Tag Archives: bailout

T-Bill Glut Crowds Out Equity

Only this week the Treasury auctioned off another 71 billion of Treasury notes and bills.   That is a small part of the hundreds of billions they intend to issue during this calender year.  They have already issued over 300 billion this year to date.  In addition to that fact we have the Federal Reserve printing up about 2 trillion of new money that seemingly floated in from Mars.   It was mentioned here a couple of months ago that the rate on the long term 10 year Treasuries was going up and that was a bad omen for the future economy.  Then the rate was about 2.80% that return rate has now shot up to 3.16% in such a short time.  That is a very big move for those notes in that time frame.  Historically those notes move only a few basis points (hundreths of a per cent) in a month.  You please ponder a  moment what that jump in rates means.  I think it means a couple of things. 

First that the confidence level on the return is weakening.  We are creating too much debt and the ability to repay it is beginning to be questioned.  Some folks are asking that hard question–how WILL we repay all that debt.  It is like the little boy mentioning that the King has no clothes.   We can raise taxes, default or print up even more money.  None of those choices bode well for our economy or the strength of the US dollar.   Thus the concern by investors here and around the world.  Secondly, there is too much supply.  We are issuing so many of those notes that the demand can’t keep up.  Supply and demand does work regardless of your economic philosophy.  Even the Keyensians would agree with that.  Thirdly, the only reason the rate is not even higher is due to the weakness in the global economy and thus the desire for investors to seek a “safe” investment for the short run.  It is not that there is great faith in our Treasuries but we just happen to be the tallest midget at the moment, but that won’t last forever.   People apparently a lot smarter than me were concerned this week about how strong the demand would be for this week’s issue.  It held up.  But that tsunami of debt is still looming on the horizon and as it approaches closer and closer the concern level will rise.  It is not inconceivable at all that one fine day soon there will be a weekly auction where the demand is so low that the issue does not sell out in full.  You watch, when that happens Government, Inc. will put pressure on the banks it owns and regulates to buy up  some of the Treasuries to support that market.  They can always demand that the Federal Reserve buy even more but at a point that will be self-defeating because the market will be nervous about the Fed buying even more.  The Federal is already committed to buying hundreds of billions of those notes already.   The Fed buying those T-notes is the classic Ponzi scheme.  It is an artificial prop for that market and sooner or later the free market will not abide the sham.  Of course that assumes we will be permitted to maintain a free market.

Another problem with the Treasury issuing so many of these notes is that it swallows up whole huge amounts of capital that could otherwise be invested into the private businesses here and around the world.   The total amount of capital does change daily, but nevertheless at any point in time there is finite amount of it.  That 71 billion in Treasury notes is 71 billion that will not be invested in the next Microsoft for now.   At the same time Government, Inc. is wanting private money to be invested into the PIPP program to buy the toxic assets from the banks and also is seeking every way possible to raise taxes on business to fund the budget nirvana of the new guy.  Despite all the talk about “investment” by Government, Inc. we are not investing in our economy.   The government is desperately seeking ways to finance debt–pure and simple.  

All of the above is not the recipe for a growing and vibrant economy.  I welcome differing views.  But if you do, please give a detailed explanation for retiring our debt we are running up now.  I will even allow you to forget  for the moment the debts associated with Social Security and Medicare.  Just the 9.3 deficits of the new guy’s budget.  Do some math on it.  How high can taxes go?   Where does the new money come from to create new jobs and businesses, large and small?  Government, Inc. remember can’t create a darn thing unless it takes the resources out of our pockets first.  We can try to make a bigger pie, but will taking revenues from citizens increase the size of that pie or merely force everyone to button down the hatches and play hide and seek with the tax collector like they do as sport in Italy.

Keep your eye on the rate for those 10 year notes.  They are a harbinger of the future and a forecaster of confidence in the long run economy.  Short term there will be a bounce and the stock market will even continue its rally for a while.  But that debt is a fact of life and facts are always stubborn things.  I wish I believed differently but I worry that we haven’t reached the bottom yet.  As more and more people and investors realize the downside of our planned debt explosion the economy will contract and/or stumble along with very slow growth as  far as the eye can see because the debt is as far as the eye can see.  Either we reduce that debt or explain in plain language how we indeed to satisfy it or our economic future is so-so at best.  It could be much worse.  Some smart folks think we haven’t reached the “give up” stage yet in the current market turmoil where investors bail out because they see no hope.

Two new grandsons arrived last night.  I have been throught this many times with children and now grandchildren and it is always such a thrill.   It is for them these concerns are expressed.  I want those little guys to have the freedoms and opportunities my dad fought to preserve.

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Conflated Conflicts of Interest–Govt. Inc. Can Do No Wrong

Lawyers have had bad reptutations for generations.  Shakespeare even made them famous by wishing they all be killed.   They have been represented as having no scruples and willing to sell out anyone or anything for pay.  Sadly there has been so truth to that allegation over the years.  Much of it was created by the very folks who were so suspicious of the lawyers in the first place.   In the US we had a very long history of being so suspicious of lawyers that we wouldn’t allow any exclusivity for the profession.   For most of our history anyone was allowed to become a lawyer.  The thinking was that if anyone could become one then the mystery of the law would be diminished and that the common man would have more of a say in the outcome of legal disputes.   Accordingly, our legal profession was pock marked with many unscrupulous and unqualified “lawyers”.   They didn’t have formal training for the most part and simply studied under another lawyer for a few years then were deemed qualified to be admitted to the bar.  This naturally led to cronyism and pretty low standards.  You could move from New Jersey to New Mexico in 1887 and hang out a shingle proclaiming your expertise in the law.  Most of the states didn’t even require bar exams until well into the 20th century.  Even then most states still allowed special exemptions and the legislatures could grant a law license to anyone it chose.  One of the last ones granted in Texas was as late as the 1960’s.    

However, even these unscrupulous fellows do have standards.  One of the linchpins of legal ethics is the concept of avoiding conflicts of interest.   A lawyer under virtually all ethical codes of the various states and DC is supposed to zealously represent his client and only the interest of that client in any matter whether in the court room or outside the court room in private legal transactions.  There are standards.  Lawyers around the country get disbarred every year for violating this requirement.   It is considered one of the most grievious offenses  by a lawyer.   You can represent one side or the other but not both.  There are a few exceptions when both parties waive that conflict but those situations are rare and even those do require complete disclosure. 

It would be nice if Government, Inc. would adhere to the same standards as the lawyers.   Let’s take a look at some of the current conflicts Government, Inc. has at the moment and is blithely ignoring or perhaps worse trying to cover up.  With the TARP money we have given money to some banks to shore up their capital positions.  Many of us opposed that when it occurred.  So did some of those banks.  The facts have become clear that several of the banks were forced to take the money even if they did not ask for it and indeed tried to refuse it.  So the Government was the regulator of the bank and as the regulator demanded they take the money.  That made Government, Inc. a creditor at that time.  That immediately created a conflict for Government.  As regulator its job is to protect the stability of the banks for the protection of depositors.  That authority includes the right to go “tsk, tsk” for any debts that the regulator might deem imprudent.  Government, Inc. approved its own loan.  Next Government, Inc. took a position as a shareholder in several of the banks.  Now they have an interest with the shareholders in the equity of the bank and and a concern for its profitability.  The government has stuck its finger into the board of directors.  Just check  what happened with GM.  It has unilaterally replaced its CEO and made clear that it is going to replace several members of the board.  The hints from Washington are strong that the same action in removal of CEOs of banks and board replacement are on the agenda from the regulators–read Geithner.   Boards of directors have a duty to shareholders to protect their investment and to try to maximize their return on that investment.   It is a fiduciary duty.  That is the highest duty under the law.  You can’t fulfill your fiduciary duty if you have a conflict of interest.  That is fundamental.   Many lawsuits over the years have been brought on behalf of shareholders against boards of directors for not fulfilling their fiduciary duty or for gross mismanagement.  

Government, Inc. in many of these situations are wearing a number of hats at the same time and it has conflicts of interest almost too numerous to count.  They are creditors, equity owners, management, and regulators all at the same time and each position has a completely different duty to a different constitutiency.   Several of the banks have made it know that they wish to repay the money received in the TARP program but have been told they cannot by Government, Inc.  Why?  Only so the governement can maintain complete dominance over them.  If it wasn’t so serious it would be as laughable as a Marx Brothers farce.   These actions are in conflict with the rights of the shareholders and make a mockery of the concept of corporate governance laws of the various states. 

GM owes money to banks that received TARP funds.  The government runs GM de facto now throught its bully tactics and is a major creditor and also regulates the banks that are owed the money.   Govedrnment, Inc. is putting extreme pressure on the banks to take a substantial loss on their loans to GM.  Not good of Government, Inc. as a creditor of the bank and shareholder and certainly not good for the bank shareholder.  As regulator does government wish to see the banks take a loss?  With the loss from GM will the government then take the position that the bank is even weaker and thus subject to even more control of  Government, Inc.?  The other conflicts of interest of the government go on and on.  Those highlighted here are only the tip of the ice berg.  Any lawyer trying to represent so many diverse and opposing interests at one time would be vilified and lose his license.  The only justification we hear is that this is an emergency.  History is replete with the rise of tyrants who started their careers during and “emergency”.  Do your own reading.  Caesar, Hitler, Napoleon and Pol Pot to name only a few over the centuries.  We should hold the government at least to the same standards as the lawyers.  They can wear only one hat at a time.  Government, Inc. much also be held to the same legal standard as the citizens it represents.  If the banks want to repay the money they have that legal right.  It is only the bully boy threats of government as regulator that prevent this from happening.    A government that can ignore the law for your “good” today can likewise ignore the law another day for any reason it deems good.  Orwell taught that phrases can be warped.  Hitler worked for good too so he said. 

“It is assumed that labor is available only in connection with capital; taht nobody labors, unless somebody else, owning capital, somehow, by the use of it, induces him to labor”  Abramham Lincoln.  1861

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Is the Stock Market a Washington Concern?

The bailouts, stimulus bills, bloated budgets and exponential expansion of Government that we see evolving everyday recently raises questions about the viability of Wall Street and the stock market.  The market continues its plunge with no let up in sight.  It has sunk below its recent lows and may be headed toward 5000 on the DJ index.   The government is taking over the auto industry, at least that part that is owned by Americans, and has effectively nationalized a few of the larger banks already and likely will be taking over even more in the near future.  AIG is an insurance company that is now owned by the Government.  The Feds own 80% already and today’s news is that the ownership position will increase in a matter of days.   As the Government increases its ownership of the assets of the industrial and financial base of our economy the power, influence and independence of Wall Street and the Stock Market come more and more into question.

It has to be remembered that the Government now owns Fannie and Freddie effectively and that between them they control over 50% of the mortgages outstanding in the country.  The Government already holds a grip on the transportation industry through regulation and the upcoming cap and trade of carbon emissions will greatly enhance the power of Government to control the commercial activities of virtually every commercial or even industrial enterprise in the country.  The just announced budget makes clear the direction the Government is taking with regard to dominance and control of our economy.  Even in the areas where the Government doesn’t take a direct ownership position like it has already in some of the banks, auto, insurance and mortgage business it can control the business practices and procedures of virutally every business in the nation through tax provisions and regulation.  The oil and gas industry is already very heavily regulated and has been for decades.  More regulation is coming there in this vital industry in the name of fighting global warming and pursuing so- called green energy. 

Do you have any doubt in your mind that the next major airline that gets in serious financial trouble will come under the control of the Government just like the Big Three have already?  It will happen if our current course is followed, sure as night follows day.   Mining will not be far behind.  No matter how hard the push to switch to the alternative energy sources may be it will be decades at least before we get there.  The fact is coal still provides about half of all our electricity power.  The cap and trade policy will make the costs of power soar in the near future.  The new restrictions on carbon emissions and thus the new engineering methodes required will be very expensive and someone will have to pay.  As the cost accelerates for the c0nsumer there will be a hue and cry for something to be done and our good friends in Washington will gladly step into the fray.  The position will be that the Government doesn’t need to make a profit on electric production and electricity is necessary to the general welfare of the citizenry and therefore the Government will take over.   The owners won’t be able to make a profit because the regulators will not let them raise rates enough to cover the new engineering and construction costs required under cap and trade.   Nanny Government will come to the rescue again of the middle class and the needy.  That will be the spin.   Everyone  will pay more for electric power through other tax provisions and methods, especially the  “rich” and the consumers rate will be kept lower on the backs of everyone, not just those who use coal power for electricity.   We will get the usual Government efficiency we all have come to love like with the IRS or Social Security.  Who cares if the industry is subsidized by all of us, we all own it and we will be making the world a cleaner and cooler place.   Of course the entire medical field and medical insurance will be either owned outright by the Government or regulated so highly that you couldn’t tell the difference between ownership or not.  Those important industries will be “run” by the Goverment.  The budget makes that clear.  The Government will pay for your medical care, assign you the doctor and hospital and regrettably guide and direct future research and development of new drugs and medical procedures.  That is a huge portion of our economy and certainly an intrusion into some of our most private and personal decisions.

We are heading in a socialist direction.  There is no real argument about that.  The left is still avoiding that term and even the term “liberal” and using the term of art for the moment which is “progressive”.  But when the Government either directly owns or controls major aspects of our commercial and industrial base, it is socialism.  You can argue about degree or methods but the direction and end result can’t be denied.  As the Government takes over more and more of that base it cares less and less about the Stock Market.  We are beginning to see the first hints of that attitude now.  The current administration is obilivious to what it happening on Wall Street.  It is an indifference.  I rather suspect they enjoy seeing the market crater and additional industries fold and become part of the walking wounded.  That is just so many more easy fruits on the tree ripe for the picking.  The reach of Governmet now is huge.   It is not retreating and the budget just submitted calls for even more expansion and an increase in the pace of that expansion.  The “real” economy, that is non government workers, is about 85% now but that number will dramatically decline over the next decade if the proposals on the table and the budget become law.   The Governmet will own most of our wealth and control what it doesn’t own outright through taxes and regulation.  That may be the world you want but it is not my vision of America.  Some will be delighted.  Especially th0se eltites who get to control the destiny of millions with the stroke of a bureacratic pen.   Agreee or disagree but give the matter thought.  Size does matter in some things.  It matters a great deal when evalutating the relationship between Government and the liberties and freedom of its people.  We ultimately get the Government we deserve.  I hope we deserve better.

If you give me six sentences written by the most innocent of men, I will find something in them with which to hang them.  Cardinal Richelieu, advisor to Louis the XIV.   That is the kind of attitude the KGB took under Stalin.

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Pentagon Papers without the Spin

Most folks these days only know about the Pentagon Papers from occasional news saccounts discussing all the mistakes made by the US during the Viet Nam war.   Inevitably those articles are negative about the role of the US and the hiding of secret information from the public and it gets all mixed up with the Watergate scandal because the revelation of the existence of the report came during his term in office.  The revelation of the papers is typically hailed as an act of great patriotism and heroic action by Daniel Elsberg and the New York Times.  The media is always very good at tooting their own horn in case you haven’t noticed.   Elsberg is portrayed as a hero and the Times as a stalwart defender of the truth and an exposurer of corruption and devious Government cover ups.   It is useful sometimes to get a different perspective and review what some of the facts were in the episode.  It has continuing relevance today to our affairs both internally and in foreign relations.   The whole affair is an excellent example of how “history” gets written by the media.  Specifically by the slant taken on facts from the left of center media.  The Times is proudly a left of center news outlet as were the three major networks during the late ’60’s and early ’70’s.   They hated Nixon long before anything about Watergate ever emerged.  They hated the Viet Nam war policy.  They thought it was evil and that the US was the bad guy fighting against the noble little people of Viet Nam.   Those who have read a few of these blogs know that I never object to a diversity of opinion even when I don’t agree with it.  I don’t like twisting the facts or simply making them up to support a particular view.  Hypocrisy is the worst of all. 

In those ancient days the Pentagon and the CIA made continually updates and assessments of our stratgic position in all affairs around the world.  Just as they do todady.  Nothing new or exceptional about that then or now.  That included Viet Nam of course.  The Cold War was very real during the time frame we are covering.  We had a clear and defined enemy who openly wished us ill and took active steps at every opportunity to make life difficult for the US.  These intelligence reports were produced on a regular basis for review by the highest levels of the Government.   That meant the President, Chiefs of Staff, Secretary of Defense, Secretary of State and a handful of others necessary to have input in the decisions of the day about how to conduct our affairs both military and non military around the world.  There were intelligence assessements regarding  Viet Nam before the so-called Pentagon Papers and there were many more made after it.  These reports were from the military and the CIA.  The intelligence reports were based naturally upon the facts at a given point in time.  There is always an ebb and flow in the course of any war.  There were many during Viet Nam.  The Tet Offensive as it came to be known in Jan. of 1968 was a sensation in the news media here.  The Viet Cong and North Vietnamese launched a coordinated assault throughout the country.  It did catch us mosly off guard.   The attacker almost always has the advantage at the beginning of any battle because they get to control the timing of the battle and the location of each individual assault.   It was made all the more dramatic because they attacked the US Embassy in Saigon and that made for dramatic footage on the news shows.  The heart of the major city of Hue was also taken over by the enemy for several days and the fighting was intense in the city streets.  It had been thought that we and the South Vietnamese could always control the urban areas.  The North Vietnamese were precise and careful in their planning and put a  major effort into the attacks.  They were hoping for a “knockout punch” to the US resolve and to the South Vietnamese.  

I will not review the details of the battle.  There are many quite good military histories of that engagement.  The fact is that is was a resounding victory for us and the South Vietnamese.   It was a comparable situation I think to the Battle of the Bulge in ’44 when the Germans launched their last offensive of the war.   There was initial success by the Germans  and they caused many casualties and took thousands of prisoners but in the end they were soundly defeated.   When the Tet Offensive had run its course the North Vietnamese were hurt badly.  Their main goal of collapsing the Southern government and breaking the will of the US was not achieved and they did not end up holding any of their temporary gains.  It was a devastating defeat for them.  Unless you read actual histories of that battle by the people who were there you would never know that though.  It was reported by our media as a total defeat and renounciation of all our policies in Viet Nam.   It is out of that envoirnment that the Pentagon  Papers emerged.  Even among the intelligence experts there was a difference of opinon about how we should proceed in Viet Nam or if we should proceed at all.   The Pentagon Papers constituted one report.  It was negative about our prospects.  It was a secret document for obvious reasons.  Anyone with an IQ over 70 can understand that you would not want your enemy to look at any analysis from your highest level strategists.

Elsberg was a left winger.  He was proud of that fact.  He didn’t like the war.  He was entitled to that opinion.  I was against it too, not because I thought it was evil but because we were fighting not to win but “stabilize” the country.  The tactics were stupid I thought.  There were many different opinons on the war.   Elsberg eventually leaked the documents to the Times and they published them to great fanfare.  They would have you believe that this was the penultimate assessment of the war and that the negative views there were carved in stone as verities and any continuance of the war was not only evil it was futile.   Not everyone at the Pentagon  or CIA agreed with the conclusions in those reports then or later.  There were many more assessments that followed those Pentagon Papers.   Many learned military folks and those dealing in realpolitks believe we missed the golden opportunity to end the war successfully after the Tet Offensive.  Many believe that was the moment to bomb Hanoi, really bomb it and mine the harbor and destroy the infrastructure of the North.  We had always been hit or miss with our bombing.  We never waged a true campaign like we did in WWII.  We dropped lots of bombs for sure but mostly on useless jungle.  Elsberg was no hero to me.  He was a traitor.   I view him no different than Hanoi Jane when she went to Hanoi and had her picture taken manning an ack ack battery with helmet on.  If he opposed the war that was his right and he could speak out against it all he wanted.  He signed a confidentiality agreement with the Government and knew he would be handling secret documents that could not be revealed, ever.  He broke his word based on his own whims and beliefs.  Just because he reached one conclusion from that intelligence report doesn’t mean his opinion was the only one or even the correct one.  It was one view at one point in time.  The importance of that one intelligence report was blown all out of proportion to exaggerate its impact on the public mind.  It was a propoganda ploy by the media.   Of course Elsberg became the darling of the media.  Especially after it was revealed his private psychriatric medical records were reviewed secretly by the CIA when they learned of his treachery.  The media to this day takes the view that the Pentagon Papers “prove” we couldnt’ win the war and that the public was deceived.  There was a deception for sure going on then and now when the episode is recalled by the media.  I urge you to do some reading of your own.  You conclude who was the deceiver.

If the current gang in Washington insist that we do this just announced 275 billion bailout for housing and mortgage holders I have a suggestion.  The way it is designed there will be winners (the losers who can’t or won’t pay their bills) and losers (the honest Joe who struggles and does the right thing) and the worst part is that they will be chosen by the Government and its bureaucrat cronies.  That is so UnAmerican and so unfair on its face.  You pay your bills but your neighbor is a profligate spendthrift and he gets breaks from the Government and all you get is the bill for his overspending ways.  The people receiving any of this aid should be chosen strictly by blind lottery.  The good, the bad and the ugly.  If we are going to parcel out this money at least do it fairly.  Whether you are current on your mortgage or not, whether you have already paid off your mortgage or not, if you name comes up you get a piece of that pie.  I would much rather that than the Government picking the recepients.  The lottery would take away the political clout and the obvious and scandalous buying of votes of certain blocs of voters.   I hate the whole bailout thing and I am against it from TARP to Stimulus bill to Mortgage rescue no. 1.  But do the lottery.  Make it fair anyway.  Not a payoff for votes.

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Dig Deeper and Faster To Escape

Let me get this straight.  It was a credit and debt problem that got us into  financial difficulty.  The credit and debt problem was built upon the foundation of the Government injunction under CORE that banks HAD to loan money to those that weren’t credit worthy because that would promote diversity of home ownership and would fulfil the Government mandate for affirmative action in the housing market.   Yes, the private market took that instruction and did everything it could to figure out a way to make a profit off of the Government policy.   That is human nature.  Even prisoners will do everything they can to make their circumstances as good as they can.  If those were going to be the rules of the game then the private market would be creative and innovative to exploit the rules.  That is what private markets are supposed to do.   There is nothing inherently wrong with that.  If Congress passes new legislation restricting certain uses of the internet don’t you think that Microsoft and Google will be burning the midnight oil to figure out the best way to make lemonade out of the lemons?  Such proposals are being bandied about as you know now.  Heck some of those high tech companies might see an opening to make even more money from the Government restrictions.

There is nothing wrong with what the markets did with the mortgages they were forced to make.  The shame and guilt belongs to the Government and its proteges
Fannie and Freddie.  It was Government that built the Frankenstein of the financial world.   If the Government had not required such loans to be made then all those derivatives and credit default swaps would not have been issued.  You are reminded that back when CORE and its various iterations were proposed and passed it was the financial markets that opposed them on economic grounds and the “right” that opposed them on ideological grounds.  Those loans by the tens of thousands would never have been made in the first place but for threats by the Government regulators, adhering to the CORE requirements, to come down hard on the banking institutions that did not make enough of those sub prime loans.   The banks had no choice but to comply with the Government mandate if they wanted to stay in business since the regulators had the power to shut them down.   Once the loans were made then Fannie and Freddie stepped in to buy up those mortgages.  You do remember that those executives of Fannie and Freddie made huge salaries and bonuses.  Certainly equal to those of other Wall Street types.  Fannie and Freddie were complicit in the bundling of those sub prime loans and then the marketing of them by Wall Street.  Wall Street would never have been able to market those mortgage backed securities without the support and active participation of Fannie/Freddie–Government.

This was all political policy and social engineering, not economic or financial markets, that created the the mess.   Imagine how things would have been if none of those ridiculous and none economic loans had been made.  We still would have been building houses and selling them.  It would have been at a reduced rate and the values of houses would have increased but not at the unsustainable rates caused by “selling” houses to people who couldn’t afford them and maybe didn’t have a job at all.  There would have been no bubble.

But through the greed of politicians for power and their misguided attempts at social engineering we are where we are now.   The proposed solution is to dig an even deeper debt hole.  We are already in a huge debt hole  but the remedy proposed is to have even more people jump in the hole with more shovels and dig it deeper.  It occurs to me that we might just be making a hole that will trap even more people in the future.  We have already had 700 billion of TARP, don’t forget the 800 billion announced by the Fed a couple of months ago to buy notes for mortages, credit card, auto loans and student loans, then there is the 1 trillion stimulus package working its way through Congress now and the Treasury has let it be known that it will need another 1 to 2 trillion for additional TARP beyond that already recieved.   Everyone talks about putting that debt on our children.  I am not so sure about that anymore.  That much debt can’t wait that long for attention.  It is us that will have to deal with it.   I do wish the people would demand that Congress discuss now exactly how they propose to handle the additional debt, not merely put it off for another day.  Don’t forget that we also have to find a solution to the Social Security and Medicare shortfalls which is going to be trillions more.   We need a long term plan.  Even the Government has a limit to its credit card.  Yes, I know it can print up all the money it needs but that is self -defeating because of the additional inflation it would cause. We are going to have enough inflation with what is on the plate now  to damage our future economy.

This is all from a group who can only get about 70% of their major appointments correct.   Trying to manipulate the total economy is more complicated than making appointments.   I am not encouraged.

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No Room At the Trough

The lobbyists and politicians sure ain’t Christ.  There wasn’t room for him at the Inn on the night of His birth and there isn’t enough room for all those lobbyists and politicians at the trough of the Bailout bonanza.   Come one, come all, we have the perfect elixir for what ails you.   All you have to do is read the paper or watch the news about the feeding frenzy that is taking place in Washington now and realize that the world has gone bonkers with the concept of “free” money.  Let’s review only a partial list of those elbowing and shoving their way to the trough of public funding in the Stimulus package. 

Well, first we have the States–notably California, New York and New Jersey leading the way to grab billions of dollars from the taxpayers of other states to fund their mismanagement of their financial affairs.   Even the residents of those States I hope will reflect on what is taking place.   The money isn’t  free in the economic sense and sure as hell isn’t free in the political sense.   The Feds will have their usual mandates and rules that have to be met with regard to spending those funds.  Those States will be told how they must spend the money.  Local control and thus local freedom to choose their own direction is sacrificed.

Next up we have the Big Three lurking.  They don’t have to shove as hard as some of the others since they already have received big dollars and the commitment has been made to pour more dollars into a losing proposition.   Of course the politicians in the Dem party will have an even more solid bloc of votes than they had before from the UAW and we in the process will get millions of cars in the future at elevated prices and with features most aren’t willing to pay for.   But, heck sales aren’t  that important to a Government enterprise–votes are.

Concrete and the tar production companies are each lobbying for their own agenda.  One wants repairs to the roads and the other wants those long term projects on new highways, bridges and waterworks.  Guess which uses tar and which uses the most concrete.  Pathetic.

The broadband folks are foaming at the bit and pushing their man to expand those internet networks across the nation.  They argue that it will produce a more educated and sophisticated population and thus aid the underserved and stir the economy.   I have no problem with that except for the idea of the money coming from the Government.  Did ABC or Columbia Broadcasting need Government funding to launch the radio system?  That was a truly remarkable achievement in the last century.   Thomas Edison and Alexander G. Bell both seemed to flourish rather well without any big Government bailouts and brought innovations that we employ to this day.  But self motivation and risk taking are not de rigeur today.  Mother Government is there, here, everywhere.

Shoe manufacturers, textile mills, and those fiber optic manufacturers are all promoting their special interests for a piece of this pie.  Do we need to even mention the financial sector and all the banks that are there with their hands out and the others like GE Capital, GMAC, etc.  The floodgates have been opened.  As always when that happens there will be severe damage down stream.  The stupidity and harm to our economy won’t be apparent in the next few months, but the damage will be there.  That money is ours.  It is debt and printing press money.   They kept talking about “kicking the can down the street” and they are doing the same thing now.  Moving the problem down the road.  Problem is it will be even worse.  How high will taxes have to be to pay for all this in a few short years?  Ponder that carefully before you sign up to support this bailout program.   That isn’t editorial comment but mere economic fact unless the Government confiscates even more of our property down the road.

The monkey in the mess is the foreign investors.  We really haven’t heard much from them yet. China, the Arabs, Japan, etc are the ones who buy a very large portion of our debt (Treasury bills, bonds and notes).  Are they on board with the program?  What kind of payback will they demand for the use of their money?   In just the last month the interest on the 10 year Treasury note has increased over 1/2 a per cent.  That is a huge move in such a short period of time.   When you add that interest rate to trillions of dollars in future debt you are talking real money.  (That is not even taking into consideration our already existing debt of 7 trillion).  And what happens if they demand even more interest in the coming year?  They may say they won’t loan us money unless they get a much higher rate of interest or even some equity in US enterprises.   After all that is what our Government is doing with the Big Three and many of the large banks right now.  Why wouldn’t they demand they same treatment? 

I think so much of this whole concept of a bailout comes from the attitude of victimhood.  We have become a nation of too many complainers and “victims”.  Everyone is a victim these days it seems.  Those who bought houses they couldn’t afford; those who stupidly invested with Madoff; those companies who mismanaged their operations; those States that overspent and lord, the list just goes on.   What happened to the concept of taking personal responsibility and having the courage to deal with the consequences of our own actions?  If you made the mess, you should clean it up.  Charity is a wonderful thing and I support charity and all the good it does for both giver and receiver, but this is not charity; it is theft and chicanery by the Government and the confiscation of private property.  All those companies being “nationalized” have shareholders.  Why can’t they be in control of the fate of their company and their asset?  A chapter 11 would do them more good in most instances than simply turning over everything to the Government.  

We are being “stimulated” into future poverty and loss of our most precious of all assets–our freedoms.   Only a few short months ago the phrase “moral hazard” was on everyone’s lips with regard to saving faililng companies and institutions like Fannie and Freddie.  Have your heard that expression lately from the media?  Funny how things change after an election.   What was villified only a couple of months ago is praised as progressive, bold and necessary now.   Classic 1984 doublespeak, what was stupid is now smart.  Amazing.

This whole idea of rejection of responsibility for our own actions reminds me of that line from the Jimmy Buffet song–“some say a woman was to blame, but I know it was my own damn fault”.   I don’t view him as a great philosopher or social commentator but there sure is a real kernel of truth in that one.  We should demand that we do accept responsibility for  our actions and that starts with ourselves and then the  Government.    Yes, I have tremendous confidence in our people, not in our politicians who pander to the worst instincts rather than call for our best.

I hope you noticed that additional scientific research reveals that the die 0ff of the Aztecs was not from dieseases brought to the New World by the Europeans but rather from home grown viruses.  The other version was always a revisionist explanation for the event.  Those mean Europeans Must have done something to kill off all those “noble savages” to steal from another famous European.   Please always be suspicious of conclusions that are based on conjecture, even if reasonable, especially if they emanate from those with a social agenda to promote.

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Unrecognized Nobels in days of yore

The Nobel prize is highly regarded as a mark of achievement in the sciences and with good reason.  Some of the winners have found the most remarkable powers, forces and elements in our world and universe.  From physics to biology the singular new ideas have been hailed by all mankind.   Mr. Nobel you recall made his fortune that allowed him to fund the entire program from the weapons industry.  He invented TNT which caused a tremendous uptick in the destructive power of cannon, mines and the explosives used for mining.  Mining was the original inspiration for a more powerful explosive to allow for quicker and more thorough excavation using the explosives.  But as always there are the unintended consequences and it didn’t take more than a wink of the eye for the obvious military use of such a product to become evident.   We have been applauding the winners of the coveted prizes for more than a century regardless of its provenance.

Going back in time there are a number of geniuses that we will never know about but we reap the benefits of their advances to this day.  I am talking about going way back in history.  Back to when we were the crudest of animals and our folks probably grabbed any bird or small rodent they could catch with their hands and ate it raw.   Learning to control fire must have been the most significant advance.  Fire was around on occasion if only from lightening strikes.  Using that fire probably came from enjoying the warmth it produced.  But learning how to make fire when you wanted it, ah, that was spectacular!   Who was that first fellow who figured out you could create a fire with friction and some pieces of wood?  How did that idea strike him in the first place.   Really put yourself back in time.  You haven ‘t been to pre school or learned your numbers or ABC’s.  You have lived in squalor and only occasionally seen a fire.   What sparked that inspiration to test the wood with rubbing.  Later someone made a huge advance by using a bow with a loose string of leather wrapped around it and bowed it back and forth on another piece of wood as a base and that quickened the process substantially.  Would you have thought of that?  Would you have visualized how to engineer that bow?   Who would have ever thought you could take two rocks (flint) and bang them together and produce a spark that would ignite a fire?   It wouldn’t work with just any rock.  Those guys who tamed fire and made it portable sure deserve the Nobel.

My next contender would be in medicine.  Who figured out that meat would spoil and could make you sick?   Sometimes you could even die.  Someone learned that the cold would preserve the meat.  If you killed an animal in summer you couldn’t eat the meat after only a day or so but if the kill was made in the middle of winter it would last for days or perhaps even weeks.   How did he figure that out?   Much later some else developed the method of salting the meat to keep it and another soul learned to preserve the meat by smoking it.    Who would have thought of that?   Whoever they were they were damn bright in my book.

In the field of botany who first learned you could eat some plants but not others.  Someone had to try the first bite.  I doubt they all did it at the same time or else it might have been poisonous and we would have become extinct then and there.   Someone knew to test the plant with only a small portion first and watch the reaction.   They were primitive but not stupid.   Which berry to pick and when?   How about learning to move the plant and make your own garden.  That was a giant leap forward for mankind whoever that fellow was.   Give him his check.

I think that using a stick or rock as a weapon was probably instinctual.  I don’t think having a club was a particular mark of genius but going to the next level of weaponry surely was.  It is one thing to strike with a club but quite another intellectual exercise to build the first spear.  That takes imagination and engineering.  Especially the first guy who added a thrower to the mix to add power and distance to the throw and spear.   Simply adding a spearhead to the shaft was quite the engineering feat.  Why did he even think of that and then to make it work is remarkable.  He didn’t go to the Home Depot for his saw, planer, hammer, wire, pliers and other tools to rig his spear head to the shaft.   He first had to have the idea and the design in his head.   To imagine something you have never seen or heard of or could even envision is a stunning leap forward in thinking anytime.  Give him the plaque.

Some terrific engineer invented the bow and arrow.  It must have been like inventing the A bomb at the time.  You could stand off farther from your prey and thus protect yourself more from injury and still bring down the animal.   It took some engineering for sure but also an understanding of basic  laws of physics.   Imagine your mind if all you had even seen was a crude spear.   What sparked the idea of attaching a length of sinew to a stick and then using another stick as a projectile?    That was as bold at the time as believing a man could fly to the moon.

We owe much to our ancestors.   They crossed paths and endured hardships we can’t even imagine and through it all they improved.  I don’t have any idea how they would have measured on a modern IQ test but they rate on my appreciation scale.   So to those unknown benefactors I tip my hat and say “Well done”.

Ok, the Big Three are vital to our economy.  They have costs that are too high and are non-competitive.  They require and have already received a portion of a Federal bailout with much more to come.   The Government is controlling them in everything but name and now the same Government decrees that they must build new cars that are even more expensive and that any survey will  tell you the average consumer doesn’t want.   The average Joe could tell Congress now that they need to be building cheaper cars if they want to compete and survive.   Is a more expensive car the right direction for that industry?   Of course, not to worry, YOU won’t have to pay for it, the money will come from the Government!   There are those who still don’t get it that the Government only gets it dough from us.

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Madoff is a retread of free lunch theory

For the past month we have been inundated with news about the Madoff scandal and the implications of its reach.   It is amazing to me that so many people act like this is something new and unprecedented.   From the news reports it would seem that folks merely repeated the mistakes from the past.  They allowed themselves through their own personal greed to believe in the Easter Bunny and the free lunch theory.  Anyone with only a semblance of awareness must have known that the returns he was promising were not realistic or attainable.   No one can produce 10 to 12% returns year after year with the ups and downs of the market.  Yet many apparently sophisticated people chose to believe such nonsense.  They let their greed get in the way of their judgment.   Remember the movie “The Sting”?  No grifter or con artist can succeed unless he has a willing participant who thinks he is getting a better deal than anyone else.  Greed is what allows the con artist to thrive.   I am not in the least defending anything that Madoff may have done.  I am however observing that he did have “partners” in crime.   From all reports you didn’t need an MBA to realize that his so called monthly statements were balderdash.  Everyone who has looked at them has said that they didn’t make any sense at even a cursory glance.  Why would you trust your money to someone who gives out information that is nonsensical?  I will tell you why–because you wanted that return that was promised even if you didn’t believe it was based on understandable facts.    Never trust someone who is selling you something that is based on “secret” information or methods that can’t be explained.   That is investing 101.   It is also common sense.   Those folks thought they could get the free lunch.   You can get lucky sometimes and make an unexpectedly high return on the market on one stock that does extraordinarily well.  But that never last more than a year or two at most.   Gravity always takes over sooner or later, in the physics lab and the market.   His genius was in letting people believe what the wanted to believe and that they were getting a deal that no one else could get.   He played to and massaged their greed and those folks let their worst traits dominate their decisions.  

This is not a story about betrayed trust to me so much as it is a morality tale.   Like the drowning man who won’t let go of the bag of gold.   It wasn’t the gold that drowned him it was the greed.   The Hedge Funds that advanced money to him should be vilified for their lack of due diligence.   In their case it was a greed also because they were making money without earning it.  A minimum of due diligence would have raised a number of red flags but they earned a fee without having to do their work.   They sure can’t claim that they did their homework on this one.   Over the years I have seen so many examples of this type of fraud where people suspend their common sense to get in on the “deal of a lifetime” because the returns and profits just look too good to pass up.

I recall years ago a situation where a promoter conned hundreds of folks in an oil and gas deal.   He was Mormon and the vast majority of his investors were from that same faith.   There was some initial trust established and he was promising good returns on their investments in his oil and gas wells in west Texas.   Like all good promoters he was very bold.   He got by with his scheme for several years before the truth caught him out.   He did have a few decent wells but that was mostly be accident.  His real business, if you could call it that, was raising money for wells.  The fees and expenses he charged allowed him to live very well.  Finding oil or gas was secondary. 

He got to a rough patch where he needed new investors to pay for some earlier ones and for his own high flying style of living and he went a con too far and that brought him down.  He would fly in the potential new investors and then take them out to the prodcing well.  His pitch was that he was going to drill an offset well right beside the good well and the odds were great that more oil would be found.  He would wine and dine guysand then the high point of his promotion was taking them out in the field and letting them visit the well.  It would be an abandoned well that hadn’t been plugged yet.  He would literally go to the well site and turn on the spigot and let the investors see the oil pouring out.  That always impressed them and they wuld get our their checkbooks.  Problem was that he had hired crews to go get crude from tank batteries in the area and pump it into the abandoned well the night before.   There was no oil except what had been pumped in.  It was a classic case of “salting” the well, just like the mining scams in the old West.   A too talkative roughneck was his undoing.   A minimal amount of checking would have revealed the scam but again greed overcame prudence.  The Texas Railroad Commission keeps records on every well and they could have been checked easily enough but no one ever did.  They were looking for that sure shot gusher right beside that producing well where they saw the oil with their own eyes!   When you allow your greed to overcome your common sense and you don’t do the work to check facts for yourself then you are reaping the reward of that one of the seven deadly sins.

As we are embarking up a gigantic expansion of the State with the new administration and the bailout and stimulus plans, perhaps we should take heed of a well known 20th century statesman.   “Against individualism, the Fascist conception is for the State; and it is for the individual in so far as he coincides with the State, which is the conscience and universal will of man in his historical existence”.  That was from Benito Mussolini.   Take heed of those who say the Government is the answer to everything.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Political Potshots From the Great Unwashed

The elites over the years have often referred to the common man or public as the “great unwashed public”.   Well, we may not have the sophistication of our betters but we can tell the difference between the real deal and poppycock more often than not.  We get fooled sometimes for a bit but usually sooner or later we see the little man behind the curtain that is pulling all the strings and notice the King has no clothes.  So as we embark on a new round of political intrigue and proposals for our own good, we throw up a few thoughts that might hit a bullseye even if only by random chance.

Our new Treasury chief will be Geithner is appears.   I wonder how well his application would have been received if he had been seeking a mid -level job with the IRS as some regional director or whatever and the fact that he had not paid taxes due came out.  Do you think he would have been hired?   I mean he is an expert in financial matters and economics according to all his defenders and he will not only be the one in charge of the Treasury and its TARP money but he will be the head of the IRS for gosh sakes.  If you had a dispute with the IRS he would be the ultimate authority that could rule on your appeal.   Maybe his appointment is a reflection of lots of guilty consciences by those who have fudged on their own tax returns and they want a kindred spirit in charge.   You do note that even after he was audited he still didn’t pay the taxes for ’01 and ’02 until after his appointment by the new fellow.    He was one of the architects of the TARP program.  How do you think that is working out so far?   Well,  God bless his crooked little soul, I guess we need to hope he will do something right even if it is by accident.   The hypocrisy of it all is staggering.

I watched a very recent interview with Gettlefinger, the UAW chief, about the bailout for the Big Three.  He promised in Dec. when they needed the money that the union would do its part and work to reduce costs very quickly.  In the interview last week he said there was no hurry that they were waiting to renegotiate with the new administration and that the Feb. deadline was not realistic.  When he was asked about the difference in compensation between his union members and those of foreign auto workers he said it was too difficult to calculate.  That you couldn’t come up with a number of what it costs per hour or car.   I bet if they would let you and I have a look at the books of the Big Three we could come up with an estimate in less than one day that would be within 1% accuracy.  This is basic math, not sending a man to the moon.   They clearly are planning of giving nothing up.  They are cashing in some of their political chips with the new bunch.  If those unions keep doing the same thing then we will have the same result all over again just like deja vu as Yogi would say.  We, the taxpayers, will subsidize their good life for years on end and get very expensive cars that most people don’t even want.  He lies but he doesn’t deceive, he is very open about where he is going and not going with his union.  The common good?   That alleged goal of the unions will be attained at the risk and cost to others.  It is pure greed.  That is one of the seven sins and will get its just reward in the end.

I note that C. Kennedy has decided she doesn’t want to be Senator anymore after all that hoopla and campaigning the last month.  Now it comes out that it is due to tax issues and nanny issues.  That makes more sense rather than the announced “personal reasons”.  That family never cedes any power unless it is pried out of their hand.   Now she can go back to that heavy work load on  charitable boards.  Don’t you just wish that you had enough stashed away that that sort of activity was your “work”?   I always worry about someone being in charge who didn’t grow up carrying out the trash, doing the yard and their own laundry.

The battle of Agincourt in 1415 was a tremendous victory for the English over the French.  I have written a more detailed account of that battle earlier.  Today it is important to remember that the battle was part of the Hundred Years War and that the French were stunned by the defeat.  It was Pearl Harbor magnified many times over.  Their best and brightest were slaughtered and leadership was decimated.  There were even some calls for accomodating the English.  There was little strategy propsed by the French after the defeat.  They were on the floor.   But some time passed.  The English mismanaged their own affairs and the French eventually found resolve again.   It did take a long time.  But with a little inspiration from Jean D’Arc and future heroics the French were the ultimate victors in the Hundred Years War.  The English were not able to establish hegemony over great swathes of western France and ended up with only the 5 channel ports.   Maybe the Republicans should read this history lesson with care and hope.  The Democrats ignore its lessons at their own political peril.

Of all the judges depicted in fiction or who ruled in real life who would you rate the most famous of all?  Learned Hand, Judge Roy Bean, John Marshall, Lord Black, Solomon and others come to mind.  Clearly I think the most well known judge on record would have to be Pontius Pilate.  Many of your may never have heard of the famous jurist listed above but I bet every one of you knows who Pontius Pilate was and the trial he conducted.   He was an appellate judge actually if you remember the story correctly.  Christ had already been tried by the Sandhedrin and found guilty.  Pontius could revoke or enforce that death sentence.  Read that story of the passion again it is one of the most insightful tales into the hearts of man written.

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Back to the Future, Again (I’ve read this chapter before)

It is amazing how folks of any generation or era believe they can get everything right because they are the smartest guys in the room and their predecessors didn’t have the depth of understanding that they do.   That attitude is manifesting itself now with the new administration in Washington with regard to their ability to deal with the economy.  They are like a bunch of teens yapping and bouncing all around saying
“let me have the keys to the car”; they are so confident they can drive it better than anyone else before them.   How many times in the last couple of months have you heard about how smart they all are.  They are intellectuals by their own account and plan to take a very data driven approach using empirical methods to determine the correct course of action for the future.   Do they really believe they are smarter than Alexander Hamilton or J. P. Morgan?   Their arrogance boggles the mind and is also frightening.  With their Blackberries or whatever and computer models they will divine the right steps to take if only we let them have those keys and run the economy as they direct.   As written yesterday they don’t want to referee the game in the free market but rather dictate the outcome of the game as not only referee but a participant.

This is not the first time that a new group of activists have descended on the White House.   It happened with FDR.  His administration was filled with Harvard and Yale types who truly believed they were the intellectual superior of their political foes and also that they knew better than the Average Joe what he wanted and what was good for him.   They created a lot of motion but damn little progress toward fixing the Great Depression.   Too many new ideas thrown willy nilly out into the market place by Governement fiats that skewed the functioning of the market.   Government intervention always skews the market.  There will  be some winners in that intervention if they are the ones properly connected to those in power in Washington.   The most recent example of that is Barney Frank intervening on behalf of the bank in Boston to make sure it got some of the TARP money.  He only suggested it would be a tragedy if that bank didn’t get help.   Well, how to you think the bureaucrats responded to that suggestion.   That is only one small example of how Government programs control the market.  I use it because it is current and hopefully people can relate to it.   Multiply that example by the thousands and you see the impact of Government in the market.  I have no idea if that particular bank deserved the money or not but rest assured it was going to get the  money regardless of merit.   The market does a wonderful job of separating the meritworthy from the fluff and failures.   Government picks friends and constitutients who fund campaigns and get out the vote i.e., the Big Three.

When Kennedy first came to office the same attitude prevailed in Washington about how bright and smart these guys were who would be running the administration.  They had learned all the latest techniques for outcome analysis.  They were driven by data and projections.   Yes, they all had wonderful academic backgrounds except for the Attorney General who qualified for the job because he was the President’s brother.  Robert McNamara was the Sec. of Defense for Kennedy and he was retained by Johnson.  He was the leading proponent of this cost analysis approach to everything and running the numbers and data and using scientific models to build the armed forces and for the employment of them.   Kennedy started the real conflict in Viet Nam.  Yes, I know the first troops sent there were under Eisenhower.  But that was only a few hundred and they were truly advisors, not active participants in the struggle with the North.   Comparing what Ike did to Kennedy is like comparing a Wren’s egg to an Emu’s egg.  They are both eggs but one weighs less than an ounce and the other weighs pounds.   As we sent troops to Viet Nam under Johnson by the hundreds of thousands McNamara and his boys were completely confident that they could control the conflict and win based on pure analysis and science.  Emotional factors like courage, loyalty and bravery were irrelevant to the outcome in their opinion.   There was even a book written about these folks you may have heard about–The Best and the Brightest.    Read it.   I don’t like much  about that book but read it.   War is somewhat like a large economy because there are so many little decisions by the thousands constantly being made that don’t match the prediction.  People can’t be pidgeon-holed that easily in conflict or in an economy.  The market can embrace the unpredictiable, such as TV,  and make it useful.   The market has a way of smoothing out those decisions over time.   An unenforceable consensus is reached in the market place about the right direction to take, what works and what doesn’t.  McNamara and company ignored the realities on the ground because it didn’t match their predictions.   How well did letting these smart people run the war work out for us?   War–the mission is to win and let the best ideas and leaders carry out the mission.  Economy–the mission is to prosper and we should have the Government there to make sure everyone has an equal chance in the game to prosper, but never to give mandates about how the economic game is to be played.  Let the players pick and choose their own strategy.  Those that are best will prevail and that is good for all of us.   Henry Ford, Microsoft, IBM,  and Google all came to the fore because they were allowed to develop there own game plan and employed hundreds of thousands of our citizens in the process.  Let’s hope that somehow we can overcome the intrusion of Government now and defend our right to succeed or fail and make our future economy better than before.   The problem with Government mandates is that it doesn’t affect only one company, it affects everyone.  When a mistake is made it hurts us all.  When a company makes a bad decison only it suffers; or at least that used to be true before we became Bailout Nation.

So often people can’t seem to get priorities straight.  Knowing what is more important than something else is key to success in any endeavor.  Like my uncle used to say “don’t worry about the mules, load the wagon”.

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