Tag Archives: bailouts

Government “Investment” And Management Of The Economy

Whether we like it or not since January of ’09 we have been in an era of much greater control of our economy by the Federal government than anything in the past.   Our landscape is filled with the examples of this expansion and domination.   GM, Chrysler, AIG, Solyndra, the Dodd-Frank bill and the Consumer Protection Act and the exponential growth of regulations and grabs for power by the Labor Dept and EPA all confirm this view.  Of course the elites and government groupies think this is the perfect formula for society and the economy.  They believe they can manage everything much better than the people who will only make bad decisions or allow themselves to be duped.   Their confidence in the common man is rather low but their confidence in the wisdom and goodness of government led by the elites is boundless.  History has had other examples of government expansion and central planning and mayhap we should at least consider how well those worked out before we take that next gulp of the cool aid the Dems offer.

The seventies were another time of tremendous government expansion.  It began in the second half of that decade under that fearless and dynamic leader Jimmy Carter.   The Dems had been planning for years how they were going to exploit and use the “war savings” from the wind down of the Viet Nam war to advance the next round of their social agenda.   That war had been very expensive and even some Dems and the media had been critical of Johnson for pursuing his policies of “guns and butter” at the same time on borrowed money.  Of course the war did wind down after Nixon came to office.  Regardless of what you may think of him that is a promise he made and kept–to bring the war to and end and it started as soon as he came to office.   You don’t have to take my word for it just look at the Viet Nam War Memorial and see how the deaths in the war starting dropping dramatically after he took office.   Then in ’75 we were out completely.  Unfortunately, that was followed by the election of Carter. 

Especially in the area of energy Carter and his cronies believed they could control prices and events and naturally protect us from ourselves.  We had already been through one Arab oil embargo and then a second came.  The continued and accelerated spending by the government made the already painful inflation a real disaster.  More regulations rolled off the presses at breakneck speed.  We also got FERC to control oil and its price.  Inflation was over 13% for much of this era; mortgages were equal that and the dollar wouldn’t buy a bucket of spit in the world market because no one wanted the dollar because it kept falling so fast.   The centrally planning for energy led to those awful gas lines and mis-allocation of fuel.  Oil  profits were restricted because they were “windfall” profits and not truly earned somehow.   They got one price for old oil and another for “new” oil and had to ship fuel were instructed by bureaucrats.  Guess what?   Lots of the oil people simple decided to sit on their hands and hope for a better day.   Why run the risk of drilling and building new refineries if you weren’t even sure you would make a profit or if you did then the bureaucrats might decide their were excessive or windfall and take the away from you.   Domestic production of oil and gas dropped and imports rose even more.   The Arabs loved Carter and his  bureaucrats.  

This was similar to the kind of “economy” they had in the Soviet bloc countries by this time.   The central planners  had their ideas about what should be manufactured and how and the industries of course had to follow suit.  They were required to comply.  No one in the Soviet Bloc and the world market really wanted the Czech steel or the East German machines and thus the central governments had to subsidize these and other industries even more heavily.   The planners were sure they were right and it was great redistributive policy and good social policy for the workers.  They ended up by actually subtracting value from their economies because the finished product they made were a net loss; the finished products were worth less than the raw materials.   During Carter the oil in the ground was worth more than taking it out so why drill.    East Germany made computers during the ’90’s but they weren’t very good and besides they couldn’t make enough of them; they only made 1/50th of what Austria produced during that time with less than half the population.  But when the central government and the elites have an idea they won’t take no for an answer from other parties or the people and pour even more money into their ideas.   Anyone heard of Solyndra?   Read the papers and you will also see the First Solar is shutting down some production as are many other solar companies around the world simply because there is little demand without heavy government subsidy and the Europeans are cutting back big time now that they have to try to balance their books.

What mattered to the Communists was not economics but politics.  (Judt–Post War).  That is true with all with a socialist bent.  The current administration is about politics not economic growth.  The growth is subject to their social agenda and the distribution of not only money but power.  If society is structured the way they want it to be then they don’t really care about the economy.  If economy was really important to the WH then why don’t they have many senior advisors and cabinet members with real backgrounds in the private markets?  The WH is filled with academics and career bureaucrats or politicians.   Nothing but elites.   They are pulling us in with a velvet rope that is all nice and soft but a rope nevertheless. 

“That way madness lies”  King Lear, Shakespeare…www.olcranky.wordpress.com

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2 Cents Worth On Life Its Ownself

A few thoughts to ponder during the Holiday Season and ideas of the inquiring mind about the current state of affairs.  Buckle up and take the ride.

Greece has been much in the news lately because of their debt problems stemming from their very generous welfare state and highly regulated economy.   They are in a death spiral at the moment and trying to right the ship, or at least so they say.  There are some of us old enough to remember a little history about how they got to this point.   After the War most of Europe made substantial progress and improved the economic situation greatly all the way into the ’70’s.   Greece, Portugal and Spain were the noticeable laggards.  Their economies were third world during the period.  The European community was formed and the free trade zone established during this period which ultimately lead to the Eurozone with the Euro currency.   Greece wanted in badly in the ’70’s but lots of Europe was skeptical but they did want the whole nine yards and all of Europe to be in the economic union.   Greece couldn’t qualify on its own merit so it was granted special subsidies to be a member.  (No one ever accused the Greeks of being bad bargainers).  It was a great deal for Greece and the rest of Europe hoped it would be a good deal down the road for everyone.   Shortly after Portugal  and Spain applied for membership having ended the authoritarian reigns of Salazar and Franco. 

They were no bargain but again “Europe” wanted everyone in the deal because it would benefit all, at least that was the belief.  Guess who raised the most objection to them?  You guessed it, the Greeks.   They were already running deficits and their economy was still lagging behind everyone else but they thought the Iberians were too much of a load to carry.  To induce the Greeks to approve the addition, the rest of Europe again granted special privileges (subsidies) to the Greeks for them to go along with the Iberian additions.   With the extra money in their pocket for doing nothing more than saying yes, the Greeks were happy to welcome them in the early ’80’s.  We all know how that has worked out.  The Eurozone with the Euro came into existence finally in the late ’90’s.  The Greeks continued to have a bloated public payroll, low productivity per worker and huge deficits.  Others are having to step in and pay off the debts for the Greeks for their profligacy and the Greeks riot in the streets about how unfairly they are being treated!   Funny, I was always taught that whoever pays the Piper gets to call the tune.

Speaking of our friends in Europe are you getting as confused as I am about the way they intend to fix their debt problems.   We have the EFSF which is the European Financial Stability Fund that was is going to get money from somewhere; they can’t seem to articulate exactly where.  Then we now have the ESM, the European Stability Mechanism which is going to add more money to the bailout pot.  New ideas seem to emerge every week.  Will the ECB (European Central Bank) simply print up new money like our Fed does for its bailouts?  There has been talk of some authority, as yet not clearly specified, that will issue bonds and then loan that money out to the needy hands.  Maybe I am just not smart enough to understand the thinking of all those European “smartest guys in the room”.  I do know it all boils down to the Germans because they are the hardest working ants in the field and the most frugal.  Can you blame them for asking what they are getting out of all this?

You all remember the story of Robin Hood.  The complaint was tha the local Sheriff of Nottingham was in cahoots with some of the local big wigs and stealing money from the public coffers.  Am I the only one who has ever wondered why Robin Hood didn’t just go after the evil Sheriff and leave the others alone.  He ended up stealing from anyone he believed was involved in wrongdoing without trial or proof and then gave the money to his preferred special interest group and built a political machine.   Had the bad Sheriff merely been replaced with another Sheriff that had another coterie of cohorts after the same bag of money?  Was he really a hero or just another wannabe dictator?

I don’t get the Payroll Tax reduction for one year.  It will add up to about $80 per average family per month for the next year.  It is like the $600 check most of us got back a few years ago and the cut we’ve had this year.  That amount spread out over a year just doesn’t motivate lots of renewed spending by consumers.  I mean look at the economy for this year.  Has that cut of 2% in the payroll tax boosted the economy this year?  A year flies by really fast.  You reach your own conclusion.  I love all lower taxes but cuts need to make sense in a broader picture.  We would all love to have that extra 80 bucks a month but that won’t cause us to go buy a pick up truck; maybe we’ll do a couple of trips to Appleby’s with the family.  

After all the sound and fury of the last year the fact is that the National Debt is higher still and going up like a rocket.  All the talk about cutting hasn’t happened yet and the so-called cuts are merely reducing the amount of the growth of the debt which is currently projected be 44 trillion in ten years.   Maybe we are just Greeks writ large.   Everyone can’t live on the Federal payroll directly or indirectly forever.  Someone has to actually work in the private sector to create real wealth and money.  The Government doesn’t create wealth, it takes wealth for allegedly the common good.   As it grows the private sector shrinks and soon there won’t be anyone to tax if we keep on the present road.

“I desire what is good; therefore, everyone who does not agree with me is a traitor”.   George III www.olcranky.wordpress.com

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2 Cents Worth On Life Its Ownself

Let’s explore some memories and the Alice In Wonderland headlines of the day, along with criticisms and observations of human foibles.

Those poor folks in California are having to bow again at the alter of the tree huggers.  First it was some kind of smelt fish that caused water restrictions for farmers and ranchers.  Now those Feds have a new one, the sucker fish.  There very name sounds so disgusting but by golly we are going to protect it regardless of costs to the economy and certainly at the cost of those farmers.  I would love to hear the hard evidence at a trial about exactly how the extinction of this fish would destroy our world.  I mean over the eons more than 90% of all the species of life on earth that ever existed have become extinct with only a miniscule portion remotely attributable to human action.  Most bison are gone.  But would those folks on the Great Plains really like millions of them roaming all over the land breaking fences and blocking road, bridges and railroads?  But never mind logic, common sense or science the religion of the tree huggers rolls on.   Will someone ever point out that the Emperor is not wearing any clothes?

Don’t mind arguing with someone who understands the facts but it is annoying to listen to those who are so far off on their facts.  Heard a protestor on Wall Street (with encouraging shouts from the crowd) that it was horrible for a hedge fund manager to make 5.9 billion.  They seem to think and surely articulate an argument that these people are using their money and the money of other very rich people to invest and make these millions.  First those profits are for the hedge fund itself.  Those profits go back to the investors in the fund.  Yes, I am sure the manager makes tons of money on the deal but the “profits” are not theirs alone; the overwhelming bulk of profits are disbursed.  Second, the investors are those pension funds, the endowments and even governmental funds.  Harvard and Yale both have about 40 billion endowment funds.  Where do you think that put that money?  It is not hiding under the school’s president’s mattress.  They invest with those hedge funds just as thousands of other public employee funds do.  Yes, those funds are for the “little” people.   Teachers, firemen and all public employees better hope those evil hedge funds make lots of money to fund their retirements.

Someday I want to understand exactly how it is that the full moon always rises at sunset regardless of the time of year.  I mean in winter in our latitude the days are only about 10 hours long and in summer they are about 14 and that is quite a difference but the Moon and Sun dance in harmony regardless of the season.  I know it must have something to do with the tilt of the earth on its axis and speed of rotation of earth.  But still it is another reminder of just how special a place we have been given in all the known universe.

How would our economy look today if we had not bailed out anyone?  No banks, not Government Motors, AIG, Fannie or Freddie.  We could have guaranteed the depositors for less money and let all the creditors take the hit as they should have in a free capitalist market.  There would have been some pain for sure but we would have recovered by now.  Other or new banks would have stepped in to fill the void, GM would have filed Chapter 11 and emerged on its own feet, smaller but viable as could have Chrysler.  Those investors with AIG, Fannie and Freddie would have taken a loss as they should have for the mistaken investment.  The housing market would have been down but money never sleeps and home loans are still a very good loan to make and the private market would have wanted that.  Yep, loan standards would have gone back to what they should have been and you would need to be credit worthy to get the loan.  In spite of the pain it would have caused, can you make the case that it would have been worse than what we are dealing with now and will continue to deal with for the foreseeable future?

NATO is known as a Western alliance to protect itself from Soviet attacks from eastern Europe.  It actually had its birth from the Brussell’s Pact made on a couple of years after WWII between France, England and Belgium to protect themselves from attack by Germany!  I mean Germany was still just a rubble heap at that point and the full dimensions of the Cold War weren’t yet clearly defined.   It was the aggressive, hostile and threatening actions of Stalin and his socialists cohorts over the next couple of years that made the West realize the true danger and upgraded the Pact to NATO.   Then the big issue was whether or not to re-arm Germany.  The Germans were reluctant for many reasons.  For one thing they were still cleaning up the mess of a country they had and France in particular didn’t want them armed for fear of a German revanchism.   Another ten years down the road and Germany was re-armed to help be a bulwark against the Soviets.  The wheel turns.

The recent Bank of America fee for debit card charges reminds of some of the history of banking innovations and changes over the decades.  There used to be a few what were called “custodial” banks around.  They dealt almost exclusively as trustee for estates created by probate or trusts.  They handled money for other people.  Mellon was one of those back when.  There were the commercial banks that had regular consumers and there were the ones like J P Morgan that mostly were bankers for other banks, companies and even governments.   In its heyday it was a real mark of distinction to have a checking account with J P Morgan.   They wouldn’t accept just anyone off the street as a depositor.  It was almost like applying for membership in a private club.  To issue your personal check on a Morgan account signalled to the payee right off the bat that you were a heavyweight.

“A good name is more desirable than great riches…”  Proverbs.  www.olcranky.wordpress.com

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Hamiltonian Lessons For Geithner

The nightly news for two years has been filled with comments and proposals for the smartest guys in the room about our economy and what it should be and how it should function.  Even pretty arcane matters such as the purchase of Treasury notes by the Fed have become common fodder for the pundits.  Economists are regular guests on the news broadcasts offering conflicting views about how things are and what course of action or inaction should be taken to improve our economic health.  Ultimately, economic health is the foundation of our freedoms and prosperity.   Universities, foundations and the halls of government are loaded with PhD’s in economics who are guiding or misguiding economic policy of Government, Inc.  It is a complicated subject and it is easy to have one’s head twisted by the minutia of the discussions.  But the fundamental concepts aren’t that hard and the basics for a free market system can be understood by most.   It would be a help if some of these experts would spend less time studying the Great Depression and the recessions of ’81 or ’01 and studied the history of our economic beginnings as a nation.

Over 220 years ago we had just approved the Constitution and the first government under Washington was formed.  There wasn’t a formal cabinet the way we think of one today.  Jefferson was Secretary of State and had five employees under him, Know was the Secretary War with a handful of people under him, the Attorney General had not staff and was a part time employee who continued to have a private practice.  Hamilton was appointed Secretary of the Treasury.  He quickly had a staff of about 50 because of the paperwork needs to collect and process the import taxes from thirteen states which was the only source of revenue for the country and that was spotty.

Hamilton had no PhD in economics, there was no such discipline at that time.   He did have books on commerce and trade and studied the British system of commerce, trade and public credit.   He was starting with a blank slate and genuine economic turmoil.  What we face today is picayune compared to the troubles our new nation faced.  The
Revolutionary War had made the states run up enormous debts to fund the fight.  Theyd issued bonds for the money received.  Many of the buyers were the soldiers themselves and small farmers and merchants.  But some wealthy individuals such as Morris of Pa. had also advanced considerable sums to pay for the war effort out of their own pocket with a promise of repayment from the Continental Congress.

Economic activity during  the War and after was stagnant because there was no universally accepted medium of exchange.  We had Continental dollars but they were not worth face value.   The bonds issued were heavily discounted because most have serious doubts they would ever be repaid.   Business transactions were conducted in a true hodge podge method.  Spanish pieces of eight, Dutch Guilders, British pound sterling, the Continentals and bonds were all used to pay for goods and services.   It was a mess to say the least.  This was the economy that Hamilton faced.  He naturally studied the British model since it was the one most Americans were familiar with and it had in fact helped expand and preserve the British empire.  It worked better than chaos.  For this he was later blamed for being “pro British” and a closet monarchist.

He studied everything he could for a few months.  He was acutely aware of the political pains of any decision made.  Many of the bonds issued by the states had been bought by speculators.  They were gambling that the new country would succeed.  The sellers needed money and had lost faith in the future.  Stark philosophical issues abounded with the political mix.  Our Constitution recognized the need for paying the debts and is embodied in Article 6 of the Constitution for the debts of the Continental Congress.  There was much public outcry about the government paying off the debts reflected in the bonds.  The populist sentiment was that  this would only reward the rich and the speculators and hurt the little people.  Many wanted to default on the bonds.  Hamilton wrote his ideas and Theories down in a 40,000 word booklet.  It was a master piece of scholarship and practical application of our values, the law and sound economic theory.  Hamilton was an excellent lawyer and had prospered as one before he became Secretary of the Treasure.  Trust was critical.  The people and all creditors had to believe in the government and its commitments.  Without that trust all else would not matter.  He knew that the sanctity of the contract was the cornerstone of the rule of law and all the rights of property that emerges from that foundation.  Without that we would have no freedoms. 

Hamilton concluded that the bonds would be paid and honored at full face value.  This would greatly benefit some of the speculators he knew.  Some were his friends but that was beside the point.  It was the rule of law; it was a matter of building trust.  Some had advocated that the bonds should only be paid to the original owners but Hamilton shot that down on practical grounds–how could you find them, determine the price they sold them for, and what about the claims of those who paid hard money for them?   He also realized that the bonds would have real value when folks recognized they would be paid in full with interest.  They could become like money.  They would be a medium of exchange between merchants because they would have real worth. 

After much ballyhoo and political tumult, the Hamilton plan was adopted.  It got the nation off on the right course.  It established firmly the principle of the rule of law in all matters commercial and that public debt was a sacred obligation and that it should be honored and provision made for its retirement.  As a note, he at one point talked about public debt being a “blessing”  those who favor stimulus now often quote that.  They do so out of context.  Read his essay on economics.  He was referring to the overall scheme of building trust with that debt that already existed. He was not promoting the idea that government should borrow and spend willy nilly.  He would be appalled at our current economic mess and debt.  Where is a Hamilton when we need him so badly.  Regrettably our tax cheat in chief Geithner hasn’t studied Hamilton enough if at all and certainly isn’t channelling him in the new age sense.

Article 1, section 9 of the Constitution provides that a “regular Statement and Account of the Receipts and Expenditures of all public money shall be published”.  Well, the government spews out reams of numbers annually.  But one wonders how “regular” it is.  http://www.olcranky.wordpress.com

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Tooth Fairy Economics

It would be nice if there really was a tooth fairy and you could actually get money from a friendly source for free.  We all recall as a child losing that first tooth about age 6 or so and then magically during the night a dime or today a dollar would show up under your pillow and viola you had money for nothing.  It would seem as though many of those very well educated people with Phd’s in economics advising the current gang in the White House never lost their belief in the Tooth Fairy.  They believe you can get money magically without any pain or effort.   Rather than being a 6 year-old you have to be a voter of a certain favored bloc. If you bought a house you couldn’t afford in the first place with no money down and simply moved in just like a renter and then ran into a cash crunch and couldn’t pay the mortgage then you are just the guy for them.  They want to be your Tooth Fairy.  They will give you money for nothing.  If you own and operate a large auto company and did a really bad job doing it but you have thousands of UAW workers and their pensions on your payrolls, then you are a great candidate for their help and loads of free money under you pillow when times get tight. If you are unemployed and drawing unemployment compensation for a year, then not to worry the Tooth Fairy will come along and give you even more money often at 80% of what you were earning while at work.  Just keep making noise and the Tooth Fairy will show up again and again, especially each time it gets close to an election cycle.  These folks are the ones who seek a job and when offered one often demand that the pay be “off the books” in cash so that the records won’t show they are working and they can get their unemployment and the cash money from their new work at the same time.  That is using the Tooth Fairy and a little savvy at the same time. If you are a teacher, fireman or cop then you have a special place in line with your unions to receive the best of benefits from the Tooth Fairy.  You can work so hard for thirty years then retire at about full pay when you are in your early 50’s.  Such a deal.  There are those who think the Tooth Fairy has a hidden stash of money that is bigger than the sky is blue.   It will never run out. The problem with this public Tooth Fairy is that the money isn’t really free.  It comes from someone else–the taxpayers.  Even when the money extracted from taxpayers isn’t enough the guys in the WH will not be thwarted in their efforts to be the Tooth Fairy, they will just use credit and the printing press to create more money.   But remember that the credit they use is PUBLIC credit, it is our credit they are using.  When the use the printing press they are not creating any new value.  Government does not create anything.  It provides services for the governed.   It is not an “economy”.   The current gang acts like there is an endless stream of money.  They show no concern for ever paying the piper.  The newly minted money that will be printed this year merely devalues all the money you have earned and saved.   There is nothing of worth behind it.   Yes, when the economy is sound and the wheels of industry are churning there is an implied worth to our currency because we and those around the world what something we manufacture or a service we can provide.  But we aren’t making anything new or offering new services or better services.  We are merely printing more money. The Fed is actively pursuing an agenda to use “quantitative easing” which simply means they will buy Treasury bills and notes.  Of course the Fed doesn’t have the trillion dollars to buy them like a private investor or foreign government or foreign bank, so they will literally print the money.  It is phony money to buy them but it makes balance sheets look better.  The Treasury in turn each year is taking money out of the Social Security funds because the US spends more than it takes in and gives the Social Security IOU’s for the money.  Those people who claim the Social Security fund is sound until 2037 are assuming that the IOU’s will be paid with good money when the debts come due.  Some day soon I fear the world and our own people will wake up and realize there is not Tooth Fairy. That this printed paper is just that, printed paper and doesn’t represent any real value.   Even if they believe it has some value will  they believe it has a value equal to the amount owed?  First it will be dribs and drabs of folks not buying more of them and then more cashing them in than new buyers.  The values will plummet and the interest rates soar.  If you don’t think that can happen then you should take a hard look at what happened to the market between the high in ’07 and the low in ’09, it lost 60% of it value.  If you believe it could never happen to Treasuries and the dollar bill then you really do still believe in the Tooth Fairy.  Good luck with that when you try to use the Tooth Fairy as a guarantor on your debts. During the debates at the Constitutional Convention in 1787 there was one State that particularly fought hard for “states rights” against the central government being proposed.  That state was New York.  <a href=”http://www.olcranky.wordpress.com”>www.olcranky.wordpress.com</a&gt;
Excerpt  

 

Revisions

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Trick Me Once, Trick Me Twice…..

Isn’t it frustrating to watch a magician you have seen before perform the same trick and still not be able to figure out how he hid the dove until he pops out of his hat?   It is the same feeling one gets watching the spectacle of the most recent version of a Bailout from Washington.  Of course this was “only” for 26 billion and I suppose one should consider the chump change these days with hundreds of billions and even trillions thrown against the wall by our politicians in Washington.  This latest travesty is supposedly all about helping  the unemployment rate and saving jobs for those vital public employees we all love–teachers, firemen and policemen.   We have seen this trick before and know the outcome.

First, its worth noting that teachers, firemen and policemen are l0cal concerns and the responsibility of local governments.   The fact is that this money is for California and New York more than anyone else and we all know it even if that won’t be publicly articulated.  When questioned the Dems shift the conversation to something else.  Where in Article One, Section Eight of the Constitution does it say that Congress has the power to fund the police department in Oakland or pay for teachers in New York City?  Beyond that why the devil are hard working folks in Indiana, Kansas, Wyo. and the other states having to pay for the incompetence and profligacy of California and New York?  Let those states deal with their own problems and figure out their own solutions.  The ants are being forced to feed the grasshoppers who dawdled and fed all summer long. 

At the beginning of the financial crisis there was much talk and brouhaha about the “moral hazard” issue of bailing out Wall Street.  That was a valid point then and now.  But now that the largesse of Government, Inc. is being poured out to public union employees there is not a word of concern about the moral hazard issue for the spend thrift states.  The issue is that you can’t have what you can’t afford.  If you overextend your credit and no more is available you have to cut back.   That applies to individuals and should apply equally to the States. 

If they have to fire teachers, so be it.  That is the consequence of their own actions and inactions.  By the way, I bet you they could find thousands of clerical staff that could be cut first for other agencies and that there are thousands of administrative staffs employees in California and New York that could be let go before teachers.   Why are public employees sacred cows?  What made them immune to hard times like the rest of us?  The bottom line for many of us is I just don’t care.  They don’t deserve my sympathy or empathy and they darn sure are entitled to my charity.  They are reaping the things they sowed with ridiculous salaries and benefits for their public employees.  You have seen the recent studies that were even reported in the left leaning USA Today.  Those public employees have it made and made by tens of thousands more in pay and benefits than their private worker counterparts.   Why can’t those salaries and benefits be cut?  The answer is obvious, they could be but that might cost the Democrats some money and votes in future elections.

In the early 6th century the Byzantine emperor Justinian ruled with such an iron hand and expanded the reach and power of his government so much that he got the unintended consequences of less rather than more.   His taxes were onerous and then he established government-favored industries in the silk trade.  These government sponsored enterprises became monopolies in short order.  Those who had been involved in the silk and dye trade did the thing that oppressed people have done for millenia–they moved.  They went to even the hostile environs of Persia.   Of course trade and revenues for the Empire declined.  Now it is public unions and GM and Chrysler being blessed with the taxes of others.  What will the oppressed do this time?   They may decide to stay and fight rather than move to “Persia”. 

The hypocrisy of it all is particularly galling.  We have truly become “Bailout Nation” and the Dems are suffering from fiscal nymphomania.   They care only about votes and power not the average Joe working for a living.  But they will fall all over themselves for Jill if she is a public employee.  The people need to feel their government is responsive to their needs and wishes and will more than anything play by the rules of the game.   The Dems are rigging the game and lying about it to boot.   Let’s hope those folks in California and New York choke on every one of those stolen dollars from the rest of us.  They should be ashamed to take any of it.  Sadly, it would appear they have lost the moral capacity to feel shame.

Well, in case you didn’t already know it the economy is not doing very well per the Fed’s pronouncement as of yesterday.  Why the Market reacted so negatively is beyond me.  They didn’t say anything that everyone had not already intuited.  But I guess is more profound when an “authority” confirms your worst fears.   http://www.ocranky.wordpress.com

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Dog Bites Man And Govt. Motors Pays Itself

Those headlines would deserve  equal credit as to newsworthiness in a sane world.  But over the last 18 months or so since the current administration took the reins of power such news is heralded as the most wonderous of events.  I watched some of the “ceremony” at GM this morning as they breathlessly announced their repayment of 5.8 billion to the US and Canadian governments as though that was some stupendous achievement.  There was lots of hoopla and all that was lacking was the confetti and balloons.  All that happened in reality was that the government paid itself.  Not one darn bit different than if you wrote a check to yourself out of your checking account and then deposited it right back.

The fact of the matter is that Government, Inc. owns GM.  It is merely paying itself.  The fact that they have been able to make a profit should come as no surprise to anyone with an IQ higher than weeds.  You could take almost any major company from the Standard and Poors 500 that had lots of debt and do the same thing as occurred with GM.  I mean the “new” GM came out of the government mandated Chapter 11 with nothing but assets.  All its debts were left behind with the old GM.  Is it remarkable at all that given that scenario it has made a profit?  The surprise would have been if it made only a small profit. 

Don’t forget that in addition to the 5.8 billion in direct loans during the Chapter 11 that GM had a capital infusion of about 50 billion.  Give me a company with no debt and a fresh 50 billion to play with and I will guarantee you a profit even if I was selling buggy whips.   Also don’t forget that GMAC its partner in crime also got I believe it was over 40 billion in Government funds to continue its financing arrangement.  This was conveniently done under TARP when GMAC during the holidays of ’08 was converted into a “financial” institution with a bank charter from the Feds.  

The power brokers and czars in Washington must think we really have a short attention span or they are contemptuous of our ability to reason.   Speaking of czars, you have surely noticed that Mr. Rattner who lead the government team doing all the negotiating with creditors of GM has run into his own buzz saw of accusations recently.  Really nice to know we had such an honorable fellow carefully selected by the White House to run that show and ram through the Chapter 11 of GM.   This entire situation is another example of the danger of the too big to fail syndrome that has consumed Washington since the fall of ’08.  The financial regulations being proposed by Dodd, of Countrywide fame, does not solve this problem but only exacerbates it.  Please read it for yourself.  The fine print gives authority to bureaucrats appointed and funded by the politicians  the say to determine who is a systemic risk and what should be done.  It allows them to determine who will be paid and how.  Worst of all it allows for unlimited government backing of the credit of a failing company.  If it quacks like a bailout, walks like a bailout, it is a bailout regardless of the headline news and the disclaimers of Dodd.   Geithner defends it so you know it must be a really bad idea. 

Every time you buy a GM car or part you are supporting the gang in Washington.  It is not a private company but a captive of government and in turn the auto unions which were the real raison d’etre behind the bailout of GM in the first place.  I hate it that I can’t support them anymore.  Years ago I loved my Suburban.  Unfortunately they have become part of the problem with our economy and government and not any contribution to the solution or a better path for the country.  The Democrats got themselves even more loyal ground troops for the political wars.  They already had the overwhelming majority anyway but now they have tens of thousands of cadre to send out on the political warpath.  Even better for them every GM car sold is nothing more than a political contribution for the largest political PAC supporting Democratic candidates there ever was.

The great pyramids in Egypt are quite something to behold.  More remarkable is the preciseness of the engineering that was employed with only the most rudimentary of tools. They had no GPS or laser  controlled measuring or surveying devices.  Line of sight, plumb bobs and string and knowledge of basic geometry is what they worked with.  The Great Pyramid near Assuan was about 150 yards high and was about 250 yards wide on each side of its base.  Those blocks weighed a lot.  There were 7 yards long and hand to be man-handled to the top.  Amazingly, the engineers were so good with their limited tools that the mean error of the base line was only 6/10’s of an inch in length and 12 seconds in angle from a perfect square.  I wonder if we could do that well today.   http://www.olcranky.wordpress.com

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Who Picks The Fox That Guards The Henhouse?

The rhetoric is picking up regarding the Financial Regulation reform bill that is currently being promoted in Congress.   I have the feeling that the cow is already out of the barn and that the gang that can’t shoot straight is on another’s fool’s errand or using the financial crisis as an excuse to expand again the powers of Washington.  I have no connection to the big banks or investment bankers and no particular love for them.  But I appreciate logis anytime it can be found and honesty over political hypocrisy.   I must confess that I find it both disheartening  and confusing that the administration would trot out Treasury Sec. Geithner for the talk show the last few days as a cheerleader on the issue. 

He knows too much or knows too little.  Firstly, it is disconcerting to be lectured about prudent business and accounting matters by someone who made a $40,000.00 “mistake” on his personal income tax.   If he can’t understand his own tax return why should we have any confidence that he understands the market operations of CDS’s, CBO’s or any other complicated instrument sold on Wall Street?  That is both a serious question and tongue in cheek–take your pick or choose both.  He was there at the New York Fed when all the problems arose and was up to his neck in the decisions to bailout the major banks.  They did NOT have to be bailed out.  That was a decision made by Government, Inc.  The powers that be decided it was an emergency and they decided that had to be bailed out.  How the heck do we know if they were right? 

It is not as though we don’t have enough regulations and regulators already.  For the banks we have the FDIC, the Comptroller of the Currency, the Fed, the Treasury, OTS.  Plus many of the banks are also subject to supervision by State regulators and all States have supervision of public companies and the securities offered to their residents.  Cuomo has been in the news often as was Spitzer before him in these matters.  In addition to that we have the reporting and disclosure requirements of Sarbanes/Oxley and the SEC supervision.   Lying and not making a required material disclosure regarding actions of public companies and the issuance of securities to the public are fraudulent and have been for decades.  Remedies and punishment for abusers of the financial and market system have been available for many, many years.  Do we really need something new and even more cumbersome?

This new proposal will create that special agency to determine when a concern or bank is a systemic risk and will have the power to shut it down, sometimes after court approval but not always.   Is this new bunch of whiz-bang kids fresh out of graduate school and law school going to magically make us all safe from the vagaries of the market?  Will there just be new turf wars that are notorious in bureaucracies between this group and all the others that will still be in place?  Supposedly, the bill provides that a special fund of 50 billion will be created from new taxes placed on the big banks to fund the wind down of any future failure.  Well, there goes another 50 billion out of the private market place that who knows might have been loaned to create a new company and create new jobs.   But I don’t think the current gang in control in Washington really cares about new jobs unless they are government-dependent jobs.  Secondly, you know human nature.  That special fund will be sitting there like a new toy for those bureaucrats just waiting to try it out.  Doctors like to try their new remedies, lawyers like to try new legal theories, scientists like to try the latest technological advance.  That is things work, you have a “tool’ in place for technocrats to use and you can be assured it will be used.  They want to show off how well they can give it a spin around the block.

We are told that the fund will only be used to “wind down” the villain in the piece.  But check the latitude they have in the wind down.   The language also provides that in an “emergency” that additional sums can be taken from the Treasury to avoid a systemic risk to the financial system.  But who is making this determination that there is an emergency?  No one you and me have any control over.  One man’s emergency might be another man’s passing problem and even no problem at all.   Furthermore, there is no time limit on anything.  Once a company goes into this process what if the bureaucrats let it take 20 years to be resolved.  Don’t laugh.  Many complicated Chapter 11’s last for 5 years.  FERC was supposedly a temporary bureaucracy to deal with the emergency of the oil embargoes of the Carter ’70’s and we still live with it today.  How many years will Government Motors and Chrysler be under the thumb of government control? 

All we need for new regulation is a simple statute that says if a company becomes insolvent that no government funds from any source, direct or indirect, will be used to buy equity in the company or make any loans to it.  We can let the existing agencies go through the liquidation process by Chapter 11 or the bank regulators or insurance regulators.  Just say too big to fail is not  the law of the land and that any company that fails will be dealt with under existing laws–period.  It was the actions of government that created that fallacious notion in the first place.  Restrict that notion and all is well. 

Many traveled throughout most of the known world using “dead reckoning” for navigation.  That is merely making an educated guess about speed,direction  and distance from a last known position.  They used various methods for calculating speed.  Often it was simply watching a floating device as it receded behind the ship.  The stars and Sun were the only steady beacon most of the time. They did pretty well with our GPS when you think about it.  www.olcranky.wordpress.com

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Deja Vu And Topsy-Turvy

Keeping up with some of the financial and environmental issues of the day makes me feel like Rip Van Winkle sometimes.  I wake up and hear the same old concerns with a new spin on them.  All the rage today is the size of our banks.  The big ones are the concern.  They are only a concern because some in government decided they were too big to fail.  That was a governmental decision, not an economic or financial decision that was made by the market place yet the market place (Wall Street) garners all the blame for the problems of today.  If those smart gurus in Washington had taken a poll of the so-called Fat Cats on Wall Street they might have found that a majority of them would have felt just like Main Street and that if those banks made bad decisions they should be allowed to fail and go into receivership and their assets sold off to cover their debts as far as they could.  The shareholders and big wigs with those banks would have been left with nothing which is the way the market is supposed to work.  It rewards success and risk taking and punishes dumb moves and rashness.   It also has always provided for those committing crimes to be convicted of same.  That is nothing new.  Those who commit a fraud have been sent to jail for a couple of centuries now without any help from the SEC or the Treasury.

It is hard to fathom that after eighteen plus months we are still having to discuss the too big to fail problem.  If there is new financial regulation on the horizon it should clearly state that banks that become insolvent in either the equitable sense or the balance sheet sense will be liquidated, period.   All the depositors in those banks will have their FDIC protection like they did throughout this financial crisis and the risk taking operations will be punished along with those who gambled with them including their executives and shareholders.   If those 5 or 6 large banks had been allowed to go under we would already be past that problem and on a better road of recovery.   Government, Inc. bailed them out and then raises hell about doing it and wants to punish everyone associated with the bailout.  Geithner, Bernanke, and Paulson and those in Congress like to be perceived as the heros coming to the rescue of all of us, but they weren’t heroes they were the villains in this play.  The banks were just stupid and maybe even greedy but they would have gotten their comeuppance if left to swing from the gibbet alone.

It is hard to believe but only about 30 years ago the alleged problem was that the US banking system did not have enough big banks.  Don’t take my word for it go back and read some of the financial reporting of the late ’70’s and early ’80’s.  All the big banks then were in Japan and Europe.  Our larger banks were making loans to foreign countries as fast as they could because it was considered such a safe loan with a good return and required my less staff to process the loans. They could make one big loan rather than thousands of smaller loans with a much bigger employee base.   The concern was that the big Japanese and European banks were coming to dominant the American market and the global market because they were the only ones able to finance the big deals occurring around the world.   We were losing market share and influence because we didn’t have enough big banks.  Everyone wanted bigger banks in the US to compete in the global market.  We were like China now.  We were the lenders for much of the world with our bigger banks doling out money to Brazil, Mexico and such.  A number of those big international loans went sour and our banks lost.  A few of our big banks indeed went belly up at the time due to these bad foreign loans.  At the same time the large foreign banks were making inroads in the US economy by lending here and even taking positions in US assets like Rockefeller Center and Peeble Beach.   Just as many worry today about the Greek debt there was a time when we didn’t have that concern for foreign debt for our banks.  After all it was owed by a country and they wouldn’t default, right?   After some of that foreign debt did default and our banks went under there was a hue and cry about the banks being so careless by putting too many of their financial eggs in one basket; they were stupid was the mantra and highly criticized in hind sight.  They were being greedy and not thinking about the needs of Main Street here at home was the headline position of most of the media. 

Well we finally got our really big banks like everyone wanted, even  demanded by some.  Some of us are old enough to remember seeing this movie before.  Only the characters in Washington have changed.

It matters who are the advisors in any administration, at least in the wisdom of the Proverbs–“take away the wicked from the presence of the King, and his throne will be established in righteousness”.  If the wicked are there then perdition is the more likely outcome.  http://www.olcranky.wordpress.com

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Joe The Plumber And Wall Street

The headlines are filled these days with comments, criticisms and expositions about Wall Street and the workings of Wall Street and the people who work there.   To read the media of all stripes one could easily conclude that Wall Street is a monolithic institution run by a few dozen people.  There is this constant drum beat about the conflicts and discord and disconnect between Wall Street and Main Street.  Those allusions are inaccurate at best and deceiving at the worst.

Yes, there is a Wall Street in Manhattan.  It got its name because it in the mid 17th century there was a wall built there for protection from the Indians and the English.  Yes, the NYSE is located there and it is also true that many investment bankers and brokers work there or near there in Manhattan.  But “Wall Street” as the term is used nowadays is really a reference to the entire universe of buyers, sellers and traders in the stock, bond and investment instrument markets around the US and the world.   The NYSE and NASDAQ play a very important function in regulating the activities of traders and as a clearing house for transactions so they can be monitored and the record of transactions is clear.  But there is no group of a few dozens or even a few hundred people who sit around and make grand strategies about the course and direction of our entire economy and make money regardless of what is happening on Main Street.  Nothing could be farther from the truth.

Wall Street today is diverse geographically.  Sure there is a high concentration still in Manhattan but that has changed dramatically in the last couple of generations and is accelerating with the advances in communications–computers.  Now there are major players located around the country and the world.  Warren Buffet is a heavy hitter by any measure and he doesn’t hang out on Wall Street.  Wall Street today is the loose group of thousand and indeed probably a few millions who make investments in companies and commodities from around the world.  Los Angeles, Chicago, Connecticut, Dallas, London, Singapore, Hong Kong, Sydney, Paris and all points in between are Wall Street.  

The alleged big Fat Cats sitting around making decisions on the economy that affect all of us are like the old Pogo comment about meeting the enemy and they is us.  Harvard and all the Ivy league schools and other major universities have billions upon billions of dollars in investments.  They are part of that Fat Cat crowd.   The major pension funds from public employees control untold billions.  Calpers alone in California has more to invest than most nations of the world.  All the firefighters, policemen, teachers and other public employee unions have zillions in funds they invest on a daily basis.  Every union with a Fortune 500 company has millions or billions they control.   They are the Fat Cats of Wall Street.  Yes, each individual member doesn’t control billions but they group sure does.  Same is true of the investment bankers.  They are advisers for the most part.   To castigate Wall Street is like a dog chasing its tail.  At the other end of that blast of invective is Main Street.  All of these funds, trusts, unions and endowments have boards, trustees, and administrators to control that wealth and to try and make it grow.  Indeed when it doesn’t grow they have hell to pay from the criticism they receive from the funders of the respective fund of money.   Those people who manage all that money are the Fat Cats of Wall Street. 

It is always so tempting to identify an enemy as the cause of troubles.  I am NOT defending any particular investment house, I have no special love for Goldman Sachs or Citigroup, but they are only some of the participants in the game on Wall Street.  When we talk about regulating Wall Street remember that you are talking about regulating yourself.  Yes, there needs to be rules of the game.  The most important of which is disclosure of data in a timely fashion so we are all dealing with the same information.  Calpers controls as much or more money than many of the hedge funds.  They are not babes in the woods.   Their paid staff get a lot of money to make wise investments.  No one holds a gun to their head to buy anything.  They can always decide to invest every nickel in Treasuries or CD’s but the outcry from that with their  retirees would be tremendous.  Yeap there have been some outright crooks like Madoff and there has been since time long gone–Jacob cheated his brother Esau out of his inheritance remember.   Criminal laws are for the law breakers but regulation affect us all.  Careful how you regulate.

Before we start making the Fat Cats wear a Scarlet Letter we best take a look around and truly assess how many of us would have to be wearing the same badge.   We may not be important players like the presidents of some of the investment banks but we are players and collectively we, through our various organizations that invest for our behalf, are part of the Fat Cat crowd.   Main Street is Wall Street.  They are symbiotic and form a financial symmetry that benefits us all.

Next time you are angry at the Fat Cats remember that it was J P Morgan who personally loaned the Government 65 million in gold to stave off complete collapse in the Panic of 1893.  He did this at the request of the government.  www.olcranky.wordpress.com

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