The Middle Class: The True Wild Card

The middle class must be destroyed

Have you heard about the report released last week showing the American middle class has lost 39% of it's wealth over the past few years. In other words we have been transported back in time to 1992 wealth wise. That's just the fact. While it seems incomprehensible, it has happened, and it seems almost as if it was planned...

The powers that be, if you are into grand global conspiracy theories, came to realize 30 or 40 years ago that the middle class in the Western world had to be destroyed. Particularly the American middle class. Considering where we are right now, our place and time in history, it's literally the only thing that makes sense.

Why else would the powers that be continue to suppress the modern global economy, bottle-up the true potential of America, Canada, Australia and Western  Europe? In the past 30 years we've seen technology explode and thereby shrinking the world in the process, making nearly everything more efficient and productive. There is no need or reason for poverty, illiteracy or hopelessness anymore, all of it could be stamped out here in the 21st century. Yet it won't be. Billions will continue to live in poverty without the hope of ever seeing and end to it. Why? Simple enough, the poor and desperate can be controlled. So now you see the problem of the middle class.

The middle class was a powerful force, an unpredictable force for those who want to control things. The main problem with an economically powerful and rising middle class is the "cat herding phenomenon". They just continue to do what they want because they frustratingly act in their own self-interest. When they are so flush with money you can't get these people to stop building their far flung suburbs and driving their SUV's so you can force them into your cute choo choo trains in the city

The problem for the controllers, the mega business/government conglomerate, was devising a way to carefully, cleverly separate the middle class from their wealth without necessarily fomenting a revolution. Revolutions are even more unpredictable, messy and sometimes bloody too.

Can you imagine the brainstorming session that must have been...

"We can destroy their jobs, move whole industries to slave labor in China..." Cue head nodding.
 
"We can encourage them to become investors in equities, we'll even match them dollar for dollar, promise a rosy retirement (while they shovel their money into our pockets) and then pull the rug out from under them - over and over." Cue uproarious laughter.
 
"We can get them to sink all their money into the "American Dream" of home ownership, enticing them with cheap money and a promise of ever rising home values. Encourage them to use their homes as ATM machines, run up their personal debt into the stratosphere then we'll bring it all down like a house of cards." Cue high fives all around.
 
"We'll dumb down the schools, but require a college education to get a decent job thereby separating parents from their money or saddling the kids with a mountains of debt and then hope they don't realize we were lying about the jobs anyway." Cue thumbs up, winks and nods.

Until recently the industrious middle class and hungry young entrepreneurs kept reinventing reality and climbing out of the hole the corrupt government and big business had dug. I fear this is coming to an end. Europe is on the brink right now. America is not far behind. Canada and Australia won't fare well when the big economies collapse. Even Brazil, Russia, India and China (BRICs) will suffer immensely.

The horrifying thing is that the human suffering will be unfathomable when the collapse happens. The collapse will be precipitated by the middle class finally succumbing to the fiscal and financial corruption of the proverbial powers that be.

I ask again and again. To what end? Who would benefit by a global systemic economic collapse. It all seems so insane when we as the human race have it within our power to make hunger and poverty go away. We need only to unleash the shackles holding the economy back. But then, maybe the powers that be want the sort of cleansing that will come about with a massive die off of human life.

I find the idea of this cynical and frankly sickening.

What if the middle class doesn't succumb? What if we tighten our belts and start demanding our governments right this ship. What if we recognize the liars among the populists and the patriots who say one thing (anything) to get elected and then fall into the corruption they promised to fight against. What if for once we have a politicians and powerful business leaders who desire to do the right thing for the country, for humanity instead of the singular focus of feathering their own nests while the mighty oak tree withers and dies underneath them? Well... One can dream.



CW

Apple is rich, yeah so...

America's most valuable company in a mid-March statement underscored a truth that is lost on so many Americans. Our corporate tax code (in fact our entire tax code) is insane. The inability of American corporations to repatriate offshore profits has become a major impediment for doing business job creation  here at home. Apple Computer is going to keep $65 billion out of the U.S. to avoid surrendering a ridiculous amount of it in taxes.

Today corporate cash held in foreign accounts would be subject to the 35% corporate tax rate if it was transferred into U.S. accounts. These days it's not unusual for American corporations to make 50% or more of their revenue outside of the U.S. This is a good thing. Companies that haven't expanded outside the U.S. are eventually going to be overrun by their competition.

Apple had accumulated over $90 billion in cash. Good corporate governance compelled the company to disburse some of this money to share holders, reinvest in it's own stock or invest the money in growing the company. Whatever... Clearly current law stopped the majority of this cash from being put in play here in the U.S.

Apple along with Cisco, Microsoft and Oracle and others have been pushing for this overseas cash to come home with a tax holiday  The fact that the Obama Administration and many members of Congress are opposed to a "tax holiday" is beside the point. The current law is bad and needs to be changed. It simply makes no sense keeping this money from coming into the U.S. economy. There's no rational reason hold this money at bay. The liberals and their "rich get richer while the poor get poorer" argument are being anything but rational. The poor are not poor because the rich are rich - they're poor because they haven't got a job. This is not a tax break for the wealthy, it's an impediment for our homegrown corporations from doing more business here. No other country does anything this counter-productive, none.

If you asked the average person on the street about this they would either be ignorant of it or believe that the government ought to stick it to these rich corporations. People getting their beliefs fed to them by media sound bites and Occupy Wall Street protest signs won't be persuaded that taxing corporations like this is a real problem. But the rest of us need to open our eyes. We can't let masked envy or the false rhetoric of fairness sway us into accepting something that is clearly wrong.

When you hear this being defended as a way to keep companies from using loopholes and special breaks to pay little or no taxes then it's time to call them on it. Year after year legislation is introduced to kill all tax loopholes, special incentives and breaks while significantly reducing corporate tax rates as a way to broaden the base, and year after year these bills go nowhere. It's not that they're bad bills or that it isn't the wise and prudent thing to do. It's that some large companies and self interested politicians like things the way they are. It's that simple.

Too often this is the case. The right thing is shoved aside because a few well connected have powerful friends in the right places. Take health care reform for example. Everyone knows that one simple change in the law would bring down the cost of health insurance overnight - and I mean everyone knows this. If the government would allow health insurance companies to sell policies across state lines the new competition would begin to drive costs down immediately. Health systems, hospitals and doctors would quickly get their cost structures in line with the new reality. We know healthy competition is good for costs and for quality. The car insurance business have never been as competitive and as affordable as it is now that these companies can sell insurance to any American, anywhere - and it is still a highly regulated business.

Yet, what we got was a top down solution that removes competition and introduces the specter of total government dictation over health care policy across the board. Yes, in theory it is still a private health care system, but without competition and diversity it might as well be a government entity once everything is a government decree.

As with the tax system, there are players in the health care business and their cronies in elective office that like things the way they are (or where they are headed) so the right thing is once again shoved aside.

I'm not saying it's like snapping your fingers and the structural problems are fixed, but a few rational and relatively simple changes would go a long way to getting things upright. It is cronyism and the special interests of the few that skew righteousness and feed the cynicism that engulfs Americans today. It doesn't have to be this way.

In a weird cosmic twist this is exactly what the Occupy Wall Street and the Tea Party protesters have been saying. One says it's the corporations and their filthy rich political cronies that are the problem and the other says it the government and their unscrupulous corporate cronies that are the problem. They're both right!!!



CW

Legal Graft and other Games

The new book "Throw Them All Out" by Peter Schweizer hits the shelves today. Schweizer has written many good books in the investigative journalism vein over the years, but this one strikes chord with me (after reading a few reviews).

One of the biggest unheard of, unseen scandals in American politics is festering. Will we get the full story of the inside game in DC that shows how the elite political class enriches itself at the expense of the rest of us, while driving our economy into the ground? Do we even want to know? Or does playing ostrich suit us just fine?

It's not new, it's not partisan and it's apparently not illegal, but it is disgusting and morally bankrupt. We have all watched as a nearly 800 billion dollar stimulus package became a funnel to supporters and benefactors, ensuring yet more campaign donations for Obama and the Democrats. We've seen the husbands of Nancy Pelosi and Dianne Feinstien get lucrative deals based on their wives influential positions. John Kerry seems to always come out smelling like a rose with his investments. Republicans are no better, I imagine Bob Dole was not always a very wealthy man, but he was a Senator for a century, right? I mean hasn't Rick Perry done the same thing in Austin Texas? DC has become a profit center for the permanent ruling class and those that support them. They use the government to tilt the playing field in their favor with little regard for the country as a whole.

In her Indianola, Iowa speech last summer Sarah Palin said these same things and the country re-hit the snooze button, and we probably will again in 2012. While there has been a lot of condemnation of Wall Street and fat cat bankers (as well as greedy businessmen) it just misses the boat entirely. It's the ruling class that sets the rules and the rules just aren't going to favor the poor and the middle class. All the more evidence that the Occupy Wall Street uprising needs to move their tents to Washington, D.C. That's home base for people who are really gaming (read: effing up) the system.

In the book’s introduction, Schweizer refers the phenomenon that is the subject of Throw Them All Out "The Government Rich". Yes, these are the same people who are "fighting" for you! Makes you feel empowered, right? These politicians arrive in Washington as people of modest means and somehow become very rich. These elected jobs receive generous pay, but nothing exorbitant. The Government Rich, Schweizer writes, insider deals, insider trading, and taxpayer money have become a pathway to wealth. They walk this exclusive pathway because they get to operate by a different set of rules from the rest of us. Schweizer calls the means by which these politicians achieve wealth honest graft i.e., abuse of their office for personal gain and it's not illegal.

What bothers me more is the attitude of the average citizen. It's either - whataya gonna do? or - boys will be boys, that's how the game is played. Perhaps throwing the bums out will accomplish nothing, Washington will simply corrupt the next batch. Eventually an ethical chap will rise to the top and shame will return as a behavior modifier, right? Am I dreaming?

To think it was not going on when the country was in its ascendancy is maybe naive, but now while we decline it's like rubbing salt in the wound. They probably laugh at the rubes that vote them in time and again and especially at those who put $10 or $50 in an envelope for them. These guys and gals tell us they are fighting for us (the newbies probably believe they are). After a few terms and many flattering (lucrative) meetings with lobbyists and their party bosses they're all playing the game.

Whataya gonna do?


CW
 

To Fetch a Pail of Money...

According to George Will a new book called “Reckless Endangerment” is a study of contemporary Washington, where showing “compassion” with other people’s money pays off in the currency of political power, and currency.

It's worth noting that despite all the things written about the financial crisis that still grips America and the world it does have an embryo and a focal point. I have not yet read the book, but it appears that names and faces will finally be applied to the culprits.

We've known for quite some time that "Wall Street" was to blame for the implosion of 2008, right? In reality Wall Street's part in all this was a reaction, a devastating reaction to the rules laid down by Washington. The slime merchants of credit default swaps and collateralized debt obligations should not go unscathed, however the gleeful manipulation of lenders, borrowers, investors and insurers was almost an inevitable result.

It started in the Carter years with the 1977 Community Reinvestment Act which pressured banks to relax lending standards. As a way to spread the American Dream to folks whose incomes, assets, or abilities to own a home would never pass muster in the home loan department of a bank the CRA was the epitome of liberal compassion. The embryo if you will.

President Clinton stepped upped the ante by putting teeth behind the compulsory lending standards but then offering banks a way to protect themselves. In comes Fannie Mae, a “government-sponsored enterprise” or GSE. The focal point emerges.

This set in motion the events that eventually (inevitably) led to the housing market meltdown that still grips us today. Fannie Mae and Freddie Mac became perhaps the most powerful financial institutions in the world. While the stage was being set to bring down the most powerful economy in the world James Johnson, the head of Fannie Mae at the time and his - mostly Democrat - friends and associates walked away with millions in bonuses. The money flowing out of Fannie and Freddie for campaign contributions went mostly to Democrats and it was mostly Democrats who defended and then obstructed any attempt to stop the speeding locomotive.

The rest is history. Wall Street did what they always do by creating complicated financial vehicles to maximize their profit. Losing grip on reality and sinking of major "too big to fail" firms was ultimately a bump in the road as we watched the Federal government ride to the rescue with TARP and other bailouts.

Average homeowners, the real losers in all this were thrown a bone with new Financial Industry Reform legislation. Intended to assure us that the banks will never do this again, incidentally written by the same men (Democrats) who brought us reform in the 1990's. They missed one little thing in all the fine print. The reform didn't address Fannie Mae or Freddie Mac at all. Hmmm, were the Democrats behind the legislation still angling for cash for next years campaign?

You may have noticed that I mention "Democrats" once or twice in this story. I'm just trying to set the stage for the inevitable fall guy... It was all George Bush's fault!!!



CW

The Real Welfare Queens

We've all been there, standing in line at the grocery store behind someone using their EBT card or food stamps or whatever you call it. We wonder if her mother before her relied on the government to feed the family and if her daughter, busily playing with the button that moves the conveyor belt, will follow in her footsteps. We look at the kind of food on the conveyor and think, these people eat better than I do and not a dime is coming out of their pocket. We lay seven meager items on the belt and get charged $51.67. It just seems unfair.

On the heals of reading Michael Lewis' "The Big Short" (see review from and earlier post) I have been reading more about the financial crisis of 2008 and becoming more and more sick about it. The waste, fraud and abuse we suspect of welfare Mom's is spittle in the wind compared to fraud practiced on Wall Street and Washington DC. Our anger, our disgust is completely misplaced. The fact is the relationship between Washington DC and Wall Street is criminal. It does not matter who the President is, the revolving door that spins between executive positions in the Treasury and the White House into all the big Wall Street firms is one massive conflict of interest. The corruption is almost unfathomable. That's really all you can call it, corruption.

Whether or not TARP or any of the other government rescue "loans" saved the financial system from total collapse is irrelevant, what's transpired since the fall of 2008 is the biggest financial crime in all of history.

The roots of the problems go back to 80's and especially the 90's, but now that it has come to a head you'd think something would be done about it to prevent such a disaster from happening again. If you thought that you'd be wrong.

Wall Street traditionally made it's money on commissions being brokers, traders and advisers. In the new century the Internet changed the way many investors did their business and Wall Street needed new sources of revenue. Amazingly in the late 90's deregulation fell into their lap paving the way for complex, potentially dangerous financial instruments called derivatives. Many pushed strenuously for their regulation, but some members of Congress and White House appointees (Democrats and Republicans alike) were so entirely opposed that in 2000 a bill was passed specifically prohibiting any such regulation.

These derivatives made it possible for banks and mortgage lenders to minimize their risk if (when) there was a default. This is what fueled the boom in subprime mortgages. Fannie Mae and Freddie Mac, quasi-governmental lending agencies, were front and center of this scheme. Financial institutions on from Wall Street to Berlin combined these risky loans and made them seem as reliable as government securities. All of this is detailed in "The Big Short". Employing the notorious credit default swaps, Wall Street firms blatantly, knowingly, sold fraudulent securities to gullible clients while betting at the same time that they were going to fail.

This ponzi scheme like all ponzi schemes crashed. This time no one went to jail, no one was shamed, no, this time there was a government bail out as a reward. Sickeningly the executives at Fannie and Freddie as well nearly all the big Wall Street firms walked away with millions - millions in government money. The numbers are so staggering and the fraud so complex that most Americans can't or won't even let themselves be upset by it. Worse, many people just smile slyly and say "boys will be boys" as if we should expect no less. But it's the overweight welfare Mom shopping with abandon that should be cut off!

Barack Obama thinks we should pay more taxes, that the government needs more revenue... While it's clear that most of the lefty criticisms of "the rich" are true they fail to see that it's their "guy" who is and has perpetuated this fraud for decades to keep the money flowing into the party and the campaigns. Barack Obama was the #1 recipient of campaign contributions out of Fannie, Freddie and Goldman Sachs. Boys will be boys. Meanwhile he'll try to convince us that a husband wife team that owns a little business generating $250,000 a year are the filthy rich.

The Republicans may be saying no to higher taxes, but they are no pillars of virtue in this whole affair. The incestuous relationship among the Wall Street elites and the executive branch (of any Preisdent) should be severed. The notion that the finances of the nation are just too complicated for someone without a Goldman Sachs background is preposterous. Isn't clear by now that the qualifications for high government posts are how well you can game the system for the benefit of Wall Street. Most of the filthy rich up and down Wall Street were Republicans at one time. No, the Republicans are no better at all.

Americans need to start getting educated about this and learn to direct their anger at the real welfare queens in NY and DC and not the welfare Moms at their local grocery store.


CW

REVIEW:The Big Short

The Big Short: Inside the Doomsday Machine
by Michael Lewis

Where to start?

In late 2008 when the TARP bill was being debated I was thoroughly confused. What the heck was a credit crisis anyway? I wasn't the only one who was confused to be sure, in fact, I would wager that 98% of Congress - the people voting on the bill - were too. The financial system had cracked and was spilling out all over the place. Wall Street, Main Street and every street from Berlin to Tokyo was affected. In retrospect it's entirely possible that TARP saved the world from complete disaster although we will never really know because we can't go back and replay what might have happened had TARP never passed. It's also entirely possible, even probable that it was the greatest fraud ever perpetrated.

What actually happened is not easy to explain and even harder to understand technically, but in simple terms greed and mass psychosis cast a pall over Wall Street that prompted a fairy-tale like reaction among the few peripheral players that had tossed their blinders aside. As light began to shine on the inner workings of a handful of massive Wall Street firms at different times and in different ways these players realized that the Emperor actually had no clothes.

With The Big Short Michael Lewis, a former Wall Streeter himself spins a tale of the few men who saw the whole thing coming. Even while they were setting themselves up to make a profit by throwing rocks at glass houses they were for all intents and purposes shouting at the top of their lungs that something terrible was about to happen. But nobody would listen...

Mike Burry, a doctor turned investment adviser, Steve Eisman, a cranky, tell-it-like-it-is analyst, a tiny California firm called Cornwall Capital and an employee of Deutsche Bank, Gregg Lippmann stood at the center of the financial storm of the century. These guys were not men in white shining armor, but neither were they responsible for the pain we are all suffering to this day as our home values continue to fall and our economy struggles to keep it's head above the water.

The scoundrels in this story are plenty...

As the subprime market evolved the complexity of the financial vehicles and game playing by firms like Goldman Sachs, Bear Stearns, Merrill Lynch, Lehman Brothers, Bank of America and Citigroup became so mysterious that the under-manned, under-trained Federal regulators stood no chance. When you learn the final authority, namely the two ratings agencies of Moody's and Standard and Poor's were no better trained and no better paid than the Feds - no one stood a chance.

Nothing was on the level. Not to overlook the people who took loans they knew they could never pay back, but it was the mortgage originators pushing booby-trapped loans on the lower middle class that were particularly slimy. Add the pure greed of the Wall Street bond market, their complicated schemes for packaging and selling junk to unwary traders and the delusion that the housing market would go up in value forever and the perfect storm was brewing.

This is where Mike Burry came in. His knack was in seeing things clearly. This was because he did his homework - actually reading "the prospectus" and pouring over the boring details in the fine print. From day one he knew something was terribly wrong with the subprime mortgage business. The big firms on Wall Street were packaging mortgages in investment vehicles called mortgage-backed securities and selling them without the buyers knowing what was actually in them. This got Burry's attention. The more he looked the more convinced he was that these things were a time bomb for the investor. He wanted to bet against them in a big way. He approached different firms looking to buy "insurance" against the possibility of these mortgages defaulting. For a small premium Burry would buy what became known as a Credit Default Swap and the middlemen at Goldman Sachs and other brokers would take a small fee. For Goldman Sachs it was like taking candy from a baby and then getting the baby to pay them for stealing it. Burry would be paid when a certain percentage of the mortgages in any one of the mortgage backed bonds went into default.

Soon every big Wall Street firm and most the super large banks worldwide got in the game. CDO's or Collateralized Debt Obligations were bundles of these mortgage backed securities that the big firms put together and then sent up to the ratings agency for a bond rating. Neither Moody's nor Standard and Poor's had any better idea what was in the CDO's than next guy, so in a sense the ratings were meaningless - except that the higher the rating the more confidence the investor had that it would never go bad. The dirty secret was that regardless of what was in the CDO's they were getting AAA ratings.

Eventually Gregg Lippmann of Deutsche Bank caught on to what Mike Burry was doing and he began a campaign to get investors interested in credit default swaps. Mostly people thought he was crazy for betting that the subprime market was a fraud and would eventually collapse. There were a few for whom the light-bulb flickered. I say flicker because even as they bought into Lippmann's ideas they were still mostly in the dark convinced that what Lippmann said and what Burry knew was just too good to be true. All they had to do was hold the line for a few years with these insurance policies in their hands and their payday would come in spades. The trigger would be falling housing values, the bet was that they couldn't go up forever.

Steve Eisman, skeptical of Wall Street and Lippmann from the start could find no evidence that the whole subprime market was anything but a fantasy. His style was to challenge everyone for details and justification for the seemingly ridiculous level of confidence in the housing and mortgage markets. In California the operators of Cornwall Capital, a firm so small no one on Wall Street would even talk to them, scratched an clawed their way into Lippmann's world having no idea what they were doing - convinced that they had to be missing something. It couldn't be this easy, could it?

When it happened - housing values started to fall - nothing much happened. The world went on. Wall Street went on. Subprime mortgage fraud went on. It was still a year or so away from when a majority on the teaser rate mortgages would start to fail in large numbers. For the next 18 months the people betting short on the subprime market were either questioning themselves or being questioned by their investors convinced they were either fools or thieves. With just a few months left in 2007 the calls came pouring in. The big Wall Street players who had treated the short sellers like chumps suddenly wanted in and were willing to pay big for credit default swaps.

The rest is history, we all lived through it. Burry, Eisman, Cornwall Capital and the rest made at lot of money. Wall Street firms one by one crashed and burned. Eventually the whole credit system went belly up. But none of them felt vindicated, no one was happy with the way it went down. Burry quit the business, Eisman became a kind a caring man for the first time in his life. These men were who had been right all along and tried telling the world were changed. Oddly, sadly, Wall Street wasn't changed.

Michael Lewis doesn't even get into the government and regulatory villains until the epilogue, but this book wasn't about the headlines it was a story about being there in the midst of it all. To that end Lewis succeeds brilliantly. It was a nonfiction book that was hard to put down - and that's rare. Sadly, Lewis concludes that what is strange and complicated about the whole affair is that all the important people on both sides of the subprime gamble left the table rich. The rest of us unimportant schleps got screwed and we are still paying the price to this day.

The biggest slap in the face was that the TARP money was paid to make everyone's bad bets good. No one lost their jobs, no one was sent to jail for fraud. AIG, Goldman Sachs, Citigroup and Bank of America were given billions with nothing asked in return, nothing. Bonuses were paid with TARP funds. Government stimulus money paid off the outrageous 40:1 bets made by AIG and the worst part of it all is that nothing has been structurally changed. On Wall Street it's business as usual, looking for the next scam to screw us with.

We continue to struggle with joblessness, lack of investment, and diminished outlooks for the next generation. Governments face crushing deficits and the middle class is squeezed. I repeat: on Wall Street it's business as usual - busy looking for the next scam to screw us all with.

I used to think what went on with regards to Wall Street, as mysterious as it was , was necessary for our system and our way of life. It's not. The legitimate functions of equities trading and bond trading have been superseded by those who have only self interested greed in their hearts. Maybe it's always been that way, who am I kidding, but these pricks in DC shouldn't be feeding this pricks on Wall Street.




CW

Sustainability: Not just for environmentalists anymore

The public unions in Wisconsin and in other states may feel like they have a target on their backs in the here and now - and they do - but it's the future for everyone of us that's at stake. States and municipalities are facing collective liabilities in the trillions of dollars due primarily to promises made to public employees. These promises in many cases defy all common sense, in a few cases they defy common decency.

When a public servant can retire at the ripe old age of 55 and collect a benefit check from tens of thousands to hundreds of thousands of dollars for the rest of their lives with paid health insurance thrown on top it's no wonder we have an unsustainable situation. The rest of us working in the private sector would be lucky to retire at 67 with no pension and a (devastated) 401K and only Medicare to look forward to. Will there be Social Security in 20 years for those of us who paid 7% of our wages into it for 40-50 years? Many state a municipal workers don't care, why should they?

Traditionally public employees enjoyed very good benefits and job security, and that was just fine. It was assumed that they were paid a little less as compared to their private sector counterparts. That part of it is probably not true anymore. The average wage for a Federal employee is reported to be over $80,000 a year, there is no way the private sector can claim that. Even factoring in the education level differences it's clear that government workers are getting sweetheart deal when it comes to wages and benefits - including generous vacations, educational opportunities and even sabbaticals.

The problem is that since the day public workers have been allowed to unionize they have had direct involvement with determining who sits across the table come contract negotiation time. They have essentially bought sympathetic bargainers through the election process. Unions fund political campaigns and then reap the benefit of the symbiotic arrangement. Since there was an ever rising revenue stream while the economy grew this worked for them. Today, however, the party is over, state and local governments are broke. Governors and legislatures face the possiblity that the jobs that have been lost are not coming back. Unlike the Federal government they can't just have the treasury print more money. Something's got to give.

Gov. Scott Walker simply must not back down. He does need to come across as reasonable and fair and that means explaining with simple facts why this has to be done - and now. It's all about sustainability.



CW

Austerity is a bad idea

Be very wary of snake oil salesman dressed as politicians who are promising a return to deficit reduction and balanced budgets. This election cycle it is the Republicans crying about government deficits and national debt. If you think things are bad now just wait until the government starts to tighten its belt. Don't think the Democrats are any better - in fact they're much worse because they will claim that in order for the government to return to fiscal discipline taxes will have to go up. Of course they will claim only the filthy rich will be affected by their tax hikes. Don't believe it. The Republicans will promise to cut taxes, and they might actually deliver but they will also be glad to turn the economy over to the same businesses (the giant Wall Street banks and the Fed) that have caused so much misery.

Right now government spending is all we have. Until legitimate businesses stop being freaked out by Barack Obama (and rightly so), jobs will not be coming back. Only when average folks are back to work and feeling good about the future will lending return and new money enter our cash starved economy. The uncertainty borne of the Obama/Pelosi regime has caused business to literally sit on more than a trillion dollars rather than invest, expand and hire workers. Obviously when people are working and spending and businesses are selling and expanding then government (all governments) will experience increasing revenues. At the risk of sounding like Paul Krugman, honestly, until these things happen only government spending can tide us over.

As much as I admire the sentiment of the Tea Party movement they are wrong if they think this is a good time for the government to slam the wallet shut. The idea that the national debt is a burden on future generations is based on the false premise that the national debt must some day be paid off by the private sector. In reality, the government will pay itself to redeem its debt securities as they mature, using funds obtained by selling new securities to the public. The fact that no one – apparently the politicians included – understands how this works is not surprising. The truth makes for dull rhetoric and boring TV. For all intents and purposes this "rolling over" of the national debt can be continued indefinitely.

WE ARE DOOMED...

So are we doomed to be crushed by government debt now and for the foreseeable future? Yes and no. No for reasons stated above. Yes, if we continue to allow the banks and the Federal Reserve to have exclusive control of the money supply. We’ll end up pouring billions down the debt rat hole serving no one but the big money bankers. It is the government that grants the power to commercial banks to "create" all the money circulating in the economy by issuing loans. Why then does government borrow money from these same banks only to owe them massive amounts of interest? It really makes no sense. Think about it for a minute...

Honestly it shouldn't take but two seconds to realize that it's completely insane. Yet that's exactly what's going on. Instead of having the government (remember, we are the government) in control of the money supply we allow it to enrich a handful of multi-billionaires in D.C., New York, London and Switzerland. So we all get mad at Wall Street and we should, but they can only do what the law allows. It's the government that sets the rules and they have set them to favor the Wall Street money changers and not the citizens.

Today each time a bank makes a loan it actually creates new money out of thin air. The more the banks lend the stronger the economy, but as soon as they stop lending the economy is starved of new money and it literally grinds to a halt. Every economic bubble that bursts puts caution into the banking system, loans stop, new money stops and another possible recession looms. It makes the economy entirely unstable. It's crazy, frankly it's absurd.

Simply put, this process – the creation of "new money" by commercial banks - is the actual cause of this and every financial crisis' over the past 100 years. Each time we endure a financial crisis without a fundamental policy shift we are only assured of a worse one next time.

WHAT TO DO?

In simple terms we have to take back our economy from these erratic cycles, end the concept of too big to fail and force the banks to make their money fostering wealth creation instead of playing us all for suckers and serfs. Only the government has the power to do it. Neither Republicans nor Democrats have the will or the backbone to accept their responsibility. Instead we hear rumblings of austerity. That will make today's economy look like a boom town...

I've seen a few different plans describe that it might be as simple as preventing banks from having the sole power of creating the nation’s money supply by making minor changes to the rules governing bank accounts. It would restore the right to the Treasury - an agency of the government - to create the nation’s money instead of a privately-owned central bank. This would cause the newly created debt-free money to reduce our tax burden, free up private capital for economic expansion and fund the public services we already pay for but don't get because of the billions going to the giant banks in the form of interest payments.

The risk is of course that politicians being political and having control over the Treasury will pervert the process and throw the economy into a tailspin. That's different from what we have now exactly how? Politicians we can vote out of office - Wall Street bankers we can't.

The way it is now we have the entire global economy constrained by a handful of greedy pigs who win whether the economy prospers or not. We worry about radical Islam and Shariah law threatening the Western world (which I'll admit scares me too) but we are experiencing something far worse by our own hand. The potential for the betterment of all humanity is circling the drain because we have no leaders who have the will to stand up to the big time money changers. Oh, and don't fool yourself into believing that the the financial reform bill making its way through Congress is anything more than window dressing that will probably hurt the average Joe and the smaller banks even more.

REALITY CHECK

All of this is not to say that the way government spends money today or that the slippery path to socialism is good or desirable. I don't favor out of control spending by anyone - especially the government. At the heart of the problem is the way the government is funded. It is currently held hostage by the way the monetary system it set up. Eventually, left unadjusted, all of our tax money will go to paying debt. This is good for whom exactly???

So when the campaigners come a knockin' this fall ask them what they plan to do to bring stability to our economy and foster job creation. If they start talking about deficit reduction and fiscal discipline look at them with a wary eye. It's just not as easy as that. Money needs to spent for wealth and prosperity to return and if you and I can't and if businesses can't then the government has to. Austerity is a bad idea, a very bad idea.



CW

Made In The U.S.A... Or Not

If this story doesn't get your blood boiling...

After everything that's gone on with "big" finance on Wall Street in the last decade not the least of which is buying off politicians of every stripe we find an attitude that is lining up the final nail in the coffin of the American worker.

Meet Yet-Ming Chiang. His company, A123 Systems, has devised safer and longer-lasting batteries than the conventional lithium-ion currently slated for most production hybrids/electric cars. A remarkable feat packing in excess of 600 cells into a case no larger than an airplane carry-on bag. The 52-year old MIT professor and inventor already has this technology in use in many of the worlds cordless power tools.

But Chiang and his company are having a devil of a time moving to full-scale commercial production and creating thousands of new American jobs? Why?

It's just another chapter in the depressing history of manufacturing's decline in this country. Regardless of the clear advantage these batteries would give to American competitiveness and the add-on value of further technical development, many on Wall Street were incredulous when A123 asked for capital to build factories in America. Asia, yes. China, yes, of course, but Michigan, why?

Is it the American public who is really the one to blame here, and not Wall Street? The fact is Wall Street is not there to be altruistic. As hard as it is to swallow Wall Street bankers, investors and venture capitalists are only interested in the maximum return on any investment. That's their job. Guaranteeing Americans have jobs isn't. The question is: is the public willing to pay for American labor? The answer is clearly no they are not. People are still paying the same price they paid in 1975 for a whole host of products that are now made with Chinese labor at slave wages. People don't care, they want their their carts overflowing with cheap junk at Wal-mart. Unfortunately along with cheap, junky toys and sometimes poisonous everyday household goods our high tech gadgets are built in China too.

For too long there has been the view that the American economy could continue to prosper even when manufacturing moved to Asia, as long as Americans delivered the best ideas for new high-tech products - think Apple's iPod, iPhone. Unfortunately with the rules imposed by the Chinese government for intellectual property transfers it suggests that manufacturing devoted to thriving high tech industries acts as a magnet for research and development facilities too. It makes perfect sense. So, America loses twice.

Along with the American consumers appetite for cheap junk we also have negligent and out of touch labor unions and Stalinesque bureaucratic and environmental regulators. They make it so unattractive to set up shop in hometown U.S.A. that eager patriots go to China anyway so they can strike while the iron is hot! America loses three times.

When we can't move the means of production oversees, such as agriculture or construction we illegally import cheap Mexican labor. It is exceedingly clear that Americans won't pay the price for American workers. Wall Street doesn't see value to the bottom line using American labor when high tech communication and manufacturing systems as well as ample transportation make it more profitable to do the work elsewhere.

There may be no way of turning it around. America may never be a major manufacturing country again, if that's so America will stop being a powerful country eventually. What can be done? For one, when patriots like foreign born Yet-Ming Chiang want to build factories here we (collectively) should move heaven and Earth to assist him. Prove Wall Street wrong, prove me wrong, please.




CW

TARP: Just The Tip of the Iceberg

One of the government agencies that rises above the politics of the day and produces sober and well researched reports is the Inspector General system. Tuesday the Inspector General for the Troubled Asset Relief Program (SIGTARP) released a quarterly report for our friends in Washington for final quarter of 2009. There is a term used in crisis and/or project management called lessons learned. It is an exercise intended to review things that didn't go exactly right, how they were resolved and how to avoid them in the future. Washington likes to hash and rehash lessons learned in mock trials called congressional hearings, but then never heeds the conclusions. Thus the mistakes are repeated again and again.

The seeds of our current economic disaster go back to the late 70's via Carter's CRA (Community Reinvestment Act), through 80's with the first of the "too big to fail" bailouts under Reagan, sliding through the 90's with Clinton's revamped CRA legislation of 1993 and financial system regulatory reform of 1999. Usher in Bush II who played lip service to a looming housing bubble crisis and not only failed to act but rather accelerated it with weak dollar policies coupled with and cheap money policies from the Federal Reserve. Yes Virginia - a perfect storm.

What was Obama to do with this mess? Smart money would not be on doubling down, but that's of course exactly what he did. Bottom line according to the Inspector General is that we are going to see a replay of the 2007-2009 recession or worse.

Here are the bullet points from the report:

* To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs.

* To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.

* To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses — and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions — the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.

* To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices — as discussed more fully in Section 3 of this report — risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.

Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.

When are we going to get responsible people in Washington who'll do the right things for the right reasons? This bull$hit has got to stop...


CW

Deep Doo Doo -or- Does anyone really know who's dime this is?

If personal depression doesn't get you after reading the doom and gloom saturating your favorite blog sites then perhaps the real Depression will. I admit that the signs for the recovery of the American economy look rather dire right now. It's obvious that President Obama will be ideologically unable to steer us to safety. Its not in his nature to trust (real) free market capitalism which is the only thing that stands a chance of delivering us from economic catastrophe. I want to keep my chin up and keep deluding myself that everything will be alright, but its getting harder by the day.

Reading Al Fin's post "Morgan Stanley Guru: Buy a Gun & Lots of Ammo " I am being slapped into reality. Can this country really come to and end as we know it? The evidence is mounting that the answer is affirmative.

The fault lies with all of us to a certain extent, but I stop short of outright blaming the average middle class schmuck who has played by the rules, done all the right things and has done his or her part to be a a first class citizen. The fault lies with the "government" as it were and the massive money interests of the Wall Streeters and the multi-nationals for whom the regular rules don't apply.

David Paul, in none other than The Huffington Post, lays it out there:
But what if the public understood the whole story? How is it that the banks are now having one of their most profitable years ever? Given that there is not much lending going on, and that the newly increased credit card fees have only just begun to flow into bank coffers, where is all that money coming from?

It is coming from proprietary trading. "Prop trading" is the kind of betting with the bank balance sheet that was made illegal for commercial banks back during the Great Depression, when the FDIC and deposit insurance was created. The price of having the federal government guarantee bank deposits was separating the lending and depositary functions of commercial banking from trading and risk activities of investment banking. Thus, in 1935, the commercial bank J.P. Morgan & Company was separated from the investment firm Morgan Stanley.

But this separation was undone in 1999 to facilitate the creation of the megabanks that we have today. However, while the Financial Services Modernization Act of 1999 ended the separation of activities, FDIC deposit insurance remained in place. And this year, the elite of the financial world--JP, Citi, Wells, BofA, Goldman and Morgan Stanley--have finally emerged for what they are: Gigantic hedge funds backed up by the full faith and credit of the United States of America. Wall Street bankers making big bets with our money, content in the knowledge that if they win their bets, they will pocket the cash. And if they lose, we will all pick up the mess.


We should be careful to point out that not all banks are guilty, indeed thousands of community oriented banks both big and small have relied on traditional banking practices and made money on the margins just as they have for the last 60 years. But it's true that the giant "too big to fail" banks have played us all for suckers with the blessing of the Federal government.

So what does the Federal government do? Why, they threaten us that's what they do. In this piece by Tyler Durden on www.zerohedge.com we learn what the Obama adminstration has in store for OUR money...

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." ...Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal."

This is truly unbelievable. Is this even America anymore? In saving the banks we are to bankrupt everyone else, is that right? But in a true talking out if both sides of your mouth fashion the President goes after the bankers with his harsh words. Economist Mike Norman finds the whole thing ridiculous and counter productive:

In what is becoming an all-too-familiar and nauseating scene, Obama summoned bank executives to the White House again yesterday to beg them to increase lending. The president told the CEO’s that their banks must make “an extraordinary commitment” to rebuild the nation’s economy.

From this statement we can clearly see that in Obama’s mind and in the mind of those who advise him, the vast resources of the Federal Government—the same government that bootstrapped the nation out of the Great Depression and paid for the greatest military buildup the world has ever seen—are now depleted. Looking past the remarks, which by themselves seem unbecoming for a sitting president—the name-calling and empty threats—we see a weak leader whose ignorance of the monetary system is both mind numbing and downright scary.

So, yes, I guess America can come to and end as we know it - and in a very short span of time, maybe even yet this year. On Dennis Mangan's site they are debating "What are the odds on social breakdown?"

Will there come a point in this game of musical chairs in which the music stops? I don't know: we've become so accustomed to living a life of peace and prosperity in the USA that most of us cannot even imagine anything else.

Is it possible to estimate the chances that everything goes to hell? Or would that be more like investing or economic forecasting, when the more people that predict something, the less likely it will happen? In other words, does the fact that few people - except nuts like me - think that the odds of social breakdown are substantially greater than zero mean that the odds in favor of it happening are actually quite good?

I sure hope that all these fine people are dead wrong, but I guess it is time to consider a post "America as we know it" scenario and then acting on it.



CW

Yes Frank, the fix is in...

I don't often agree with Frank Rich of the New York Times. In fact I don't often agree with any one at the Times, even any of the so-called conservatives since Saffire retired. But Rich's column called "Is Obama Punking Us?" has elements that are hard to argue with.

Here I offer some red meat from Rich's column for you to chew on-

...this mood isn’t just about the banks, Public Enemy No. 1. What the Great Recession has crystallized is a larger syndrome that Obama tapped into during the campaign. It’s the sinking sensation that the American game is rigged ...What disturbs Americans of all ideological persuasions is the fear that almost everything, not just government, is fixed or manipulated by some powerful hidden hand, from commercial transactions as trivial as the sales of prime concert tickets to cultural forces as pervasive as the news media ...It’s a cynicism confirmed almost daily by events.

He's right. Every day, in every way I feel this undercurrent as well. I do not believe that the average business - the super market, the home improvement store, the local bank or even the dreaded and presumably evil gas station are part of some grand conspiracy to rip us off in every possible way. Nor do I believe that the average government bloke desires to dictate the terms and conditions of my daily life. But I do believe that powerful global/corporate and government interests have rigged the game of life the way the casino rigs the slot machines - the house always wins.

We are not fools out here in the real world but in many ways we are powerless. If we withhold our money, saving instead of spending, like is happening right now, then we and our friends and neighbors will lose our jobs. It's not like our direct bosses are making out much better - many of them lose their businesses or get laid off too. Somehow the the well connected on Wall Street and in the Halls of Congress make out just fine. What is this system? What they do can't be called capitalism - it's something perverse and rancid. It's not socialism either...

Honestly the elected politicians, the lobbyists (many former Congressmen among them) and the corporations they represent don't care a whit about political or even economic theory. They will get theirs regardless of what political or economic system stands before them.

Those on the left convince themselves that it's greedy corporations that rig the system and government is too weak and too timid to do much about it. Many on the right run with the mantra that government itself is the cause of so many of the problems that face our economy and our culture with its insatiable appetite for power and control. News flash! They're both right...

Who writes the tax laws and the rules that practically invite American corporations to ship jobs overseas - who shirks the responsibility of protecting our borders and guaranteeing that foreign workers are legitimate? Not the corporations. Who hires lobbyists, pays off political campaigns and blackmails municipalities for favorable tax loop holes until it they don't need it any more and close up shop - culling jobs - anyway? Not the government.

Even if a politician loses an election he has usually set himself up and become so well connected that his future is assured. When a CEO fails miserably he is still handed a going away present that should make him embarrassed. Yes, Frank the fix is in, the system is rigged.

But I think Mr. Rich's column was about more than just golden parachutes and comfortable ex-politicians. Yes, he tries to be political, tossing barbs at Bush and there's even a bit of uncharacteristic ridicule for Obama, but he taps into the sentiment that some greater force (not necessarily a large force) is channeling events into funnel that only a select few can access on the other end. The unseen hand that holds the marionette strings connected to Obama is the same one that manipulated Bush and every president before him. Or is it an ultra exclusive club that presidents get a membership pass to?

If not the Free Masons then perhaps the Bildeburgers. History is littered with grand conspiracy theories. These make great fodder for blockbuster movies and Internet lore, but can there possibly be anything to it? What possible purpose does a continual cycle of war, destruction, peace and prosperity, feast and famine, good times and bad serve? The short answer of course is money. But is money enough when obviously the unseen hand has more money than it knows what to do with? It can't just be money, can it? Is it just about power and ego?

If presidents get inclusion to the club why would they ever allow themselves to be treated the way Bush was treated, the way Clinton was treated - the way Obama will be treated eventually? It makes no sense. History is a their reward - not money. These are men of spectacular ego's - and the presidency is often called the most powerful position in the world. So either presidents are on the outside engaged in a shadow war against the unseen hand (and losing) or it isn't about money, power or ego.

I have always had a hard time accepting conspiracies on such a massive scale primarily because coordinating men with money, power and ego is like herding cats - damn near impossible...

Damn near???





CW

Greedy Pigs, All of Them

Bruce Bialosky asks "Where Will They Stop?" in his column today. He's referring to state governments confiscating unused gift card value as their own. By what right does the government have taking the unused value of gift cards from the issuer and even the receiver of the gift? These greedy pigs will stop at nothing, what's next my unused savings in my savings account at the bank?

Honestly, when the government starts to act like that you have to believe that we are not in the land of free anymore. Nearly $6.8 billion in gift cards per year go unused. I am as guilty as the next guy... Often they go into my wallet and never see the light of day - even though I have subsequently visited the retailer multiple times. I'm an idiot. But does that mean the government gets the largess of my idiocy? Why not the retailer or the issuer?

There are those who will scold us for complaining until we're all blue in the face, but if we keep electing the same greedy pigs time after time we ought to shut up and take it. I reject this assertion. I do not cast my vote to re-elect these thieves - and besides is anyone truly informed about this type of legislation before it's too late. You know these cowards slip this stuff in to larger bills in the middle of the night when our attention is focused on American Idol and Britney Spears. Where is the media? Right, oh right, American Idol and Britney Spears.

As of today it seems I am safe here in the land of 10,000 lakes, my state government has yet to pull this one out of there bag of tricks. Shhhh! Don't give them any ideas!



CW