Fighting Terrorism the Silicon Valley Way

Fighting Battles of Life and Death

Remembering combat in Vietnam and a struggle with cancer.

PETER R. KANN

Robert Nylen was a very brave man, and his posthumously published memoir, "Guts," recounts the two great wars in which he was engaged -- the first while in his 20s as an infantry platoon leader in Vietnam; the second in his 60s as a cancer patient. The first battle left him with multiple scars and Purple Hearts. The second cost him his life late last year.

Sandwiched between these two powerfully told ordeals was an often humdrum career as an ad salesman and minor magazine publisher that not even Mr. Nylen's self-deprecating wit can transform into compelling reading. That said, the war stories alone make "Guts" well worth our time.

Mr. Nylen, by way of Officer Candidate School, winds up as a lieutenant in the First Air Cavalry Division leading a platoon into combat in I Corps, the zone of the Vietnam War's most ferocious combat, during 1968, the year of the war's most murderous casualties. To have served in Vietnam was an unpleasant experience for most men; to have served as an infantry platoon leader humping the jungle was the stuff of dark memories and nagging nightmares. Mr. Nylen lived with plenty of both, though his telling is often tinged with black humor.

He describes a mortar shell landing in the midst of his unit, blowing off the legs of two soldiers and killing them almost instantly. A soldier carrying a dismembered leg approaches Lt. Nylen. "Should I stick it in its own body bag, sir?" he asks. "The thing is, neither of these guys have legs. I don't rightly know who this one belongs to."

Guts
By Robert Nylen
(Random House, 251 pages, $25)

On another occasion a helicopter has just flown into Lt. Nylen's hilltop landing zone to drop off supplies. "A dumb-ass mortarman has decided to leave the shelter of his hole to dig into the thermos of cold ice cream," Mr. Nylen writes. "Zap, thwack. Our mortarman has been shot through the thorax. . . . [He] crawls, slides and burbles his way back to his hole. He is choking on his own blood."

Mr. Nylen is deft at describing the little absurdities of war, like sending a squad to dig up the putrefying remains of four North Vietnamese soldiers so they could be added to Gen. William Westmoreland's all-important body counts. Above all, Mr. Nylen conveys the terror of combat. At one point he gives a riveting account of a jungle ambush, including the effort to extricate wounded platoon members from a hot landing zone in triple canopy jungle with encircling North Vietnamese trying to shoot down the hovering medical-evacuation helicopter. Lt. Nylen, himself twice wounded in the ambush, is finally winched by a dangling cable onboard the chopper, where he asks the pilot if his two wounds will merit two Purple Hearts. "All wounds in one action, sir, that's just one heart," replies the pilot. "Don't make no never mind how many holes you got." (Lt. Nylen later gets another Purple Heart in another engagement.)

Few writers have captured Vietnam combat as well as Mr. Nylen does in "Guts." Most reporters, and there were many of us there, did not spend many days slogging through steaming jungles with rifle platoons; and most soldiers who did so lacked the ability or opportunity to write their memoirs. There are a few exceptions, like Tim O'Brien, Tracy Kidder and Michael Herr. Mr. Nylen writes roughly to their level in his Vietnam chapters.

At the end of 1968, Lt. Nylen returns home. He toys with antiwar protests, though not for long, feeling "mortified to find myself on the same side of the barricades as tie-dyed anarchists and Weathermen." Instead he gets an MBA. It launches him into a career in publishing that includes selling advertising for Look magazine, U.S. News & World Report and Texas Monthly. He later co-publishes the New England Monthly, starts up Beliefnet, the religiously themed Internet site, and ends up consulting for a variety of publishing ventures.

It is an admirable but unremarkable career, and Mr. Nylen has a hard time making it sound otherwise. Here and there he sprinkles in an amusing anecdote, such as the octogenarian editor of U.S. News droning on about world affairs to an audience of besotted ad salesmen or the tribulations of trying to raise venture capital from parsimonious Scottish bankers. But the strong writing that marks his combat chapters devolves into cliché when it comes to business. "As Chairman Mao said, the road to yes begins with a thousand nos," he writes of selling ads.

And Mr. Nylen often gropes for similarities between his earlier, military life and his current one. "Business and combat are linked by the grim prospect of failure," he writes in a typical passage. But he is searching for similarities that don't really exist. War, after all, is a violent event that leaves men maimed or killed and societies shattered. And business? Some corporate egos get bruised, some financiers frustrated; at worst some employees lose their jobs or investors their money. Having seen a good deal of both war and business, I fail to see Mr. Nylen's connections.

The last and most painful portion of "Guts" relates Mr. Nylen's five-year struggle with colorectal cancer -- operations, chemotherapy treatments, infections, bladder fistulas, bone breaks and more. Cancer battles are the subject of many books and indeed, courtesy of Farah Fawcett, of TV specials as well. What Mr. Nylen uniquely brings to his cancer narrative is a degree of philosophic insight and a dose of sometimes bright and sometimes dark humor.

He plays down cancer patients as "brave combatants, warriors who resisted disease as Marines resist enemy attack." Rather, he says, "we aren't the combatants in this kerfuffle any more than the green fields of south central Pennsylvania fought the Battle for Gettysburg. . . . Our bodies are the battlefields, not actors moving on them." Agree or disagree, the reader comes away in awe of the battlefield and the battler.

Mr. Nylen explores Greek stoicism though eventually rejects it because he discovers that stoics smiled not only on promiscuity but also on cannibalism. He muses on the overlapping qualities of toughness and courage. "Courage," he concludes, "is to toughness as reticence is to chastity." And last December he died, leaving us to marvel at his resilience, fortitude and, yes, guts.

Mr. Kann, a Pulitzer Prize-winning reporter, was until 2007 chairman of Dow Jones & Co., which publishes The Wall Street Journal.

Peter Schiff's advice on fighting inflationary depression

Peter Schiff's advice on fighting inflationary depression

Amid an “inflationary depression” in the U.S., Peter Schiff, president and chief global strategist of Euro Pacific Capital, sees opportunities in the maelstrom. Facing a massive redistribution of wealth, he advises investors to act quickly and “divest U.S. dollar assets into physical precious metals, other currencies and equities outside the United States.” In this exclusive interview with The Gold Report, the widely-quoted expert on money, economic theory and international investing discusses what led up to our current “phony economy” and how investors can actually profit from the crisis.

The Gold Report: Peter, you were one of few people to predict financial crisis that the U.S. and the world is now in the midst of. At a recent conference, you called the conditions that we’re facing “an inflationary depression.” Can you describe what you mean by that?

Peter Schiff: Well, basically, that is the condition that the government is creating here in the United States, and an inflationary depression is going to be a protracted period of economic decline accompanied by rapid increases in consumer prices. So, it’s going to be something like the stagflation of the 1970s, only much more stagnation, or outright contraction of the economy, with the cost of living increasing even more rapidly than it did then.

TGR: As we look at some of the things that Obama’s trying to put into place, is there anything the government could do now to avoid this?

PS: There’s nothing the government can do to avoid some serious short-term pain. The country is in a lot of trouble because of all of the monetary mismanagement of the past, the reckless government spending and the money creation that led to the phony economy.

We’ve spent a long time squandering wealth in this country. We’ve borrowed a lot of money and foolishly used it to consume. We’ve allowed our industrial base to disintegrate, and it’s going to be difficult to rebuild a viable economy. But we’re never going to rebuild one if the government stands in the way. What the government is doing now with their polices is trying to reflate the bubble; they’re trying to get Americans to borrow and spend even more money when we’re broke from the money that we shouldn’t have borrowed and spent in the first place. And the government is trying to get itself bigger. The government is trying to grow its size at a time when it needs to contract because we’re really too broke to afford a bloated government.

It was bad in the past—it was making us less competitive, but at least we could afford it; now we clearly can’t. So, we need less government. We need sound monetary policy. We need higher interest rates. We need to allow businesses to fail. We need to allow companies to go out of business or bankrupt. We need to allow foreclosures to take place. We need to allow people to lose certain jobs. We can’t try and interfere with that. And to the extent that we do, we’re going to create this depression; and if we keep printing money, we’re going to have massive inflation on top of it.

TGR: In your talks, you've said that printing money will cause massive inflation and the collapse of the U.S. dollar. Can you speak to that?

PS: People think you just create money and use it to spend. But when you create money you don’t create purchasing power. So, what happens is you have to pay more money; you create inflation. The way you get increased purchasing power is through increased production, and simply printing money doesn’t cause factories to appear. It doesn’t cause consumer goods to appear.

In order to have real increased consumption, we need to produce more, which means we need more savings and investment—and the government is discouraging that with its policy, not promoting it.

TGR: Will the government bailouts help increase production and ultimately purchasing power?

PS: No, no, the bailouts are destructive to the economy because the government is bailing out industries and companies that should be failing. They’re keeping nonproductive companies in business, which ultimately undermines the competitiveness and the productivity of our economy.

Bankruptcy is like when a body has an infection. It fights it off, and that’s what the free market is doing by trying to kill off noncompetitive companies. Bankruptcy is a positive force in an economy. Maybe it’s not positive for the entity going bankrupt, but it is positive for the economy as a whole because it’s purging from the body of the economy nonviable companies that are squandering our resources.

We need companies to fail so that more prosperous companies can succeed. By keeping certain businesses around, the government is preventing others from coming into existence that would have been more productive.

TGR: So, if the government would step back and let the free market systems work, how much sooner would they be able to make the turnaround, rather than having the government do it?

PS: We’re not going to turn around at all as a result of what the government is doing. We'd turn around a lot sooner if they would let free market systems work, but it wouldn’t be instantaneous. We’ve got to dismantle the phony economy before we can rebuild the viable economy. We’re going to have this transitionary pain. We have to get over all the damage that has already been done in response to the government and bad monetary fiscal policy. We had a bubble economy; we had an economy based on Americans spending money they didn’t have and buying products they couldn’t afford or that they didn’t make. We had an economy built on debt, consumer debt, and financial engineering, and our companies were generating profits from accounting rather than from production. And the whole thing was phony; the prosperity was phony. We need to address those problems, and get back on the road to economic viability.

TGR: Is this a U.S. phenomenon or is this worldwide?

PS: Well, it exists to lesser degrees in other countries, and certainly other countries are affected because they’re producing the goods that we’re consuming and they’re lending us the money to pay for it and, ultimately, we can’t pay them back. And so their economies are going to suffer as a result of all the wealth that has been squandered and all the resources that have been wasted on production for American consumers because we can’t afford to pay.

TGR: The government is printing money. What is going to be the impact of all that money coming into the economy?

PS: Well, it’s going to force up prices. Eventually real estate prices will start to rise, stock prices will start to rise; but Americans aren’t going to be richer because the cost of living is going to rise a lot faster. The price of food and the price of energy are going to rise much faster than the price of stocks or real estate.

TGR: Do you see a pending collapse in the U.S. dollar?

PS: I do see a collapse in the dollar. The dollar is already been losing value, but I think it’s going to lose a lot more.

TGR: What should investors be looking at as a safe haven for the money that they have now?

PS: Well, they should be looking at the traditional safe havens like gold and silver; they should also be looking at other commodities and at investments outside the United States. There are a lot of opportunities around the world. There are a lot of stocks that are extremely inexpensive, in my opinion, particularly in the Asian markets and the natural resource space.

There are a lot of stocks trading at valuations I have never seen; there’s a lot of pessimism built into the global markets right now, and there are fire sale prices. The world has overreacted to our problems and the way our problems have affected their economies. And in this market environment of de-leveraging and asset liquidation, prudent investors who do have cash can find tremendous bargains around the world. They can preserve their wealth and actually profit from what’s going on.

TGR: Can you share with us some sectors people might consider?

PS: In general, the productive sectors of the economy have companies that are manufacturing products and have good balance sheets, companies that operate within a resource sector that has tremendous reserves—whether it’s mining reserves or energy reserves—or companies that operate in various forms of agriculture. There are great opportunities there. Stocks are trading for very low, single-digit multiples off of depressed earnings. And you have a lot of companies offering dividend yields north of 10%, and these are real dividends paid from earnings. But, as an investor, you have to do your homework to find them. Bond rates are so low we can get incredible yields on equities, and this is a great opportunity, especially if those yields are going to be paid to us in currencies that I expect to strengthen significantly against the U.S. dollar.

TGR: What countries and currencies do you see emerging first from the recession?

PS: Well, ultimately, a lot of the currencies that are currently pegged to the U.S. dollar will be very strong, a lot of the Asian currencies. We already see a lot of the resource currencies starting to move back. We have seen rather substantial strength in the Australian and the New Zealand dollars in the past few weeks. I do think you’re going to see strength also in the Euro, as the Euro seems to be a good alternative to the dollar as far as a reserve-type currency. And the Europeans’ monetary policy is not nearly as bad as ours, so more of that type money will be attracted to the Euro and will probably benefit other Euro-zone type currencies—Scandinavian currencies, the Swiss Franc—those currencies will benefit, as well.

TGR: China and Russia and some other OPEC nations are calling for the IMF to come in with an international currency. I think they’re calling it special drawing rights.

PS: Yes, China was talking about trying to look for alternative reserve currencies to the dollar, and they’re floating a balloon of special drawing rights issued by the IMF. I don’t think that’s a good idea. Ultimately, China does indeed need to convince the world to look for another standard. China needs to find another reserve on its own and it can do that. The Chinese should start divesting U.S. dollars now. They can choose any currency they want as their reserve currency. When they do start divesting dollars it will impact the value of the dollar.

TGR: Will we see a return to a gold standard?

PS: Currencies need to have value and paper is not value. No fiat currency in history has ever survived. Everyone says this one is going fine but we’ve only been off the gold standard since 1971—it’s too soon to tell, but it’s sure not looking good.

TGR: Will you see a return to the gold standard in your lifetime?

PS: Yes, I will—it has to happen.

TGR: What investment advice do you have for our readers?

PS: Investors need to act quickly and take charge of their financial destiny. We’re facing the largest redistribution of wealth through inflation.

The hardest hit will be the savers and investors who will see their savings wiped out if they are kept in U.S. dollars. Dollars will be stolen from the savers to pay for these huge government-spending policies—for health care, education and the bailout.

I would divest U.S. dollar assets into physical precious metals, other currencies and equities outside the United States, and focus on companies that own real things that have a demand.

Peter Schiff is President & Chief Global Strategist of Euro Pacific Capital in Darien, CT. Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A widely-quoted expert on money, economic theory, and international investing, Peter has appeared in the Wall Street Journal, New York Times, L.A. Times, Barron’s, Business Week, Time and Fortune. His broadcast credits include regular guest appearances on CNBC, Fox Business, CNN, MSNBC, and Fox News Channel. He also served as an economic advisor to the 2008 Ron Paul presidential campaign. His best-selling book, "Crash Proof: How to Profit from the Coming Economic Collapse" was published by Wiley & Sons in February of 2007. His second book, "The Little Book of Bull Moves in Bear Markets: How to Keep your Portfolio Up When the Market is Down" was published by Wiley & Sons in October of 2008.

Fighting Geithnerism

Put not your faith in regulators.

JAMES FREEMAN

"If companies fail, you need to let them fail," former SEC Chairman Richard Breeden told the Senate Banking Committee Thursday. Mr. Breeden went on to trash almost every premise behind Treasury Secretary Timothy Geithner's year of bailouts. "We seem to have policy makers who either don't understand it or are afraid to use it," he said of Chapter 11 of the bankruptcy code.

Turning to Mr. Geithner's latest idea of an overall regulator of systemic risk, Mr. Breeden said: "It won't work to try to assign planning for every potential risk in the economy to a single agency unless we want a centrally planned economy like the old Soviet Union. . . . It is particularly hard for me to see a case that any single group of regulators did such a good job [in anticipating the current crisis] that they deserve becoming the Über Regulator of the country."

As the regulator who declined to rescue investment bank Drexel Burnham Lambert in 1990 and a leading architect of the response to the S&L crisis of the late 1980s, Mr. Breeden spoke from experience. As SEC chief in the early 1990s, he tried to make it crystal clear that no securities firm would be considered "too big to fail." That way, the firms' creditors would have to make their own careful judgments and then live with the results, even if it meant Chapter 11. In the event of a failure, judges, not Cabinet secretaries, would orchestrate a workout. "The rule of law is a very valuable thing," said Mr. Breeden, especially when compared to the ad hoc rescues of the past year. Mr. Breeden added that the Federal Reserve "should be a central bank, not the world's largest hedge fund."

Mr. Breeden proposed a simple reform in which courts would be given the resources to quickly process an AIG-sized bankruptcy. He recommended "a special 'systemic bankruptcy' court composed of federal District or Circuit Court judges with prior experience in large bankruptcy or receivership cases," much as the Foreign Intelligence Surveillance Court specializes in weighing warrant requests related to foreign spying in the U.S.

Mr. Breeden's presentation was so persuasive that even committee chairman Christopher Dodd lauded his approach for resolving failed institutions. The Geithner plan has met a formidable opponent.

Fighting the Global Inflation Monster

ERIC CHANEY

From today's Wall Street Journal Europe.

Is the "Great Recession" only, or even mostly, the result of unbridled financial follies by greedy bankers and irresponsible financial engineers? Don't be so sure. The recession came after years of exceptionally strong economic growth -- a familiar story. Besides, if the crisis originated exclusively from the financial markets, we should be terribly pessimistic about the ability of human beings to learn from their mistakes. There are numerous similarities between the current downturn and previous episodes.

The novelty this time is that the economic expansion and the associated asset price bubbles were global, as is the subsequent bust. For that reason at least, the recession is reaching unprecedented depths. Although globalization is often mentioned as the most important event of the post-Cold War period, and rightly so, we may have overlooked some of its most important macroeconomic consequences.

Consider the facts. From 2003 to 2007, the global economy expanded at a breathtaking pace, around 5% per year for real GDP versus the long-term trend of 3% to 3.5%. Growth was unevenly distributed across countries and sectors: Emerging and newly industrialized economies, led by China, took the lion's share of the expansion by importing capital and technology and exporting consumer goods.

On the demand side, raw materials and fixed investment, especially in infrastructure, machinery and equipment, were the most buoyant components. It is no coincidence that such structurally diverse economies as Germany and Australia both overheated during that period. Heat did not come from domestic demand, but from booming global demand for German capital goods and Australian raw materials. At the other end of the demand chain, U.S. households played the role of consumer of last resort by taking ever more debt.

While academics and central bankers were celebrating the "great moderation" of the 1990s, a mix of stable growth and low inflation, the global economy was dangerously deviating from a sustainable growth path and generating inflation signals. Commodity prices went through the roof and, with only a few exceptions, property prices rose dramatically in the world. Global inflation was accelerating because the global economy was overheating. Here is the snag: No institution is in charge of global inflation. Instead, the global monetary system is only partially regulated by local central banks, which by definition have local mandates.

Former U.S. Federal Reserve Chairman Alan Greenspan is often vilified for having let the global credit bubble inflate by keeping interest rates too low for too long. This may well be true, but the mandate of the Federal Reserve Board is to maintain price stability and full employment in the U.S. -- not to check global inflation, much less global credit. To its credit, the European Central Bank, concerned about the underpricing of credit risk in the financial markets, started to raise rates in 2005, even though euro-area GDP growth was still weak. Yet, from a global perspective, the most powerful central banks were late to react to the rise of global inflation, and for a very fundamental reason: The risk of domestically generated inflation was low, at least in the countries which have truly independent monetary policies, such as the U.S. and the euro area.

The lack of global inflation governance was made worse by the currency regime of the most important new global economic power, China. Because it is hard to run an independent monetary policy without full-fledged money and bond markets, China has to import monetary policy through a currency peg. Since the U.S. is China's main trading partner, the Chinese currency is pegged to the U.S. dollar and its trade surpluses mostly reinvested in U.S. Treasurys. Consequently, a loose monetary policy in the U.S. implied the same for China, causing the latter to overheat.

In addition, because U.S. Treasury bonds remain the safest and most liquid assets in the world, China's trade surpluses are largely reinvested in these securities. This makes the U.S. monetary policy less effective than it would otherwise be, because Chinese purchases of long-dated bonds keep long-term interest rates abnormally low and unresponsive to signals from the Fed.

The overheating of the global economy is the main cause for the financial follies that make the headlines today. As repeatedly observed in the past, it's up to central banks to withdraw the punch bowl before the party goes wild and financial risks are underpriced. When monetary authorities wait too long to prick the credit bubble, it becomes so big that deleveraging makes a painful recession unavoidable and the risk of deflation serious.

However, there is an important difference between our modern globalized economy and the economic framework that prevailed in the second part of the 20th century. Then, inflation was largely a matter of wages and prices reacting to changes in the unemployment rate. Nowadays, globalization, migration flows and information technology have weakened the link between local business cycles and local inflation. Instead of directly fueling wages and retail prices inflation, an overheating global economy inflates commodity prices, profits and asset prices.

G-20 finance ministers have agreed on a series of crucial guidelines to help the global economy out of a vicious downward spiral, such as "tackling problems in the financial system head-on," implementing "without delay" fiscal expansion plans, or using "the full range of policy instruments, including unconventional instruments." That is good news and, provided these words are followed by concrete action to rescue banking systems where necessary, the global economy is likely to stabilize toward the end of this year and start recovering in the next year.

G-20 leaders must not miss this crucial point: What should we change in the next cycle to avoid overheating and generating another global credit and asset price bubble? Strengthening regulation is crucial if we are to restore confidence and limit the potential damages of the next cycle, but it cannot be a substitute for global macroeconomic management.

So, what can be done? Unfortunately, there is not, and will not be, such a thing as a global central bank. In principle, a return to some form of gold standard would do the job. But the pitfalls of such a rigid system -- forbidding governments to use fiscal expansion as a countercyclical lever, for instance -- far exceed its theoretical benefits.

The next-best option would be to mandate monetary cooperation among the most important central banks. Central bankers already have a well-functioning forum, the Basel-based Bank of International Settlements, where they exchange precious information and coordinate the use of policy tools. Hence, they have little sympathy for the idea of enhanced cooperation.

Yet, even in Basel, cooperation stops at the border of core monetary policy -- i.e., interest-rate setting. Since central banks will remain focused on their own economies, a smart way to have central bankers take on board the global dimension of inflation is to task a supranational, independent body with issuing and publicizing early warnings of the risk of global overheating. The BIS seems to be well-equipped to perform this whistle-blower mandate. Of course, local policy makers could ignore these warnings. But their own constituencies would be entitled to sanction them when the downturn happens.

G-20 leaders must not overlook the macroeconomic roots of the first global recession. Focusing only on the financial dimension of the crisis may sow the seeds for the next bubble -- which, as long as human beings are inventive and ready to take risks to make profits, will be different from the previous one. If nothing is done to improve the economic management of our globalized economy, globalization will be more and more associated with the return of the types of boom-and-bust cycles seen in the 19th century -- and eventually will be rejected by the very people who are supposed to benefit from it.

Mr. Chaney is chief economist for the AXA Group.