Thursday, February 26, 2009
Up and running today (Thursday Feb. 26), I browsed through the usual cast of websites and learned the speech has legs. People are still ruminating about it and the response from Republican Gov. Bobby Jindal of Louisiana.
I enjoyed Obama's speech for its tone, specifics and upbeat rallying cry to overcome our economic meltdown. Two thoughts keep lingering in my mind.
First, his optimism jumped the shark when he said we can cure cancer. What he should have said was to fulfill a campaign promise to increase federal funding for stem cell research. Only in this area are we with diseases such as diabetes, cancer, Parkinson's, etc., see a glimmer of hope for future generations.
Second, how in the world does he expect us to pay for all this borrowing to get the banks and consumers on stronger footing? The numbers don't add up. No tax increases for those earning less than $250,000. An increase in rates from 35 to 39% for the other 5%. Savings in health care and from the Iraq war. A tax credit here. A carbon tax there.
Sorry Mr. President. My math does not come from the Harvard School of Economic Prestidigitation. Call me a flaming liberal, but some form of a cross-the-board graduated tax increase will be required if and when the economy rebounds.
During the speech, I couldn't help recalling my formative years growing up in Orange County, Calif., a bastion of rock-ribbed Republicans led by James Utt, perhaps the most conservative representative to ever roam the halls of Congress. Jimmie would have had a heart attack listening to Obama's proposals but at least the common sense not to pull a gun and shoot him.
Picture that in mind when the cameras before the address panned on the justices of the Supreme Court entering the chambers. I could be wrong but I swear I saw Republican Sen. Jim Bunning hug Ruth Baden Ginsberg, the court's most liberal justice who is recovering from pancreatic surgery. A day earlier the conservative from Kentucky was forced to issue an apology to Ginsberg for saying the cancer would kill her within a year.
Yes, I also considered it funny how many times the spry grandmother, Nancy Pelosi, House Speaker, leaped to her feet in applause for the president's remarks. It damn near wore out old Joe Biden, the vice president, sitting alongside Pelosi and to the back of the president. One TV pundit sarcastically praised Biden for keeping his mouth shut during the hour speech.
The reaction among Republicans and conservatives questioning Jindal's rebuttal speech I thought borderline stunning. He appeared, as they said, performing a parody of himself on "Saturday Night Live." He was unavailable for comment Wednesday. apparently sneaking off to visit DisneyWorld.
What made Obama's speech remarkable -- in perspective of watching State-of-the-Union and first-year addresses for the past 30 years -- is how far the Republican Party has sunk from the good graces of public opinion.
President Barack Obama's budget plans announced Thursday to reduce health care costs by $634 billion through savings to expand medical insurance coverage seems partially supported in a report being published in the New England Journal of Medicine.
The study found that the government is paying twice as much for treating a patient in Miami as in San Francisco. The dramatic cost differences paid by Medicare does not reflect seniors living in the more expensive areas receive better treatment.
Advanced medical technology is only a fraction of the cost differences. Mostly it is decisions made by doctors and, to a lesser extent, patients, according to the report.
"Technology doesn't drive the growth in health care spending, people do," said Dr. Elliott Fisher, the lead study author and a medicine professor at the Dartmouth Institute for Health Policy and Clinical Practice. Fisher said physicians are not the only issue, but also questions whether there's a local medical health race among local hospitals or whether a community has a single hospital that is more focused on primary care.
The Dartmouth findings say there is plenty of room for reform if practices in the regions of the country that are less expensive could become the national norm.
In his budget, Obama proposes setting aside $635 billion in savings over the next decade to pay for health care reform, about half the total estimated cost to extend insurance coverage for all Americans. Some of the funding will come from higher tax rates on people earning more than $250,000 annually.
Medicare reforms won't come easy since the country's medical system frequently rewards expensive practices, the Dartmouth study notes.
For example, hospitals lose money if they improve care in a way that reduces admissions. Doctors don't have a financial incentive to spend time carefully listening to a patient rather than quickly referring them to a specialist. "There are no financial rewards for collaboration, coordination or conservative practice," the study said.
(I can vouch for that on personal experience. My primary care physician once referred me to the hospital emergency room for a bloody scratch on my ear lobe.)
The study found that among the 25 largest hospital-referral regions, Manhattan was the costliest, at $12,114 per patient in 2006. Minneapolis was the least expensive, at $6,705 per patient.
Among states, New York spent the most per Medicare enrollee: $9,564 per patient. Hawaii spent the least: $5,311. Medicare spent $16,351 on each Medicare enrollee in Miami in 2006 compared with $8,331 in San Francisco.
Combined health care costs paid by the governments, private insurance compainies and citizens is $2.4 trillion, according to the U.S. Health and Human Services Department.
Tuesday, February 24, 2009
And when Fed Chairman Ben Bernanke issues a statement or addresses Congress, as he did Tuesday, the Dow rises by 231 points? And, Bernanke's remarks to the Senate Banking Committee were not all that upbeat.
Are we as sideline observers placing too much emphasis on the Dow Jones Industrial Averages, Standard & Poor and NASDAQ reflecting the whims of skittish investors?
I don't know. It does occur to me that judging the economic meltdown based on a scoreboard of whom scores the most points is not the best way to boost consumer confidence.
Geithner is an enigma. His credentials for Treasury Secretary were so impeccable we had to turn our noses to the fact he didn't pay $43,000 in back taxes until tapped for the job. Now more and more market analysts are wondering if he's up to the task.
On Chris Matthews' "Hardball" show Monday, self-declared market guru Jim Cramer and a university economics professor both called for Geithner's resignation. That may be a little harsh. As I recall, Willie Mays went something like 0-25 before his first Major League hit in a career that landed him in the Hall of Fame.
The rap on Geithner seems to be he is sending mixed signals to banks interpreted by some as the "N" word: Nationalization. The government has controlling interests now of Fannie Mae, Freddie Mac, insurance giant A.I.G. and soon about half the preferred stock of Citigroup.
Geithner has revamped a controversial $700 billion bank bailout program to include steps to partner with the private sector to buy rotten assets held by banks as well as expand government ownership stakes in them — all with the hopes of freeing up lending. He's asking investors to gamble on the price of acquiring the bad mortgages.
It seems that nothing, no matter how much money gets thrown at the U.S. economy, can satisfy this market or stanch the bleeding. Day after day, we're confronted with a steady stream of lower earnings, disappointing forecasts and sinking stock prices. The market just refuses to be appeased.
Reports The New York Times:
The government face(s) mounting pressure to put billions more in some of the nation’s biggest banks, two of the biggest automakers and the biggest insurance company, despite the billions it has already committed to rescuing them.
The government’s boldest rescue to date, its $150 billion commitment for the insurance giant American International Group, is foundering... Separately, the Obama administration confirmed it was in discussions to aid Citigroup, the recipient of $45 billion so far, that could raise the government’s stake in the banking company to as much as 40 percent... The Treasury Department named a special adviser to work with General Motors and Chrysler, two of Detroit’s biggest automakers, which are seeking $22 billion on top of the $17 billion already granted to them.
All these companies’ mushrooming needs reflect just how hard it is to stanch the flow of losses as the economy deteriorates. Even though the government’s finances are being stretched — and still more aid might be needed in the future — it is being forced to fill the growing holes in the finances of these companies out of fear that the demise of an important company could set off a chain reaction... In an unexpectedly assertive joint statement after two weeks of bank stock declines, the Treasury Department, the Federal Reserve and federal bank regulatory agencies announced that the government might demand a direct ownership stake in major banks that do not have enough capital to weather a deeper downturn. The government will begin conducting a test of the banks’ financial health this week.
Meanwhile, Bernanke told Congress Tuesday he hoped that the current recession will end this year, but said there were significant risks to that forecast. Any economic turnaround will hinge on the success of the Fed and the Obama administration in getting credit and financial markets to operate more normally again.
He said that the Fed and other Washington policymakers won’t be able to break a vicious cycle where disappearing jobs, tanking home values and shrinking nest eggs are forcing consumers to cut back sharply, worsening the economy’s tailspin. In turn, battered companies lay off more people and cut back in other ways.
“To break that adverse feedback loop, it is essential that we continue to complement fiscal stimulus with strong government action to stabilize financial institutions and financial markets,” Bernanke said.
Although Bernanke didn’t mention any financial institutions by name, Citigroup Inc. — the industry’s troubled titan — apparently is in line for additional government help.
Sen. Bob Corker, R-Tenn., worried the government was “creeping” toward bank nationalization through a new option announced by the administration Monday. The new plan allows the government to greatly expand its ownership in a bank by converting preferred shares into common shares.
"It is not nationalization,” Bernanke said. Corker was skeptical about the effectiveness of bank-rescue efforts saying he saw a continuation of “sort of dead-man walking, zombie bank.”
When pressed about how much more money the government might need to shore up the nation’s troubled banks, Bernanke didn’t give a figure and said it would depend on the health of banks, how the economy evolves and the margin of safety that regulators believe is needed.
Monday, February 23, 2009
As Yogi Berra is said to have uttered, it's deja vu all over again. Former President George W. Bush promised the same thing with abysmal results. Is Obama falling into the same trap?
The only broad outline Obama touched in reaching his goal is reducing government waste. Deja vu. He said that during his presidential campaign. That job, he said, is being delegated to Vice President Biden and each member of his cabinet.
Deja vu. Former President Bill Clinton assigned his vice president to "re-invent" government but streamlining pork and fat from the budget. A high tech economy work for a brief period before that bubble imploded.
Obama said that the bank-rescue plan and the broader economic stimulus program are necessary not merely to jolt the economy but because the country has “long-term challenges — health care, energy, education and others — that we can no longer afford to ignore.”
“But I want to be very clear,” he said at a White House economic conference involving legislators, business and labor leaders and others. “We cannot and will not sustain deficits like these without end. Contrary to the prevailing wisdom in Washington these past few years, we cannot simply spend as we please and defer the consequences to the next budget, the next administration or the next generation.”
The deficit that Obama inherited is estimated at $1.3 trillion or more for 2009. More specific clues to the president’s thinking may be discernible later this week, when he proposes his first budget, for the federal fiscal year that will begin on Oct. 1. “We’ll start by being honest with ourselves about the magnitude of our deficits,” he said, chiding former President George W. Bush, unmistakably if not by name, for “a series of accounting tricks.”
“We’re not going to be able to fall back into the same old habits and make the same inexcusable mistakes,” he said. One such bad habit has been “the casual dishonesty of hiding irresponsible spending,” Obama said, citing the Bush administration’s technique of “budgeting zero dollars for the Iraq war — zero — for future years, even when we knew the war would continue.”
Sooner or later, the president said, tough choices will have to be faced in dealing with the spiraling cost of health care, “the single most pressing fiscal challenge we face, by far,” and to assure the long-term solvency of Social Security.
The deficit is the year-by-year gap between what the federal government spends and the revenue it takes in. So even if the annual deficits are cut, the total national debt will continue to grow.
It now stands at just over $10.8 trillion, according to the Department of the Treasury. Of that amount, about $6.5 trillion is owed to individuals, corporations and governments and other lenders both domestic and foreign, while $4.3 trillion is owed for Social Security benefits, military and civil service pensions and other government programs.
President Clinton, never bashful to offer his advice to anyone, has suggested Obama become more positive that the economy will rebound.
But, putting a happy face on slashing the deficit defies logic at this point in our history. It doesn't seem credible. It is a promise leading to failure.
In the arena of politics, it's one thing to speak the truth about possible events we don't want to hear. It's another to forecast the death of a prominent public official in a crass pitch to win support for re-election.
In a Saturday speech in Elizabethtown, Kentucky, Bunning said "even though she was operated on, usually, nine months is the longest that anybody would live" with pancreatic cancer, according to the Courier-Journal of Louisville.
Doctors diagnosed the 75-year-old justice and removed a small tumor. They said the cancer was caught early, when it is most curable. Ginsburg was in court Monday, 18 days after undergoing surgery.
Bunning put out a written apology on Monday, saying he did not mean to offend Ginsburg, adding "It is great to see her back at the Supreme Court and I hope she recovers quickly."
Bunning, 77, has had lackluster fundraising so far, but has said he intends to seek re-election in 2010. His comments signal the strong battlelines conservative Senate Republicans are drawing to oppose any nomination by President Obama that would change the 5-4 constitutional policy decisions on the nation's highest court.
When ghoul politics enters the equation by dinosaur Republicans, it makes rather mild the foot-in-mouth disease of our vice president predicting a 30% failure of the stimulus package and terrorists testing the will of our new president.
Sunday, February 22, 2009
A self-described Texan, Burrough sheds light into what makes Texans tick, especially those wildcat oil drillers who became filthy rich over night. Their imprint on the national scene is waning, but, Burrough warns, they will be back.
What is fascinating about the article is reading one Texan verbally pistol-whipping his Lone Star brethren. These are the same people who called me a foreigner when I drove my motorhome with California license plates through their state.
Again, your comments are welcome.
In 1845, the second-largest independent country in North America, the Republic of Texas, held its nose, took a deep breath and merged with its upstart eastern neighbor, the United States. (As a Texan myself, I understand the occasional regret that we took y'all's name instead of the other way around.) For the next century, Texas didn't give America much trouble. By and large, it was known for cattle with large horns, men with large hats and its citizenry's penchant for orneriness, braggadocio and shooting one another.
All that began to change in the late 1940s, when America suddenly discovered that an awful lot of Texans had somehow become very, very rich -- and very, very interested in national politics. The East Coast establishment's dismay at this news was captured in a six-part series of front-page stories in this newspaper that began 55 years ago this month. Authored by the Pulitzer Prize-winning White House correspondent Edward T. Folliard, the package promised what an editor's note called a first-ever look at "The Big Dealers, the fabulous money men of Texas who have been pouring part of their millions into American politics. . . . The unique thing about them is public ignorance of their motives, purposes and ideas."
Thus began more than half a century of Texas political power that would see the first Texan, Lyndon B. Johnson, take a seat in the Oval Office; a second, George H.W. Bush, 25 years later; and in short order a third, George W. Bush. Along the way, the Texas "Big Dealers," a class of rightwing oilmen more commonly known as the Big Rich, would thrust upon the nation a series of princelings, beginning with their in-house attorney, John Connally, and leading through men such as Tom DeLay, Dick Armey and Phil Gramm. Never let it be said that The Post doesn't give you plenty of warning.
But now, barely a month into the Obama administration, even the proudest Texans must admit: The days of Lone Star Power are over. You may greet this news with tears or with relief, but there's no denying it. Now that George W. Bush has hightailed it back to Dallas, there is no Texan of any real significance left on the national stage. Kay Bailey Hutchison is still hanging on, and Texas has that governor, Rick whatsisname, the guy with the haircut, but the most visible Texan in Washington right now is probably the Libertarian Ron Paul. I don't think I need to say much more than that.
The twangy voices of political Texas, once so loud and proud, have been hushed. Molly Ivins is gone; great lady, sorely missed. Progressives such as Ronnie Dugger and Jim Hightower still soldier on, but not like before.
The closest thing to a public intellectual Texas can now claim is Kinky Friedman, a Lone Star icon whose political pronouncements -- you'll recall he was a viable candidate for governor a while back -- make Ron Paul look like Lincoln. Offhand, I can't even name another Texas congressman. You?
It's been a long time since Texas was irrelevant. Few remember it now, but before World War II it was regarded as little more than a supersize Mississippi, a backward, agrarian society whose ultraconservative businessmen were best known for the Texas Regulars, a third party they formed in 1944 to challenge Franklin D. Roosevelt. The party's defining platform plank called for "restoration of the supremacy of the white race."
Those were the days of Gov. Pappy O'Daniel, a hillbilly singer and flour salesman who won the statehouse in 1938 on a simple platform: the Ten Commandments. The state's most notable legislation during the 1940s made membership in the Communist Party punishable by death. And you thought Washington was a tough town.
Texas might have remained a marginalized curiosity, but oil changed everything -- everything. Until the Great Depression, control of Texas oil remained largely in the hands of Yankee corporations. There were some wealthy Texans, but no Big Rich.
During the Depression, however, the cash-strapped major oil companies all but stopped looking for oil, preferring to simply buy what they needed elsewhere. Into this vacuum charged hundreds of individual Texas oilmen, known as wildcatters, who between 1930 and 1935 proceeded to discover the largest oilfields ever found in the Lower 48, including the biggest, East Texas, and the runner-up, at Conroe, north of Houston.
Once the dust settled, four men had found the most: H.L. Hunt, a onetime Arkansas gambler and practicing bigamist who cut a deal to buy the heart of the East Texas field; his Dallas neighbor Clint Murchison, who made his fortune running illegal "hot oil" during the Depression; Murchison's boyhood chum Sid Richardson, a Fort Worth wildcatter who hit it big in far West Texas; and a cantankerous Houston oilman named Hugh Roy Cullen, a fifth-grade dropout who doled out political advice to anyone who would listen -- and to quite a few who wouldn't. It was Cullen of whom Wendell Willkie was speaking when, during an exchange of pointed correspondence during his 1940 presidential run, he noted with a sigh: "You know the Good Lord put all this oil into the ground, then someone comes along who hasn't been a success at anything else, and takes it out of the ground. The minute he does that he considers himself an expert on everything from politics to pettycoats."
It was these four oilmen whose millions built the foundation of Texas political power. Murchison and Richardson used suitcases of illegal cash to help get LBJ elected to the Senate in 1948. Three years later Cullen bought a radio network with an eye toward making it a proto-Fox News. When it went belly up, he took to lobbing checks into political races around the country; Cullen was the largest single donor to American candidates in 1952 and again in 1954.
Hunt went a step further, starting the first genuine conservative media network, Facts Forum, which launched scads of newsletters, radio and television programs. When he got religion in the late 1950s, Hunt started LIFELINE, one of the first media outfits to try mixing right-wing politics with sermonizing.
The Big Rich emerged at a key moment in the nation's political history, a period that saw the birth pangs of modern conservatism. In the years before William F. Buckley founded the National Review in 1955, theirs were some of the loudest -- and wealthiest -- conservative voices in the land. "Virtually every Radical Right movement of the postwar era," the Nation argued in 1962, "has been propped up by Texas oil millionaires."
In the short run, the Big Rich squandered their political capital. After the press deduced how much money they had shoveled to Joe McCarthy -- sometimes known as Texas's third senator -- his demise was theirs.
In the long run, however, the Big Rich got Texas rolling down a path that by the 1960s would give birth to the modern Texas GOP, one of the first great Republican machines of the postwar South. It was Cullen whose money and organizational drives in the 1940s and '50s helped transform the Texas Republicans from a cadre of nattering nobodies to a new home for thousands of newly minted conservatives. They got the conservative John Tower elected the state's first GOP senator in 1961.
Ever since, Texas oil money has been a reliable backbone of the conservative movement. Not that all that cash easily translated into influence. After taking millions from ultraconservative oilmen over the years, Lyndon Johnson actually went and got all liberal: Before Murchison died in 1969, he wouldn't even take LBJ's calls.
The first George Bush was never conservative enough for most oilmen, but then many considered him a Yankee carpetbagger to begin with, about as much a Texan as Winthrop Rockefeller was an Arkansan.
The younger Bush, however, was the real deal, an actual Texan wildcatter who shared the Big Rich's values and views pretty much across the board. Hunt and the others never knew George W., but they would have loved him.
And now, well, it's over. The Bush administration's bonfire of the inanities has made being a Texan something you don't brag about. None of the East Coast Texans I know want to talk too much about their heritage these days -- surely a first.
Nationally, about the only Texas oilman who can still make waves is T. Boone Pickens, who captured a certain amount of national attention last year with all those commercials about alternative energy. Folks listened to Boone there for about five minutes when oil was at a million dollars a barrel, but now that the price has fallen back to earth, he has grumped his way back to Amarillo. I don't know too many writers knocking on his door these days, but that could be just the fact that he lives in Amarillo.
I'll miss all those Texans around Washington. The big boots, the big belt buckles, the big talk, the vaguely horrified look on the faces of network correspondents forced to do standups amid the cow pies and convenience stores ringing the Crawford White House. You think Joe Biden is gonna wake up one morning and shoot a load of buckshot into a Texan's face anytime soon? Ah, good times.
Texas will rise again, of that I have no doubt. I don't know when, and I don't know who, but it will. Remember Santa Anna. He thought he'd stomped the Texans at the Alamo, yet it took barely two media cycles for Sam Houston to spring off the canvas and chase him back to Mexico. So smile if you want. I'm telling you, they'll be back.
This is something new for me. I'm offering the complete text of two wildly different op-ed articles in a two-part posting.
The first is three-time Pulitzer Prize winning columnist Thomas L. Friedman writing in Sunday's New York Times. He criticizes federal bailout funds going to losers. After reading it, I'm convinced General Motors and Chrysler should be taken off federal life support.
The second posting, titled "Part II: Texas Is Dead" by Washington Post opinion writer Bryan Burrough, describes himself as a former Texan. I'll explain why I find it fascinating and informative at the top of that posting.
But, first Mr. Friedman, and, as always, encourage your opinions on the subject by clicking on the "comments" section at the end of this post.
Reading the news that General Motors and Chrysler are now lining up for another $20 billion or so in government aid — on top of the billions they’ve already received or requested — leaves me with the sick feeling that we are subsidizing the losers and for only one reason: because they claim that their funerals would cost more than keeping them on life support. Sorry, friends, but this is not the American way. Bailing out the losers is not how we got rich as a country, and it is not how we’ll get out of this crisis.
G.M. has become a giant wealth- destruction machine — possibly the biggest in history — and it is time that it and Chrysler were put into bankruptcy so they can truly start over under new management with new labor agreements and new visions. When it comes to helping companies, precious public money should focus on start-ups, not bailouts.
You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.
If we are going to be spending billions of taxpayer dollars, it can’t only be on office-decorating bankers, over-leveraged home speculators and auto executives who year after year spent more energy resisting changes and lobbying Washington than leading change and beating Toyota.
I’ve been traveling all across the country on a book tour, and every evening I return to my hotel with my pockets full of business cards from inventors in clean energy. Our country is still bursting with innovators looking for capital. So, let’s make sure all the losers clamoring for help don’t drown out the potential winners who could lift us out of this. Some of our best companies, such as Intel, were started in recessions, when necessity makes innovators even more inventive and risk-takers even more daring.
Yes, we have to shore up the banking system, which underpins everything; and finding a fair way to prevent hardworking people, who played by the rules, from losing their homes to foreclosure is both right and essential for stability.
But beyond that, let’s think, talk and plan in more aspirational ways. We’re down, but we’re not out. As we invest taxpayer money, let’s do it with an eye to starting a new generation of biotech, info-tech, nanotech and clean-tech companies, with real innovators, real 21st-century jobs and potentially real profits for taxpayers. Our motto should be, “Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.”
To be fair, the stimulus package that the Obama team and the Democrats in Congress recently passed — with virtually no Republican help — goes some way toward doing just that. Hat’s off for that. Now let’s do more.
The renewable-energy business — wind, solar and solar thermal — was almost dead in this country. Most new projects stopped last fall because they depended for their financing on selling their renewable energy tax credits to Wall Street firms. As those Wall Street firms went bust or suffered steep losses, they had no need for tax credits because they had no profits to offset.
The stimulus package created a mechanism for renewable energy innovators to bypass Wall Street and monetize their tax credits directly through the U.S. Treasury, for any project that starts between now and the end of 2010.
The wind and solar industries in America “were dead in the fourth quarter,” said John Woolard, chief executive of BrightSource Energy, which builds and operates cutting-edge solar-thermal plants in the Mojave Desert. Almost five gigawatts of new solar-thermal projects — the equivalent of five big nuclear plants — at various stages of permitting were being held up because of a lack of financing.
“All of these projects will now go ahead,” said Woolard. “You are talking about thousands of jobs ... We really got something right in this legislation.”
These jobs will be in engineering, constructing and operating huge solar systems and wind farms and manufacturing new photovoltaics. Together they will drive innovation in all these areas — and move wind and solar technology down the cost-volume learning curve so they can compete against fossil fuels and become export industries at the “ChinIndia price,” that is the price at which they can scale in China and India.
That is how taxpayer money should be used to stimulate: limited financing, for a limited time, targeted on an industry bristling with new technology start-ups that, with a little push from Uncle Sam, won’t just survive this crisis but help us thrive when it is over. We need, and the world needs, an America that is thriving not just surviving.
Saturday, February 21, 2009
"Never before in our history has a tax cut taken effect faster or gone to so many hardworking Americans," Obama said.
He was referring to passage of one phase of the $787 billion economic stimulus package in which 95% working Americans will take home about an additional $65 per month as a result of tax cuts by April 1.
Specifically, the $400 credit for individuals is to be doled out through the rest of the year. Couples are slated to get up to $800. Most workers are to see about a $13 per week increase in their take-home pay. People who do not earn enough money to owe income taxes are eligible for the credit, an attempt to offset the payroll taxes they pay.
What the Obama administration is not telling the American public is that these increases in take home pay are being slowly eroded by one of the market place's greatest windfalls in the past five months.
That is the price of fuel and gasoline. From a national average high of $4.00+ per gallon last July, it crashed to a low of $1.56 by last September. The economic impact on motorists was substantial. It amounted to a savings of $90 per month for motorists filling their vehicle's tanks once a week, according to industry analysts.
But those savings have been eroded in the past several months. The national average of gasoline has been creeping upward by about five cents a gallon per week to this past week's $1.96, according to the government's EIA.doe.gov. It will continue to nudge higher as international demand exceeds supply, especially since Saudi Arabia's cutback in oil production.
The increased price of fuel has a rippling effect on the economy and on its current course will offset any paycheck or rebate adjustments the stimulus package imposes. This applies to non-motorists in higher utility costs and such mundane areas as home delivery of bottled water.
The Obama administration is quickly learning that for every move its makes on the economic chess board, market forces out of their control have a counter move.
Thursday, February 19, 2009
As I recall it was politicians from opposing parties reaching a compromise to solve a hot issue. The classic example: Henry Clay. Agreeing with him or not on the slavery issue, historians once dubbed Clay "the great compromiser" and bestowed statesmanship honors on his shoulders. I was never comfortable with that label because as so often happens compromises turn stone to mush. Besides, it didn't prevent the Civil War.
Of more recent vintage is the compromise between House Speaker Tip O'Neill and President Ronald Reagan over Social Security reforms. They argued by day and drank whiskey at night. A good recipe and the compromise saved Social Security for a couple of generations.
In today's more hyper arena of partisan politics, the most powerful senators and wheeler dealers are not the party leaders. In Washington, they are a trio of milquetoast Republican moderates by the names of Olympia Snowe and Susan Collins of Maine and Arlen Specter of Pennsylvania. In Sacramento, it is wealthy moderate Republican broccoli grower Abel Maldonado who early Friday morning cast the deciding vote on the state budget to fill its $42 billion deficit.
What the three U.S. senators extracted from President Obama's $787 billion stimulus bill could be described a variety of ways depending on one's confidence in the bill and political persuasion. I call it holding the bill hostage in order to get it passed.
Frankly, Specter and the bobbsie twins should be commended for cutting some of the non-stimulative measures Democrats packed in the bill. But they also cut billions for school construction which was far from prudent.
At least Specter, Collins and Snowe were not hypocrites.
That prize goes to all the Republicans who announced to their constituents the good work they did providing stimulus funds to their states through amendment procedures while at the same time voted against the bill.
That folks, is the new definition of Republican brand bipartisanship. The new game is cram as much of your stuff into the bill knowing full well in advance it will pass and then vote against it so you can tell your party leaders what a good trooper you were. Oh, what sinister fools they are. What chutzpah to expect their voters to believe such dribble.
What's scary is Obama pressing future legislation through Congress knowing in advance it will require one or two Republican senators on those hot-button issues. That's too much power sequestered on not the brightest light bulbs in the Senate chamber.
But Specter, Snowe and Collins have nothing on Abel Maldonado. He used blackmail to finally get the California budget passed after months of haggling that nearly forced the state into bankruptcy.
To curry his vote, Democrats and Republican Gov. Arnold Schwarzenneger agreed to his demands to rewrite election rules that Maldonado said had allowed the Capitol to become paralyzed by partisanship. Here's an account filed by the Los Angeles Times:
Democrats initially said Maldonado's call for "open" primaries, in which voters could cross party lines and candidates of all parties would compete in the same primary, followed by a runoff of the top two vote-getters, was too substantial to be pushed through in a budget deal.
But Maldonado said the current budget stalemate proved that California could not return to fiscal sanity without fundamental changes in the way it elects its representatives."Without an open primary, we're going to be here again and again and again, voting on budgets," he told reporters. "This system is broken and we need to reform it."
Modeled on election rules in Washington state, the change -- if approved by California's voters next year -- would undermine the influence of political parties. It was unpopular with Democrats, but their leaders pressed them to accept it as the price of ending the political logjam.
Democrats agreed to another provision pushed by Maldonado that would keep legislators from getting pay raises in years when the state ran a budget deficit.
Maldonado was a good sport by dropping yet another demand that legislators' pay be docked whenever the state budget was not adopted on time.
What precipitates this hostage taking and political blackmail schemes is the rule in the U.S. Senate requiring a 60% majority to avoid filibusters and a two-thirds vote in California to approve the state budget. To overcome it, we need bipartisanship.
David Broder, the dean of political columnists, writes in the Washington Post about critics who say bipartisanship is a myth:
I hope Obama isn't listening. It's the worst advice he has received. It starts from a false premise: that the stimulus bill proves the failure of outreach to Republicans. In fact, had Obama not negotiated successfully with Republican Sens. Susan Collins, Olympia Snowe and Arlen Specter and met most of their terms, his bill would have died. This was a success for bipartisanship, not a failure.
I think my poli-sci professors would agree with Mr. Broder. I just don't like its side effects.
Wednesday, February 18, 2009
I asked if his home loan is backed by Fannie Mae or Freddie Mac, the two mortgage finance companies now owned by the government and the only ones the president has tapped to help homeowners in this phase of the housing market collapse.
He said he didn't know. The question never came up because Aurora, his original lender, has refused to negotiate refinancing terms.
My son is not alone. Billions of dollars of these loans were bundled, securitized and sold to outside mortgage investors and no one knows who is holding the paper on any individual loan.
Matt Remmers is among millions who are being foreclosed upon and known in the banking trade as being "under water." That is, they see the value of their homes as less than what they paid. Some, such as Matt, are opting to walk away and rent while at the same time recognizing their credit ratings will be strangulated for the next seven years. In my son's case, he can afford but has not made his monthly mortgage payment since October while simultaneously filing for bankruptcy.
The irony is my son is no fan of Obama. Yet, it is exactly Obama's plan that answers his plea for help -- forcing the banks to renegotiate prime and second mortgage loans. By the sheer large percentage of home mortgages backed by Freddie Mac and Fannie Mae it seems likely Matt's was too.
So help is on the way. If it's not too late.
Obama's plan announced Wednesday in Phoenix, Ariz., aims to aid borrowers who owe more on their mortgages than their homes are currently worth, and borrowers who are on the verge of foreclosure.
The initiative is designed to help up to 5 million borrowers refinance — if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac. It also provides incentive payments to mortgage lenders in an effort to convince them to help up to 4 million borrowers on the verge of foreclosure.
Headlining Obama’s plan was a $75 billion Homeowner Stability Initiative, which defines subsidies at no more than 31 percent of a homeowners income. Funding would come from the $700 billion financial industry bailout passed by Congress last fall.
Here are additional details of Obama's plan as compiled from MSNBC.com, the New York Times, Moody's Economy.com and the Associated Press.
The White House said the program will help 4 to 5 million families said to be "under water" at "roughly zero" cost to taxpayers. Of the nearly 52 million homeowners with a mortgage, about 13.8 million, or nearly 27 percent, owe more on their mortgage than their house is now worth, according to Moody’s.
The plan also seeks to bolster confidence in Fannie Mae and Freddie Mac. The White House said Treasury will be able to increase its funding commitment to the two by using money Congress set aside last year, and will continue purchasing mortgage-backed securities from them.
The two companies are currently projected to need a combined government subsidy of about $66 billion, well short of the new promise of up to $400 billion.
Treasury Secretary Timothy Geithner said in a statement that the support “will provide forward-looking confidence in the mortgage market and enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners.” He said relief would be almost instantaneous, basically as soon as rules are published March 4.
There are two different groups of homeowners who are at risk of foreclosure. The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments. Many took out loans they were never going to be able to afford, while others have since lost their jobs. About three million households — and rising — fall into this category. Without help, they will lose their homes.
The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are "under water". If they want to stay in their homes, they will have no trouble doing so. But some may choose to walk away voluntarily, rather than continue to make payments on an investment that may never pay off.
The administration is betting that few of those 10 million "under water" homeowners will walk away. (A year from now, the number will about 15 million, Moody’s Economy.com projects.) If they begin to abandon their homes in large numbers, however, they will aggravate the housing bust and the financial crisis — and probably force the administration to come up with a new, much larger housing bailout down the road.
Stay tuned whether the Obama plan can save my son from foreclosure and bankruptcy. From a father's perspective, wouldn't that be poetic justice?
Monday, February 16, 2009
As President Barack Obama switches from campaign to governing mode he is doing a rope-a-dope absorbing blows from friends and foes alike.
As for fulfilling his campaign promises, he's damned if he does and damned if he doesn't.
People with agendas and axes to grind fail to realize Obama is a governing pragmatist, not an ideologue. They refuse to accept he is president of all the people, not just a surrogate for MoveOn.Org or any other interest group that helped him win the election.
The right-wing Republican attacks from the Republican National Committee, to Republican House and Senate members to media radio and television talk show hosts, is to be expected. Forgive them for they live in a world which has passed them by.
But liberal allies such as those in the House who filled the stimulus bill with tired old favorite projects having nothing to do with job creation demonstrate little patience. They act like the window of opportunity was yesterday when, in the House's case, they might have postponed their zeal and stick them in the upcoming appropriation bills.
The liberal special interests, Obama's most fervent supporters, are the ones second guessing the president's intentions. They see policy fights in the areas of stem cell research, labor union organizing, "Buy American" rules in the stimulus plan, faith-based charities, Guantanamo Bay prisoner detention and to keep in place one of the most controversial legal tactics of the Bush anti-terrorism arsenal by using the "state secrets" doctrine to block lawsuits by detainees.
In an analysis reported Monday in the Los Angeles Times:
Advocates for stem cell research thought Obama would quickly sign an order to reverse former President Bush's restrictions on the science. Now they are fretting over Obama's statement that he wants to act in tandem with Congress, possibly causing a delay.
Critics of Bush's faith-based initiative thought Obama had promised to end religious discrimination among social service groups taking federal money. But Obama, in announcing his own faith-based program this month, said only that the discrimination issue might be reviewed.
And Obama's recent moves regarding a lawsuit by detainees have left some liberal groups and Bush critics, including the American Civil Liberties Union, feeling betrayed, given that Obama was a harsh critic of Bush's detainee policies when running for office last year.
The anxiety is also being felt in the labor movement, one of Obama's most important support bases. Some union officials and their allies are frustrated that at a crucial point in negotiations over his massive stimulus package, Obama seemed to call for limits on "Buy American" provisions in the bill aimed at making sure stimulus money would be spent on U.S.-made materials.
Obama has been president for less than a month, and his liberal critics concede that the economic crisis has understandably taken the focus off their issues... "He made very clear promises, and he should live up to them," said Arthur Stamoulis, director of the Oregon Fair Trade Campaign, which received an unqualified "yes" from Obama on a campaign questionnaire last year when the group asked if he would support "Buy American" requirements. "The fact that he's hedging on this is not promising. He's catering much too much to the desires of Republicans who are not going to support the change that voters wanted."
Thea Lee, policy director of the AFL-CIO, said, "We would like to have him stand more forthrightly behind the positions that he took during the campaign."
Obama has long said his administration will be driven by competence, not political ideology. He has blamed the nation's problems on a failed and highly partisan political system, and has said that solutions should come by building coalitions that cross the traditional battle lines in Washington policy fights.
Moreover, White House aides say, Obama has already fulfilled promises such as enacting a labor-backed pay equity law and beginning the process of closing the prison at Guantanamo Bay, Cuba.
"Given that we have only been here for three weeks, that is a pretty good start," said White House spokeswoman Jennifer Psaki.
Yet for some who supported him, Obama's recent actions contain either outright abandonment of what they thought had been campaign promises, or at least a hesitation on Obama's part to follow through quickly and clearly.
Union leaders were taken aback this month when Obama, during television appearances discussing the stimulus legislation, spoke skeptically of "Buy American" provisions in the bill giving U.S. makers of steel and other materials an advantage in bidding for contracts.
Obama told Fox News that the U.S. "can't send a protectionist message," and he cautioned on ABC News that the requirements could be a "potential source of trade wars that we can't afford at a time when trade is sinking all across the globe."
Business groups were thrilled at Obama's words. "That was an extremely important moment," said John Murphy, vice president for international affairs at the U.S. Chamber of Commerce, one of the biggest business associations. "The business community is very pleased that the White House stepped in and showed leadership on this issue..."
But labor advocates were alarmed by Obama's willingness to insert himself in the debate as a champion of business concerns. They said his stance was far different than during the presidential election, when Obama was trying to win union votes and called for rebuilding America with union-made materials. Obama's new language was "a little disturbing," said Jeff Faux, an economist at the liberal Economic Policy Institute, which has received funding from labor unions.
At the ACLU, Executive Director Anthony D. Romero said his group's disappointment was "deep and unparalleled" after the Justice Department decided to keep in place one of the most controversial legal tactics of the Bush anti-terrorism arsenal: using the "state secrets" doctrine to block lawsuits by detainees. The Justice Department invoked the privilege last week in arguing that a case should not proceed because it might lead to the disclosure of state secrets. As a candidate, Obama had attacked Bush for using the tactic and had pledged to reverse such policies.
"Clearly, the state secrets campaign promise is broken," Romero said, "on his watch, with his attorney general, and with his government lawyers articulating the Bush administration policies."
Criticism also was expressed in an editorial in Monday's New York Times, hardly a bastion of conservatism.
On the campaign trail, Mr. Obama made clear that he would extend the faith-based initiative started by former President George Bush to help social service programs run by religious and other charitable groups obtain federal grants and contracts. But he also pledged that unlike Mr. Bush, he would provide meaningful safeguards to avoid the blurring of church-state boundaries, including a firm rule barring discrimination on the basis of religion. The rule is notably missing from his new decree.
Speaking last July in Ohio, Mr. Obama set forth his “basic principles” for assuring constitutional balance. “First, if you get a federal grant, you can’t use the grant money to proselytize to the people you help and you can’t discriminate against them — or against the people you hire — on the basis of religion,” he said. “Second, federal dollars that go directly to churches, temples and mosques can only be used on secular programs.”
He said taxpayer dollars should not be used to advance partisan interests, and there was reassuring language about maintaining the separation of church and state in Mr. Obama’s remarks at the National Prayer Breakfast preceding the issuance of his order, and in the order itself. But it would have been a lot more reassuring if the directive had actually revoked Mr. Bush’s 2002 executive order authorizing religious-oriented recipients of federal funding to hire and fire on religious grounds.
We suspect that Mr. Obama was not particularly proud of this omission. He chose to sign his order away from the view of television cameras or an audience. Joshua DuBois, the Pentecostal minister selected by Mr. Obama to lead his initiative, says the president is “committed to nondiscrimination,” and that the executive order “provides a process” for case-by-case review to decide if grants to faith-based organizations are “consistent with law...”
The case-by-case review seems destined to confuse as much as enlighten. And it is hardly the clear commitment to proper employment practices Mr. Obama voiced as a candidate, and the Constitution requires.
Most people have heard the complaints voiced by Republicans regarding the $787 billion stimulus bill. Now comes word from an economist who says Obama is fear mongering and the current recession is far from catastrophic proportions the president describes as the worst since the Great Depression.
Writes Bradley R. Schiller, an economics professor at the University of Nevada, Reno, and the author of "The Economy Today" in Monday's Wall Street Journal:
In (Obama's) remarks, every gloomy statistic on the economy becomes a harbinger of doom. As he tells it, today's economy is the worst since the Great Depression. Without his Recovery and Reinvestment Act, he says, the economy will fall back into that abyss and may never recover.
This fear mongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don't come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate...
The latest survey pegs U.S. unemployment at 7.6%. That's more than three percentage points below the 1982 peak (10.8%) and not even a third of the peak in 1932 (25.2%). You simply can't equate 7.6% unemployment with the Great Depression.
Other economic statistics also dispel any analogy between today's economic woes and the Great Depression. Real gross domestic product (GDP) rose in 2008, despite a bad fourth quarter. The Congressional Budget Office projects a GDP decline of 2% in 2009. That's comparable to 1982, when GDP contracted by 1.9%. It is nothing like 1930, when GDP fell by 9%, or 1931, when GDP contracted by another 8%, or 1932, when it fell yet another 13%...
Mr. Obama's analogies to the Great Depression are not only historically inaccurate, they're also dangerous. Repeated warnings from the White House about a coming economic apocalypse aren't likely to raise consumer and investor expectations for the future. In fact, they have contributed to the continuing decline in consumer confidence that is restraining a spending pickup. Beyond that, fear mongering can trigger a political stampede to embrace a "recovery" package that delivers a lot less than it promises. A more cool-headed assessment of the economy's woes might produce better policies.
Cool headed? Now, even Obama's unflappable demeanor is challenged.
Sunday, February 15, 2009
The thing is, you never know what lurks behind closed doors in these marriages. Outsiders, including close family members, judge the marriages on the public face they project.
And the public perception of the Obamas is one of a loving, give-and-take compact where one feeds off the strength of the other. For two years I have made mental notes of the joint interviews the Obamas have conducted. It is my belief he needs Michelle more than she needs Barack. And, the president, more than anyone, recognizes that.
Excuse the psycho-babble, but Barack exudes confidence of a brilliant mind and most often is the smartest guy in the room whether it be the 70,000-seat Invesco Stadium in Denver or the confines of the Oval Office in the White House.
When his ego gets over-inflated, Michelle is there to puncture it. She sees in her husband a man with internal faults, not the messiah his rabid followers proclaim. Before stepping on stage before his historic keynote address to the 2004 Democratic National Convention, Michelle's cautionary note: "Don't blow it."
In the interviews, Michelle is not at all reluctant to swipe jibes at Barack's foibles. He's messy, doesn't make the bed and their daughters think he's "smelly" first thing in the mornings. Michelle said he doesn't pitch in and wash the dishes which he denies, good naturedly.
It must be remembered that Michelle in her own right is a brilliant attorney and administrator and speaks with brutal honesty. As first lady, Michelle has surprised all the so-called experts by extolling the virtues of her husband's policies and exceeding her primary role as "Mom-in-Chief."
The nation has not seen such versatility in a first lady since Eleanor Roosevelt and the public can't seem to get enough of it. Her critics are mostly snarly, berating insignificant stuff such as the fashion of dresses she styles.
Having said all that, we reprint the entire story the Associated Press filed Sunday on Michelle Obama.
WASHINGTON - Michelle Obama said it: Washington is her home now and she wants to get to know it.
She is making the rounds, meeting federal workers at Cabinet departments, reading to children, chatting with teens, touring a neighborhood health center, dropping in at Howard University and enjoying family night at the Kennedy Center. She's even splashed across the cover of the March issue of Vogue, with a headline that proclaims her "The First Lady the World's Been Waiting For."
That was just the first two weeks of February.
The first lady, who had seemed to suggest she'd take her time settling in to her new role, is off to a fast start — like a cannonball, in the words of Letitia Baldrige, who served as social secretary to Jacqueline Kennedy.
"We were taught that you have to get to know the community that you're in, and you have to be a part of that community, you have to get to know it in order to, you know, actively engage in it," Mrs. Obama told a teenager at Mary's Center, a community health center in the Adams Morgan neighborhood, who asked why she was visiting.
"And D.C. is our community now. It's our home," she said.
Her trips outside the gated White House compound serve several purposes, including giving her a chance to learn about the complexities of a city she decided against relocating to after Barack Obama became a senator in 2005.
His presidency has brought her, and their 10- and 7-year-old daughters, here now. And, Mrs. Obama's mother migrated, too, to provide crucial backup in taking care of Sasha and Malia.
"Our first job as new members of this community is to listen, and to learn and to be thankful and grateful for what people have already done," Mrs. Obama said at Howard, where excited students jockeyed for a glimpse of the first lady.
Except, the president is "real busy right now. So I figured, well, I got a little time on my hands, and, you know, while the kids are at school I want to come out and hear about the programs. I want to meet the students," she said at Mary's Center.
Mrs. Obama is acting as an ambassador to the public, another set of eyes and ears for the president.
She set out on a listening tour of the federal bureaucracy on Feb. 2, promising to go from agency to agency "to learn, to listen, to take information back where possible" and meet "our new co-workers and our new neighbors."
She's met scores of government workers, many of whom waited in line for hours at the departments of Education, Housing and Urban Development, and Interior, for the chance to see her and hear what she had to say.
The president and the first lady made a surprise visit to a Washington D.C. charter school and red stories to the kids. On these pep rally-like visits, where she thanks federal workers for their service, she boosts the spirits of a group that sometimes felt neglected by the previous administration. She doubles as Obama's salesman and has been explaining how money from his $787 billion economic recovery package will affect their work.
At the Education Department, she said the department will be "at the forefront" of much of what the administration wants to do, including renovating and modernizing schools, increasing Pell Grants and providing tuition tax credits.
She talked to HUD workers about reducing home foreclosures, calling homeownership one of the "building blocks for strong neighborhoods, for strong schools and strong families." She said the stimulus bill will put people back to work by improving a program that helps communities buy foreclosed or abandoned properties for rehabilitation or resale.
Her eight minutes of remarks at Interior echoed the president, including calls to stem climate change and use natural resources responsibly. "Sound energy and environmental policies are going to help create thousands of jobs," she said.
Stacy A. Cordery, who studies first ladies, said Mrs. Obama is warming up to her role.
"She's doing uncontroversial things. She's not going out on a limb. She's not making her own statements. She's not using her own voice," said Cordery, who teaches history at Monmouth College in Monmouth, Ill. "She's still channeling her husband's voice, and that's a traditionally accepted role for women in our society."
Baldrige, who was social secretary to Mrs. Kennedy, noted Mrs. Obama's active schedule during the presidential campaign and said she expected the same from her as first lady.
"I thought she would go off like a cannonball, and she has," Baldrige said.
Baldrige and Cordery said moving Mrs. Obama's mother, Marian Robinson, to the White House with the family may be making it easier for Mrs. Obama to get out and about. Baldrige called it a "genius idea."
Robinson often cared for her granddaughters after school when the Obamas lived in Chicago. She retired from her bank job to spend more time with them after Mrs. Obama's campaign schedule intensified.
Mrs. Obama's coming out began nine days after the Jan. 20 inauguration, when she held a reception in the State Dining Room for Lilly Ledbetter shortly after Obama signed a wage discrimination bill named for the Alabama retiree.
She started visiting Cabinet departments the following week, and joined her husband to read to children at a local charter school on what so far has been the worst day of his young administration. On Feb. 3, two of Obama's nominees for top administration posts withdrew from consideration because of tax problems.
Saturday, February 14, 2009
Oh, those sneaky congressmen. This group receives automatic pay raises every year. Yet, they jerked the compensation cap of senior corporate executives from President Obama's financial sector bailout plan and inserted it in the $789 billion stimulus package for his expected signature next Tuesday.
It begs the question: Since when does cutting a banker's earnings stimulate the economy? And, God forbid, what business is it of Congress to establish compensation guidelines in the private sector? (Okay, some irresponsible, me-first corporate executives paid out $18 billion in bonuses from taxpayer bailout funds infused to keep their companies solvent. I get it.)
How did this happen? Simple. Guess how many of the 545 House members and senators read all the 1,100-page stimulus bill in the 24-hour-to 48-hour deadline imposed on them before voting? My guess is zero.
Obama's proposal was to cap compensation at $500,000 for "senior" executives while allowing them to receive stock they could not sell until the company repaid its entire federal bailout largess. This plan, for financial companies receiving the second dole of the $750 billion bailout, penalized the bosses but failed to address the larger issue of bonuses to the real income-producers, the brokers.
Congress certainly closed that loophole, according to a story in Saturday's Washington Post.
The bill limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid. Unlike the rules issued by the White House, the limits in the stimulus bill would apply to top executives and the highest-paid employees at all 359 banks that have already received government aid.
The bonus restrictions would apply to a varying number of employees at each firm, depending on how much money the firm has taken in government assistance. At banks receiving less than $25 million, the limits would apply to only the highest-paid employee. For those receiving $25 million to $250 million, the restriction would apply to the five highest-paid employees. The top five executives and ten highest-paid employees would be affected at firms receiving $250 million to $500 million.
At firms getting more than half a billion dollars, which would include all of the Wall Street giants, the rules would apply to the top five executives and the 20 highest-paid employees. Taxpayers have injected $45 billion each into Citigroup and Bank of America.
Other measures in the bill include a ban on golden parachutes to departing executives. This would apply to the top 10 most highly-paid employees at all financial institutions currently receiving government aid. The measure allows companies to continue to pay out deferred compensation and benefits such as pensions. There are billions of dollars in such awards on the books of financial institutions.
"This is a big deal. This is a problem," said Scott Talbott, chief lobbyist for the nation's largest financial services firms. "It undermines the current incentive structure."
Talbott said banking executives are concerned that some of the most highly paid employees, such as top traders, who bring in hefty sums for the company, would flee to hedge funds or foreign banks that have not accepted U.S. government funds.
Bonuses make up much of financial executives' take-home pay, so the new rules could significantly diminish their compensation.
For example, Goldman Sachs chief executive Lloyd Blankfein made $68.5 million in 2007 -- a Wall Street record -- but $67.9 million of that was in bonus and other incentive pay that analysts said would be subject to the new rules.
Citiggroups's top executive, Vikram Pandit, has voluntarily agreed to a $1 salary until his company returns to profitability. In theory, this means that Pandit would be allowed an annual bonus of pennies.
Critics of excessive executive pay assert that companies have always found ways around compensation rules.
"Congress missed a huge opportunity to set a strict and measurable limit on executive pay," said Sarah Anderson, a director at the Institute for Policy Studies in Washington. "I'm afraid companies will find ways to shift compensation to other pots and continue to make massive payouts that have so outraged the American people."
The public outrage erupted as a result of the gulf that widened the last 20 years between executives and employees share of company earnings, triggered in some part by the declining status of labor unions.
Meanwhile, Congress casts a blind eye to the more than 3 million constituents who have lost their jobs as they took a $4,700 pay raise at an additional $2.5 million for lawmakers' salaries last December.
The raises are automatic and require a vote only to freeze or lower the salary schedule. According to The Hill watchdog newspaper of Congress:In the beginning days of 1789, Congress was paid only $6 a day, which would be about $75 daily by modern standards. But by 1965 members were receiving $30,000 a year, which is the modern equivalent of about $195,000.
Currently the average lawmaker makes $169,300 a year, with leadership making slightly more. House Speaker Nancy Pelosi (D-Calif.) makes $217,400, while the minority and majority leaders in the House and Senate make $188,100.
Still, Steve Ellis, vice president of the budget watchdog Taxpayers for Common Sense, said Congress should have taken the rare step of freezing its pay, as lawmakers did in 2000.
“Look at the way the economy is ... they’re just happy to have gainful employment,” said Ellis. “But you have the lawmakers who are set up and ready to get their next installment of a pay raise and go happily along their way.”
Ellis said that while freezing the pay increase would be a step in the right direction, it would be better to have it set up so that members would have to take action, and vote, for a pay raise and deal with the consequences, rather than get one automatically.
Friday, February 13, 2009
That is the economic models for recovery do not take into consideration the public psyche. Brooks contends the culture of borrowing as a result of easy credit is over. Burned badly, the public has retrenched and turned to spending only for critical needs and rediscovered the lost habit of saving.
Between 1990 and 2007, the total mortgage debt held by Americans rose from $2.5 trillion to $10.5 trillion. This rise was part of a societal credit bubble that burst in 2008. To cushion the pain of that collapse, federal authorities decided to replace private debt with public debt.
In 2008, the Bush administration increased spending by about $1.7 trillion, and guaranteed loans, investments and deposits worth about $8 trillion. In 2009, the Obama administration spent $800 billion on a stimulus package, $1 trillion on a second round of bank bailouts and committed another trillion on health care reform and other bailout plans.
Americans generally welcomed the burst of public activism. In “Democracy in America,” Alexis de Tocqueville wrote about what happens to a people beset by anxiety: “The taste for public tranquility then becomes a blind passion, and the citizens are liable to conceive a most inordinate devotion to order.”
In normal times, Americans would have been skeptical of proposals to double or triple the size of federal programs, but amid the economic fear, that skepticism fell away. Wall Street traders hungered for a huge federal bailout replete with strings. Economists produced models that assumed that government could efficiently spend huge amounts of money, and these models were accepted.
The Obama administration was staffed with moderates who found that there was no reward for moderation. Liberals attacked them for being tepid. Republicans attacked them because it was enjoyable to see Democrats attacked. Over time, the administration drifted left and created what you might call Split Level Technocratic Liberalism.
President Obama defended spending initiatives in broad terms. He had enormous faith in the power of highly trained experts and based his arguments on models and projections. The actual legislation was cobbled together by Democratic committee chairmen, often acting beyond the administration’s control.
During 2010, the economic decline abated, but the recovery did not arrive. There were a few false dawns, and stagnation. The problem was this: The policy makers knew how to pull economic levers, but they did not know how to use those levers to affect social psychology.
The crisis was labeled an economic crisis, but it was really a psychological crisis. It was caused by a mood of fear and uncertainty, which led consumers to not spend, bankers to not lend and entrepreneurs to not risk. No amount of federal spending could change this psychology because uncertainty about the future remained acute.
Essentially, Americans had migrated from one society to another — from a society of high trust to a society of low trust, from a society of optimism to a society of foreboding, from a society in which certain financial habits applied to a society in which they did not. In the new world, investors had no basis from which to calculate risk. Families slowly deleveraged. Bankers had no way to measure the future value of assets.
Cognitive scientists distinguish between normal risk-assessment decisions, which activate the reward-prediction regions of the brain, and decisions made amid extreme uncertainty, which generate activity in the amygdala. These are different mental processes using different strategies and producing different results. Americans were suddenly forced to cope with this second category, extreme uncertainty.
Economists and policy makers had no way to peer into this darkness. Their methods were largely based on the assumption that people are rational, predictable and pretty much the same. Their models work best in times of equilibrium. But in this moment of disequilibrium, behavior was nonlinear, unpredictable, emergent and stubbornly resistant to Keynesian rationalism.
The failure to generate a recovery led to a collapse of public confidence. President Obama’s promises of 3.5 million jobs now seemed a sham and his former certainty a delusion. The political climate grew more polarized. That meant it was impossible to tackle entitlement debt. That and the economic climate meant it was impossible to raise taxes or cut spending or do anything to reduce the yawning deficits. Federal deficits were 15 percent of G.D.P. and growing.
Far from easing uncertainty, the exploding deficits led to more fear. The U.S. could not afford to respond to new emergencies, like hurricanes or foreign crises. Other nations sensed American overextension. Foreign debt-holders grew nervous. Interest rates rose. Congress indulged its worst instincts, erecting trade barriers, propping up doomed companies. Scholars began to talk about the American Disease, akin to the British Disease of the 1970s.
The nation had essentially bet its future on economic models with primitive views of human behavior. The government had tried to change social psychology using the equivalent of leeches and bleeding. Rather than blame themselves, Americans directed their anger toward policy makers and experts who based estimates of human psychology on mathematical equations.
What do you think?
Thursday, February 12, 2009
I just finished digesting Congress's apparent $789 billion stimulus package and burped twice. The first was a case of mild heartburn. The second was indigestion caused by the feeling it isn't enough.
In trying to jump start our failed economy, the prevailing view among economists is the Keynesian approach: Beg, borrow, steal and print so much money to prime the pump that something is bound to work. Memo to Nobel economist Paul Krugman: You better be right.
Just thinking of the politics of this thing and how it was designed, diddled with and ultimately salvaged permeates the air with flatulence.
The House Democratic leadership -- Speaker Nancy Pelosi and committee chairmen David Obey, Barney Frank and Henry Waxman -- along with the liberal wing of the House failed to control themselves by placing pet projects in their bill allowing the Republicans to rub it in their noses. It took President Obama and three Republican senators to seal the deal from the jaws of defeat.
All those old liberal lions had to do was bide their time and place those projects -- aid to Hollywood filmmakers, restoring the Capitol Mall, purchasing contraceptives, etc. -- into the upcoming appropriations bill. Might even sneak in a few dozen earmarks. But, no, they had to flap their wings and dove the stimulus bill into a phoenix. No House Republican voted for their version of the bill.
Strange as it seems, the joint House conference committee actually lowered the final cost of the stimulus package from the House version of $820 billion, the Senate version of $838 billion to the final cut at $789 billion. It has outraged some liberal House members causing concern for Speaker Pelosi to postpone announcing victory until Friday.
The Republican response was predictable, according to the New York Times.
“This bill was meant to be a stimulus that was timely, targeted and temporary,” Sen. Mitch McConnell of Kentucky, the Republican minority leader, said Thursday on the Senate floor. “Unfortunately, it appears to be none of the above.” Since winning the White House and control of Congress, McConnell went on, “Democrats have been making up for lost time with a government spending spree on the taxpayer credit card.”
All sides had to give, and some programs dropped like stones.
That included President Obama’s signature middle-class tax cut proposal, which he initially promised would give individuals up to $500 and families up to $1,000. In the end, those numbers fell to $400 for individuals and $800 for couples, lopping about $30 billion from the cost of the original plan.
One of the single biggest reductions was a cut of $25 billion from a state fiscal stabilization fund that will largely be used for education. The House had proposed $79 billion; the Senate reduced it to $39 billion. The final agreement fell in between, with an added adjustment demanded by House Democrats that will allow states to use some of that money for the renovation and repair of school buildings.
That agreement came only after Republican Sens. Arlen Specter, Susan Collins and Olympia Snowe who were crucial to the deal insisted on removing a separate line-item that would have provided $16 billion for school construction.
Here is a synopsis of the major spending provisions in the final version of the stimulus package as reported by MSNBC.com:
Unemployment: $40 billion to provide extended unemployment benefits through Dec. 31, and increase them by $25 a week; $20 billion to increase food stamp benefits by 14 percent; $4 billion for job training and $3 billion in temporary welfare payments.
Direct cash payments: $14 billion to give one-time $250 payments to Social Security recipients, poor people on Supplemental Security Income, and veterans receiving disability and pensions.
Direct cash payments: $14 billion to give one-time $250 payments to Social Security recipients, poor people on Supplemental Security Income, and veterans receiving disability and pensions.
Infrastructure: $46 billion for transportation projects, including $27 billion for highway and bridge construction and repair; $8.4 billion for mass transit; $8 billion for construction of high-speed railways and $1.3 billion for Amtrak; $4.6 billion for the Army Corps of Engineers; $4 billion for public housing improvements; $6.4 billion for clean and drinking water projects; $7 billion to bring broadband Internet service to underserved areas.
State block grants: $8 billion in aid to states to defray budget cuts.
Energy: About $50 billion for energy programs, focused chiefly on efficiency and renewable energy, including $5 billion to weatherize modest-income homes; $6.4 billion to clean up nuclear weapons production sites; $11 billion toward a so-called "smart electricity grid" to reduce waste; $13.9 billion to subsidize loans for renewable energy projects; $6.3 billion in state energy efficiency and clean energy grants; and $4.5 billion make federal buildings more energy efficient.
Education: $47 billion in state fiscal relief to prevent cuts in state aid to school districts, with great flexibility to use the funds for school modernization and repair; $25 billion to school districts to fund special education and the No Child Left Behind law for students in K-12; $17 billion to boost the maximum Pell Grant (college tuition) by $500 to $5,350; $2 billion for Head Start.
Homeland Security: $2.8 billion for homeland security programs, including $1 billion for airport screening equipment.
Law enforcement: $4 billion in grants to state and local law enforcement to hire officers and purchase equipment.
Following are two of the tax credit proposals, according to MSNBC.Com.:
Homebuyer credit: $3.7 billion to repeal a requirement that a $8,000 first-time home buyer tax credit be paid back over time for homes purchased from Jan. 1 to August 31, unless the home is sold within three years.
New tax credit: Approximately $115 billion for a $400 per-worker, $800 per-couple tax credits in 2009 and 2010. For the last half of 2009, workers could expect to see perhaps $13 a week less withheld from their paychecks starting around June. Millions of Americans who don't make enough money to pay federal income taxes could file returns next year and receive checks. Individuals making more than $75,000 and couples making more than $150,000 would receive reduced amounts.
And to think the stimulus package is only a starter tool. The financial sector is expected to receive at least $350 billion more which appears to be a low ball estimate. After that the appropriations bill. Then defense. Energy. And let us not forget Obama's plans for reform of the health care system. Oh, yes, those nasty entitlement programs which keep the nation's elderly and poor afloat.
Oh, well, we're in a national government spending mode the likes of which we haven't seen. The bill will be paid by my grandchildren, their great grandchildren and their great-great grandchildren and their great-great-great grandchildren.
If it works.