The 'Justes' and the Good: More Real Heroes, Part I

The Daily Reckoning PRESENTS: There are those who live life only for themselves, and then there are those who live to inspire life in others. In part one of this follow-up to his piece Real Heroes, Bill Bonner cites two major examples of what it means to truly live life to the fullest. Read on…


“If everyone swept his own doorsteps, what a clean world it would be.”

There are so many obvious defects with the human character that even a hairdresser would be bored if we began reciting them.

But here we focus only on the two of them we find amusing today: He can’t seem to help himself from wanting to use his brain to improve the world, but when he puts himself to work on it, his brain ceases to function.

The defect begins to appear, acutely, when the typical Homo sapien reaches his teenage years. That is when his brain is sharp and active, but before it has been put in its place by experience. It still thinks it can solve any problem as though it were long division.

In a memoir from his youth, for example, a childhood friend of Adolph Hitler reported that the future Fuhrer would walk through the neighborhood and point out how he would improve things – change the color of one house…knock the columns off another…raise the roof on a third. But, rather than buy a house and try to realize his architectural ambitions, the young Hitler tried to change the face of the entire world.

And here, we bring in another defect – not of leaders, but of the common man. He is ready to go along with anything. In a few years, Germans were goose-stepping all over Europe, creating havoc and chaos…trying to impose Hitler’s clumsy new order.

“I remember it,” said a man we met yesterday. “I was there. And I wouldn’t be here today if it had not been for one of those people we call the ‘Justes.'”

Yes, dear reader, once again we write not about the many sordid bumblers in our midst, but about the few genuine heroes. Many of them were honored here in Paris yesterday, at a special ceremony of at the Pantheon.

When the Nazis revealed their plans for world improvement, the Jews discovered that there was no place for them in it. Many fled to France. Then, when the panzers rolled into Paris, they found that they had not gone far enough. The master race, with the active connivance of the French government, was soon rounding up the Jews and sending them back to Germany, either to work in labor camps…or to be exterminated.

Only a few people – the Justes – took it upon themselves to interfere.

“I was only three years old at the time,” explained our friend at lunch. “But my mother and father knew that they might be taken any day. We had friends who had a bar/hotel outside of Paris. They offered to take me. It was really very courageous of them, because they probably would have been sent to labor camps themselves – or even killed – if I was discovered. And the worst of it was that you had to hide…not just from the Germans, but also from your neighbors, because you never knew for sure who might denounce you to the Gestapo.

“So these people took me in and told everyone that I was their grandson…that I had been fathered by their son, who was a bit of a rake, and the mother had run off. If anyone asked me who my parents were, I was supposed to say I didn’t know.

“For a while, the Germans were camped in the yard of the hotel, with the officers in the rooms. They were actually very friendly. One of them gave me a bar of chocolate. But I was afraid to eat it because my mother had told me that the Germans might poison me. So I gave it to the dog and watched to see what happened. And the dog was fine…so I wished I had kept it for myself.

“Those were such funny times. But today, I’m going to the Pantheon. I’m a witness…a living witness…to how some people really do brave and courageous things, even when they have no real reason to. And you know, this is one thing from World War II…and maybe the only thing…we French can be really proud of.”

Yes, dear reader. There are people who do not try to improve the world, which is not only hopeless, but also vain and disastrous. Instead, real heroes do what they can to improve the world around them. Here, we honor a couple more of them.

In the United States, it costs about $1,650 to perform a cataract operation. You wouldn’t expect many such operations in a country such as India, where per capita income is probably less than $1000. But in India today, there are five hospitals that perform more than 180,000 eye operations each year. Each operation costs only about $110. Most of the patients pay nothing.

This is thanks to Dr. Govindappa Venkataswamy, who set up his first 12-bed Aravind eye hospital in his brother’s home in Madurai, in 1976. At the time, he was already 57 years old.

Dr. V set out to be an obstetrician. But he was crippled by rheumatoid arthritis at an early age. He spent two years recovering. Because he could no longer deliver babies, he turned to the study of ophthalmology, and designed special tools that suited his hands. He found that he could do eye operations simpler, faster and much cheaper than they had been done before.

The inspiration, he says, comes from McDonald’s. He first discovered the golden arches at the age of 55 and it changed his life.

“In America, there are powerful marketing devices to sell products like Coca-Cola and hamburgers,” he says. “All I want to sell is good eyesight, and there are millions of people who need it…If Coca-Cola can sell billions of sodas and McDonald’s can sell billions of burgers, why can’t Aravind sell millions of sight-restoring operations…? With sight, people could be freed from hunger, fear, and poverty.

“In the third world, a blind person is referred to as ‘a mouth without hands,'” says Dr. V. “He is detrimental to his family and to the whole village. But all he needs is a 10-minute operation. One week the bandages go on, the next week they go off. High bang for the buck. But people don’t realize that the surgery is available, or that they can afford it, because it’s free. We have to sell them first on the need.”

The hospital picks up the tab for those who can’t pay. Paying customers are charged 50 rupees (about $1) per consultation and have their choice of accommodations: “A-class” rooms ($3 per day), which are private; “B-class” rooms ($1.50 per day), in which a toilet is shared; or “C-class” rooms ($1 per day), essentially a mat on the floor. Paying customers choose between surgery with stitches ($110) and surgery without stitches ($120).

Since he began, his eye hospitals have restored the sight of more than one million people in India. Even with such tiny revenues per patient, Aravind makes a profit, with a gross margin of 40%. One operation is completed; another is begun right away. It is apparently a very efficient and productive enterprise.

Aravind now does more eye surgeries than any other provider in the world, though it accepts no government grants. The hospitals are totally self-supporting. Nor does Dr. V. try to hustle a profit from the enterprise for himself. He lives on a pension, taking no money out of Aravind.

Dr. V. is helping the poor in a big way. But he also helps them in a way very different from the typical world improver. He sees them as individuals.

“Consultants talk of ‘the poor,'” he says. “No one at Aravind does. ‘The poor’ is a vulgar term. Would you call Christ a poor man? To think of certain people as ‘the poor’ puts you in a superior position, blinds you to the ways in which you are poor – and in the West there are many such ways: emotionally and spiritually, for example. You have comforts in America, but you are afraid of each other.”

Dr. V set out only to do eye operations…quickly and cheaply. The world improvement came – as it always does – as a by-product of private action. In Tamil Nadu state, where his main hospital is located, the incidence of blindness is 20% below the rest of India.


Bill Bonner
The Daily Reckoning
February 15, 2007

Editor’s Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount – just click on the link below:

Empire of Debt

“Carry on living dangerously”, says the headline in The Economist.

It was talking about the global borrowing binge based on selling the Japanese yen – also known as the yen carry trade. Here we stake out a contrarian position:

Want to make some money in 2007, dear reader? Buy Japanese stocks. To explain, we start with our own money lenders at home:

Ben Bernanke sat down in front of a team of Congressmen and told them that everything was fine. Inflation, quoth he, would be ‘moderate.’ Growth would be ‘moderate.’ If there was anything not moderate, Bernanke didn’t see it.

All this moderation went to investors’ heads. As we watched the reports on CNN last night, every stock market in the world seemed to be going up. The Dow ended – up 87.

Maybe Bernanke will be right about the moderation; we don’t know. But if the world enjoys another year of comfort, it will do so at great expense…great risk…and great future discomfort. Because behind the moderate GDP growth numbers are some other numbers that are outrageous.

We could refer to central London property prices…to compensation in the financial sector…to the Shanghai stock market…or to the latest figures from the art world. We could focus on any number of other things…but today, we focus not on the symptoms, but the cause…or, at least one of them.

Speculators borrow yen, trade the currency for dollars, and then buy Treasuries or U.S. properties or U.S. stocks. The Bank of Japan lends money at only 0.25%. This it has been doing ever since the mid ’90s, when the BOJ sought to get the Japanese economy out of its funk by making money easier to get. A hedge fund, for example, can take advantage of this low interest rate by borrowing yen at, say, 1% and buying U.S. bonds at a 5% yield. Or, he can be more aggressive and go for 7% by buying New Zealand bonds.

What makes the transaction dangerous to the speculator is that the yen may rise. What makes it dangerous to everyone else is that there are so many people who owe so many yen. And what makes it so attractive to contrarian investors is that with so much money counting on the yen to go lower…it is almost sure to go up.

If the yen were to rise 6% the speculator’s profit would be wiped out. And since these transactions are almost always highly leveraged, his capital could be wiped out too. This is exactly what happened when the most famous hedge fund of all time blew up in the late ’90s. The yen went up.

The Russians had a financial crisis. Speculators looked at their holdings and decided to unwind some of the leverage. That meant selling their assets and repaying yen. Of course, to repay yen you have to have yen. So, you’ve got to go into the currency market and buy them – which pushes up the price of yen. In 1998, the yen rose about 25% against the dollar in the space of a few weeks and Long Term Capital Management went bust.

Nobody knows how much of this ‘carry trade’ there is…but today, there is almost certainly a lot more than there was ten years ago. Today, there are thousands more hedge funds and many more speculators – with billions more to work with – all betting that the yen will stay put.

And as we know, now even homeowners have become speculating geniuses, so we shouldn’t be too surprised to find that homeowners are financing their homes in yen. Yes, that’s right. According to the Financial Times, “households in Latvia and Romania have developed so much enthusiasm for borrowing in yen that the trend has provoked surprise – and unease – from central bankers half a world away in Tokyo.”

Altogether, some experts estimate the total ‘yen carry trade’ at a trillion dollars. And it is all short. That is, the success of all these trades depends on the yen NOT going up. Which is what makes it so dangerous to the entire world financial system…and so attractive to the investor willing to go long.

What surprises us is that America’s subprime lenders have not yet caught on to the financing opportunities of yen loans. If buyers were willing to go for Neg Am, I.O., limited doc ARMs why not Neg Am, I.O. limited doc, yen ARMs?

But therein lies the risk, and the opportunity. Yen, like dollars and derivatives, are subject to ‘adjustable rates.’ True, the rates have not been hiked in a very long time. And true too, the yen has cooperated by going down (naturally, people have to sell the yen they borrow in order to buy higher-yielding investments). This has only heightened the risk. The lower the yen goes, the higher it is likely to bounce when it finally hits bottom. The Economist’s Big Mac index, comparing the cost of buying a Big Mac around the world, finds the yen already 40% too cheap. So, there’s plenty of room for adjustment.

“Now, as in 1997,” Hans Redeker, who heads currency strategy at BNP Paribas, explains, “low-yielding currencies have been used as the global cash machine, pushing liquidity into asset markets. In 1997 the Asian crisis marked the end of this development. This year we suggest that emerging market assets and equity markets could set the turning point, sparking carry trade liquidation.”

You want to make a good investment, dear reader? Buy Japanese stocks. Either the stocks will rise…or the currency will. If the economy continues on its ‘moderate’ course, Japanese equities should do well. If moderation gives way to panic, the yen should go up.

More news:


Chuck Butler, reporting from the EverBank world currency trading desk in St. Louis:

“About 9 AM Central Time yesterday morning, a note flashed across my screen from a trader friend that was very closely following the Bernanke economic update. He said, ‘Bernanke says inflation risks diminish.’ I was shocked!”

For the rest of this story, and for more market insights, see today’s issue of: The Daily Pfennig


And more views:

From Addison, a little less snowbound in New Hampshire:

*** Hmmn…let’s see. Ways in which the Concord Coalition is not like the Grateful Dead. Let’s begin…

In 1987, during one episode of our misspent youth, we traveled in a VW bus from New Hampshire to Ventura California and hopped on the Grateful Dead bandwagon. We followed the band north to Berkeley then all points East…eventually getting off the tour after they played Foxboro Stadium south of Boston. In all, we caught 17 “shows” that summer, dude.

By sheer coincidence, David Walker and the Concord Coalition were on the 17th stop of their Fiscal Wake-Up Tour when we caught up with them in NH this week. We can assure you, the drugs on this tour are of a very different variety than those on tour with the Dead.

At one point we were racing down I-93 from Concord to Manchester to catch a meeting with the editorial board of the Manchester Union Leader. Patrick, the director of our documentary, was filming the minivan David et al had rented for their tour. Another minivan cut them off, causing them to swerve wildly.

“No!” We shouted. “Don’t kill them! They’re the only four people in the country who care about the Federal Debt!”

*** We don’t want to be critical of the Coalition’s laudable mission, but we feel compelled to point out what we think is one inconsistency in their message. And for pointing it out to the panel, we want to thank Daily Reckoning sufferer Chuck Welch, who showed up at the town hall meeting at St. Anselm’s College with a copy of Empire of Debt in his hand.

During the Q&A, Chuck asked if the demise of the dollar might have something to do with the fact that we’re facing a fiscal crisis to the tune of trillions, rather than millions or billions. After all, as Mr. Walker has pointed out, the federal government can simply print its way out of this problem, right? And don’t those 12 zeros after each trillion represent an implicit tax on every U.S. citizen?

To answer the question, Bel Sawhill, from the Brookings Institute, suggested that Ben Bernanke is a very capable chair of the Federal Reserve, and that Bernanke’s policy of “inflation targeting” at 2% will help keep prices stable and the economy growing. And by extension, keep the dollar from falling too far.

But Bel herself also highlights that one of the difficulties of financing the government these days is the dependency on foreign investors to buy up U.S. debt. The government sells its debt at auction. If the Treasury doesn’t get what it needs, they have to raise the interest rate to attract more bidders, more buyers.

So…if China, for example, got in a tussle with Taiwan and decided they didn’t feel like subsidizing Taiwan’s military big brother…and decided to stop buying U.S. debt at the current rates…wouldn’t that monkey with Bernanke’s inflation targets? Wouldn’t the Treasury be forced to raise interest rates to attract more buyers?

Wouldn’t that begin to take the question of interest rate policy out of the hands of the Federal Reserve? If we’re missing something and you think you have an answer, please don’t hesitate to straighten us out.

*** By the way, Chuck told us he’d penned a song earlier in the week called The Long Emergency, borrowing directly from James Howard Kunstler’s book of the same title. Chuck, if you’re reading this morning, we’d love to hear the song. Send an e-mail to Short Fuse ( so we can work out the details.

We’re going to make fiscal conservatism “hip” yet. Don’t you think?

*** How can you protect yourself against falling house prices? Our old friend Rick Ackerman makes a suggestion:

“Finally, there’s a way to literally bet against the house in the event of a real estate collapse. A California firm is offering cash on the barrel head for up to 15% of the value of your home in exchange for a 52.5% share of any capital appreciation when you sell it. We at Rick’s Picks have inferred that the intention of the company, San Francisco-based Real Estate Equity Exchange Inc., or “Rex,” as it is known, is not to insure homeowners against deflation, since Rex would never make such an offer if it thought real estate prices were about to fall.

“Consumers may not think so either, but with home prices across the [United States] already having declined 10 percent in the last year, it might look like a decent gamble, especially to that undeniably broad swath of Americans who are ‘asset rich but cash poor.’ From Rex’s point of view, it’s a straightforward way to earn 3.5% of the gains for every 1% it pays homeowners for the option.

“It’s not as crazy as it sounds, since the deal would allow consumers to tap the equity in their homes without incurring any debt or payment obligations. There would be no taxes on the cash received, and property owners would have up to 50 years to sell, according to Investment News, a weekly newspaper for financial advisers that reported this story in its February 12 edition.

“My prediction is that this product will prove to be so popular that Rex and its backers will close the door to new business within 18 months. Assuming the venture is moderately successful and Rex strikes a deal with, say, 50,000 homeowners living in dwellings with an average value of $500,000, the firm and its partners would be on the hook for $3.75 billion should real estate prices merely stagnate.”

*** Viagra must be one of the most successful products ever put out by the drug industry. Recently, the International Herald Tribune described how the drug had been taken up by the Spaniards. They seem to be consuming boatloads of the stuff. Why? The reporters attributed it to a change in the Spanish life style. It used to be, people lived a relaxed ‘Mediterranean’ lifestyle, with plenty of time for afternoon siestas and pitching woo. Now, the Iberians have joined the Manhattanites in rushing all day long…from home to day care…to the office…to meetings…to lunch…and then more meetings…and then to day care…and back home. Stress, the concluded, had forced Spaniards to turn to drugs.

Meanwhile, in Manchester, England, the drugstore chain, Boots, decided to offer Viagra over the counter – just before Valentine’s Day. Apparently, this caused a rush of interest followed by a collapse of disappointment, when hopeful men discovered they had to make an appointment with the shops’ pharmacist for one week ahead.

There are many drugs men need but don’t want. Heart medications…diabetes pills…and so forth. One of the curiosities about Viagra is that it is a drug men want but few say they need it.

*** On Tuesday night we went to see Maria’s new show at the Bridewell Theatre in London. It’s a play that is set in Paris after World War II and shows how the seamstresses in a Jewish tailor’s shop were affected by it. One woman’s husband had been deported; she waited for him to come back, but he never did. Another’s husband had been a collaborator. The tailor himself, spent years hiding in an attic, while his wife had fled the city. Others barely seemed to notice.

“We had the Germans during the war,” says one of the women. “Now we have the Americans. We were happy to see the Germans go. Now, we can’t wait for the Americans to go, too.”

The Daily Reckoning