Archive for the ‘Guest Contributor’ Category

Sunday, April 26, 2009

Stress Tests: Down the Rabbit Hole
Category: News and Politics
There were many things that were deeply disturbing about the Bush Administration, but perhaps nothing was more so than its willingness to make blatantly false statements in the face of obvious evidence to the contrary. When a government commits itself to upholding obviously false positions, all rational discourse and debate is short-circuited. Once that happens, there is no limit to the atrocities that the government can commit in the name of protecting the public interest.

Whereas it is possible for reasonable people to disagree as to whether it is acceptable to use military force against a country that poses a threat but has not actually attacked us (e.g. Iraq, Iran, North Korea), when Dick Cheney repeatedly asserted that Iraq was linked to 9/11, logic and reason were left without a foothold. How do you argue with someone who states that up is down and down is up? Ordinarily we put such people in mental institutions, but when these people are our leaders, the entire country becomes a nut house. And unfortunately it seems that the Obama Administration is picking up right where its predecessors left off.

Case in point is the current hubbub surrounding the Federal Reserve’s “stress tests” of our nation’s banks. The stated purpose of the stress tests is a reasonable one – i.e. to analyze how the banks will fare in the event of a further deterioration in the economy. However, as we learn more about the methodology of the stress tests, it becomes clear that the whole thing is nothing but an exercise in fantasy every bit as divorced from reality as the most outlandish statements of Bush & Co. A careful reading of a recent article by the Associated Press highlights the many ways in which the Administration is trying to sell a blatantly false bill of goods.

In the second paragraph, the article states that, “Federal Reserve officials held top-secret meetings with bank executives to give them preliminary findings of how each bank would fare if the recession got much worse.” However, in actuality the stress tests look at how the banks would hold up under two different economic scenarios. The first assumes an unemployment rate of 8.8% and a decline in housing prices of 14%. The more negative scenario posits unemployment of 10.3% and a 22% fall in real estate. Later in the article it is pointed out that the actual state of the economy is already close to the latter case. Therefore, the original assertion that the stress tests will reveal how banks will fare if the economy gets “much worse” is obviously false.

The article then goes on to report that the Fed announced that the banks under examination would be required to raise additional capital in order to supplement their reserves against continuing credit loses. However, the Fed cautioned that this should not be taken as a measure of the “current solvency or viability of the firm”. In other words, the government has lent, and will continue to lend, hundreds of billions of dollars to keep these banks afloat, yet the public should rest assured that the companies are solvent and viable. (At the same time, banks are being chastised for their unwillingness to lend. What is glossed over is the fact that simultaneously asking the banks to increase their reserves while also increasing their lending is impossible. The two are in direct contradiction to each other. This is a level of absurdity that would make Lewis Carroll proud.)

The article concludes by discussing the possibility that the stress tests might harm the weaker banks by highlighting their precarious financial positions and encouraging speculators to bet against their survival. However, it goes on to say that, “Friday’s announcement put some of those fears to rest, underscoring that the Fed will not say any bank lacks the reserves it needs to survive (italics added).” In other words, pay no attention to logic and facts – just listen to what we tell you. And, to me, this is the most frightening aspect of the whole situation.

Regardless of whether the government is able to prevent a total collapse of the financial industry, the results of such an all-out assault on the truth could have far-reaching consequences that extend way beyond our current financial problems. Proving himself to be a typical politician, rather than the straight-shooter that we all hoped he would be, President Obama is overseeing a deliberate effort to obscure the truth about the banking industry. One can almost imagine him borrowing the immortal words of Colonel Nathan Jessup…”You Can’t Handle The Truth!!”

April 24, 2009 – Friday

Usury
Category: News and Politics
“The rich ruleth over the poor, and the borrower is servant to the lender”
Proverbs 22:7

“If you have lions and zebras, and the lions are eating too many zebras, you can’t tell the lions to stop eating too many zebras. You have to build a fence, the lions won’t build one themselves.”
A ditty I read somewhere that I can’t find 😉

Usury:

1. The practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate.

2. An excessive or illegally high rate of interest charged on borrowed money.

3. Archaic. Interest charged or paid on a loan.

“What do Hammurabi, Plato, Charlemagne, Dante and Queens Mary and Elizabeth have in common? They all condemned, outlawed or regulated the charging of interest on loans. In fact, until the early 1900s interest rates in the United States were kept at or near 10%. And until 1979, loan laws provided some interest rate cap in every state.

Then everything changed. Governments and banks put profits before people. And now the lending industry is spiraling out of control.”

James M. Ackerman, Interest Rates and the Law: A History of Usury, 1981, Arizona St. L.J.61 (1981)

Here’s why:

1978 – The US Supreme Court decides that national banks may export the state interest rate law of their home state into any state where they do business. In response, South Dakota eliminates its interest rate caps. Several credit card issuing banks move to South Dakota and operate nationally with no interest rate cap.

We have gone from two types of lending in our society, legal lending, and illegal loan sharking.

Now we have many kinds, but in general I like to break them down to these three:

1. Bank lending, mortgages, car loans, business loans …
2. Credit Cards
3. Payday loans (AKA Legal Loan Sharking)

Back to history:

1980 – South Dakota’s economy was a mess. So was Citibank (Hmmmm), and they called on South Dakota. The bank had lost more than $1 billion on its audacious foray into the credit card business, and the future looked even worse. The trouble, simply put, was that the rate of inflation exceeded the amount of interest Citibank was allowed to charge its credit card customers under New York usury laws.

But the bankers saw opportunity and salvation in the plains of South Dakota. Within days of those first phone calls, a team of top executives arrived from New York with a proposal for Mr. Janklow: If South Dakota would quickly pass legislation that would enable Citibank to move its credit card operations to the state, they would bring hundreds of high-paying white collar jobs to the state.

The unlikely alliance would clear the way for Citibank to turn a money-losing credit card operation into a vastly profitable business. “All of their senior people used to say it,” Mr. Janklow said. “That South Dakota saved Citibank. I believe it did. That South Dakota saved Citibank.”

Link

What was once offered to only the best customers was being offered to everyone. The saying used to be, the loan must be paid, in 1980 it became, just keep paying on the loan. And since then, that’s what most of us do, every month, month in, and month out. Talk about a money maker.

I’m not sure if you realize this, or not, but the profit of lending money is so high, that we, Americans, have gone from being a country that investes in manufacturing to a country that invests in finances. If you think NAFTA killed manufacturing, it was already dead.

And with money, comes power, political power. Why haven’t loop holes in credit card lending been fixed? Lobbying! Money!

Today Obama met with credit card lenders, and laid down the line. Since the crash last year credit card companies have been jacking up rates. Why? They can. They can even jack it up on past due amounts. So, if you are charged one percent this month, next month they change what you owed last month.

Read that again, and tell me how that is legal. It is!

Here’s another one. Let’s say you have a $5,000 credit limit on your card. You’ve been trying to pay down your card, you’re unsure about you job, so you have your card down to $3,000. You get a letter in the mail telling you that your limit has just been dropped to $1,500, you owe $1,500 RIGTH NOW!

You don’t have it, you’ve been paying $300 a month, and think you can go a little higher, but not $1,500 RIGHT NOW.

From that day forward you will be charged a penalty on what you owe above your limit, and your interest rates will probably go up 36%. With penalties, more like 56%.

This is legal right now.

I am glad that Obama is getting involved. There is a bill that just passed the House, and the Senate has a bill ready as well.

What do you think? Should we be protected from usury? Has the finaincial industry destroyed manufacturing?

Peace,
J

April 23, 2009 – Thursday

Befehl ist Befehl UPDATE: Final – Taxi to the Dark Side
Category: News and Politics

From Wiki:

The Nuremberg Defense is a legal defense that essentially states that the defendant was “only following orders” (“Befehl ist Befehl”, literally “order is order”) and is therefore not responsible for his crimes. The defense was most famously employed during the Nuremberg Trials, after which it is named.

Before the end of World War II, the Allies suspected such a defense might be employed, and issued the London Charter of the International Military Tribunal (IMT), which specifically stated that this was not a valid defense against charges of war crimes.

Thus, under Nuremberg Principle IV, “defense of superior orders” is not a defense for war crimes, although it might influence a sentencing authority to lessen the penalty. Nuremberg Principle IV states:

“The fact that a person acted pursuant to order of his Government or of a superior does not relieve him from responsibility under international law, provided a moral choice was in fact possible to him.”

This defense is still used often, however, reasoning that an unlawful order presents a dilemma from which there is no legal escape. One who refuses an unlawful order will still probably be jailed for refusing orders, and one who accepts one will probably be jailed for committing unlawful acts, in a Catch-22 dilemma.

I have been watching all of the torture talk the last few days, it brings back all the talk over the Bush years. Cheney’s desire to “Go to the dark side”, Rumsfeld’s torture memo, a few bad apples, dripping water on people’s faces, Saddam and Al Qaeda enemies, but working together, …

In essence, this is what has come out thus far. After 911, people were scooped up in Afghanistan and else where, and they were interigated. Several died in custody.

Within weeks of 911 the CIA started using “enhanced techniques” that included, but was not limited to, waterboarding, electrodes on genitals, sleep deprivation for many days. A few months later, the “enhanced techniques” were run through lawyers in the Whitehouse, and the DOJ resulting in memos that were released days ago.

Essentially, these letters were used to justify what has been accepted through history, and through conventions which are signatories of. This was an attempt to legalize torture. It did not start at the bottom, the few bad apples, it started at the top.

Note, I wonder how badly Saddam wishes he had gotten a legal decision to approve gassing the Kurds. He might be in Miami today playing golf.

At least two Al Qaeda suspects were water boarded over a hundred times each in a month. I know what you are asking, if it works, why does it take hundreds of times, and after a few times, wouldn’t you think the suspect would say anything?

I don’t want to entertain what Cheney is trying to prove, and it seems most Republicans are also trying to prove, that the end justified the means. Or that the “enhanced techniques” provided evidence. The reason I don’t want to entertain it is that the end does not justify the means. Morals 101!

The most common example used is that one of KSM’s many supposed admitances (waterboarded 183 times in a single month, do you have brain cells left after being drowned 183 times in a month?) the planned attack in Los Angles. The problem with this is that the plot was broken up, if it ever really was a “GO” plot, a year before KSM was captured. But why be mindful of details, and why argue that torture is ever right.

Then perhaps the most outrageous part was what McClatchy reported:

“for most of 2002 and into 2003, Cheney and Rumsfeld, especially, were…demanding proof of the links between al Qaida and Iraq…(former Iraqi exile leader Ahmed) Chalabi” and these techniques were seen as the quickest way to make the connection.

So, how many people were tortured, some to death, to prove what was not true, that Al Qaeda, and Iraq, two enemies who were actually working together.

Oh, and these techniques were perfected by the likes of Chinese Communist forces during the Korean War, and Pol Pot the de facto leader of Cambodia in mid-1975. One of Pol’s waterobarding devices is on display in the genocide museum.

Note, we should never forget about the Spanish Inquisition… or that some how this makes Obama a fascist?

I suggest that you all get on the right side of this issue. I know that when I was in the military, and went through military education, and throughout my career we were always taught that in part, if you are ever captured you give your name, number and rank. That is it. Sure, you’ll get a hard time, but in the end, you will be enprisoned until the end of the war, and treated humainly. That is what we signed up to do, and that is what we were supposed to do.

How can we ever be that shinning city on the hill, if we torture people?

Peace
J

…

UPDATE 2:

The Junta Party

This analogy isn’t close to being complete. And it doesn’t match up at every point. But where it does connect, it’s so spot-on that I must share it with you.

In former Banana Republics, in their post-transition- to-democracy phases, you’ll often have a Junta Party. It’s an opposition party whose main goal isn’t to get elected so much as to maintain the legacy of the former junta regime, defend its record of service to the state and most of all keep its former leaders from being put on trial or shipped off to the Hague. Often the party will be headed up by the former Generals themselves. But if they’re dead or otherwise occupied in the slammer or abroad, maybe you’ll have their relatives or the one-time cronies and lickspittles of this or that el jefe of the old regime filling the leadership roles.

And today, as we watched the on-going parade of Cliff Mays on TV or Dan Burton praising waterboarding as essential to the American dream, Eric Kleefeld pointed out to me that that really is pretty much the role the GOP — at least for the moment — has taken in our present politics.

Yes, Republicans have tried to distance themselves from President Bush’s fiscal profligacy. But on the core value issues of militarism and human rights violations and keeping faith with the war criminals of the previous regime they really couldn’t be more unified or on message. If you were plopped down on earth today in front of a TV set in the United States, on the testimony of the party members themselves, you might easily get the idea that state-sanctioned torture was the main policy legacy of the outgoing administration. Sort of like Democrats looked back on late 90s budget surpluses with a proud defiance in the aftermath of the Clinton years.

I can’t be the only one who this resonates with. Who else has some examples?

–Josh Marshall

Wednesday, April 15, 2009

NASA Sucks!
Category: News and Politics

For those who haven’t been following the evolving NASA/Steven Colbert controversy, let me briefly recap. NASA recently decided it would try to increase public interest in the International Space Station by holding a contest to allow people to vote online and choose a name for a newly built section of the space station. Brilliant self-promoter that he is, comedy-show host Steven Colbert mobilized his large viewing audience to try to get the section named after him. At the end of the contest period, “Colbert” had the most votes by a huge margin. However, the contest rules stipulated that NASA reserved the right to name the section themselves, and last night they rejected the public’s wishes and instead named the section “Tranquility”.

I’m sorry, but I’ve got to call it like I see it. NASA is a bunch of pussies! What possible harm could be done by naming the section “Colbert”? Instead the end result of the whole fiasco will be to reinforce the stereotype of NASA as being filled with a bunch of self-important, humorless eggheads. And what could be better calculated to decrease public interest in the space agency than to run a contest soliciting public opinion and then reject the overwhelming public choice? Come on guys, its not rocket science…

April 7, 2009 – Tuesday

Sure, crazy people do crazy things.
Category: News and Politics

“And, of course, when you point out that certain individuals with all their talk about “revolution” and “armed insurrection” are inciting this kind of behavior in unstable people, you will get howls of protest about the 1st Amendment and what not. Sure, crazy people do crazy things. But that doesn’t make it responsible to encourage them, which is what a lot of really foolish people are doing right now for purely political reasons.”
John Cole

This from the reports of the Saturday Shooting of 3 Pittsburgh Police Officers:

A man opened fire on officers during a domestic disturbance call Saturday morning, killing three of them, a police official said. Friends said he feared the Obama administration was poised to ban guns.

Three officers were killed, said a police official at the scene who spoke on condition of anonymity because he was not authorized to speak to the media. Police spokeswoman Diane Richard would only say that at least five officers were wounded, but wouldn’t give any other details.

One friend, Edward Perkovic, said the gunman feared “the Obama gun ban that’s on the way” and “didn’t like our rights being infringed upon.” Another longtime friend, Aaron Vire, said he feared that President Obama was going to take away his rights, though he said he “wasn’t violently against Obama.”

Perkovic, a 22-year-old who said he was the gunman’s best friend, said he got a call at work from him in which he said, “Eddie, I am going to die today. … Tell your family I love them and I love you.”

Perkovic said: “I heard gunshots and he hung up. … He sounded like he was in pain, like he got shot.”

Vire, 23, said the gunman once had an Internet talk show but that it wasn’t successful. Vire said his friend had an AK-47 rifle and several powerful handguns, including a .357 Magnum.

He feared an Obama gun grab? Gee, I wonder where he could have heard that.

Indeed, a story replete with NRA-style fearmongering about the looming “grab” — which has been fueling a run on guns at local shops — ran just three days ago in the Pittsburgh Tribune.

Over the last few weeks, as most of the country has fomented over AIG Bonuses, the rewarding of failure, the fring right has taken a swift turn to oppose the make believe assult on their guns.

A person sent me a video of a Fox reporter dispelling what Hillary Clinton said about Mexico’s weapons coming from America. She said that 90% of traceable weapons come from the United States, but the Fox reporter notes that only a percentage of the guns are traceable, so those that aren’t must be from somewhere else, like China.

First of all, who cares how many come from the US. The fact is you can’t legally buy weapons in Mexico like you can in America, so we should stop the flow of illegal guns to Mexico. No matter if it is 90% or 10%, it’s still against the law.

We have moved to a state where no matter what the gun issue is, it can’t be true, and under all of it remember, Obama wants to take your guns.

Since Obama was elected guns sales have gone through the roof. How many more police killings will we see from this explosion of gun ownership? How many of the fring right will be incited to violence by the crazy ravings of loons like Glenn Beck, or Sean Hannity?

But as the populace movement of pitch fork welding Americans attempts to lynch those that were at the center of the economic crisis, the fring right is fomenting “President Obama’s eeeeevil plans for taking away Americans’ guns — no doubt just the first steps that will eventually lead to eradicating the Second Amendment, rounding up gun owners and placing them in FEMA camps, and installing a blue-helmeted United Nations dictatorship in America.”

Crazy you say, yep, but there are people that believe it. Heck, the guy that shot the police officers in Pittsburg once had an internet radio show. Hmmmm, maybe he was a myspacer too? I can think of a few that fit the profile.

As usual, it’s not the Obama administration that is talking about going after guns, it’s the fring right. Look at Obama’s agenda. See anything about guns? Nope!

I am retired military, and I can tell you, if you want to protect your country, don’t buy an assault weapon, don’t join a militia, join the United States Military.

A student paper in Buffalo manages to ask the pertinent question here:

“It’s all well and good to talk about the sanctity of constitutional rights, but when our constitutional right to possess AK-47s ends up arming a bloodthirsty criminal organization in a neighboring country thanks to the strength of the American business ethic, doesn’t that make us the bad guys?”

“Believe in something — even if it’s wrong. Believe in it!”
Glenn Beck

Tuesday, April 07, 2009

I Almost Regret Voting For Obama
Category: News and Politics

The “almost” is due to my firm belief that electing John McCain would have led to World War III. That being said, in terms of the economy, I don’t believe McCain could possibly have done worse than Obama is doing.

Those who read my blog regularly may have noticed that despite supporting Obama in the election, I quickly became critical of him when he took office. I felt somewhat bad about doing so – as if he deserved some kind of “grace period”. So, although I made a number of criticisms, I felt conflicted – like maybe I was being a little too hard on the guy. As of now though, I am convinced that Obama is either a) incompetent, or b) a bought-and-paid-for stooge of the banking industry.

The new Geithner Plan is an unmitigated disaster. I haven’t heard one reasonable defense of the glaring injustices at the heart of this plan. In essence, the plan boils down to an illegal subversion of Congress in order to improperly transfer wealth from the general public to large financial institutions. There are two aspects of the plan that ought to outrage every citizen of this country. The first is how the plan works, and the second is how the Administration is using the FDIC to circumvent Congress.

The essence of the plan is to encourage large financial institutions to make enormous bets which, if they turn out well will earn giant profits, and if they turn out badly will dump the losses on the American public. The plan selects a few large institutions and allows them to buy the so-called “toxic assets”, but it only requires them to put up around 5% of the purchase price (while the companies and the government share the profits 50/50). The government then guarantees that it will absorb 90% of any losses on these investments. (Keep in mind, this opportunity isn’t available to you or me – or even to medium-sized banks – its only for the very largest institutions.)

As an analogy, imagine that I was offered the opportunity to bet $100 on the Super Bowl, but I only had to put up $5 of my own money. If I win, I get $50 (the other $50 goes to the bookie), and if I lose I’m only out my original $5. With such ridiculous terms, I don’t need to be a football expert to make a profitable bet. In fact, I don’t even need to know who’s playing.

So, of course the Geithner Plan will generate a lot of enthusiasm among financial institutions. They are being offered the bonanza of a lifetime. But the truly disgusting aspect of the plan is the way it is implemented at the governmental level.

As everyone knows, the FDIC has one basic function. It insures depositors against bank failures. The Geithner Plan gives the FDIC a function that it was never intended to have. It uses the FDIC as the agency that will backstop the $1 trillion in toxic-asset purchases. The reason for doing so is that it enables the Administration to guarantee the asset purchases without the approval of Congress.

And hey, what about the recent talk of the FDIC itself becoming insolvent? How is a nearly insolvent agency supposed to backstop over a trillion dollars of highly questionable assets? Well, obviously it can’t, but we all know what will happen if push comes to shove. If the FDIC runs out of money, Congress will have no choice but to recapitalize it. The alternative would be financial Armageddon.

Truly, this kind of disregard for our system of checks-and-balances is every bit as blatant as the abuses of the Bush Administration. All I can say is, Mr. Obama, I am very disappointed in you.

April 4, 2009 – Saturday

I’m the President, and you’re not.
Category: News and Politics

This came out from the Politco about the meeting last week between the President and the Bank CEOs. I don’t usually do this, but I am going to quote the whole article. It is a reason to love our President.

Inside Obama’s bank CEOs meeting:

The bankers struggled to make themselves clear to the president of the United States.

Arrayed around a long mahogany table in the White House state dining room last week, the CEOs of the most powerful financial institutions in the world offered several explanations for paying high salaries to their employees — and, by extension, to themselves.

“These are complicated companies,” one CEO said. Offered another: “We’re competing for talent on an international market.”

But President Barack Obama wasn’t in a mood to hear them out. He stopped the conversation and offered a blunt reminder of the public’s reaction to such explanations. “Be careful how you make those statements, gentlemen. The public isn’t buying that.”

“My administration,” the president added, “is the only thing between you and the pitchforks.”

The fresh details of the meeting — some never before revealed — come from an account provided to POLITICO by one of the participants. A second source inside the meeting confirmed the details, and two other sources familiar with the meeting offered additional information.

The accounts demonstrate that despite the public comments on both sides that the meeting was cordial, the tone in the room was in fact one of mutual wariness. The titans of finance — men used to being the most powerful man in almost any room — sized up a new president who made clear in ways big and small that he expected them to change their ways.

There were signs from the outset that this was a business event, not a social gathering. At each place around the table sat a single glass of water. No ice. For those who finished their glass, no refills were offered. There was no group photograph taken of the CEOs with the president, which typically happens at ceremonial White House gatherings but not at serious strategy sessions.

“The only way they could have sent a more Spartan message is if they had served bread along with the water,” says a person who attended the meeting. “The signal from Obama’s body language and demeanor was, ‘I’m the president, and you’re not.’”

According to the accounts of sources inside the room, President Obama told the CEOs exactly what he expects from them, and pushed back forcefully when they attempted to defend Wall Street’s legendarily high-paying ways.

Peace
J

Sunday, March 22, 2009

The Intentional Destruction of the Dollar
Category: News and Politics
There’s a lot that doesn’t make sense about the economy these days. The situation is so mind-numbing that an increasing number of Americans seem to be opting to simply ignore it all in the hopes that it just goes away. Most people I know have stopped looking at their account statements, and “bailout fatigue” is nearly universal.

Part of the reason for our collective denial is that we don’t want to come to terms with our diminished circumstances. When the average American’s life-savings has been cut in half, its understandable that people would be reluctant to face the new realities. However, I would argue that there’s something deeper going on. Not only does a clear-eyed appraisal of the situation require people to come to terms with painful facts, but it is also threatening to their basic sanity. How are we to make sense of the idea that the way to solve a crisis caused by excessive debt is by taking on even more debt? Faced with such counterintuitive notions, the rational mind simply turns away.

The latest insanity announced by the government is a plan whereby the Fed will buy over $1 trillion of government bonds and mortgage backed securities. In other words, the government is going to print money and then loan it to itself.

Likewise, on the same day that the Congressional Budget Office released staggering projections of the largest deficits in history, President Obama repeated his claim that he will halve the deficit by the end of his first term. This is double-speak that even George W. Bush would be proud of. Its no wonder that people choose to tune out rather than try to make sense of such absurdity.

There is, however, an explanation for the government’s actions which is logical and straightforward but will never, ever be officially acknowledged.

It is increasingly clear that we have dug ourselves into a hole that we can never hope to dig ourselves out of. Individuals, corporations, and government have borrowed more money than they can ever hope to repay. In such a situation, there is really only one option left open to policy-makers – i.e. devalue the currency.

Currency devaluation (i.e. inflation) is a way of transferring wealth from creditors to debtors. When a nation finds itself so in debt that it can never realistically hope to repay, there is a strong temptation to simply crank up the printing presses and inflate the debt away. An extreme case of this was Germany after World War I. The Treaty of Versailles imposed financial obligations on Germany that it could never possibly meet, so they did the only thing they could do – they printed enormous amounts of money. By the end of 1923, one pre-war Mark was worth one trillion post-inflation Marks. If we did likewise, we could eliminate our entire national debt for about ten dollars.

The actions of the Treasury and Fed make it clear that the government is willing to print any amount of money it deems necessary. A year ago a trillion dollars was an unheard of amount. Today it seems that every week the government pledges another trillion to the latest bailout/stimulus plan. It is the most basic common sense that you can’t print money indiscriminately without destroying its value.

My guess is that all of this is crystal clear to the President and his economic advisers. The destruction of the dollar is already a fait accompli. Its just a question of when. We have poured so much gasoline into the flooded engine of our economy that when it finally does fire, the whole thing will go up in a massive inflationary conflagration. Viewed from this perspective, it is completely understandable why the government would continue to print trillions upon trillions of dollars. If the destruction of the currency is already a certainty, why not print as much of it as you can as long as there are people dumb enough to take it? As long as the Chinese are willing to take our worthless paper, why not let them have as much as they want? As John Maynard Keynes observed, “The creation of legal tender has been and is a Government’s ultimate reserve; and no State or Government is likely to decree its own bankruptcy or its own downfall so long as this instrument lies at hand unused.”

Those who hold US debt are in a catch-22. If they don’t continue to lend us even more money, the value of their holdings will evaporate. So, for the time-being they have kept the money flowing. But even now there are ominous signs relating to the long-term health of the dollar. The Chinese Premier recently cautioned the US government against policies which will further erode the value of the dollar. (The very fact that he’s saying so publicly is highly significant.) Meanwhile, the UN is discussing replacing the dollar as the world reserve currency with a basket of national currencies.

So far, the game of hot-potato continues, but the music will eventually stop, and when it does, anyone holding dollars will have to pay the piper.

March 19, 2009 – Thursday

Gambling with no money
Category: News and Politics
Insurance is a bit of a gamble. If I am an insurance company I am betting that what I insure against will never happen, and if it does, the risk will be spread out amongst other insurers.

So, if you insure homes in fire prone areas in California you had better not be the only insurer, and you had better have insured homes in other areas of the nation, as a nation wide fire or natural disaster is a risk you can accept.

AIG insured the financial markets, almost all of the markets, and they burned down.

If my name is Bernie Madoff, and you gave me all of your money, and I told you I was going to invest it, and pay you interest on your money based on the investments. However, I took the money and paid you interest on the money with the money the next person gave me, and spent the principle instead of investing it, I would be a criminal, and guilty of the largest Ponzi Scheme in history.

If my name is AIG, and I insured your financial transactions, and I told you I was putting money aside to pay for what I insured. However, I took the money you paid me for your insurance, and I gave it to my stock holders, and brilliant employees, not keeping any money to pay for the insured financial transactions, thinking they will never need to be paid, I would be too big to fail and bailed out.

In Bernie’s case, those that invested in him are out their money.

In AIG’s case, those that bought insurance for crappy investments (liar loans to name a huge number of them!!!) are having those insurance policies paid for as those crappy investments fall apart, starting with the Lehman Brothers’ investments. Going on to Goldman Sachs …

AIG entered the unregulated CDS market insuring anything that Wallstreet threw together. Put their AAA rating on those investments through insurance, and are now forced to pay out the losses in the markets.

Sure, the bonuses are wrong, and they should be clawed back, but what the hell was going on on Wallstreet? What was going on at AIG?

Most people would agree that when Lehman Brothers fell, September 15, 2008, the market crashed right along with them. I wonder how far the market would have crashed if AIG went bankrupt? When the true lose is known…

When Lehman Brothers went under the gambler was exposed. What was insured came due, and the gambler had no money. What happens to gamblers with no money? They usually get their legs broken…

I found this gem yesterday. I guess Glenn “Punch me in the face” Beck went on a tear filled gyration on air, ending in this:

“Believe in something — even if it’s wrong. Believe in it!”
Glenn Beck

Please, believe in something, but make sure it’s right, and stop believing the lies.

Peace,
J

Tuesday, March 17, 2009

Meet the New Boss, Same as the Old Boss
Category: News and Politics
Sad to say, but with each passing day President Obama looks less like an agent of change and more like the latest installment in a never-ending series of Washington powerbrokers. This is doubly disappointing, since if there is a silver lining to the current crisis, it is that we have a once-in-a-generation opportunity to fundamentally change the way things are done. So far, all indications are that the Obama Administration lacks the courage and integrity to deliver upon the hopes they raised during the course of the campaign.

Case in point is the omnibus spending bill that the President signed last week. Despite promising repeatedly to veto any budget with earmarks, Obama signed this spending bill containing over 8,000 earmarks. Granted, it would be much more difficult to cobble together a congressional majority without the sweeteners that these earmarks represent, but this is precisely the kind of situation that tests the mettle of a leader. Does he have the strength to hold the line, or will he cave in to the status quo when push comes to shove? Obama could have stood up to the corrupt leaders of his own party (Pelosi, Reid, Frank, etc.) and refused to sign the bill, but he didn’t.

Another example of failing to lead is this week’s populist pandering over AIG bonuses. Yes, it is infuriating for the American public to see executives being rewarded after the enormous amounts of public money that have been pumped into their companies. That being said, the bonuses in question are microscopic in comparison with the real story. In the context of the trillions of dollars the government has already used to prop up the financial system, $165 million is completely insignificant. By turning it into a public firestorm, our leaders are cynically exploiting the public’s inability to comprehend the magnitude of the amounts of money currently being thrown around. $165 million, $20 billion, $1.5 trillion, what’s the difference? They’re all staggeringly large numbers. That being said, there’s a very big difference between a hundred million and a hundred billion, and our leaders are counting on our inability to tell the difference.

Of the money that has been pumped into AIG, over $12 billion has gone to Goldman, Sachs, the company once led by former Treasury Secretary Hank Paulson. The President and the leaders in Congress have nothing to say about this, while they make an enormous stink about bonuses that represent less than 2% of that amount. This is a deliberate and cynical error of omission and emphasis. By making a spectacle out of a relatively insignificant issue, our leaders are hoping we’ll be distracted enough that we won’t notice the hundreds of billions that are being allocated according to a process that is both opaque and riddled with conflicts of interest. In other words, pay no attention to the man behind the curtain…

Thursday, February 05, 2009

Executive Compensation
Category: News and Politics

The more I hear about the specifics of the new bailout/stimulus package, the more I fear that we are squandering a once-in-a-lifetime opportunity to make badly needed changes in our fundamental economic arrangements and are instead indulging in an expensive exercise in populism and pork.

I suppose in any spending bill of this size, a fair amount of pork is unavoidable, but the blatant (and misleading) pandering on an issue like executive compensation is not only a distraction from more important issues, but it is also dangerous.

Prior to the collapse, the best and brightest in the banking industry could hope to earn millions (or even tens of millions) if they made it to the top of their field. Disregarding for the time-being the ethical/moral dimensions of the pursuit of mega-riches, let’s consider the practical consequences of capping executive compensation.

In a society that worships fame and fortune, the financial markets represent one of the only fields in which those not blessed with exceptional athletic abilities or good looks can hope to achieve success comparable to that of professional athletes or movie stars. For an ambitious college senior surveying the landscape of career options, there is an array of possible choices. Those who desire financial comfort but who also value stability and job-security might choose a career in law or accounting. Success in these fields is more attainable than in banking, but compensation is commensurately lower. A good accountant might make a couple hundred grand a year, never a hundred million.

Again, my point is not to judge whether it’s a good thing for the smartest members of our society to be motivated by the hopes of earning big bucks. The point is that the potentially outsized rewards ensure that the banking industry is able to attract people of the highest caliber.

If we now arbitrarily pass a law stating that bank executives’ compensation cannot exceed $500,000 per year, we will drastically affect the incentive structure facing the talent pool available to the industry. If a top-tier financial professional is faced with the option of running a bank with a salary of $500,000 or working for a hedge fund and earning $10 million, its not hard to see that banks will be unable to recruit and hold onto the most talented people. It is beyond foolish to expect that we can make such a change without causing a deterioration in the quality and performance of banking executives.

Furthermore, while the amounts of money earned by top banking executives seem excessive relative to what people earn in other fields, they are not out-of-line in terms of their impact on the bottom lines of their companies. Let’s imagine a bank that makes a profit of $5 billion and pays its CEO $100 million. If having the very best person in the position of CEO is responsible for a 10% increase in profitability (relative to a less talented CEO), the impact of the star-CEO is $500 million, so paying $100 million for his services is a good corporate decision. (Likewise, in an environment where we are seeing banks lose tens of billions, if a top-notch CEO is capable of paring losses even by a few percentage points, it is a good decision for the corporation to pay that CEO whatever it takes to prevent him from accepting some other highly lucrative form of employment.)

Yes, it is infuriating to see bankers taking expensive boondoggles to Monte Carlo or auto execs flying in corporate jets while their companies hemorrhage money, but this should not cause us to hastily make policies that will only further impair the ability of these corporations to recover. Simply capping salaries at $500,000 will only guarantee that we end up with less talented executives trying to deal with the most difficult banking environment of our lifetimes.

All of this is not to say that executive compensation is not in need of fundamental reform. But the simpleminded, populist fix of arbitrarily capping salaries is not the right solution.

The most glaring problem with compensation in the financial field (as well as others) is that tying bonuses to a company’s reported earnings in any given year creates dangerous incentives for executives. On one hand, it rewards reckless risk-taking, since if a gamble pays off the executive responsible can make a pile of money, while if it doesn’t, he can just walk away and get another job. Additionally, it creates incentives for executives, auditors, and ratings agencies to present fraudulent numbers in order to boost short-term rewards. Many of the problems that currently threaten the very survival of the country’s largest banks stem from these pay-related incentive issues. But to just deal with a complex and thorny issue with a simplistic and politically expedient fix like capping salaries at $500,000 is foolish and potentially harmful.

February 5, 2009 – Thursday

The Action Americans Need
Category: News and Politics

In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis — the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive.

I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We’ve seen the tragic consequences when our bridges crumble and our levees fail.

Every day, our economy gets sicker — and the time for a remedy that puts Americans back to work, jump-starts our economy and invests in lasting growth is now.
Barack Obama
The President of The United States
(Yea, he writes op-ed pieces too)
LINK 1

Barack Obama, yea that guy, wrote an op-ed piece in the Washington Post today, taking his message to the people. So, not only does our president apologize, he writes op-ed pieces to speak directly to us, the electorate.

He knows how critical this time is for our economy, and the future of our country. Two wars, infrastructure in the worst shape in decades, capital markets collapsed, job loses continue at record pace.

With all of this, the answer I keep hearing from the small loud obstructing party (GOP) is the same we have heard for the last 25 years. Tax cuts!

I actually had a Republican tell me (ok, he claimed to be a libertarian, whatever 😉 that one example of tax cuts that work was the Harding-Coolidge tax cuts of the 1920s. Never mind we found ourselves in the great depression within 5 years of passing the cuts. Look at the $1.3 Trillion dollar tax cuts of BushCo, and look where we are now. Look at the Reagan tax cuts, and the recessions we had both in his administration and in Bush I’s.

I watched Representative Barney Franks on Sunday remind us all that no tax break every fixed a bridge, never educated a student, never built a road, never paid a fire fighter, never brought new teachers to education.

Is the congress’ stimulus bill perfect? Hardly! But watch it when it comes out of the Senate. It will have a lot of things cut out, a lot more infrastructure spending, and will gain some support from Republicans. Those that don’t vote for it, well I hope they go home and tell their constituents that they fought hard to NOT bring jobs home, and did all they could to ensure that the rich get richer, and the public web that binds us together crumbles further.

I’m with Obama on this one. I did not like the whole tax mess with several of his appointments, but for the first time in 8 years, the president said “I screwed up”. Wow! There is change in the air, and if you can’t get behind it, get out of the way.

Peace,
J

Monday, February 02, 2009

Say It Ain’t So, Barack!
Category: News and Politics

I had a strange experience today. For the first time ever I found myself agreeing with Sean Hannity. It was not a pleasant experience – in fact, it made me feel kinda dirty. But, when he rails at President Obama for standing behind Tom Daschle (nominee for Secretary of Health and Human Services), unfortunately Hannity is right on the money.

Daschle failed to pay over $100,000 in taxes resulting from private limousine services he received. Daschle only remedied the situation once it became clear that Obama would be President and that Daschle might have a chance to serve in the Cabinet. Regardless of whether this was a legitimate mistake, it looks terrible and undermines the credibility of the new Administration.

Given the enormous expectations that swept Obama into office, it was inevitable that some necessary disillusionment would set in. That being said, I’m shocked that the President would expend valuable political capital defending an establishment Democratic Party mainstay like Tom Daschle. I was willing to overlook Tim Geithner’s little tax hiccup, but Daschle’s is more glaring and indefensible. At a time when the American people are being asked to make painful sacrifices in order to put our country back on track, seeing a fat-cat like Daschle skate through a confirmation process simply because his party controls Congress just screams business-as-usual.

As someone who has high hopes for our new President and genuinely wishes him well, it is tempting to give him the benefit of the doubt. But it would also be a betrayal of the principles that Barack Obama built his campaign upon to overlook the fact that lately he is starting to look more and more like a typical Democrat. Where is the new blood in this administration? Joe Biden, Hillary Clinton, Leon Panetta, Larry Summers, Robert Rubin, Tim Geithner? And now we’re being asked to overlook a serious tax violation by a man who personified the divisive partisan politics of the last 20 years. Please, Mr. President, don’t make me agree with Sean Hannity. I don’t want to feel dirty anymore.

February 2, 2009 – Monday

If Jesus Had a Trillion Dollars
Category: News and Politics

“I think we need to exercise some discipline here and I think it may be time for the President to get a hold of these Democrats in the Senate and House who have rather significant majorities and shake them a little bit and say look, let’s do this the right way.”

“if you started the day Jesus Christ was born and you spent a million dollars every day since then you still would not have spent a trillion dollars.” adding that, “it is more than we have spent on all the wars since 9/11.”

Senator Mitch McConnell Republican Senate Minority Leader

If Jesus had a Trillion Dollars, what would he spend it on? I think that is what Senator McConnell was asking, right?

As I write this, the current cost, Budget Authority for the Iraq War is over $629 Billion dollars, not including interest. Senator McConnell was making a comparison to the stimulus program, which currently sits at $820 Billion. It is well accepted that Iraq alone will cost in real dollars a minimum of $100 Billion a year for at least the next 2 years.

So, if Jesus had a Trillion Dollars, do you think he would spend it on infrastructure, schools, health care, green energy, and tax breaks, at $1 million dollars a day for 2000 years, or would he spend the money invading a nation killing tens of thousands, and maiming hundreds of thousands, all in less than 6 years?

Just wondering,
J

PS: Let’s not remind him that the Bush Tax Cuts which the Republicans rammed through cost over $1.3 Trillion, left us with the lowest job creation ever for a two term administration, and an over all 30% loss in wealth in the stock market, $700 Billion in bail out funds, $ Trillions $ in Fed money, and a real loss in earning of the middle and lower class…

January 26, 2009 – Monday

I WON
Category: News and Politics

At the end of last week, President Obama invited Democratic and Republican legislators to the White House to talk about the stimulus package. Hmmm, I don’t remember Bush doing to much inviting, or listening to the other side.

Let’s not put Obama on a pedestal, he did take a swipe at Republicans. In an exchange with Rep. Eric Cantor (R-Va.) about the proposal he had for the stimulus (don’t tell, more tax breaks?), the president shot back: “I won,” according to aides briefed on the meeting.

A side note on Rep. Cantor’s wife. She works for a privately held bank which just before Bush left office received $267 Million dollars in TARP money. You’ll love this, the bank is called, New York Private Bank and Trust, and bills itself as a “haven for wealthy individuals and families.”

Maybe that’s why Cantor is so big on tax cuts for the rich, they are his constituents and his wife’s employer.

Obama also took a swipe at the hard right in general:

“You can’t just listen to Rush Limbaugh and get things done,”

Ok, I think I just felt that “tingle up my leg” that Hardball’s Chris Mathews was talking about. Yea, maybe he deserves to be on a pedestal.

I watched all the Sunday news shows. What an interesting round up. Let me share my views, and the views of Jason Linkins from the Huffington Post:

FOX NEWS SUNDAY had John McCain. John doesn’t like the stimulus package. He doesn’t notice that a huge part of it is given in tax cuts exactly the way Obama said he would, as well as tax cuts for small business, which John McCain was for in his run for the president.

No matter, John went on to say that Waterboarding is torture, good for him, but he also said that we should be forward looking. So, if you get pulled over for a traffic violation, and smoky walks up to your window, let him know, “Hey, let’s look forward, and not back. After all, while I’m sitting here on the side of the road I’m not speeding anymore …

Brit Hume believes that we’ll one day realize that “enhanced interrogation techniques” really did help America in the seven years after 9/11. I would like to say that I believe Hume will one day realize that NOT USING these techniques really did help America in the seven years after the first attack on the World Trade Center, and, past that, Presidents should take their Daily Security Briefing seriously. I’d like to believe that, but this is Brit Hume we’re talking about.

FACE THE NATION had VP Joe Biden on for the half hour. Biden was relatively gaff free, but he is so knowledgeable about everything foreign policy. I feel safer now that Dick is gone.

MEET THE PRESS had I believe the best show of the weekend. I really like David Gregory. He had Larry Summers, and John Boehner (Boner) on the show, but not at the same time. That would have been a real show.

Remember, Boehner (Boner) said last week, after the Obama meeting:

“You know, I’m concerned about the size of the package. And I’m concerned about some of the spending that’s in there, [about] … how you can spend hundreds of millions on contraceptives,”

“How does that stimulate the economy?”

So a guy named Boehner (Boner) is concerned about the package size, and wonders how contraceptives stimulate? Lol!

Back to the show, Summers really lays out what the Obama administration is going to try to do. The reason why all the money won’t be spent in 18 months is because the way the economy is going we will need stimulus for years beyond 2010.

Boehner (Boner) wants more tax breaks, you know because they have worked so well over the last 8 years, and questions giving so much of the money to the states. I’m not sure about this, but by states, aren’t they talking about the 50 states we, you and I, live in?

Summers wants the Bush Tax Cuts to go away, sooner rather than later. Why? We can’t afford it, and it hasn’t done anything for the economy. Remember, thus far Bush’s tax cuts have cost the treasury over $1.3 trillion dollars.

Gregory, points out says that Americans aren’t spending or borrowing, they are saving their money, and doesn’t that make the government the spender of last resort? Boehner says no: “If you give the taxpayer back more of what they’ll earn, they’ll either save it, spend it, or invest it, all of which are good for the economy.” THIS ELIDES OVER THE QUESTION GREGORY ASKED IN THE FIRST PLACE. Americans will ONLY SAVE THAT MONEY. And that is a good idea! For the individual American! But it doesn’t defibrillate the economy. Also, it just proves that individual Americans are not going to eschew their own self-interest to save the economy, either.

I’ll break it down in short hand. Boehner (Boner) wants tax breaks, put money back in peoples hands, but not poor or middle class people, though they will spend it quickly. Summers spelled out tax breaks for the middle/lower classes, and for small businesses. Summers also spelled out spending programs on infrastructure, green energy, and other investments in America.

ABC This Week had Nancy Pelosi on. I am happy to hear her put bipartisanship in context. She doesn’t seem to care too much about what the Republicans want. She has allowed them to put forward ideas to be voted on, but beyond that, ummm, they need to get real. There is a reason the Republicans are not in power any more. Their ideas have not changed, though the current conditions have.

The round table was most interesting. George had Carly Fiorina, Paul Krugman, George Will, Cokie Roberts and Sam Donaldson. I love to hear Krugman straighten out Carly and Will on economics, neither seemed to understand that the banks in America are grossly over leveraged.

Yes, we have put tons of cash in the banks, but they are still over leveraged, and until that changes they will not lend money, they will instead beef up their leverage. Plus, if we want to tell the banks what to do, we need to nationalize them not buy stock that has not vote.

Which leads to my theory on the economy, I believe even more strongly now than ever, that we should have taken the first $350 billion dollars should have been put in individual’s bank accounts for one year before the money could be removed. That way the banks get the leverage, and the tax payer gets to keep the money in the end.

That’s my round up, in addition to the great week our nation had, I am very hopeful that things have changed for the good, finally!!!

Peace
J

January 16, 2009 – Friday – 7:21 PM
Peace with whom?
As I watched W give his farewell address to the nation last night I was struck how through some form of weird twist W seemed to still hold on to his overriding theory that elections and democracy can transform a region. That a region that sorely lacks the institutions of democracy through the simple task of a vote will some how find tolerance, and peace with itself and it’s neighbors.

It has been this simpleton view of the world that has wrought destruction through the Middle East these last 8 years. In Iraq where Sadr’s Mahdi Army and Sadr’s political party share the same course, and can some how find legitimacy through votes counted at the point of a gun. In Lebanon, Hezbollah a militia, fully backed by Iran, with the stated goal of the destruction of Israel and death to the Jews, now is the reigning political party in Lebanon. Gaza, the West Bank, and the plight of the Palestinian people. Fatah, once known as the Palestinian Liberation Organization (PLO), took the early mantle for the Palestinian people. Fatah became known more for their zealous rejection of Israeli’s right to exist, and their corruption than actually doing anything for the Palestinian people.

Eventually Fatah negotiated land for peace, softening their anti-Israeli stand and accepted the two state solution.

Then in 2006, W continued his spread of democracy to the Palestinian people. With no working institutions of government, was it a surprise that Hamas would win the majority of seats? Well, maybe to Condi Rice, but to the rest of the world, the cry was in unison, “Don’t hold elections, not now!”

After Hamas won they cleansed Gaza of any remaining Fatah politicians (cleansed as in murdered), and started a concerted effort with Hezbollah to destroy Israel, and the Jewish people.

So, I know that by now you all think I lost my mind. That J, he really is a NEOCON, he’s a nut, he thinks that it’s ok to kill babies, that he can’t see that peace is the only way. I believe in peace, but not with Hamas. Why?

In addition to watching W’s speech, I also read an excellent article by Jeffrey Goldberg. I found his opinion piece in the NY Times to pound home my thoughts on W’s simpleton view of democracy and the world effects.

Goldberg has spent a lot of time talking to Hamas officials, and his reporting speaks volumes. During a conversation with a Hamas leader the following came out:

I asked him the question I always ask of Hamas leaders: Could you agree to anything more than a tactical cease-fire with Israel? I felt slightly ridiculous asking: A man who believes that God every now and again transforms Jews into pigs and apes might not be the most obvious candidate for peace talks at Camp David. Mr. Rayyan answered the question as I thought he would, saying that a long-term cease-fire would be unnecessary, because it will not take long for the forces of Islam to eradicate Israel.

My stand is that you can not negotiate with people like Hamas. They firmly believe their religious rhetoric. They are stoked in it. Though Israeli officials believe they can bomb Hamas into moderation, they can not do that either. They can perhaps deter them for a time, but in the end, Hamas cannot be cajoled into moderation. Neither position credits Hamas with sincerity, or seriousness.

No, Hamas does not want free trade across it’s borders in Gaza. It does not want a better life for the Palestinian people to live. Hamas wants one thing, and one thing only, to cleanse the region of Israel and the Jews.

So, where does peace begin? Not in Gaza, but rather in the West Bank. To quote Goldberg:

The only small chance for peace today is the same chance that existed before the Gaza invasion: The moderate Arab states, Europe, the United States and, mainly, Israel, must help Hamas’s enemy, Fatah, prepare the West Bank for real freedom, and then hope that the people of Gaza, vast numbers of whom are unsympathetic to Hamas, see the West Bank as an alternative to the squalid vision of Hassan Nasrallah and Nizar Rayyan.

LINK 1

I pray for the Palestinian people, and I also pray for the people of Israel. For years there was a concept that there could be peace for land. Israel withdraws to the pre 1967 borders and the state of Palestine will be rewarded for the peace that would ensue. However, the entrance of Hamas into the equation has made the opposite true. By withdrawing from Gaza Israel has become less safe, as Hamas from the time it won the 2006 elections has been dead set to destroy Israel, and with the new longer range rockets finding their way into Gaza, how long will it be before Hamas rains down rockets on Tel Aviv?

It appears that we are close to a peace treaty in Gaza, but what kind of peace will it be? Will it be a peace marked by the further martyrdom of the Gazan people? Will the US step up together with Egypt to help halt the flow of rockets into Gaza? Finally, will the Palestinian people finally find the representation they so urgently need?

I believe that a focus on a full withdrawal in the West Bank, open borders, and real freedom for the Palestinian people will entice the people of Gaza to fully reject the extremists and with enough monitors, and support by the US, Europe, and moderate Arabian nations, a real lasting peace can result.

Peace
J

Wednesday, January 14, 2009 – 2:07 PM
“Pushing on a String”
Most people had probably never heard this phrase a year ago. It refers to the monetary phenomenon whereby the financial authorities find themselves powerless to stimulate the economy via the normal expedient of cutting interest rates. Ordinarily, interest-rate policy is a viable tool for speeding up or slowing down the business cycle. If the economy is sluggish, interest rates are lowered, and economic activity picks up. If the economy is too active and inflation looms, interest rates are increased, and the economy slows down.

There are times though where the efficacy of interest-rate policy falters (or disappears entirely). If sentiment is extremely negative, it doesn’t matter that businesses and individuals can borrow money at low interest rates; they will still refrain from spending and investing. This is precisely the situation that our economy is in right now. Regardless of how much money the Fed pumps out, the economy stubbornly refuses to respond.

Interestingly, despite Dick Cheney’s recent assertion that “nobody saw this coming”, Fed Chairman Ben Bernanke gave a now-famous speech in 2002 anticipating precisely this set of circumstances and outlining how the Fed could respond to it. The speech earned him the nickname “Helicopter Ben”, after the most extreme monetary measure he described, which was to literally drop money out of helicopters.

What Bernanke didn’t foresee was that sentiment could get so negative that people won’t spend even if money is dropped from helicopters (which is more or less what the Fed has been doing for the last several months). And – a point which virtually every mainstream economist, government official, and media commentator has failed to note – this is not a failure of monetary policy; it is a failure of money itself.

Banks, corporations and individuals are behaving in a perfectly rational manner when they choose not to spend or invest. After all, if you expect continued economic stagnation, why would you invest? And if you expect prices to fall, why would you spend?

Thus we are faced with a tragic paradox – i.e. just at the time when we most need the people who have money to spend it, they face the strongest disincentive to do so. And the reason why this is so is because money as we currently know it is improperly designed and fundamentally flawed.

If you ask an economist for a definition of money, it will typically be described in one of two ways – i.e. either as a medium of exchange or a store of value. In other words, money is expected to facilitate the exchange of real goods while at the same time serving as a tool for storing and preserving wealth.

Although it may not be apparent at first glance, these two functions are not fully compatible. As the German economist Silvio Gesell observed, it is impossible for money to serve as an effective medium of exchange if it is also designed to serve as a store of value. Money that is designed to serve as a store of value will systematically fail to serve its more important function as a medium of exchange.

To see why this is so, let’s consider an everyday phenomenon with which every human being is familiar – i.e. the fact that things decay. Virtually every type of physical matter deteriorates over time – some more quickly than others. For this reason, every producer of real goods and services is under a natural compulsion to sell their wares. Of course they will try to get the best price they can, but when push comes to shove, they have to sell. Just imagine a dairy farmer who refuses to sell his milk because he thinks the price offered is too low. In a couple weeks his product will be worthless. The compulsion to sell is so strong that he will ultimately have to sell his milk even if he takes a loss by doing so (since the loss would be even larger if he held onto his milk).

Money, on the other hand, is under no such compulsion. Holders of money suffer no penalty if they delay their purchases. As Gesell colorfully describes it, “Demand enters the market proudly confident of an easy victory; supply appears dejected like a beggar… On the one hand compulsion, on the other hand freedom; and the two together, compulsion and freedom, determine price.”

In other words, money enjoys an unfair advantage over real goods and services in the marketplace. And it is precisely because money is intentionally designed to serve as a store of value that this advantage exists. If money was intended to serve solely as a medium of exchange, it would be designed in such a way as to subject it to the same compulsion to circulate that applies to all other goods and services. It is the absence of this compulsion that causes money to systematically withdraw during times of uncertainty, thereby exacerbating financial crises. If money was subject to a “penalty to hoarding” just like all other goods and services, supply and demand would meet on a level playing field, and holders of money would not face an incentive to hoard their wealth just at the time when society needs them to do the opposite.

In order to achieve this result, Gesell suggested designing money so that it deliberately loses value according to a predetermined schedule of depreciation. This would create an incentive for holders of money to “use it or lose it” in both good times and bad. (In his time, Gesell proposed accomplishing this by requiring people to purchase stamps which would need to be affixed to paper currency periodically in order to maintain its full value. Given modern computer technology, a far more efficient and less cumbersome method could be designed.)

Obviously all of this would require a fundamental adjustment in the way we think about money. Up until now, money has been viewed as a form of wealth and has been regulated by the private banks that make up the Federal Reserve system. As Richard C. Cook observes in his book “We Hold These Truths: The Hope of Monetary Reform”, money is a creation of the state and ought to be viewed as a public utility, not as the domain of private interests. Just as we have seen how allowing private corporations to control the distribution of electricity can lead to harmful abuses, the same holds true for money.

And, to bring the discussion back to where we started, we should also note that money designed in such a way would eliminate the problem of “pushing on a string”. With money as it currently exists, there is virtually no way for the financial authorities to compel its circulation, as we now see with the Fed Funds rate near zero and the markets still failing to respond. If money were designed along Gesell’s lines, monetary policy would be far more effective in terms of its ability to compel money to circulate. In a crisis like the one we’re currently in, the government could simply increase the rate of depreciation of money. In that way, unlike our current system in which holders of money are behaving perfectly rationally by hoarding money, they would no longer have an incentive to do so. The ability of the government to adjust the rate of depreciation would allow the “penalty to hoarding” to be set at whatever level was required to compel money to start circulating again. The government would then be pushing on a ramrod rather than a string.

Jan 6, 2009 9:56 PM
Change I Can Believe In
We used to be a country of laws, not of men. We used to dismiss those that claimed, if the president does it, it’s not illegal. Over the last 8 years all of that changed. Reversing that became the change we all looked for.

Underneath the wars in Iraq and Afghanistan, the handling of combatants taken off the battle field, the interrogation, rounding up, and holding of American citizens without due process, underneath all of this were decisions made by the Office of Legal Counsel (OLC). This is an office in the Department of Justice that by definition is supposed to tell the president what he can and can not do legally.

Over the last 8 years, BushCo found a friend in the OLC in John Yoo. He wrote the torture memo, which declared that the President’s power to torture detainees is virtually limitless. Backed by Cheney’s long time attorney and advisor, David Addington, as well as Gonzo, were all part of the team of lawlessness.

Well, yesterday President Elect Obama named a few people to his new administration that in and of itself show change I can believe in. He named Dawn Johnsen to head the OLC. Johnsen is a Professor of Law at Indiana University, a former OLC official in the Clinton administration (as well as a former ACLU counsel), and a graduate of Yale Law School. She’s become a true expert on executive power and, specifically, the role and obligation of the OLC in restricting presidential decisions to their lawful scope.

She was a vocal critic of BushCo, and the OLC in particular. Here are a few quotes from articles she published over the last few years:

I want to second Dahlia’s frustration with those who don’t see the newly released Office of Legal Counsel (OLC) torture memo as a big deal. Where is the outrage, the public outcry?! The shockingly flawed content of this memo, the deficient processes that led to its issuance, the horrific acts it encouraged, the fact that it was kept secret for years and that the Bush administration continues to withhold other memos like it–all demand our outrage.

Yes, we’ve seen much of it before. And yes, we are counting down the remaining months. But we must regain our ability to feel outrage whenever our government acts lawlessly and devises bogus constitutional arguments for outlandishly expansive presidential power. Otherwise, our own deep cynicism, about the possibility for a President and presidential lawyers to respect legal constraints, itself will threaten the rule of law–and not just for the remaining nine months of this administration, but for years and administrations to come.

OLC, the office entrusted with making sure the President obeys the law instead here told the President that in fighting the war on terror, he is not bound by the laws Congress has enacted. That Congress lacks the authority to regulate the interrogation and treatment of enemy combatants. . . .

John Yoo, the memo’s author, has the gall to continue to defend the legal reasoning in this memo, in the face even of Bush administration OLC head Jack Goldsmith’s harsh criticism–and withdrawal–of the memo. Not only that, Yoo attempts to spin the memo’s advice on presidential power as “near boilerplate” . . .

I know (many of us know) Yoo’s statement to be false. And not merely false, but irresponsibly and dangerously false in a way that impugns OLC’s integrity over time and threatens to undermine public faith in the possibility that any administration can be expected to adhere to the rule of law.

Far from “near boilerplate,” recall that the last President who took the view that “when the President does it that means that it is not illegal” was forced to resign in disgrace. . . .

Is it possible John Yoo alone merits our outrage, as some kind of rogue legal advisor? Of course not.

As Dahlia points out, Bush has not fired anyone responsible for devising the legal arguments that have allowed the Bush administration to act contrary to federal statutes with close to immunity–or for breaking the laws. In fact, the ones at Justice who didn’t last are the officials (like Goldsmith) who dared to say “no” to the President-which, by the way, is OLC’s core job description. . . .

The correct response to all this? Marty has several good suggestions to start. And outrage. Directed where it belongs: at President Bush, as well as his lawyers.

About the Bush administration’s violations of FISA she wrote:

I’m afraid we are growing immune to just how outrageous and destructive it is, in a democracy, for the President to violate federal statutes in secret. Remember that much of what we know about the Bush administration’s violations of statutes (and yes, I realize they claim not to be violating statutes) came first only because of leaks and news coverage. Incredibly, we still don’t know the full extent of our government’s illegal surveillance or illegal interrogations (and who knows what else)-despite Congress’s failed efforts to get to the bottom of it. Congress instead resorted to enacting new legislation on both issues largely in the dark.

About the serial lawbreaking she wrote:

I felt the sense of shame and responsibility for my government’s behavior especially acutely in the summer of 2004, with the leaking of the infamous and outrageous Bush administration Office of Legal Counsel Torture Memo. . . .

The same question, of what we are to do in the face of national dishonor, also occurred to me a few weeks ago, as I listened to President Bush describe his visit to a Rwandan memorial to the 1994 genocide there. . . .

But President Bush spoke there, too, of the power of the reminder the memorial provides and the need to protect against recurrences there, or elsewhere. That brought to mind that whenever any government or people act lawlessly, on whatever scale, questions of atonement and remedy and prevention must be confronted. And fundamental to any meaningful answer is transparency about the wrong committed. . . .

The question how we restore our nation’s honor takes on new urgency and promise as we approach the end of this administration. We must resist Bush administration efforts to hide evidence of its wrongdoing through demands for retroactive immunity, assertions of state privilege, and implausible claims that openness will empower terrorists. . . .

Here is a partial answer to my own question of how should we behave, directed especially to the next president and members of his or her administration but also to all of use who will be relieved by the change: We must avoid any temptation simply to move on. We must instead be honest with ourselves and the world as we condemn our nation’s past transgressions and reject Bush’s corruption of our American ideals. Our constitutional democracy cannot survive with a government shrouded in secrecy, nor can our nation’s honor be restored without full disclosure.

This appointment is different than most other appointments made by Obama. In the other appointment, like Secretary of State, or of Defense, those positions take the lead from the executive, or Obama is the change that they must follow. In the OLC though, once appointed, they read the law, and tell the executive what they can, and can not do. So, unless Obama pulls a Bush (or Cheney) and co-ops the OLC by finding one with low morals like Yoo, we will see the change we all hoped for in the new administration.

Is it January 20th yet?

Peace,
J

December 18, 2008 – Thursday – 9:01 PM
The Gold Standard

‘With the right hand out begging for bailout money, the left is hiding it offshore.’
Texas Democrat Rep. Lloyd Doggett, of the House Ways and Means Committee

Goldman Sachs, the Gold Standard on Wall Street, announced it’s first quarterly lose in it’s history, but it’s yearly earnings still showed a $2.3 billion profit. It may look like a big number, but for Goldman $2.3 billion is a large drop in earnings.

Let’s not drop too many tears for Goldman. They have been taking care of themselves. Last year, they paid their employees $10.9 billion in compensation. Not bad.

At Goldman Sachs, employee compensation made up 71% of total operating expenses in 2007. In the auto industry, by contrast, autoworker compensation makes up less than 10% of the cost of manufacturing a car. Hundreds of billions were given to the financial-services industry with barely a question about compensation; the auto bailout, however, was sunk on this issue alone.

But let’s not knock Goldman they after all may be the smartest guys in the room. In 2007 Goldman paid a tax rate of 34.1% , or $6 billion. This year, with profits of $2.3 billion, Goldman paid a tax rate of 1%, $14 million.

How?

Goldman attributed its lower tax rate to ‘more tax credits as a percentage of earnings’ and ‘changes in geographic earnings mix.’

What does that mean? They moved their money off shore. Ooops, sorry, they moved our money, $10 billion in bail out money, off shore, untaxed!

And who’s handing out the bail out money? Secretary Hank Paulson.

So?

Paulson was CEO of Goldman Sachs until mid-2006, and earned $35 million at the firm in 2005. He drew a $16.4 million salary in 2006 — even though he served as chief executive for just half the year.

As Goldman employees take home huge salaries, and are getting ready for their holidays, the big three are closing factories, shutting down operations for extended periods, just in time for their holidays.

Peace,
J

Dec 11, 2008 6:18 PM
Employee Free Choice Act-What is it and why it is so important
If only one bill makes it way through to passage in Congress during their next session, it should be the Employee Free Choice Act. Unless you are a union activist, or a worker who is trying to organize a union in their workplace, you probably have no idea what the EFCA is, or why it is so important.

In a perfect world, where the basic human rights of the working person were respected, there would be no reason to have labor unions. We don’t live in a perfect world. In fact, more workers than ever before need labor unions because without them, workers are unable to collectively bargain with employers for decent wages, safe working conditions, healthcare benefits for themselves and their families, and retirement pensions.

In the business world, labor is simply thought of as a cost to be contained. The ivory tower of highly paid executives gives little or no thought to the idea that the labor cost numbers reflected on their profit and loss spreadsheet actually represent people. If they were to look beyond the numbers, and understand that people are important, more important than stockholder equity, or corporate profits, there would be no need for labor unions. But that is not the real world.

Over the last several decades, many states have enacted “right to work” legislation. The direct result of this legislation has been to allow workers to benefit directly from union negotiated collective bargaining agreements, without having to join the union, and pay membership dues. Union treasuries have lost millions of dollars, and with this, they have lost much of their power. Most unions now have significantly fewer members. There is little motivation for workers to join unions when they can get the same pay and benefits as the union members get without having to join the union.

Ultimately, the purpose of “right to work” legislation was to push labor unions to the brink. With fewer members, unions have less clout in the form of bargaining power with employers. This means fewer employee pay increases, less healthcare coverage, and little money for retirement pensions. All of this has been good for corporate execuitves and bad for workers and unions.

Today, when many workers attempt to organize their workplace, they meet tremendous resistance from employers. It is typical for employers to force employees to attend “educational meetings” where they must listen to anti-union propaganda, and for them to hear that a labor union will force the company to go bankrupt and they will lose their jobs. It is also not unusual to hear about union organizers getting fired from their jobs, simply because they want to join a union.

The Employee Free Choice Act would go a long way towards righting some of these wrongs. President-elect Obama has promised that he would sign the bill if it is approved by Congress. Under the terms of the bill, workers would be free to hold an election to join a union, and with a simple majority, the union would immediately be able to engage in collective bargaining with the employer.

Many misconceptions exist about unions. Many are old stereotypes about corruption that are outdated and simply untrue. Labor unions do not seek to have employers go out of business. That is foolishness, and runs counter to the goals of providing workers with employment security. The goal of the labor union movement is to provide workers and their families with a decent life. It is time we see labor in human terms. We need the Employee Free Choice Act to become law so that workers and their unions can work together to improve the quality of life for working Americans.

When I took my oath as a union member of an AFL-CIO affiliated union, I promised that, “the will of the majority I will always abide by”. That is at the center of my beliefs as an American. We live in a free society with a democratically elected government. As workers, we should have the same right to govern ourselves within our workplace.

Write your members of Congress today and tell them how important passing the Employee Free Choice Act is to you. With your help, we can get this bill signed into law, and improve the lives of millions of working Americans.

Dec 13, 2008 3:18 AM
The Union
The American Civil War (1861–1865), also known as the War Between the States and several other names, was a civil war in the United States of America. Eleven Southern slave states declared their secession from the U.S. and formed the Confederate States of America (the Confederacy). Led by Jefferson Davis, they fought against the U.S. federal government (the “Union”), which was supported by all the free states and the five border slave states.

No, not that Union, this union:

The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, better known as the United Auto Workers (UAW), is a labor union which represents workers in the United States, Canada, and Puerto Rico. Founded in order to represent workers in the automobile manufacturing industry, UAW members in the 21st century work in industries as diverse as health care, casino gaming and higher education.

Why are these guys against the auto industry loan guarantees? The Union, the United Auto Workers (UAW).

Alabama Senator Richard Shelby, who has been particularly vocal in his opposition of financial assistance for the Big Three, said on “Meet the Press,” stated that:

We don’t need government — governmental subsidies for manufacturing in this country. It’s the French model, it’s the wrong road. We will pay for it. The average American taxpayer is going to pay dearly for this, if I’m not wrong.

Senator Richard Shelby is the senator from Alabama. The same Alabama that offered lucrative incentives (subsidies) to Mercedes Benz in the early 1990s to lure the German automobile manufacturer to the State.

Alabama offered a stunning $253 million incentive package to Mercedes. Additionally, the state also offered to train the workers, clear and improve the site, upgrade utilities, and buy 2,500 Mercedes Benz vehicles. All told, it is estimated that the incentive package totaled anywhere from $153,000 to $220,000 per created job. On top of all this, the state gave the foreign automaker a large parcel of land worth between $250 and $300 million, which was coincidentally how much the company expected to invest in building the plant.

Where was your outrage then Senator?

Tennessee Senator Bob Corker has crafted a separate, three-pronged plan:

It would require the two firms closest to bankruptcy, General Motors and Chrysler, to reduce their debt by two-thirds. Bondholders would have “plenty of incentive to make sure that the debt is reduced by two-thirds” or risk losing even more if the firms go into Chapter 11, where their bonds might be further discounted, Corker said. “We’re going to force them into bankruptcy if they don’t do this,” he said bluntly.

He also would require that the Voluntary Employee Benefit Association, the entity created by the car firms and the UAW to handle retiree health care benefits, accept stock in lieu of half the cash payments due. The carmakers had agreed to fund VEBA but can no longer afford to do so. “If a company goes bankrupt, these future payments are never going to happen anyway,” he said.

Finally, Corker’s bill would force the UAW to lower its members’ wages to the level of workers at the American “transplants,” the factories in Tennessee and other states owned by Toyota, Hyundai and other foreign car companies.

Notice he is going after the Union. Why?

Senator Corker, how’s that new Volkswagen plant going in Chattanooga? How about Nissan’s North American headquarters and Nissan plant in Tennessee?

Tennessee offered its richest incentive package — and perhaps the most government assistance and tax breaks ever for an American automobile plant — to lure Volkswagen to Chattanooga. How about $500 million in government assistance and tax breaks for VW alone?

Where was your outrage then Senator?

Then we have Kentucky Senator Mitch McConnell. I’m sure you know where this is going. McConnell said the bill would be more appealing if Sen. Bob Corker (R-Tenn.) could add amendments that would require the automakers to reduce two-thirds of their outstanding debt through an equity swap with bondholders as a condition for aid. Corker would also require the companies to reduce labor costs, and mandate that a portion of payments automakers make to labor unions consist of company stock.

Senator, how’s your Toyota plant, the largest plant outside of Japan? Senator McConnell claims Toyota is doing well, while their stock has fallen 50% since the beginning of the year.

Toyota makes hybrids in Kentucky, as well as other cars, yet Senator McConnell has led the charge to stop any legislation that would have pushed up CAFÉ standards, that would have driven the auto industry to higher MPG standards.

McConnell also voted FOR the $700B bailout of Wall Street.

Where was your outrage then Senator?

So, why are so many Southern Senators against loans for the (American) auto industry? Are they confused about the whole “Union” thing?

Peace,
J

Is a man at least as crazy as I am and I think maybe more so. Couple things about him. He’s an excellent artist who’s work I purchase whenever I have money and he paints something brilliant. He’s the most soft spoken honest man I’ve ever encountered. I’ve seen him shirtless, he has little wings between his arms and his torso.

He’s a little creepy but very friendly. His wife, LZ, is very similiar.

If I were rich, I’d purchase their son and hire them to hang out with me. I like these people. Friends for decades. You can’t imagine my affection for this man, his wife and their son. That son part is a little phony because I don’t really know him but I like what I see.

Ladies and Gentlemen, Chris Hataway

1. What is your occupation right now?
Artist, Cook, Handyman, Garbage man, Papa, Satan Worshiper, Doll stabber, dime store hood, bit part player in the play called life. Card carryin’ Loon

2. What color are your socks right now?
Socks? We don’t hafta show you no stinking socks (Sierra Madre answer)

3. What are you listening to right now?
Dogs Fucking. Yarn balls ageing. Mountains forming. It’s so quiet, I can’t hear myself not think…

4. What was the last thing that you ate?
Turkey nachos. Steamed shoe laces.

5. Can you drive a stick shift?
I can drive a stick through Draculas heart

6. Last person you spoke to on the phone?
Piston Remington, the famous soap box derby king

7. Do you like the person who sent this to you?
No, not one bit, I sent it to myself.

8. How old are you today?
Old enough to be your punching bag

9. What is your favorite sport to watch on TV?
Is cooking a sport yet? Midget pole vault. Yard Flailing

10. What is your favorite drink?
Free booze. What you do is, you take a jigger of Virgin Blood, two tablespoons battery acid, a thimble of cocaine, one goat milk ice cube, a pinch of grave dirt, shake well and strain into a highball glass with an eye of newt at the bottom, give it a float of nitro glycerin (light it), garnish with bat wing. It’s called Draculas Awkward Flatulence

11. Have you ever dyed your hair?
My stars, yesterday I dyed it race car orange and then back again. Once I dyed my hair Purple because I really wanted the carpet to match the drapes.

12. Favorite food?
Dog. Denver Omelets. Leftover surprise. Nachos. Carne Asada Super Burritos. Pasta whathaveyou. More turf than serf, but serfs ok too. Sausage. Savory over sweet, but sweet treats come in handy sometimes.

13. What is the last movie you watched?
Dracula Jack-knife I-80, the Trucker Fuckers. The true answer is an oddity from 1974 called Prime Time. Television parody sketch comedy. Very non PC and pretty damn funny. One of many from the box I just bought called 50 Drive In Classics… Tonight I think I’ll be watching TNT Jackson. Before Prime Time,I fell asleep to The Bad Sleep Well. And before that I watched Shine a Light, the Rolling Stones concert film. Leslie and I just re-watched Lord of the Rings, it took us five days… Dracula VS. Mecha-Draczilla (why hasn’t anyone made that one?)

14. Favorite day of the year?
I like that one day when you wake up and you have a mission, a task, a plan, and you have all the tools you need and all the supplies, or if not all the supplies, you know where to get them, and when you get them, the traffic flows your way and you get back to the project and set to it and everything goes smoothly and if you hit a glitch you brain your way around it and keep on going until the task or the list of projects are all complete and the sun goes down and you can feel good about your day, job satisfaction ho! That happens once or twice a year…

15. How do you vent anger?
Kick Vents. Pop off at strangers. Stab kittens. Run my head into fence posts. Tell the Lord to go fuck a dust speck. Saw through Otter pops and toss curses to the wind.

16. What was your favorite toy as a child?
Rubbers.

17. What is your favorite season?
White Pepper. Sprong, Summner, Oddum, Winner. To every turn, thing- thing- thing-, there season is a, thing- thing- thing-, and to all turns, a heaven, under purpose…

18. Cherries or Blueberries?
Former Pie-ward, latter Flapjacks. Cherries are sexy, Blueberries sad

19. Do you want your friends to e-mail you back?
Fuck no, thems a bunch o’ meanies

20. Who is the most likely to respond?
To what? Probably loud mouth Billy

21. Who is least likely to respond?
Trevor Rabin

22. City or country?
I like crappin’ outside.

23. When was the last time you cried?
Last time I crapped outside. Why, just this morning I cried over spilt milk. I don’t cry, I weep. I’ve been weeping for a few years straight. Last time I cried was when I couldn’t stay up all night to watch the Ten Commandments on TV when I was seven…

24. What is on the floor of your closet?
Gay skeleton bones

25. Who is the friend you have had the longest that you are sending to?
Jesus of Nazgul. You read me Jesus? I’m a-sendin’ Got yer ears on good buddy? See, the friend I’ve had longest that I’m sending to… The Earl of Cunt. Get thee behind me Santa

26. What did you do last night?
Tied myself up and threw myself over the falls. Bent over backwards for people. Read three Curious Whore-Hey books front to back, back to back.

27. What are you most afraid of?
Bags of chips. My brain turning on me. The world catching on that I’m totally full of shit. Aliens with chips on their scrawny shoulders. Vengeful Dinosaurs. Pole-shift. A-bombs. Horny teens.

28. Plain, cheese, or spicy hamburgers ?
Bacon Cheeseburder ga’dammit. Gimme the Awful-awful

29. Favorite dog breed?
Foot long trouser dogs. With jalapeños, kraut, mustard, catsup, red onion, and pickles. Give or take Mayo.

30. Favorite day of the week?
Monday, in your face joe workforce. Favorite day of the week… I’ve got to turn that one over to Janus Jop: “It’s all the same fucking day, man.”

31. How many states have you lived in?
Pretty much just one- confusion. Let’s see, 5 if you count up to ‘em on one hand, which I did.

32. Diamonds or pearls?
Shiny rocks or oyster tumors. I’ll go for pearls cause they come from the briny snot-monsters and then look so damn moonlighty. They cut your hand off if you steal diamonds from down the mine.

33. What is your favorite flower?
The Dragon Dungweenie. The Michalob Back-stabber. Bloom Bloom OutGoDaLights.

Nov 17, 2008 12:49 AM
What If We Let The Banks Fail?
Since the beginning of the financial crisis, one of the things that has been most striking is the unanimity of opinion that large financial institutions cannot be allowed to fail. The conventional wisdom is so one-sided in this regard that nobody (that I’m aware of) has actually gone through the exercise of asking what exactly would be the result if we simply did nothing and allowed the banks to fail. Given the enormous costs we are incurring to prevent this outcome, we have to at least consider the alternative. Would it not be more economical to simply let any bank fail that can’t stand on its own and let the government print money to pay off all the claims of the FDIC?

In broad terms, the banking industry uses three primary inputs in order to fulfill its functions. These inputs are capital, information, and human resources. Obviously much of the first category has been destroyed, but capital can always be rebuilt in time. The other two categories of inputs are largely unaffected by the current crisis. The informational infrastructure of the banking industry is completely intact (and will almost certainly be improved upon as a result of the hard lessons we are currently learning), and the available human capital is undiminished. So, even if the greater part of the banking industry were to cease to exist, new institutions would spring up (and would employ many of the same people – hopefully a little older and wiser now – who staffed the old ones). What would be so terrible about that?

As with a dilapidated house, sometimes the most economical choice is to demolish the existing structure and rebuild a new one from the ground up. At least in this case you know where you stand and your costs are fixed. If you instead refuse to accept reality and go on pouring money into a terminally-flawed structure, there is no end to the amount of money that can be wasted in a futile cause. What if we spend trillions of dollars in an effort to save the banking system but the problems persist? What then?

Our financial authorities seem to be turning a blind eye to the most recent and instructive historical parallel to our current situation. Everyone makes comparisons between the current crisis and the Great Depression, but a more relevant and contemporary example would be the case of Japan in the 1990s. Japan experienced a massive real estate bubble in the 1980s during which the Nikkei stock average reached a high of around 40,000. In 1990 the bubble burst, leaving the Japanese banking industry in shambles. Now, almost 20 years later, the Nikkei stands below 9,000. One of the main reasons for such a protracted period of underperformance is that, rather than allow economic forces to run their inevitable course, the Japanese financial authorities spent years and years trying to prop up an essentially bankrupt banking industry. As a result, the economy remained mired in a recession for the better part of 15 years. Had the authorities simply acknowledged and accepted the bankruptcy of the banking industry and started from scratch, the length of the ensuing recession would almost certainly have been much shorter.

I recently had a discussion with a former colleague in the investment banking industry, and he argued that, in spite of hopes that we have already seen the worst and that things will now start to improve, many existing financial institutions are basically insolvent and will almost certainly get significantly worse. He gave two reasons for believing that the worst is yet to come. First, corporations which have been forced to raise capital quickly have sold their best assets first. This only makes sense, since these are the assets for which there are both demand and observable prices. What is left on the books of these companies is the most toxic, unmarketable assets. Many of these assets haven’t traded in months or years and are therefore marked at prices far above their current value. If these companies are forced to start selling off these lesser-quality assets, the write-downs incurred will be far larger than the ones we have already seen.

The second argument for believing that many institutions (especially hedge funds) are likely to fail has to do with the incentive structure facing the executives of these companies. An ironic consequence of the public outcry against excessive executive compensation is that the best and brightest in the business have greatly reduced incentives to stay and try to turn things around at their present companies. Their compensation is tied to the performance of their equity, and since things have already fallen so far, they know that even if they succeed in avoiding complete collapse, they will never cash in to the extent they had hoped. This creates a strong incentive to walk away and start fresh somewhere else. This trend is already underway in the hedge fund community, and there is no reason to think that it won’t accelerate. So, if we continue to bail out existing institutions, it is likely that we will end up with companies which have sold their best assets and lost their best people. This is yet another argument for taking our lumps now in order to prevent even greater damage down the road.

A final argument for allowing the banks to fail is the message that our current actions send to corporations of the future. If we go down the road of bailing out banks and insurance companies, what is the message that is sent to executives of the future? Businesses will believe that they can always rely on the government to bail them out as a last resort. In an industry that is already based on “playing with other people’s money”, this will almost certainly lead to reduced prudence and less responsibility. In addition, what does it say to non-financial corporations which, in spite of having strong core businesses, are being forced into bankruptcy? Why is it fair that those who caused the problems get rescued while those who were innocent bystanders are left to their own devices?

Conversely, if we simply allow companies to fail, the message will be unambiguous and salutary. Executives in the future will understand that they will suffer the full consequences of their mistakes and their very survival depends on responsible and competent risk management.

All of this is not to say that nothing should be done to support the existing financial industry, but given the enormous cost that is being absorbed by the American public, we owe it to ourselves to at least consider the alternative.

Nov 12, 2008 7:25 PM
Why The Bailout Isn’t Working
Treasury Secretary Hank Paulson announced today that the government will not be purchasing troubled assets from banks, as they had previously planned to do. This is a startling reversal, given that this was the centerpiece of the original bailout package. Such an abrupt about-face is hardly encouraging as it begs the question of what exactly the government has been doing all this time and calls into question whether those in charge really have any idea how to solve our problems.

It is common knowledge by now that the root cause of our financial difficulties is excessive debt. Across the whole economic landscape – from individual homeowners to corporations to the government – everyone dug themselves into financial holes that they are now unable to climb out of. This being the case, doesn’t it seem odd that the government’s solution to the crisis is to borrow even more money to shower upon the financial sector in hopes that they will start lending again? This is like treating a patient suffering from alcohol poisoning by force-feeding him another drink.

Yes, functioning credit markets are an essential part of a modern industrial economy, but we seem to have lost sight of the fact that the ultimate health of an economy is based on individuals and corporations creating, buying, and selling valuable goods and services. Yet virtually all of the money the government is spending on its rescue efforts are aimed at Wall Street rather than Main Street. The credit markets ought to be the servant of the real economy, rather than the other way around.

Does nobody find it strange that, while hardly anyone bats an eyelash at the latest hundred-billion-dollar bailout of a bank or insurance company, we hear nothing of plans for increased public spending on infrastructure, technology, or education? Is it really better use of taxpayer money to pour countless billions into a financial black hole like AIG rather than investing in technology and education which will improve the long-term ability of American workers and corporations to compete in the global economy? What if, instead of spending a trillion dollars to help banks avoid the consequences of their own foolishness, we spent that money on building bridges and roads, developing alternative energy, and retraining American workers with outdated skills?

Forgetting for a moment the question of fairness, let’s consider from a purely practical point of view which approach to rescuing the economy is most likely to work.

All of the measures aimed at repairing the credit markets are based on the presupposition that once banks stop the financial bleeding they will resume “normal lending”, thereby rescuing the economy. The rationale underlying this argument is based on a very questionable assumption. Even if banks are willing to lend, borrowers need to perceive attractive uses for capital or they will have no incentive to utilize the available credit. After all, if someone offered you a zero interest loan to purchase real estate right now, would you do it? Two years ago virtually everyone would have answered this question in the affirmative, but things have changed since then.

In the absence of solid investment opportunities, the government can print all of the money it wants, but it may still be incapable of stimulating the real economy. I would argue that the trauma of the last several months has fundamentally changed public attitudes to debt and that a return to “normal lending” is neither possible nor desirable. Do we really want to go back to a state in which people borrow as much as they possibly can in order to buy bigger TVs and homes they can’t really afford?

If, on the other hand, the government announced that it was going to spend a trillion dollars to repair roads and bridges, build wind farms, and retrain American workers, the stimulative effects would be far more certain. Millions of jobs would be created and those millions of employees would have an increased ability to spend and invest. This seems like a far more effective way of battling the current crisis than pouring money into banks and insurance companies in the hopes that they will return to business as usual.

Elections Have Consequences
“Elections have consequences.”

George W. Bush

In 2006 Americans in large numbers threw out Republicans from the House of Representatives. Hoping for real change, but stymied by a 51-49 Senate, and an immovable president, the demands of the electorate were not met. With a 6% victory in the general election and a landslide victory in the Electoral College Barack Obama will enter the White House with a mandate from the American people, and the power to do what the electorate has asked him to do.

When it comes to energy, we demanded a change to the status quo. We have spoken and we want a clear path to energy independence. It may not be the way the Republicans wanted, but “Elections have consequences.”

With at least 2 appointments coming up in the Supreme Court, we demanded a change from the types of appointments of the last 8 years, Roberts and Alito. “Elections have consequences.”

The tax laws of the last 8 years have been criticized greatly over the course of the presidential campaign. We demanded a change to the tax code, one that would give breaks to the middle class while dismantling the Bush tax cutes. “Elections have consequences.”

The efforts to deregulate everything over the last three decades have left us with a run away financial market, industries allowed to regulate themselves, with miserable results. Obama enters office with the demand from the American people to fix this first! “Elections have consequences.”

Milton Friedman’s economics are out! “Elections have consequences.”

Pre-emptive war, aka the Bush (Cheney) doctrine, the one percent doctrine, has led to reckless actions around the globe. The American people have spoken. We voted in huge numbers for more direct negotiations with all nations. “Elections have consequences.”

The Neo-Cons will not be welcome in this administration. “Elections have consequences.”

While we will continue to support Israel in all ways, we will no longer turn our backs on the plight of the Palestinian people, or other less fortunate citizens of the world. “Elections have consequences.”

The bottom line is that we live in a society where the masses have a role in our government. We vote, and this time we voted in huge numbers. So, to my friends on the other side of the isle, “Elections have consequences.”

Get over it!

J