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
Thursday, December 23, 2010
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.
Subscribe to:
Posts (Atom)