Consider the following.
Under Saudi law, Allah is Saudi Arabia’s first line of defense against terrorism. The 2006 law organizing the Saudi Office of Homeland Security lists its initial duty as "stressing the dependence on Almighty Allah as being vital to the security of the Kingdom."
Specifically, Homeland Security is ordered to publicize Allah’s benevolent protection in its reports, and it must post a plaque at the entrance to the Emergency Operations Center with an 88-word statement that begins, "The safety and security of the Kingdom cannot be achieved apart from reliance upon Almighty Allah."
Saudi legislator Ayatollah Abdul Rahim, a Muslim Cleric, tucked the Allah provision into Homeland Security legislation as a floor amendment that lawmakers overwhelmingly approved two years ago.
What are your first thoughts upon reading that. Maybe “Those damn Muslims are crazy, they can not keep Allah out of anything”. Now you know how we sound to them when we let Christian Fundamentalists take over our government functions. The three paragraphs above were taken from the Lexington Herald Leader Newspaper in Lexington, Kentucky. I changed the words Kentucky to Saudi Arabia, God to Allah Commonwealth to Kingdom, and “State Rep. Tom Riner, a Southern Baptist minister” to “Saudi legislator Ayatollah Abdul Rahim, a Muslim Cleric”.
Admit it you thought it was a real article about Saudi Arabia.
The entire real article is here. http://www.kentucky.com/210/story/608229.html and it is worse than the part.
Remember the last words the 9-11 highjackers spoke before smashing into the World Trade Center were Allahu Akbar or “God is Great” Lets please not play a game of my God can beat up your God with them.
Friday, November 28, 2008
SH*TTY CITI
Citigroup has now received $45 billion from the taxpayers in return for preferred shares of its stock. They have also received a guarantee from the government on $306 billion of risky assets it owns.
As taxpayer I would like to know what return the government is getting on its $54 billion. I have a suggestion for them – 32% plus late fees of course. Many of you may see where I am going with this. I was once the owner of a Citi credit card. I made every payment for 11 years. In 2003 I was late on a payment and Citi raised my interest rate to 32%. Of course this is not feasible because Citi would surely argue that at that rate they would never be able to get out of trouble and repay the taxpayers. No kidding?
Credit Card issuers claim the rationale for these usurious rates is its need to protect itself as those who are late on payments have an increased rate of default and therefore the increased interest (profit) is from taking on increased risk. Sub-Prime Lenders used the same argument for charging borrowers 14% on a mortgage at a time prime borrowers received 6% mortgages. This argument fails on so many levels. These companies charge these rates because they can, period. In fact Citi and other credit card issuers invented the concept of “universal default” in order to put as many customers as possible into this ridiculous rate. For those of you unfamiliar with the concept universal default means that if you are in default on any obligation (ie late on another card payment from another issuer) the card issuer can declare you in default on their card and the default rate would kick in. Citi actually discontinued this practice voluntarily in 2007 after some bad publicity, but the practice persists with other issuers.
If they truly believed that those who were late on a payment were likely to default would it not be better to maintain the existing interest rate and keep the payment affordable than to increase the rate to 32% and all but assure that those on the edge can not pay. (See Above)
If issuers believe these exorbitant rates were needed to hedge against defaults wouldn’t it have been prudent of them to segregate the extra interest they earned in a contingency fund to help them cope when these bad loans and credit card debts began to default. For example if a normal credit card was at 7% interest and others were upped to 32% because of risk factors, shouldn’t the 7% portion of the return on the 32% card be put in the companies operating capital while the 25% premiums being collected be put in a reserve fund to help offset losses due to defaults on these “risky cards”. Same with sub-prime loans, excess gets put into a reserve to help when these risky loans default.
Of course this did not happen. Any excess revenues were passed on as dividends and large executive bonuses. Then when things turned sour in credit issuing land the taxpayer is now expected to bail them out.
I am not saying that some of these loans were not risky, undoubtedly many turned out to be exactly that. I am saying that Citi and others either did not believe or failed to prepare for their own arguments.
Many States have usury laws that cap the interest that lenders can charge on a loan. In Florida, where I lived at the time of Citi’s raise to 32% the rate was 18% for loans of under ½ million dollars. Citi is able to circumvent this law because of in 1978 the Supreme Court ruled in Marquette vs. First Omaha Service Corp., that a national bank could charge the highest interest rate allowed in their home state to customers living anywhere in the United States, including states with restrictive interest caps. When it comes to credit card interest rates, the law in a lender's home state rules; It doesn't matter what kind of rate cap exists in a customer's state.
It did not take Citi (and many others) long to figure out what to do after this ruling. New York-based powerhouse Citibank moved its credit card business to South Dakota who has no interest rate cap, in 1981. Citibank went to South Dakota, not because South Dakota was a banking center but because it had that particular law
In 1982, the four largest banks in Maryland relocated their credit card operations to Delaware because of that state's lender-friendly credit card laws. Other states with lender-friendly credit laws include Georgia, Illinois, Nebraska, Nevada, Rhode Island and Utah. To hang on to the credit card business, many other states loosened state usury limits.
It is criminal that these companies are allowed these interest rates. One State resisted. My current home state of Arkansas Amendment 60 to the state constitution, approved in 1982, caps interest rates at 5 percent above the federal discount rate. The teeth has also been taken out of this law. The Gramm-Leach-Bliley Financial Modernization Act, which the U.S. Congress passed in 1999 allows state-chartered banks to charge interest rates equal to those charged by other banks operating in their state.
Our congress has been in the pocket of banks and credit card issuers much like these companies cards are in your pockets and wallets. If these issuers want bailouts now I say the following strings must attach.
1. A federal Usury law must be enacted on consumer debt limiting interest rates to no more than 18%. (Less would be better)
2. Another federal law which outlaws universal default.
3. Issuers must set aside a certain amount of revenue gleaned from above market rates to risky borrowers in a fund to cushion losses when things go south. This is much the same as insurance companies are required to keep reserves to pay claims.
Of course Congress does not need permission from the industry to enact any of these changes. Congress should also investigate ways to re-examine Bankruptcy laws to let Federal Judges re-write mortgages, and take away at least in part the student loan exclusion from Bankruptcy. This would be but a rollback to the way the law used to be before the 2005 revisions to the Bankruptcy Code was pushed through by the Banks and their lobbyists.
Rich Leonard, A federal Bankruptcy Judge from North Carolina speaks of Bankruptcy law reform in an excellent article found here. http://www.washingtonpost.com/wp-dyn/content/article/2008/11/27/AR2008112702051.html
I will close with an excerpt from that article
“I have twice participated in briefing sessions organized by the House Judiciary Committee, where I was lectured by lobbyists for the mortgage industry about the sanctity of contracts. I have listened to their high-priced lawyers make fallacious constitutional arguments based on discredited cases from the 1930s. (This is, incidentally, an industry that is not particularly concerned about its own contractual obligations as it tries, through various Treasury-aided programs, to stay afloat.)”
All you reading this that have credit cards insist your congressmen take up these legislative goals in conjunction to giving these banks money. Or we could just ask the banks pay 32%
As taxpayer I would like to know what return the government is getting on its $54 billion. I have a suggestion for them – 32% plus late fees of course. Many of you may see where I am going with this. I was once the owner of a Citi credit card. I made every payment for 11 years. In 2003 I was late on a payment and Citi raised my interest rate to 32%. Of course this is not feasible because Citi would surely argue that at that rate they would never be able to get out of trouble and repay the taxpayers. No kidding?
Credit Card issuers claim the rationale for these usurious rates is its need to protect itself as those who are late on payments have an increased rate of default and therefore the increased interest (profit) is from taking on increased risk. Sub-Prime Lenders used the same argument for charging borrowers 14% on a mortgage at a time prime borrowers received 6% mortgages. This argument fails on so many levels. These companies charge these rates because they can, period. In fact Citi and other credit card issuers invented the concept of “universal default” in order to put as many customers as possible into this ridiculous rate. For those of you unfamiliar with the concept universal default means that if you are in default on any obligation (ie late on another card payment from another issuer) the card issuer can declare you in default on their card and the default rate would kick in. Citi actually discontinued this practice voluntarily in 2007 after some bad publicity, but the practice persists with other issuers.
If they truly believed that those who were late on a payment were likely to default would it not be better to maintain the existing interest rate and keep the payment affordable than to increase the rate to 32% and all but assure that those on the edge can not pay. (See Above)
If issuers believe these exorbitant rates were needed to hedge against defaults wouldn’t it have been prudent of them to segregate the extra interest they earned in a contingency fund to help them cope when these bad loans and credit card debts began to default. For example if a normal credit card was at 7% interest and others were upped to 32% because of risk factors, shouldn’t the 7% portion of the return on the 32% card be put in the companies operating capital while the 25% premiums being collected be put in a reserve fund to help offset losses due to defaults on these “risky cards”. Same with sub-prime loans, excess gets put into a reserve to help when these risky loans default.
Of course this did not happen. Any excess revenues were passed on as dividends and large executive bonuses. Then when things turned sour in credit issuing land the taxpayer is now expected to bail them out.
I am not saying that some of these loans were not risky, undoubtedly many turned out to be exactly that. I am saying that Citi and others either did not believe or failed to prepare for their own arguments.
Many States have usury laws that cap the interest that lenders can charge on a loan. In Florida, where I lived at the time of Citi’s raise to 32% the rate was 18% for loans of under ½ million dollars. Citi is able to circumvent this law because of in 1978 the Supreme Court ruled in Marquette vs. First Omaha Service Corp., that a national bank could charge the highest interest rate allowed in their home state to customers living anywhere in the United States, including states with restrictive interest caps. When it comes to credit card interest rates, the law in a lender's home state rules; It doesn't matter what kind of rate cap exists in a customer's state.
It did not take Citi (and many others) long to figure out what to do after this ruling. New York-based powerhouse Citibank moved its credit card business to South Dakota who has no interest rate cap, in 1981. Citibank went to South Dakota, not because South Dakota was a banking center but because it had that particular law
In 1982, the four largest banks in Maryland relocated their credit card operations to Delaware because of that state's lender-friendly credit card laws. Other states with lender-friendly credit laws include Georgia, Illinois, Nebraska, Nevada, Rhode Island and Utah. To hang on to the credit card business, many other states loosened state usury limits.
It is criminal that these companies are allowed these interest rates. One State resisted. My current home state of Arkansas Amendment 60 to the state constitution, approved in 1982, caps interest rates at 5 percent above the federal discount rate. The teeth has also been taken out of this law. The Gramm-Leach-Bliley Financial Modernization Act, which the U.S. Congress passed in 1999 allows state-chartered banks to charge interest rates equal to those charged by other banks operating in their state.
Our congress has been in the pocket of banks and credit card issuers much like these companies cards are in your pockets and wallets. If these issuers want bailouts now I say the following strings must attach.
1. A federal Usury law must be enacted on consumer debt limiting interest rates to no more than 18%. (Less would be better)
2. Another federal law which outlaws universal default.
3. Issuers must set aside a certain amount of revenue gleaned from above market rates to risky borrowers in a fund to cushion losses when things go south. This is much the same as insurance companies are required to keep reserves to pay claims.
Of course Congress does not need permission from the industry to enact any of these changes. Congress should also investigate ways to re-examine Bankruptcy laws to let Federal Judges re-write mortgages, and take away at least in part the student loan exclusion from Bankruptcy. This would be but a rollback to the way the law used to be before the 2005 revisions to the Bankruptcy Code was pushed through by the Banks and their lobbyists.
Rich Leonard, A federal Bankruptcy Judge from North Carolina speaks of Bankruptcy law reform in an excellent article found here. http://www.washingtonpost.com/wp-dyn/content/article/2008/11/27/AR2008112702051.html
I will close with an excerpt from that article
“I have twice participated in briefing sessions organized by the House Judiciary Committee, where I was lectured by lobbyists for the mortgage industry about the sanctity of contracts. I have listened to their high-priced lawyers make fallacious constitutional arguments based on discredited cases from the 1930s. (This is, incidentally, an industry that is not particularly concerned about its own contractual obligations as it tries, through various Treasury-aided programs, to stay afloat.)”
All you reading this that have credit cards insist your congressmen take up these legislative goals in conjunction to giving these banks money. Or we could just ask the banks pay 32%
Fire Marbury
Stefan Marbury is a point guard for the New York Knicks professional basketball team. He makes around 21 million dollars a year to play basketball. That comes to about $256,000 a game for a 82 game schedule.
He has had a running disagreement with coaches and management since he entered the NBA. He played two and a half years with the Minnesota Timberwolves before a dispute with coaches over his role in the offense led to him being traded to New Jersey. His team won no playoff series.
He then spent two years in New Jersey and three in Phoenix and predictably had personal successes but his teams never won even one playoff series. In January 2004 he was traded to New York to play for his hometown team.
He played for the US Olympic team and scored an US Olympic record 31 points in a game, of course his team only managed a bronze medal. He spent the 2005-2006 season feuding with Larry Brown. It makes sense that Marbury would no better than Brown, after all Marbury has won a grand total of ZERO playoff series as an NBA player and all Brown has done as a coach is win the NBA championship. By the way he also won a NCAA championship making him the only coach in history to have won both an NCAA and NBA championship. Nonetheless at the conclusion of the season the Knicks fired Brown and kept Marbury. That is some fine management there Knicks.
The Knicks then hired Isiah Thomas as Head Coach to begin the 2006-2007 season. After a slight improvement in the team and that year (winning 33 rather than the previous years 23 games in an 82 game schedule) Thomas and Marbury began locking horns early in the 2007-2008 season. Marbury left the team after learning that Thomas was removing him from the starting lineup. I am no fan of Thomas’ coaching prowess however he certainly has forgotten more about winning than Marbury will ever know. He won a NCAA title while playing for Bobby Knight at Indiana, and won two NBA titles while a player for the Detroit Pistons. At the season’s conclusion Thomas was fired, Marbury was retained.
Mike D’Antoni was hired to coach the Knicks this season and he and Knicks management tried in the off-season to trade Marbury. This proved difficult as Marbury’s toxicity to every team he touches has gone from a hypothesis to a proven theory and no other team wants him and his $21 million salary.
D’Antoni did not play Marbury in the first 14 games of the season believing Marbury’s heart not to be in the game and no doubt hoping to still effectuate a trade. After many injuries to the Knick’s other guards D’Antoni approached Marbury to enter their game against Detroit on Wednesday night. Marbury refused.
The Knicks have suspended Marbury for one game and docked him $400,000 in pay. Are you kidding me? I wonder what Isiah Thomas former coach Bobby Knight would have done? I suspect that Knight would likely been arrested for assault and battery on his point guard and then acquitted by a jury because his actions were justifiable.
Maybe Marbury has a legitimate beef with D’Antoni and Knicks management (though I doubt it from past history). Maybe he is completely in the right. I do not care. When you are making $256,000 per game to play basketball you do not get to make those decisions your bosses do. Your coach and general manager will decide when and if and in what manner you play. That is the trade off. If you would like to be a coach, take a huge paycut and become one. Surely some Division I college could use an assistant with NBA experience as a recruiting tool if nothing else. Of course Marbury would make less in a year than he now makes for not playing in games.
About ten million Americans are currently unemployed with more losing their jobs everyday. The vast majority of these people make less in 5 years than what Marbury makes in a game and they do so in jobs that are far less glamorous and far more like work than playing basketball, yet when Marbury is asked by his bosses to work, he refused. Marbury should now join the ranks of the unemployed. Guaranteed contract or not I would also quit paying him. There is no doubt some clause in his contract that arguably would allow the Knicks to stop paying him. Let him sue to get his money. Let the NBA players Union file a grievance. Have the Knicks and their team of high priced attorneys drag out the proceedings for a year or more. If he does not want to work he does not need to be paid. Marbury may well win the suit but make him win. With his record that is no sure thing.
2008 may go down as the year that the complete inability of the wealthy in this country and the world to even contemplate what it is like to not be one of them was shone in the light of day. AIG Executives hold junkets at high priced resorts that most taxpayers can not afford to bring their families, a week after being bailed out by those same taxpayers. It never occurred to them that this would not sit well with those taxpayers; they could not contemplate it. The big three auto executives go to capital hill to beg for taxpayer’s money to keep their ailing companies afloat and arrive in corporate jets. It never occurred to them that this would be seen as a problem by the plebes they were begging money from. Finally Stephen Marbury refuses to enter a NBA game and collect his $256,000 for the night because of a perceived slight from management while millions would gladly do so for free. I would expect that when Marbury was a schoolboy star in NYC he would have done the same, but now he has more in common with the executives at AIG and GM than that dreaming schoolboy. He can not contemplate what it is like to be among the 10 million without work through no choice of their own.
He has had a running disagreement with coaches and management since he entered the NBA. He played two and a half years with the Minnesota Timberwolves before a dispute with coaches over his role in the offense led to him being traded to New Jersey. His team won no playoff series.
He then spent two years in New Jersey and three in Phoenix and predictably had personal successes but his teams never won even one playoff series. In January 2004 he was traded to New York to play for his hometown team.
He played for the US Olympic team and scored an US Olympic record 31 points in a game, of course his team only managed a bronze medal. He spent the 2005-2006 season feuding with Larry Brown. It makes sense that Marbury would no better than Brown, after all Marbury has won a grand total of ZERO playoff series as an NBA player and all Brown has done as a coach is win the NBA championship. By the way he also won a NCAA championship making him the only coach in history to have won both an NCAA and NBA championship. Nonetheless at the conclusion of the season the Knicks fired Brown and kept Marbury. That is some fine management there Knicks.
The Knicks then hired Isiah Thomas as Head Coach to begin the 2006-2007 season. After a slight improvement in the team and that year (winning 33 rather than the previous years 23 games in an 82 game schedule) Thomas and Marbury began locking horns early in the 2007-2008 season. Marbury left the team after learning that Thomas was removing him from the starting lineup. I am no fan of Thomas’ coaching prowess however he certainly has forgotten more about winning than Marbury will ever know. He won a NCAA title while playing for Bobby Knight at Indiana, and won two NBA titles while a player for the Detroit Pistons. At the season’s conclusion Thomas was fired, Marbury was retained.
Mike D’Antoni was hired to coach the Knicks this season and he and Knicks management tried in the off-season to trade Marbury. This proved difficult as Marbury’s toxicity to every team he touches has gone from a hypothesis to a proven theory and no other team wants him and his $21 million salary.
D’Antoni did not play Marbury in the first 14 games of the season believing Marbury’s heart not to be in the game and no doubt hoping to still effectuate a trade. After many injuries to the Knick’s other guards D’Antoni approached Marbury to enter their game against Detroit on Wednesday night. Marbury refused.
The Knicks have suspended Marbury for one game and docked him $400,000 in pay. Are you kidding me? I wonder what Isiah Thomas former coach Bobby Knight would have done? I suspect that Knight would likely been arrested for assault and battery on his point guard and then acquitted by a jury because his actions were justifiable.
Maybe Marbury has a legitimate beef with D’Antoni and Knicks management (though I doubt it from past history). Maybe he is completely in the right. I do not care. When you are making $256,000 per game to play basketball you do not get to make those decisions your bosses do. Your coach and general manager will decide when and if and in what manner you play. That is the trade off. If you would like to be a coach, take a huge paycut and become one. Surely some Division I college could use an assistant with NBA experience as a recruiting tool if nothing else. Of course Marbury would make less in a year than he now makes for not playing in games.
About ten million Americans are currently unemployed with more losing their jobs everyday. The vast majority of these people make less in 5 years than what Marbury makes in a game and they do so in jobs that are far less glamorous and far more like work than playing basketball, yet when Marbury is asked by his bosses to work, he refused. Marbury should now join the ranks of the unemployed. Guaranteed contract or not I would also quit paying him. There is no doubt some clause in his contract that arguably would allow the Knicks to stop paying him. Let him sue to get his money. Let the NBA players Union file a grievance. Have the Knicks and their team of high priced attorneys drag out the proceedings for a year or more. If he does not want to work he does not need to be paid. Marbury may well win the suit but make him win. With his record that is no sure thing.
2008 may go down as the year that the complete inability of the wealthy in this country and the world to even contemplate what it is like to not be one of them was shone in the light of day. AIG Executives hold junkets at high priced resorts that most taxpayers can not afford to bring their families, a week after being bailed out by those same taxpayers. It never occurred to them that this would not sit well with those taxpayers; they could not contemplate it. The big three auto executives go to capital hill to beg for taxpayer’s money to keep their ailing companies afloat and arrive in corporate jets. It never occurred to them that this would be seen as a problem by the plebes they were begging money from. Finally Stephen Marbury refuses to enter a NBA game and collect his $256,000 for the night because of a perceived slight from management while millions would gladly do so for free. I would expect that when Marbury was a schoolboy star in NYC he would have done the same, but now he has more in common with the executives at AIG and GM than that dreaming schoolboy. He can not contemplate what it is like to be among the 10 million without work through no choice of their own.
Monday, November 17, 2008
He Tried To Tell You
If you have any doubts that most of the so called financial experts on television touting stocks on CNBC or Fox Business Channel or other places are just pulling ideas out of their butt, you must watch this video. Peter Schiff who was Ron Paul's economic advisor in the past election tries to tell these "experts" whats coming (with uncommon accuracy) and he is nearly laughed off the shows as these people tell the masses to buy Washington Mutual, Bear Stearns and Goldma Sachs among others.
THE CUPBOARD IS EMPTY PART II
In my last post I stated that foreclosures would continue and that recovery would be very hard despite government’s best attempts because of structural changes in the world economy. I’d like to elaborate on those themes in this entry.
Foreclosures will continue because the values of homes will continue to go down for some time. Real wages are not likely to increase in an era of declining corporate profits and a larger more desperate pool of available labor. Unemployment will increase due to accelerating decreases in consumer spending and the jobs that remain will have depressed wages and decreased benefits such as health insurance. As there are more foreclosures this puts more houses on the Real Estate market which in turn causes a decline in values which …… you get the picture. It also should be noted that state and local governments facing declining Real Estate valuations and budget shortfalls will likely increase the millage rate on Real Estate increasing the cost of ownership of property.
What will our government do to try and stop these circular degenerative cycles?
Traditionally in recessionary cycles the first thing the US government does is increase the money supply by decreasing interest rates. The Federal Reserve has already done almost all they can do in this area and it has had no effect. Through the taxpayer 700 billion bailout we have of course recapitalized the banks in the hopes that they would begin making loans however the banks realize the precarious state of the economy and are not making loans because they do not see how they will be paid back. I am no fan of banks but if you had money to lend would you lend it to someone starting or expanding a business in this climate?
Government may try to stimulate a direct stimulus to the economy by giving tax rebates similar to what they did last year. This will not work for several reasons. First, given the current financial climate most taxpayers will simply save this money or use it to pay down existing debt. Second, even if they do spend some of the money it will act only as a temporary boost and will not create jobs. Third, the money for these rebates will have to be borrowed by the federal government so there will be no net gain, only a distribution because the taxpayers will ultimately have to pay this bill. In fact there will be a net loss because interest will have to be paid on this money. Finally and most importunately we simply manufacture very few goods in this country anymore. The rest of the economy simply shuffles money around it does not create wealth. Money ultimately ends up with the producer of products. Our accelerating trade and federal budget deficits are now coming home to roost.
Government may also try to stimulate the economy by large public works programs. While this will have greater effect than simply sending money to taxpayers it too will largely fail. It would employ more people for a period of years and it would help replace a crumbling infrastructure that greatly needs replacing which could help increase American productivity. These would undoubtedly be pluses. At least we are spending money on needed projects. On the downside 1)we would again be financing this program with increased deficits which will prove costly in the long run; 2)These projects whether government run or contracted out will be no doubt be fraught with waste, corruption and cost overruns like every other government project of this size in history; 3) It would take some time to implement a program such as this and its effect on the economy would be well down the road; 4) The program would have to be short lived because we could not continue this level of deficit spending for more than a year or two.
The only ways our economy can see an actual long term improvement is by increased productivity, a new products or industry, or an improvement in our trade and federal government deficits, all of these will be difficult.
American productivity had been increasing steadily since the mid nineties in no small part due to increased use of computers in the workplace. In 2004 productivity growth was 2.4%, in 2005 it was 1.9% and in 2006 it was 1%. (US Labor Dept.)American workers are the most productive in the industrialized world and may well be suffering from the law of diminishing returns where productivity gains, absent any new tool such as a computer, necessarily decline as workers reach the top end of possible productivity. Therefore productivity is unlikely to increase greatly.
Suppose for a minute that a new industry was developed by an American company that was the envy of the world and in which millions of dollars would be made. Lets for a minute suppose that someone invented a new consumer product that everyone in the world wanted. This would be a huge breakthrough and the company would no doubt make billions for its stockholders. However there is not also no doubt that this product would be manufactured, within a short period of time, in China, India, Vietnam or wherever it is cheapest to do so. If this was not the case initially shareholders would not doubt force management to maximize profits by doing so. This discovery would no doubt have positive effects on the investor class. It also would hopefully have positive effects on the US treasury by increasing tax receipts (offshore shelters notwithstanding). It would not help the plight of the US middle class, other than any effect it may have on their stock ownership in this new company through direct or indirect (retirement plans) investments.
Our trade deficit is unlikely to reverse itself until we can start to rely on alternative fuels. The price of oil is currently down sharply but this is very likely to be a temporary respite. As stimulus packages around the world kick in demand will return at least somewhat and prices will rise. Even absent the increase in demand does anyone really doubt that OPEC who has become accustomed to $100 plus oil prices will not keep cutting production to support a price structure to their liking?
Our budget deficit is likely to continue to grow with the advent of a financial stimulus package which will be enacted by Congress in one form or another. Many financial analysts are predicting a one trillion dollar federal deficit in each of the next two years. This will in turn cause those buying our debt to demand greater interest on this money which will in turn increase the debit side of the federal ledger. At some point this spending will have to be cut dramatically which must include a cut in military spending, which paradoxically is one of our few manufacturing sectors which has been recently successful. This of course will cause other problems such as unemployment and a decrease in the tax base.
We are structurally trapped in an America in which new manufacturing industries can only survive by either manufacturing their products overseas or by paying American workers an increasingly low wage which makes it difficult for them to afford the products they create. This model can be seen clearly in the automotive industry where manufacturing of cars is being done in some southern states that has enabled these manufacturers to turn a profit. The workers are hard pressed to be able to afford the cars they produce and certainly are unable to comfortably raise a family on income. In previous years those working for the big three could easily afford to raise a family comfortably on the wages they received. Unfortunately these wages and benefits have caused their employers to become unable to compete in a Global marketplace.
The transfer of income and wealth to the wealthiest has left the middle and lower classes of America unable to support the businesses of America anymore. They are simply tapped out. They have no more disposable income to be transferred. This has actually been the case for sometime but spending has been propped up by household deficit spending that was supported and enabled by eased monetary policy of the past eight (or more years). This day was bound to come but now that it has come later rather than sooner due to government and Wall Street enabling the pain to be paid is larger rather than smaller. The cupboard is empty.
Excellent articles can be found at the following links.
Paul Krugman - Nobel Prize winning economist who predicted the curreny economic collapse. http://www.nytimes.com/2008/11/14/opinion/14krugman.html
Nouriel Roubini, - New York University economist who was laughed at when he foretold the financial crisis at a World Economic Summit http://www.forbes.com/opinions/2008/11/12/recession-global-economy-oped-cx_nr_1113roubini.html
For a few articles really out there. (Perhaps)
John Whitehead former Chairman of Goldman Sachs and former deputy secretary of state under Reagan http://www.reuters.com/article/InvestmentOutlook09/idUSTRE4AB7HT20081112
Martin Hennecke - senior manager of private clients at Tyche. http://www.cnbc.com//id/27641538
Gerald Celente - the CEO of Trends Research Institute http://www.liveleak.com/view?i=1ad_1226630673
Foreclosures will continue because the values of homes will continue to go down for some time. Real wages are not likely to increase in an era of declining corporate profits and a larger more desperate pool of available labor. Unemployment will increase due to accelerating decreases in consumer spending and the jobs that remain will have depressed wages and decreased benefits such as health insurance. As there are more foreclosures this puts more houses on the Real Estate market which in turn causes a decline in values which …… you get the picture. It also should be noted that state and local governments facing declining Real Estate valuations and budget shortfalls will likely increase the millage rate on Real Estate increasing the cost of ownership of property.
What will our government do to try and stop these circular degenerative cycles?
Traditionally in recessionary cycles the first thing the US government does is increase the money supply by decreasing interest rates. The Federal Reserve has already done almost all they can do in this area and it has had no effect. Through the taxpayer 700 billion bailout we have of course recapitalized the banks in the hopes that they would begin making loans however the banks realize the precarious state of the economy and are not making loans because they do not see how they will be paid back. I am no fan of banks but if you had money to lend would you lend it to someone starting or expanding a business in this climate?
Government may try to stimulate a direct stimulus to the economy by giving tax rebates similar to what they did last year. This will not work for several reasons. First, given the current financial climate most taxpayers will simply save this money or use it to pay down existing debt. Second, even if they do spend some of the money it will act only as a temporary boost and will not create jobs. Third, the money for these rebates will have to be borrowed by the federal government so there will be no net gain, only a distribution because the taxpayers will ultimately have to pay this bill. In fact there will be a net loss because interest will have to be paid on this money. Finally and most importunately we simply manufacture very few goods in this country anymore. The rest of the economy simply shuffles money around it does not create wealth. Money ultimately ends up with the producer of products. Our accelerating trade and federal budget deficits are now coming home to roost.
Government may also try to stimulate the economy by large public works programs. While this will have greater effect than simply sending money to taxpayers it too will largely fail. It would employ more people for a period of years and it would help replace a crumbling infrastructure that greatly needs replacing which could help increase American productivity. These would undoubtedly be pluses. At least we are spending money on needed projects. On the downside 1)we would again be financing this program with increased deficits which will prove costly in the long run; 2)These projects whether government run or contracted out will be no doubt be fraught with waste, corruption and cost overruns like every other government project of this size in history; 3) It would take some time to implement a program such as this and its effect on the economy would be well down the road; 4) The program would have to be short lived because we could not continue this level of deficit spending for more than a year or two.
The only ways our economy can see an actual long term improvement is by increased productivity, a new products or industry, or an improvement in our trade and federal government deficits, all of these will be difficult.
American productivity had been increasing steadily since the mid nineties in no small part due to increased use of computers in the workplace. In 2004 productivity growth was 2.4%, in 2005 it was 1.9% and in 2006 it was 1%. (US Labor Dept.)American workers are the most productive in the industrialized world and may well be suffering from the law of diminishing returns where productivity gains, absent any new tool such as a computer, necessarily decline as workers reach the top end of possible productivity. Therefore productivity is unlikely to increase greatly.
Suppose for a minute that a new industry was developed by an American company that was the envy of the world and in which millions of dollars would be made. Lets for a minute suppose that someone invented a new consumer product that everyone in the world wanted. This would be a huge breakthrough and the company would no doubt make billions for its stockholders. However there is not also no doubt that this product would be manufactured, within a short period of time, in China, India, Vietnam or wherever it is cheapest to do so. If this was not the case initially shareholders would not doubt force management to maximize profits by doing so. This discovery would no doubt have positive effects on the investor class. It also would hopefully have positive effects on the US treasury by increasing tax receipts (offshore shelters notwithstanding). It would not help the plight of the US middle class, other than any effect it may have on their stock ownership in this new company through direct or indirect (retirement plans) investments.
Our trade deficit is unlikely to reverse itself until we can start to rely on alternative fuels. The price of oil is currently down sharply but this is very likely to be a temporary respite. As stimulus packages around the world kick in demand will return at least somewhat and prices will rise. Even absent the increase in demand does anyone really doubt that OPEC who has become accustomed to $100 plus oil prices will not keep cutting production to support a price structure to their liking?
Our budget deficit is likely to continue to grow with the advent of a financial stimulus package which will be enacted by Congress in one form or another. Many financial analysts are predicting a one trillion dollar federal deficit in each of the next two years. This will in turn cause those buying our debt to demand greater interest on this money which will in turn increase the debit side of the federal ledger. At some point this spending will have to be cut dramatically which must include a cut in military spending, which paradoxically is one of our few manufacturing sectors which has been recently successful. This of course will cause other problems such as unemployment and a decrease in the tax base.
We are structurally trapped in an America in which new manufacturing industries can only survive by either manufacturing their products overseas or by paying American workers an increasingly low wage which makes it difficult for them to afford the products they create. This model can be seen clearly in the automotive industry where manufacturing of cars is being done in some southern states that has enabled these manufacturers to turn a profit. The workers are hard pressed to be able to afford the cars they produce and certainly are unable to comfortably raise a family on income. In previous years those working for the big three could easily afford to raise a family comfortably on the wages they received. Unfortunately these wages and benefits have caused their employers to become unable to compete in a Global marketplace.
The transfer of income and wealth to the wealthiest has left the middle and lower classes of America unable to support the businesses of America anymore. They are simply tapped out. They have no more disposable income to be transferred. This has actually been the case for sometime but spending has been propped up by household deficit spending that was supported and enabled by eased monetary policy of the past eight (or more years). This day was bound to come but now that it has come later rather than sooner due to government and Wall Street enabling the pain to be paid is larger rather than smaller. The cupboard is empty.
Excellent articles can be found at the following links.
Paul Krugman - Nobel Prize winning economist who predicted the curreny economic collapse. http://www.nytimes.com/2008/11/14/opinion/14krugman.html
Nouriel Roubini, - New York University economist who was laughed at when he foretold the financial crisis at a World Economic Summit http://www.forbes.com/opinions/2008/11/12/recession-global-economy-oped-cx_nr_1113roubini.html
For a few articles really out there. (Perhaps)
John Whitehead former Chairman of Goldman Sachs and former deputy secretary of state under Reagan http://www.reuters.com/article/InvestmentOutlook09/idUSTRE4AB7HT20081112
Martin Hennecke - senior manager of private clients at Tyche. http://www.cnbc.com//id/27641538
Gerald Celente - the CEO of Trends Research Institute http://www.liveleak.com/view?i=1ad_1226630673
Thursday, November 13, 2008
THE CUPBOARD IS EMPTY (PART I)
The economy is bad and it is going to get worse. Our leaders are attempting 20th century solutions for 21st century problems. They may be forgiven in some respects because I don’t believe there are many solutions to many of our economic problems. There have been large changes to the US and world economy that are both structural and in some cases irreversible. The best we can hope for is that our leaders tell us truth of the situation and do the best we can from there. I believe the truth to be that we are entering a new economic era where the US will no longer enjoy the level of prosperity enjoyed in the past.
The largest reason for this view is the effect of globalization. The first rule of globalization is that work will be done wherever it can be done the cheapest. Outsourcing and offshoring of jobs is here to stay. We can argue whether this is right or wrong. Protectionists will argue it is improper and that American jobs should be saved. Globalists will say that we must suffer these job losses in order to open foreign markets for American goods that will eventually grow the economy (and jobs). The reality is that there is no sense in arguing because, as NY Times columnist Thomas Friedman points out in his book “The World Is Flat”, that ship has sailed and it is not turning around to come back to port. The question is how we adjust from here.
The early returns on globalization produce the following results. Globalization has been great for multinational corporations, for workers – not so much. Real wages for American workers have fallen 6/10% between 2000 and 2007. By comparison real wages for American workers increased:
8.3% 1989-2000
6.5% 1979-1989 (Source U.S. Census Bureau)
4.5% 1969-1979
These numbers actually understate the problem because the top 20% on the income scale had their real income increase by 1.2% during the same time period. The real income of the top 1% grew 50% between 2002 and 2006. The bottom 20% on the income scale had their real income decrease by 6%.
The top 1% held 23% of all income as of 2006. This is the second highest level of income concentration going back to 1913 when records on this subject began. The only year of greater income concentration was 1928 with 24%. You know what happened next.
Why is all this important? The current financial crisis was precipitated in no small measure to the failure of the housing market. The price of homes is determined more than anything else by wages. As you are paid more you can you can afford to pay more for a home. Historically home prices rose when wages rose. However between 2000 and 2007 median home prices rose 64.9% (Bankrate.com). In local markets such as Miami-Fort Lauderdale-Palm Beach median home prices grew 135% during the same time period.
Although home prices have fallen substantially they are not yet back to 2000 levels in most areas and until they are foreclosures will not slow and until foreclosures slow there is no hope of an economic recovery. The Government can enact as many programs it wants to purchase mortgages or work out loans but until wages and home prices are in balance it will not help much.
Even when home prices reach 2000 levels that will not be the end of the problems. Consumer spending has reached 70% of the US Gross Domestic Product (Wall Street Journal). During the period of home appreciation consumers were already tapped out. Due to flat real wages they had no discretionary income but fueled a false economic expansion by spending on credit cards and then refinancing their appreciating homes to pay down the balances, then repeating the cycle. Now that homes are depreciating there is no more equity left to tap. Therefore the one part of the economy fueling growth has ground to a standstill. That piggy bank is closed
The shock of the last few months has also made the average consumer realize that if they are to ever retire they must save whatever income they may have in excess of that which is used to survive and to service the debt they have rung up through credit cards and mortgages. This is especially true now that those who have managed to save at least some for retirement have seen the value of their retirement accounts shrink by 45% or so due to the stock markets decline. (and are likely to decline more)
In my next segment I will explain why foreclosures will continue and why I believe traditional methods used to stimulate out of a recession will only delay further slow deterioration of the economy in the near term. I want to emphasize I am not forecasting a huge crash (though possible) but merely a slow loss of quality of economic life in the US.
TO BE CONTINUED
The largest reason for this view is the effect of globalization. The first rule of globalization is that work will be done wherever it can be done the cheapest. Outsourcing and offshoring of jobs is here to stay. We can argue whether this is right or wrong. Protectionists will argue it is improper and that American jobs should be saved. Globalists will say that we must suffer these job losses in order to open foreign markets for American goods that will eventually grow the economy (and jobs). The reality is that there is no sense in arguing because, as NY Times columnist Thomas Friedman points out in his book “The World Is Flat”, that ship has sailed and it is not turning around to come back to port. The question is how we adjust from here.
The early returns on globalization produce the following results. Globalization has been great for multinational corporations, for workers – not so much. Real wages for American workers have fallen 6/10% between 2000 and 2007. By comparison real wages for American workers increased:
8.3% 1989-2000
6.5% 1979-1989 (Source U.S. Census Bureau)
4.5% 1969-1979
These numbers actually understate the problem because the top 20% on the income scale had their real income increase by 1.2% during the same time period. The real income of the top 1% grew 50% between 2002 and 2006. The bottom 20% on the income scale had their real income decrease by 6%.
The top 1% held 23% of all income as of 2006. This is the second highest level of income concentration going back to 1913 when records on this subject began. The only year of greater income concentration was 1928 with 24%. You know what happened next.
Why is all this important? The current financial crisis was precipitated in no small measure to the failure of the housing market. The price of homes is determined more than anything else by wages. As you are paid more you can you can afford to pay more for a home. Historically home prices rose when wages rose. However between 2000 and 2007 median home prices rose 64.9% (Bankrate.com). In local markets such as Miami-Fort Lauderdale-Palm Beach median home prices grew 135% during the same time period.
Although home prices have fallen substantially they are not yet back to 2000 levels in most areas and until they are foreclosures will not slow and until foreclosures slow there is no hope of an economic recovery. The Government can enact as many programs it wants to purchase mortgages or work out loans but until wages and home prices are in balance it will not help much.
Even when home prices reach 2000 levels that will not be the end of the problems. Consumer spending has reached 70% of the US Gross Domestic Product (Wall Street Journal). During the period of home appreciation consumers were already tapped out. Due to flat real wages they had no discretionary income but fueled a false economic expansion by spending on credit cards and then refinancing their appreciating homes to pay down the balances, then repeating the cycle. Now that homes are depreciating there is no more equity left to tap. Therefore the one part of the economy fueling growth has ground to a standstill. That piggy bank is closed
The shock of the last few months has also made the average consumer realize that if they are to ever retire they must save whatever income they may have in excess of that which is used to survive and to service the debt they have rung up through credit cards and mortgages. This is especially true now that those who have managed to save at least some for retirement have seen the value of their retirement accounts shrink by 45% or so due to the stock markets decline. (and are likely to decline more)
In my next segment I will explain why foreclosures will continue and why I believe traditional methods used to stimulate out of a recession will only delay further slow deterioration of the economy in the near term. I want to emphasize I am not forecasting a huge crash (though possible) but merely a slow loss of quality of economic life in the US.
TO BE CONTINUED
IT ALWAYS WORKS UNTIL IT DOESN’T
Listening to financial anchors, analysts and pundits on CNBC the past month or so since the Wall Street shit hit the fan I am struck by two phrases which are uttered excessively. The first is that this stock or that sector will be well positioned when the Economy recovers. The second is that every time the Dow advances more than three points for more than three minutes some yahoo is saying that perhaps we have just seen the bottom. There have been approximately 700 billion calls of the bottom starting with the collapse of Lehman Brothers.
Has it occurred to any of these people that perhaps the question is not when the economy will recover but if the economy will recover? The logic of the optimistic sages seems to be that the US economy will recover because it always has before. Perhaps that is so but perhaps also the world has changed and the structural components that have always allowed a recovery no longer exist.
To illustrate this phenomenon allow me a short anecdote. One day shortly after I first became a part of the computer using population around 1994 my new device would not boot up. The computer would not turn on. I had a friend who was an IBM PC tech who was teaching me computer basics in return for tennis lessons. He came over to examine my machine and as he was beginning to look it over I stated that I could not understand why it would not work because it had always worked before with no problem. He replied “that is usually the way; they always work until they don’t.” Of course in retrospect this made perfect sense. No one would call someone to fix their computer while it was working. Much like you always find a lost item the last place you look. If this is not true I suggest you seek professional help because no one should go on looking for a previously lost item that has been found.
The point is that my computer did not stop working randomly. Something had fundamentally changed in its hardware, software or power structure. For example a change in the computers power structure would occur if the power cord was unplugged as mine embarrassingly was on that day in 1994.
In my next entry later today or tomorrow I will explain why our economy has become unplugged and why even if it gets plugged back in, which it will, it will not ever again in the foreseeable future operate at the same level as it had previously. We have not reached a bottom and when we do there will not be a substantial rebound as in the past but rather the economy will simply stop contracting.
Has it occurred to any of these people that perhaps the question is not when the economy will recover but if the economy will recover? The logic of the optimistic sages seems to be that the US economy will recover because it always has before. Perhaps that is so but perhaps also the world has changed and the structural components that have always allowed a recovery no longer exist.
To illustrate this phenomenon allow me a short anecdote. One day shortly after I first became a part of the computer using population around 1994 my new device would not boot up. The computer would not turn on. I had a friend who was an IBM PC tech who was teaching me computer basics in return for tennis lessons. He came over to examine my machine and as he was beginning to look it over I stated that I could not understand why it would not work because it had always worked before with no problem. He replied “that is usually the way; they always work until they don’t.” Of course in retrospect this made perfect sense. No one would call someone to fix their computer while it was working. Much like you always find a lost item the last place you look. If this is not true I suggest you seek professional help because no one should go on looking for a previously lost item that has been found.
The point is that my computer did not stop working randomly. Something had fundamentally changed in its hardware, software or power structure. For example a change in the computers power structure would occur if the power cord was unplugged as mine embarrassingly was on that day in 1994.
In my next entry later today or tomorrow I will explain why our economy has become unplugged and why even if it gets plugged back in, which it will, it will not ever again in the foreseeable future operate at the same level as it had previously. We have not reached a bottom and when we do there will not be a substantial rebound as in the past but rather the economy will simply stop contracting.
Wednesday, November 12, 2008
The Godless Also Serve
Just before the presidential election on the October 19, 2008 edition of Meet The Press Colin Powel endorsed Barack Obama for President. Powell seemed particularly dismayed that some Republicans continued to paint Mr. Obama as Muslim. Powell said "He's always been a Christian. But the really right answer is, what if he is? Is there something wrong with being a Muslim in this country? The answer's no, that's not America," Powell said. "Is there something wrong with some 7-year-old Muslim-American kid believing that he or she could be president?"
He went on to tell the story of seeing a photo essay depicting U.S. troops serving in Iraq and Afghanistan which included an image of a mother with her head resting upon the Tombstone of her twenty year old son in the Arlington National Cemetery. On the headstone was the “crescent and star of the Islamic faith”. This reportedly had a great effect on Mr. Powell because it reinforced in his mind that people of all faiths were dying in these wars and to marginalize Mr. Obama with suggestions he was a Muslim was ridiculous and incongruous.
Many in the mainstream media, including Chris Matthews on Hardball, ran with this issue and praised Mr. Powell for making this point; as well they should have as it was certainly a point that needed to be made. What was amazing to me was that no one had made the point sooner.
Fast forward about one week and Elizabeth Dole began running a television advertisement which accused her opponent, Kay Hagan, of being Godless. Immediately there was a strong response from Mrs. Hagan citing the inaccuracy of the statement and the fact that she had taught Sunday school. Good for her. However how much stronger would her response have been if in addition to that statement she had added, as did Mr. Powell, so what if she was.
Surveys differ in estimating the atheist population of the United States but the median seems to be somewhere around ten percent. Can we then doubt that alongside the Christians and the Muslims that there are atheist dying for our country in Iraq and Afghanistan? The spirit of Mr. Powell’s point applies to these men and women as well.
I have not heard one member of the mainstream media make this point although the parallel between the two situations is obvious. I have not even seen this idea expressed by other blogger’s although I am sure it has been.
Christians like to state that they are the last group in America subject to discrimination. The foregoing situation makes clear who the last group in the United States subject to overt discrimination really is.
He went on to tell the story of seeing a photo essay depicting U.S. troops serving in Iraq and Afghanistan which included an image of a mother with her head resting upon the Tombstone of her twenty year old son in the Arlington National Cemetery. On the headstone was the “crescent and star of the Islamic faith”. This reportedly had a great effect on Mr. Powell because it reinforced in his mind that people of all faiths were dying in these wars and to marginalize Mr. Obama with suggestions he was a Muslim was ridiculous and incongruous.
Many in the mainstream media, including Chris Matthews on Hardball, ran with this issue and praised Mr. Powell for making this point; as well they should have as it was certainly a point that needed to be made. What was amazing to me was that no one had made the point sooner.
Fast forward about one week and Elizabeth Dole began running a television advertisement which accused her opponent, Kay Hagan, of being Godless. Immediately there was a strong response from Mrs. Hagan citing the inaccuracy of the statement and the fact that she had taught Sunday school. Good for her. However how much stronger would her response have been if in addition to that statement she had added, as did Mr. Powell, so what if she was.
Surveys differ in estimating the atheist population of the United States but the median seems to be somewhere around ten percent. Can we then doubt that alongside the Christians and the Muslims that there are atheist dying for our country in Iraq and Afghanistan? The spirit of Mr. Powell’s point applies to these men and women as well.
I have not heard one member of the mainstream media make this point although the parallel between the two situations is obvious. I have not even seen this idea expressed by other blogger’s although I am sure it has been.
Christians like to state that they are the last group in America subject to discrimination. The foregoing situation makes clear who the last group in the United States subject to overt discrimination really is.
Tuesday, November 11, 2008
WELCOME
I created this blog in order to share my views with some friends and hopefully many more. I am well read and well informed on a variety of subjects although certainly my opinions will not be well received by all. I think you will find my views will run the political spectrum. I believe most people are neither far right nor far left on all issues or subjects but may well be far right on one issue, far left on another and centrist on yet a third. I think you will find I fit this pattern.
I grew up in upstate New York and have lived in such socially liberal areas as northern New Jersey and South Florida before I found myself relocated as a result of my wife’s career to Little Rock, Arkansas. This is where the name of the blog originates. One area where I would surely fall under the far left category is that of religiosity versus secularism. Moving to Little Rock, or as I refer to it, the “Holy City” has been quite the culture shock. According to the Pew Forum on Religion in Public Life (a project of the Pew Research Center) 53% of all Arkansans self identify themselves as Evangelicals.
I considered other blog names such as Infidel in the Holy City and Lost in Dixie, but finally settled on Bible Belt Yankee. Some of my posts will be about religion in Public Policy, some on Politics, some on the economics, some on my Arkansas experience, and others on whatever is of news currently. I will try to identify my sourcing for information whenever possible (law school habit). I hope whether you agree with my views or not I sometimes give you a new way of thinking about things. I hope you enjoy.
I grew up in upstate New York and have lived in such socially liberal areas as northern New Jersey and South Florida before I found myself relocated as a result of my wife’s career to Little Rock, Arkansas. This is where the name of the blog originates. One area where I would surely fall under the far left category is that of religiosity versus secularism. Moving to Little Rock, or as I refer to it, the “Holy City” has been quite the culture shock. According to the Pew Forum on Religion in Public Life (a project of the Pew Research Center) 53% of all Arkansans self identify themselves as Evangelicals.
I considered other blog names such as Infidel in the Holy City and Lost in Dixie, but finally settled on Bible Belt Yankee. Some of my posts will be about religion in Public Policy, some on Politics, some on the economics, some on my Arkansas experience, and others on whatever is of news currently. I will try to identify my sourcing for information whenever possible (law school habit). I hope whether you agree with my views or not I sometimes give you a new way of thinking about things. I hope you enjoy.
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