Tag: money

GM Surprise (or not)

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Back at the end of March David Brooks made a prediction for GM in the New York Times that came due today. I have been waiting to check in on that. He started with this background of the situation as it stood that day:

The Bush advisers decided in December that bankruptcy without preparation would be a disaster. They decided what all administrations decide — that the best time for a bankruptcy filing is a few months from now, and it always will be. In the meantime, restructuring would continue, federally subsidized.

Today, G.M. and Chrysler have once again come up with restructuring plans. By an amazing coincidence, the plans are again insufficient. In an extremely precedented move, the Obama administration has decided that the best time for possible bankruptcy is — a few months from now. The restructuring will continue.

But this, President Obama declares, is G.M.’s last chance. Honestly. Really.

No kidding.

With that background, Mr. Brooks’ reactions was this:

The most likely outcome, sad to say, is some semiserious restructuring plan, with or without court involvement, to be followed by long-term government intervention and backdoor subsidies forever.

Looking at the relevant news today (also from the New York Times) we find that the result is a restructuring plan with court involvement and long-term government intervention including continuing subsidies – initially at least the subsidies are anything but backdoor.

American taxpayers will invest an additional $30 billion in the company, atop $20 billion already spent just to keep it solvent as the company bled cash as quickly as Washington could inject it.

The imagery is all too apropos – like Fannie, Freddie, AIG, and the economy in general GM is and has been addicted to shooting up with public money to feel like a real free-market enterprise. Conveniently too many of our elected leaders are equally addicted to intervening in the markets in order to feel like they are performing a real job for the American tax payer.

Mr. Brooks called the President the “Car Dealer in Chief” in his predictive essay, and now that is more true than before:

Mr. Obama is taking several risks under the plan. None may be bigger than the decision that the United States government will take a 60 percent share of the stock in a new G.M., leaving taxpayers vulnerable if the overhaul is not successful. (Canada, for its part, is taking a 12 percent stake.)

“We don’t think that after this next $30 billion, they will need more money,” one senior administration official said. “But the fact is there are things you don’t know — like when the car market will come back, and how much Toyota and Honda and Volkswagen will benefit from the chaos.”

This is G.M.’s last chance. Honestly. Really. We hope.

Tags bailout, economics, government, money, New York Times, Obama, unconstitutional

National

An Unbiased Perspective

Admittedly I am a person who does not believe that anyone is unbiased – and I’m fine with that. The closest a person comes to unbiased is when they can state a position which contradicts their biases or while acknowledging how that position does not support their biases. When President Obama said that $100 Million here and there eventually adds up to real money in Washington I could not help but notice when Paul Krugman – not exactly the strongest proponent of smaller government – disagreed. He calculated that $100 million per day for an entire four year term would only be 2% of one year’s budget. His conclusion was perfect:

OK, politics is theater. But you could argue that the president shouldn’t feed the bogus claim that we can close fiscal gaps by eliminating a bit of waste.

Tags fiscal restraint, money, New York Times, Obama

Local National State

Tea Party and Town Hall

The real effectiveness of the tea parties is not likely to be known for some time. Two days later various factions are still trying to sort out what actually happened and what it all means. I am encouraged by the prospects that it will turn out to be more than a short-lived release of frustration for political newcomers.

Last night I had the opportunity to attend a town hall meeting with my congressional representative, Rob Bishop. I had heard about these meetings from various sources, but this is the first one to take place since I moved into the district. It was an interesting mix of support for Rep. Bishop and confrontation (speaking about the questions and comments from the audience).

One gentleman, who may well have been a tea party attendee, got up and expressed his frustrations at not having a political home after the supposedly conservative Republican party had forsaken the opportunity to promote conservative government. He asked how he could ever trust the party again. Rep. Bishop gave a very unsatisfactory answer (in my mind) that he would just have to sit back and wait. I later talked to that gentleman and invited him to visit my site – I hope he does so. My answer to the question is that those of us who really believe in conservative principles need to get active in the party and make it answerable to those principles rather than blindly following whoever is incumbent. (P.S. Rob Bishop is far from being the worst Republican Incumbent around these parts.) Sitting back and waiting is a great way to allow the status quo to become ever more entrenched in the party and in society.

I found various statements by Bishop which I agreed with and others that I did not agree with. The subject of earmarks came up multiple times and I found some of his answers insightful. For example, Rep. Bishop recognizes that earmarks are easily used as a distraction that diverts attention while the pile of money being spent continues to grow while the size of the pile is a larger problem than the earmarking process. He explained that earmarks are Congress setting priorities for appropriated money rather than the administration setting those priorities. That left me with two questions that I will demand answers on from my congressman.

If we get rid of earmarks won’t that allow us to focus on the size of the pile of money?
While I might prefer that Congress set the priorities for government appropriations rather than the administration, why should the priorities be set at the federal level at all? (except on truly federal priorities like defense spending) Wouldn’t it be better to just appropriate money to "transportation" and direct that 2% of the money goes to Utah, 5% to California, etc. then let the states and municipalities decide which projects (I-15 expansion, Mountain View Corridor, repaving existing streets, expansion of light rail, to name a few local options) deserve the transportation funding?

Tags change, District 1, money, questions, Rob Bishop

General life

A Currency All My Own

I really enjoyed Scott’s introduction to different currency types. It’s a great introduction to the differences between fiat currency, commodity currency, and representative currency. Coincidentally we have implemented a new representative currency in our household in an effort to teach our children about money and work. Personally I think that the commodity backing our currency is the safest commodity around except for it’s non-transferable nature and often short shelf-life. Our currency is backed by goodwill – although there is an exchange rate from U.S. dollars.

As for real world crisis scenarios, my personal philosophy is to do my best to maximize my production ability, build up my stores, minimize my vulnerability, and do what I can to maximize social stability by building up a strong and prepared community around me.

Tags connections, economics, money

National

New Government Website

In keeping with his propensity to launch new .gov websites (e.g. change.gov, recovery.gov, sigtarp.gov) President Obama has launched a new website where he can share some ideas that he knows won’t pass any Congress (Democrat or Republican) no matter how sound those ideas might be. It’s called AprilFools.gov. He includes ideas that are possible but not very likely, such as nominating cabinet picks without tax problems but the really depressing list is found among the ideas listed under “Impossible” –

The Senate refusing to confirm cabinet nominees because of tax (or similar) problems. (Note that those nominees who were not confirmed all withdrew before a vote was ever taken.)
Balancing the budget for one month.
Ending government waste.
Lowering real taxes on the middle class. (He’s proposed it, but he seems to know and accept that it won’t survive the Congerssional budgeting process.)

Tags government, money, Obama, technology

National

Two (or more) Wrongs Don’t Make a Right

Post author By David
Post date March 20, 2009
No Comments on Two (or more) Wrongs Don’t Make a Right

I was listening to Peter Schiff’s Wall Street Unspun for this week and he said something that cemented a change of perspective I had been considering regarding the AIG bonuses. I had been thinking about this idea of taxing the bonuses at 100% and relizing that it amounted to an ex post facto law – which is specifically forbidden in the Constitution. What Peter said was that Congress was wrong to bail AIG out in the first place and that if they hadn’t AIG would not be able to pay these bonuses now. Secondly, he said that if they had wanted to stop the bonuses they should have done so up front by making it a condition of receiving their bailout money. (He also accurately pointed out that the excuse that these bonuses should not be necessary to reatain AIG employees in this economy – few people would leave their jobs in a climate of rapidly rising unemployment and smart companies should be avoiding the employees from the division that crippled a company the size of AIG.)

Between the Constitution and the logic of Peter Schiff I realized that as much as I dislike the fact that these bonuses are being paid I cannot support Congressional action to tax them back after the bonuses have been paid and after the bailouts have been given. Simply stated, Congress is acting immorally anytime they try to change the rules after making their promises – it’s solid proof that they should not have made those promises in the first place.

Tags bailout, change congress, money, taxes, unconstitutional

National

I Missed An Option

When I listed the options yesterday for how to deal with the AIG bonuses I obviously missed one. One member of the house thought up the idea that we could tax AIG bonuses at 100 percent. The beauty of his bill is that it is written to apply to large bonuses at any company receiving TARP funds. I like the concept because it leaves private businesses (meaning those not being propped up by Uncle Sam) free from any new restrictions in compensation and id does not affect the people getting small bonuses (the ones least responsible for the problems). The biggest change I would have made to this idea would be to lower the threshold from $100,000 to $25,000 or less.

Tags bailout, legislation, money, taxes

culture National

“Our Hands Are Tied”

Despite rumors to the contrary, this country is still based on the rule of law – especially when the law favors a guy who has a "bonus" in excess of $6 Million dollars coming to him. By now almost everybody has certainly heard about the $165 Million of bonuses being paid to AIG execs. In a discussion on NPR this morning Renée Montagne asked why the government could not cancel the payments considering that they own 80% of AIG through their $170 Billion in bailouts. The answer was that the government can’t just rip up an existing contract because this is a country ruled by law. That is a nice answer that is true on the surface so long as you only give it a passing glance in near total darkness. Just since the beginning of this year Congress has passed a law allowing judges to rewrite the terms of an existing, legal mortgage contract. (I use that example not because it is better or worse than nullifying the payments of bonuses stipulated in a legal employment contract but because it is so similar to what we are saying can’t be done because we are a country ruled by law.)

The question remains, what does all this mean. We do not actually want to become a country where the government can come alter a private, legal agreement anytime they decide it would be a good idea to do so. Let’s see what we can learn from some of the options that have been proposed.

Tear Up the Contracts

If we want to admit that we are not a country that follows our own laws this would be the best course of action. That’s not going to happen because it runs contrary to our sensibilities as a nation. We may break our own laws, but we won’t admit it openly like this. A "bonus" that is guaranteed is no bonus, it’s a salary – one that these executives have proven they don’t deserve. A company that would offer or even accept an employee on such compensation terms should not be receiving a government bailout – in fact it should not even be in business.

Executives Voluntarily Forgo Their "Bonuses"

This would be the morally correct course of action for those who stand to receive their bonuses. This won’t happen because those who will receive the bonuses know that having AIG on their resume for 2008 may make them virtually unemployable for a while if they ever need another job. They also know that AIG is not financially sound even with the government money it has received so they can’t be assured that their current jobs won’t evaporate. They are going to take what they can get legally for as long as they can so that they can ride whatever storms may come their way.

Give Them Another Bailout

This one won’t sound popular on the surface – and it won’t happen either – but I have to throw it in here. This was an early idea of mine. The government should offer AIG another bailout that would be structured like so – The government gives AIG another $135 Million in bailout money on the condition that all those who stand to receive bonuses sign a contract that nullifies their bonuses – thus the company receive the benefit of an extra $300 Million while the taxpayers only foot another $135 Million of the bill. If AIG refuses the offer (which they would) it would prove that they don’t need the money as much as we were told to believe they were – just like the stories on NPR this morning about all the banks who are opting out of the TARP funds because of the "excessive" restrictions that Congress has written into the TARP legislation (plus those who want to opt out, but aren’t sure they can). The fact is that many of the businesses that are taking our government funny money are doing so because it’s being offered more than because they need it. (Why put yourself at a competitive disadvantage if you can stomach the attached strings?) I hope that Congress continues to make these funds more and more restrictive.

Reduce Their Salaries to $1 for 2009

I wish (but doubt) that the nation is not foolish enough to fall for this ploy. This is the most likely course of action because it is the one that AIG has proposed. Most of the people getting these bonuses should not even be employed based on their past performance. Reducing their salaries would be a generous act even if we were to also strip their bonuses. Besides, they may take a salary of $1 for the year, but they will also take a new bonuses next year after our outrage has died down (and they’ll weather our new outrage again if need be). Most of them are receiving bonuses that exceed the annual income of the majority of American households. They can live on the $1 salary comfortably if they want to because of the bonuses that that "punishment" would allow them to take.

Tags bailout, Constitution, laws, money, NPR

National

Define “Change”

I have come to the conclusion that I should not listen to national news – it just gets me agitated.

I was driving home listening to NPR and was treated to actual soundbites from the rallying speech that President Obama gave to the Democratic caucus meeting. I had head about that, but hearing these gems really showed that many people must mistake the fact that Obama is articulate by assuming that everything he says must therefore be intelligent and accurate.

The audio clips I heard had the president emphasizing that the people elected him (and the rest of Congress) to change the direction of the country and were not seeking "more of the same." What really got to me was this well phrased analogy:

"I don’t care whether you are driving an SUV or a hybrid, if you are headed toward a cliff you have to change direction."

He’s absolutely right. My reaction was that instead of changing direction when faced with an economic cliff, the president and Congress are accelerating and hoping to grow wings by the time they reach the edge. Let’s examine the "change" that he is promoting.

The president calls inaction irresponsible – it seems to me that inaction is not something that the Bush administration can ever be accused of. In other words inaction would probably be the clearest for of change. Last year the administration got a $150 Billion dollar stimulus bill and later received another $700 Billion to unfreeze the credit markets. That’s $850 Billion in spending last year of money that we don’t have and the result is that we are still in a recession with no end in sight. The change that Obama is promoting is something on the order of $800 Billion in new spending of money that we don’t have. I’m beginning to think the politicians really don’t know the difference between legal tender and monopoly money (too bad the IRS knows the difference all too well).

President Bush and his Republican Congress raised deficit spending to an art form. When Bush got a Democratic Congress there was no change in habits. Now President Obama and his Democratic Congress are trying to build an art acadamy around Bush’s art form – that’s not the change I was looking for.

I understand that the argument Obama is trying to make is that the country is sick and honestly needs surgury. That is an argument that I can accept. The problem is that we have already tried surgury by hatchet – it doesn’t work very well. Our Republican senators are trying to insist on using a scalpel for the surgery. Their profligate economic past opens them up to accusations of hypocrisy – and many of them might very well be acting in full hypocrisy. Regarless of how hypocritical they are being the fact is that surgury with a scalpel is safer and more likely to not kill the patient. This leads to another inconvenient truth. Assuming that the patient survives surgury (whether by hatchet or by scalpel) to get a liver transplant we need to recognize that the disease was not a bad liver, it was alcoholism. Just because you have had a transplant does not mean that it’s safe to go back to the bar.

Tags bailout, Bush, economics, legislation, media, money, Obama

culture National

Disturbing Trend

I want to be supportive of our President. I just want to make that clear because I don’t expect this post will convey that feeling.

I’m sure part of it is the spirit of partisanship, and part of it is the media propensity to focus on the scandalous, but I don’t think that any other President has had as pervasive a problem as President Obama is having in getting appointees who have not made very basic financial mistakes.

- Timothy Geithner, the Treasury Secretary owed $26K in back taxes
- Bill Richardson withdrew his name from consideration as Commerce Secretary because of a grand jury investigation into a pay-to-play scheme
- Hillary Clinton’s nomination as Secretary of State was contingent upon some disclosure issues regarding foreign donors to Bill Clinton’s foundation – her confirmation was held up by one day because of lingering concerns
- Tom Daschle will likely still become withdrew his name from consideration to become the Secretary of Health and Human Services despite the fuss about his failure to pay $140K in taxes on a political gift
- Nancy Killefer withdrew her name from filling the position of Chief Performance Officer because of failure to pay unemployment taxes for her domestic help

I’m not sure if it’s comforting or disturbing to think that this may have much less to do with poor picks by the president and more to do with the culture of "anything you can get away with is fine" in Washington.

Tags Clinton, corruption, money, Obama, political figures, taxes