Retiring Congressman Barney Frank insists that his new law solves the too big to fail in regards to the big banks. He says this because the law lays out the procedures on how to close down a failing bank. The law says the government can close the bank down and pay off its debts. The question is where will the money come from to pay off these debts and therein lies the problem. There are currently four books on Amazon outlining the problems with the Dodd/Frank bill and they all ask the same question, where is the money? Both Congressman Frank and former Senator Dodd know of the weakness of their bill but neither will admit it. You see they are not lying they are just skirting the truth. We had a similar situation in the 80’s with the S&L crisis. At that time these institutions were going broke as the owners were bleeding them dry but the government that had the power couldn’t shut them down because the government FDIC did not have the money and congress would not approve any new funding.
Before Dodd/Frank these six banks controlled 16% of the money and now they control over 60% so this time when they fail the bailout will be much larger. Get ready.
Monday, January 16, 2012
75-100
During my morning walk today I made a rather startling discovery. I realize that most people have some type of plan for their lives but we live in a new era. It is a time when we must plan on what we are going to do with our time between ages 75 and 100. While this may seem like a fantasy to younger people just imagine your work career over, your family all grown and now you are faced with 25 years of free time. I strongly suggest you do not wait until you get there to deal with it. For most of us work has been an integral part of our lives and continuing to work into your 80’s or longer might be one solution. Of course if you’re in poor health you will have to make other adjustments.
Private Soc Sec
When Bush 43 was president he proposed privatizing social security but this was not acceptable to the congress so the idea was dropped. Bush wanted to save the program from its projected bankruptcy but there is another benefit that was not discussed. Currently the payroll tax (social security tax) is 6.2% for the employee and the same for the employer. About 1.2% must be set aside to cover claims for disabilities and survivor benefits, leaving 5% from employee and employer to privatize. These funds would be transferred over a 10 year period starting at one half of one percent and increasing by that amount each year. At the end of ten years ten percent of pay would be going into private accounts. How would these funds be invested? Federal employees have had such a plan since 1987 and surveys show they are very satisfied. They have access to ten funds and they can select between these funds.
The major benefit to private accounts is ownership. When you reach retirement age you own the money in the account much like a 401K account. Under the current social security plan the benefits ends at your death or in the case of joint accounts at the end of your death and the death of your spouse. If you and your spouse should die shortly after retirement nothing passes on to your heirs. This is particularly devastating to single black males who have a short life expectancy and on average collect only a fraction of what white females collect.
There is also a large economic benefit to the society. These payments, amount to over 600 billion dollars per year and this is money that, for the most part, would be invested in the private economy. These dollars would mean private sector jobs.
Over the next ten years this means transferring 6 trillion dollars from government coffers to private business and many in congress are ideologically opposed to this. These are individuals who that the government can determine what is best for the country. The government can pick and choose who gets what.
The elections coming up next November will determine whether the 50 year trend of more government control will continue or whether voters will decide they know best on how to spend their money.
The major benefit to private accounts is ownership. When you reach retirement age you own the money in the account much like a 401K account. Under the current social security plan the benefits ends at your death or in the case of joint accounts at the end of your death and the death of your spouse. If you and your spouse should die shortly after retirement nothing passes on to your heirs. This is particularly devastating to single black males who have a short life expectancy and on average collect only a fraction of what white females collect.
There is also a large economic benefit to the society. These payments, amount to over 600 billion dollars per year and this is money that, for the most part, would be invested in the private economy. These dollars would mean private sector jobs.
Over the next ten years this means transferring 6 trillion dollars from government coffers to private business and many in congress are ideologically opposed to this. These are individuals who that the government can determine what is best for the country. The government can pick and choose who gets what.
The elections coming up next November will determine whether the 50 year trend of more government control will continue or whether voters will decide they know best on how to spend their money.
Democratic dilemma
THE GREAT DEMOCRATIC DILEMMA
It starts with FDR and The New Deal and in particular social security. During the depression days of the 30’s people suffered from various economic difficulties including not having enough money to live on after retirement. Families took care of each other but some people were alone and needed help. The government responded by starting social security and over the years it has become the most effective and most expensive of all government programs.
While the economic benefits to seniors were significant the political benefits to Democrats were spectacular. They became known as the party of the poor and they were rewarded with control of the congress that lasted forty years. This reputation for helping the poor was reinforced when LBJ introduced The Great Society and government health insurance for seniors called Medicare.
While participants paid in to these programs the cost eventually exceeded the fees and the difference was picked up by the government. As time passed more programs were introduced and many of these were paid for in total by the government. Some common programs are public assistance, food stamps, Women’s and Infants Children’s benefits, low income housing, senior housing and health care called Medicaid.
Politicians who promoted these types of programs did so under the idea of helping those in need which over time morphed into the concept of fairness. Unspoken in this way of thinking was the basic premise that some people are unable or unwilling to care for themselves. From this it was concluded that it is the government’s responsibility to take money from those who have more and give it to those who have less. The interpretation of more and less would be determined by government officials. In a capitalistic free market economy it is always easy to point out inequities and politicians quickly jumped on those to reinforce their concept of fairness. Of course there is a limit to their idea of fairness. Since the average family income in the United States is $50,000 what could be fairer than having all families earn $50,000. Politicians begin to have second thoughts when any change might adversely affect them.
So we have now arrived at a point where millions of people are dependent on the government for their very survival and thus dependent on those politicians who purport to help them and here is where the dilemma comes to the surface. Elected liberals must continue to help those in need but they cannot ever admit that people cannot care for themselves as this would be viewed as condescending. This puts them in the position of living a lie. One of the reasons that liberal talk shows are not popular is that it is impossible for a liberal to talk for an hour without revealing his belief that the poor cannot take care of themselves. It slips out in between the words and since people don’t want to hear that they turn to another station.
It starts with FDR and The New Deal and in particular social security. During the depression days of the 30’s people suffered from various economic difficulties including not having enough money to live on after retirement. Families took care of each other but some people were alone and needed help. The government responded by starting social security and over the years it has become the most effective and most expensive of all government programs.
While the economic benefits to seniors were significant the political benefits to Democrats were spectacular. They became known as the party of the poor and they were rewarded with control of the congress that lasted forty years. This reputation for helping the poor was reinforced when LBJ introduced The Great Society and government health insurance for seniors called Medicare.
While participants paid in to these programs the cost eventually exceeded the fees and the difference was picked up by the government. As time passed more programs were introduced and many of these were paid for in total by the government. Some common programs are public assistance, food stamps, Women’s and Infants Children’s benefits, low income housing, senior housing and health care called Medicaid.
Politicians who promoted these types of programs did so under the idea of helping those in need which over time morphed into the concept of fairness. Unspoken in this way of thinking was the basic premise that some people are unable or unwilling to care for themselves. From this it was concluded that it is the government’s responsibility to take money from those who have more and give it to those who have less. The interpretation of more and less would be determined by government officials. In a capitalistic free market economy it is always easy to point out inequities and politicians quickly jumped on those to reinforce their concept of fairness. Of course there is a limit to their idea of fairness. Since the average family income in the United States is $50,000 what could be fairer than having all families earn $50,000. Politicians begin to have second thoughts when any change might adversely affect them.
So we have now arrived at a point where millions of people are dependent on the government for their very survival and thus dependent on those politicians who purport to help them and here is where the dilemma comes to the surface. Elected liberals must continue to help those in need but they cannot ever admit that people cannot care for themselves as this would be viewed as condescending. This puts them in the position of living a lie. One of the reasons that liberal talk shows are not popular is that it is impossible for a liberal to talk for an hour without revealing his belief that the poor cannot take care of themselves. It slips out in between the words and since people don’t want to hear that they turn to another station.
Muslims
I grew up in the Midwest where all the cities were segregated. The blacks lived in one part of town and went to school in that part so under normal circumstances I wouldn’t even know any black people. As it happens my dad was a milkman and his route was in the black neighborhoods and I often went on his route with him and got to know many of the black owners of grocery stores where he delivered milk. I sometimes would go with my dad on Fridays and after he finished we would shop for groceries at one of these stores. He felt this was good for business. As far as I could tell my Dad had no prejudice against blacks or for that matter any other group. Because of this, I personally never felt any prejudice and I am fairly sure my children were the same.
I bring this up because I want to voice my opinion on the current world situation regarding Muslims. While I understand that the vast majority of the 1.2 billion Muslims in the world are not terrorist, I have some concern about their way of looking at the world. I believe there is a significant difference between American Muslims and many of those in the rest of the world and in particular those in the Middle East.
As I look around the world I see Muslims fighting Christians in the Philippians, fighting Chechens in Russia, blowing up buildings in Moscow, fighting Hindus in India, brown Muslims fighting black Muslims in Africa, Sunis and Shia killing each other in Iraq, rioting in England and France, fighting Buddhist in Thailand, killing Jews in Israel and killing Americans on 9-11.
I read where women are treated as second class citizens from not being able to vote to things like stoning and honor killings. Sharia Law permits four wives and they can be divorced by the husband declaring verbally his intention to divorce and the children after age 7 belong to the husband. Many of the Muslim countries have no tolerance for other religions from not allowing Christian Churches in Saudi Arabia on to killing Coptic Christians in Egypt.
What I have described thus far is not what we call Muslim extremist or terrorist. This much smaller group are the people who blow themselves up in order to kill others mostly innocent civilians. In Afghanistan and Iraq when we kill civilians it is by accident and we apologize, but the Muslims extremist kill civilians on purpose and boast about it.
Everyone understands that what children are taught can determine the kind of society that evolves. High School text books in Saudi Arabia teach children how to cut off the hands of thieves and that Jews must be exterminated along with many other despicable ideas. Many of these schools are maintained by believers in Wahhabism, a sect of Islam that has access to oil money and promotes schools throughout the Muslim world.
While I would like to maintain the open minded view of Islam that I have, it is getting more difficult to excuse the actions of the few when it seems to be spreading. I sometimes get the impression that we are condoning unacceptable behavior or at least not talking about it in the name of political correctness.
I bring this up because I want to voice my opinion on the current world situation regarding Muslims. While I understand that the vast majority of the 1.2 billion Muslims in the world are not terrorist, I have some concern about their way of looking at the world. I believe there is a significant difference between American Muslims and many of those in the rest of the world and in particular those in the Middle East.
As I look around the world I see Muslims fighting Christians in the Philippians, fighting Chechens in Russia, blowing up buildings in Moscow, fighting Hindus in India, brown Muslims fighting black Muslims in Africa, Sunis and Shia killing each other in Iraq, rioting in England and France, fighting Buddhist in Thailand, killing Jews in Israel and killing Americans on 9-11.
I read where women are treated as second class citizens from not being able to vote to things like stoning and honor killings. Sharia Law permits four wives and they can be divorced by the husband declaring verbally his intention to divorce and the children after age 7 belong to the husband. Many of the Muslim countries have no tolerance for other religions from not allowing Christian Churches in Saudi Arabia on to killing Coptic Christians in Egypt.
What I have described thus far is not what we call Muslim extremist or terrorist. This much smaller group are the people who blow themselves up in order to kill others mostly innocent civilians. In Afghanistan and Iraq when we kill civilians it is by accident and we apologize, but the Muslims extremist kill civilians on purpose and boast about it.
Everyone understands that what children are taught can determine the kind of society that evolves. High School text books in Saudi Arabia teach children how to cut off the hands of thieves and that Jews must be exterminated along with many other despicable ideas. Many of these schools are maintained by believers in Wahhabism, a sect of Islam that has access to oil money and promotes schools throughout the Muslim world.
While I would like to maintain the open minded view of Islam that I have, it is getting more difficult to excuse the actions of the few when it seems to be spreading. I sometimes get the impression that we are condoning unacceptable behavior or at least not talking about it in the name of political correctness.
Sustainability
This new world of sustainability may be different than times past when changes were made based on dollars spent instead of results. I offer two examples that I am personally familiar with. The first was a rendering plant that was part of my production facility. There was a foul odor coming from the exhaust and the EPA said we had to do something to improve the situation so we installed permanganate scrubber at a cost of $200,000 and this satisfied them. We had taken GC air samples before and after and could detect no difference. Plant employees agreed they could detect no improvement. Second example was on the UND campus. There was an air sampling station set up by the EPA near the power plant. This plant used lignite coal to heat all the building and the stack emitted sulfites and nitrites above the legal limits. The university added 25 feet to the height of the stack and the problem was solved since the smoke passed far above the sampling station.
This does not mean that things like more effective packaging cannot work and I am sure that replacing organics with water is an improvement. I merely point out that sometimes perceived changes satisfy.
This does not mean that things like more effective packaging cannot work and I am sure that replacing organics with water is an improvement. I merely point out that sometimes perceived changes satisfy.
Netflix
Netflix Company lost 75% of its value or 12 billion dollars and its CEO, Reed Hastings, will retain his $500,000 annual salary but his stock options will be cut in half. His 3 million in options for this year will be reduced to 1.5 million in 2012 a year the company is expected to lose money. This all came about from Hastings decision to raise prices by a whopping 60% in one shot. Netflix stock dropped from $305 to $75 in less than 6 months as 800,000 subscribers left between July and September and more have left since.
Most companies that I am familiar with have a rule that states if you are late three times in any six month period and you have been informed each time of the rule you will be subject to dismissal.
Most companies that I am familiar with have a rule that states if you are late three times in any six month period and you have been informed each time of the rule you will be subject to dismissal.
Mercury
In the news today it was announced that the EPA has new lower limits on mercury emissions from coal plants. I have often wondered how the government determines the legal level for various contaminants. For example the maximum allowed for mercury in water is 2 parts per billion (ppb). For those of you who have forgotten your chemistry I remind you of Avogadro’s number. He discovered that every gram molecular weight of any substance contains 10 the 23rd power (1 followed by 23 zeros) molecules. This means that a little over a table spoon of water weighs one gram molecular weight which means it contains 10 to the 23rd power of water molecules. Now if the allowable level of mercury is 10 to the 9th power (1ppb) then each tablespoon of water contains 10 to the 14th power of mercury. This means that in every tablespoon of water considered safe by the EPA there are 100,000,000,000,000 or 100 quadrillion atoms of mercury. If we increase the concentration to 1,000,000,000,000,000 or 1 quintillion we will be poisoned.
I believe we should have clean water but I am wondering if these people really know what the limits should be. If I told you that we now have safe drinking water because there are only 100 quadrillion atoms of mercury in a tablespoon of water instead of 1 quintillion would you feel better
This is the kind of nonsense I think about. I think I need a hobby.
I believe we should have clean water but I am wondering if these people really know what the limits should be. If I told you that we now have safe drinking water because there are only 100 quadrillion atoms of mercury in a tablespoon of water instead of 1 quintillion would you feel better
This is the kind of nonsense I think about. I think I need a hobby.
TARP
I have heard the experts say that TARP was necessary to keep us from falling into a depression and I don’t understand international finance so I cannot challenge them. When it comes to the 1.4 trillion we spent on quantitative easy (stimulus 1 and 2) I believe that if we had sent that money directly to the people we would have gotten a better return on the investment. Since there are 160 million people working that would have meant $9,000 to each working person. It could have been made progressive by saying we would send checks only to those whose family income was less than $50,000. This would have meant $20,000 per family.
Nancy Pelosi says that unemployment benefits stimulate the economy and I agree and this money going to lower income families would do the same. It is too late for that but it is not too late to extend the payroll tax benefit which sends money to those who earn less than $106,000 per year. I thought Obama’s idea of going to 3.1% for employees and employers was an even better idea. I understand the deficit is a serious problem but I think the way to solve it is not by spending less and taxing more but rather by growing the economy and both of those ideas would tend to contract the economy.
Let’s get rid of loop holes and lower the tax rates on both personal and corporate. Let’s quit the double tax on dividends and lower capital gains to zero. Let’s make only minor changes in entitlements. We will have to change social security and Medicare but after we get the economy growing again. With these changes in the tax code the 2 trillion that companies have overseas will come home and our new lower rates will attract new foreign businesses. Another trillion that companies are sitting on will be used to expand. As the country begins to grow the government can assist with all of the infrastructure that needs upgraded.
Nancy Pelosi says that unemployment benefits stimulate the economy and I agree and this money going to lower income families would do the same. It is too late for that but it is not too late to extend the payroll tax benefit which sends money to those who earn less than $106,000 per year. I thought Obama’s idea of going to 3.1% for employees and employers was an even better idea. I understand the deficit is a serious problem but I think the way to solve it is not by spending less and taxing more but rather by growing the economy and both of those ideas would tend to contract the economy.
Let’s get rid of loop holes and lower the tax rates on both personal and corporate. Let’s quit the double tax on dividends and lower capital gains to zero. Let’s make only minor changes in entitlements. We will have to change social security and Medicare but after we get the economy growing again. With these changes in the tax code the 2 trillion that companies have overseas will come home and our new lower rates will attract new foreign businesses. Another trillion that companies are sitting on will be used to expand. As the country begins to grow the government can assist with all of the infrastructure that needs upgraded.
Boomers
There are 72 million baby boomers, people born between 1946 and 1964 and the first of this group reached age 65 in 2011 which means that over the next 18 years about 4 million people per year will reach the retirement age of 65. The current unemployment rate of 8.6% represents 13.3 million people without a job. If those 4 million boomers had not retired the unemployment rate would be 11.2%. With this many people retiring you might assume that productivity would be on the decline, but just the opposite is happening. Companies are producing more with fewer people and this increase in productivity is primarily caused by the computer and its effect on automation.
Regs
MF Global purchased European bonds and then used these bonds as collateral to borrow money and then used the money to purchase more bonds and so on. This is called a repo, short for repurchase. On these repo’s MF was required to hold them to maturity called repo to maturity. Bonds held to maturity pay a higher interest rate.
The interest rate it had to pay on the money it borrowed was lower than the interest it was earning on the bonds so it was profitable
Whenever you get a return you take a risk and there were two risk involved here. First was the solvency risk. If the European government defaulted then MF would not have the interest from the bonds to repay the money it borrowed to buy the bonds. In order to cover that risk MF took a short position on 1.3 billion in French bonds. Short position means the owners make a profit if the bond value goes down. The next risk was the liquidity risk. Would they have enough money to pay any customers who wanted to cash out? Like most investment companies they did not have enough money on hand to pay all investors and so when rumors stated that something was wrong investors began to bail. MF had all of their money tied up in bonds that they had to hold to maturity so they couldn’t get their hands on money by selling bonds and the word spread that they were going broke. This caused other investors to cash out and then Corzine tried to sell the company to get money to pay the investors but no buyers came forth. He then declared bankruptcy. It was later discovered that large amounts of customer money had disappeared. Recall in these companies you must keep the investor’s money separate from the company money and some 1.2 billion of the investor’s money is unaccounted for. It is speculated that Corzine used some of this money in a panic to try and hold off bankruptcy. The courts will decide this.
The interest rate it had to pay on the money it borrowed was lower than the interest it was earning on the bonds so it was profitable
Whenever you get a return you take a risk and there were two risk involved here. First was the solvency risk. If the European government defaulted then MF would not have the interest from the bonds to repay the money it borrowed to buy the bonds. In order to cover that risk MF took a short position on 1.3 billion in French bonds. Short position means the owners make a profit if the bond value goes down. The next risk was the liquidity risk. Would they have enough money to pay any customers who wanted to cash out? Like most investment companies they did not have enough money on hand to pay all investors and so when rumors stated that something was wrong investors began to bail. MF had all of their money tied up in bonds that they had to hold to maturity so they couldn’t get their hands on money by selling bonds and the word spread that they were going broke. This caused other investors to cash out and then Corzine tried to sell the company to get money to pay the investors but no buyers came forth. He then declared bankruptcy. It was later discovered that large amounts of customer money had disappeared. Recall in these companies you must keep the investor’s money separate from the company money and some 1.2 billion of the investor’s money is unaccounted for. It is speculated that Corzine used some of this money in a panic to try and hold off bankruptcy. The courts will decide this.
Regulations
One of the reasons that small business is not expanding is because of excessive regulations. The federal government alone has over 160,000 pages of regulations. How this came about can be understood by looking at a small town city council meeting where a committee is set up to develop building codes. There are three or four people sitting in a room discussing codes and one says do we need 2 by 4’s or 2 by 6’s and they all agree to go with the larger just to be safe. They are not structural engineers they are local politicians. Add to this hundreds of other codes and using the same reasoning they increase the cost of doing business. No one can be sure if buildings are any safer but the cost has increased. No one in the room will be building anything but they are determining the cost to those who will be building. Expand this concept to counties, states and the federal governments and you can see how regulations can get out of hand.
I offer this example from personal experience. I owned a small ice cream store and an alley ran along one side of the store. The alley was one block long and at the other end was a 24 plex. In between were 4 single family homes. The owner of the 24 plex wanted to concrete the alley for his renters and had to get the rest of us to go along with it. He couldn’t persuade the home owners to go along because of the cost so he agreed to pay for the whole alley himself. He got an estimate for the job and told the city he would do it alone and they said that he could not without the city inspecting the work. The city then doubled the cost of the project. He said he would hire the inspectors on his own and they said that was not allowed. Here is just one example where the cost was doubled because of codes. He would have built the same concrete alley but with the government being involved the cost doubled.
I offer this example from personal experience. I owned a small ice cream store and an alley ran along one side of the store. The alley was one block long and at the other end was a 24 plex. In between were 4 single family homes. The owner of the 24 plex wanted to concrete the alley for his renters and had to get the rest of us to go along with it. He couldn’t persuade the home owners to go along because of the cost so he agreed to pay for the whole alley himself. He got an estimate for the job and told the city he would do it alone and they said that he could not without the city inspecting the work. The city then doubled the cost of the project. He said he would hire the inspectors on his own and they said that was not allowed. Here is just one example where the cost was doubled because of codes. He would have built the same concrete alley but with the government being involved the cost doubled.
red and blue states
When President Obama took office there were only 41 Republicans in the senate and there were 79 more Democrats in the house so he had a large majority in both parties. During his campaign he promised there would be no more Red and Blue America, and he would bring both parties together. The first thing he did was to turn over the health care problem to the congress and they proceeded to go into private negotiations and finally came out with a bill that no Republicans voted for and 34 Democrats opposed. Thus set the stage for the future. Next came the financial reform bill and Obama sent that to the congress. Senator Dodd head of the banking committee broke the problem down into parts and assigned one Democrat and one Republican to each part and asked them to come up with a bi-partisan solution. When President Obama heard about this he ordered Dodd to dispense with that and come up with a democratic solution.
Next came the stimulus bill and it passed the senate with three Republicans and in the house no Republicans.
Most recently the President came up with a jobs bill and immediately when to the public and demanded that the congress pass this bill. There was to be no changes, no negotiation just pass it.
Now he is on the campaign stump saying that he tried to bring the parties together but the Republicans are the party of no.
I think he has failed to understand that he no longer has a majority in the house and can no longer demand results like he did with the health care, banking and stimulus. The strategy of class warfare may be politically effective but it certainly doesn’t engender cooperation.
Next came the stimulus bill and it passed the senate with three Republicans and in the house no Republicans.
Most recently the President came up with a jobs bill and immediately when to the public and demanded that the congress pass this bill. There was to be no changes, no negotiation just pass it.
Now he is on the campaign stump saying that he tried to bring the parties together but the Republicans are the party of no.
I think he has failed to understand that he no longer has a majority in the house and can no longer demand results like he did with the health care, banking and stimulus. The strategy of class warfare may be politically effective but it certainly doesn’t engender cooperation.
Millionaire tax
The top one tenth of one percent of taxpayers number 140,000 and earn at least 1.5 million and these are the so called millionaires and billionaires that Obama is talking about. Obama’s latest payroll tax plan is back to the 2% reduction we had this year and will cost 185 billion. If we want those rich people to pay for this it will cost each of them 1.3 million.
I still work part time and I earn $15,000 per year so this will save me 2% or $300. While I am happy to get an additional 300 bucks, I am not that enthused about asking some rich guy to pitch in 1.3 million to cover this.
I still work part time and I earn $15,000 per year so this will save me 2% or $300. While I am happy to get an additional 300 bucks, I am not that enthused about asking some rich guy to pitch in 1.3 million to cover this.
Borrow and Spend
There is a lot of talk in the news today asking how we got to where we are and I believe that I have a very good perspective on the answer. I was born in 1937 which puts me 10 years younger than the great generation who lived through the great depression and who fought and won WW11 and ten years older than the baby boomers who were born between 1946 and 1964. I see those who came before me as people who would save and invest and those who came after borrow and spend.
The concept of borrow and spend has remained with us and was magnified at the end of the cold war when the Berlin Wall fell in 1989. As President Clinton came into office in the 90’s the price of oil was falling, the price of houses rising, the dot com bubble was growing and every mail box was filled with new credit cards. As people saw their 401K plans growing and the houses increasing in value they took advantage of the easy use of multiple credit cards and went on a spending binge financed by the growing equity in their homes. This went on for almost 20 years and then came the day of reckoning and the raw reality of the hangover at the end of an all-night party.
The young folks who followed the baby boomers, the so called Gen Xers, expected to continue the life style of their parents and did so up until the big mortgage crisis hit and now they are in economic retreat. The days of starter castles are behind. No more imported marble counter tops and it is back to the basics starting with paying down debt. It may take a few years but most will come out of this a little wiser
The concept of borrow and spend has remained with us and was magnified at the end of the cold war when the Berlin Wall fell in 1989. As President Clinton came into office in the 90’s the price of oil was falling, the price of houses rising, the dot com bubble was growing and every mail box was filled with new credit cards. As people saw their 401K plans growing and the houses increasing in value they took advantage of the easy use of multiple credit cards and went on a spending binge financed by the growing equity in their homes. This went on for almost 20 years and then came the day of reckoning and the raw reality of the hangover at the end of an all-night party.
The young folks who followed the baby boomers, the so called Gen Xers, expected to continue the life style of their parents and did so up until the big mortgage crisis hit and now they are in economic retreat. The days of starter castles are behind. No more imported marble counter tops and it is back to the basics starting with paying down debt. It may take a few years but most will come out of this a little wiser
corruption
Here is another example of how corruption is open for all to see.
Franklin Raines was born into a working class family and through hard work and scholarships graduated from Harvard Law School and went on as a Rhodes Scholar.
Starting in 1969 he started working behind the scenes for various political figures from both parties. In between his government jobs he worked for the law firm of Lazard Freres which is a subsidiary of the world wide investment banking firm of Lazard LTD.
In 1991 he became vice chairman of Fannie Mae and left that post to become Director of Office of Management and Budget in the Clinton Administration where he worked for two years and then became director of Fannie Mae in 1999.
Up to this point it is an admirable career of the little guy makes good.
Recall it was during the Clinton years where the call went out to encourage more people to reach the American dream of home ownership. Clinton told his manager of HUD to use “creative financing” to increase home ownership and thus sent us down the path of no down payment, no documentation, interest only, negative amortization loans which culminated in today’s mess where millions of people who should never had a home loan and now losing their homes.
The large increase in home loans thus created by these new programs allowed Fannie Mae, the largest home finance company, to grow at a rapid rate. As they grew the payment for the Director, Mr. Raines grew proportionally.
While these bonuses meant millions for Mr. Raines it was apparently not enough so he adjusted the books to move money from one year to the next to increase the bonus many times over and for this maneuver he received $90 million in bonus money by overstating earnings by 6.3 billion dollars.
Civil charges were filed against Raines and he had to pay a fine of 3 million which by the way was paid by the Fannie Mae insurance company, plus donate 1.3 million in stock and give up another 5 million in benefits.
Here is a follow up posted in April of 2008.
WASHINGTON — Former Fannie Mae chief Franklin Raines and two other top executives have agreed to a $31.4 million settlement with the government announced today over their roles in a 2004 accounting scandal.
Raines, former Fannie chief financial officer Timothy Howard and former controller Leanne Spencer were accused in a civil lawsuit in December 2006 with manipulating earnings over a six-year period at the company, the largest U.S. financer and guarantor of home mortgages.
Raines, a Seattle native and prominent Washington figure who was President Clinton's budget director, is relinquishing company stock options, proceeds from stock sales and other benefits. His part of the settlement is worth $24.7 million,
If you do the math you see he came out about 60 million ahead and no criminal charges were ever filed.
As you watch the news each day and see the number of poor working stiffs who are losing their home you can comfort yourself with the knowledge that Mr. Raines is living on easy street.
Franklin Raines was born into a working class family and through hard work and scholarships graduated from Harvard Law School and went on as a Rhodes Scholar.
Starting in 1969 he started working behind the scenes for various political figures from both parties. In between his government jobs he worked for the law firm of Lazard Freres which is a subsidiary of the world wide investment banking firm of Lazard LTD.
In 1991 he became vice chairman of Fannie Mae and left that post to become Director of Office of Management and Budget in the Clinton Administration where he worked for two years and then became director of Fannie Mae in 1999.
Up to this point it is an admirable career of the little guy makes good.
Recall it was during the Clinton years where the call went out to encourage more people to reach the American dream of home ownership. Clinton told his manager of HUD to use “creative financing” to increase home ownership and thus sent us down the path of no down payment, no documentation, interest only, negative amortization loans which culminated in today’s mess where millions of people who should never had a home loan and now losing their homes.
The large increase in home loans thus created by these new programs allowed Fannie Mae, the largest home finance company, to grow at a rapid rate. As they grew the payment for the Director, Mr. Raines grew proportionally.
While these bonuses meant millions for Mr. Raines it was apparently not enough so he adjusted the books to move money from one year to the next to increase the bonus many times over and for this maneuver he received $90 million in bonus money by overstating earnings by 6.3 billion dollars.
Civil charges were filed against Raines and he had to pay a fine of 3 million which by the way was paid by the Fannie Mae insurance company, plus donate 1.3 million in stock and give up another 5 million in benefits.
Here is a follow up posted in April of 2008.
WASHINGTON — Former Fannie Mae chief Franklin Raines and two other top executives have agreed to a $31.4 million settlement with the government announced today over their roles in a 2004 accounting scandal.
Raines, former Fannie chief financial officer Timothy Howard and former controller Leanne Spencer were accused in a civil lawsuit in December 2006 with manipulating earnings over a six-year period at the company, the largest U.S. financer and guarantor of home mortgages.
Raines, a Seattle native and prominent Washington figure who was President Clinton's budget director, is relinquishing company stock options, proceeds from stock sales and other benefits. His part of the settlement is worth $24.7 million,
If you do the math you see he came out about 60 million ahead and no criminal charges were ever filed.
As you watch the news each day and see the number of poor working stiffs who are losing their home you can comfort yourself with the knowledge that Mr. Raines is living on easy street.
Hard times
Yesterday a friend was bemoaning the fact that the world is moving too fast and I was reminded of my father who was born in 1900 before autos and died in 1969 after man had walked on the moon. Upon further reflection I realized that the differences between my wife and my daughter were even a better example of how things change.
My wife was raised on a farm in North Dakota, one of 16 children. She was born in 1932 at the start of the Great Depression. They had no running water, no indoor plumbing and no electricity. The wood fired cook stove in the kitchen helped to keep the place warm. On Saturday nights they would bring in a large galvanized tub and heat water on the cook stove and everyone would take their weekly bath to get ready for church the next day. The girls went first and then the boys. This was to keep the water fairly clean for a while since the boys worked in the fields. Everyone had chores and my wife milked 18 cows every morning before school.
For school they hitched the horse to the sleigh and traveled over the snow banks on the two mile journey into town. There was a stove in the wagon and they gathered around that to warm their hands. Her clothes were homemade hand-me-downs.
At birthdays there were no presents but mom always made a cake and this was shared with family members and there were no leftovers. Birthdays were not a time of getting things but a time to share the one gift with others. Christmas was not a time of gifting but of visiting with neighbors and going to church.
Winters were especially difficult when simple things like going to the bathroom required hanging onto a rope stretched from the house to the outhouse so you wouldn’t get lost in the storms that made it difficult to see your hand in front of your face. With ten girls they had one large bedroom that was wall to wall beds and they slept two or more in a bed depending on the size of the kid.
Now fast forward one generation to my daughter who lived in a house with all the modern conveniences. She told me that it was in Junior High that she discovered that not every kid had a room of their own. Birthdays were a dozen friends all bringing gifts plus what mom and dad provided. A party with cake and ice cream, hats and decorations. Christmas was almost sinful with presents all over the living room and kids opening them and tossing them aside to get to the next gift. Her clothes were store bought and new and a clean bath every morning was the norm.
I do not begrudge my daughter’s life style as I was delighted that we were able to provide things but I just want to point out the difference that one generation can make.
My wife was raised on a farm in North Dakota, one of 16 children. She was born in 1932 at the start of the Great Depression. They had no running water, no indoor plumbing and no electricity. The wood fired cook stove in the kitchen helped to keep the place warm. On Saturday nights they would bring in a large galvanized tub and heat water on the cook stove and everyone would take their weekly bath to get ready for church the next day. The girls went first and then the boys. This was to keep the water fairly clean for a while since the boys worked in the fields. Everyone had chores and my wife milked 18 cows every morning before school.
For school they hitched the horse to the sleigh and traveled over the snow banks on the two mile journey into town. There was a stove in the wagon and they gathered around that to warm their hands. Her clothes were homemade hand-me-downs.
At birthdays there were no presents but mom always made a cake and this was shared with family members and there were no leftovers. Birthdays were not a time of getting things but a time to share the one gift with others. Christmas was not a time of gifting but of visiting with neighbors and going to church.
Winters were especially difficult when simple things like going to the bathroom required hanging onto a rope stretched from the house to the outhouse so you wouldn’t get lost in the storms that made it difficult to see your hand in front of your face. With ten girls they had one large bedroom that was wall to wall beds and they slept two or more in a bed depending on the size of the kid.
Now fast forward one generation to my daughter who lived in a house with all the modern conveniences. She told me that it was in Junior High that she discovered that not every kid had a room of their own. Birthdays were a dozen friends all bringing gifts plus what mom and dad provided. A party with cake and ice cream, hats and decorations. Christmas was almost sinful with presents all over the living room and kids opening them and tossing them aside to get to the next gift. Her clothes were store bought and new and a clean bath every morning was the norm.
I do not begrudge my daughter’s life style as I was delighted that we were able to provide things but I just want to point out the difference that one generation can make.
early retirement
Statistics tell us that middle class wages have been stagnant over the past 30 plus years and there are a number of reasons for this, one being the tendency of public sector workers to accept lower pay for increased benefits, mostly in the area of retirement and health care. Since I spent many years calculating retirement benefits for people. I use this as example to illustrate the point. Most public employees are unionized and have defined benefit pension plans. These are plans that guarantee a pension based on years of service. Typically they will pay a man 1.5% of his final salary for each year he worked. If he retired with 30 years of service he would receive 45% of his final pay. Here is an example of how it works. A man starts working for the company at age 32 and retires at age 62. First calculate his net pay before retirement.
$40,000 gross -11,400 standard deduction - 7,400 personal exemptions(2) $21,200 taxable income $2,330 federal tax plus $700 state tax plus $3,060 payroll tax $33,910 net pay assuming no deductions for health care or pension
Retire with 45% of pay or $18,000 plus $15,000 social security or $33,000. There is no income tax or payroll tax for this retiree.
I have visited with many people who did not plan to retire at 62 but when I pointed out they would be working for free they changed their minds. In reality most of the people I worked with who were union employees have more net income after retirement than when they were working. Since most of these people accepted benefits in lieu of salary it is particularly difficult for them to now see cities, counties and states who cannot afford to keep the promises that were made to these retirees.
$40,000 gross -11,400 standard deduction - 7,400 personal exemptions(2) $21,200 taxable income $2,330 federal tax plus $700 state tax plus $3,060 payroll tax $33,910 net pay assuming no deductions for health care or pension
Retire with 45% of pay or $18,000 plus $15,000 social security or $33,000. There is no income tax or payroll tax for this retiree.
I have visited with many people who did not plan to retire at 62 but when I pointed out they would be working for free they changed their minds. In reality most of the people I worked with who were union employees have more net income after retirement than when they were working. Since most of these people accepted benefits in lieu of salary it is particularly difficult for them to now see cities, counties and states who cannot afford to keep the promises that were made to these retirees.
Bush tax cuts
If the Bush tax cuts are allowed to expire, it will mean 3.3 trillion in revenue over the next ten years. If only the tax cuts for those over $200,000 expire this will mean an additional 1.1 trillion over ten years or 110 billion per year. The Obama plan to cut payroll taxes by 3.1% would cost 240 billion. The cost of extending unemployment benefits would be 45 billion.
Spending would include 10 billion for infrastructure and 190 billion for aid to states to prevent layoffs of public employees.
This totals 110 billion of increased revenue from increasing taxes on those over $200,000 and 485 billion in spending which will increase the deficit by the difference or 375 billion.
This is a way to take money from those earning more than $200,000 per year and give it to states that have deficits. They will then use the money to retain public employees who might otherwise be laid off. Some feel this is just a way to reward states for bad fiscal policy and to get votes from public employees.
Spending would include 10 billion for infrastructure and 190 billion for aid to states to prevent layoffs of public employees.
This totals 110 billion of increased revenue from increasing taxes on those over $200,000 and 485 billion in spending which will increase the deficit by the difference or 375 billion.
This is a way to take money from those earning more than $200,000 per year and give it to states that have deficits. They will then use the money to retain public employees who might otherwise be laid off. Some feel this is just a way to reward states for bad fiscal policy and to get votes from public employees.
rationing
I have always maintained that the only way to save Medicare is to ration benefits. We have been doing this right along but without bringing it to the attention of the general public. Donald Berwick was appointed by Obama as head of the Center for Medical Services and he praised the British health care system and said the only way to maintain it was through income redistribution. He concluded that rationing had been going on under the radar but it must be made public.
Forgetting all of the treatments that are adjusted for Medicare patients and concentrating on the finances, it is well known that for every dollar the hospital spends on Medicare patients the government only reimburses them 85 cents. What this does is skew the cost away from Medicare and onto the private system since hospitals make up this 15% by charging private patients more.
Obama care impacts Medicare by limiting the growth of Medicare and by committee cutting fees to doctors and hospitals if the growth exceeds a given amount. So while treatment cannot be cut directly it can be adversely effected by availability of doctors care and hospital cost.
Obama care creates no new doctors but allows seniors to have free physicals and other preventive benefits and this puts more pressure on doctors, many of who will decline to accept Medicare patients. When doctors are paid more to quickly see a 30-year-old with a sore throat or do a wellness checkup than to see a 75-year-old with 25 complex medical problems who needs help to get on an exam table, Medicare patients may be crowded out.
With the demise of the super committee there lies looming ahead a 27% cut in doctor’s fees unless congress acts
What all this means is that we are heading for rationing which is the only possible way to reduce cost. It is just not politically smart to describe this rationing as death panels but the fact remains that rationing is inevitable.
Forgetting all of the treatments that are adjusted for Medicare patients and concentrating on the finances, it is well known that for every dollar the hospital spends on Medicare patients the government only reimburses them 85 cents. What this does is skew the cost away from Medicare and onto the private system since hospitals make up this 15% by charging private patients more.
Obama care impacts Medicare by limiting the growth of Medicare and by committee cutting fees to doctors and hospitals if the growth exceeds a given amount. So while treatment cannot be cut directly it can be adversely effected by availability of doctors care and hospital cost.
Obama care creates no new doctors but allows seniors to have free physicals and other preventive benefits and this puts more pressure on doctors, many of who will decline to accept Medicare patients. When doctors are paid more to quickly see a 30-year-old with a sore throat or do a wellness checkup than to see a 75-year-old with 25 complex medical problems who needs help to get on an exam table, Medicare patients may be crowded out.
With the demise of the super committee there lies looming ahead a 27% cut in doctor’s fees unless congress acts
What all this means is that we are heading for rationing which is the only possible way to reduce cost. It is just not politically smart to describe this rationing as death panels but the fact remains that rationing is inevitable.
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