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Archive for February, 2009

The latest award goes to Ken Lewis, CEO of Bank of America.  Despite taking billions in federal TARP funds, he is refusing to reveal what he knows about the $3.6 billion that went to Merrill Lynch senior staff (some 700 people) on the eve of his institution taking over the failing investment bank.  Not only did he choose not to talk, but he had the temerity to travel to New York via his $50 million corporate jet, then by luxury SUV to discussions with the New York Attorney General, where he again refused to talk.  Will he refuse, a la Karl Rove and others, to honor a subpoena?

What Mr. Lewis and other bailed out bankers fail to recognize is that they no longer work for themselves.  They work for us.  One wonders just why nationalizing certain failing banks is such a bad idea.  It is one way to force them to replace their management teams and return a sense of sanity and reality to their operations.  This is same Ken Lewis who, with a straight face and under oath, told a Congressional committee that they got it — that they understood that times were different, that they had to act differently now that they had accepted TARP funds.  Somehow stonewalling doesn’t square with “getting it.”

So, Ken Lewis, you are hereby awarded the Let Them Eat Cake Award.

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As I scanned the news tonight, several items caught my eye.

First was this list of the 15 states having the highest percentage of $200,000 plus earners.  Interestingly, only one of the states listed, Texas, voted for John McCain last November.  The others voted for Obama, even knowing that their taxes would go up should he be elected.  Among these states was New York, home of Wall Street and the investment bankers.  Those of us who’ve been around the block a few times remember the term “limosine liberal.”  It refered to those people who, despite or perhaps because they were wealthy, understood that they had a responsibility to the rest of society.  And that sense of responsibility has consistently tended to indicate a set of political values that can be termed liberal.  One of the favorite epithets used by conservatives towards liberals is “elite” or “elitist.”  I would venture that most people earning more than $200,000 a year probably have a college education.  On the other hand, the GOP traditionally was the party of business.  Yet its influence is more prevelent in those states and those parts of states that tend to have a lower overall level of education — people whose interests are often polar opposite of the monied portion of the population.

Another thing that caught my attention is that the FDIC is reporting its first loss in 18 years.  Hmmmm, what was happening in the banking sector 18 years ago?  Ah, yes, the savings and loan mess — the last time we tried deregulating the financial institutions.  The president behind that was Ronald Reagan and his treasury secretary Don Regan.  I saw the consequences of that up close and personal.  I was working for the Resolution Trust Corporation, specifically dealing with cataloging the records of two failed institutions.  I saw the records of the bad loans the institutions had made, and they were nothing less than shocking.  In many instances there were multi-million dollar loans that were written off as total losses — not one payment had been made on them.  And the same relatively small group of individuals were the recipients of many similar loans.  At the time, such a practice was known as a bust-out, an operation that amounted to robbing a bank but which was legal in that it involved loans rather than an actual heist.

The last item was a report on the CPAC conference.  From the line-up and the issues of concern, it’s clear that the GOP is intellectually completely bankrupt.  They were an anti-Bush, anti-McCain crowd to be sure.  They seemed convinced that Hawaii was not part of the United States in 1961 when Barack Obama was born there, and that Joe the Plumber was the best qualified person to show them the way out of the wilderness.  How pathetic!  The economy of the country and the world is swirling around the toilet bowl and this is what they’re fixated upon?  If it weren’t so horrifying it would be laughable.  We need more than one political party in this country, but if this represents the GOP, it’s not only the party of no but the party of know nothing.

UPDATE: And it continues… this morning I read that John Bolton, that hardest of hardliners, the guy who couldn’t get confirmed as UN Ambassador but who Bush kept in the role as long as possible via other means, “joked” at the CPAC convention about how a nuclear bomb detonating in, say, Chicago, might be instructive to our president’s views on foreign policy.  And as if that weren’t only one more sorry episode in his history of ill-chosen remarks, the room erupted in laughter and applause.  Sick.

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A new page highlighting some of the aspects of Arab civilization is up.

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More evidence that our new president is an educated adult.  Not only that, but he thinks we’re adults, too.  When President Obama used that word last night, I whooped with joy. Not only that, but he pronounced nuclear proliferation correctly, without even the hint of a stumble.  So nice to have an adult in charge.

Listening to Gov. Jindal’s pathetic response was painful, not that anyone would have relished going on right after President Obama.  David Brooks got it right.  The Federal Government is the only entity with the resources right now to get us out of our current mess.  To tout smaller government and lower taxes is truly a form of nihilism.  And it does not bode well for the future of the Republican Party.  If that’s the best they can offer, they deserve their fate.

For most of the last three decades, we’ve been force-fed a diet of, “government = bad; taxes = evil.”   We’ve watched as the fabric of the social contract has deteriorated into an attitude of, “I got mine.  You’re on your own”  as the top 1% pushed their way into the life boats and smacked down the rest of us as they pulled away from the sinking ship.  To hear them shriek, you’d think the proposed tax hikes on the top few percent were akin to robbery.  In reality, it represents a return to the tax rates of the Clinton administration — a time when we were all better off than we are now.  We’ve seen the impact of de-regulation on the airline industry, telecommunications, the banking system (twice!), and energy.  And as a nation we are less safe, less efficient, less prepared to compete in a 21st century global economy, and poorer as a consequence.  It is truly time for change.

Yesterday, Capt. Sullinberger, whose skill as a pilot is directly responsible for saving 155 lives, testified that his wages have been cut 40% and that his pension is virtually non-existent thanks to “cost cutting” efforts by his employer.  He uses is off-days, when he should be recouperating from jet lag, to work as a consultant to make up for his pay cuts.  And that all happened before the latest economic crash, during the so-called “good times” of the Bush administration.  Is that the way to attract and maintain skilled professionals — people we entrust our lives to each time we board an airplane?  We see teachers denigrated as part-time workers and paid accordingly.  How many parents do you know who urge their kids to become teachers these days?  Yet they are responsible for educating our kids, the people who are the future of our society.  We are a contradiction as a people.  We want the services that government provides, yet we are unwilling to pay for them.

Last night we listened as our president laid out his plan for the future of this country.  His vision is one where government should be measured, not by the amount of money it spends, but by the results that spending achieves.  No more “off the books” accounting tricks that haven’t really fooled anyone.  Transparency, accountability, responsibility, effectiveness — the qualities we expect from our government but which have been sorely lacking for years by the Congress and the Executive Branch regardless of the party in control.

Perhaps most importantly, he recognizes that there are linkages between seemingly unrelated policy areas that all affect our economic health as a nation.  Education, energy, healthcare, banking, housing, industry, national security — they are all related to our ability to survive our current economic crisis.

He also recognizes that there are things that government does better than do individuals on their own — especially things that require a massive investment of capital.  We’ve seen a decade’s worth of private wealth evaporate over the last six months.  And those with the capital seem intent on spending it on themselves and on a lavish lifestyle, not in those kinds of projects that build or maintain the infrastructure that will serve us well over the coming decades.  Their ideology says that lower taxes and privatization leads to smaller, more efficient government.  But if the past eight years are an indication, the result is more debt, more corruption, almost no accountability or oversight, and less efficiency.  Spare me the discussion of how the Democrats were in control of Congress for the past two years.  The previous 12 had GOP majorities.

President Obama’s call for personal responsibility — including saying that dropping out of high school is doing your country a dis-service — is music to the ears of all Americans, regardless of political party.  But the difference between President Obama’s view and that of his conservative opponents, is that personal responsibility is paired with empathy — another American value.  He understands that if we ignore those in need, we all suffer.

He believes that budgets should and do reflect our national priorities.  He understands that the so-called “movement conservatives” represent a fairly small minority — that when you begin to consider values, most people want government to serve all the people, not just the privileged.

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A commenter suggested that the funds allocated to the American Recovery and Reinvestment Act (aka the stimulus package) would be better spent by handing out checks to each person.  The final package comes to a bit less than $800billion or just under $2300 per person, not the $25,000 suggested in the comment.   The commenter also suggested that my preference for government administered stimulus funds indicated that I didn’t trust the wisdom of individuals to spend the money wisely.

The State of Alaska, flush with oil revenues last summer, provided funds of approximately $1200 per person to help their citizens pay for winter heating.  After some discussion, it was decided that rather than pay directly to the fuel providers, the funds should be transferred into people’s personal checking accounts.  The weekend the funds were in people’s hands, there was a run on wide screen TVs.  Few people actually spent the money as was intended — on winter heating costs.  How many of those people are now having to choose between food and fuel?  How many of those TVs were made here in the US?  Given that we Americans make relatively few things any longer, spending on “goodies” would likely create only retail and transportation jobs in the US while creating manufacturing jobs abroad.  What would be the long-term benefits to our country?

On the other hand, infrastructure projects create jobs in design, materials, transportation, and labor — the majority of them right here at home.  Information technology modernization projects provide jobs in installing, configuring and maintaining the systems, and in entering and verifying the data.

We’ve heard a lot of talk recently that the New Deal didn’t end the Depression — that World War II did.  I recognize that WWII was a necessary war to fight, but I cannot conceive of a larger government “make work” project.  Millions of people served in our active duty forces, paid by the government.  Millions more worked to build the planes, jeeps, tanks, guns, artillery pieces, and ammunition necessary to fight the war  — jobs that, while in the private sector, were paid for ultimately by the government, i.e., the American taxpayer.

People need to examine the changes in the unemployment rate beginning in 1932 with the introduction of the New Deal.  The rate dropped each and every year from 1932 to 1941 (the pre-war years) save the one year that FDR cut back on government spending.

We as a nation still benefit from many of the public works projects that came out of the New Deal — Hoover Dam, the Golden Gate Bridge are two that come to mind immediately.  A second massive, government-funded infrastructure project was our interstate highway system, begun during the Eisenhower administration.

Despite what conservatives want you to believe, tax cuts provide minimal stimulative power.  Infrastructure projects are far more stimulative, producing more jobs and thus income that can be re-circulated throughout the economy.

Finally, the commenter suggested that the bill should have contained defense spending.  The argument as to why is unclear, other than that defense spending is constitutionally mandated spending.  The current budget (FY2010) is crammed full of defense spending and the President has indicated that spending levels will remain high — if for no other reason than to repair and replace the materiel that has been consumed during our two current wars.  Certainly there are defense programs that could be trimmed or even eliminated, but the overall need for defense spending remains high.  Indeed, demands on our economy to provide the needed and promised care for our troops injured in Iraq and Afghanistan will continue to increase.

Then yesterday, a day after President Obama announced a plan to try to slow the number of forclosures in this country, a pundit went ballistic on the air, calling it a plan to bail out “losers.”  Given that the practices of mortgage brokers, lenders, hedge fund managers, and investment bankers are a significant cause of our current mess, I can only wonder if he would consider the TARP a case of bailing out losers as well.

The economic mess in which we find ourselves has several components — the near meltdown of the financial system, the housing crisis, and the crisis in consumer confidence that has led to a near halt in demand and the subsequent loss of jobs.  The economy cannot and will not recover if we fail to identify and address the problems in each of those components.  The TARP attempted to address the problems in the financial sector; the stimulus addressed the jobs component; and the housing plan addresses problems in the third leg of the economic stool.  It will take astronomical amounts of money to solve the problems.  But leaving it to the markets to find their level would likely find the United States reverting to a third world level economy.  None of us want that to occur.

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The California budget has passed — 106 days of stalemate have been broken.

An interesting tidbit surfaced yesterday — the state senate minority leader was ousted from his position.  He had been one of the Republican senators who was willing to buck his party.  True to recent form, he was replaced by someone who is more conservative.  One more instance of a Republican being punished for doing the right thing–putting the interests of the entire state ahead of his party or his personal political ambitions.

Like the Republican party in general, California’s GOP has been taken over by ideologues — people for whom taxes are anathema.  They’ve apparently been seduced by Grover Norquist’s dream of drowning government in a bathtub.  This is the anti-tax, anti-regulation crowd who brought us the very lack of supervision that led to our current economic mess.

Fortunately, a single moderate Republican–one of a few remaining moderates in California’s GOP–was willing to be the deciding vote.  And the concessions he won to obtain his vote have the potential for long-term change.  Several times recently, Californians have voted for an open primary, only to have their vote nullified by the courts as unconstitutional.  This time, a constitutional change was part of the budget solution.  Primaries for state assembly, state senate, and governor will be open.  As time has gone on, the candidates who are successful in the primaries are more closely aligned with the extremes of their respective parties.  Thirty years ago, Governor Jerry Brown declared, only partly facetiously, that California was ungovernable.  Since then, that statement  has become progressively more true, finally resulting in this year’s budget mess.  Perhaps the open primary process will bring both parties back towards the center.  We shall see.

Another concession is to impose a funding cap.  A final concession is to restore the budget decision to a simple majority.  I haven’t had a chance to ponder the potential consequences of either of these, but my gut reaction is to question their wisdom.  I would have prefered a super majority, although the 2/3 requirement was clearly unworkable.  Perhaps a better solution would have been to impose a deadline, after which the previous year’s spending levels and budget allocations would automatically become law if the legislature couldn’t agree.  And I can’t see that a cap is a good solution because it doesn’t take changing conditions or needs into consideration.  Instead, it seems to be a poor substitute for real leadership, which is what our legislators and governor are supposed to be providing. I’ve seen too many instances where there are unintended consequences of something that seemed a good idea in the short-run.

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California, the eighth largest economy in the world, is in crisis.  Not only because of the general economic downturn, although that plays a role.  No, California’s crisis is in part self-inflicted.  The state has been without a budget since October 1.  Why?  Because of the rigidity of the positions in the state legislature.

Meanwhile, the state’s bond rating has been lowered to junk status.  The unemployment rate is approaching 10%, severely affecting revenue from state income taxes, and the unemployment insurance fund is broke.  One in every 25 homes in the state is in foreclosure.  Home values have plummeted 50% and more in some areas, putting a further crunch on the revenues coming from property taxes,  Housing construction has ground to a halt. Tax refunds have been suspended in favor of IOUs.  Consumer demand has dried up, affecting the revenue stream from sales taxes.  Public works projects — yes, infrastructure jobs — are being halted, adding to the ranks of the unemployed.  Our roads and levees are in need of critical repairs.  Over the weekend, the legislature tried to bridge the $40 billion shortfall with a  combination of reduced spending, temporary increased taxes, and borrowing.  The reduced spending will hit hard.  Education will be particularly hard hit, as will Medical (California’s Medicade program).  But after a 30-hour marathon session, the budget came up one vote short.  One Republican vote.  One vote from the minority party, in the State Senate.  Sound familiar?

The state has cut back on hours for most offices and imposed mandatory furloughs two days a month to trim expenses while the budget battle continues.  School districts are facing hard choices — laying off staff, closing schools, cutting services.  Today, layoff notices will be sent out. Ten thousand today, going toward twenty thousand.  And public works projects, including ones in process, will be canceled–even though there will be additional costs incurred in canceling them.  Not surprisingly, our governor is one of the GOP governors who support the stimulus plan.  As I pointed out in a recent post, California sends more money to Washington that it gets back. And California can cover only $6 of every $10 that is obligated.

Some thirty years ago the infamous Proposition 13 was passed by California voters.  Sold as a benefit to tenants by apartment building owners, it essentially freezes assessed valuations of property for tax purposes until the property is sold.  The result is a wildly skewed system.  People who’ve owned a piece of property since before the initiative’s passage are essentially paying property taxes on the value of the property a generation ago.  So, the taxes on the house I sold in 1990 quadrupled at that point.  A family member whose home is worth at least twice that of my current home pays just over 10% of my property tax burden.  And despite the fact that my own home has lost value to below its original purchase price six years ago, this year’s tax bill was higher than last year’s.

The leadership of both parties in both houses of the legislature say that the proposed package makes the best of a bad situation.  Both sides give up some things to get other things they want.  But apparently that isn’t good enough for some members–Republicans who have taken a no-tax pledge.  Compromise isn’t a part of their vocabulary.  Nobody wants to have to pay higher taxes, especially in the face of a serious recession.  But there are constitutional requirements that place restrictions on budget deficits as well as on tax levies without voter approval.  There are several senate Republicans who have decided that it’s better (at least for them politically) to continue their no-tax pledge.  Their leadership has told them they’re simply not going to get a better deal — that the proposal on the table is the best way to solve the crisis. But, rather than recognizing the dire straights in which California finds itself, accepting reality isn’t acceptable. They prefer engaging in a state-wide game of chicken.

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