Archive for January 2010

Bushed Tony

January 31, 2010

This week the world saw and heard a sad story unfold. Former Prime Minister Tony Blair testified before a London inquiry board. The panel sought to know “what Tony knew when” about the invasion and occupation of Iraq. Tony, amazingly, provided confirmation of US plans to overthrow Saddam Hussein over a year before the actual invasion. The sad part of the story is that Tony still thinks it was the right decision.

Hussein’s days were number once George W Bush (with side kick Dick Cheney) were elected. Cheney, Rumsfeld, Libby, Wolfowitz, Pearle, and Feith were all signators of the Project for the New American Century (PNAC), and just by chance all were part of the inner circle advising “W”. PNAC, a neoconservative think project, reasoned that the Middle East could not be made safe and secure unless Saddam was removed from office. These “would be” American patriots just waited for a chance gain the American voters’ ok, and 9/11 provided the pathway.

According to Tony, he did meet with Bush and Cheney, and did promise to stand with them in any confrontation with Iraq. Tony did not seem to see the phoney appearance that the subsequent British Intelligence report (Yellow cake from Niger) that “W” used as proof that Iraq had WMD, now had. Tony didn’t even flinch when reminded that there were no WMD, nor even more to the point, Iraq was in no way connected to 9/11. Tony told the panel that of course he would not have invade had Iraq come clean on their WMDs. One panelist reminded Tony that it is difficult to show you destroyed all your WMDs if you did not have them.

During the time in question, Tony was in the process of converting to the Catholic faith. It is immaterial that he converted to catholicism, the important point is he got the religious bug and knew that god was on his side.

There are many lessons from the Iraq invasion and occupations ranging from “don’t break something you don’t know how to fix” to “don’t believe anyone who says they listen to a higher authority”. What people believe is one thing, but when what they believe affects others, than it should be time out.

The Missing Links

January 30, 2010

Jobs, Health Care, the National Debt, and the Tea-bag Party. What do they have in common?  Are they the missing links?

In yesterday’s New York Times, Paul Krugman and David Brooks wrote amazingly similar pieces from quite different points of view. They both were reaching for the Center. Both wrote about how President Obama should lead. Brooks wrote of a modern day independent Ross Perot leader, and Krugman pointed out the foolishness of the “deficit peacocks”. Brooks was emphasizing the need for the President to stand up and speak directly about what the country needs. Krugman pointed out the emptiness of the promise to “freeze Government spending” when it would not begin this year and when it did begin, it would impact only about 10% of government expenditures.

At their roots, the Tea-bag Party members are afraid. They are afraid because they feel it is becoming harder each day to maintain their living standards. They have conducted a trial and issued a verdict that the Government is the guilty culprit. Therefore in the Tea-baggers’ minds, just say no to whatever Government proposes.

The National Deficit is actually not a problem Americans are feeling today. The fact that it continues to rise and elude control could, however, is an important signal, and will most likely become a serious problem in the future.   We are spending more than we currently can afford.

The Tea-baggers propose to simply to stop spending, and while the government is at it, they should lower taxes too. They are not specific but one must assume they mean the combination of taxes, like income, social security, medicare, and State and local taxes. While spending control must be part of the national debt solution, it will be a question of what spending cuts and how much.  With the size of the annual budget deficit, it is hard to imagine what government spending could be cut to allow for further tax cuts.

The revenue side of the deficit question is the overlook part of the equation. Tax increases like the elimination of the Bush tax cuts would be a very prudent action. But we would find that too was not enough. We have too few people employed and too many of those employed make too little money.  “Jobs creation” will help, but when the type of jobs likely to appear will be marginal minimum wage jobs ($16,000 a year), these new jobs will not help much. Minimum wage jobs while noble, will not yield much if any tax revenue, and will leave the earner far below the poverty level.

Health Care is the unspoken turd in the punch bowl. Americans are paying 50-100% more on health care (through their and their employer’s contributions along with co-pays and payroll taxes)  than all other civilized modern countries in the world, and getting not as good outcomes. Medicare costs, in part, reflect the out of control nature of health care costs.

Were the President to lead as he should, were the Tea-bagger to be honest and unselfish Americans as they should, and were Congress to throw off the smothering covers of special interests as they should, we would find that the path forward that would raise all boats involved (1) national effort to create “good” jobs (not just any job), (2) reform health care along the lines of Europe or Japan, and (3) increase federal taxes fairly (meaning those above $200,000 annual income will pay more). The interesting aspect of this is that the health care sector is projected to grow significantly over the next decade. Accordingly, a decrease in “per capita” income could be more than offset with an increase in those receiving health care.

Good jobs and real health care reform are the missing links.

One for Kansas

January 29, 2010

Yesterday Sedgwick County Judge Warren Wilbert ruled that the jury in Scott Reoder’s murder trial could not find him guilty of a lesser charge of man slaughter. Scott Reoder is standing trial for the murder of Dr George Tiller. Witnesses claim Reoder shot Tiller in the Lutheran Church where Tiller was an usher.

The story behind this is the radical anti-abortion movement (read those who dismiss women’s right to protect their own lives and body).   Reoder claims that he had to kill Dr Tiller to prevent Dr Tiller from performing another abortion. I do not doubt that this may have been Reoder’s motive and that Reoder genuinely feels abortion is wrong. This motive and feeling, in no way, justify taking the law into ones own hand (US law) and can not be understood versus traditional christian teachings (religious law).

Scott Reoder appears to pretty much have been a loser in life. He seemed to gain some direction when he joined radical anti-abortion gangs.  He was well known at anti-abortion rallies and protests through out the region. To fully comprehend how much of a coward Scott Reoder is, one must review what actually happened.

Reoder entered a church ( a place dedicated to the value of life), approached the unarmed Dr Tiller from behind (cowardly by itself), and placed a gun to Dr Tiller’s head and pulled the trigger. Dr Tiller had no chance.

Dr Tiller represented no immediate threat to Reoder or anyone else. If Tiller was guilty of some crime, Reoder could have called police or in the extreme attempted a citizens arrest. He did not, and like the old wild west simply pulled the trigger.

By the way, abortion, even late term abortion is legal in Kansas. Scott Reoder, regardless of his motive, has committed first degree murder and the jury’s job is evaluate the evidence that has lead to Dr Tiller’s death, not Mr Reoder’s motives.

Cherished

January 28, 2010

The trial in US San Francisco District Court recessed yesterday. Judge Vaughn R Walker heard the case without a jury and now has to review the arguments before issuing his ruling. The case in question is whether the citizen passed Proposition 8 violates the US Constitution concerning equal rights.

The defense rested after its witness, David Blankenhorn, president of the Institute for American Values, testified that the rights of same sex couples should come second to preserving the cherished social institution of marriage.

Judge Walker will have a lot to think about while he deliberates. It seems that equal rights does not really mean equal rights for everyone. Some rights can get trumped if selected and popular religious beliefs are in opposition. It is also mind boggling why someone could call marriage “cherished” when one in two marriages end in divorce? Maybe they meant to say that “while married, the relationship is cherished”?

But even more, Judge Walker should be thinking about why this is a subject of litigation at all. Why are State and Federal laws involved in the affairs of church? If religion X wants to limit marriage to one left handed male with one right handed female, why can they not do that? For that religion, all right handed men and left handed women must be celebrate for the rest of their lives.

The ideal path forward would be to throw out the term “marriage” and replace it with civil union in all State and Federal references. Churches can set the rules they want for marriage and citizens can choose whether to play by those rules or not.

Bank Common Sense

January 27, 2010

Can you hear the rhetoric? Senators Fluster and Bluster along with Representatives Pork and Barrel are running for the microphones to inform the American public of the great danger that lies ahead if we do not create more jobs, and they absolutely decry the thought of regulating Banks. It will be nothing less than the end of free enterprise.

Of course the good Senators and Representatives have it wrong with respect to banks (despite what the Wall Street lobbies have paid them to say).  I wonder whether they realize that no matter what regulations or laws are passed, banks and investment firms (and probably certain insurance companies) will put their teams of lawyers to work and figure new and even more opaque ways to circumvent both the spirit and the letter of any new rules. Greed is the nature of banking and without some common sense rules, greed will hurt everyone (again).

Does it not make sense for you and me who put our savings in the corner bank, that we would expect the bank to have as its first priority keeping our money safe until we wanted it? I recognize that the bank must invest this money in order to earn enough to pay me interest and cover their costs for protecting my money. But there are well know, tried and true, ways to do this.

Does it also not make sense that businesses, large and small, need access to capital in order to run their daily business (meet payrolls, cover inventory and accounts receivable, and to make improvements and expand capacity)?  This is how jobs are created and maintained.

Does it not make sense that in America people should be free to speculate and invest their (but not my) money at whatever risk level they wish?  This has been the spirit that build America.  Success and failure mixed together.

The reality of today’s world is that too many banks have gotten too big and simply do not care about protecting my money.  They prefer to rely on the FDIC (government) for that.  Instead, big banks devote most of their time and attention to the business of making money by hawking all sorts of exotic and opaque investment products to anyone with cash.  Even commercial paper (used daily by most all large businesses) is only a loss leader.  Big banks provide commercial paper as a means to build good will with their corporate customer.  They hope to induce companies’ pension plans to buy these exotic products, or to attract their corporate customers’ IPO, M&A, or other underwriting business.

At the end of the day, does the current behavior of big banks make common sense?  Somehow big banks must be either broken up, or made to play under some set of rules where they are no longer too big to fail.

The Economy, Henry Ford, and The Banks

January 25, 2010

The “blame game” is in full swing as politicians on both sides try to pander to American voters. “The Government is not doing enough to create jobs”. “The banks are not lending enough to create jobs”. “The recession is over but job creation will follow only after time has past.” What is anyone to do with this sort of rhetoric?

1.  One must recognize that the current economic slowness became evident to most of us first when the “housing bubble” burst. Suddenly demand for all sorts of products dried up and the economy came to screeching halt. But the housing bubble was simply the tip of the ice berg (with respect to jobs). Jobs have been leaving America for years, generally to low wage locations. So far no one has figured out how to build a house in China and sell it in the US. That is not the case with house furnishings where appliances, furniture, and linens are now predominantly imported.

Banks did not cause the migration of jobs overseas. Free enterprise and government policy are the cause. Free enterprise and government policy can also turn this problem around and stimulate US economic growth.

2. Henry Ford enters this discussion because he revolutionized the industrial world by paying a better than decent wage (in addition to introducing the assembly line).  Ford knew that he needed people with enough money to afford his product. America needs to repatriate some of these lost jobs and employ workers at a decent wage ($15 to $25 per hour). These jobs will in turn stimulate the creation of supervisor and engineer positions at higher salaries, as well as all sorts of supplier positions.

To prime this economic pump, government policy will need to see this as a “jobs incubator”, and provide tax incentives (maybe for 2-5 years) for these companies to establish the necessary productivity and consumer demand. Since these jobs do not exist today and in many cases unemployment payments are being made, lower the tax burden part way would seem a very reasonable compromise.

3.  Banks must refocus their attention on the role of providing monetary lubricants for the economy, or government policy must regulate them such that free enterprise will recreate banks that care about the community. The Glass Steagall Act (or as it is now referred to, the Volker Rule) would be a great first step.

The banks should not return to foolish practices of lending money to anyone with a pulse. Banks need, however, to focus on sound businesses and invest depositors’ money prudently (simply sitting on deposits will not generate enough return to pay a decent interest rate).

So, here is a plan for President Obama. Combine job creating policies that are driven by the private sector with Henry Ford’s idea, and insist that banks play in this game if they wish to receive individual depositors money. Is this too simple?

Plouffe is Back

January 24, 2010

Democrats announced late yesterday that David Plouffe would rejoin the leadership team and quarterback the upcoming fall Democratic election strategies. Plouffe, along with David Axelrod were the principle thinkers behind President Obama’s successful Presidential candidacy. But can he help him now?

Unbelievably in about 1 year large parts of American voters now think the country is going in the wrong direction. They blame Democrats and their solution seems to be the election of Republicans this fall. What are these people thinking (or smoking)?

In the fall of 2008, these same voters thought the Republican Administration was going in the wrong direction and turned to Barack Obama for “change”. Now 13 months later, it is as if it never was. What can account for this?

To be sure, one reason is that the necessary “narrative” has been missing. President Obama has chosen not to level with the American public and tell it as it is. He has wasted too much time trying to go “partisan” only to find there was nothing in it for Republicans so they stiffed him.

I think he also seriously underestimated the American intelligence. President Obama has not flat out told Americans how things really are.

1. Americans are worried about the economy and specifically how a weak economy affects them. They are worried that they may not find work if currently unemployed, they are worried they might lose their job if employed, and if employed and in a service industry, they are worried tips, commissions, and general business level will yield less income for them.  It’s all about me.

2. Americans can see straight through the double speak politics as usual. They suspect that all Congressmen are under the grips of special interests and because of this, have little time to worry about their concerns.

3. The 24/7 TV and radio talk shows have spread misinformation far and wide (even though they have profited very well). They have convinced too many Americans that solutions are simple and painless. Simply stop spending and lower taxes says Fox News. MSNBC calls for health care reform and another jobs stimulus. Both of these messages are a disservice unless further clarified and put in context.

4. Republicans decry the projected $10 trillion increase in the national debt projected by the CBO. They say this is proof that the Democrats have put America on the wrong path and therefore Democrats can not be trusted to run any other part of Government. The 24/7 media has been silent when they know the $10 trillion is mostly the result of laws already on the books when Obama took office.

5. Americans must hear time and again that current US law, law that was on the books through the entire Bush Administration, coupled with the Bush tax cuts are projected to account for $8 of the $10 trillion. They must hear that there was no effort fix health care costs during the 8 Bush years and health care costs are the largest piece of the $ 8 trillion.

6. Americans must hear also that they can not ask their Government to fix the economy and also fix the deficit at the same time. Of course, Americans can demand that the Government stop spending and let the chips fall where they might. The social impact will be wide spread with all sorts of programs from Medicare to pre-school food subsidies seeing less funding. The ramification cannot be known for certain, but you can probably imagine “Grandma” in the next election on TV crying about her loss of drugs and hospital coverage.

7. Americans also need to hear that as the Federal Government cuts programs, States and communities will be left to pick up the tab. Inevitably, this will lead to great inequality between States and the prospect of rich States and poor States. This is hardly the picture of a great America but rather one of a collection of disparate States. That is a picture of the beginning of the end.

7. Plouffe needs to get President Obama (and hopefully other Congressional Democrats to see that trying to out bullshit the “say no” Republicans leads to no place. Tell America what it really is. Explain the projected debt. Take responsibility for the $2 trillion the Obama Administration added. Tell Americans why it was added and why that is necessary and in Americans’ best interest. Tell Americans that raising taxes is a last resort but mathematically there is no way to shrink the deficit without returning to tax rates of the Clinton years (which were the lowest in modern times, lower that Nixon or Reagan years).

I wonder whether this will happen? If so, voters will have a real choice.

Banks?

January 23, 2010

Yesterday “Banks” were once again the target of attack. It was not John Dillinger, nor was it Bonnie and Clyde. Instead it was President Obama who spoke with righteous indignation saying he was ready to take on the Banks. What was he saying?

In the past we have seen big steel, big oil, and just plain big business that Government felt had become just too large and needed to be broken into smaller pieces. Banks, of course, were no stranger to this process in the past either. Why now?

The answer in part is not so noble. Instead of keeping their heads low, rolling up their sleeves and lending money and renegotiating mortgages in order to stimulate the economy and keep people in their homes, banks have taken Government money and effectively zero interest loans and “voila”, produced huge profits and paid themselves obscenely high salaries and bonuses. So it has become politically necessary for the President to scold publicly the Banks.

There is a far more important reason.  The Government needs to protect the average citizen from practices few others understand.  Banks today, especially the largest banks are no longer just in the game of taking people’s deposits, conservatively investing those funds, and paying interest back to their depositors. Banks are now complex institutions whose purpose is to create ever increasing profits.  They accomplish this by creating, as well, buying and selling derivatives. These opaque financial instruments (derivatives), are vaguely tied to assets or income streams and so their absolute value is indeterminate. Banks further engage in buying and selling credit default swaps as an attempt to show on their books that any risk associated with derivatives is covered by a form of unregulated insurance. On top of this house of cards is that the banking system is part of a complex, global network, where failure in any part could impact the US. (Interestingly, it was the implosion of US banks that nearly brought down the world banking system in 2008).

Wall Street has grown to like banks the way they are now because they have provided a method to produce exceptional returns. These returns powered the growth of 401K’s, hedge funds, and delighted individual investors during the 2000-2008 period. No one has stopped to ask, was it reasonable to gain an 8-10% or higher return year after year? If the results look unreal, they probably were.

The President has said he wants to fight for the average person.   The first step he should take is to once again introduce the “Glass Steagall” act that separates banking from investment and insurance activities. Citigroup would return to three separate entities, a bank, an investment house, and an insurance company. If investors wished to use their money and invest in the products of investment firms, so be it. General banking deposits, however should not be at risk.

If the President and Congress were really clever, they could exempt existing big banks from Glass Steagall if they agreed to deal only in regulated derivatives and used governance processes that did not pay obscenely high bonuses and executive salaries. Second tier banks (who are quite large but not like Goldman Sachs, JP Morgan, Morgan Stanley, Bank of America etc) might find this exemption attractive, while the big guys would likely prefer to go it alone until Republicans regained power and once again deregulated the industry.

Out of Touch

January 22, 2010

Yesterday the Supreme Court handed down an opinion that overturned much of the 60+ years government prohibitions on Unions and Corporations from spending their money to influence elections. The ruling was not a surprise since the Court’s conservative majority have already telegraphed their views on “free speech”. The irony is that their decision belittles free speech. It now will cost a lot to speak.

In the 2008 Presidential race, corporate contributions totaled $673 million (re: Center for Responsive Politics using Federal Election Committee data). This is a ton of money and dwarfs any previous race. The top contributors were (1) finance, insurance,and real estate, (2) lawyers and lobbyists, and (3)business, with the combined total weighing in at $311 million. Labor made the list (12th place) with $1.2 million, hardly a squeak in comparison.

The impact of this decision is that every citizen who donated $10, $20, or even $250 to a candidate has just had their donation trivialized. Candidates will have economically no choice but to speak to these special interests first and then engage their help to speak to voters. Who do voters talk to?

Once again our current Supreme Court has shown itself as not so supreme in its thinking.

New Mates?

January 21, 2010

The captain of a ship picks his mates usually for their skills.  These are people he must count upon.  The captain sets the course and expects the subordinates to execute the plan well. Sometimes, however, conditions change and the crew is just not up to the task. President Obama, one day into his second year, should take a moment and think carefully about his mates.

President Obama seems to be a man of strong values but not strong convictions. Under the guise of being a pragmatist, Obama has compromised on just about every issue that has come his way. Pragmatism is about compromise, of course, but a compromise ought to be settling for something less than ones lofty goal. President Obama is settling for compromises off some intermediate and more comfortable jumping off point, a baby step if at all. Why is that?

In dealing with the banks his mates are Timothy Geithner and Larry Summers. Both of these men, while skilled, knowledgeable, and super well connected with Wall Street. One must ask the question. if Obama is looking for advice, what type of advice do you think he will get?

In dealing with Congress, Rahm Emanual and David Axelrod have simply not delivered. It may be they have done yeoman service, but in combination with President Obama, they have not served him well. The roles of chief of staff and principle advisor are very critical jobs especially when their boss has promised much and does not have a mental plan of how to reach these goals.

With respect to other cabinet appointees, it is more difficult to judge. Secretaries Clinton and Gates have clearly served well. For others, such as Sebeleus (Health), LaHood (transportation), and Napolitano (Homeland Security) it is more difficult to tell at this time.

During the George W Bush years, the ship of state went way off course and functioned in an ineffective manner. “W” was able to get his policies in place and they were absolutely the wrong ideas for the times. President Obama has little to show for his first year. Obama has not driven the ship off course but one has the feeling of America drifting subject to inertia. It is very possible that that could yield a better outcome than “W’s” years but I can’t help but think we can do better.