Good advice from the grave

Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.
—President John F. Kennedy,
Economic Report of the President,
January 1963

The politicians of yore sure were different animals.

Geithner: unemployment could rise

WASHINGTON (Reuters) - Treasury Secretary Timothy Geithner said the U.S. unemployment rate could rise for two months before it drops, potentially deepening Democrats' problems in the November congressional elections.
"It's possible you're going to have a couple of months where it goes up," Geithner said on ABC's "Good Morning America" interview broadcast on Tuesday and taped a day earlier.
"But what we expect to see ... is an economy that's gradually healing. Of course we want to do what we can to reinforce that process because it's not growing back as quickly as we'd like."

I wish it would rise by one person, Turbo-Tax Timmy to be exact. Everything he says is preempted in my mind by the words "tax cheat." It has the effect of discounting everything else he has to say, even if he has a point. That's not an admirable trait in a Treasury Secretary of the United States.

Do as I say, not as I do

The WSJ recently reported a case where a carpenter's union hired non-union picketers to protest a building project that was using non-union labor for the project.
 

WASHINGTON—Billy Raye, a 51-year-old unemployed bike courier, is looking for work.
Fortunately for him, the Mid-Atlantic Regional Council of Carpenters is seeking paid demonstrators to march and chant in its current picket line outside the McPherson Building, an office complex here where the council says work is being done with nonunion labor.

Logic v. Emotion

There are two recent op-eds that illustrate rather succinctly what motivates the opposite ends of our political spectrum. From the right comes Art Laffer's piece that appeared in the WSJ this morning titled Unemployment Benefits Aren't Stimulus:

The most obvious argument against extending or raising unemployment benefits is that it will make being unemployed either more attractive or less unattractive, and thereby lead to higher unemployment. Empirical research supports this view.
The Democratic retort is that the economy today is so different from the past that we have to suspend our traditional understanding of economics. With five job seekers for every job opening, the unemployed are desperate for work and increasing unemployment benefits will have very little if any disincentive effect. This view hinges on a total change in employee behavior from "normal" times to the current period of "the Great Recession."

 From the left we have Paul Krugman writing a recent piece in the NY Times titled Punishing the Jobless:

Today, American workers face the worst job market since the Great Depression, with five job seekers for every job opening, with the average spell of unemployment now at 35 weeks. Yet the Senate went home for the holiday weekend without extending benefits. How was that possible?
The answer is that we’re facing a coalition of the heartless, the clueless and the confused. Nothing can be done about the first group, and probably not much about the second. But maybe it’s possible to clear up some of the confusion.
By the heartless, I mean Republicans who have made the cynical calculation that blocking anything President Obama tries to do — including, or perhaps especially, anything that might alleviate the nation’s economic pain — improves their chances in the midterm elections. Don’t pretend to be shocked: you know they’re out there, and make up a large share of the G.O.P. caucus.

 The questions we should ask ourselves are these: do we make better, more informed decisions using logic or emotion; and which of the authors makes the more logical argument?

Keeping track of the TARP

TARP COP: Get tough on banks

The top cop tracking the $700 billion bailout program said Monday that he's concerned federal officials are ignoring his proposals for preventing tax dollars from being wasted or pilfered.

Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program, released a 260-page report detailing a long list of concerns about government efforts to prop up hundreds of banks, Wall Street firms and auto companies.

It's like deja vu all over again

It's great to see that Wall St. has gotten over the Great Hiccup of 2008 and it's back to business as usual:

Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds

July 8 (Bloomberg) -- Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.

Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman Sachs Group Inc. and managed by Greywolf Capital Management LP, an investment firm based in Purchase, New York.

Testing the waters

One of my current concerns as I voiced in a previous post is that the Obama administration may try to take over the Federal Reserve by using the strong arm of a Democratic Congress. Looks like they may be testing the waters:

Bloomberg article: Fed Said to Retreat From Seeking Power to Sell Its Own Bills

At the House Budget hearing, a lawmaker brought up the idea of making Fed district-bank presidents subject to Senate confirmation. Currently the presidents are nominated by the banks’ boards of directors and approved by the U.S.-appointed Fed governors in Washington.

It's official: Congress and the SEC are insane

Insanity has been defined as the repetition of the same task with the expectation of a different result. If that's the case, then the SEC and Congress offer a text book example:

US Lawmakers Push Short-Selling Changes Following Report

A bipartisan group of U.S. senators said the SEC needs to consider new restrictions to help quell naked short selling, including a possible requirement that short sellers borrow shares before they try and sell a stock short. Naked short selling occurs when a trader sells shares that are not actually in their possession, potentially creating downward pressure on the price of shares.
"Unless the SEC can develop an appropriate alternative, a strict pre-borrow requirement may be the only way to adequately protect shareholders' rights," Sen. Charles Grassley, R-Iowa said in a joint release with Sen. Carl Leving, D- Mich., and Sen. Arlen Specter, D-Penn.

Observing the weathervane

This quote summarizes this week’s sentiment rather succinctly: "There will likely be a growing steady recognition that in trying to prevent a Depression, the transfer of risk has been shifted from the private sector to the public purses and this may create a longer, more drawn out problem."

• Geithner admits overnight that the US credit rating is in jeopardy in light of our heavy issuance
• PIMCO's Bill Gross said the U.S. will eventually lose its AAA rating
  
• Moody's did say Thursday it is comfortable with the triple-A sovereign rating on the United States, but it is not guaranteed forever
• Goldman Sachs said the hike in oil prices this week was due to real oil market fundamentals and not just hedging against a weak dollar and equity market rallies. "The oil market was shocked by disruptions in Nigeria, refinery problems in the U.S. and a strong gasoline market," Goldman said in a research note. (Not sure why they think they have any credibility. Last year when oil was at $140/bbl they were calling for $200/bbl by year end. Their prop desk was probably getting short on the call, but I digress...--Ed)
• US Treasury was getting hit hard at the end of the day yesterday as the market was getting ready for big new supply coming next week - $101B of fresh Treasuries to be auctioned
• WAPO reported that the Obama administration is preparing to send GM into bankruptcy as early as the end of next week under a plan that would give the auto maker tens of billions of dollars more in public financing
• Mastercard will lose more than half of a $59B portfolio of debit-card users after JPMorgan Chase & Co. decided to shift more business to Visa
  
• The FDIC seized BKUNA, the 34th bank failure of the year, with $12.8B in assets, $8.6B in deposits and 85 branches
• AIG announced that Chairman and CEO Edward Liddy will step down and also proposed a 1-for-20 reverse stock split

I think that at some point in the not too distant future the Obama Administration, with the help of Congress, will attempt to take over the Fed. I bet the majority of Americans will see nothing wrong with that, at least the ones who have no idea (and don't care to have one) what the Federal Reserve system is and why it was created in the first place.

The elephant in the room

Bruce Bartlett at Forbes does a good job of quantifying exactly what it would take to fully fund all of our upcoming Social Security and Medicare liabilities.

The 81% Tax Increase

Most Americans believe that the Social Security trust fund contains a pot of money that is sitting somewhere earning interest to pay their benefits when they retire. On paper this is true; somewhere in a Treasury Department ledger there are $2.4 trillion worth of assets labeled "Social Security trust fund."

The problem is that by law 100% of these "assets" are invested in Treasury securities. Therefore, the trust fund does not have any actual resources with which to pay Social Security benefits. It's as if you wrote an IOU to yourself; no matter how large the IOU is it doesn't increase your net worth.

Ask me no questions, I'll tell you no lies

Greenmail: Money paid by a company (or allied company or individual) to acquire its own shares of stock from a shareholder who is threatening to take control of, or unwanted influence over, the company. The term is a neologism combining the terms greenback and blackmail, invented by journalists and commentators who saw the practices of corporate raiders as a form of blackmail. The target company is financially held hostage, and is legally forced to pay the greenmailer to go away.

Jonathon Weil makes some interesting observations about a recent unsolicited payment from Goldman Sachs to the Commonwealth of Massachusetts:

Trickle up poverty

Ed Yardeni once again nails it:

The politicians in Washington, DC have an advantage over many of us: They don’t work for a living. So they have plenty of free time to figure out ways to take money away from those of us who do. Working stiffs like us don’t have much time to stop them. We need a national Tea Party to check and balance the Kleptocrat Party running amuck on both sides of the aisle of our nation’s capitol. On April 15, there were tea parties in several cities around the nation to protest ballooning federal deficits and rising taxes. Most of the demonstrations were held during lunch time when people could get away for an hour from work!

The noose tightens

“You never want a serious crisis to go to waste — and what I mean by that is an opportunity to do things that you didn’t think you could do before.”--Rahm Emanuel

Today, governments around the world are taking power back from free markets, particularly financial markets, under the pretext that they have failed. In fact, the markets were hobbled by a combination of anti-market regulations and the lack of enforcement of regulations that leveled the competitive playing fields. In the US, the power grab is spreading to banking, autos, energy, and health care. Here is a brief chronology of recent developments around the world in this epic power struggle:

The Black Hole of fiscal responsibility

I'll withhold the niceties: anybody that thinks government is a good custodian of your current and future tax dollars is a moron.

Congress needs Google to find out where stimulus money went

On February 14, with the passage of the American Recovery and Reinvestment Act, Congress shoveled $787 billion of stimulus money out the door. Now they're using Google to find out where it went.
During the stimulus debate, the bill's supporters stressed that it included strong oversight safeguards. But audits and reports are months, if not years, away. Oversight will be after the fact; right now, with the money actually beginning to flow, members of Congress have little or no idea where it is going. What, for example, is the Department of Housing and Urban Development doing with the $1.5 billion Congress approved for a new program called the Homeless Prevention Fund? Lawmakers don't know.

Read the whole thing.


"No man's life, liberty or property are safe while the legislature is in session."--Judge Gideon Tucker 1866

Congress and NASCAR

Here's a great idea. Every member of Congress should wear a one piece uniform emblazoned with the icons of their corporate sponsors: