Monday, June 29, 2009

ANOTHER EMPTY COMMISSION?

The NY Times has an editorial that questions the strength of President Obama's "re-regulation" efforts. Specifically, the editorial makes it clear that his efforts have emerged with an "inauspicious start."

Anyone who follows this blog knows why I would consider this to be a very generous assessment. In my view, we're doing very little to discipline market stupidity and greed. In fact, it's being rewarded under the Bush-Obama plans.

Making matters worse is how the Financial Crisis Inquiry Commission is made up. This investigative body, in the spirit of the 1930s hearings led by Ferdinand Pecora, was created by Congress to perform an autopsy of the collapsed financial institutions, and to look into the conditions that led to the market meltdown. As Robert Kuttner points out, early indications are that the commission will be stocked with the same market sycophants who made the mess possible.


If early reports are correct, and people like former representatives Jake Garn (R-UT) and Bakersfield's Bill Thomas (R-CA) are on the commission, the commission promises to be little more than an apologetic rubber stamp for Wall Street's behavior. I write about Garn's role in helping to create the financial mess in my book (see page 253).

For Bill Thomas' part, he rarely met a financial, oil, or agricultural group that he wouldn't support with taxpayer subsidies and favorable legislation. Why would either one of these two want to step up and find fault with the deregulatory legislation that they helped craft?

Put another way, the commission will be both toothless and gutless. The financial sharks will live to see another day.

- Mark

P.S. This post by former Labor Secretary, Robert Reich, explains why President Obama's plan for reforming Wall Street comes up empty. It's short and to the point.

Saturday, June 27, 2009

MICHAEL JACKSON EXPLAINS THE BAILOUTS?


I was watching the news this morning and the talking heads were all over the Michael Jackson story. But one discussion hit me as a particularly useful way for us to understand how absurd our bailout (and heavily subsidized) economy has become.

The discussion turned to the promoters of Michael Jackson's planned tour over the next year. It turns out that the promoters are going to lose a bundle in money that they fronted for the concert and did not insure. This is the easy part. We all understand that they should lose the money. This is what "investing" is all about. You roll the dice and take your chances.

But then the discussion turned to the resellers of Michael Jackson concert tickets. These people have already bought tickets with the intention of reselling them. Should the resellers (and their clients) be compensated? They think they should. Common sense, and market rules, says no. If common sense and regular market rules prevail the speculators (resellers) will not be compensated, and stand to lose a lot of money too. This is the way the market is supposed to work.

This, in a nutshell, is what the market players in our economy did. They made bets on products that had not yet matured. However, when their product went bad they went to the federal government (the U.S. taxpayer) for a bailout. They got it.

Too bad for concert ticket resellers. Somebody should tell them that they need more lobbyists in Congress.

I'm not sure, but I think this "Jackson-Ticket-Reseller" story goes a long way in helping to explain how absurd these bailouts are (we should have nationalized the failing institutions). It also helps explain how pampered and unmarket-like our financial sector has become too.

- Mark

EXPLAINING FANNIE & FREDDIE

Over the past year I've been asked about the role of Fannie Mae and Freddie Mac in the housing market collapse many times. It's obvious from the discussions we see in the media that there are not too many people that understand what either one does. I discuss their history and describe what both do in my book.

Still, this brief overview of both entities from Richard's Real Estate (hat tip to Economist's View) is about as succinct and on point as I've run across.

Back in 1987, when I started working on housing finance issues, I wondered this very thing. So I spoke with the person in charge of secondary market business for a Wisconsin Savings and Loan called First Financial (I wish I could remember his name now).

He had a crisp explanation: Fannie Mae was a Savings and Loan for Mortgage Bankers ... This was in fact the reason for their original existence. Fannie has been around since 1938, and it became private in 1968, and its purpose was to raise money from capital markets to fund mortgages originated by mortgage bankers. Between 1938-68, its business was entirely FHA and VA loans; thereafter it could fund private sector loans.

Freddie was chartered in 1970 at least in part in response to regional differences in the availability of mortgage credit. At that time, around 60 percent of mortgages were held by Savings and Loan Associations. These S&Ls were local businesses, who could not lend outside of their communities (I will need to double check, but my recollection is that they could not lend more then 150 miles away from their front door).

As young people migrated from the Northeast and Midwest to the sunbelt, leaving their parents and grandparents behind, there was a geographic mismatch between the location of deposits and the demand for mortgage credit. Freddie was invented to buy loans from S&Ls, turn them into securities, and sell them in the secondary market. This allowed money to flow where it was needed.

The distinction between the two institutions disappeared in 1992, with the passage of the Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA). I am guessing that the reason we kept two around was to have some competition in the MBS issuance market.
I'll discuss this on the program after our discussion with Professor Thoma.

- Mark

Friday, June 26, 2009

MICHAEL JACKSON

This was the very first album I had growing up. I've liked his music ever since.


- Mark

P.S.: My kids had no idea why Michael Jackson was such a big deal. I showed them Michael Jackson's Moonwalk. My daughter said that it was "freaky cool" because she had only seen it on cartoons and didn't think anybody could actually do that. So I decided to post it here. The Moonwalk begins at 3:40.

Thursday, June 25, 2009

LIMBAUGH: OBAMA MADE SANFORD DO IT

With his suggestion that South Carolina Governor Sanford was in Argentina having an affair because he's fed up with - and trying to escape - Obama's America, Rush Limbaugh proves that he's little more than a clown ...

- Mark

Wednesday, June 24, 2009

DROWNING IN DEBT

MSNBC has a very accessible (i.e. non-academic) series of articles that takes a look at how Americans are "Drowning in Debt". They have articles on credit card rate increases, how to get out from under credit card debt, and a pretty cool interactive graph that outlines the evolution of the credit card industry. They also have a good number of "credit crunch" cartoons, two of which I post below.

Here's one that shows us how the credit card industry continues to hammer away at "irresponsible" debtors after it's necessary.


Here's another that helps us understand why Congress is worthless when it comes to confronting the industry.



There's a lot more, but one thing is clear: The economy is not going to stabilize until we get consumer debt, home foreclosures, and the financial "industry" under control.

Unfortunately, we're not close to achieving any one of these three.

- Mark

Tuesday, June 23, 2009

HEALTH CARE HUMOR, FROM HAARM

From Kos ...

These Healthy Americans Against Reforming Medicine (HAARM) clips - which are produced by Laughing Liberally and the SEIU - are pretty funny.






- Mark

GUARANTEEING WALL STREET'S SURVIVAL

Incredible. The Federal Reserve's Inspector General (it's top auditor-cop) is at a complete loss to account for some important, and very basic information. In this clip the Inspector General can't account for the whereabouts of some $9 trillion (with a "t") that has been encumbered (spent, lent, credited, or guaranteed) by the Federal Reserve over the past year.



As Congressman Grayson points out, in real numbers if we have $9 trillion that's unaccounted for that means you and I are on the hook for about another $30,000 each (i.e. in addition to the $40,000 we owe for our "regular" national debt).

It's this kind of ignorance and stupidity that has enabled a Wall Street bailout culture that is now being matched by proposed accounting rule changes that are largely toothless. Worse, these accounting rule changes amount to little more than favorable legislation for the market players who got us into this mess. In simple terms, these new accounting rules allow financial institutions to reprice formerly toxic instruments so that toxic asset "market losses" can be rebooked - for credit purposes - as healthy instruments.

Think about it this way (fair warning, this is oversimplified). If your neighbor is being foreclosed on, their mortgage is realistically a toxic asset (since it won't be paid). However, the bank that is holding the mortgage might actually have a "healthy" asset because the Federal Reserve (and TARP & TALF) has guaranteed or "insured" it for the bank. So, on the books - and for accounting purposes - it looks like the bank will get paid because of it's newly insured asset.

And just like that, we have a healthy asset that can be used for guaranteed loans and credits.

The only problem is that consumer credit is collapsing while your neighbor still loses their home (in addition to seeing their credit score wrecked for a generation). Families may be ruined in the process. Chances are your neighborhood will not fare well either as housing prices continue on their downward trend.

This, in a nutshell, explains why Wall Street is happy (stock rally) and why Main Street is skeptical (consumer polls). The federal government - i.e. you and me - is guaranteeing Wall Street's survival.

- Mark

BANKERS AND THE U.S. TREASURY


And they're blocking traffic too ... Both the picture and the caption (title) are from nakedcapitalism.com.

- Mark

Saturday, June 20, 2009

STILL MORE FOX (HANNITY) STUPIDITY

Yet another example of FOX News not even bothering to do basic research ...

Sean Hannity, June 18, 2009 (via Brendan Nyhan and Media Matters):

CAROLINE HELDEN, PROFESSOR, OCCIDENTAL COLLEGE: [President Obama] inherited a terrible political and economic situation from the previous administration.

HANNITY: Blah, blah, blah. I don't want to hear this anymore.

HELDEN: He had incredibly high approval ratings, Kennedy-esque approval ratings, and now they're starting to come back to earth. They're still very high for a president with these economic woes.

HANNITY: Let me ask this. This is not Bush's problem. It's his quadrupling of the deficit. He made those choices. He took over G.M., the financial institutions. He wants to nationalize health care. This is Obama's economy now...



To demonstrate how intellectually dishonest and inconsistent Sean Hannity and the clowns at FOX News Corps are, let's take a look at Sean Hannity blaming President Clinton for the small troubles - which included budget surpluses - that George W. Bush inherited ...

Sean Hannity, August 17, 2001: "[T]his is still the Clinton economy, in case you forgot."

Sean Hannity, August 20, 2001: "[W]e have the Clinton economy, the Clinton slowdown... We are living under the Clinton economy, and the slowdown that started in the spring of 2000."

Sean Hannity, August 21, 2001: "This is the Clinton economy slowed down."

Sean Hannity, August 22, 2001: "[T]his is Clinton's budget, Clinton's economy... the slowdown began last July."

Sean Hannity, September 5, 2001: "[Y]ou're back to the old tactics of scaring the old people of this country, trying to blame Republicans for the Clinton economy..."
Let's keep in mind that, according to FOX News and Sean Hannity, 9/11 was Clinton's fault too.

- Mark

MORE FOX STUPIDITY

FOX News Corps. isn't even trying to do basic background any longer. They know that their audience is so clueless that they'll play along with whatever they throw out there.



- Mark

Friday, June 19, 2009

WE'LL HAVE DOLORES ON TODAY'S PROGRAM

We're back on air tomorrow (1230 AM / 2-4 pm) and we'll have UFW co-founder Dolores Huerta with us in the second hour. She'll address the responses and criticisms to her CSUB graduation speech (hat tip to David Campbell for the Youtube clip). Those of you who have followed the story know why this promises to be a lively segment. I'll put my two cents in as well. You can bet the conservatives won't like what I have to say.


In the first hour we'll discuss the economy and some of the fun (and intelligent) Q&A that came out of my Monday Rotary lunch presentation.

- Mark

Thursday, June 18, 2009

FOX NEWS IS A JOKE

This is a follow up to FOX News criticism of ABC's planned efforts to provide America with more information on President Obama's health care proposal next week, which I post on below ...



Simply put, FOX News is a joke.

- Mark

HEALTH CARE IN AMERICA

Since it appears that we're gearing up for a national debate on health care, I thought it would be helpful to provide some basic health care information. FRONTLINE had a pretty good program on health care around the world last year, which you can access here. The report focuses on five "western" nations and compares health care results in a number of areas.

The first FRONTLINE graph shows us what we all know: America spends far more than any other nation in world for health care.


Opponents of a public option for America usually respond that paying more for better care is a good trade off, especially since our quality of life is bettter. Well, they need to take another look. It turns out that we're not living as long as the "socialists" who have socialized medicine.


It doesn't get any better when we look at infant mortality rates either. In fact, according to the CIA World Fact Book, we're #45 and lag behind the likes of Cuba, Greece, and Portugal. So much for the sanctity of life.



How about MRI units per million? We're a distant second. And though we have more MRI units and CT (CAT) scan units than some of the other countries (but not Japan), it turns out that these units are made necessary by the sorry state of preventative care in this country, especially since 1 in 7 Americans don't have health insurance.


There are other issues we need to discuss when it comes to health care in America - like how our current state makes us less competitive economically, how half all bankruptcy filings are tied to catastrophic health care costs (and half of these people have health insurance), program costs, etc. - but I'll save these issues for another day.

- Mark

THE WHINING WAYS OF THE GOP

This pretty much sums up the whining. From The Washington Monthly ...

******************************

ALWAYS PLAYING THE VICTIM ... It's never been clear to me why Republicans present themselves as members of the "tough" and "strong" party. Given all the time they spend feeling sorry for themselves, the GOP seems to send the opposite message.

Rep. John Culberson (R-Tex.), for example, is annoyed about the number of amendments considered in the House to appropriation bills. He's so annoyed, in fact, that he's tweeting about the similarities between House Republicans and Iranian demonstrators.

"Good to see Iranian people move mountains w social media, shining sunlight on their repressive govt - Texans support their bid for freedom"

"Oppressed minorities includeHouseRepubs: We are using social media to expose repression such as last night's D clampdown shutting off amends"
I see. Iranian dissidents are protesting a presidential election that may have been stolen from them by an oppressive regime, only to face threats and violence. At least eight Iranians have already been killed. They're using Twitter to shine a light on developments in a country that's cracking down on free press and free speech.

House Republicans, meanwhile, want more amendments considered on appropriations bills. I can't believe I didn't notice the "repressive" similarities.

It's not just Culberson. Rep. Pete Hoekstra (R-Mich.), who's gearing up for a gubernatorial campaign in Michigan, had a similar tweet.

"Iranian twitter activity similar to what we did in House last year when Republicans were shut down in the House."
Remember, these guys aren't kidding. This isn't satire, and it's not sarcasm. These House Republicans see Iranian demonstrators being beaten for standing up for their rights, and they think they're in a comparable situation. The GOP is made up of oppressed victims, and House Speaker Nancy Pelosi is the Ayatollah Khomenei.

The Hill's Eric Zimmermann noted, "...I think protesters in Iran, who are using Twitter to compensate for a crackdown on foreign media, would take issue with the comparison."

Seems like a safe bet.

******************************

- Mark

TRULY PATHETIC (with apologies to prostitutes for linking them to FOX)

Would you let a prostitute lecture you on the virtues of monogamy? This is what we have here ...

Drawing from Republican National Committee talking points, FOX News Corporation decides they've got nothing better to do than accuse ABC of compromising their journalistic integrity for doing a special on President Obama's health care proposal.



Truly pathetic.

- Mark

UPDATE: Here's Media Matters on the issue.

Wednesday, June 17, 2009

THIS MODERN WORLD

This just seems so Dick Cheney ... and Rush Limbaugh ... and FOX News ... and

Click on the picture if you can't read the letters.

- Mark

Tuesday, June 16, 2009

INFLATION MONSTER POISED TO STRIKE?


Yesterday I spoke in front of the Bakersfield South Rotary about my book and recent developments in the market. I used an article I wrote for the Bakersfield Californian (and posted here) as a way of introducing why we should be skeptical of all the "good news" coming out of the markets. In a few words, I argued that we have far too many costly supports, guarantees, and credits out there for anyone to be speaking about "the market" making a comeback.

What usually makes a presentation is the Q & A afterwards. I have to say that the questions I received from Bakersfield South Rotary were top notch. They took me across a broad range of topics that made it abundantly clear that this group understands how deep and complex our challenges are in the future. I was particularly struck by questions that made it clear no one is happy with the status quo and that inflation is on everyone's mind.


I bring this up because I ran across this post from nakedcapitalism.com, one of the better sites to follow if you want consistently good economic analysis. In a few words, the article sustains what I said yesterday and makes it clear that inflationary fears could become "hyper" inflation if we don't do something about the guarantees and credits that the Federal Reserve has extended to our financial institutions (about $12 trillion).

Without getting too technical (I hope I didn't) I said that inflation would come in the form of 1970s-like inflation (8-12%), but that we ran the risk of "hyper" inflation if we didn't do something about our commitments and guarantees to our financial institutions AND if the rest of the world (China, OPEC nations, the Europeans) decided to stop supporting the dollar.

Read the article for a deeper review of these dynamics. While the article might be a bit technical in some places it really is worth read. If you don't make it through, don't worry. I'll break it down on this Saturday's program.

- Mark

UPDATE: This probably doesn't mean much in the short-term, but long-term this can't be good if we continue on our current path.

“There can be no successful currency system, and particularly a global system, if the financial instruments that are used are denominated in only one currency ... Today, this is the case and the currency is the dollar.”
- Russia’s president, Dmitri A. Medvedev, at today's BRIC meeting (a meeting of the four largest emerging market economies - Brazil, Russia, India, and China - who met to discuss ways to reduce their reliance on the United States).

CARD COMPANIES IN NEGOTIATING MODE?

It looks like the credit card companies are finally starting to see the light. After years of favorable legislation that helped them make billions from late fees, service fees, and jumping up interest rates on teaser cards, the industry seems to be in negotiating mode. The primary reasons are tied to our faltering economy and the industry recognizing that the financial holes they helped borrowers dig may never be paid (I'm sure the bailouts are helping as well, but I need more information on this).

While only a few credit card companies are acknowledging the practice, the credit card companies appear willing to accept 50 cents on the dollar (and some times less) on delinquent accounts.

You can read the story here.

- Mark

Friday, June 12, 2009

EVEN MEXICO UNDERSTANDS THIS ...

In 1995 I co-wrote a journal article that compared the central banks of Germany and Mexico. While doing research I went to the Banco de Mexico (pictured below) - Mexico's central bank, which is located in Mexico City - to conduct a series of interviews.


One line during the series of interviews has stuck with me throughout the years.
The mandate of any central bank isn't tied to specific government programs. Her goal isn't economic growth. The only goal of a central bank is price stability ... there's nothing more.
This has stuck with me because, apart from lying at the heart of what central banks are supposed to do, this quote illustrates what central bankers have always understood: Their fundamental goal is to protect the integrity of a nation's currency.

Anything else - like propping up industries or providing artificially cheap money to keep an economy going - runs the risk of undermining the inegrity of national money and it's banking system. Guess what? We seem to be heading in this direction.

In this NY Times article it's clear that our central bank, the Federal Reserve, has gone beyond it's duty of managing and protecting the value of our nation's currency.

Since March, when the Fed stepped in to fill the lending vacuum left by banks and Wall Street firms, officials have been dragged into murky battles over the creditworthiness of narrow-bore industries like motor homes, rental cars, snowmobiles, recreational boats and farm equipment — far removed from the central bank’s expertise.
Today, as the article points out, "executives and lobbyists now flock to the Fed, providing elaborate presentations on why their niche industry should be eligible for Fed financing or easier lending terms." In a few words, the guarantees and easy credit terms the Federal Reserve (pictured below) has been offering the financial institutions that got us into our current economic mess are so attractive that other industries want in on the financial gravy train.


Going through the Federal Reserve instead of "private" banks is especially attractive because, as our financial institutions have found out, assistance that comes from the Fed come with virtually no congressional oversight.

This is why the financial institutions are so anxious to return the congressionally-backed bailout money. What they get from the Fed is effectively "under the radar" money. If they can draw loans and guarantees from the Federal Reserve they can pay out bonuses and offer wages with few restrictions (and, No, the Obama administration's "Wage Czar" will not help; it's a political gimmick). These dynamics, ultimately, will undermine the integrity of our money and our economy.

Even Mexico's central bankers understand the problems associated with this. How come we don't?

- Mark

Thursday, June 11, 2009

A GOOD TIME TO BE A BANKSTER IN AMERICA

"Because that's where the money is."

- Famed Bank Robber Willie Sutton,
responding to a reporter who asked him why he robbed banks.


The NY Times has an editorial that supports what I've been saying about our troubled and ethically-challenged financial institutions for months now. In "Payback Time" the Times makes it clear that all the talk surrounding their decision to return bailout money may be as misleading as it is potentially destructive to our economic recovery. Why?

The health of the banks is overstated in other ways, too. Last year’s direct infusions of capital are only one of many government props currently supporting the banks, like favorable loans from the Federal Reserve, debt guarantees and incentive payments to modify bad mortgages. Indeed, one of the reasons the banks are so hot to repay the initial bailout funds is that other supports — which don’t come with pay restrictions — are available.

Clearly, the way the banks see it, last year’s bailouts meant unwanted public scrutiny and salary restraints, so paying the money back frees them from those burdens. That bodes ill for regulatory reform. The compensation they seek to protect was based in large part on the risky practices that brought the system to the point of collapse. It stands to reason then that if colossal pay and bonuses continue, so will recklessness.
Put another way, we've done nothing to alter the underlying structural problems in the banking system. Yet, we're allowing the banksters to pay us back because they've found it easier to rely on the other supports and guarantees (from the Federal Reserve) that don't come with restrictions or congressional oversight (which is largely toothless anyways).

This is akin to wealthy parents taking away their kid's car after they wrecked it, but then allowing them to drive the extra Mercedes. Pay raises and bonuses, I'm sure, will follow. The Times' editorial also reported that, as an added insult, "Goldman Sachs employees toasted their freedom at a cafe near Wall Street."

It's a good time to be a bankster in America.

- Mark

Wednesday, June 10, 2009

RIGHTWING EXTREMISTS CRAWLING OUT OF THE WOODWORK?

Remember when Conservatives went nuts because the following on "rightwing extremism" was put into a Department of Homeland Security report?

Rightwing extremism in the United States can be broadly divided into those groups, movements, and adherents that are primarily hate-oriented (based on hatred of particular religious, racial or ethnic groups), and those that are mainly anti-government, rejecting federal authority in favor of state or local authority, or rejecting government authority entirely.
It didn't matter that the DHS report on rightwing extremism was ordered while George W. Bush was still in office. Conservatives like Michael Steele, Rush Limbaugh, Newt Gingrich, and others went nuts over the suggestion that rightwing nutcases could pose a domestic public security threat.

Well, the murders of Dr. Tiller and Stephen Tyrone Johns at the Holocaust Museum today seem to suggest that the DHS report was on to something. Some might even suggest that the rightwing crazies have become energized by the likes of FOX News and Rush Limbaugh calling for people to resist what President Obama represents in America.

Stay tuned.

- Mark

UPDATE: Speaking of rightwing extremists ... Leonel Martinez, a former columnist for the Bakersfield Californian, has an excellent post that discusses the lunacy (and ignorance) behind those who oppose Sonia Sotomayer's nomination to the Supreme Court. In his post you will get the clearest explanation of what civil rights organization La Raza stands for that I've seen. Click here, or click on the link to his blog, which I have listed under "Blogs I Read" on the left.

UPDATE II: This needs no commentary ...

Tuesday, June 9, 2009

PRESIDENT OBAMA'S 10%

According to the New York Times analysis of CBO numbers there are ...

two basic truths about the enormous deficits that the federal government will run in the coming years. The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested.
Specifically, the business cycle (i.e. the economic downturn caused by deregulation, greed and stupidity) accounts for roughly 37% of the current deficit mess, while President Bush's programs and policies (like tax cuts for the rich and Medicare price supports) account for about 33% of our economic hole.

As for President Obama's contribution to the deficit, the NY Times is reporting that 20% can be partically attributed to the president because he has chosen to extend "several Bush policies, like the Iraq war and tax cuts for households making less than $250,000." Combined with the Wall Street bailout - "which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing" (click on the graph below to see the figures).


Interestingly, only about 10% of the current economic deficit mess can be directly attributed to President Obama, with the stimulus bill accounting for 7%, and President Obama’s agenda for health care, education, and energy proposals making up the remaining 3%.

- Mark

American Politics 101 / Social Security

In my American Politics 101 class we discussed the merits of Social Security and some of the arguments that have been made regarding it's viability over the next generation. As I promised to my class, posted below is an article I published in the Bakersfield Californian four years ago, which discusses the merits of privatization. The article appears below at it was printed in the Californian and can also be found on my university web page here.
_____________________________________________________________


Bakersfield Californian
VIEW POINT: No ‘crisis’ in Social Security: National Leadership is in ‘crisis’ as it attempts to dupe America

By MARK A. MARTINEZ, Ph.D.Sunday / March 27, 2005

Social security is not in crisis. What is in crisis is our national leadership, which seems bent on putting ideology and the interests of Wall Street above the good of the country.

Arguing that social security will go broke by 2018 President Bush says that there is no trust fund because we have already spent the money you and I pay in payroll taxes.

To solve the problem the president is offering privatized investment funds to build financial nest eggs we can use in retirement. Fair enough. The problem, however, is that to make his point the president is deceiving America.

To make his argument work, the president needs you to believe that the social security trust fund is insolvent. The only way it becomes insolvent is if the federal government says it will not honor its obligations. Let’s start from the beginning.

In 1983 Ronald Reagan appointed a commission that recommended collecting an additional 2% in payroll taxes to keep social security steady. The result was higher taxes on the middle class, but an additional $1.2 trillion in government revenue since 1983. The government can do many things with this money but chose to purchase government bonds held in trust by the federal government. Hence, the social security trust fund.

Since the signing of the constitution (Art. VI) every purchaser of U.S. sanctioned treasury notes has been able to bank on the promise that they will be repaid (with interest) by the federal government. The only way for this not to happen is for Washington to say we will not meet our obligations.

This is where President Bush’s deception of America comes into play.

The president and his advisors maintain that the $1.2 trillion accumulated in the trust fund (in the form of government bonds) does not constitute a real asset. Imagine what you’d say if your financial advisor told you the government bonds in your investment portfolio aren’t worth anything because “they’re just IOUs and don’t constitute real wealth.” This is precisely what the president is asking all Americans to accept with the social security trust fund.

More specifically, he’s telling every bond holder that America no longer has a fiduciary or moral obligation to pay its debts. This position might be OK if you’re a Banana Republic, or a third rate tyrant, but the United States of America?

There are several schools of thought why the president is pushing America toward third world financial practices.
First, many believe President Bush simply cannot tolerate successful government programs, and views privatization as a way to destroy social security and undermine FDR’s New Deal legacy. To do this – as was the case with going into Iraq – the president needs the economic equivalent of a threatened “mushroom cloud” to scare America. Hence, the bankrupt trust fund story.

Second, it’s argued that the Bush Administration is so incompetent they simply don’t understand the implications of undermining social security. I have a hint: Look at the condition of America’s elderly in the 1930s.

Third, the Bush administration is simply doing the bidding of Wall Street, who want trillions of new investment dollars to accelerate profit levels.

Whatever your poison – I think it’s a combination of all three – one thing is certain: social security is not in trouble. However, for the sake of argument, let’s assume we’re in trouble and it’s the year 2018. What should be done? Here’s my plan.

First, rescind Bush’s tax cuts for the rich. This would add approximately $1.8 trillion to government coffers over the next ten years. This is responsible for three reasons. One, we can use the money to buy out the trust fund the president says will be broke by 2018. Also by “saving” the trust fund we won’t have to borrow the $2-4 trillion necessary to make the transition toward privatized accounts. Finally, because America’s middle-class overpaid payroll taxes for more than 20 years, the surplus initially used by President Bush to justify tax cuts for the rich (“It’s your money”) wasn’t really theirs to return in the first place. With no surplus, the justification for tax cuts for the rich simply makes no sense (and spare me the “tax cut-job creation” lie).

Second, why don’t we raise the cap on payroll taxes? Today, all income above $90,000 is exempt from the payroll tax, which releases approximately 15% of all income from the social security tax. This contrasts with twenty years ago when only 10% of national income was exempted by the cap. This imbalance needs to be addressed, and could be with a new ceiling at, say, $200,000.

Finally, we could discuss raising the eligibility requirements, or reduce social security cost of living increases (COLAs) by one-half percent per year? And privatization? I’m not opposed to private accounts (I have a couple of my own), but if you have to borrow $2-4 trillion to fund the transition, and still cut future benefits, it’s not worth it.

In the end, the case for crisis and privatization is disingenuous, damages America’s long-term credibility, and undermines our future. The fact that the president doesn’t understand this should be cause for worry.

- Mark

Monday, June 8, 2009

THE "OBAMA EFFECT" IN LEBANON

While it's far too early to make any long term projections, it appears that President Obama's approach to the Middle East and his Cairo speech may be paying dividends.


In Lebanon voters handed an American-backed coalition a victory in Lebanese parliamentary elections on Sunday. Regional political experts cite domestic issues for the results but are also giving a nod to President Obama’s outreach efforts to the Arab and Muslim world. According to the NY Times ...

Most analysts had predicted that the Hezbollah-led coalition, already a crucial power broker in the Lebanese government because of its support from Shiites who make up a large part of Lebanon’s population, would win handily. In the end, though, the American-aligned coalition won 71 seats, while the Syria-Iranian aligned opposition, which includes Hezbollah, took only 57.
Talk of the "Obama Effect" in the Middle East will get a significant boost on Friday if Iran's hard-line anti-American President Mahmoud Ahmadinejad loses against his main moderate challenger, Mir Hussein Moussavi.

Stay tuned.

- Mark

Sunday, June 7, 2009

ASKING WHY ...

The NY Times has an in depth op-ed article in Monday's paper that makes it very clear that President Obama's efforts on the economic front have done very little to change the market infrastructure that brought us to an economic cliff. What's at stake? According to the authors, the "restoration of the American people’s — and the world’s — faith in American capitalism and in our nation."

The authors, Sandy B. Lewis and William D. Cohan, argue that in spite of a smattering of good news the "storm is not over, not by a long shot." In an effort to help us understand why the storm is not over they take a look at the rules and the infrastructure of our economy and ask some very basic questions. Those of you who have followed this blog, listened to my radio program, or read my book, will be familiar with these questions, and the subsequent discussion.


1. Why are we so desperately anxious to restore the previous banking model as the status quo?

2. Why is so much effort being put into propping up those at the top of the economic pyramid — the money-center banks, the insurance companies, the hedge funds and so forth — when during a period of deflation like the one we are in, any recovery will come only by restoring the confidence of the people down at the bottom of the pyramid?

3. Why isn’t Mr. Obama talking more about the importance of living within our means and not spending money we don’t have on things we don’t need?

4. Why is the morphine drip still in the veins of the financial system? Is there to be any limit on bailouts?

5. Why has Mr. Obama surrounded himself largely with economic advisers who are theoreticians and academics — distinguished though they may be — but not those who have sat on a trading desk, made a market, managed a portfolio or set a spread?

6. Why isn’t the Obama administration working night and day to give the public a vastly increased amount of detailed information about what happens in financial markets? (this means explaining and exposing everything from CDOs to CDSs, and their Frankenstein-like "synthetic" instruments).

7. Why are we not looking to change our current civil and criminal racketeering statutes, which are playing a perverse role in investigations of the crisis?

Some of the proposals and the discussion that follow these questions are enlightening. I especially like this one: "Instead of getting guaranteed salaries or huge bonuses, [corporate executives/CEOs] should have the bulk of their net worth completely at risk for a long stretch of time — 10 years come to mind — for the decisions they make while in charge."

Put another way, CEO pay should be stretched out over periods that would take into consideration what happens to firms after the CEO leaves. I also like the author's discussion which suggests that we develop RICO-like statutes for market players.

The article is long, but worth the read.

- Mark

Saturday, June 6, 2009

TODAY'S PROGRAM

On tap for Saturday's program (Bakersfield 1230 AM / 2-4 pm): Obama in Cairo ... a speech for the world, not just America; Republicans are now officially rooting for President Obama, and our nation, to fail ... I'll explain; Dick "Johnny Appleseed" Cheney; Wall Street's Middle Finger to America; and more.

- Mark

Friday, June 5, 2009

REPUBLICANS: STILL ROOTING FOR FAILURE

The Wall Street Journal is reporting - and Congressman Kevin McCarthy's (R-Bakersfield) Friday evening "Facebook Post" verifies - that the Republicans are going to start attacking President Obama because of his dismal job creation record. Not only have 2.2 million jobs been lost since the recession began, but unemployment now hovers around 9.4% for the nation.

Part of the "jobs problem" that Republicans are rooting for can be attributed to the too-bold-to-be-true projections made early on by the Obama administration (which were designed to bolster confidence). As well, the missteps made by Treasury Secretary Tim Geithner, as he stumbled in front of Congress and during the roll out of the various bailout programs, did not help build confidence. Finally, and perhaps most important, George W. Bush handed President Obama a national economic disaster. Still, can you blame the fire department because the house continues to burn while they're getting the hoses out? The Republicans seem to think so.

But as the Wall Street Journal points out, the record is clear. George W. Bush not only had to backtrack from his first term job projections, but he ended up with the worst job creation record of any U.S. President since records have been kept. And this was after President Bush added over $6 trillion to our national debt (a lesson for President Obama?).

George W. Bush's job creation record (3 million) even pales in comparison to stagflation-haunted Jimmy Carter (10.5 million). Even John F. Kennedy, in his short tenure, created more jobs than George W. Bush (3.5 million jobs). In fact, going all the way back to President Harry S. Truman, payroll expansion under presidential administrations is dominated by Democrats rather than Republicans. Bill Clinton leads the way with 21.1% (23.1 million jobs created), followed by Truman's 20.1% (8.4 million jobs created) and LBJ's 20.8% (11.9 million jobs created). Ronald Reagan is fourth at 17.6% (16 million jobs).

With current trends we can expect all of the jobs "created" under George W. Bush to disappear by the end of the summer (yet, the result of his failed policies remain). In the meantime, we can also expect the Republicans to continue to root for our nation's continued economic demise. But can you blame them? With their record under President Bush this is the only way they believe they can make it back into power.

So much for Country First.

- Mark

BILL MOYERS TURNS 75 ...

From Dailykos I found this "semi-tribute" to Bill Moyers, who turned 75 today.

In this piece Bill Moyers shows what it is to be a professional journalist. One of Bill O'Reilly's goons is trying to do an intimidating ambush piece, challenging Bill Moyers' position on Iraq while trying to shame him into coming on O'Reilly's show. Bill Moyers turns the interview into a criticism of Ruppert Murdoch's support for the war in Iraq and challenges O'Reilly's credibility as an entertainer. Watching O'Reilly's Ambush Man walk away with his tails between his legs is classic.



- Mark

DICK (UNCUT)

Jon Stewart of the Daily Show takes former VP Dick Cheney to task for his selective memory and stunning accusation that Richard Clarke, "missed" the signals that 9/11 was coming. What an idiot. Anyone who knows anything about pre-9/11 Washington knows that Richard Clarke was so obsessed with an impending attack that he asked high level Washington agency heads to cancel their vacations during summer 2001. Clarke even thought about resigning his counter terrorism post during summer 2001 because he felt he was the only one in Washington seeing things.

The Daily Show With Jon StewartM - Th 11p / 10c
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- Mark

WALL STREET'S MIDDLE FINGER

Oh, the incompetence of it all ...

One of the goals of the numerous bailout programs for the Obama administration is to help homeowners and other troubled borrowers. To do this the American taxpayer has ponied up trillions in funds and other guarantees. The idea is to save banks and other financial institutions so that they, rather than the federal government, can extend credit and renegotiate with those in financial trouble. It doesn't look like this is going to happen any time soon. Here's why.

According to this Bloomberg.com article the Private-Public Investment Partnership (PPIP), which was designed by the Secretary of Treasury to get the truly toxic instruments off of the books of the banks, has hit a snag. PPIP, which is designed to put credit into the system by purging the truly toxic ("legacy") assets from the system is being undone by the financial sector's new cojones. Simply put, after receiving trillions in government bailout funds, and other guarantees, market players don't want to sell their toxic instruments.

In essence they are saying "we've gotten enough taxpayer money and federal guarantees - and have seen our situation stabilize - so we're going to wait for a better deal."

But wait, it gets better.

Today Bloomberg.com is reporting that Tim Geithner's Term Asset-Backed Securities Loan Facility program not going to be all that it can be. TALF funds are essentially Federal Reserve backed loans (for certain securities) that are designed to put credit back in the market by putting money in the hands of lenders.

The problem is that market players are not happy that the range of security "assets" that they can borrow against - which currently includes SBA loans, credit card loans, student loans, etc. - may not include real estate (because of problems associated with valuation). Put more simply, market players are saying "we won't participate in TALF if we can't borrow against the toxic mortgage securities that we helped create."

So this is what we have. In the PPIP case market players who have been stabilized by taxpayer dollars are simply holding out "until they are repaid at full value" for the toxic instruments that they helped create. In the TALF case market players are saying if the federal government wants them to put taxpayer-backed credit into the system the federal government needs to use taxpayer money to guarantee the toxic assets they want to borrow against.

If you're an American taxpayer, a pampered and bailed out Wall Street has just given you the middle finger.

- Mark

Thursday, June 4, 2009

A STEP IN THE RIGHT DIRECTION ...

From the NY Times ...

Angelo R. Mozilo, the man who built Countrywide Financial, has finally been charged with securities fraud and insider trading by the Securities and Exchange Commission. In addition to generating $140 million in profits from 2005-007 by selling stock in the company - as the company's share price was tanking - the suit alleges that Mozilo misled investors about growing risks in the company’s lending practices. Mozilo was doing all of this at the same time that he was going to the federal government for bailout money, which they were then calling "loans."

If the feds get this right, they should be able to make Mozilo the first of many poster boys for what went wrong in the mortgage lending markets. I say that as long as they're going after him for fraud they should also consider using RICO statutes to catch him for criminal intent too.

Sure, RICO laws are used mostly for the mob. But what else do you call the shake down that the finance and mortgage industry are putting on the American taxpayer?

- Mark

DICK "JOHNNY APPLESEED" CHENEY?

The apple sure doesn't fall far from the tree ...



- Mark

OBAMA IN CAIRO

President Obama's Cairo speech strikes a new tone and puts America on a broadened path with the Middle East.



If you want to read the entire speech, with interactive (streaming) video, click here.

President Obama pointed to several areas that demonstrated religious tolerance in the U.S. and how Islam has always been a part of our history. Among those included his reference to Morroco being the first nation to recognize the United States and how an elected member of Congress used the same Koran that Thomas Jefferson had in his library at his swearing in ceremony.


On the surface, it appears that President Obama's trump card is that he is not President Bush (who derailed the 2003 "Road Map to Peace" proposal). Put another way, the messenger matters.

I'll touch on this and other issues facing the U.S. in the Middle East on Saturday.

- Mark

Wednesday, June 3, 2009

REIN IN THE NEANDERTHALS


In what can only be described as an attempt to insure that they continue to be viewed as little more than a band of angry white males - who are ready to throw a political temper tantrum at the drop of a hat - a conservative group organized by Manuel Miranda and Mark Levin, a conservative talk show host, is urging Senate Republicans to filibuster (or hold up) Sonia Sotomayor's nomination to the Supreme Court. Miranda was an aide to former Tennessee Senator Republican Bill Frist.

For those of you who may have forgotten, Miranda is also famous for tapping into computers to gain access to Democratic political strategies concerning judicial nominees. He was dismissed from his post with Frist for doing so (actually, he was dismissed because he got caught). Other supporters from this Miranda-led group include evangelicals, gun-rights advocates, anti-tax leaders, anti-abortion groups, and libertarians.

The group say their intent is NOT to kill Sotomayor's nomination. Rather they want to provide time for lengthier debate on the merits of Sotomayor's nomination.

On the "merits"? If this is the case, and the group wants to be taken seriously, they need to start speaking up and ostracize those from the conservative wing who want to demean Sotomayor and the process by referring to her as "stupid," a "racist," an "affirmative action pick," and that "Hispanic chick lady."

Simply stretching out the process so the rants of their colleagues can get time to stick is not appropriate. If it's the merits of her qualifications they want to look into they need to start talking about the "merits" of her decisions, and not stand idly by as their ideological brethren call Sotomayor names and bring up quotes that are taken out of context.

Let me repeat, these guys need to shout down the Neanderthals and the knuckledraggers in their movement if they want their call to stretch out the process to be taken seriously.

If they start doing this talking about Sotomayor's qualifications for a few more weeks might even be enlightening. Her experience will carry the day. But something tells me that this isn't the political sideshow this circus act really wants to present. They want to taint and drag out the process. Senate Republicans need to ignore these people.

Stay tuned.

- Mark

Tuesday, June 2, 2009

REAGAN DID IT?

I like it when this happens ...

Paul Krugman's most recent piece in the NY Times made my day. It comes as close to a synopsis of the two biggest points that I made in Chapters 10 & 11 of my book as any I've seen. In a few words, Krugman argues that deregulation and massive deficit spending - which took off under Ronald Reagan - are the keys for understanding how the mess we're in now got started. He even uses the examples I used in the book to make his points (the 1982 Garn-St. Germain bill and debt as a percentage of GDP).

Of course you can read my book for an extended version of what Krugman points out.

- Mark