Debt and Deficits

Yesterday,  April 5, 2011 will not be long remembered as a momentous day of political reasoning, but perhaps it should. There were two significant political events occurring at the same time; each unique and distinct in its message but each as equally important with economic  impact on the United States of America.

The first, and most publicized was the GOP announcement of the “Path to Prosperity” (“PTP”), plan to save the American economy essentially authored by Rep. Paul Ryan of Wisconsin (now there is a bit of irony). Let us not confuse this with the ill fated “Contract With America” of the Gingrich era.   This a top to bottom house cleaning of federal finance and most importantly, federal spending. This new GOP led House has kept its promise to deliver a sound, fiscally responsible plan to bring America back to where she was before the dengue of Obamaism found its way to Washington.

PTP is beautiful in its simplicity. But why was it not done prior? Because the American people did not demand it.  America was being led down the entitlement path right into the arms of socialism. But fortunately there were enough citizens ( the TEA Party) and politicians (Ryan and Paul to name but two) who could see thru the veil of debt and government control of the American way of life (ala’ Obamacare) and had the temerity to do something about it.

Consequently, the GOP takeover of the House and Ryan’s PTP. This plan is a frontal assault on the welfare  state that the democrats and Obama want to impose. Granted, not all of it will be enacted but it lays the foundation for future conservative congress’ and presidents to follow. I will not go into the details of PTP here as there will be volumes written both pro and con, but the die has been struck and the line drawn in the sand.

The second thing that happened was a nine page letter from SECTREAS Geithner to congress. Its subject was a plea to congress to raise the current debt ceiling which is currently at $14.294 trillion. In real numbers that looks like this: $14,294,000,000,000. Some members of congress (Rubio of FL) have flatly refused to even discuss this as well they should The monthly interest alone would bankrupt most economies but Bernake (Fed CHMN) and congress have a printing press so they merely print more money to pay our bills. This practice has already made the dollar lose 14% of its value against the other major currencies of the world and it is headed south, fast. There can only be one result – hyperinflation, which has already started.

But one must look at both sides of the argument here. Geithner insists we must raise the debt limit so we can borrow more money to pay the interest on what we have already borrowed. It is a fact that forty cents of every dollar spent by the Feds is borrowed. If we don’t have the money to pay our bills, we default. The democrats say that this is catastrophic and in a way, they are correct. But they got us in this position in the first place. Obama has doubled our debt in the two years he has been in office and his current plan would double it again! Let’s hope the printing press runs out of ink before then.

Default will hurt everyone, democrat and republican alike. But there is a solution, cut spending. Our government is on the verge of shutdown because Harry Reid is quibbling over $30 billion in spending cuts. When you are talking trillions, this is a pittance. I fully expect the government to shut down and inflict pain on the economy even further. It is within the realm of possibility that we will default. The American economy will go into a tailspin and gold will soar to $5000 and ounce. Oil will be $200 a barrel and gas will be $7 or $8 a gallon. Perhaps then Reid and his minnions will come to their senses.

MOVE OVER BERNIE MADOFF

The media would have you believe that the biggest fraud perpetrated on the American public was the ponzi scheme developed by Bernie Madoff. Madoff is now serving life in prison for committing this financial crime.

However, the scheme hatched by Nancy Pelosi and Harry Reid makes Madoff look like a rank amateur. Madoff was convicted of bilking a little over $60 billion and some of that was returned to the innocent investors who were bilked. Yesterday,  Congresswoman Michelle Bachman (a potential 2012 presidential candidate) exposed a report by the non partisan Congressional Research Service,  that over $105 billion had been secretly stashed away in various parts of the Obamacare law to fund it thru 2019. This being the fact, Obamacare does not require any funding to go into effect. Its already there!  This effectively negates any GOP effort to defund the law before it goes into full effect.

Recall ex-speaker Pelosi’s parting shot when she said “you have to read the bill to find out what’s in it” after Obama signed it into law. It took over a year for the watchdog spending group to finally put all the pieces together and determine exactly how the American taxpayer had been bilked.

How could this have happened without anyone getting wise to it? The combined intellect of Pelosi and Reid is totally incapable of creating such a scam. It could only come from one place- the executive branch, the anointed one himself. Obama knew he’d be a one term president and he knew the power in Congress would shift shortly after passage of his legacy. He carefully and artfully worked behind the scenes and developed this overwhelming and potentially, illegal scheme.

But he may have outsmarted (?) himself. Reid and Pelosi  conspired with their democratically controlled congress not to produce a budget last year. This was artfully covered by all the time spent on Obamacare and Dodd-Frank. This has had several effects on America with the major impact a potential shut down of government services due to lack of funding. The now GOP controlled house (where all revenue and spending bills must begin) has used this shutdown to their advantage to force Obama to acquiesce to some of the spending cuts demanded by the GOP leadership.

Now we have the discovery of the hidden $105+ billion and potentially a government without a budget. The logical pursuit is to tell Obama and company that they withdraw the hidden slush fund AND agree to ALL the cuts demanded by the GOP or the government closes down. This will be a fait accompli or a Mexican Standoff.

Stimulus Boondoggles- Economic Absurdity

Will it ever end? It seems that every time we pick up a newspaper or listen to a pundit’s commentary there is yet another gaff by the Obama regime. Now it is coming to light that literally millions of dollars have been wasted by capricious stimulus programs. Senators McCain (remember him?) and Tom Coburn issued a report the other day listing the top 100 of these misguided, misdirected and questionable grants.

Now of course the Regime was quick to fire back saying that as far they knew, ten of the questionable programs had either been cancelled or never got off the ground.

Are you kidding me? Ten? That means they are admitting to 90% of the remainder. And who knows what McCain/Coburn missed. As I’ve written in the past, this is truly the gang that couldn’t shoot straight and missing a target as large as the entire American economy is pure amateurism (sic?).

But let’s face it, we all know it, there isn’t a single member of the regime cabinet that has ever held a real job except maybe Turbo Tax Geithner and he was a stock broker, I think. So let’s take a look at the top ten. Read them and remember them on November 2^nd and throw the bums out!

1. Over half a million dollars was spent to replace the windows in a visitor center at Mount St. Helens. The only problem is that center closed nearly three years ago due to lack of use.

   2. Three-quarters of a million dollars went to the University of North Carolina at Charlotte to create a computerized dance-choreography program. The university’s overhead is 44 percent of the grant, the report stated.

   3. $62 million was allocated for the North Shore Connector, which provides light rail transportation to a casino and two sports stadiums in Pittsburgh. In February 2009 Gov. Ed Rendell, a Democrat, called the project a “tragic mistake.”

   4. $7.3 million for the construction of two fire stations in San Antonio, Texas. The senators report the city was about to build the stations itself when the federal funding came along. Since then, compliance with federal regulations has caused so many delays no one is sure now when the stations will be built, they say.

   5. Some $1.2 million was set aside to convert an abandoned train station into a museum in Glassboro, N.J. Federal authorities provided $250,000 to buy the structure in 2002, but little or no work has been done there. Now they’re going to invest another $1 million to change the graffiti-riddled station, which was built in 1860, into a “museum and welcome center.”

   6. Nearly $2 million is going to the California Academy of Sciences to send researchers to island in the Southwest Indian Ocean and to East Africa to photograph ants. The pictures will be posted on a Web site devoted to ants.

   7. A $1.8 million road project in Ohio is being built so close to a pastor’s house that it has cracked his foundation, and a massive crane has struck his front porch twice.

   8. In 2004, the federal government provided $661,000 to refurbish the old Fitchburg Furnace building in Fitchburg, Ky. The treasurer of the Friends of Fitchburg organization, however, says much of that money was lost due to “bad stewardship of money.” Now, thanks to the stimulus, the project is receiving another $350,000.

   9. In Kern County, Calif., the government is investing $308 million for a power plant to “generate more environmentally friendly electricity by capturing carbon dioxide from the burning of fossil fuels.” It’s hard to see how the money will stimulate the economy … groundbreaking isn’t scheduled until December 2011.

   10. Folks in Boynton, Okla., are perplexed because their town won $89,298 to build a quarter-mile long sidewalk. The new sidewalk leads to a ditch, and replaces one still in good condition that was built just five years ago.

   The report also highlights two controversial studies of primates. Georgia State University researchers won $677,462 to compare how monkeys and chimpanzees respond to “distributional inequality” and “unfairness.” Another $72,623 went to Wake Forest University to study how monkeys react under the influence of cocaine.

 

There you have it folks, your democratic stimulus program in action. And guess what? This one hasn’t worked so they want to try it again. Don’t let them!

Don’t Blame Goldman Sachs

Granted, Goldman acted in some unethical and some would say immoral ways in their business dealings regarding the current financial malaise, but the real culprits were the “The Four Horseman of the Financial Apocalypse”. In biblical time they were known as conquest, war, famine and death. In the 1920’s they were given a new name, famine, pestilence, destruction and death immortally penned to be the pseudonym of the great Notre Dame backfield of Stuhldreyer, Laydon, Crowley and Miller. Today these football greats have been replaced by Leonard Greenspan, Robert Rubin, Arthur Levitt and Larry Summers.

 I lay the responsibility for the current financial crisis right at the feet of these gentlemen as they perpetuated and exacerbated a condition that goes all the way back to Jimmy Carter. Carter, in his infinite wisdom (recall the statement, “After all, I am a nuclear engineer) signed into the law the Community Reinvestment Act of 1977. Yep, 1977! Its primary purpose was to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low and moderate income neighborhoods. Can you say zero down, sub Prime? I will show below, exactly how they manipulated markets according to the whims of the then in power politicians, to allow the unfettered run of the new emerging derivative market that would eventually lead to the current housing market crisis and general worldwide financial disaster.

The GOP would have you believe that Chris Dodd and Barney Frank are personally responsible and should be criminally prosecuted for malfeasance of office. The GOP points to the sub-prime mortgage market meltdown as the single most causative factor that plunged our financial system into chaos. I believe that the sub-prime mess was a causative factor in the financial failure of many of the largest banks on Wall Street but it was the numerator in the meltdown equation, not the denominator. The denominator and catalyst that shook Wall Street to its very foundations was the derivatives commodity market.

What the derivatives commodity market is, is not an easy question to answer. First we must look at the free market economy that has driven America successfully for over 200 years. From a very simplistic viewpoint, investment profit and loss is made and lost in the rise and fall of investment value. The two key drivers of the American economic engine are securities (stocks and bonds) and commodities (usually hard goods such as metals, agricultural products, etc.). Both are traded (bought and sold) in markets with the two largest being the NYSE (securities) and CBOT (commodities).

Ever since the market crash that entered us into the Depression, the NYSE has been strictly regulated to prevent a reoccurrence. And these regulators have usually worked well to a great extent. Certainly there have been mini crashes but none that have sent us precariously close to the financial abyss we now face.

Not so with the CBOT. The popular theory has been that the free market will correct itself when it comes to hard goods. Alan Greenspan resisted any form of regulation of commodities for his entire career. And for the most part, he was proved correct. There was never a serious crisis in the CBOT. Oh, there were many ups and downs, but  he contended that was the working of the free market system. And up to a certain point, he was right. 

Greenspan served as the chairman of the Federal Reserve for many years under a half dozen different presidents. He retired from the Fed in 2006. His words were respected and believed. To all, he was a financial genius who saved the USA many times with his manipulation of interest rates and control of the money supply at the Fed.

But something happened during the 90’s under the Clinton administration that was not anticipated by Alan Greenspan or his three closest advisors, Robert Rubin, Arthur Levitt and Larry Summers. Rubin was Clinton’s SECTREAS, Levitt was the chairman of the SEC and Summers worked under Rubin and eventually succeeded him as SECTREAS. A new financial product was introduced to the CBOT the likes of which they, nor anyone else, suspected the ramifications thereof; the financial derivative.

Exactly what is a financial derivative? Now not all of us are MBA’s so here is a simple explanation.

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting loans to the customers).

Word gets around about Heidi’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers’ freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi’s gross sales volume increases massively. A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi’s bar.
 
Derivatives, in simplistic terms. Now I will apply it to the financial environment of the 90’s.

The unemployed alcoholics are home buyers with poor or no credit. Heidi is really is a assemblage of bankers and mortgage brokers plus two federal agencies, Freddie Mac and Fannie Mae. The dynamic young banker who increases Heidi’s loan limit is the US Congress under the tutelage of Greenspan, Rubin and Summers. The expert traders are the NYSE members such as Goldman Sachs and  governed by Arthur Levitt. The buyers of Heidi’s bonds are investors worldwide.

But, there is one difference here, and that is the CBOT. The Chicago Board of Trade where all commodities are really traded. Somehow, Heidi’s bonds ended up here in this unfettered market. The CBOT is not governed by the SEC but by a heretofore unheard of small regulatory agency known as the Commodity Futures Trading Commission or CFTC and was under the chairmanship of Brooksley Born. Ms. Born was a member, or  managed the CFTC from 1994-1999 and was appointed by Bill Clinton. This is the same Bill Clinton who urged Congress (specifically Chris Dodd and Barney Frank) to come up with a way to make housing affordable for every America, ala’ Jimmy Carter.

Hence, the beginning of the housing boom and the run up in housing prices. The analogy to Heidi’s bar is unmistakable. Those in the know knew very well that in a few years there might be a massive default of all these uncovered mortgages that were bundled into interest paying bonds so they bet against them. How was that done? The took out an “insurance policy” or what is known as a “short” position on the bonds hoping they would fall in value and they would reap the benefit of this devaluation. All of this was occurring at the CBOT and not under the guidance of the SEC and messers Greenspan, Levitt, Summers and Rubin.

Due to litigation against a company called Bankers Trust by major corporate clients, Born and her team at the CFTC sought comments on the regulation of derivatives, a first step in the process of writing comprehensive regulations. Born was particularly concerned about swaps, financial instruments that are traded over the counter between banks, insurance companies or other funds or companies, and thus have no transparency except to the two counterparties and the counterparties’ regulators, if any. CFTC regulation was strenuously opposed by Federal Reserve chairman Alan Greenspan, Treasury Secretaries Robert Rubin and Lawrence Summers. On May 7, 1998, former SEC Chairman Arthur Levitt joined Rubin and Greenspan in objecting to the issuance of the CFTC’s concept release. Their response dismissed Born’s concerns off-hand and focused on the possibility that CFTC regulation of swaps and other OTC derivative instruments would increase legal uncertainty of such instruments, potentially creating turmoil in the markets, and reducing the value of the instruments. Further concerns voiced were that the imposition of new regulatory costs would stifle innovation and push transactions offshore.

While Ms. Born continued to battle the Four Horseman, Rome burned. Mortage backed derivatives continued to fill every portfolio in the world. Investments in them soared under the urgings of Congressman Barney Frank who proclaimed to the world that Fannie Mae and Feddie Mac were safe and secure investments.

Then came the inevitable. An economic slowdown cut off cash to the people who were supposed to pay for these mortages and the house of cards fell. Billions were lost and the world was brought  to the brink of economic chaos. But true to the Heidi analogy, the governement came to the rescue with a bailout package.

It certainly is an ugly story but a factual one and now the governement is looking for a scapegoat. Enter Goldman Sachs. Their (the Feds) theory is throw enough blame somewhere else and no one will think we are to blame. But no, that is not the case. This was started by the Carter/Clinton Administrations and supported in the later years by the democratically controlled congress. The current administration has tried to blame Bush but it all started back in 1977.

I am not saying Wall Street is blameless but they and the Feds were warned by Ms. Born but the Four Horseman saw to her demise and demonized her as they do everyone who opposes their liberal agenda.

Ms. Born was fired before the crisis hit but since has been awarded the John F. Kennedy Profiles In Courage Award in recognition of the politcal courage she demonstrated in sounding early warnings about conditions that contributed to the current global fiscal crisis.

As for the Four Horseman, Greenspan is retired and only now the public is starting to realize he was not the genius he thought he was, Levitt has retired on a fat SEC pension (he too, left before the debacle), and Summers, who was a Rubin protégé’ and served as SECTREAS under the waning years of Clinton is  in the Obama administration as the director of the National Economic Council. The icing on the cake is Robert Rubin. Before becoming SECTREAS under Clinton, he was the co-chair of GOLDMAN SACHS for 26 years. After leaving as SECTREAS he was Chiarman of Citigroup where he was fired for non performance but received a $126 million golden parachute.

Brooksley Born? Went back to practice law and lives a quiet life with her family.

One final note, Fannie Mae and Feddie Mac still continue to grant questionable loans.

The Fiscal Road to Oblivion

For those that have an unlimited income stream, this will have little or no meaning. But most of us have finite resources and over the past year have watched as those resources have declined. Our solutions to our personal problems were quite simple; we pulled in our belts, sucked it up and did without a lot of things we really didn’t need, and some we really did.

Why is it that the people we elect to represent us in congress don’t understand this simple principle of living within one’s means? Answer: because government doesn’t think it has to. Government believes it has a God given right to spend as much as it can, as fast as it can, and for things it does not need or want. The justification for this wanton and reckless behavior is “its all for the common good”. Whose good? Yours, mine? Who decided we wanted this or that?

The usual answer to such rhetorical questions is “they did” But who are they? “They” are not the men and women who represent us in congress. “They” are the power brokers who float thru the hallowed halls on vaporous clouds of pseudo-imperialism. “They” are the leaders who achieved their lofty positions by an archaic seniority system. “They” are above the mundane, the simplistic, the realistic. “They” have no one to answer to but them selves and oh, sometimes, the president when he’s around.

“They” do not answer to the electorate, that is abundantly clear. They answer only to each other and themselves.

Why do we put up with such a system? The framers of the constitution specifically were against “king making” but isn’t that what we really have in Washington? Only its not one king but about a half dozen and one so-called queen. They are easy to identify by the post that they hold and the influence they are able to peddle.

Nancy Pelosi, Harry Reid, Chris Dodd, Barney Frank, Henry Waxman, Charles Rangel to name but a few. And what do they all have in common? They are all long time members of congress and all democrats. The cumulative amount of time this group has spent in congress is staggering- one hundred and ninety one years (191). The ranking member is Charles Rangel who weighs in at forty (40) years. The interesting thing about each of these titans of politics is that each and everyone of them has been linked to at least one congressional scandal.

Some of these scandals go back many terms yet these un-accused law breakers are continually re-elected to congress. How is that?

These seemingly corrupt legislators hold the keys to our government and more importantly the United Sates Treasury. And they are using them. Just the other day the house passed the “omnibus spending bill” to provide the federal government with funding to operate in fiscal year 2010. This legislative monstrosity allows federal agencies to increase by more than $48 billion, or about 12% more than 2009. What’s wrong with this picture? We are going broke, our national credit rating is at risk and these fat cats in Washington don’t give a damn. These democrats are in command and they want to spend, spend, spend.

This stash when added to the $311 billion stimulus package brings the increase to almost 70% over the past two years. AND NOT A NICKLE IS FOR DEFENSE!

I could go on and on but you get the point. 2010 will be a pivotal year in American politics. It will overshadow 1994 and we must win. We must remove the Dodds, Waxmans, Reids, Franks, Pelosis, and Rangels and take back America. Make America what it was, a Christian nation that believes in God, motherhood, the flag. These king makers in congress must be dragged down and thrown out of Washington. We are sick and tired or it and we WILL NOT take it anymore.

Get behind your GOP candidates, contribute to their campaigns as most are woefully under funded, and throw the bums out.

As usual opposing views are eagerly accepted.

IMHO #6 Geithner’s Fuzzy Math

Geithner’s Fuzzy Math

 

In a major announcement this morning, the Obama team announced they were going to reduce the deficit. They would do this by applying unused TARP funds (Toxic Asset Recovery Program). Now one has to wonder, is this for real? Do these whiz bang ex-Wall Street types really think this a good idea and will actually work? Much less, do they think the public will believe it? I guess they do.

 

But the reality of the situation is that this is just another attempt to make Obama look like he’s doing something to help the economy. The only help I see is all the trips he is taking all over the world for no apparent reason. The less he is here, the less we have to see his mug on TV all the time. This is smoke and mirrors at its best. Let’s look at the facts. TARP was a by product of the Bush administration and the last democratically controlled congress. The banks were failing, wall street was diving, Freddie Mac and Ginnie Mae were cratering, the economy was teetering on the brink of a financial abyss. The purpose of TARP was to inject $700 Billion into the financial system to save it. It was thought to be so vital, that it cost John McCain the election. Remember when he suspended his campaign to come to Washington to help? Obama did not.

 

When the terms of the TARP bailout started to come to light, there were many insurance companies, although teetering on the brink, that refused the governments money. It meant turning over too much control of their companies to the Treasury. Some were actually forced to take the money or face extinction by some unknown Federal skullduggery thought up Geithner.

 

So now here we are facing a national debt that can never be repaid and Obama has come up with a scheme to reduce that debt and lower the deficit. So how will he do that? Simply put. He is taking the money out of his left hand pocket (pardon the pun) and putting it into his right hand pocket and magically, $200 Billion of the deficit disappears. Now when the deficit is over $1,000,000,000,000 (that’s a trillion with twelve zeros ), $200 Billion seems like a sizable chunk to retire. But whose money is it?

 

Its funding that was budgeted under TARP but has yet to be spent. And, if it hasn’t been spent, it doesn’t exist because it would come from Federal borrowing from China or the printing presses of the Treasury. So what Obama and Geithner have done is once again, hoodwinked the public into believing something that is totally bogus. They are reducing a debt that doesn’t yet exist with money that also doesn’t exist. Plus they will tell you that they now have a $200 Billion slush fund that they can fall back on!

 

That raises the obvious question of if we can do that with TARP, why not the stimulus? Its at best 20% spent. Seems logical right? Nope, doesn’t fit the Obama economic miracle model at all. They are constrained in tackling the burgeoning debt, since raising taxes or cutting spending (i.e. stimulus) could stunt economic growth. National Economic Council Director Larry Summers says that rapid deficit reduction could hurt the economy. The operative word there is could. You see he really hasn’t a clue. You may not know much about Summers but he was part of the gang of four (Summers, Levitt, Rubin and Greenspan) who brought us the mortgage and derivative disaster. But that’s another story.

 

Even though Mr. Summers has a Ph.D in economics from Harvard, it appears he doesn’t know how to balance a check  book if he goes along with this scheme.