responsibilities of the shareholders, officers and directors of the corporation.

Tags: corporate governance, corporation, board of directors, CEO

Another Example of U.S. Foreign Policy: Nicaragua

As I have tried to make very clear each of those posts below about the Middle East, there is no correlation between the given reasons behind U.S. Foreign policy and reality. Put another way, we do not leave democratic countries alone because they are democratic. Alternatively, the U.S. is quite happy to prop up a ruthlessly brutal, tyrannical dictator if there is a financial benefit to doing so.

Today, the Financial Times gave me a freebie, with an interview with the U.S. Ambassador to Nicaragua. In this interview, our ambassador threatened the people of another nation, pulling no punches:

The US ambassador to Nicaragua has issued a vigorous warning to this small Central American country's electors against supporting Daniel Ortega, the veteran leftwing Sandinista leader and the frontrunner in November's presidential election.

It gets even better making me think he has spent too much time watching any given U.S. news outlet:

It's one thing to be truly democratic. It's another thing to do what the Sandinistas really have done, which is to distort and manipulate democracy for partisan and personal benefit,

I cannot think of a better description of our current administration. The man is clearly perceptive.

In any case, this serves as yet another example of how little the U.S. is concerned with democratic institutions. If democracy is the right of people to participate in their own government by choosing their electors, it should not make any difference who they elect. Therefore, the stated policy should become, "the U.S. wants to foster democratic institutions as long as they are U.S. friendly. Any democracy unfriendly to the U.S. should be discouraged.

George Bush's speechwriters do not understand that democratic countries are not always going to be friendly to the U.S. If we want democratic nations to be friendly to the U.S. the world over, we need to cultivate institutions for people, not businesses. That is the leap we have never been willing to make.

Tags: corporations, U.S. foreign policy, Nicaragua, democracy

It's the Oil, Stupid: Conclusions of U.S. policy in the in the Middle East

There are several conclusions that can be drawn here. First of all, I think a few disclaimers are necessary. If you did not notice, I generalized and relied on less that solid sources in my analysis. That is appropriate here because the details of each country are not nearly as important for my analysis than the larger picture of U.S behavior over the last 20 years. I am no expert, you probably noticed, in Middle East affairs but you do not need to be to draw the conclusions that I have drawn. The U.S's actions are very simple to explain in the context that I have explained and am about to conclude.

First, 9/11 had very little effect on U.S. policy. The policy toward Iraq was regime change before Bush took office. Dick Cheney asked William Cohen, Bill Clinton's secretary of Defense, to brief Bush on Iraq before they were inaugurated. Contingency plans for military action were solidified before 9/11. The practical effect of the terrorist attacks was merely to speed the implementation of military action. The invasion of Afghanistan would not likely have taken place without the events of 9/11. However, their long term ramifications are now quickly fading. The Karzai government has not consolidated its power over the region. Warlords from the Northern Alliance have increased pressure on Karzai and the Taliban have resurfaced from tribal areas in Pakistan. The U.S. invasion was short lived, feebly implemented, and attention quickly shifted to Iraq before any long term positive changes could be secured. Second, there is a strong correlation between the attention, positive or negative, that the U.S. gives nations that produce oil. This attention turns on whether they follow U.S. economic policy. The oil producing nations that are willing to allow western nations to reap the benefits of the oil, are essentially given free reign in their nations to do whatever they please, be it brutal dictatorial regimes, few civil protections, or human rights abuses. When those oil producing nations choose other trading partners, especially China or Russia, then the policy quickly becomes regime change and pre-emptive military strikes become options the current administration will use, supported by a heavy partisan punditry, whose goal has never been honest journalism, but favor with the power structures. (This is the same reason ESPN commentators and anchors never publicly criticize players. If they do so, they don't get any more interviews and that often means fewer viewers.)

U.S. policy is exclusively based on whether the other nation does what they are told. In other words, if the U.S. can control a nation, the U.S. will embrace that nation and its policies, regardless of how antithetical to freedom, liberty, and democracy. If the U.S. cannot control the country, regardless of how free, and democratic, any justification necessary will be used to bring it in line. As there are very few democratic nations, and even fewer nations that actively promote universal civil rights, those two reasons can almost always be invoked to justify preventative attacks against an uncooperative state.

In the most egregious cases, the U.S. will turn to military options, as it did in Iraq in 2003. The war on terror did not change this modus operandi which has existed since WWII, but gave new and streamlined tactics to further its implementation even in the face of massive domestic and foreign popular opposition, as the expected invasion of Iraq brought. Iraq presented a particularly gruesome example which showed the administration willfully preying on the fears of an American public that the government and media intentionally sought to exaggerate and exploit in the wake of 9/11. It may even be likely that the regime change policy, again, put in place by Bill Clinton, had much more to do with pressure from the U.S. energy sector realizing that most of the profits for the oil fields in Iraq, once sanctions were removed would go to French and Russian oil companies. The only way the U.S. could prevent that was recasting the state in one of its own making. That could not have happened without something like 9/11, as Dick Cheney and Paul Wolfowitz concluded in early 1990's under the sponsorship of their think tank, the Project for a New American Century.

The basis of our foreign policy to each nation is in the economic dynamic between us and them. The bankers and financiers determine policy and our dutiful unitary executive carries it out. Follow the money, my friends, and all the wrinkles smooth themselves out.

Tags: oil, Middle East, Corporations, U.S. Foreign Policy, Bush Administration

It's the Oil, Stupid: U.S. policy in the Middle East and The X factors: Israel and 9/11

Neither of these two factors have any thing to with our policy toward other nations in the Middle East. That is to mean, that we do not support or oppose any nation based on that nation's position on Israel. Further, the nations from which the 9/11 highjackers came have not lost our support and our policy has not changed toward them. We continue to support Saudi Arabia and UAE for instance even though some of the highjackers were born in those countries. In the case of Iraq, the Bush Administration attempted to draw connections between 9/11 and Iraq but after the U.S. invasion, it acknowledged that there was no connection and even denied that the administration had ever made such claims.

Tags: oil, Middle East, Corporations, U.S. Foreign Policy, Bush Administration, Israel, 9/11

It's the Oil, Stupid: U.S. policy for Azerbaijan, Afghanistan & Pakistan

Azerbaijan

The government:

The president is an absolute ruler. Demonstrations are often suppressed with violence, there are reports of torture and a strong censorship enables a personality cult. The Speaker of Parliament stood next in line to the President, but the constitution was changed at the end of 2002: now the premier is next in line. This was done to make it possible for the son of the 80-year old Heydar, İlham Əliyev to succeed his father, who was admitted to a Turkish hospital on July 8, 2003 because of heart problems. In August, 2003, İlham was appointed as premier with the fake signature of his already dead father, though Artur Rasizade, who had been prime minister since 1996, continued to fulfill the duties of that office so that İlham could concentrate on his presidential election bid. In the October 2003 presidential elections, İlham was announced winner while international observers reported several irregularities. He was sworn in as president at the end of the month, and Rasizade became premier again.

The economy:

Oil remains the most prominent product of Azerbaijan's economy with cotton, natural gas and agriculture products contributing vastly to its unprecedented economic growth perceived over the last five consecutive years. More than $60 billion was invested into Azerbaijan's oil by major international oil companies in AIOC consortium operated by BP. Oil production under the first of these PSAs, with the Azerbaijan International Operating Company, began in November 1997 and now is about 500,000 b/d.

I do not suppose that another dictator whose country has oil producing capabilities receives the tacit and often overt support of the United States, or at least its oil companies, will surprise anyone.

Afghanistan

The government:

Afghanistan is currently led by President Hamid Karzai, who was elected in October 2004. Before the election, Karzai led the country after being chosen by delegates of the Bonn Conference in 2001 to head an interim government after the fall of the Taliban. While supporters have praised Karzai's efforts to promote national reconciliation and a growing economy, critics charge him with failing to rein in the country's warlords, inability to stem corruption and the growing drug trade, and the slow pace of reconstruction.

The current parliament was elected in 2005. Among the elected officials were former mujahadeen, Taliban fighters, communists, reformists, and Islamic fundamentalists. Surprisingly, 28% of the delegates elected were women, 3% more than the 25% minimum guaranteed under the constitution. Ironically, this made Afghanistan, long known under the Taliban for its oppression of women, one of the leading countries in terms of female representation.

The economy:

Afghanistan is endowed with a wealth of natural resources, including extensive deposits of natural gas, petroleum, coal, copper, chromite, talc, barites, sulfur, lead, zinc, iron ore, salt, and precious and semiprecious stones. In the 1970s the Soviets estimated Afghanistan had as much as 142 km³ (5 trillion cubic feet) of natural gas, 15 million m³ (95 million barrels) of oil and condensate reserves, and 400 million tons of coal. Unfortunately, the country's continuing conflict, remote and rugged terrain, and inadequate transportation network usually have made mining these resources difficult, and there have been few serious attempts to further explore or exploit them.

The most important resource has been natural gas, first tapped in 1967. At their peak during the 1980s, natural gas sales accounted for $300 million a year in export revenues (56% of the total). Ninety percent of these exports went to the Soviet Union to pay for imports and debts. However, during the withdrawal of Soviet troops in 1989, Afghanistan's natural gas fields were capped to prevent sabotage by the mujahidin. Restoration of gas production has been hampered by internal strife and the disruption of traditional trading relationships following the collapse of the Soviet Union. Gas production has dropped from a high of 8,200,000 m³ (290 million cubic feet) per day in the 1980s to a current low of about 600,000 m³ (22 million cubic feet) in 2001.

Very little of Afghanistan is useful for analytical purposes here due to its current reconstruction, but the U.S. military presence there ensures that it will remain as tightly under the thumb of Washington D.C. as they are able to, given the demands on the military occurring elsewhere in the world.

Pakistan

The government, in a particularly relevant passage can be somewhat summarized by the following selection:

Officially a federal republic, Pakistan has had a long history of alternating periods of electoral democracy and authoritarian military government. Military presidents include General Ayub Khan in the 1960s, General Zia ul Haq in the 1980s, and General Pervez Musharraf from 1999. However, a majority of Pakistan's Heads of State and Heads of Government have been elected civilian leaders. General elections were held in October 2002. After monitoring the elections, the Commonwealth Observer Group stated in conclusion:

We believe that on election day this was a credible election: the will of the people was expressed and the results reflected their wishes. However, in the context of various measures taken by the government we are not persuaded of the overall fairness of the process as a whole

On May 22, 2004, the Commonwealth Ministerial Action Group re-admitted Pakistan into the Commonwealth, formally acknowledging its progress in returning to democracy.

Pakistan's economy:

In 1947, when Pakistan became independent, agriculture accounted for about 53% of its GDP. While per-capita agricultural output has grown since then, it has been outpaced by the growth of the non-agricultural sectors, and the share of agriculture has dropped to roughly one-fifth of Pakistan's economy.

In recent years, the country has seen rapid growth in industries (such as apparel, textiles, and cement) and services (such as telecommunications, transportation, advertising, and finance).

As you can see, oil is not a major component of the economy of Pakistan. However, they remain an ally of the United States despite the allegation that Usama Bin Laden may be hiding there, allegations of human rights abuses abound, and:

Pakistan is the sixth most populous country in the world and the second most populous Muslim country. It was established as a modern state in 1947, as one of the two parts of the partitioned British India, but the region has a long history of settlement and civilization including the Indus Valley Civilization. The region was invaded by Afghans, Greeks, Persians, Arabs, and was incorporated into the British Raj in the nineteenth century. Since independence, Pakistan has experienced times of significant military and economic growth, and times of instability, with the loss of East Pakistan (present-day Bangladesh). Pakistan has the seventh largest armed forces in the world and is a declared nuclear weapons state. (emphasis mine)

This is particularly ironic considering that Iran is under increased hostility by the U.S. for exactly the same reason, and UBL has never been suspected of crossing into Iran. For even more irony, please see look here.

Tags: oil, Middle East, Corporations, U.S. Foreign Policy, Bush Administration, Azerbaijan, Afghanistan, Pakistan

It's the Oil, Stupid: U.S. policy for Turkmenistan and Uzbekistan

Turkmenistan

The government:

Politics of Turkmenistan take place in the framework of a presidential republic, whereby the President of Turkmenistan is both head of state and head of government. Turkmenistan has a single-party system ruled by President for Life Saparmurat Niyazov.

The dictator has a Stalinist form of totalitarianism at his command, complete with human rights abuse allegations:

Human rights issues in Turkmenistan, an authoritarian state, include freedom of religion issues. According to Forum 18, despite international pressure, the authorities keep a very close eye on all religious groups and the legal framework is so constrictive that many prefer to exist underground rather than have to pass through all the official processes, which act as barriers. Protestant Christian adherents are affected, in addition to groups such as Jehovah's Witnesses and Hare Krishna. The Hare Krishna are not allowed to seek donations at the country's main airport, the Turkmenbashi Flying Aeroplane Station.

According to the 2005 Reporters Without Borders World Press Freedom Index, Turkmenistan had the 3rd worst press freedom conditions in the world. No one is allowed to describe the President or his family negatively. Also, no reporters are permitted to mention that the President is a very short man (5'1", approx. 154 cm), or that he wears a toupee.

The economy:

Turkmenistan does not have oil reserves, but it does have natural gas at its disposal:

In 1994, Russia's refusal to export Turkmen gas to hard currency markets and mounting debts of its major customers in the former USSR for gas deliveries contributed to a sharp fall in industrial production and caused the budget to shift from a surplus to a slight deficit. Current GDP per capita shrank by 30% in the Nineties as a result. Industrial production of gas fell sharply, putting the budget into deficit--a deficit which has since continued to rise sharply. Currently, Turkmenistan is dependent on Russian pipelines to reach markets in Europe; because oil and gas account for one-third of Turkmenistan's budget revenues[citation needed], Turkmenistan is working to open new gas export corridors through Iran (Nabucco Pipeline) and under the Caspian Sea into Turkey. Privatization goals remain limited. After Russia's refusal to transport Turkmenistan's gas, a difficult investment environment, high rates of inflation, and government regulations made further economic progress unlikely.

However, partial price liberalization, the end of subsidies from Moscow, and poor control over fiscal and monetary aggregates contributed to the high rates of inflation and significant drops in living standards. Despite these conditions, official statistics for 1998 indicated improvements in Turkmenistan's economy. In September 1998 Turkmenistan began exporting gas to Iran via its first pipeline not crossing Russian territory.

This case is particularly interesting, and it will suit us to leave Wikipedia's space momentarily to illuminate some motivations. Note this

A senior US envoy underlined the importance of multiple energy pipelines during a meeting Monday with President Niyazov.

Both sides expressed confidence that mutual cooperation in the energy sphere would go a long way in promoting universal security. The sides also agreed that such cooperation should be based purely on economic considerations. The underlying consensus was that cooperation based on wholesome competition would serve to expand mutually advantageous and equal partnership.

Notice that a brutal dictator that has free reign in his country to do whatever he pleases is sought after as a business partner with the ultimate aim of promoting security.

Uzbekistan

The government:

Also passed in the 2002 referendum was a plan to create a bicameral parliament. Several political parties have been formed with government approval but have yet to show interest in advocating alternatives to government policy. Similarly, although multiple media outlets (radio, TV, newspapers) have been established, these either remain under government control, or rarely broach political topics. Independent political parties have been denied registration under restrictive registration procedures.

Despite extensive constitutional protections, the Karimov government has actively suppressed the activities rights of political movements, continues to ban unsanctioned public meetings and demonstrations, and continues to suppress opposition figures. The repression reduces constructive opposition even when institutional changes have been made. In the mid-1990s, legislation established significant rights for independent trade unions, separate from the government, and enhanced individual rights; but enforcement is uneven, and the role of the state security services remains central.

You can imagine what the practical effect of such unitary power has on the human rights of the Uzbek people.

The economy:

Minerals and mining also are important to Uzbekistan's economy. Gold is Uzbekistan's second most important foreign exchange earner at 22%. Uzbekistan is the world's seventh-largest producer, at about 80 tons p.a., and holds the fourth-largest reserves. Uzbekistan has an abundance of natural gas, used both for domestic consumption and export; oil almost sufficient for domestic needs; and significant reserves of copper, lead, zinc, tungsten, and uranium. Inefficiency in energy use is extremely high, given the failure to use realistic price signals to cause users to conserve energy.

Not an oil or natural gas producer, Uzbekistan does have important strategic assets for the United States. Aside from natural resources, its location makes it ideal for U.S. military operations in Afghanistan, and a further check on China.

Uzbekistan was an active supporter of U.S. efforts against worldwide terrorism and joined the coalitions that have dealt with both Afghanistan and Iraq. The relationship between Uzbekistan and the United States began to deteriorate after the so-called "color revolutions" in Georgia and Ukraine (and to a lesser extent Kyrgystan). When the U.S. joined in a call for an independent international investigation of the bloody events at Andijon, the relationship took an additional nosedive and President Islam Karimov moved more closely into the orbit of Russia and China, countries which refused to criticize Uzbekistan's leaders for their behavior.

In late July, 2005, the government of Uzbekistan ordered the United States to vacate an air base in Karshi-Kanabad (near the Uzbek border with Afghanistan) within 180 days. Karimov had offered use of the base to the U.S. shortly after 9/11. (Neutrality in this section disputed.)

It may also have been important to control the area for purposes of controlling pipelines to China, although that conjecture and is not based on anything but my own speculation given its location between China and the Middle East.

Tags: oil, Middle East, Corporations, U.S. Foreign Policy, Bush Administration, Turkmenistan, Uzbekistan

It's the Oil, Stupid: U.S. policy for Qatar, UAE, Yemen, & Oman

Qatar

The government:

In Qatar, the ruling Al Thani family continued to hold power following the declaration of independence in 1971. The head of state is the Emir, and the right to rule Qatar is passed on within the Al Thani family. Politically, Qatar is evolving from a traditional society into a modern welfare state. Government departments have been established to meet the requirements of social and economic progress. The Basic Law of Qatar 1970 institutionalized local customs rooted in Qatar's conservative Wahhabi heritage, granting the Emir preeminent power. The Emir's role is influenced by continuing traditions of consultation, rule by consensus, and the citizen's right to appeal personally to the Emir. The Emir, while directly accountable to no one, cannot violate the Shari’a (Islamic law) and, in practice, must consider the opinions of leading notables and the religious establishment. Their position was institutionalized in the Advisory Council, an appointed body that assists the Emir in formulating policy. There is no electoral system. Political parties are banned.

The economy:

In 1973, oil production and revenues increased dramatically, moving Qatar out of the ranks of the world's poorest countries and providing it with one of the highest per capita incomes. Despite a marked decline in levels of oil production and prices since 1982, Qatar remains a wealthy country.

Oil production will not long remain at peak levels of 500,000 barrels (80,000 m³) per day, as oil fields are projected to be mostly depleted by 2023. Fortunately, large natural gas reserves have been located off Qatar's northeast coast. Qatar's proved reserves of gas are the third-largest in the world, exceeding 7000 km³. The economy was boosted in 1991 by completion of the $1.5-billion Phase I of North Field gas development. In 1996, the Qatargas project began exporting liquefied natural gas (LNG) to Japan. Further phases of North Field gas development costing billions of dollars are in various stages of planning and development.

Qatar's heavy industrial projects, all based in Umm Said, include a refinery with a 50,000 barrels (8,000 m³) per day capacity, a fertilizer plant for urea and ammonia, a steel plant, and a petrochemical plant. All these industries use gas for fuel. Most are joint ventures between European and Japanese firms and the state-owned Qatar General Petroleum Corporation (QGPC). The U.S.Qatar's oil and gas industry, and U.S. is the major equipment supplier for companies are playing a major role in North Field gas development.

Possibly the best example of all nations in the Middle East--no political parties, no dissent, plenty of oil, and no questions asked.

United Arab Emirates

The UAE is a collection of several emirates which is ruler or commander. These were created in the 20th century by the western powers. The government is similar to Syria's:

The relative political and financial influence of each emirate is reflected in the allocation of positions in the federal government. The ruler of Abu Dhabi, whose emirate is the UAE's major oil producer, is president of the UAE. The ruler of Dubai, which is the UAE's commercial center and a significant oil producer, is vice president and prime minister.

Since achieving independence in 1971, the UAE has worked to strengthen its federal institutions. Nonetheless, each emirate still retains substantial autonomy, and progress toward greater federal integration has slowed in recent years. A basic concept in the UAE Government's development as a federal system is that a significant percentage of each emirate's revenues should be devoted to the UAE central budget.

Though the United Arab Emirates have a kind of parliament, there are no elections and parties in the United Arab Emirates. The Federal National Council (Majlis Watani Ittihad) has 40 members, representing the Emirates, appointed by the rulers of the constituent states to serve two-year terms, with only advisory tasks. The United Arab Emirates does not allow political parties.

The economy is what you might imagine:

In 2003, the UAE produced about 2.3 million barrels (370,000 m³) of oil per day--of which Abu Dhabi produced approximately 85%--with Dubai, and Sharjah to a much lesser extent, producing the rest. Indeed, estimates say that Dubai has less than 10 years of oil left at current production levels and Sharjah has less. Sharjah however, does have some gas reserves remaining. Dubai's small remaining gas reserves are earmarked for use by Dubai, which is one of the largest aluminum smelters in the world, with a very low cost per ton of production, thanks in part to its energy needs being met by these gas reserves.

So again, not much of a democracy, but to compensate, there are plenty of oil reserves that are conveniently sold to the West.

Yemen

The government of Yemen has many characteristics similar to other western nations:

Politics of Yemen takes place in a framework of a presidential representative democratic republic, whereby the President of Yemen is both head of state and head of government. Although it is notionally a pluriform multi-party system, in reality it is completely dominated by one party, the General People's Congress, and has been since unification. Executive power is exercised by the government. Legislative power is vested in both the government and parliament. The Judiciary is theoretically independent but in reality it is prone to interference from the executive branch. Yemen is a republic with a bicameral legislature. Under the constitution, an elected president, an elected 301-seat House of Representatives, and an appointed 111-member Shura Council share power. The president is head of state, and the prime minister is head of government. The constitution provides that the president be elected by popular vote from at least two candidates endorsed by Parliament; the prime minister is appointed by the president. The presidential term of office is 7 years, and the parliamentary term of elected office is 6 years. Suffrage is universal over 18.

The economy features oil but less prominently than many of its Middle Eastern counterparts:

Following a minor discovery in 1982 in the south, an American company found an oil basin near Ma'rib in 1984. A total of 27,000 m³ (170,000 barrels) per day were produced there in 1995. A small oil refinery began operations near Ma'rib in 1986. A Soviet discovery in the southern governorate of Shabwah has proven only marginally successful even when taken over by a different group. A Western consortium began exporting oil from Masila in the Hadhramaut in 1993, and production there reached 67,000 m³ (420,000 barrels) per day in 1999. More than a dozen other companies have been unsuccessful in finding commercial quantities of oil. There are new finds in the Jannah (formerly known as the Joint Oil Exploration Area) and east Shabwah blocks. Yemen's oil exports in 1995 earned about $1 billion.

Marib oil contains associated natural gas. Proven reserves of 280 to 370 km³ (10-13 trillion cubic feet) could sustain a liquid natural gas (LNG) export project. A long-term prospect for the petroleum industry in Yemen is a proposed liquefied natural gas project (Yemen LNG), which plans to process and export Yemen's 480 km³ (17 trillion cubic feet) of proven associated and natural gas reserves. In September 1995, the Yemeni Government signed an agreement that designated Total of France to be the lead company for an LNG project, and, in January 1997, agreed to include Hunt Oil, Exxon, and Yukong of South Korea as partners in the project (YEPC). The project envisions a $3.5 billion investment over 25 years, producing approximately 3.1 million tons of LNG annually. A Bechtel-Technip joint venture also conducted a preliminary engineering study for LNG production/development.

Oman

The government:

Politics of Oman takes place in a framework of a absolute monarchy whereby the Sultan of Oman is not only head of state, but also the head of government. Chief of state and government is the hereditary sultan, Qabūs ibn Saˤīd as-Saˤīd, who appoints a cabinet to assist him. In the early 1990s, the sultan instituted an elected advisory council, the Majlis ash-Shura, though few Omanis were eligible to vote.

The economy:

Oil was first discovered in the interior near Fahud in the western desert in 1964. Petroleum Development (Oman) Ltd. (PDO) began production in August 1967. The Omani Government owns 60% of PDO, and foreign interests own 40% (Royal Dutch Shell owns 34%; the remaining 6% is owned by Compagnie Francaise des Petroles [Total] and Partex). In 1976, Oman's oil production rose to 366,000 barrels (58,000 m³) per day but declined gradually to about 285,000 barrels (45,000 m³) per day in late 1980 due to the depletion of recoverable reserves. From 1981 to 1986, Oman compensated for declining oil prices by increasing production levels to 600,000 b/d. With the collapse of oil prices in 1986, however, revenues dropped dramatically. Production was cut back temporarily in coordination with the Organization of Petroleum Exporting Countries (OPEC), and production levels again reached 600,000 b/d by mid-1987, which helped increase revenues. By mid-2000, production had climbed to more than 900,000 b/d where they remain. Oman is not a member of OPEC.

Natural gas reserves, which will increasingly provide the fuel for power generation and desalination, stand at 18 trillion ft³ (510 km³). An LNG processing plant located in Sur was opened in 2000, with production capacity of 6.6 million tons/YR, as well as unsubstantial gas liquids, including condensates.

Oman does not have the immense oil resources of some of its neighbors. Nevertheless, in recent years, it has found more oil than it has produced, and total proven reserves rose to more than 5 billion barrels (0.8 km³) by the mid-1990s. Oman's complex geology makes exploration and production an expensive challenge. Recent improvements in technology, however, have enhanced recovery.

Oman is another good example of a nation in the Middle East with a monarchial system controlling oil reserves.

Tags: oil, Middle East, Corporations, U.S. Foreign Policy, Bush Administration, Qatar, United Arab Emirates, Yemen, Oman