It has occurred to me that there are good reasons why Democrats and Republicans are treated differently by the public and the press. I will use two examples to illustrate what I mean. First consider morality. When a Republican is caught up in a moral problem say like having an extramarital affair they are treated more harshly than their Democratic counterparts because Republicans claim the high ground on family value issues. On the other hand Democrats are held to a higher standard when it comes to handling national disasters like hurricanes and the current oil spill. The reason for this is that Democrats believe that the federal government can best solve problems and the Republicans think not.
President Obama will take a lot of heat on the current spill because he is liberal and believes that the government can solve problems as witnessed by the heath care reform, the stimulus, the ongoing legislation on cap and trade and extending unemployment benefits on past the November election.
New subject. Prince Phillip yesterday gave a speech in which he declared that we should pay more attention to the Koran as it relates to keeping the environment clean and pure. What he didn’t say was many Muslim countries are third world when it comes to providing for their people and the ones that have viable economic systems get 90% of their income from oil which environmentalist say is the main cause of global warming which in tern they say is the main environmental problem. You don’t have to lie to mislead you just need to leave out part of the information.
Thursday, December 23, 2010
Primaries
After all the dust has settled over yesterdays primaries the Nevada vote is where we can find out if the people are serious about change. Sharron Angle will be running against Harry Reid. The majority of Americans are saying that the federal government must cut spending and Angle has suggested that we begin the process of fading out social security for younger people. Reid will be on this like stink on a pig. He will say that is just the start of getting rid of social security for everyone and the old foggies are likely to turn out in droves to vote for him. It has been my experience that most people want the government to spend less but not on them. We want to reduce spending for others but leave my goodies alone. I predict this lady with her Tea Party backing will get creamed. I hope I am wrong as we must begin the painful process of reducing benefits. Angle shows a lot of courage in taking on spending but it is most likely political suicide.
Jack/John
Jack/John
Government
Over the past 18 months as I have learned more about Obama’s pledge to “fundamentally transform America” I have come to understand the he means that the federal government should play a larger roll in our daily lives.
Some people envision a democratic socialism similar to the European style of government. They see a central planning type government like the old Soviet Union on one end and an open market like the US on the other end with Europe as a happy compromise. Recent events in Europe have dampened their enthusiasm but for some the move away from capitalism is so desirous that they tend to play down the difficulties in countries like Greece, Spain, Portugal and Italy. They see it as a temporary set back. Others see Europe as a preview of what we are headed for and want to limit government intervention.
Every one agrees that we must reduce spending but until we all agree to reduce our personal benefits no elected official will risk cutting. It is very difficult to reduce or remove a benefit once it is given and those who were in such a hurry to pass health care know that very well.
I, for one, am willing to forego any additional increases in social security and I am willing to reduce Medicare benefits to myself as I get older. Yes that means death panels. I am comfortable with using quality of life as my standard for living as opposed to number of years. I am aware that 30% of all Medicare expenses occur in the last year of life and that will be 150 billion for this year. I know too many people who were kept alive even though they were not living and I hope I have the courage to face that fact if need be. Notice that I said I hope.
These cuts will be much easier to swallow if every one is cognizant of the fact that each of us pays for these benefits either directly or directly. We must get away from the thinking that the government is doing this for us at no charge. If you are 90 years old and you demand a heart transplant be aware that your Grand children will pay for it.
John/Jack
Some people envision a democratic socialism similar to the European style of government. They see a central planning type government like the old Soviet Union on one end and an open market like the US on the other end with Europe as a happy compromise. Recent events in Europe have dampened their enthusiasm but for some the move away from capitalism is so desirous that they tend to play down the difficulties in countries like Greece, Spain, Portugal and Italy. They see it as a temporary set back. Others see Europe as a preview of what we are headed for and want to limit government intervention.
Every one agrees that we must reduce spending but until we all agree to reduce our personal benefits no elected official will risk cutting. It is very difficult to reduce or remove a benefit once it is given and those who were in such a hurry to pass health care know that very well.
I, for one, am willing to forego any additional increases in social security and I am willing to reduce Medicare benefits to myself as I get older. Yes that means death panels. I am comfortable with using quality of life as my standard for living as opposed to number of years. I am aware that 30% of all Medicare expenses occur in the last year of life and that will be 150 billion for this year. I know too many people who were kept alive even though they were not living and I hope I have the courage to face that fact if need be. Notice that I said I hope.
These cuts will be much easier to swallow if every one is cognizant of the fact that each of us pays for these benefits either directly or directly. We must get away from the thinking that the government is doing this for us at no charge. If you are 90 years old and you demand a heart transplant be aware that your Grand children will pay for it.
John/Jack
Jews
The remarks by Helen Thomas once again prove the old adage that a Washington misspeak is when someone accidentally tells the truth. I personally have never understood prejudice against Jews. I recall many years ago seeing the Gregory Peck movie, “Gentleman’s Agreement” and being baffled by the story line. Over the years I have wondered why this prejudice existed and what might have caused it and I have come up with my own theory. During the dark ages when the Roman Catholic Church was the power in Western Europe, the only people who were literate were the royalty, the clergy and the Jewish tradition of teaching sons to read and write. It was this same Catholic Church that forbade the lending of money at interest, something that did not exist in Judaism. So you have a situation where the Jewish men are the ones in the community who can lend money at interest and are literate so it is likely that they will become the bankers. Recall Shakespeare’s “Merchant of Venice”.
I think that there was an unspoken jealousy among the non Jews that festered over many centuries and erupted at various times, the most notable of which was the Holocaust. I have most likely known many people who were Jewish without my knowledge of their religion and I have also known Jews and those that I have known had two things in common. They were smart and ambitious. It is one of the many reasons that the Muslim world is fearful of the Jews.
Shortly after 9/11, I read a book about Islam written by Bernard Lewis, himself a Jew, but considered to be the world’s foremost scholar on Middle East history. In a nutshell he says that the people of Islam did not like to live in non Muslim countries so they tended to isolate themselves from the west. The early years of Islam 500 AD to 1000 AD were the glory years but they were left out of the industrial revolution and have suffered the consequences. As an example since 1900 the Jews have won 185 Noble prizes and the Muslims have won nine. This in spite of the fact that there are 1.4 billion Muslims and only 15 million Jews in the world.
As an American I do not always agree with what Israel does and the way they do it but compared to the nations that surround them, they are the country that best emulates my values. Just take the one area of women’s rights and compare Israel with their Muslim neighbors and you will understand what I mean.
I am concerned with the way the press seems to be leaning toward Palestine in regards to the Jewish blockade of Gaza. Have we so soon forgotten our Jewish allies in World War 11 and during the 40 year cold war while the other peoples in the Middle East were on the other side. Have we closed our eyes to the fact that in Israel they have freedom of religion, freedom of speech and a free press not to mention electing their own leaders. Contrast that with other countries in the area. There are no churches in Saudi Arabia, only Mosques. There is no freedom to speak out against the government in Iran. There is no free press in Egypt. These countries are led by royalty and potentates. I never use the word democracy when discussing countries in the Middle East as it is a loaded word, but I ask the question, would you prefer to live in a country where the people elect their own leaders and I leave it to you to guess what kind of response that I get.
I think that there was an unspoken jealousy among the non Jews that festered over many centuries and erupted at various times, the most notable of which was the Holocaust. I have most likely known many people who were Jewish without my knowledge of their religion and I have also known Jews and those that I have known had two things in common. They were smart and ambitious. It is one of the many reasons that the Muslim world is fearful of the Jews.
Shortly after 9/11, I read a book about Islam written by Bernard Lewis, himself a Jew, but considered to be the world’s foremost scholar on Middle East history. In a nutshell he says that the people of Islam did not like to live in non Muslim countries so they tended to isolate themselves from the west. The early years of Islam 500 AD to 1000 AD were the glory years but they were left out of the industrial revolution and have suffered the consequences. As an example since 1900 the Jews have won 185 Noble prizes and the Muslims have won nine. This in spite of the fact that there are 1.4 billion Muslims and only 15 million Jews in the world.
As an American I do not always agree with what Israel does and the way they do it but compared to the nations that surround them, they are the country that best emulates my values. Just take the one area of women’s rights and compare Israel with their Muslim neighbors and you will understand what I mean.
I am concerned with the way the press seems to be leaning toward Palestine in regards to the Jewish blockade of Gaza. Have we so soon forgotten our Jewish allies in World War 11 and during the 40 year cold war while the other peoples in the Middle East were on the other side. Have we closed our eyes to the fact that in Israel they have freedom of religion, freedom of speech and a free press not to mention electing their own leaders. Contrast that with other countries in the area. There are no churches in Saudi Arabia, only Mosques. There is no freedom to speak out against the government in Iran. There is no free press in Egypt. These countries are led by royalty and potentates. I never use the word democracy when discussing countries in the Middle East as it is a loaded word, but I ask the question, would you prefer to live in a country where the people elect their own leaders and I leave it to you to guess what kind of response that I get.
Birds
I will admit up front that I have no love for the Brown Pelican. These birds hang around the Naples Pier and harass the fisherman. We had a large net so that every time a bird grabbed our fish we could capture the dumb thing and get the fish out of its mouth. That being said I don’t take any pleasure in watching these birds get soaked with oil but let us please put things in perspective.
I saw a report last week that said after scouring the beaches in a four state area they came up with 512 birds that were affected by the oil spill. Up in North Dakota where I lived for 25 years they would shoot that many ducks and geese out of the sky every day during hunting season. I worked in a poultry processing plant where we slaughtered 100,000 birds per day and we were only one of 700 USDA plants.
The question I always have, when I see these people standing on the shore, scrubbing the oil from these birds is how can they take time off from work to do this and if they are getting paid, who is paying them. Every minute showing these bird wipers is a minute where we could be interviewing people whose business and livelihood is being adversely affected. I don’t want to offend any animal lovers but I am still more interested in people stories than in bird stories and sometimes I feel this puts me in the minority.
Jack/John
I saw a report last week that said after scouring the beaches in a four state area they came up with 512 birds that were affected by the oil spill. Up in North Dakota where I lived for 25 years they would shoot that many ducks and geese out of the sky every day during hunting season. I worked in a poultry processing plant where we slaughtered 100,000 birds per day and we were only one of 700 USDA plants.
The question I always have, when I see these people standing on the shore, scrubbing the oil from these birds is how can they take time off from work to do this and if they are getting paid, who is paying them. Every minute showing these bird wipers is a minute where we could be interviewing people whose business and livelihood is being adversely affected. I don’t want to offend any animal lovers but I am still more interested in people stories than in bird stories and sometimes I feel this puts me in the minority.
Jack/John
War
President Bush 2 introduced the concept of per-emptive war, which means we do not have to wait for some foreign power to attack us before we can respond. It means that if we feel we have an eminent threat we can attack first. When this policy was announced the immediate reaction by many liberal thinkers was disbelief and dismay. They publically announced their disagreement and went home, and after of few days of thinking it over they went silent. They thought through the scenario of a president who knew we were about to be attacked and did not respond and we were attacked. They thought about how the president would justify his inaction and concluded that there could be a time when pre-emption was the proper course of action. It reminds me of the “ticking bomb scenario” where a suspect is in custody and there is evidence that he knows the whereabouts of a nuke and it will detonate in a few days and the question is, can he be tortured to force him to reveal the location of the bomb? There are four alternative options. First he is not tortured and there is no bomb. Second he is not tortured and the bomb explodes, Third he is tortured and there is a no bomb and forth he is tortured and bomb is found and dismantled. The question again arises what happens to a president who fails to approve torture and bomb explodes. Let is make it more difficult. The suspect knows of two dozen bombs in two dozens cities and says that one will go off every week for the next 24 weeks. The president refused to torture and the first bomb goes off. Does the president then change his mind and allow torture or does he stay the course over the next 23 weeks at which time the entire economy has collapsed and the headline is, “President saves constitution and loses the country”.
The reason I write this is that President Obama in his speech before the graduates of West Point talked about his policy and the press reported that he refuted the Bush policy of pre-emption but if you read his speech he did no such thing. Here is a quote from the Washington Post,
Obama’s document appears to water down the concept of preemptive war favoured by the Bush administration, but preserves the option for a US president to deploy military might unilaterally. It says Washington will “adhere to standards that govern the use of force.
Is this double talk or what? What pray tell is the difference between pre-emptive strike and deploy military might unilaterally. The press is so opposed to pre-emption that they seem to read into words meanings that are not there. To them the news is not what is but what it is supposed to be.
In other parts of the speech Obama states his preference for diplomacy before war. Duh! Thank God for the Internet as it permits thinking people the opportunity to look at many sides of an issue before forming opinions. As an aside I recently saw a TV show where a panel of academic types were asked to opine on the ticking bomb idea and they concluded that the president should allow the torture and then be charged with a felony and removed from office. I believe this is why it is often said that a professor would have trouble changing a light bulb.
John/Jack
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The reason I write this is that President Obama in his speech before the graduates of West Point talked about his policy and the press reported that he refuted the Bush policy of pre-emption but if you read his speech he did no such thing. Here is a quote from the Washington Post,
Obama’s document appears to water down the concept of preemptive war favoured by the Bush administration, but preserves the option for a US president to deploy military might unilaterally. It says Washington will “adhere to standards that govern the use of force.
Is this double talk or what? What pray tell is the difference between pre-emptive strike and deploy military might unilaterally. The press is so opposed to pre-emption that they seem to read into words meanings that are not there. To them the news is not what is but what it is supposed to be.
In other parts of the speech Obama states his preference for diplomacy before war. Duh! Thank God for the Internet as it permits thinking people the opportunity to look at many sides of an issue before forming opinions. As an aside I recently saw a TV show where a panel of academic types were asked to opine on the ticking bomb idea and they concluded that the president should allow the torture and then be charged with a felony and removed from office. I believe this is why it is often said that a professor would have trouble changing a light bulb.
John/Jack
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Gays
Since I am from out of your district I doubt you will ever see this but some of your staff might. I heard your remarks about gays in the military and would like to add my two cents worth. I have two points to make but first I will tell you that I have no bias toward gays as I believe that sexual preference is a matter of personal choice and further I believe there is credible evidence that there is a genetic factor involved.
My first point is that the American Public, regardless of polls, is not ready to accept the gay life and I can prove this. Every day on the soaps and often times in prime time TV you can see a man and a woman, usually not married, in bed together and most of us pay very little attention to it. Imagine, instead, two men rolling around in bed together, scantily clothed, hands roaming and open mouth kissing. What do you, or just as important, the public, think about this. While I think there is something beautiful about two men loving each other and the world can certainly use more love, I am uncomfortable when I think of the intimate activities involved in this type of love,
Second point. I started visiting chat rooms after 9/11 and made an interesting discovery. If I used a neutral sounding nick I would often get an asl from some other chatter and more often than not it would be a sexual inquiry. I started asking these people if they were gay and when they answered yes, I asked for their opinion on don’t ask, don’t tell but the way I asked about it was to say, would you be aroused if you showed with other men and the majority of the time they answered yes. If this is the case, I believe it is a legitimate reason for separate showers but none of this has been discussed. Would they consider unisex showers if the rule was no contact? Obviously not! What will happen to transvestites? Will they need three different showers?
I offer this just to point out that there is a lot more to this question than just the political implications, which is what most elected officials are concerned with. To make it personal, would you feel uncomfortable if you were showering and knew that some other person was getting sexually excited looking at you. How you answer that question might tell you more about what you think about this issue than you care to know.
Thanks for listening.
John Novick
My first point is that the American Public, regardless of polls, is not ready to accept the gay life and I can prove this. Every day on the soaps and often times in prime time TV you can see a man and a woman, usually not married, in bed together and most of us pay very little attention to it. Imagine, instead, two men rolling around in bed together, scantily clothed, hands roaming and open mouth kissing. What do you, or just as important, the public, think about this. While I think there is something beautiful about two men loving each other and the world can certainly use more love, I am uncomfortable when I think of the intimate activities involved in this type of love,
Second point. I started visiting chat rooms after 9/11 and made an interesting discovery. If I used a neutral sounding nick I would often get an asl from some other chatter and more often than not it would be a sexual inquiry. I started asking these people if they were gay and when they answered yes, I asked for their opinion on don’t ask, don’t tell but the way I asked about it was to say, would you be aroused if you showed with other men and the majority of the time they answered yes. If this is the case, I believe it is a legitimate reason for separate showers but none of this has been discussed. Would they consider unisex showers if the rule was no contact? Obviously not! What will happen to transvestites? Will they need three different showers?
I offer this just to point out that there is a lot more to this question than just the political implications, which is what most elected officials are concerned with. To make it personal, would you feel uncomfortable if you were showering and knew that some other person was getting sexually excited looking at you. How you answer that question might tell you more about what you think about this issue than you care to know.
Thanks for listening.
John Novick
Europe
Have you noticed that all of your friends who used to tell you that we, the USA, should be more like Europe are now strangely silent
Jack/John
Jack/John
Bankers
We should all celebrate the great victory in the US Senate today. Recall that the senate has been trying to change the financial rules to prevent another meltdown. The Republicans have been using the filibuster to try and get more teeth into the bill but today the Democrats were able to get the 60 votes they need to stop the filibuster.
The two main problems were first to get rid of the too big to fail type banks and second to bring transparency to derivative trading. Well guess what? Neither of these things are in the bill. Instead there was a bunch of small changes regarding credit cards and retailers selling products on credit such as a car dealer financing your car loan. Not only did we not get rid of the too big to fail the situation is now even worse than it was before because over the past few years the big have gotten much bigger. The big six banks 15 years ago controlled 17% of the GDP and today they control 65%. Derivative trading will still be carried out in secret.
The bottom line is that big banks can gamble with our money and if they guess right they keep the profits and if they guess wrong we cover their losses.
When this bill passes which will be in a few weeks the politicians will come out and say they have passed new laws which will help us and behind the scenes the big bankers will be smiling.
Jack/John
The two main problems were first to get rid of the too big to fail type banks and second to bring transparency to derivative trading. Well guess what? Neither of these things are in the bill. Instead there was a bunch of small changes regarding credit cards and retailers selling products on credit such as a car dealer financing your car loan. Not only did we not get rid of the too big to fail the situation is now even worse than it was before because over the past few years the big have gotten much bigger. The big six banks 15 years ago controlled 17% of the GDP and today they control 65%. Derivative trading will still be carried out in secret.
The bottom line is that big banks can gamble with our money and if they guess right they keep the profits and if they guess wrong we cover their losses.
When this bill passes which will be in a few weeks the politicians will come out and say they have passed new laws which will help us and behind the scenes the big bankers will be smiling.
Jack/John
Unemployment
During my working years I specialized in retirement planning and often times people were surprised when I pointed out that if they chose to work past age 62 they would be working for free. How does this happen?
Suppose you had worked thirty years for a company that had a pension plan that paid you 1.5% of your final salary for every year you worked or they would pay your 45% of your final salary. Assume that your salary was $50,000 so your pension would be $22,500 per year. First step is to determine what your net pay is if you continue to work.
Gross pay $50,000
Less standard deduction for two people $11,400
Less personal exemptions (2) $7,300
Taxable income $31,300
Federal tax $3,861
State tax (MN) $1,158
Less social security $3,825
Take home pay (net) $41,156
The pension will be income tax free and no social security withheld so it will net out at
Pension $22,500
Husband social security ($1,200/mo) $14,400
Wife social security (35% of husbands) $5,040
Take home pay (net) $41,940
Often times the cost of health insurance is not covered until age 65 when Medicare kicks in so I tell them if they like what they are doing and they feel good to keep on working but if they are burnt out they should retire and take a part time job doing something they like and earn enough to buy health insurance.
This is all leading up to people, who today, are collecting unemployment, which pays about one half of salary up to a maximum of about $500 per week. Assume you were making ten bucks an hour or $400 per week and you get laid off and start collecting $200 per week. While you are working, assuming you were a family you didn’t pay any income tax but you did pay social security tax so your take home pay was $369. If you go back to work your income will increase by $169 ($369 - $200) so you will be earning 169 divided by 40 or $4.22 per hour which is kind of depressing. If you have to pay a baby sitter you are better off not working.
The point here is that for low income people, those who make less than $25 per hour, the difference between working and collecting unemployment is not that great and since unemployment benefits now run for 99 weeks, it may be a while before these people get serious about looking for work and I guess you can’t really blame them.
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Suppose you had worked thirty years for a company that had a pension plan that paid you 1.5% of your final salary for every year you worked or they would pay your 45% of your final salary. Assume that your salary was $50,000 so your pension would be $22,500 per year. First step is to determine what your net pay is if you continue to work.
Gross pay $50,000
Less standard deduction for two people $11,400
Less personal exemptions (2) $7,300
Taxable income $31,300
Federal tax $3,861
State tax (MN) $1,158
Less social security $3,825
Take home pay (net) $41,156
The pension will be income tax free and no social security withheld so it will net out at
Pension $22,500
Husband social security ($1,200/mo) $14,400
Wife social security (35% of husbands) $5,040
Take home pay (net) $41,940
Often times the cost of health insurance is not covered until age 65 when Medicare kicks in so I tell them if they like what they are doing and they feel good to keep on working but if they are burnt out they should retire and take a part time job doing something they like and earn enough to buy health insurance.
This is all leading up to people, who today, are collecting unemployment, which pays about one half of salary up to a maximum of about $500 per week. Assume you were making ten bucks an hour or $400 per week and you get laid off and start collecting $200 per week. While you are working, assuming you were a family you didn’t pay any income tax but you did pay social security tax so your take home pay was $369. If you go back to work your income will increase by $169 ($369 - $200) so you will be earning 169 divided by 40 or $4.22 per hour which is kind of depressing. If you have to pay a baby sitter you are better off not working.
The point here is that for low income people, those who make less than $25 per hour, the difference between working and collecting unemployment is not that great and since unemployment benefits now run for 99 weeks, it may be a while before these people get serious about looking for work and I guess you can’t really blame them.
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Oil
It seems that there is a great irony developing with the oil spillage in the Gulf. First off, the environmentalist would not allow drilling close to shore in shallow water since they feared an oil spill would cause damage to the shore line. If this leak had been in shallow water, it is likely that the leak would have been contained, before it caused a problem but since it was in deep water the containment has been much more difficult.
It is well known that twice as much oil that leaked from the Valdez spill, seeps up from the ocean floor in the Gulf each year but nature has a way of handling it. Could it be that the deep water leaks are also handled by nature? It will be interesting to see how this plays out. It might be a case of dumb luck that saves the day.
It is well known that twice as much oil that leaked from the Valdez spill, seeps up from the ocean floor in the Gulf each year but nature has a way of handling it. Could it be that the deep water leaks are also handled by nature? It will be interesting to see how this plays out. It might be a case of dumb luck that saves the day.
Banks
I first entered the financial business in 1973 and at that time we learned about the Glass Steagall Act. This law was passed in the 1930’s to prevent banks from failing as they did during the Great Depression. Before that time banks had two separated functions, the first was the commercial bank that we are all familiar with and that is our local bank. The purpose of the local bank is to provide loans to citizens and businesses for things like cars and inventory. The second function was to sell new investment products to big investors, things like IPO’s, initial public offerings. This happens when a big company like 3M wants to sell a new issue of stock in order to raise money to expand. This new stock is sold by investment bankers to large volume investors.
During the depression years and before these dual purpose banks would have an IPO to sell and in addition to offering it to big investors they would sometime purchase some of the stock with the commercial banks money (depositors money) and when the IPO didn’t pan out they lost depositors money and sometimes went broke.
The passage of Glass Steagall was supposed to end this practice by breaking the bank into separate entities and this is where things were when I entered the business. Realize that this was still one big bank but they had separate areas for different types of business that is they were to separate commercial banking from investment banking.
The first thing I was introduced to in the area of banking was something called “The China Wall”. This was a mysterious invisible wall that separated the commercial people from the investment people. If I worked in the investment bank where I had access to the inner workings of a business I was not allowed to discuss this with someone who worked in the commercial side as it would be considered “insider information” and that would be illegal.
The way things worked was that I would schedule lunch at a certain restaurant at a certain time to discuss inside information but somehow one of my colleagues from the commercial side would be having lunch at the table next to mine where they would inadvertently overhear my conversation.
Since everyone in the industry knew what was going on it was no big deal to them when Clinton repealed Glass Steagall in 1999. Now we could discuss companies without sneaking around but this was deemed to be one of the main causes of the recent banking debacle so they have now introduced the “Volcker Rule” which is the modern day equivalent of Glass Steagall. What comes around goes around, and so I guess the secret lunches will be back in style. Now I feel much better.
John/Jack
During the depression years and before these dual purpose banks would have an IPO to sell and in addition to offering it to big investors they would sometime purchase some of the stock with the commercial banks money (depositors money) and when the IPO didn’t pan out they lost depositors money and sometimes went broke.
The passage of Glass Steagall was supposed to end this practice by breaking the bank into separate entities and this is where things were when I entered the business. Realize that this was still one big bank but they had separate areas for different types of business that is they were to separate commercial banking from investment banking.
The first thing I was introduced to in the area of banking was something called “The China Wall”. This was a mysterious invisible wall that separated the commercial people from the investment people. If I worked in the investment bank where I had access to the inner workings of a business I was not allowed to discuss this with someone who worked in the commercial side as it would be considered “insider information” and that would be illegal.
The way things worked was that I would schedule lunch at a certain restaurant at a certain time to discuss inside information but somehow one of my colleagues from the commercial side would be having lunch at the table next to mine where they would inadvertently overhear my conversation.
Since everyone in the industry knew what was going on it was no big deal to them when Clinton repealed Glass Steagall in 1999. Now we could discuss companies without sneaking around but this was deemed to be one of the main causes of the recent banking debacle so they have now introduced the “Volcker Rule” which is the modern day equivalent of Glass Steagall. What comes around goes around, and so I guess the secret lunches will be back in style. Now I feel much better.
John/Jack
Diversity
The experts say the Supreme Court should mirror the general public as much as possible so six of the judges are from Harvard and three from Yale and only one tenth of one percent of the general public graduated from those two schools. One half of senators and one third of congress are lawyers and only point four percent of the population are lawyers. While getting more minorities and women in these positions is admirable maybe we should get more diversity in schools and professions first.
Jack/John
Jack/John
Tax
Monday, May 10, 2010
Hi All,
I do taxes for a number of relatives including my daughter in law who is a self employed consultant. I told her last year to pay quarterly and that she had to pay self employment tax of 15.3% in addition to her income tax and this was quite a shock to her
Tim Geithner our Secretary of the Treasury, the man who is in charge of the IRS forgot to pay his self employment tax, you know the 15.3% tax you had to pay on your income from Portola. He said it was an oversight but there is doubt about that because it first came out that he didn’t pay it for tax years 2003 and 2004 and when it was brought to his attention he paid the $17,230 he owed. Then later they came back and said he also failed to pay for 2001 and 2002 and he had to pay $25,970 more. I might believe that he forgot but when he was reminded it is hard to understand how he would not have thought about earlier years. By the way the IRS charged him interest but no penalty. They could not charge a penalty because that would mean that he knowingly did not pay what was due and that is tax evasion and carries with it jail time.
John/Jack
Hi All,
I do taxes for a number of relatives including my daughter in law who is a self employed consultant. I told her last year to pay quarterly and that she had to pay self employment tax of 15.3% in addition to her income tax and this was quite a shock to her
Tim Geithner our Secretary of the Treasury, the man who is in charge of the IRS forgot to pay his self employment tax, you know the 15.3% tax you had to pay on your income from Portola. He said it was an oversight but there is doubt about that because it first came out that he didn’t pay it for tax years 2003 and 2004 and when it was brought to his attention he paid the $17,230 he owed. Then later they came back and said he also failed to pay for 2001 and 2002 and he had to pay $25,970 more. I might believe that he forgot but when he was reminded it is hard to understand how he would not have thought about earlier years. By the way the IRS charged him interest but no penalty. They could not charge a penalty because that would mean that he knowingly did not pay what was due and that is tax evasion and carries with it jail time.
John/Jack
Mothers Day
Monday, May 10, 2010
Hi All,
As I look back over the past 70 plus years I think it is amazing when I realize all of the places I have been, all of the things I have done, all of the people I have met, all of the challenges I faced, all of the mistakes that I’ve made, and all of the great times that I have had. It seems almost impossible that all this happened to one person in less than one life time and after all is said and done, I have no regrets. I made mistakes, that is for sure but they were not life altering but rather learning experiences for the next stage of development. Without those mistakes I would not have learned the important lessens that carried me forward to the next level. I have won and I have lost but those were only words because in both cases I grew and developed and became the person I am today and I am comfortable with myself.
In analyzing the reasons for the path that I have chosen I am convinced that the secret to a good, healthy and happy life is to marry a good woman or more precisely to have a good woman select you. I don’t know why this happened but on this Mother’s Day when we honor the good wife, mother, grandmother and overall good person that is my wife, I am thankful that she selected me.
John/Jack
Hi All,
As I look back over the past 70 plus years I think it is amazing when I realize all of the places I have been, all of the things I have done, all of the people I have met, all of the challenges I faced, all of the mistakes that I’ve made, and all of the great times that I have had. It seems almost impossible that all this happened to one person in less than one life time and after all is said and done, I have no regrets. I made mistakes, that is for sure but they were not life altering but rather learning experiences for the next stage of development. Without those mistakes I would not have learned the important lessens that carried me forward to the next level. I have won and I have lost but those were only words because in both cases I grew and developed and became the person I am today and I am comfortable with myself.
In analyzing the reasons for the path that I have chosen I am convinced that the secret to a good, healthy and happy life is to marry a good woman or more precisely to have a good woman select you. I don’t know why this happened but on this Mother’s Day when we honor the good wife, mother, grandmother and overall good person that is my wife, I am thankful that she selected me.
John/Jack
Leverage
Often when a problem is revealed there is tendency of government to over react and the cure is worse than the disease. This is the reason why adequate investigation into solutions is necessary and it concerns me that there is a rush into passing financial reform.
Some even suggest that derivatives be outlawed which would be a disaster for most businesses. For example, take farming which is big business throughout the Midwest and most of us are familiar. Typically a farmer has a pretty good idea of what his crop will produce but he is not as sure about the price. In the spring it is a common practice for a farmer to purchase a contract to sell his crop at a set price in the fall. He knows that he needs three dollar wheat to make a living so he buys a contract that guarantees he can sell his wheat in the fall for three dollars. This contract is a derivative, a kind of insurance policy to help him stay in business. This is how derivatives first started, as a way to satisfy a need.
Let’s say that the farmer anticipates, based on past years, that he will have an 80,000 bushel harvest so he purchases a contract that guarantees that some buyer will pay him $3 per bushel for his crop. If there is a shortage of rainfall and he only harvests 60,000 bushels he will have to go out into the open market and purchase 20,000 bushels at the current price to satisfy his contract. This may work to his advantage if the price is lower than $3 or to his disadvantage if the price is higher than $3. This is a straight contract with wheat to back up the deal. Now bring in the concept of leverage and see how things change. Suppose he buys a contract to sell 800,000 bushels of wheat and he uses a bank loan to pay for it. He is now betting that wheat will be higher than $3 so he can make a big profit. He is now leveraged 10 to 1 which is pretty darn risky. If he guesses right a big profit but if he guesses wrong he might have to sell his farm to pay off the bank.
The reason I offer this example is that I heard on the news today that some of the banks who were dealing in the mortgage derivatives were leveraged at 33,000 to 1. You see when you’re betting with other people’s money you tend to take bigger risk. The big insurance company that was backing up these bets (AIG) was leveraged even more.
Even the big life insurance company that I worked for, Equitable of New York, had two billion of assets to back up 100 billion in insurance policies. At 50 to 1 this seems high but what are the chances of all 10 million of their clients dying at one time.
John/Jack
Some even suggest that derivatives be outlawed which would be a disaster for most businesses. For example, take farming which is big business throughout the Midwest and most of us are familiar. Typically a farmer has a pretty good idea of what his crop will produce but he is not as sure about the price. In the spring it is a common practice for a farmer to purchase a contract to sell his crop at a set price in the fall. He knows that he needs three dollar wheat to make a living so he buys a contract that guarantees he can sell his wheat in the fall for three dollars. This contract is a derivative, a kind of insurance policy to help him stay in business. This is how derivatives first started, as a way to satisfy a need.
Let’s say that the farmer anticipates, based on past years, that he will have an 80,000 bushel harvest so he purchases a contract that guarantees that some buyer will pay him $3 per bushel for his crop. If there is a shortage of rainfall and he only harvests 60,000 bushels he will have to go out into the open market and purchase 20,000 bushels at the current price to satisfy his contract. This may work to his advantage if the price is lower than $3 or to his disadvantage if the price is higher than $3. This is a straight contract with wheat to back up the deal. Now bring in the concept of leverage and see how things change. Suppose he buys a contract to sell 800,000 bushels of wheat and he uses a bank loan to pay for it. He is now betting that wheat will be higher than $3 so he can make a big profit. He is now leveraged 10 to 1 which is pretty darn risky. If he guesses right a big profit but if he guesses wrong he might have to sell his farm to pay off the bank.
The reason I offer this example is that I heard on the news today that some of the banks who were dealing in the mortgage derivatives were leveraged at 33,000 to 1. You see when you’re betting with other people’s money you tend to take bigger risk. The big insurance company that was backing up these bets (AIG) was leveraged even more.
Even the big life insurance company that I worked for, Equitable of New York, had two billion of assets to back up 100 billion in insurance policies. At 50 to 1 this seems high but what are the chances of all 10 million of their clients dying at one time.
John/Jack
Airlines
Last year Delta and Northwest merged to form the world’s largest airline. Now United and Continental are merging to form and even bigger airline. A few years down the road when hard times arrive and these airlines are in financial trouble are they going to be too big to fail. Will the government step in and say, as they did with General Motors, gosh we cannot allow these airlines to go bankrupt so we must step in and use tax payer money to bail them out.
If that happens, will we all look back and say maybe we should not have allowed them to get so big. Does history really repeat itself?
John/Jack
If that happens, will we all look back and say maybe we should not have allowed them to get so big. Does history really repeat itself?
John/Jack
Socialism
Peter Finley Dunne was a Chicago journalist in the early part of the last century. He is often remembered for saying that as a journalist it is his job to comfort the afflicted and to afflict the comfortable. The dictionary definition of afflict is “to cause pain and suffering or to distress greatly”.
Mr. Dunne was a muckraker, a term coined by Theodore Roosevelt to describe a journalist who went after someone or some thing and tried to destroy it.
To bring down the rich and powerful and to build up the poor and helpless was considered admirable and led to attacks on wealthy people and ultimately to big business and big government. Muckrakers like Upton Sinclair brought safe food to the masses and caused the formation of the USDA.
Many journalism schools pointed with pride to the accomplishments of muckrakers and many journalism students aspired to become muckrakers and this was the beginnings of the liberal view that permeates the schools of journalism and most of the main stream medium today.
It is not a big step to go from afflict the comfortable and comfort the afflicted to redistribute the wealth (or as Obama says, to spread the wealth around) to the famous words of Karl Marx, from each according to his means, to each according to his needs.
This is the reason that you hear people say that we are on the road to socialism. Socialism is a type of government where the assets of the country are owned by the government not by individuals. In such a government individual rights are replaced by group rights, social justice replaces equal justice and equal results replaces equal opportunity.
Jack/John
Mr. Dunne was a muckraker, a term coined by Theodore Roosevelt to describe a journalist who went after someone or some thing and tried to destroy it.
To bring down the rich and powerful and to build up the poor and helpless was considered admirable and led to attacks on wealthy people and ultimately to big business and big government. Muckrakers like Upton Sinclair brought safe food to the masses and caused the formation of the USDA.
Many journalism schools pointed with pride to the accomplishments of muckrakers and many journalism students aspired to become muckrakers and this was the beginnings of the liberal view that permeates the schools of journalism and most of the main stream medium today.
It is not a big step to go from afflict the comfortable and comfort the afflicted to redistribute the wealth (or as Obama says, to spread the wealth around) to the famous words of Karl Marx, from each according to his means, to each according to his needs.
This is the reason that you hear people say that we are on the road to socialism. Socialism is a type of government where the assets of the country are owned by the government not by individuals. In such a government individual rights are replaced by group rights, social justice replaces equal justice and equal results replaces equal opportunity.
Jack/John
May Day
I was reading the news today and came up with a solution to our budget problem. It seems that an American crossed into North Korea illegally and they fined him $700,000. Now we currently have 12 million illegal aliens here in the US and if we did the same we could have 8.4 trillion dollars in fines. While it poses a difficult problem to find these aliens, getting $700,000 out of each will pose an even bigger problem. Perhaps instead of a fine we could place a tax on them and then the government would have no trouble collecting that, since that is where the government excels.
Have a great May Day all you workers of the world
Have a great May Day all you workers of the world
Spending
During the cold war years, the world was kept safe by MAD, mutually assured destruction. The two super powers, the USSR and the USA were kept at bay because both had enough nuclear bombs to blow up the earth or at least a good part of it. When the cold war ended in the early 90’s, as represented by the fall of the Berlin Wall, MAD was no longer necessary. It was in the early years after that when the new world strategy emerged and it was called MAED or mutually assured economic destruction. The idea was to tie all of the countries of the world together economically so that one would not attack the other for fear of hurting everyone including the attacker. This seemed reasonable to many but now an unforeseen problem has developed. Some of the countries using the EURO have been acting irresponsibly and have run up debt that they cannot repay. Greece is the first of these countries to face this problem. They have provided their citizens with more benefits than they can pay for and now must go through the painful process of reducing benefits. The people, of course, are not happy with this and are rioting in the streets.
The wider concern is that if Greece falls other countries like Portugal, Spain, Italy and Ireland will also fall and eventually it will spread to the rest of the European Union and ultimately to the USA. In other words MAED will work.
Many countries in the European Union have handle their finances in a more responsible manner and are now being asked to send money to Greece to cover their debt. The people in these countries like Germany are being told that the Greek government provided so many benefits to their people that the Germans must now help to pay for these benefits. It is like forced foreign aid.
I can’t help comparing the economic woes of these countries with some of our states and companies. Some states like California have provided more benefits for the state employees than they can afford to pay and are now heading for bankruptcy. Many companies increased their legacy benefits, (benefits promised to retirees like pension and health insurance) and they now find that the do not have the money to pay these benefits.
There is an old adage that might be worth remembering and that is there is no free lunch. It is easy to hand out benefits but not so easy to take them back.
We shall soon see what happens in the US when we start to reduce social security and ration Medicare, Medicaid and health insurance. Imagine an ad saying vote for me and I will reduce social security. Get ready for a Gizzer riot.
Jack/John
The wider concern is that if Greece falls other countries like Portugal, Spain, Italy and Ireland will also fall and eventually it will spread to the rest of the European Union and ultimately to the USA. In other words MAED will work.
Many countries in the European Union have handle their finances in a more responsible manner and are now being asked to send money to Greece to cover their debt. The people in these countries like Germany are being told that the Greek government provided so many benefits to their people that the Germans must now help to pay for these benefits. It is like forced foreign aid.
I can’t help comparing the economic woes of these countries with some of our states and companies. Some states like California have provided more benefits for the state employees than they can afford to pay and are now heading for bankruptcy. Many companies increased their legacy benefits, (benefits promised to retirees like pension and health insurance) and they now find that the do not have the money to pay these benefits.
There is an old adage that might be worth remembering and that is there is no free lunch. It is easy to hand out benefits but not so easy to take them back.
We shall soon see what happens in the US when we start to reduce social security and ration Medicare, Medicaid and health insurance. Imagine an ad saying vote for me and I will reduce social security. Get ready for a Gizzer riot.
Jack/John
Banks
Back in the 50’s there were strict requirements on qualifying for a home mortgage. In those days the vast majority of mortgages were issued by Savings and Loans (S&L’s) and banks only issued a mortgage to a wealthy person so they could get his checking and savings accounts. If you wanted a loan you had to have a down payment of 5% for FHA loans and 20% for commercial loans. In addition there were income requirements. The principal and interest payment on your house plus the cost of home owners insurance plus taxes could not exceed 28% of your gross income. If you earned $500 per month you could only pay out $140 which means that if loans were at 5% you only qualified for a $25,000 loan assuming you put 5% down.
In 1959 I bought my first house which cost $10,000 and after 5% down and getting a 30 year loan at 4.75% my principal and interest payment was $50 per month. My insurance and taxes brought this up to $90 per month which meant that my income had to be at least $320 per month and that is exactly what I was making not counting overtime.
In Springfield at that time the town like many others was segregated, meaning that the blacks all lived in one part of town. Many of these people could not qualify for loans because of the above mentioned requirements so there was a whole section of our town that was denied the American dream of home ownership.
There were some in that area that could have qualified but the loan officers were told not to bother thinking it a waste of time. In their offices they had a map and they circled the black areas with a red pencil and this process was known as redlining. For those of you who saw the movie, A Raison In The Sun, you know this story was about one family who came into an inheritance and tried to move into an all white neighborhood.
As we moved into the 60’s the process of redlining came under scrutiny and the government wanted to do something about this perceived injustice. It took many years but in 1977 the community reinvestment act was passed.
The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII of the Housing and Community Development Act of 1977, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associationsto meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.[1][2][3] Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.[4
Loan officers began to interview potential buyers from the red line areas but most failed to meet the requirement and very few loans were issued. It was about this time that community organizers began to form, groups like the now infamous “Acorn”. They would go into the black areas and take people down to the loan office but still very few qualified.
When Bill Clinton became president, he wanted to make it possible for more people to qualify for home ownership, so he changed Fannie Mae to lower the requirements on home loans. In a second move he told the mortgage companies that the bank examiners would be checking to see how many loans were made to minorities and there would be penalties for failure to meet certain loan standards. This still didn’t have the desired effect so Clinton told Henry Cisneros Secretary of HUD to use, “creative financing” which he proceeded to do.
This lead to an amazing display of mortgage loans that boggles the mind. First, the down payment was eliminated. Then came the question of qualifying for the monthly payment rule, called the 28% ratio. If a person wanted a $100,000 loan at 6% for 30 years the monthly principal and interest payment would be about $600. If that was too high they were offered and interest only loan for $500 and if that was too high they could get a negative amortization loan at $400. This loan would add to the principal so by the end of the first year you owed $102,000 on your loan but since your house would increase in value to $105,000 you were sill ahead. Even with these less stringent requirements many still did not qualify so the industry came up with a NINA loan. This was a no income no asset loan sometimes called NODOC for no documentation. Now you could walk into the bank and get a loan with no proof that you had any income or any assets so now every warm body qualified. This subsequently led to giving loans to non existent people, that is, dead people.
So who was providing the money for all of these loans. The banks no longer kept loans in the local bank but immediately sold them to another entity and so they were not all that concerned about the quality of the loan but where was the money coming from and what caused the demand for these additional mortgages. To understand this we need to understand derivatives. A derivative is a piece of paper that gets its value from some other source. If you buy a CD at the bank, the CD is a derivative since it is a piece of paper that “derives” its value from some other source, in this case, your money in the bank. If you have a home mortgage the deed is a derivative that “derives” its value from the house it represents. Why are investment derivatives necessary? Suppose you are a farmer and it is planting time and you know that you must get a least $3 per bushel for your wheat in order to make a living. You do not know what the price will be next October so you purchase a derivative. You look at the futures market and see that you can buy an agreement to sell your wheat for $3. These agreements are derivatives since they are paper representing your wheat.
Certain large investment type banks decided to take home mortgages and bundle them together and sell them as investments. At a time when CD’s were paying one percent these bundles would pay 6 percent since they were home mortgages so they were very popular. These bundles contained 5,000 home mortgages and sold for millions of dollars so the man on the street didn’t buy them but they were sold to large investors like pension funds. The original price was set by adding up the value of all the 5,000 loans but as time passed these values changes since appraised values of real estate changed. So now we have mortgages that are derivatives and these are combined into bundles which are derivatives of derivatives. The demand to purchase these products was greater than the supply and so a new product was created and it was called virtual mortgage derivatives and these were sold based on virtual mortgages. On top of all these mortgages you had a company like AIG that was selling insurance policies to guarantee companies against any loss they might incur while trading in derivatives.
So let’s recap the derivative story. You start with a home mortgage deed which is a derivative of a brick and mortar home. Then you bundle these into derivatives of a derivative. Then these become virtual derivatives of a derivative of a derivative. Next we purchase an option on these and now we have a derivative on a derivative on a derivative on a derivative. Now we buy an insurance policy to protect us against loss and we have a derivative on a derivative on a derivative on a derivative on a derivative. Next we hold the SEC responsible to make sure that all of these transactions are legal and I say to them, Good Luck.
The point of this whole scenario is to show once again the folly than ensues when the government intervenes to promote a social good what some refer to as the unexpected consequences of good intentions. All of this mess was started by trying to help people to achieve the American Dream of home ownership.
There is a need for government involvement but is must be carefully evaluated before enacting laws. We are this day faced with new regulations on the financial industry and congress is trying to force it to a vote before most members have even read the bill. This will someday come back to haunt us but those responsible will have long since retired.
We went through a similar disaster in the 1980’s with the Savings and Loan fiasco and we will likely experience the down side of this new legislation in about 20 or 30 years.
John/Jack
In 1959 I bought my first house which cost $10,000 and after 5% down and getting a 30 year loan at 4.75% my principal and interest payment was $50 per month. My insurance and taxes brought this up to $90 per month which meant that my income had to be at least $320 per month and that is exactly what I was making not counting overtime.
In Springfield at that time the town like many others was segregated, meaning that the blacks all lived in one part of town. Many of these people could not qualify for loans because of the above mentioned requirements so there was a whole section of our town that was denied the American dream of home ownership.
There were some in that area that could have qualified but the loan officers were told not to bother thinking it a waste of time. In their offices they had a map and they circled the black areas with a red pencil and this process was known as redlining. For those of you who saw the movie, A Raison In The Sun, you know this story was about one family who came into an inheritance and tried to move into an all white neighborhood.
As we moved into the 60’s the process of redlining came under scrutiny and the government wanted to do something about this perceived injustice. It took many years but in 1977 the community reinvestment act was passed.
The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII of the Housing and Community Development Act of 1977, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associationsto meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.[1][2][3] Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.[4
Loan officers began to interview potential buyers from the red line areas but most failed to meet the requirement and very few loans were issued. It was about this time that community organizers began to form, groups like the now infamous “Acorn”. They would go into the black areas and take people down to the loan office but still very few qualified.
When Bill Clinton became president, he wanted to make it possible for more people to qualify for home ownership, so he changed Fannie Mae to lower the requirements on home loans. In a second move he told the mortgage companies that the bank examiners would be checking to see how many loans were made to minorities and there would be penalties for failure to meet certain loan standards. This still didn’t have the desired effect so Clinton told Henry Cisneros Secretary of HUD to use, “creative financing” which he proceeded to do.
This lead to an amazing display of mortgage loans that boggles the mind. First, the down payment was eliminated. Then came the question of qualifying for the monthly payment rule, called the 28% ratio. If a person wanted a $100,000 loan at 6% for 30 years the monthly principal and interest payment would be about $600. If that was too high they were offered and interest only loan for $500 and if that was too high they could get a negative amortization loan at $400. This loan would add to the principal so by the end of the first year you owed $102,000 on your loan but since your house would increase in value to $105,000 you were sill ahead. Even with these less stringent requirements many still did not qualify so the industry came up with a NINA loan. This was a no income no asset loan sometimes called NODOC for no documentation. Now you could walk into the bank and get a loan with no proof that you had any income or any assets so now every warm body qualified. This subsequently led to giving loans to non existent people, that is, dead people.
So who was providing the money for all of these loans. The banks no longer kept loans in the local bank but immediately sold them to another entity and so they were not all that concerned about the quality of the loan but where was the money coming from and what caused the demand for these additional mortgages. To understand this we need to understand derivatives. A derivative is a piece of paper that gets its value from some other source. If you buy a CD at the bank, the CD is a derivative since it is a piece of paper that “derives” its value from some other source, in this case, your money in the bank. If you have a home mortgage the deed is a derivative that “derives” its value from the house it represents. Why are investment derivatives necessary? Suppose you are a farmer and it is planting time and you know that you must get a least $3 per bushel for your wheat in order to make a living. You do not know what the price will be next October so you purchase a derivative. You look at the futures market and see that you can buy an agreement to sell your wheat for $3. These agreements are derivatives since they are paper representing your wheat.
Certain large investment type banks decided to take home mortgages and bundle them together and sell them as investments. At a time when CD’s were paying one percent these bundles would pay 6 percent since they were home mortgages so they were very popular. These bundles contained 5,000 home mortgages and sold for millions of dollars so the man on the street didn’t buy them but they were sold to large investors like pension funds. The original price was set by adding up the value of all the 5,000 loans but as time passed these values changes since appraised values of real estate changed. So now we have mortgages that are derivatives and these are combined into bundles which are derivatives of derivatives. The demand to purchase these products was greater than the supply and so a new product was created and it was called virtual mortgage derivatives and these were sold based on virtual mortgages. On top of all these mortgages you had a company like AIG that was selling insurance policies to guarantee companies against any loss they might incur while trading in derivatives.
So let’s recap the derivative story. You start with a home mortgage deed which is a derivative of a brick and mortar home. Then you bundle these into derivatives of a derivative. Then these become virtual derivatives of a derivative of a derivative. Next we purchase an option on these and now we have a derivative on a derivative on a derivative on a derivative. Now we buy an insurance policy to protect us against loss and we have a derivative on a derivative on a derivative on a derivative on a derivative. Next we hold the SEC responsible to make sure that all of these transactions are legal and I say to them, Good Luck.
The point of this whole scenario is to show once again the folly than ensues when the government intervenes to promote a social good what some refer to as the unexpected consequences of good intentions. All of this mess was started by trying to help people to achieve the American Dream of home ownership.
There is a need for government involvement but is must be carefully evaluated before enacting laws. We are this day faced with new regulations on the financial industry and congress is trying to force it to a vote before most members have even read the bill. This will someday come back to haunt us but those responsible will have long since retired.
We went through a similar disaster in the 1980’s with the Savings and Loan fiasco and we will likely experience the down side of this new legislation in about 20 or 30 years.
John/Jack
Bailouts
In watching today’s news I find it interesting that the push to eliminate bailouts is the main reason for expanding the government controls over the financial industry and at the same time trumpeting the success of the GM bailout. Am I to believe that if the proposed regulations had been in effect there would have been no GM bailout? There was a congressman from Michigan explaining how the jobs associated with GM number in the millions and all those would have been lost without the bailout.
Regardless of what kind of legislation they pass the next time there is a crisis will the subject of bailout come up? We will see.
Jack/John
Regardless of what kind of legislation they pass the next time there is a crisis will the subject of bailout come up? We will see.
Jack/John
Banking
It was quite a few years ago when people first realized that genetic engineering was getting ahead of the law and steps were taken to try and control things like cloning and making designer babies. Then the Internet showed that free speech was getting ahead of the law and today we see that financial institutions are ahead of the law. When I say ahead of the law I don’t only mean that the laws governing these entities are obsolete, I mean that the lawmakers are not able to understand the complexities of these issues not to mention the politics.
We are now in the process of enacting new laws that will supposedly prevent future financial breakdowns like the one we just experienced with the mortgage crisis. The problem is that most lawmakers have little understanding of the new derivative type products that are available so how will they properly regulate what they do not understand. As an aside you might say that since they don’t read the bills it doesn’t matter but that is only one aspect of the problem. As Representative Conyers of Michigan said, what good does it do to read the bill if you don’t know what it says after you read it or as Speaker Pelosi said, we will find out what’s in the bill after it is passed.
The current bill to re regulate the financial industry is flawed in that it sets up a plan to deal with “to big to fail” banks instead of keeping them from becoming to big to fail. The Republican solution is to just let them fail but when Republican President Bush was faced with the crisis he chose bail out over fail out. The current bill needs to be changed to include transparency, transparency, transparency. If every transaction is open and public then the old saying of Judge Brandeis that sunshine is the best disinfectant will keep us on the straight and narrow.
We are now in the process of enacting new laws that will supposedly prevent future financial breakdowns like the one we just experienced with the mortgage crisis. The problem is that most lawmakers have little understanding of the new derivative type products that are available so how will they properly regulate what they do not understand. As an aside you might say that since they don’t read the bills it doesn’t matter but that is only one aspect of the problem. As Representative Conyers of Michigan said, what good does it do to read the bill if you don’t know what it says after you read it or as Speaker Pelosi said, we will find out what’s in the bill after it is passed.
The current bill to re regulate the financial industry is flawed in that it sets up a plan to deal with “to big to fail” banks instead of keeping them from becoming to big to fail. The Republican solution is to just let them fail but when Republican President Bush was faced with the crisis he chose bail out over fail out. The current bill needs to be changed to include transparency, transparency, transparency. If every transaction is open and public then the old saying of Judge Brandeis that sunshine is the best disinfectant will keep us on the straight and narrow.
CDO
During the run up of the mortgage crisis large investment banks took groups of individual home mortgages and bundled them into a type of bond called a collateralized debt obligation (CDO’s) and sold these on the bond market. They were able to pay a higher interest rate than other bonds at the time since typical home loans were sold at 6 to 8 percent and most bonds at that time were paying half of that. As long as new mortgages kept coming in they had a supply of these bonds to sell so lenders were encouraged to offer a mortgage to any warm body. If it had been limited to that the damage may have been held to a couple of trillion but a new product emerged that exacerbated the problem. The new product was called a synthetic CDO and while CDO’s were backed by actual mortgages these new products were derivatives and were backed by credit default swaps. This means that they were just paper based on bonds and they were insured in case they went bad. The problem is now greatly enlarged because with regular CDO’s you were limited by how many mortgages you could find but the synthetic CDO’s had no limit since they were not based on any real product and the potential risk now went from a couple of trillion to many trillions.
Next enters a hedge fund. A hedge fund is a group of wealthy individuals who combine their funds to purchase various investments. In this case the hedge fund was operated by John Paulson and one of its more well known investors is George Soros a man whose money was instrumental in the Obama campaign. Paulson had worked closely with Goldman Sachs over the years and convinced one of their bond experts to allow him to select a group of CDO’s that he knew were of very poor quality and to sell them to other investors like the Royal Bank of Scotland. These instruments were doomed to fail but those who bought them were unaware. Next Paulson sold these funds short. That means that if they go down in value then he profits and in this one fund called Abacus he made over one billion as the fund collapsed. Now the SEC is suing Goldman Sachs for knowingly selling these products without telling the buyers who selected the bonds, in this case the aforementioned Paulson. Had they known that they would have been more diligent since Paulson was well known for selling short. Paulson’s defense is sound in that he did not sell these instruments but they were sold by Goldman Sachs. Goldman’s defense is that the buyers should have exercised due diligence and investigated the make up of these bonds before they purchased.
The case will now be decided by the courts but my guess is that neither Goldman nor Paulson will be found guilty. We will see over the coming months how this plays out.
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Jack/John
Next enters a hedge fund. A hedge fund is a group of wealthy individuals who combine their funds to purchase various investments. In this case the hedge fund was operated by John Paulson and one of its more well known investors is George Soros a man whose money was instrumental in the Obama campaign. Paulson had worked closely with Goldman Sachs over the years and convinced one of their bond experts to allow him to select a group of CDO’s that he knew were of very poor quality and to sell them to other investors like the Royal Bank of Scotland. These instruments were doomed to fail but those who bought them were unaware. Next Paulson sold these funds short. That means that if they go down in value then he profits and in this one fund called Abacus he made over one billion as the fund collapsed. Now the SEC is suing Goldman Sachs for knowingly selling these products without telling the buyers who selected the bonds, in this case the aforementioned Paulson. Had they known that they would have been more diligent since Paulson was well known for selling short. Paulson’s defense is sound in that he did not sell these instruments but they were sold by Goldman Sachs. Goldman’s defense is that the buyers should have exercised due diligence and investigated the make up of these bonds before they purchased.
The case will now be decided by the courts but my guess is that neither Goldman nor Paulson will be found guilty. We will see over the coming months how this plays out.
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Jack/John
Taxes
There are about 140 million tax payers in the US and only about one half of those pay any federal or state income tax. Of the 70 million who pay no income tax about 25 million of those receive money back from the government even though they paid nothing in. This is because of a number of refundable tax credits most notably the Earned Income Credit.
This past year a family with three children could have up to $56,000 in income and pay no income tax.
These low income families all pay social security tax of 6.2% and Medicare tax of 1.45%. If the government wants to help low income families it does no good to lower income tax but it helps to lower payroll tax.
This past year a family with three children could have up to $56,000 in income and pay no income tax.
These low income families all pay social security tax of 6.2% and Medicare tax of 1.45%. If the government wants to help low income families it does no good to lower income tax but it helps to lower payroll tax.
Small business
I volunteer to do taxes for AARP each year and know how much lower income families benefit from various government programs.
This compares two families, each with a stay at home mom and three minor children. The first man works at Walmart and made $18,000 last year and has a family health plan, paid vacation, paid holidays and sick leave, disability insurance, life insurance the estimated value of these benefits is $6,000. He pays no federal or state income tax but does pay $1,377 in payroll tax(social security and Medicare).
His net pay is $18,000 less $1,377 payroll tax or $16,623. In addition he receives tax free from the federal government $5,657 in earned income credits, $2,250 in child tax credits and $800 in make work credits. He also received $1,260 from the state for family work credit. Total net income
$16,623
$5,657
$2,250
$800
$1,260
Total $26,590 plus the $6,000 in benefits for a grand total of $32,590
Second family is self employed and owns a small business. The gross income after business expenses is $250,000. From this taxes and cost of benefits must be deducted.
Federal income tax $47,247
Alternative min tax $2,898
Self employment tax $19,938
State income tax $22,867
Total $92,950
Net pay before purchase of benefits $157,000 Self employed must buy their benefits unlike someone who works for a company.
Family health insurance $15,000
Disability and life insurance $8,000
Pension $15,000
Disposable income $119,000
The second family has disposable income of 3.6 times as much as the first family but their gross income is 13.9 times as much.
Realize that the second family had to take the risk of starting up their own business and understand that 4 out of 5 small businesses fail. Is it worth the risk to start a business and with the proposed changes from the government will people be discouraged from starting a business, remembering that this is the primary source of jobs in America.
This compares two families, each with a stay at home mom and three minor children. The first man works at Walmart and made $18,000 last year and has a family health plan, paid vacation, paid holidays and sick leave, disability insurance, life insurance the estimated value of these benefits is $6,000. He pays no federal or state income tax but does pay $1,377 in payroll tax(social security and Medicare).
His net pay is $18,000 less $1,377 payroll tax or $16,623. In addition he receives tax free from the federal government $5,657 in earned income credits, $2,250 in child tax credits and $800 in make work credits. He also received $1,260 from the state for family work credit. Total net income
$16,623
$5,657
$2,250
$800
$1,260
Total $26,590 plus the $6,000 in benefits for a grand total of $32,590
Second family is self employed and owns a small business. The gross income after business expenses is $250,000. From this taxes and cost of benefits must be deducted.
Federal income tax $47,247
Alternative min tax $2,898
Self employment tax $19,938
State income tax $22,867
Total $92,950
Net pay before purchase of benefits $157,000 Self employed must buy their benefits unlike someone who works for a company.
Family health insurance $15,000
Disability and life insurance $8,000
Pension $15,000
Disposable income $119,000
The second family has disposable income of 3.6 times as much as the first family but their gross income is 13.9 times as much.
Realize that the second family had to take the risk of starting up their own business and understand that 4 out of 5 small businesses fail. Is it worth the risk to start a business and with the proposed changes from the government will people be discouraged from starting a business, remembering that this is the primary source of jobs in America.
Semi colon
I was always told that the power in the constitution that gives congress the right to enact various welfare type programs comes from Article one section eight where the phrase, “provide for the common welfare” is written. With all the new government programs recently proposed I decided to look further into this and much to my surprise I came face to face with the semi colon. This rather innocuous punctuation mark is at the center of the debate over this constitutional clause. Recall that the founding fathers were well educated and considered grammarians and spent days arguing over little things like punctuation marks. They knew that marks like the semi colon could change the meanings of words.
It is in the opening sentence of section eight where the phrase, “provide for the general welfare” occurs and this sentence ends in a semi colon. The plot thickens. The use of the semi colon is used in this case to make a general statement followed by a more detailed understanding.
The general statement is
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfareof the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
After that there follows 18 statements elaborating on the blue items but nothing more in the green (welfare).
Proponents of wealth redistribution often quote the sentence but not the semi colon but others point out the importance of the semi colon and one of these was Sam Adams who said,
The utopian schemes of leveling [wealth redistribution] and a community of goods, are as visionary and impractical as those which vest all property in the crown. These ideas are arbitrary, despotic, and, in our government, unconstitutional. Famous Quotes on Wealth Redistribution, Class Warfare and Envy Samuel Adams
It is in the opening sentence of section eight where the phrase, “provide for the general welfare” occurs and this sentence ends in a semi colon. The plot thickens. The use of the semi colon is used in this case to make a general statement followed by a more detailed understanding.
The general statement is
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfareof the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
After that there follows 18 statements elaborating on the blue items but nothing more in the green (welfare).
Proponents of wealth redistribution often quote the sentence but not the semi colon but others point out the importance of the semi colon and one of these was Sam Adams who said,
The utopian schemes of leveling [wealth redistribution] and a community of goods, are as visionary and impractical as those which vest all property in the crown. These ideas are arbitrary, despotic, and, in our government, unconstitutional. Famous Quotes on Wealth Redistribution, Class Warfare and Envy Samuel Adams
Dirty bomb
Because of the situation in Iran the president is holding a world conference on nukes. The talking heads all say that Iran is a long way from getting the enrichment level up to the 90 plus percent needed for a bomb and while that may be true I don’t believe it is relevant. I say this because a perfectly good dirty bomb can be made with uranium enriched to only 20%, the type Iran says it needs for a so called medical use.
While the physical damage caused by a dirty bomb is slight, the psychological and physiological damage is significant. The radiation can cause the area around the explosion to be contaminated for long periods of time. The psych damage can be seen by our experience with the accident at Three Mile Island back in the 70’s. It was a relatively minor leak and yet it effected the future of nuclear power it a major way. Just reminding people of the accident brings on a certain amount of anxiety. There is good reason to believe that Iran would give enough 20% enriched uranium to a terror group like Hezbollah or Hamas or some lesser known group to build a dirty bomb and then it is only a matter of time until they smuggle it into some large metro area. While we spend our time estimating when Iran will get to 90% they can be secreting 20% material into the USA or Western Europe. It is time to wake up.
Jack/John
While the physical damage caused by a dirty bomb is slight, the psychological and physiological damage is significant. The radiation can cause the area around the explosion to be contaminated for long periods of time. The psych damage can be seen by our experience with the accident at Three Mile Island back in the 70’s. It was a relatively minor leak and yet it effected the future of nuclear power it a major way. Just reminding people of the accident brings on a certain amount of anxiety. There is good reason to believe that Iran would give enough 20% enriched uranium to a terror group like Hezbollah or Hamas or some lesser known group to build a dirty bomb and then it is only a matter of time until they smuggle it into some large metro area. While we spend our time estimating when Iran will get to 90% they can be secreting 20% material into the USA or Western Europe. It is time to wake up.
Jack/John
Pension
Wednesday, April 07, 2010
Hi All,
In the news today it was revealed that three state employee union pensions in California were underfunded in the amount of 500 billion dollars. Pensions came into prominence after WW 2 and were called defined benefit plans. What this means is the pension has a formula percent usually between one and two percent. The formula says that at normal retirement afe you will receive 2% of your salary for every year that you’ve worked. If you retire at age 65 and you have worked there for 30 year you get 60% of your salary for your pension. When a company sets up such a plan they have a number of unknown variables they must contend with, for example, how many people will make it to retirement, how much will they be earning at that time and what kind of interest will the company earn on the pension plan money. This can be very tricky to say the least. Let us say that you will earn 3% over the next 30 years so that if you put in one dollar every year you will have 47 dollars but if you only earn 2% you would have 41 dollars. When it comes time to pay out and you earned less than predicted you would not have enough money to pay the pensioner and your plan would be underfunded. This happened in the late 70’s when we had 13% inflation and wages went up faster than expected. At that time it was estimated that all of the pension plans in the country were underfunded by 400 billion as compared to three funds in California currently underfunded by 500 billion.
How did this happen? Over the past 30 years the unions negotiated contracts with the states to increase their pensions. Since the state funds did not earn as much as they needed they increased the expected rate of return which today is set at 8% when in fact they have been earning less than 3%. Using the above example we see that one dollar per year invested at 8% yields $113 and the same dollar at 3% earns only $47 and thus the current shortage. There is a board of directors who oversees these pension calculations and they have been derelict in their duties since they are supposed to be conservative in their projections and 8% is out of line with current investment returns. If California was a company like General Motors they could file bankruptcy and the federal pension guarantee fund would come in and make the fund good. The money in this fund comes from company contributions but in the case of California the money will come from taxpayers, most likely from the Obama slush fund known as stimulus. Of course California is only one of many states who will need this type of help and so the rest of the taxpayers will end up paying for the retirees in those states.
While the California case is getting lots of attention, pension manipulation is not a new thing. I offer one example based on personal experience. When I was a financial planner I approached the city auditor in Grand Forks, ND where I lived regarding the city pension plan. At that time the pension factor was 1.2% and the plan was with Aetna. I worked for Equitable and we could offer 1.4% based on our investment returns. The auditor, a man by the name of Don Tingum, was a decent person and thought it would be good for the plan to switch. When Aetna got wind of the change they increased the benefit to 1.6% and the city remained with Aetna. This was in the early 80’s and Tingum was retiring after 35 years with the city. His salary at that time was $20,000 so his retirement increased from 49% of his salary to 56% of his salary or an increase from $9,800 to $11,200 per year.
About a year before that I contacted a Mr. Al Persons who was in charge of the North Dakota State pension and told him that Equitable would invest the pension fund for him and would guarantee 12% interest for ten years and he refused saying that Equitable would take the money out of state. His job was to put the money in the State Bank and use it to make loans to local farmers and businessmen that would promote North Dakota business. In was only later that it occurred to me that with the prime interest rate at 20% no one was borrowing any money and Mr. Persons real concern was that I would be eliminating his job. This one man was allowed to keep that money in the local bank earning nothing while passing up a chance for 12% return and thus punishing the pension plan for several thousand people.
I believe that in the near future we will begin hearing reports that cities, counties and states have been using pension funds to pay for on going expenses which is not legal but will be overlooked. We shall see.
Jack
Hi All,
In the news today it was revealed that three state employee union pensions in California were underfunded in the amount of 500 billion dollars. Pensions came into prominence after WW 2 and were called defined benefit plans. What this means is the pension has a formula percent usually between one and two percent. The formula says that at normal retirement afe you will receive 2% of your salary for every year that you’ve worked. If you retire at age 65 and you have worked there for 30 year you get 60% of your salary for your pension. When a company sets up such a plan they have a number of unknown variables they must contend with, for example, how many people will make it to retirement, how much will they be earning at that time and what kind of interest will the company earn on the pension plan money. This can be very tricky to say the least. Let us say that you will earn 3% over the next 30 years so that if you put in one dollar every year you will have 47 dollars but if you only earn 2% you would have 41 dollars. When it comes time to pay out and you earned less than predicted you would not have enough money to pay the pensioner and your plan would be underfunded. This happened in the late 70’s when we had 13% inflation and wages went up faster than expected. At that time it was estimated that all of the pension plans in the country were underfunded by 400 billion as compared to three funds in California currently underfunded by 500 billion.
How did this happen? Over the past 30 years the unions negotiated contracts with the states to increase their pensions. Since the state funds did not earn as much as they needed they increased the expected rate of return which today is set at 8% when in fact they have been earning less than 3%. Using the above example we see that one dollar per year invested at 8% yields $113 and the same dollar at 3% earns only $47 and thus the current shortage. There is a board of directors who oversees these pension calculations and they have been derelict in their duties since they are supposed to be conservative in their projections and 8% is out of line with current investment returns. If California was a company like General Motors they could file bankruptcy and the federal pension guarantee fund would come in and make the fund good. The money in this fund comes from company contributions but in the case of California the money will come from taxpayers, most likely from the Obama slush fund known as stimulus. Of course California is only one of many states who will need this type of help and so the rest of the taxpayers will end up paying for the retirees in those states.
While the California case is getting lots of attention, pension manipulation is not a new thing. I offer one example based on personal experience. When I was a financial planner I approached the city auditor in Grand Forks, ND where I lived regarding the city pension plan. At that time the pension factor was 1.2% and the plan was with Aetna. I worked for Equitable and we could offer 1.4% based on our investment returns. The auditor, a man by the name of Don Tingum, was a decent person and thought it would be good for the plan to switch. When Aetna got wind of the change they increased the benefit to 1.6% and the city remained with Aetna. This was in the early 80’s and Tingum was retiring after 35 years with the city. His salary at that time was $20,000 so his retirement increased from 49% of his salary to 56% of his salary or an increase from $9,800 to $11,200 per year.
About a year before that I contacted a Mr. Al Persons who was in charge of the North Dakota State pension and told him that Equitable would invest the pension fund for him and would guarantee 12% interest for ten years and he refused saying that Equitable would take the money out of state. His job was to put the money in the State Bank and use it to make loans to local farmers and businessmen that would promote North Dakota business. In was only later that it occurred to me that with the prime interest rate at 20% no one was borrowing any money and Mr. Persons real concern was that I would be eliminating his job. This one man was allowed to keep that money in the local bank earning nothing while passing up a chance for 12% return and thus punishing the pension plan for several thousand people.
I believe that in the near future we will begin hearing reports that cities, counties and states have been using pension funds to pay for on going expenses which is not legal but will be overlooked. We shall see.
Jack
Insurance
During the Great Depression a number of new laws were introduced, one of which was social security and this turned out to be the most successful and most expensive government program ever. Politically it is a two edged sword. On the positive side it gave the Democratic Party control of congress for 40 plus years and led to the next biggest government program, Medicare. The Democrats learned that they can garner votes by offering these programs. The downside is that politicians saw the people as unable to care for themselves. While this in and of itself is not a problem, allowing people to know that the leadership feels they are incapable of taking care of themselves is dangerous. Now herein lies the dilemma. We must continue to offer programs that care for people but we must keep secret the fact that we feel they cannot get along without us.
This was relatively easy with programs like social security and Medicare since people paid up front for these. In other words they were not welfare. Part of the Great Society, were other programs that were not paid for by the recipients, things like food stamps, WIC, living quarters and health care. These were not called welfare but public assistance but in either case they were programs paid for by government. This was OK for a number of years but soon it became obvious to most that they were in fact welfare. The solution to keep people from thinking the government saw them as incapable of self support was to introduce the idea of victimization. People were entitled to these programs because they were victims of some real or perceived past or present injustice. That solved the problem for a number of years as victimization became quite popular. Since many victims were counted in different categories we soon had more victims than non-victims. For example you could be minority, female and disabled. This seems to satisfy the doubters for some years but once again the people wised up. The next step was to consider certain things as rights which means everyone had a right to health care or perhaps a job or a house or a proper diet. The rights thing is a little difficult to sell so the government has now used the concept of social justice. Is it fair for Bill Gates to have 50 billion dollars while others live below the poverty level? One way the government has to remedy this type of injustice has been around since 1913 and is called income tax. Today the top one percent of taxpayers pay 40% of all income tax, the top five percent pay 60% of all income tax and the bottom 50% pay no income tax. In addition many of the low income people receive tax rebates even though they pay no tax. Is this social justice or should the rich pay more? Who decides what is just? The average family income in the US is $52,000. What if laws were passed so that every family had that amount? Would that qualify as just? Let’s not just consider income, let’s look at assets. The total assets owned by the American people are about 12 trillion. If we gave each family their fair (just) share we would all have $160,000 in the bank along with our $52,000 of income. Have we then achieve social justice? Not many people would suggest such radical changes but perhaps many would like to move gradually in that direction. Once the government provides a benefit it is very difficult to take it back. Germany is trying this now and they have a lot of people upset.
The newest program to be drawn into the government sphere of influence is health insurance. People point out that social security, Medicare and Medicaid are very popular and they certainly are, but what is left out of the equation is the fact that all of these programs are going broke. We are told that over the next 20 years the new health plan will cost less and I have no way of disputing that but looking back at other health programs like Medicare I can see what has happened. I have heard proponents of health care say why not Medicare for everyone. When Medicare was introduced in 1965 the government accounting office project the 1990 cost to be 9 billion but the actual cost adjusted for inflation was 66 billion.
As we look into the future we find we are short of money to pay for social security, Medicare and Medicaid. How much short, introduces us to numbers that we can hardly understand. Those three programs are currently facing unfunded promises of 110 trillion (with t) dollars. That does not take into account that the future cost may be more than what the GAO is predicting as has happen in the past projections.
I have no objection if the people want this new health care plan but let us not be fooled into thinking that it is going to save money. Just forget about all the numbers and ask yourself if we can insure 31 million new people and say it will cost less.
This was relatively easy with programs like social security and Medicare since people paid up front for these. In other words they were not welfare. Part of the Great Society, were other programs that were not paid for by the recipients, things like food stamps, WIC, living quarters and health care. These were not called welfare but public assistance but in either case they were programs paid for by government. This was OK for a number of years but soon it became obvious to most that they were in fact welfare. The solution to keep people from thinking the government saw them as incapable of self support was to introduce the idea of victimization. People were entitled to these programs because they were victims of some real or perceived past or present injustice. That solved the problem for a number of years as victimization became quite popular. Since many victims were counted in different categories we soon had more victims than non-victims. For example you could be minority, female and disabled. This seems to satisfy the doubters for some years but once again the people wised up. The next step was to consider certain things as rights which means everyone had a right to health care or perhaps a job or a house or a proper diet. The rights thing is a little difficult to sell so the government has now used the concept of social justice. Is it fair for Bill Gates to have 50 billion dollars while others live below the poverty level? One way the government has to remedy this type of injustice has been around since 1913 and is called income tax. Today the top one percent of taxpayers pay 40% of all income tax, the top five percent pay 60% of all income tax and the bottom 50% pay no income tax. In addition many of the low income people receive tax rebates even though they pay no tax. Is this social justice or should the rich pay more? Who decides what is just? The average family income in the US is $52,000. What if laws were passed so that every family had that amount? Would that qualify as just? Let’s not just consider income, let’s look at assets. The total assets owned by the American people are about 12 trillion. If we gave each family their fair (just) share we would all have $160,000 in the bank along with our $52,000 of income. Have we then achieve social justice? Not many people would suggest such radical changes but perhaps many would like to move gradually in that direction. Once the government provides a benefit it is very difficult to take it back. Germany is trying this now and they have a lot of people upset.
The newest program to be drawn into the government sphere of influence is health insurance. People point out that social security, Medicare and Medicaid are very popular and they certainly are, but what is left out of the equation is the fact that all of these programs are going broke. We are told that over the next 20 years the new health plan will cost less and I have no way of disputing that but looking back at other health programs like Medicare I can see what has happened. I have heard proponents of health care say why not Medicare for everyone. When Medicare was introduced in 1965 the government accounting office project the 1990 cost to be 9 billion but the actual cost adjusted for inflation was 66 billion.
As we look into the future we find we are short of money to pay for social security, Medicare and Medicaid. How much short, introduces us to numbers that we can hardly understand. Those three programs are currently facing unfunded promises of 110 trillion (with t) dollars. That does not take into account that the future cost may be more than what the GAO is predicting as has happen in the past projections.
I have no objection if the people want this new health care plan but let us not be fooled into thinking that it is going to save money. Just forget about all the numbers and ask yourself if we can insure 31 million new people and say it will cost less.
Loans
The governments program known as Home Affordable Modification Program was designed to help people whose homes were worth less than the outstanding mortgage, so called underwater mortgages. Of the 4 million homes in this category only 170,000 were helped and the question is why so few.
The reason it is so difficult to get a loan modification is that there is too much money to be made by short sales and foreclosures. How does this work?
Here is a typical example of what is going on.
One of the big banks that failed was Indybank and the FDIC closed it down in July of 2008. In March of 2009 FDIC sold it to One West Bank. Who owns One West Bank? Steven Munchen CEO of Goldmen Sacs, Billionaire George Soros and John Paulson both heads of large hedge funds. People from Goldman Sachs are in high positions throughout the government starting at the Secretary of Treasury.
The deal the FDIC gave to One West was that they could purchase all mortgages at 70% of value and all HELOC’s (home equity loans) were purchased at 58% of value. In addition the FDIC agreed to cover 80 to 95% of any losses due to short sales or foreclosures. Now the FDIC allows One West to calculate any loss using the original loan value not the value that One West paid for the mortgage. Here is a typical example.
One West purchased a home with an actual loan amount of $478,000 plus 6 months of back payments for a total of $485,200. One West paid $334,600 for that loan. The owner has an underwater all cash offer that nets $241,000 to One West Bank. According to the FDIC formula you take the original loan amount of $478,000 less the short sale offer of $241,000 and that leaves the adjusted loss of $244,200 to One West. Now the FDIC pays One West 80% of the loss or $195,360. This money comes from the taxpayers by way of the FDIC. Now add the $195,360 to the all cash offer of $241,000 and One West gets $436,360 on an investment of $334,600 and all they had to do is to sell if for whatever they wanted. They make over $100,000 on just this one deal and there is no risk.
As long as banks can make money like this they are not likely to loan money on regular mortgages and the government Affordable Loan Modification Program is not likely to attract any bankers. Why should they risk ordinary loans when they have guaranteed profit using the FDIC system?
The reason it is so difficult to get a loan modification is that there is too much money to be made by short sales and foreclosures. How does this work?
Here is a typical example of what is going on.
One of the big banks that failed was Indybank and the FDIC closed it down in July of 2008. In March of 2009 FDIC sold it to One West Bank. Who owns One West Bank? Steven Munchen CEO of Goldmen Sacs, Billionaire George Soros and John Paulson both heads of large hedge funds. People from Goldman Sachs are in high positions throughout the government starting at the Secretary of Treasury.
The deal the FDIC gave to One West was that they could purchase all mortgages at 70% of value and all HELOC’s (home equity loans) were purchased at 58% of value. In addition the FDIC agreed to cover 80 to 95% of any losses due to short sales or foreclosures. Now the FDIC allows One West to calculate any loss using the original loan value not the value that One West paid for the mortgage. Here is a typical example.
One West purchased a home with an actual loan amount of $478,000 plus 6 months of back payments for a total of $485,200. One West paid $334,600 for that loan. The owner has an underwater all cash offer that nets $241,000 to One West Bank. According to the FDIC formula you take the original loan amount of $478,000 less the short sale offer of $241,000 and that leaves the adjusted loss of $244,200 to One West. Now the FDIC pays One West 80% of the loss or $195,360. This money comes from the taxpayers by way of the FDIC. Now add the $195,360 to the all cash offer of $241,000 and One West gets $436,360 on an investment of $334,600 and all they had to do is to sell if for whatever they wanted. They make over $100,000 on just this one deal and there is no risk.
As long as banks can make money like this they are not likely to loan money on regular mortgages and the government Affordable Loan Modification Program is not likely to attract any bankers. Why should they risk ordinary loans when they have guaranteed profit using the FDIC system?
Free ride
Ever since I have been old enough to vote I realized that the foundation of the Democratic Party was based on the redistribution of wealth. They were the party of the poor since their programs were designed to take money from those who have a lot and give it to those who have less. It always struck me as tending toward socialism since the Marx manifesto states, from each according to his means, to each according to his needs. In any event I was at a loss to explain why any Republican would ever be elected since there have always been many more poor people than rich.
In the mid 70’s I saw the results of a poll that cleared this up for me. It said that 70% of people considered themselves as middle class and another 20% thought they would move up to middle class. These were people who were more interested in earning their own way up the ladder than having some government just provide them with the extras.
People were comfortable with this as long as they felt that there was a basic fairness operating throughout the system. Starting about 20 years ago stories appeared which indicated that certain groups were gaming the system, that business and elected officials were in bed together and this got people upset. Many of the same people who at one time were willing to work hard to achieve were now coming to understand that they were not on a level playing field and they began to revolt.
The first response by some was to elect people who would pass laws designed to spread the wealth around but they quickly became disillusioned and decided to try another approach. This new way can best be seen in the so called tea party movement. People want to return to the old way of earning your way up the ladder but they want a level field. They don’t want to become dependent on government and are ready to elect people who will bring back the old ways of rewarding hard work.
It is not easy to give up the free ride for hard work and we will see this November which side wins.
In the mid 70’s I saw the results of a poll that cleared this up for me. It said that 70% of people considered themselves as middle class and another 20% thought they would move up to middle class. These were people who were more interested in earning their own way up the ladder than having some government just provide them with the extras.
People were comfortable with this as long as they felt that there was a basic fairness operating throughout the system. Starting about 20 years ago stories appeared which indicated that certain groups were gaming the system, that business and elected officials were in bed together and this got people upset. Many of the same people who at one time were willing to work hard to achieve were now coming to understand that they were not on a level playing field and they began to revolt.
The first response by some was to elect people who would pass laws designed to spread the wealth around but they quickly became disillusioned and decided to try another approach. This new way can best be seen in the so called tea party movement. People want to return to the old way of earning your way up the ladder but they want a level field. They don’t want to become dependent on government and are ready to elect people who will bring back the old ways of rewarding hard work.
It is not easy to give up the free ride for hard work and we will see this November which side wins.
Projects
In 1965 when President Johnson started the war on poverty the poverty rate was 12% and since that time it has hovered between 10% and 15%. During this time we spent between five and nine trillion dollars on this war. The reason for the large range is that I checked dozens of sites and found that much variation. Let’s go with the 5 trillion. Why didn’t all that money help?
Let’s look at just one example of what has become known as the unexpected consequences of good intentions. Compare the number of unwed mothers in 1965 vs today and to make the point show how the black community has been devastated. In 1965 25% of black women were unwed mothers and today the figure is 75%. What happened!
Everyone who has had a daughter knows that when she was a teen she had some serious differences with her mother and more times than not mom would say to her, as long as you live under my roof you will do as I say. That was usually enough to put mom back in the drivers seat where she rightfully belonged. Along comes the government and says to the young women or in many cases young girls, all you have to do is have a baby and we will set you up in your own apartment, pay for your health insurance, provide you with food stamps, infant formula and guidance, utility payment assistance and if you don’t have any income we will send you money through the earned income credit plan.
Once the young females figured out how to game the system they no longer were threatened by mom’s under my roof stuff and the number of unwed mothers begin to rise rapidly.
How did the young men react to this new system when they found that they were no longer needed? They responded by “dissing” their women which led to violence toward women that continues to this day.
Where were all of these new apartments? They were built in what has become known as the projects. These places became infested with drug dealers and today are being torn down all around the country. They became what I call the modern day equivalent of the reservation.
Let’s look at just one example of what has become known as the unexpected consequences of good intentions. Compare the number of unwed mothers in 1965 vs today and to make the point show how the black community has been devastated. In 1965 25% of black women were unwed mothers and today the figure is 75%. What happened!
Everyone who has had a daughter knows that when she was a teen she had some serious differences with her mother and more times than not mom would say to her, as long as you live under my roof you will do as I say. That was usually enough to put mom back in the drivers seat where she rightfully belonged. Along comes the government and says to the young women or in many cases young girls, all you have to do is have a baby and we will set you up in your own apartment, pay for your health insurance, provide you with food stamps, infant formula and guidance, utility payment assistance and if you don’t have any income we will send you money through the earned income credit plan.
Once the young females figured out how to game the system they no longer were threatened by mom’s under my roof stuff and the number of unwed mothers begin to rise rapidly.
How did the young men react to this new system when they found that they were no longer needed? They responded by “dissing” their women which led to violence toward women that continues to this day.
Where were all of these new apartments? They were built in what has become known as the projects. These places became infested with drug dealers and today are being torn down all around the country. They became what I call the modern day equivalent of the reservation.
Cost
Saturday, March 20, 2010
Hi,
I want to expose another side to the health care cost problem that the news does not cover and I will use a recent example of a bill I got from the hospital.
A few weeks back my wife had an emergency at 2 AM and we went to the hospital. She had an infection in her finger that got so bad during the night that we could not wait until morning.
The doctor lanced her finger and sewed it up and sent us home. The cost for this was $543. We submitted a claim to Medicare and they only approved $134 and they paid 80% of that or $107. Our Blue Cross supplement paid the other 20% so it cost us nothing out of pocket.
Now here is the point. Medicare approves such low amounts that the doctors and hospitals take a loss on serving Medicare patients and therefore they make this up by charging private insured patients more. Medicaid reimburses at even a lower rate than Medicare. There are currently 100 million people on Medicare and Medicaid and about 150 million have private health care insurance. Even though Medicare and Medicaid are passing on the bulk of their cost to the private market they are still going broke with Medicare slated for bankruptcy in 2018.
The new health care bill is going to take 500 million from Medicare and most of this will come from lowering payments to hospitals and doctors while it adds another 10 million people to Medicaid.
In this simple example if we were younger and not on Medicare and had private health insurance they would have charged $543 for this treatment and our insurance company would have paid it.
It has been estimated that if the private insurance companies did not have to subsidize the public plans their rate increases would not be more than the cost of living. As more people move to the public plans the rates charged by private plans will increase accordingly and soon they will not be able to compete. Once we have only public plans left then the government will reduce benefits to maintain cost.
Jack (John) Novick
Hi,
I want to expose another side to the health care cost problem that the news does not cover and I will use a recent example of a bill I got from the hospital.
A few weeks back my wife had an emergency at 2 AM and we went to the hospital. She had an infection in her finger that got so bad during the night that we could not wait until morning.
The doctor lanced her finger and sewed it up and sent us home. The cost for this was $543. We submitted a claim to Medicare and they only approved $134 and they paid 80% of that or $107. Our Blue Cross supplement paid the other 20% so it cost us nothing out of pocket.
Now here is the point. Medicare approves such low amounts that the doctors and hospitals take a loss on serving Medicare patients and therefore they make this up by charging private insured patients more. Medicaid reimburses at even a lower rate than Medicare. There are currently 100 million people on Medicare and Medicaid and about 150 million have private health care insurance. Even though Medicare and Medicaid are passing on the bulk of their cost to the private market they are still going broke with Medicare slated for bankruptcy in 2018.
The new health care bill is going to take 500 million from Medicare and most of this will come from lowering payments to hospitals and doctors while it adds another 10 million people to Medicaid.
In this simple example if we were younger and not on Medicare and had private health insurance they would have charged $543 for this treatment and our insurance company would have paid it.
It has been estimated that if the private insurance companies did not have to subsidize the public plans their rate increases would not be more than the cost of living. As more people move to the public plans the rates charged by private plans will increase accordingly and soon they will not be able to compete. Once we have only public plans left then the government will reduce benefits to maintain cost.
Jack (John) Novick
Benefits
An incident occurred this past week that is a microcosm of a serious problem facing the country. I am referring to Senator Jim Bunning and his refusal to sign on to a jobs bill. The bill was for 15 billion dollars but he objected because it was not paid for, that is, it was just the government going further in debt. It was only a week earlier that President Obama reemphasized his commitment to the principal known as Pay Go, which he championed a few months back. The concept states that all new spending must by paid for by tax increases or budget cuts.
The interesting thing is that not many Republicans came forth to back Bunning and many Democrats condemned him for refusing to add to the employment benefits for those out of work, which is what part of the 15 billion was to used for.
Even more interesting was the press response which criticized Bunning for his hard hearted approach.
This shows that cutting benefits is not popular in congress but also meets with ire from the press, the same press that is constantly complaining about the deficits.
The bottom line is that it is better to take money from future generations and use that to pay unemployment to present day people than to withhold payment and this has been the general theme of government since WW 11.
Once benefits are started it is extremely difficult to reduce or eliminate them. Witness what is going on in Europe where they have been attempting to reduce benefits.
Jack Novick
The interesting thing is that not many Republicans came forth to back Bunning and many Democrats condemned him for refusing to add to the employment benefits for those out of work, which is what part of the 15 billion was to used for.
Even more interesting was the press response which criticized Bunning for his hard hearted approach.
This shows that cutting benefits is not popular in congress but also meets with ire from the press, the same press that is constantly complaining about the deficits.
The bottom line is that it is better to take money from future generations and use that to pay unemployment to present day people than to withhold payment and this has been the general theme of government since WW 11.
Once benefits are started it is extremely difficult to reduce or eliminate them. Witness what is going on in Europe where they have been attempting to reduce benefits.
Jack Novick
Democracy
I was watching the American Muslim who fled to Yemen, Alwaki, on tape preaching to his converts and he said imagine living under a form of government where the majority rules. That is American and the majority can take away the rights of Muslims whenever they want. This man like many others does not understand that the United States is not a democracy but by designed is almost the opposite of a democracy. We have a Representative Republic and many Americans do not understand what that means. In a democracy the rights of the majority rule but in a Republic the right of law rules. A simple way to understand the difference is to recall justice in the old west. The posse goes after a suspect and when they catch up with him they take a vote to hang him and if the majority agrees the suspect is summarily hanged. In a Republic the sheriff arrives and takes the suspect in for trial by law. Even when the jury deliberates they must reach a unanimous decision not a majority rule. In short we have rule of law not majority rule.
Some of the confusion arises because we have elections by majority but we elect representatives who must then follow the constitution which is the law of the land. Even all the states have such constitutions and no where in the constitution or the declaration of independence is the word democracy mentioned.
Some of the confusion arises because we have elections by majority but we elect representatives who must then follow the constitution which is the law of the land. Even all the states have such constitutions and no where in the constitution or the declaration of independence is the word democracy mentioned.
Informed
It has been said that the strength of a democracy depends on an informed electorate. I would like to challenge this assertion. On most important issues of the day you can find experts, people with good formal educations, people who have spent many years studying the issue arriving at different conclusions. Not only different but many time opposite conclusions. There are a number of explanations for this but one is the way facts are collected, facts are interpreted, and facts are distorted. Most of us are familiar with the old adage that figures don’t lie but liers can figure. It is my contention, that I can use my 70 plus years of life experience, along with my God given common sense and reach conclusions that are just as accurate as these so called experts. I believe that this is the true strength of a democracy and while experts often times look upon the general population with disdain, history has shown that these ordinary citizens will generally keep the experts from going off the deep end. Other times programs are established that in and of themselves are doomed to failure although these programs may survive many years and do a lot of good while they are operating. One such program is the Savings and Loan debacle that occurred in the late 80’s. This program, designed to provide home loans and made famous with the Christmas classic, “It’s A Wonderful Life”, is one such example. These Savings and Loans, (S&L’s) were required to give long term loans (25 to 30 years) at a guaranteed interest rate while depending on income that they had to pay short term interest rates. All we have to do is envision a scenario where the long term loan rates are lower than the short term rates for an extended period of time and bingo we have a problem. If the S&L has to pay out 10% interest to attract customers and is only collecting 5% interest on its long term loans it will soon run out of money and this is just the situation that took place in the late 80”s. The government stepped in and paid hundreds of millions to failing S&L’s under the FDIC program. That’s the Federal Deposit Insurance Corporation which was set up to guarantee your bank deposits up to $100,000.
Now I will go out on a limb and predict another situation which may develop into a financial disaster. Everyday on the TV I see ads for car insurance companies each saying that their rates are lower and you should switch companies. Since these ads are so prolific I can only assume that they are getting the desired results and many people are switching. If this continues then the overall rates will decline and at some point some of these companies will find themselves in trouble. At that time will they be eligible for a bailout? Should the state insurance commissioners be stepping in before to review these rates?
Another pending problem has to do with home owners insurance. Right now your policy will cover damage to your home caused by a dirty bomb but only physical damage. If a bomb goes off some distance from your home it may not cause physical damage but because of radiation you may not be able to stay in your home but that is not covered. Now you must find another place to live and keep making payments on your home. We have a similar situation with flood insurance. For many years people who lost their homes due to flood were just out of luck but the government stepped in and offered flood insurance. My guess is we will have to wait for a terrorist to explode a dirty bomb before the government takes action and those first victims will just have to suffer.
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Now I will go out on a limb and predict another situation which may develop into a financial disaster. Everyday on the TV I see ads for car insurance companies each saying that their rates are lower and you should switch companies. Since these ads are so prolific I can only assume that they are getting the desired results and many people are switching. If this continues then the overall rates will decline and at some point some of these companies will find themselves in trouble. At that time will they be eligible for a bailout? Should the state insurance commissioners be stepping in before to review these rates?
Another pending problem has to do with home owners insurance. Right now your policy will cover damage to your home caused by a dirty bomb but only physical damage. If a bomb goes off some distance from your home it may not cause physical damage but because of radiation you may not be able to stay in your home but that is not covered. Now you must find another place to live and keep making payments on your home. We have a similar situation with flood insurance. For many years people who lost their homes due to flood were just out of luck but the government stepped in and offered flood insurance. My guess is we will have to wait for a terrorist to explode a dirty bomb before the government takes action and those first victims will just have to suffer.
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Unemployment
VP Biden is calling on Senator Bunning to drop his opposition to the so called jobs bill
. Vice President Biden took a shot at one of his former colleagues today for leading what he called a one-man filibuster against unemployment benefits.
Biden was discussing the accomplishments of the White House's Middle Class Task Force, which he heads. As he was touting the task force's successes over the last year, the vice president lamented that he was disappointed by one particular senator on Capitol Hill.
"Right now a single republican is blocking the extension of unemployment insurance which means if he succeeds one million people, one million people next month will be thrown off the unemployment rolls," Biden said.
The Department of Labor calls 60,000 households in the United States each month to determine who is employed and who is unemployed. This survey is known as the household survey.
The unemployment rate that is announced is mostly based on this survey. Anyone who works at least one hour a week is considered employed by the Labor Department.
The people collecting unemployment insurance are not counted because about only 35 percent of the unemployed are eligible for unemployment insurance in the United States.
I am not a cynic but could Biden be concerned that these one million people will be added to the rolls of the unemployed if they go off of unemployment insurance
. Vice President Biden took a shot at one of his former colleagues today for leading what he called a one-man filibuster against unemployment benefits.
Biden was discussing the accomplishments of the White House's Middle Class Task Force, which he heads. As he was touting the task force's successes over the last year, the vice president lamented that he was disappointed by one particular senator on Capitol Hill.
"Right now a single republican is blocking the extension of unemployment insurance which means if he succeeds one million people, one million people next month will be thrown off the unemployment rolls," Biden said.
The Department of Labor calls 60,000 households in the United States each month to determine who is employed and who is unemployed. This survey is known as the household survey.
The unemployment rate that is announced is mostly based on this survey. Anyone who works at least one hour a week is considered employed by the Labor Department.
The people collecting unemployment insurance are not counted because about only 35 percent of the unemployed are eligible for unemployment insurance in the United States.
I am not a cynic but could Biden be concerned that these one million people will be added to the rolls of the unemployed if they go off of unemployment insurance
Windmills
I just saw an ad for wind turbines on TV and it was a company called Suzlon. Since I had never heard of this company I looked up the top ten companies producing wind turbines and I listed them below. Note that only one is an American company. I am wondering if the green jobs that wind energy is suppose to produce will be American jobs or jobs overseas producing wind turbines to be used here in American.
1. Vestas (Denmark) 35,000 MW[1]
2. Enercon (Germany) 19,000 MW[2]
3. Gamesa (Spain) 16,000 MW[3]
4. GE Energy (Germany / United States) 15,000 MW[4]
5. Siemens (Denmark / Germany) 8,800 MW[5]
6. Suzlon (India) 6,000MW[6]
7. Nordex (Germany) 5,400 MW[7]
8. Acciona (Spain) 4,300 MW[8]
9. REpower (Germany) 3,000 MW [9]
10. Goldwind (China) 2,889 MW[10]
1. Vestas (Denmark) 35,000 MW[1]
2. Enercon (Germany) 19,000 MW[2]
3. Gamesa (Spain) 16,000 MW[3]
4. GE Energy (Germany / United States) 15,000 MW[4]
5. Siemens (Denmark / Germany) 8,800 MW[5]
6. Suzlon (India) 6,000MW[6]
7. Nordex (Germany) 5,400 MW[7]
8. Acciona (Spain) 4,300 MW[8]
9. REpower (Germany) 3,000 MW [9]
10. Goldwind (China) 2,889 MW[10]
CIA
In the news today it was reported that a Hamas leader was killed by Jewish agents while he was visiting in Dubai. This reminded me of the US in the early days of the cold war. We were fighting the Soviets and in the process we made friends with many bad guys. As long as a country was opposed to the Soviets we were for them and thus we sided with a lot of unsavory characters. To quote former Ambassador to the United Nations Jeane Kirkpatrick, “he may be a dictator but he is our dictator”. The CIA was going around the world attempting to overthrow governments and assassinating unwanted individuals and making use of criminal types to get information.
When these types of operations were revealed the senate formed the Church committee to investigate. The result was the trimming of the powers of the CIA. When the CIA could no longer make deals with international criminals they lost much of their information sources. Not much was said until 9-11 and then the questions came up. How come we didn’t know or at least have some warning.
Today we are not permitted to go into a foreign country and assassinate someone but we are allowed to use drones to kill enemies in foreign countries, specifically Pakistan. Apparently high tech assassinations are OK. Odd how times change.
When these types of operations were revealed the senate formed the Church committee to investigate. The result was the trimming of the powers of the CIA. When the CIA could no longer make deals with international criminals they lost much of their information sources. Not much was said until 9-11 and then the questions came up. How come we didn’t know or at least have some warning.
Today we are not permitted to go into a foreign country and assassinate someone but we are allowed to use drones to kill enemies in foreign countries, specifically Pakistan. Apparently high tech assassinations are OK. Odd how times change.
Jobs 2
I realized as soon as I heard the phrase, create or save when it comes to jobs I knew something was up. I was surprised that it took several months before the press began to question this. I soon came to understand that the saved jobs would be state employees and this would be done by giving federal dollars to states so they would not have to lay off anyone, thus saving jobs. The fact that most of these people are members of the public employees union was part of the plan. Another part of the stimulus was spent on extending unemployment benefits. Another part was tax credits in the form of $400 to each worker and another $400 to the spouse of a worker. This is the tax break to 95% of all Americans that Obama speaks of. The problem with all of this spending is that it is a very inefficient way to create jobs. Here is just one example.
The results of a 1.5 billion dollar grant to the state of Florida Education Dept.
Jobs Summary: The number of jobs reported represents the calculation of full-time equivalent positions (FTE) as required by federal instructions. The number of jobs (FTEs) saved during this quarter was 12393.41 and the number of jobs (FTEs) created was 803.13. The number of actual jobs (full- and part-time) saved for this period was 18042 and the number of actual jobs (full- and part-time) created was 2934. The majority of the jobs saved and created related to instruction or instructional support. Types of jobs included but were not limited to adjunct faculty, faculty, classroom teachers, school-based administrators, clerical personnel, instructional aides, librarians/media specialists, career specialists, supervisors, and paraprofessionals. (Total jobs reported: 13,197)
Note the saved jobs were 18,042 and created jobs 2934 and of course some of these created jobs are part time.
Now the president is talking about tax credits to small businesses for hiring new employees. This shows how little he understands business. No business person is going to hire a new employee to get a $5,000 tax credit. They will begin to hire when the demand for their product increases and they have some assurance that the government will not pass laws that hurt their business, laws like cap and trade and health care.
While the federal government can effectively save jobs it can only create jobs in a most inefficient manner.
The results of a 1.5 billion dollar grant to the state of Florida Education Dept.
Jobs Summary: The number of jobs reported represents the calculation of full-time equivalent positions (FTE) as required by federal instructions. The number of jobs (FTEs) saved during this quarter was 12393.41 and the number of jobs (FTEs) created was 803.13. The number of actual jobs (full- and part-time) saved for this period was 18042 and the number of actual jobs (full- and part-time) created was 2934. The majority of the jobs saved and created related to instruction or instructional support. Types of jobs included but were not limited to adjunct faculty, faculty, classroom teachers, school-based administrators, clerical personnel, instructional aides, librarians/media specialists, career specialists, supervisors, and paraprofessionals. (Total jobs reported: 13,197)
Note the saved jobs were 18,042 and created jobs 2934 and of course some of these created jobs are part time.
Now the president is talking about tax credits to small businesses for hiring new employees. This shows how little he understands business. No business person is going to hire a new employee to get a $5,000 tax credit. They will begin to hire when the demand for their product increases and they have some assurance that the government will not pass laws that hurt their business, laws like cap and trade and health care.
While the federal government can effectively save jobs it can only create jobs in a most inefficient manner.
robots
Our economy will eventually turn around in spite of the government interference but then what. The US has always been a leader in innovation and will continue to be, but there is a foreboding change on the horizon. In today’s world when a new idea is put forth it is patented and then production is moved to some cheap labor market outside the country. We cannot lower our wages here to compete with China and it will be many years until they catch up to our wage scale. So what is the answer? I suggest we concentrate on robotics to produce our new innovations. It requires a high tech, highly education work force to product robots and robots work for even less than Chinese. Lesser trained individuals are still needed to build the robot factories and then the additional facilities to produce the new products. The Chinese can continue to make our TV’s and Gym shoes but we will be making the advanced products of the next generation.
And that is all I have to say about that.
And that is all I have to say about that.
Jobs
Friday, February 05, 2010
Hi All,
While the federal government does not have to balance its budget the states do. For fiscal 2010 the states are facing a 35 billion dollar deficit, with California and Illinois leading the way with 6 and 5 billion respectively. One of the major expenses that the states face is the benefits for public employees.
Here is a quote from a Time Magazine article from 2005.
All pensions and health-care plans are not created equal. At the same time millions of workers in private industry have lost the benefits they once thought they had for life, another group is doing quite nicely, secure in the knowledge that their benefits are protected forever--not by some government agency, but directly by you, the taxpayer.
To understand how this happened consider that you own a company and your employees belong to a union. When you sit down to negotiate you are working with your money. Even if you manage a public company you are working with stockholder monies and you know that your job is on the line if your dividend is reduced. On the other hand if you are a county commissioner negotiating with the public employees you are using tax payer money not yours or the stockholders. The net result of this over time has been better benefits for public employees.
Much of the stimulus money that the government has spent in this past year has gone to states so that they can keep from laying off state employees. As the situation deteriorates the states will need more money and it is my guess that the president will pay off the above mentioned 35 billion using money from the stimulus.
The states will learn from this that they can overspend and fall back on the federal government to bail them out just as the too big to fail banks figured out the same idea.
The long term results of this will be more and more public sector jobs and fewer private sector jobs. Even today the public job salaries average $70,000 per year while private jobs average $40,000. The future will bring more government jobs and fewer private sector jobs. This is not sustainable since government jobs do not produce products and under our economic system all long term growth comes from private employers
John aka Jack
Hi All,
While the federal government does not have to balance its budget the states do. For fiscal 2010 the states are facing a 35 billion dollar deficit, with California and Illinois leading the way with 6 and 5 billion respectively. One of the major expenses that the states face is the benefits for public employees.
Here is a quote from a Time Magazine article from 2005.
All pensions and health-care plans are not created equal. At the same time millions of workers in private industry have lost the benefits they once thought they had for life, another group is doing quite nicely, secure in the knowledge that their benefits are protected forever--not by some government agency, but directly by you, the taxpayer.
To understand how this happened consider that you own a company and your employees belong to a union. When you sit down to negotiate you are working with your money. Even if you manage a public company you are working with stockholder monies and you know that your job is on the line if your dividend is reduced. On the other hand if you are a county commissioner negotiating with the public employees you are using tax payer money not yours or the stockholders. The net result of this over time has been better benefits for public employees.
Much of the stimulus money that the government has spent in this past year has gone to states so that they can keep from laying off state employees. As the situation deteriorates the states will need more money and it is my guess that the president will pay off the above mentioned 35 billion using money from the stimulus.
The states will learn from this that they can overspend and fall back on the federal government to bail them out just as the too big to fail banks figured out the same idea.
The long term results of this will be more and more public sector jobs and fewer private sector jobs. Even today the public job salaries average $70,000 per year while private jobs average $40,000. The future will bring more government jobs and fewer private sector jobs. This is not sustainable since government jobs do not produce products and under our economic system all long term growth comes from private employers
John aka Jack
Don't ask
Wednesday, February 03, 2010
Hi All,
Since 9/11 I have been going to a Middle East chat room, ostensibly to learn more about the culture there and I learned a lot of unexpected stuff. For one thing I had to change my nick name since I was using jenemn which is my and my wife’s initials and many thought that was a female name. Now in chat rooms there are lots of young guys looking for girls so they were always hitting on me so I changed my nick to jack and that stopped but then gay guys would contact me. For those of you who do not frequent chat rooms, the way you know this is that a person comes into the room and sends you a message of asl. By this they are asking age, sex and location. When you see that, many times it is some guy on the prowl, gay or otherwise. On a number of occasions when the issue of gays in the military was in the news, I would ask these guys if they were gay and if they were I would ask them if showering with other men would be sexually exciting for them and most answered that it would be. That gave me some concern about changing the don’t ask don’t tell rule but I wanted to investigate further and discovered the following. While I think that the love between two men is a wonderful thing and the world would be a better place if we had more of that, when it comes to the intimacy of this type of relationship I get a little uncomfortable. I am not alone in this matter and I can prove it. Everyday on the soaps and most nights in prime time TV you can see a man and women in bed and most of us don’t think much of it. Now let us see such a scene with two men scantily clothed, in bed, rubbing each other and open mouth kissing and you can bet that most people would find that not only uncomfortable but bordering on disgusting. It is my contention that we have come along way in understanding homosexuality but we still have a way to go before the general public is completely at ease.
There is a good argument for dispensing with the don’t ask rule as many militaries around the world including England and Australia have no such rule and they seem to have adjusted. There is no reason why we cannot also adjust but I believe they should move gradually in this direction. The current situation of just sticking our heads in the sand is not a viable long term solution but changing should be accomplished with sensitivity to the problem that many in the military would face. Many of the talking heads on TV would not care much for taking a group shower knowing that there were gay people in the room but they are strongly oppose the don’t ask policy. It is always easy to take the high road when the consequences only affect others.
I believe we will get rid of don’t ask but it will not be for several years and when that time comes the old policy will fade into the past and we will all move on.
Jack or John whatever
Hi All,
Since 9/11 I have been going to a Middle East chat room, ostensibly to learn more about the culture there and I learned a lot of unexpected stuff. For one thing I had to change my nick name since I was using jenemn which is my and my wife’s initials and many thought that was a female name. Now in chat rooms there are lots of young guys looking for girls so they were always hitting on me so I changed my nick to jack and that stopped but then gay guys would contact me. For those of you who do not frequent chat rooms, the way you know this is that a person comes into the room and sends you a message of asl. By this they are asking age, sex and location. When you see that, many times it is some guy on the prowl, gay or otherwise. On a number of occasions when the issue of gays in the military was in the news, I would ask these guys if they were gay and if they were I would ask them if showering with other men would be sexually exciting for them and most answered that it would be. That gave me some concern about changing the don’t ask don’t tell rule but I wanted to investigate further and discovered the following. While I think that the love between two men is a wonderful thing and the world would be a better place if we had more of that, when it comes to the intimacy of this type of relationship I get a little uncomfortable. I am not alone in this matter and I can prove it. Everyday on the soaps and most nights in prime time TV you can see a man and women in bed and most of us don’t think much of it. Now let us see such a scene with two men scantily clothed, in bed, rubbing each other and open mouth kissing and you can bet that most people would find that not only uncomfortable but bordering on disgusting. It is my contention that we have come along way in understanding homosexuality but we still have a way to go before the general public is completely at ease.
There is a good argument for dispensing with the don’t ask rule as many militaries around the world including England and Australia have no such rule and they seem to have adjusted. There is no reason why we cannot also adjust but I believe they should move gradually in this direction. The current situation of just sticking our heads in the sand is not a viable long term solution but changing should be accomplished with sensitivity to the problem that many in the military would face. Many of the talking heads on TV would not care much for taking a group shower knowing that there were gay people in the room but they are strongly oppose the don’t ask policy. It is always easy to take the high road when the consequences only affect others.
I believe we will get rid of don’t ask but it will not be for several years and when that time comes the old policy will fade into the past and we will all move on.
Jack or John whatever
China
Tuesday, February 02, 2010
Hi All,
On a regular basis we hear that the Chinese government now owns much of the US foreign debt and there is the underlying threat that they could somehow bring down the US. I am not sure how they would do this but I am well aware that much of the Chinese economy depends on US consumers. In the current recession our imports from China are down 20% from 2006 and 2007. If our economy goes in the tank then consumers will no longer be going to Walmart and China will be hurt. When we have a recession here people suffer but in China the people would riot. I believe China has a vested interest in our economic success and these arguments about China bringing us down are highly exaggerated.
Jack , John Novick
Hi All,
On a regular basis we hear that the Chinese government now owns much of the US foreign debt and there is the underlying threat that they could somehow bring down the US. I am not sure how they would do this but I am well aware that much of the Chinese economy depends on US consumers. In the current recession our imports from China are down 20% from 2006 and 2007. If our economy goes in the tank then consumers will no longer be going to Walmart and China will be hurt. When we have a recession here people suffer but in China the people would riot. I believe China has a vested interest in our economic success and these arguments about China bringing us down are highly exaggerated.
Jack , John Novick
Fed
Monday, February 01, 2010
Hi All,
I want to use my experience with Equitable Life of New York to explain what transpired in the recent profits made by the Federal Reserve. A big insurance company like Equitable has its assets in two major areas. The first called Separate Accounts is where the investors have their money in things like pension plans. This money is separate from the company and any gains or losses are passed on to the investors. The company makes money by managing these accounts. The second is called the General Fund and this is where the assets that protect the life insurance policies are kept. These monies are invested in conservative things like bonds and mortgages. Back in the 80’s when Equitable received a billion dollars from a French company called AXA they had to place a value on the General Fund to determine how much of the company the billion dollars would buy. The first step was to appraise all the real estate and this was a major undertaking. AXA invested $20 million to have these properties appraised and this leads me to a concept called Mark to Market. At that time it was a common practice for companies like Equitable to hold the value of mortgages on the books at the original price. This meant that if the value of the property increased the value on the books was understated and the reverse. Many large insurance companies took advantage of this by making selected adjustments to the book value of various properties. At that time Equitable had about 60 billion in mortgages on the books and they owed about 58 billion on these which meant they had about 2 billion available to back up their insurance claims. Now they had over 100 billion in outstanding life insurance policies but 2 billion was considered adequate to back these up. The trouble began when some companies would re-appraise properties that they knew had increased in value and up date the book values accordingly. This would increase the amount available to protect the life policies. All of this information was forwarded to insurance rating companies like AM Best and S&P and they used this information to determine the relative strength of the insurance companies. The rating companies could hardly spend 20 million to appraise the Equitable properties and so they had to accept the values given to them. Some companies were not as honest as Equitable and so the ratings given by the rating companies did not have much value. One of the companies that fudged the books on this appraisal process was Mutual of New York and they were rated as triple A, the highest rating available, the week before they went bankrupt.
In an attempt to correct this, the government changed the law and companies had to follow what is called Mark to Market accounting. This meant that all assets had to be held on the books at current market value. This remained the law until the spring of 2009 when the Mark to Market idea was suspended. Recall at that time the banks had lots of bad mortgages on the books and they had to lower the value of those mortgages. Once Mark to Market was suspended the banks could allow the value of those assets to remain on the books at the original value and this helped the bank balance sheet to look better.
The question remains as to how the Fed made $50 billion last year and since no one is allowed to see their books we can only guess what happened and I offer my guess. In a nutshell I think it is all paper profit. The Fed can use money credits from the Treasury and purchase mortgage bundles from the banks and just put a credit on the banks balance sheet and then re-assess the value of these assets higher and put that on their books as profits and then return the money to the Treasury and all this without using any real money.
At this time no one has revealed just how the Fed made all of these profits and I am waiting for their explanation which may not ever come unless the congress demands that they open the books. Don’t hold your breath.
Jack (John) Novick
Hi All,
I want to use my experience with Equitable Life of New York to explain what transpired in the recent profits made by the Federal Reserve. A big insurance company like Equitable has its assets in two major areas. The first called Separate Accounts is where the investors have their money in things like pension plans. This money is separate from the company and any gains or losses are passed on to the investors. The company makes money by managing these accounts. The second is called the General Fund and this is where the assets that protect the life insurance policies are kept. These monies are invested in conservative things like bonds and mortgages. Back in the 80’s when Equitable received a billion dollars from a French company called AXA they had to place a value on the General Fund to determine how much of the company the billion dollars would buy. The first step was to appraise all the real estate and this was a major undertaking. AXA invested $20 million to have these properties appraised and this leads me to a concept called Mark to Market. At that time it was a common practice for companies like Equitable to hold the value of mortgages on the books at the original price. This meant that if the value of the property increased the value on the books was understated and the reverse. Many large insurance companies took advantage of this by making selected adjustments to the book value of various properties. At that time Equitable had about 60 billion in mortgages on the books and they owed about 58 billion on these which meant they had about 2 billion available to back up their insurance claims. Now they had over 100 billion in outstanding life insurance policies but 2 billion was considered adequate to back these up. The trouble began when some companies would re-appraise properties that they knew had increased in value and up date the book values accordingly. This would increase the amount available to protect the life policies. All of this information was forwarded to insurance rating companies like AM Best and S&P and they used this information to determine the relative strength of the insurance companies. The rating companies could hardly spend 20 million to appraise the Equitable properties and so they had to accept the values given to them. Some companies were not as honest as Equitable and so the ratings given by the rating companies did not have much value. One of the companies that fudged the books on this appraisal process was Mutual of New York and they were rated as triple A, the highest rating available, the week before they went bankrupt.
In an attempt to correct this, the government changed the law and companies had to follow what is called Mark to Market accounting. This meant that all assets had to be held on the books at current market value. This remained the law until the spring of 2009 when the Mark to Market idea was suspended. Recall at that time the banks had lots of bad mortgages on the books and they had to lower the value of those mortgages. Once Mark to Market was suspended the banks could allow the value of those assets to remain on the books at the original value and this helped the bank balance sheet to look better.
The question remains as to how the Fed made $50 billion last year and since no one is allowed to see their books we can only guess what happened and I offer my guess. In a nutshell I think it is all paper profit. The Fed can use money credits from the Treasury and purchase mortgage bundles from the banks and just put a credit on the banks balance sheet and then re-assess the value of these assets higher and put that on their books as profits and then return the money to the Treasury and all this without using any real money.
At this time no one has revealed just how the Fed made all of these profits and I am waiting for their explanation which may not ever come unless the congress demands that they open the books. Don’t hold your breath.
Jack (John) Novick
Obama
Friday, January 29, 2010
Hi All,
I was watching Hilary Clinton and she said she was an old time progressive. I know that since the Reagan era that the word liberal has come under attack and many democrats have started calling themselves progressives. I decided to do some research to find out more about these names and discovered some interesting things. First off, the word liberal as used by the founders meant someone who would follow the constitution and champion the rights of the individual. The constitution is filled with limitations on government so as to protect the individual from an oppressive government which is what the revolution was all about. This worked fine until a Republican president Theodore Roosevelt and a Democratic president Woodrow Wilson felt the constitution needed some improvement. They felt that individuals needed help from the government in determining how they lived their lives. These two presidents set the stage for the Progressive movement that became popular in the early part of the century. Over a 20 plus year period they made some changes that they thought would improve the lives of individuals at the expense of individual freedoms and in time the people objected and the Progressives went underground and they became the new liberals but their brand of liberalism was much different. Some of the changes they brought about were the income tax, the League of Nations and prohibition.
The progressive ideas remained hidden until FDR came along and he was the next to bring these ideas to life. He too did not like all of the restrictions that the constitution placed on government so he decided he wanted a second Bill of Rights where the government would replace individual responsibility. He wanted the government to guarantee the right to have a job, the right to have a home, the right to have health care, the right to an education and the right to recreation. He ran into some problems with the courts and tried to stack the court with judges who thought more like he did but he was not able to pull this off. He wanted congress to pass a law stating that all judges over age 71 had to retire and he wanted six new judges added to the court but the congress would not go along with him.
After FDR passed the progressive movement once again went under cover only to come alive again when President Clinton tried to bring about universal health care but it died on the vine.
Today there is some interest in President Obama’s ideas on the constitution as he has said he is not comfortable with the restrictions it places on the federal government. He feels somewhat like FDR in that the constitution should allow the federal government to confer more rights to individuals. He is a kind of modern version of the progressive.
Thomas Jefferson said, "The two enemies of the people are criminals and government, so let us tie the second down with the chains of the Constitution so the second will not become the legalized version of the first." Is progressivism breaking the chains?
This is the concern of those who are trying to figure out what President Obama is all about. Finding out what makes him tick should have been done before the election but the press was so enamored with his oratory they left that little detail to be investigated after the election. Now many are asking themselves the question, what is this guy all about?
Jack Novick
Hi All,
I was watching Hilary Clinton and she said she was an old time progressive. I know that since the Reagan era that the word liberal has come under attack and many democrats have started calling themselves progressives. I decided to do some research to find out more about these names and discovered some interesting things. First off, the word liberal as used by the founders meant someone who would follow the constitution and champion the rights of the individual. The constitution is filled with limitations on government so as to protect the individual from an oppressive government which is what the revolution was all about. This worked fine until a Republican president Theodore Roosevelt and a Democratic president Woodrow Wilson felt the constitution needed some improvement. They felt that individuals needed help from the government in determining how they lived their lives. These two presidents set the stage for the Progressive movement that became popular in the early part of the century. Over a 20 plus year period they made some changes that they thought would improve the lives of individuals at the expense of individual freedoms and in time the people objected and the Progressives went underground and they became the new liberals but their brand of liberalism was much different. Some of the changes they brought about were the income tax, the League of Nations and prohibition.
The progressive ideas remained hidden until FDR came along and he was the next to bring these ideas to life. He too did not like all of the restrictions that the constitution placed on government so he decided he wanted a second Bill of Rights where the government would replace individual responsibility. He wanted the government to guarantee the right to have a job, the right to have a home, the right to have health care, the right to an education and the right to recreation. He ran into some problems with the courts and tried to stack the court with judges who thought more like he did but he was not able to pull this off. He wanted congress to pass a law stating that all judges over age 71 had to retire and he wanted six new judges added to the court but the congress would not go along with him.
After FDR passed the progressive movement once again went under cover only to come alive again when President Clinton tried to bring about universal health care but it died on the vine.
Today there is some interest in President Obama’s ideas on the constitution as he has said he is not comfortable with the restrictions it places on the federal government. He feels somewhat like FDR in that the constitution should allow the federal government to confer more rights to individuals. He is a kind of modern version of the progressive.
Thomas Jefferson said, "The two enemies of the people are criminals and government, so let us tie the second down with the chains of the Constitution so the second will not become the legalized version of the first." Is progressivism breaking the chains?
This is the concern of those who are trying to figure out what President Obama is all about. Finding out what makes him tick should have been done before the election but the press was so enamored with his oratory they left that little detail to be investigated after the election. Now many are asking themselves the question, what is this guy all about?
Jack Novick
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