Monday, March 30, 2009

Undecided Whether Obama Is A Saviour Or Despot

Candidate and now President Barack Obama vowed he could make the tough decisions.

The one he announced Monday withholding additional federal aid to General Motors and Chrysler was a doozie.

The new tough guy on the block basically fired GM's chief executive G. Richard Wagoner Jr. for driving too slow in the fast lane. That's a savings of $1 a year.

At the same time, Obama showed his forgiving side. He allowed GM 60 more days to offer a restructuring plan. He granted 30 days for Chrysler to complete its merger with Fiat.

Then he turned softy, vowing to keep the two Detroit automakers on life support by waving some magic wand. He promised both automakers the government would guarantee their customer vehicle warranties.

"We cannot, we must not, and we will not let our auto industry simply vanish," he said "It is a pillar of our economy that has held up the dreams of millions of our people. But we also cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars. These companies -- and this industry -- must ultimately stand on their own, not as wards of the state."

I can't help but wonder if a meaner, leaner GM reduces its TV commercials promoting Chevrolet's SUVs, pickup trucks and minivans. I'll miss their top pitch man Howie Long, the former NFL defensive tackle whose day job is color commentator for Fox Sports during the football season.

I don't intend to be flip because the economic impact of the struggling automakers signals a domino wave of financial doom for millions of Americans associated with the designers, manufacturers, suppliers and dealers of GM and Chrysler.

I'll leave the details of Obama's dramatic announcement to the comprehensive article in Monday's Washington Post

Instead, I'm more concerned about the precedents Obama is establishing in the wave of bailouts for the auto industry and banking sector.

Firing executives and capping executive salaries as part of the strings attached to federal rescue plans is extremely discomforting. This practice historically has been carried out in the bankruptcy courts and should remain there.

In the automakers case, Obama's car experts convinced the president their restructuring plans were deficient. By that they mean Detroit remains sluggish building smaller and more fuel-efficient vehicles as well as rushing to the assembly lines new hybrids and electric-powered models. Detroit's excuse has been buyers aren't interested enough to make the sales profitable except in times when gasoline prices soar above $4 a gallon.

Here the president dons his professor's cap and gown and uses his office as bully pulpit to convince the public it is the right course to get off carbon fuel emissions. He's right, of course. But the sale of cars is determined by market demands, not presidential decrees. I'd rather keep it that way.

Obama is stepping perilously close to nationalizing banks and perhaps key industrial corporations. It already holds an 80% ownership in American International Union. Yet, he vows the administration has no interest nor ability to run these publicly traded institutions. We must take his word for it.

It is quite daunting that our multi-task president is cramming so many game changing measures down the public's collective throat. We scarcely have time to digest one before he throws another bone to the masses. What's next?

Oh, yes. Health care reform.

Friday, March 27, 2009

Obama's Afghan Policy Is His Vietnam

President Obama's announced new foreign policy shifts in Pakistan and Afghanistan leaves little doubt the war against terrorists in that Middle East region is his. We see it as his Vietnam.

The mission is simple but altruistic:

Eradicate al-quada and the terrorist factions of the Taliban, restore the infrastructure of Pakistan, train the Afghanistan army and police and rid its government from corruption.

Unlike his predecessor George W. Bush whose secondary mission was to establish democracy in the region, Obama has established benchmarks to measure his plan's progress. He pledged not to write a "blank check" for Pakistan's internal improvements, assuming, of course, Pakistani leaders try.

Obama's plan calls for 60,000 U.S. troops and civilians in Afghanistan by this summer. The mere presence of uniformed foreign troops no matter what their purpose is defined by militants and nationalists as "occupiers" and used as recruiting propaganda tools for al-quada.

I share the anti-war critics' contention that killing all the radicals in the region is an impossible mission. Al-quada is not a standing army but a bunch of gorilla fighters driven by religious fanaticism. As the saying goes, you can kill the man but not the spirit.

Afghanistan has a long history of expelling foreign armies. Just ask the British and Russians when they were known as the Soviet Union. It is a land ruled by warlords for the most part and a weak central government. President Hamid Karzai's authority rarely reaches the outskirts of the capital city of Kabul.

Corruption is the mainstay of the Afghan government encapsulated by rumors Karzai's brother is involved in the country's illegal heroin crops and distribution.

The situation is best described in The New York Times by Richard C. Holbrooke, the president’s special representative for Afghanistan and Pakistan, speaking to reporters after Obama's speech Friday on announcing the policy shift.

Holbrooke noted the corrosive role of instability and terrorist safe havens in western Pakistan, and said that the United States could not abandon the region. “We can leave as the Afghans deal with their own security problems,” Holbrooke said. “That’s what the president put emphasis on today on training the national army, training the policy.”

“The exit strategy,” he went on, “includes governance, corruption, but above all, and this is the single most difficult aspect of what we are talking about today, it requires dealing with Western Pakistan.”

“You can have a great government in Kabul,” Holbrooke said, “and if the current situation in Western Pakistan continued, the instability in Afghanistan will continue.”

At the moment, Washington remains frustrated by the course of events in the region. Holbrooke noted that Afghanistan is in the middle of an election campaign, and said that even as the timing of the voting remains uncertain, Washington must not wed itself forever to Karzai’s government or favor any candidate. And even as the Americans strike with missiles at enemies in Pakistan, and press the country to take a harder line against hostile factions, they must respect Pakistan’s sovereignty.

“Of all the dilemmas, problems and challenges we face, that’s going to be the most daunting, because it’s a sovereign country and there is a red line,” Holbrooke said. “And the red line is unambiguous and stated publicly by the Pakistani government over and over again: No foreign troops on our soil.”

Asked about the campaign against Afghan corruption, Holbrooke said, "We're not going to lay out how we're going to deal with it. To some extent, we don't know yet."

It is a fool's errand trying to analyze a region no one has visited or studied. From a westerner's perspective, Afghanistan's people are marvelled because of their true grit for survival.

The country's main source of gross national product is its poppy fields. Afghanistan ranks 115th of 224 listed nations in GNP at $6.96 billion -- 60% from heroin production --in the latest report of 2005. That's less than most 50 states in the U.S.

History is full of ironies. After the Soviets left Afghanistan, the Taliban took control and eradicated most of the heroin crop, an effort rewarded by the U.S. and other nations in millions of dollars for their efforts. After Sept. 11, 2001, the U.S. routed the Taliban. They returned and U.S. Drug Enforcement officials claim they have used proceeds from the sale of heroin to finance their comeback.

In a story published Sept. 3, 2007, in the Washington Times, Afghanistan has resumed being the world's leader in heroin trafficking.

Reports by the U.S. Drug Enforcement Administration (DEA) and the Royal Canadian Mounted Police (RCMP) said Afghanistan's share of the U.S. heroin market doubled in the past five years. The RCMP report warned that the increase in Afghan heroin in Canada came despite nearly $60 million spent by the Canadian government to fund anti-drug efforts in that country, adding that about 60 percent of the heroin on Canadian streets comes from Afghanistan.

The report said the heroin was making its way to Canada through two main trafficking arteries: the border between Afghanistan and Pakistan, where it is routed to India and then Canada, and from Afghanistan to western Africa, where it is shipped to the United States and then Canada. About 92 percent of the world's heroin comes from opium poppies grown in Afghanistan, according to the 2007 World Drug Report — released in June by the United Nations' Office on Drugs and Crime. Opium cultivation accounts for nearly 60 percent of Afghanistan's gross national product.

Poppy production has expanded wildly since Hamid Karzai's government took control in 2002. Last year, Afghan farmers produced 6,100 metric tons of opium, while farmers throughout the rest of the world cumulatively harvested 510 metric tons. Ten years ago, Afghanistan produced 2,248 metric tons of poppies.

Diverting production of heroin to life-staining agricultural crops is the challenging mission taken upon by the World Bank. Challenging not only because a metric ton of heroin dwarfs the return for a metric ton of grain in cash but also because the rural valleys irrigation dams and canals are dysfunctional.

Called the Emergency Irrigation Rehabilitation Project, World Bank lending subsidiaries have loaned Afghanistan $65 million to rehabilitate the country's water projects. A progress report in July 2008 says:

Afghanistan’s harsh terrain and arid climate make it an unforgiving place for agriculture. Only 12 percent of the land is arable and 85 percent of that land requires irrigation. Adequate and reliable supply of irrigation is therefore essential for sustainable agricultural production, which is pivotal for overall economic growth and poverty reduction.

Nearly 80 percent of the population lives in rural areas and depends on agriculture. There is high incidence of poverty. Improved agricultural performance offers significant prospects for raising farmer incomes, contributing to food security, providing rural employment, and reducing vulnerability.

Afghanistan’s agriculture sector has suffered from nearly a quarter century of prolonged war, political upheavals, damaging floods and drought, and neglected maintenance of the irrigation infrastructure. The main drivers of agricultural growth and rural poverty reduction – roads, irrigation, information and technology, education, and markets – had all deteriorated due to social conflict, lack of maintenance for infrastructure and collapse of technical information and market systems.

This situation has been exacerbated by frequent droughts. To enable faster overall economic growth and significantly reduce rural poverty, agriculture needs to grow at a minimum rate of 5% per annum over the next decade.

At present, the irrigation infrastructure is in a serious state of disrepair. The traditional community based organizations (mirab systems) and government institutions supporting the O&M of irrigation schemes have seriously deteriorated. About 60 to 70 percent of the underground small canals (Karezes) are not in use; most of the river diversion structures feeding the irrigation canals are dysfunctional or of temporary nature; traditional and large canal networks are damaged and partly or wholly dysfunctional.

Consequently, irrigation schemes now operate at about 25 percent efficiency, compared to the norm of 40 to 60 percent, and are feeding only about a third of the pre-war irrigated farm areas with low reliability of supplies.

The World Bank reports some success in several of the agricultural zones. However, the overall program administered by the government's interior ministry is plagued by incompetence and resistance from rural farmers. The report did not blame the lack of progress on corruption, but rather:

Capacity and skills set of project staff is weak and efforts need to be targeted to those staff who are involved in project implementation (through on-the-job and hands-on training) rather than on general capacity building efforts for the ministries.

What this means to me is that Obama's best hope is more of a prayer: Get the Afghans to provide their own security and get the hell out of the country ASAP.

Thursday, March 26, 2009

The Dirtiest Word In America

The dirtiest word in American society is not a four, but a five-letter word spelled t-a-x-e-s.

The mere mention of raising taxes by any politician is an automatic death sentence.

Give Republicans since the Reagan administration credit for transforming the meaning of taxes from a necessary evil to the horrors of Satan. Not to be outdone, most Democrats in Congress rubber-stamp the new translation because their constituents demand it.

Americans are a funny lot. They complain vociferously potholes in their streets are not filled in a timely manner. These same people protest municipal and county tax hikes to repair the roads.

The Parent Teachers Association, certainly a group associated with human values, motherhood and apple pie, protest in communities throughout the nation about state budget cuts in education that forces their children into classrooms of more than 40 kids. Yet, many of this same group, opposed higher property taxes at the local level and higher income taxes at the state level.

And, then, there are those on the receiving end who game the system and live by the credo that if the government is dumb enough to give money away, they'll take it. Specifically, a large group of these people bought homes during the subprime heyday with not enough money to afford the mortgage payments, both before and after the balloon payments came due. Loan predators took the commissions and left town.

It's only human nature to oppose taxes. No tax has been fair nor likely ever be.

With that in mind, the one question I had since Barack Obama burst on the national scene was how was he going to pay for all these great programs he proposes. Taxing the rich ain't going to cut it. Cap and trade carbon pollution permit fees only passes the cost on to the consumer.

We're starting to get the picture.

It was no coincidence Obama was playing nice nice with Congressional Democrats this week in efforts to win support for his $3.6 trillion budget package while at the same time lowering the rhetoric on Wall Street bubble busters.

The fact is Obama needs the budget passed and Wall Street to recover or he's toast. Forget the politics and look at the big picture as the president is so apt to do. Think of it this way:

If Wall Street recovers, credit begins flowing and jobs restored, that's revenue flowing into the U.S. Treasury by the train loads easing the burden of the prospects of raising taxes. Even that may not be enough.

The question then becomes who has the chutzpa to argue for a tax increase? Certainly the cry hasn't been heard from Congress.

Believe it or not, it came Thursday from -- you guessed it -- a liberal-leaning columnist for the Washington Post who may receive a lot of guff from his readers but sits in a safe seat not subject to re-election. Writes E.J. Dionne Jr.:

The debate on the budget is phony, the howling on deficits a charade. Few politicians want to acknowledge that if you really are concerned about long-term deficits, you have to support tax increases.

That's why the most significant moment of President Obama's news conference on Tuesday was not his dodge of a question on AIG but his defense of the least popular tax increase in his budget: limits on the benefits wealthier taxpayers get for their charitable contributions and mortgage payments.

It has been a long time since a president was willing to defend raising taxes. You have to go back to Bill Clinton and his 1993 budget. The consequences for Democrats who voted for that budget -- no Republicans did -- were grave. Republicans swept the 1994 elections and held on to the House for 12 years.

No wonder politicians are so phobic about taxes.

Although Dionne suggests Obama commit political suicide by recommending a broad-based tax increase, he offers no other argument than justifying the charitable and mortgage deductions capped at 28% for the affluent.

Every budget analyst knows this, and every politician knows that it's far easier to bemoan deficits in the abstract than to risk spending cuts or tax increases that hurt sizable groups of voters. "There are no more low-hanging fruit," says Tom Kahn, the staff director for the House Budget Committee. "The low-hanging fruit have already been picked. Any tax increase or spending cut is going to trigger opposition from somewhere."

Dionne concludes his column with some salient points.

The larger problem is the emptiness of all the howling over the long-term deficits. Nibbling away at bits of Obama's proposed budget will do very little about them. Talk of "entitlement reform" is empty unless we have health-care reform -- and unless we acknowledge that we will never cut Medicare and Social Security enough to close the budget gap.

In fact, Social Security is more important than ever, now that the value of so many 401(k)s has plummeted.

The task of those who genuinely care about deficits is to make the world safe for tax increases. Under current conditions, it's a whole lot easier for politicians to talk a lot about deficits, and then just let them grow.

Obama is one cagey dude when he talks about the rich paying their fair share, meaning those earning more than $250,000 annually. Actually, HE isn't raising their taxes from a rate of about 35 to 39%. He's simply allowing the Bush tax cuts to expire for that group next year.

In fact, few (payroll taxes to name one) of Obama's programs whether it be energy, climate change, education and health care impose higher taxes directly on the consumer. Rather, consumers will be hit with higher costs passed on to them by their providers of health, electricity and energy corporations. Of course, no one knows at this stage how the budget will look after Congress takes a whack at it.

Politically, Obama is starting to get hit from friends and foes alike for warming to Wall Street demands.

Dean Baker, co-director of the left-leaning Center for Economic and Policy Research, tells the Washington Post:

"He hurts himself enormously by being seen as associated with the bankers. Purely pragmatically, you have an opportunity here where these Wall Street guys are really hated, they've been a really pernicious presence in the economy for a quarter-century, and the idea of jumping on them when they're down makes a lot of sense. This idea that they're going to help things -- well, they're not our buddies. There's a real fundamental conflict there, and he's hoping he can paper it over."

And, from the right, the Post story reports:

Michael Maslansky, a Republican-leaning pollster, questioned whether Obama could succeed in channeling public anger toward his longer-term goals after having initially helped stir the anger with his vow to retrieve the AIG bonuses. It would have been truer to Obama's approach if he had right away put the episode in the context of his overall agenda, Maslansky said.

"It was a strategic mistake," Maslansky said. "He's supposed to lead, to skate to where the puck is going to be. Going after the bonuses was looking backwards. He should have said right away, 'These bonuses are the last gasp of a dying culture.' He would've been much better off if this AIG thing hadn't become such a big issue. . . . Now the White House says, 'Wow, they really are angry, they have the pitchforks out, and they're trying to kill the people I need [to fix Wall Street].' And the American people are watching and asking, 'Is he a populist, or is he a cool, collected leader?' "

And, the view from academia:

Georgetown University historian Michael Kazin said the approach Obama has settled on is the best available: sharing the public's ire, but not inflaming it further, which would not be his style, and instead directing it to his plans. "It wouldn't be convincing if he came on as a real populist and also probably not necessary," Kazin said. "What he's got to do is depend on his strengths in sort of calmly explaining things to people and telling them, 'I've got this.' "

Wednesday, March 25, 2009

One Small Step Towards Universal Health Care

Contrary as I am, several years ago I began answering health coverage insurance ads received on the Internet and postal mail.

They promised a blissful, worry-free life in what is laughingly referred to as my "golden years" for a "very small premium or no premium at all." Right.

In each case, the happy talk from the insurance company sales people switched from euphoria --calling me Jerry or Mr. Remmers (usually mispronounced) to sir -- to funeral parlor tone.

That's when I told them I had a "pre-condition" of uncontrolled diabetes, congestive heart failure, kidneys functioning at 40% and some scar tissue in my lungs, the result of a half century of smoking cigarettes.

This was always followed by two responses:

  1. The insurer does not cover pre-conditions.
  2. The insurer covers pre-conditions for a premium affordable to only the rich and famous.

Mercifully, there is a safety net for people as me living on Social Security. It's called Medicare and Medi-Caid, two government-run health care programs. Despite their arcane rules and bureaucratic inefficiencies, the system works.

Through those programs, I was able to subscribe to Health Net's senior HMO network. The benefit plan meets my pocket book. Everything is covered with no copay with few exceptions. A ride in the ambulance costs $50. A few things cost 15% of what Health Net's share of cost is. When that runs out, my state's Medi-Cal kicks in for the princely sum of $640 deductible PER MONTH. (At that point, if the bill doesn't kill me the disease will).

Now, I don't especially relish the idea of living off your dime. The lone rationalization is that I ponied up thousands of dollars into the government systems during my income-producing days as a newspaperman and small business owner. Yeah, by now, I may be a tad overdrawn.

I'm fortunate. I figured out how to work the system. So be it.

But, there are an estimated 47 million people walking around our nation either uninsured or underinsured. That's sick, if you pardon the pun.

So, it was with great relief I stumbled across a story in today's on-line New York Times that the biggest stumbling block to universal health coverage may be removed.

We are told representatives of the health insurance industry would be willing to end the practice of charging higher premiums if Congress adopted a comprehensive reform plan requiring all Americans to carry insurance.

Eureka! It finally opens the door to civil discussion on President Obama's health reform package.

Insurers remain staunchly opposed to creation of a government-run health insurance plan. But the industry’s willingness to change its rate-setting practices could make it easier for Congress to reach a consensus on legislation to overhaul health care.

The industry’s new position, which came as a surprise to lawmakers, could narrow the issues on which insurers are ready to fight the Democrats now controlling Congress and the White House.

In effect, insurers said they were willing to discard an element of their longstanding business model — pricing insurance policies, in part, on the basis of a person’s medical condition or history.

In the past, insurers have warned that if they could not consider a person’s health status in setting premiums, the rates charged to young, healthy people would need to soar. But they said Tuesday that they were exploring ideas to prevent such sharp increases by spreading the risk and costs broadly across a larger population, including the healthy and the unhealthy.

Insurers said they could accept more aggressive regulation not just of their premiums, but also of their benefits, underwriting practices and other activities. Such strict regulation, they said, would make it unnecessary to create a new public insurance program offered through the federal government.

The insurers set forth their position at a Senate hearing on Tuesday and in letters to the chairmen and senior Republican members of the two Senate committees primarily responsible for health care legislation.

Tuesday, March 24, 2009

Geithner Buckles Up As New Sheriff In Town

Embattled Treasury Secretary Timothy Geithner in an effort to restore his credibility outlined an unprecedented plan before a Congressional panel Tuesday that would give his department powers to seize non-banking financial companies.

The new powers would regulate large insurers, investment firms and hedge funds. The government through the Federal Deposit Insurance Corporation at present can seize only banks if they are on the verge of collapsing.

At first blush, the plan in its broadest outlines appears prudent.

However, its presentation will not receive top billing from Tuesday's hearing where Geithner and Fed Chairman Ben Bernanke made a joint appearance before the House Finance Committee. Members grilled the pair over their mishandling of the $165 million in bonuses paid to American International Group with taxpayer bailout money.

According to The Washington Post:

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president's Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

The administration's proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed's other responsibilities, particularly its control over monetary policy.
The government also would assume the authority to seize such firms if they totter toward failure.
Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG's most troubled unit.
The Treasury secretary could act only after consulting with the president and getting a recommendation from two-thirds of the Federal Reserve Board, according to the plan.
The authority to seize non-bank financial firms has emerged as a priority for the administration after the failure of investment house Lehman Brothers, which was not a traditional bank, and the troubled rescue of AIG.
"We're very late in doing this, but we've got to move quickly to try and do this because, again, it's a necessary thing for any government to have a broader range of tools for dealing with these kinds of things, so you can protect the economy from the kind of risks posed by institutions that get to the point where they're systemic," Geithner said last night at a forum held by the Wall Street Journal.
The powers would parallel the government's existing authority over banks, which are exercised by banking regulatory agencies in conjunction with the Federal Deposit Insurance Corp. Geithner has cited that structure as the model for the government's plans.

And, this from The New York Times:

Had the Treasury Department had the expanded authority last fall, administration officials have said, the government could have seized AIG and more efficiently wound down its operations in a less-costly manner. At Tuesday's hearing, Bernanke said that he had wanted to sue AIG. to prevent the bonus payments but was talked out of it by lawyers who warned that if the lawsuit failed, the government might have to pay double or triple damages in addition to the bonus.

“We need resolution authority to go in and be able to change contracts, be able to change the business model, unwind what doesn’t work,” the White House press secretary, Robert Gibbs, told CNN on Tuesday.
The administration has been criticized for failing to provide sufficient detail of its financial-rescue proposals. But on Tuesday, Mr. Gibbs appeared on several television interviews to begin making the case for the new authority.
“This isn’t anything crazy. This is exactly what the Treasury Department needs to deal with things like AIG.,” he said. It would allow the administration to address systemic risk, he added, without having to place a failing financial firm into bankruptcy.
The resolution authority — to take over non-bank financial institutions that pose a systemic risk until problems are resolved — was intended to be part of the administration’s comprehensive overhaul of the government’s financial regulatory system, which has been delayed as the Treasury dealt with immediate crises.
White House and Treasury officials decided amid the recent furor over AIG’s bonuses to push for the resolution authority now.

Geithner will appear again before the House Finance Committee on Thursday to discuss specifics of the proposed new authority.

I always have been skeptical of broad regulatory powers imposed by government because they tend to be too stringent, inflexible and costly for those forced to abide by them.

However, since the Reagan administration began the cycle of de-regulation, history proves that the financial institutions cannot police themselves and allowed greed to overpower judicious banking and investment principles.

Former Fed Chairman Alan Greenspan admitted this oversight on his part. It was on his watch and implicit approval that legislation was passed allowing the mergers of banks with investment brokerage houses. The first major catastrophe was Enron followed most recently by the failures of Lehman Brothers and AIG.

Despite its good intentions, the Obama administration must be careful not to fall down the slippery slope of excessive regulations. The backlash could be as catastrophic as we are observing under the current rules or lack whereof.

Saturday, March 21, 2009

President Obama: Veto The Bonus Bill

Democrats in Congress and perhaps even President Obama are making a colossal misjudgment by taxing the bejabbbers out of compensation rewards to employees of bailed out financial firms.

The tax is a pre-emptive strike at a select few and can be viewed as prohibited by Article 1, Section 9 of the U.S. Constitution, "No Bill of Attainder or ex post facto Law shall be passed."

Certainly, cooler heads can prevail and find other remedies to collect in some circumstances what constitutes ill-gotten gains rather than spending the time and expense fighting it through the U.S. Supreme Court.

The public is rightly outraged. They see a system rewarded for failure. If you thought the public was angry when the government gives money to the poor, they are pissed beyond rationality when the government doles it out in the billions to the rich.

The tax passed by the House and considered next week in the Senate is politically a dangerous precedent. What's next? Taxing Ben & Jerry's at a 90% rate because Congress deems eating too much ice cream is bad for our health?

Besides, what the Democratic-led Congress and a seemingly sympathetic president is doing is falling into a vicious trap ballyhooed for years by Republican conservatives: The Democrats' solution to all problems is tax and spend. Not that the House Republicans aren't co-conspirators in this bonus tax trilogy.

Perhaps one remedy is for the feds to deduct the compensation rewards of each bailed out company in future infusions of equity to keep those companies afloat.

If Congress and the feds become too punitive, any desire on the part of private investors helping the government regain stability in the market place will dry up, leaving us taxpayers in a worst situation than we now face.

I'm no fan of Congressional Republicans who vote no in lockstep against Obama's recovery plans, but in this case Republican Sen. Judd Gregg's statement is right on: "It is wrong to propose to use the taxing authority of the government in a manner that is arbitrary, punitive, and targeted on a single group of people who they have deemed as having acted improperly."

The Senate bill which proposes a 70% tax on the compensated individuals and their companies was outlined by Democratic Finance Committee Chairman Max Baucus and Republican Charles Grassley as crafted to "pass muster" with the courts.

The Senate bill would apply to all employees at companies owing $100 million in bailout money. It would impose a 35 percent tax on the bonus recipient and on the company, which would apply to any amount above $50,000 for a merit bonus and to the full amount of any bonus paid solely to retain the worker.

The House overwhelmingly adopted on Thursday a bill that would impose a 90 percent tax on bonuses paid since Jan. 1 by companies that owe the government at least $5 billion in bailout funds. That tax would apply to employees with family income of $250,000 or more, and would have an impact on businesses like Citigroup, Bank of America and Wells Fargo.

Meanwhile, administration officials are backing down on the punitive tax proposals. They said instead that President Obama would assess the potential effect of the bill that emerged from Congress on efforts to stabilize the financial system.

For the first time as president, Obama must make the tough but right decision to veto the bill as it appears now and look ahead at the big picture. It's one thing to rant about bonuses to those who drove their firms into financial ruin as was the case at American International Group. Obama's mission is to convince Congress and the American people any future financial bailouts are not an act of rewarding failure but salvaging and regulating an industry that is the heartbeat of our world.

Wall Street firms reacted angrily to the tax proposals, with several saying they would explore ways to end their participation in the bailout program. Reports The New York Times:

The chief executive of Citigroup, Vikram S. Pandit, sent employees a memorandum Friday saying, “The work we have all done to try to stabilize the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees. It would affect countless number of people who will find it difficult, if not impossible, to pay back the bonuses that they earned.”
Other companies said they would probably refuse to participate in other Federal Reserve programs aimed at stabilizing the financial sector.
For private investment firms, the prospect that the rules can be changed at the whim of Congress introduced a powerful element of doubt in their calculations.

And from The Washington Post:

The stakes are especially high because the Treasury Department is moving ahead with a critical initiative that involves persuading private investors to buy troubled assets from banks. The administration, which could unveil more details of this plan as early as Monday, is deeply worried that investors will be afraid to participate, Treasury officials say.
The Treasury plan would include three primary components, drawing on resources from the Federal Deposit Insurance Corp., the Federal Reserve and private investors, officials say...

Fed Chairman Ben S. Bernanke said banks should structure compensation to reflect contributions to a company's health and profitability. He said problems arose when employees were rewarded for short-term results that created long-term risks.
"Poorly designed compensation policies can create perverse incentives that can ultimately jeopardize the health of the banking organization," Bernanke said in a speech to the Independent Community Bankers of America.

Many bank employees, particularly those who work in the capital markets and investment banking, get the majority of their annual compensation in the form of a lump-sum payment at year's end, a practice that is designed to tie pay to performance...
Treasury and Federal Reserve officials are also preparing to partner with private investors to create funds that could buy toxic assets, which provided the financing for troubled loans such as mortgages and have been at the heart of the banking system's troubles. The funds would borrow money at favorable rates from the Fed -- without having to pay back the loans for at least five years and possibly as long as seven years -- to buy the assets, freeing banks to lend once again, a source said.
Finally, the Treasury and Federal Reserve would expand a recently-launched program that provides financing to private investors to buy assets that back new consumer loans, such as credit card debt, student loans and auto loans. That initiative would be broadened to address toxic assets that have been sitting on the books of banks for months, not just new ones.

Yet, some bank CEO's just don't get the cultural change imposed by Washington.

Bank of America chief executive Kenneth D. Lewis told employees in a memo that they deserved to keep their pay.

Vikram Pandit of Citigroup argued that most of those responsible for the bank's mistakes in recent years had left the company, and that the remaining employees were playing a key role in helping the nation to recover.

Friday, March 20, 2009

Nix Those Presidential Gaffes And Customs

There was less tsk tsking than I suspected after President Obama's comparison of himself to that of a Special Olympics participant when it comes to his bowling prowess.

Obama uttered the remark mocking himself on Jay Leno's "Tonight Show" Thursday. Even so, he apologized today to the head of the Special Olympics program.

We still live in a politically correct world and sometimes it approaches the absurd. No one likes being the butt of a joke but it is clear the president's words were not mocking nor mean spirited nor disrespectful.

Obama's bowling "skills" are pathetic. During the presidential campaign television played over and over his gutter ball in a game in which he rolled a 96 score. He told Leno his game has improved, scoring a 129 at the White House alley. At that rate, he'll be in his 16th term as president before he bowls a perfect 300.

Obama is a jock. A gym rat. A damn good basketball player even at his age in his mid-40's. A bowler, he is not.

When an amateur jock -- whether he's President of the United States or your friendly UPS driver from the neighborhood -- says he played like a "spaz," as we used to say, or physically handicapped, he implies no harm nor foul. It's jock talk. Live with it. What happens in a locker room, stays there.

In our age of instant communication through live television, radio, Internet, Face Book, YouTube, text messaging and Twitter, the politically correct police are on duty 24/7.

So the president mentions Special Olympics and immediately the PC cops track down any shrink, yahoo, special interest group spokesperson or Republican for a response. Come on guys, get a life.

I happen to believe Obama has a marvelous, dry wit and endearing sense of humor. Let him be. It makes him human. We need to encourage that in our presidents, not shackle them to timidity scared to death of saying something a few people believe is offensive to others.

As long as we're on this subject, in the spirit of Obama's "change" message, perhaps he can fore go some of the so-called traditions expected from presidents.

Off the top of my head, I can think of a few.

One, don't wear native apparel that makes one look like an idiot just to please a few constituents. Obama dressed in African garb once and probably never again after the snickers it created from Republican opponents. Remember Calvin Coolidge wearing an Indian headdress?

Stop the stupid "pardons" of turkeys the day before Thanksgiving. Think Sarah Palin.

Meanwhile, if Obama wants to convert the White House bowling lanes into a basketball court, so be it. Gosh only knows what a woman president would do. Convert it into a sewing room?

Just kidding, ladies.

The Big Casino

I'm a regular follower of Chris Matthew's "Hardball" show on MSNBC and learned over the years he occasionally zeroes in on a political concept that deserves merit.

On Thursday's show Matthews outlined a tactic to bypass the Senate's filibuster rules in which the Obama administration could present its entire domestic programs under the umbrella of a budget resolution.

He calls it "The Big Casino."

Think about it. All of Obama's programs on energy, health care, climate control, the economy and defense offered in one package for a simple majority up or down vote. The president describes it as his "three-legged stool" for economic recovery.

Senate rules allow such a procedure for budget considerations. It bypasses the cloister rule in which one senator can invoke forcing the threat of a filibuster. When this happens, the Senate must pass legislation by a super majority 60 votes.

This daring "all your eggs in one basket" gamble is being floated by Rahm Emanuel, Obama's chief of staff, according to Matthews.

From a raw political perspective, the concept makes practical sense. Here's why:

  • The window of opportunity for new administrations to pass legislation of their liking is limited, usually to the first year. To deliberate all of Obama's programs may take several years.
  • The current reality of politics is that the Senate has 58 (59 when Al Franken is seated) Democrats, a hugely popular president and an Electoral College mandate from the last election.
  • The power of the filibuster rule in recent years has been abused by both political parties in the minority. In the past two decades, it has been invoked from as few as 12 times to 68 in 2008.

Recent passage of the $787 billion stimulus is a classic example how the Senate's 60-vote rule works. Three moderate Republicans held it hostage, insisting their cuts and additions prevail. I'm uncertain whether they improved or weakened the bill. Doesn't matter. What does matter is that one or two senators of a minority party can dictate the terms of legislation despite the will of a simple majority plus one to break the logjam.

In their infinite wisdom the Senate over the years developed the rules they now abide. Certainly, they recognized a 60-vote rule for budget resolutions was impractical in order to transact the chamber's business without stripping the minority's rights.

The inherent problem with the "Big Casino" approach is political. What is a senator to do when he passionately objects to a budget reform of the health care system, for example, but favors all the other measures in the package? It conjures images of the much maligned Sen. John Kerry who voted in favor of an Iraq war spending resolution and then voted against it.

Another problem in the current political climate is how much input can Republicans offer that would be seriously considered by the majority of Democrats. If the minority is cut out of the equation as House Republicans claim on the stimulus bill ramrodded on a fast track by Speaker Nancy Pelosi, then the whole process turns into a sham.

From my perch, I doubt Senate Majority Leader Harry Reid has either the clout or the cojones to follow Rahm Emanuel's lead of sidestepping the 60-vote rule. I think moderate Democrats will want to consider the three-leg stool separately and not as a single budget package.

Either way, it makes good discussion among political junkies such as Mr. Matthews and myself.

Wednesday, March 18, 2009

Feeling Good Kicking AIG In The Shorts

America awakened today feeling much better about themselves after a three-day binge. Nothing like a good ass-kicking of our latest favorite bogeyman, American International Group.

Let's review.

The insurance giant awarded $469 million in "retention payments" to 418 employees, some of them driving the once proud firm $1.6 trillion in debt. On the premise of AIG being too big to fail, the government pumped $170 billion and took 80% control to keep the company afloat.

The bonuses for "prized employees" represent .0027488 of the taxpayers bailout.

Rather than fixing the problem, Congress on Tuesday was fixated on revenge. One congressman introduced a bill taxing the bonuses 100%. Sen. Max Baucus, chairman of the Senate Finance Committee, was more circumspect. He was told by the Internal Revenue Service the maximum tax could be only 92%.

Why resort to taxing the culprits?

Fear. Fear that the bonus babies would sue what contractually was theirs. Seems the employees and AIG contracted the bonuses last April before the company tanked. AIG chairman Edward Liddy said he had no choice but to pay. That opinion was echoed by no less than Larry Summers, second in charge of Treasury.

Oh, really? Since when can contracts not be broken? If one party is willing, there's a way. Ask any United Auto Workers union stiff who gave up plenty so his bosses at General Motors and Chrysler could receive federal bailout money.

Richard Shelby, a conservative voice of the U.S. Senate, offers this explanation. It's OK to leverage union autoworkers contracts but tread softly with those contracts coming out of Wall Street. Oh.

If these bonuses are such a big deal, who knew what and when?

Those who knew they were coming down the pipe were: Fed chairman Ben Bernanke, Wall Street insiders and most of the responsible print and television business reporters.

Who didn't who should have was Treasury Secretary Timothy Geithner and ultimately President Barack Obama.

Geithner is an enigma with an acute case of amnesia. He was chairman of the New York branch fed and helped negotiate the initial bailout of AIG last September. If Bernanke, his boss, knew about the bonuses, why didn't Geithner who said he first learned about them last Tuesday?

The spin in Geithner's defense is he is running Treasury without help, such as a general commanding an army without an officer's corps. Obama's stringent ethics rules have prevented so far any political appointments Congress would approve to fill the void. It makes one wonder why the career Treasury bureaucrats can't take the initiative to help their new boss.

Obama is giving Geithner, so far proving only he's a PR nightmare, a lot of slack. "I bear full responsibility" for the AIG fiasco Obama told a crowd Wednesday at the Orange County Fairgrounds in Costa Mesa, Calif.

But, Congress' wrath Wednesday was directed at AIG boss Edward Liddy who tried to explain progress the firm has made to correct its problems by selling company assets, lowering the $1.6 trillion debt to $1.2 trillion since September.

But, no, he was forced to suffer the slings and arrows from Congress. AIG now stands for “Arrogance, Incompetence and Greed,” said Rep. Paul Hodes, D-N.H. Rep. Gary Ackerman, D-N.Y., cited a “tidal wave of rage” throughout the country. He said AIG made taxpayers look like "suckers."

Monday in a radio interview, Sen. Charles Grassley, R-Iowa, suggested the AIG executives apologize and either resign or commit suicide like the Japanese do. Ouch.

Liddy took the verbal abuse like a man. Here's a guy who comes out of retirement as chairman of Allstate Insurance Co., is appointed to run AIG in September by the government and agrees to work for a dollar a year salary.

He read aloud threats that AIG employees had received, including one that suggested that all bonus recipients should be “executed with piano wire around their necks.” Another one read: “If the government can’t do this properly, we the people will take it in our own hands and see that justice is done. I’m looking for all the CEO’s names, kids, where they live, etc.”

Congress during this three-day binge pointed fingers in the blame game at everyone but themselves.

Sen. Ron Wyden, D-Ore., said he wrote a provision in the Senate's version of the $787 billion stimulus bill that would have capped executive compensation to those firms receiving federal bailout funds. He said someone in conference committee removed the provision before it was passed and signed into law by President Obama.

That "someone" was Sen. Chris Dodd, D-Conn., who on Tuesday denied any knowledge but on Wednesday confessed. He declined to name the person at Treasury who suggested the provision be removed.

Oops. That leads directly to the much maligned Mr. Geithner. Hmm.

The only Congressman trying to get to the root cause of the AIG cancer was Rep. Scott Garrett of New Jersey, the senior Republican on the subcommittee. He complained that the administration still has no exit strategy for disentangling itself from the insurance giant. “Part of me wants to say to some of the loudest critics, ’What did you expect and why weren’t you asking more questions before?’ I would argue that the real outrage now is the $170 billion of taxpayer money that’s been pumped into this company and to what effect.”

Great question.

Scott Polakoff, acting director of the Office of Thrift Supervision, said regulators failed to accurately predict what would happen to AIG’s so-called credit default swaps — a form of insurance — if housing values collapsed, as they have.

Orice Williams, director of financial markets and community investment at the Government Accountability Office, the government’s top watchdog agency, told the House committee that the government’s intervention helped AIG avoid failure, but that the company is still struggling to pay back the money. Market and other conditions have prevented the insurer from making significant asset sales, she testified. She said most restructuring efforts are still under way.

Just how bad was AIG before the government stepped in?

In the last quarter, AIG posted a record $61.7 billion loss, highest in American business history. It was equivalent to squandering $465,000 a minute.

And, get this: While some say AIG is too big to fail, Liddy wrote in an opinion piece in the Washington Post published Wednesday that AIG was "too big to manage."

“The company's overall structure is too complex, too unwieldy and too opaque for its component businesses to be well-managed as one entity,” Liddy wrote.

The strategy the company is pursuing is to sell off as many pieces as possible to pay back the money advanced from the Treasury and the Fed and keep the healthy businesses afloat to generate profits for taxpayers.

That strategy is also risky. The company owns more than 30 separate operating units and has customers in more than 130 countries; it insures more than 100,000 entities that employ more than 100 million Americans, along with more than 30 million U.S. policyholders.

There’s plenty to sell. AIG is a sprawling holding company with its fingers in dozens of businesses, from various lines of insurance — including life and property-casualty — to asset management, real estate lending, aircraft leasing, and investment products and services for both big institutional investors and consumers.

But putting a price tag on those assets has proved to be tougher than anyone imagined. A big part of the problem is trying to estimate future profits during the worst global downturn since the Great Depression. With few buyers available, the government is faced with the prospect of continuing to pump money in the ailing company before it self destructs.

What all this means to President Obama is that despite his popularity he's going to have one hell of a time convincing Congress to spend more bailout money on our failing banks, certainly the biggest losers such as Bank of America and Citigroup.

The administration also is seeking ways to regulate the entire financial sector "to prevent this from ever happening again," Obama said. We've heard that before.

Never has a regulation been written that those tricky Wall Street lawyers haven't found a way around.

The biggest fear on Wall Street is the new rules will choke economic growth when the markets stabilize. We've heard that before, too.

One thing is certain. The culture on Wall Street has changed forever. You can thank those 418 AIG bonus babies responsible for .0027488 of the problem.

Don't we feel better now that we have blown off all that steam?

Monday, March 16, 2009

AIG Bonuses: Who Are Those Guys?

There is a knee-jerk reaction from President Barack Obama all the way down to the the bum on Main Street voicing outrage that $165 million in bonuses will be paid out to employees of American International Group from equity provided by taxpayers bailout funds.

No question it appears these people through what Obama said Monday was "recklessness and greed" destroyed the giant insurance company and contributed immensely to the meltdown of the financial sector of the economy.

The feds have funneled $170 billion into AIG and taken 80% control to keep it afloat.

Lawyers for AIG have informed Congressional oversight committees that the bonuses are part of a contractual agreement and must be paid.

That strikes at the heart of the issue, not the grandstanding by politicians. It is exactly what is being asked.

New York Attorney General Andrew Cuomo sent a letter Monday to AIG's chairman Edward Liddy requesting a full accounting for the bonuses, CNBC reported. According to CNBC, the letter requests a list of those who received the bonuses, what their roles are and why they deserve a bonus. Cuomo wants the list by 4 p.m., CNBC said, or he will subpoena AIG.

It doesn't take a Harvard grad to guess the nature of these contracts. They presumably are based on commissions and revenues generated by derivative trading under the guise of deceptive AAA rating protections by the securities rating agencies. The question then becomes was complicity or criminal intent involved in these transactions. If not, the money was gained for a very few at the expense of millions of others losing jobs and life savings. It is why congressmen such as Barney Frank calls the bonuses a process of "rewarding incompetence."

In no way am I defending the conduct of these people. I can't help but wonder if the highest powers in AIG agreed to the contracts with greed in mind followed by a wink and a nod.

But, the populist show must go on. From

"These people may have a right to their bonuses. They don't have a right to their jobs forever," said Frank, echoing outrage expressed on both sides of the political aisle...

Because AIG's (initial) bailout money came direct from the Federal Reserve it is not "technically taxpayer money" and Congress may have limited recourse against the company for handing out large bonuses. NBC White House correspondent Chuck Todd reports.

The money was payable to executives by Sunday and was part of a larger total payout reportedly valued at $450 million. AIG has argued that it was contractually obligated to pay the bonuses.

Appearing on NBC's "Today" show, Frank noted that the Federal Reserve Board, using a Depression-era statute, was the institution that gave AIG its initial government bailout, before Congress passed legislation providing for additional assistance. He said he did not think sufficient safeguards were built into that initial bailout by the Fed.

Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, added on NBC's "Today" show that "it does appear to be that we're rewarding incompetence."

On ABC's "Good Morning America" Monday, Sen. Richard Shelby said Congress must do everything it can to make sure the government money going to AIG is handled appropriately. The Alabama Republican, who is the ranking member of his party on the Banking Committee, also said he was angry.

"We ought to explore everything that we can through the government to make sure that this money is not wasted," Shelby said. "These people brought this on themselves. Now you're rewarding failure. A lot of these people should be fired, not awarded bonuses. This is horrible. It's outrageous."

Frank said he was disgusted, asserting that "these bonuses are going to people who screwed this thing up enormously."

Frank said Congress intends to make very clear that it will not stand for "any more abuses of this nature."
Frank's statement came as AIG revealed it used more than $90 billion in federal aid to pay out foreign and domestic banks, some of which had received their own multibillion-dollar U.S. government bailouts.

Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks — France's Societe Generale at $11.9 billion, Germany's Deutsche Bank at $11.8 billion, and Britain's Barclays PLC at $8.5 billion. Merrill Lynch, which also is undergoing federal scrutiny of its bonus plans, received $6.8 billion as of Dec. 31.

"The ability of AIG to meet its obligations is important to the stability of the U.S. financial system and to getting credit flowing to households and businesses," Federal Reserve spokeswoman Michelle Smith said.
The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.

Other banks receiving between $1 billion and $3 billion from AIG's securities lending unit include Citigroup Inc., Switzerland's UBS AG and Morgan Stanley.

Municipalities in certain states, including California, Virginia and Hawaii, received a total of $12.1 billion under guaranteed investment agreements.

The company said it used billions more to fund its Maiden Lane business, which was set up following the federal bailout to purchase toxic assets, and to repay debt and provide capital for some of its operations.
"I've been asking for this information for months. This is a good first step, but I'm concerned by how long it took,' said Rep. Carolyn Maloney, who is chair of Congress' Joint Economic Committee.

In a letter to Treasury Secretary Timothy Geithner dated Saturday, Liddy said outside lawyers informed AIG that it had contractual obligations to make the payments and could face lawsuits if it did not do so.

Liddy said the company entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout. AIG has agreed to the Obama administration's requests to restrain future payments.

From the New York Times:

“There’s unquestionably a strong populist surge out there,” said Joel Benenson, Mr. Obama’s pollster, citing his own polls and focus groups. “It’s been brewing for close to four years. For the last two years, Americans were clearly indicating that they believe that one of the biggest obstacles to progress on America’s toughest challenges — notably health care and energy independence — was the influence of special interests and corporate interests on the agenda in Washington.”

A New York Times/CBS News Poll in February found that 83 percent of respondents said the government should cap the amount of compensation earned by executives of companies that are getting federal assistance.

Mr. Obama’s advisers argued that to at least some extent, this was a sentiment they could tap to push through his measures in Congress, including raising taxes on the wealthy. They pointed out that in his speech to Congress, Mr. Obama denounced corporations that “use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet...”

Still, aides acknowledged the risks of a backlash as Mr. Obama tries to signal that he shares American anger but pushes for more bail-out money for banks and Wall Street.

For all his political skills and his capturing of the nation’s desire for change in the 2008 election, Mr. Obama, a product of Harvard Law School who calls upscale Hyde Park in Chicago home, has shown little inclination to strike a more populist tone. The danger, aides said, is that if he were to become identified as an advocate for the banks and Wall Street, people could take out their anger on him.

Saturday, March 14, 2009

Time To Stop Whining About Bush's Failures

The time has come for President Barack Obama and his Democratic loyalists to stop whining about inheriting all the problems the Bush administration dumped on us.

They knew that from the get-go and most intelligent Americans accept it as fact. So, let's get on to governing us out of this economic and geo-political hornet's nest.

Obama himself not only correctly slurred President Bush during his inaugural speech but in recent weeks has ratchet up the rhetoric. One can hardly blame him as the White House digs and discovers the extent of the economic recession and apparent abuses of executive power involving national security.

The electorate last Nov. 4 essentially handed Obama a broom and told him to sweep clean the mess before him. That he is doing. But, we don't need to be reminded of it every swish.

I appreciate Obama's skills setting up Bush as the bad guy because if his domestic and foreign policy shifts succeed they will need to find room on Mt. Rushmore to carve his face.

But what he is doing to Bush's legacy is not unlike what his people have done by painting the unpopular (polls, not audience) conservative talk show host Rush Limbaugh as the leader of the Republican Party: Creating a straw man.

The executive orders overturning Bush policies and new laws signed by Obama are too fresh to pass judgment. Where Obama has failed so far is articulating a strategy for financial institutions to recover and start lending that would open the floodgates to new private investment in the stock market. We saw a trickle of hope last week as stocks rallied four consecutive days but there is no empirical evidence Obama policy moves had anything to do with it.

The lead on-line story in Saturday's Washington Post addresses the subject.

In his inaugural address, President Obama proclaimed "an end to the petty grievances and false promises, the recriminations and worn-out dogmas that for far too long have strangled our politics."
It hasn't taken long for the recriminations to return — or for the Obama administration to begin talking about the unwelcome "inheritance" of its predecessor.
Over the past month, Obama has reminded the public at every turn that he is facing problems "inherited" from the Bush administration, using increasingly bracing language to describe the challenges his administration is up against. The "deepening economic crisis" that the president described six days after taking office became "a big mess" in remarks this month to graduating police cadets in Columbus, Ohio.

"By any measure," he said during a March 4 event calling for government-contracting reform, "my administration has inherited a fiscal disaster."
Obama's more frequent and acid reminders that former president George W. Bush left behind a trillion-dollar budget deficit, a 14-month recession and a broken financial system have come at the same time Republicans have ramped up criticism that the current president's policies are compounding the nation's economic problems.
Obama had initially been content to leave partisan defense strategy to his proxies, but as the fiscal picture has continued to darken, he has appeared more willing to risk his image as a politician who is above petty partisanship to personally remind the public of Bush's legacy.
His approval ratings remain strong — above 60 percent, according to the most recent Gallup poll — but have dropped from their highs almost entirely because of falling support among Republicans since he took office.
Upon entering the White House in 2001, Bush pinned the lackluster economy on his predecessor, using the "Clinton recession" to successfully argue in favor of tax cuts that won some Democratic support. But for Obama, who built his candidacy on a promise to rise above Washington's divisive partisan traditions — winning over many independent voters and moderate Republicans in the process — blaming his predecessor holds special risks.

He will need support beyond his Democratic base as he begins lobbying for his $3.6 trillion budget, which proposes sweeping changes in health care, the energy sector and the public education system. The president did not receive a single House Republican vote for his stimulus plan, prompting some in his administration to view his bipartisan outreach efforts as having little hope of success.
And Republicans have seemed only more emboldened in their rhetoric. Sen. John McCain (Ariz.), for example, recently called the borrowing needed to fund the president's economic recovery plans "generational theft."
"What the administration is involved in now is the politics of attribution," said Lawrence R. Jacobs, a political scientist at the University of Minnesota. "Each week that goes by with falling job numbers and Republican criticism of the administration's flaws means falling approval ratings. What's the antidote? That the guilty party is George Bush."
"The trick," Jacobs said, "is how do you shift blame to George Bush and retain any credibility on the idea that you are looking past partisan warfare? This looks like a doubling down on a very partisan approach."

Rahm Emanuel, Obama's chief of staff, denied that the president has changed his tone toward the previous administration. He said Obama is "not trying to place blame, but he is trying to say clearly: Here's what we've got and here's our way out of it. He's offered a positive alternative to their criticism."
"The truth is that 98 percent of his speeches are about the future, and 2 percent are about inheritance," Emanuel said. "Whereas I think for Republicans it's 2 percent about the future, and 98 percent hope that the people have amnesia."
Until recently, the job of reminding the country of the Bush-era legacy had been left mostly to senior administration officials, and it sometimes ranged beyond economic matters. Referring to the military prison at Guantanamo Bay, Cuba, Vice President Biden said soon after the inauguration that "we're trying to figure out exactly what we've inherited here."
In early February, Secretary of State Hillary Rodham Clinton said that "after I accepted the position, I began looking at the broad array of problems that we were going to inherit," citing the Middle East, Pakistan and Afghanistan in particular.

But most of the Bush-era blame has focused on the economy and the dismal state of the government's finances. Bush's spokesman, Rob Saliterman, declined to comment for this article.
Obama has strengthened his rhetoric gradually. Thomas E. Mann, a senior fellow at the liberal-leaning Brookings Institution, said the administration's "sharpened language is a response to the Republican argument against Obama based on huge deficits and big spending."
Six days after taking office, Obama kicked off an event on jobs, energy reform and climate change with "a few words about the deepening economic crisis that we've inherited." He lamented announced job cuts at such economic mainstays as Microsoft, Intel, Home Depot and Caterpillar, among others.
Just over a week later, Obama, arguing for his stimulus plan, said that "we've inherited a terrible mess," and a few days after that, in the economically depressed city of Elkhart, Ind., he told the audience, "We've inherited an economic crisis as deep and dire as any since the Great Depression."
During a prime-time news conference later that day, he used "inherited" twice in the same sentence to describe the deficit and "the most profound economic emergency since the Great Depression."
This month, Obama has described inheriting "a fiscal disaster" and "a real mess," as administration officials emphasized that the effects of the stimulus package have yet to be seen in paychecks and job-creating public-works projects.

"There's a fascinating behind-the-scenes trend taking place for someone who remains a very popular president," said Ari Fleischer, a former Bush press secretary, describing the decline in Obama's approval ratings and an increase in disapproval numbers. "His response to that trend is to turn up the blame on George Bush and everything that came before him. And he was the one who talked about getting past partisanship."
The economy continues to shed jobs — 651,000 in February alone — and the Dow Jones index is roughly 12 percent lower than when the market opened on the day of Obama's inauguration. Perhaps most damaging has been the uncertainty surrounding Obama's strategy to rescue the banking sector, a plan that has been criticized for lacking detail.
Host Chris Wallace asked on "Fox News Sunday" this month, "Can this now fairly be called the Obama bear market?"
House Republican Whip Eric Cantor (Va.) said, "I want to take the president at his word that he wants to work on these problems plaguing American families," adding that "people are looking for leadership."
"It is the Obama economy and the Obama stock market," Cantor said. "This is about today, and he's assumed his post."

Friday, March 13, 2009

China Warns U.S. On Spending Perils

It's not as sexy as Stewart vs. Cramer but the message Chinese Premier Wen Jiaboa sent Friday about reckless spending devaluing the U.S. dollar must have jolted the Obama administration about its orgiastic stimulus investment plans.

"Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried," Wen said at a news conference Friday after the closing of China's annual legislative session. "I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets."

The White House has every reason to be worried. It relies on China to buy U.S. bonds to pay for the $787 billion stimulus plan. China invests $2 trillion in foreign markets, half in U.S. Treasury notes. A weaker dollar would erode the value of those assets.

I have always feared what would happen if China used its leverage and called in those notes. Not to worry, economists tell us. It would destroy the world economy including China itself. Easy for them to say.

The economic and political ties between China and the U.S. are complicated. U.S. corporations complain about unfair trade policies in which China enjoys the upper hand. U.S. Treasury officials accuse China of manipulating its currency value in its favor. But, neither can live without the other.

Wen's warning sets the stage for Chinese President Hu Jintao's meeting with President Barack Obama at an April 2 summit in London of the Group of 20 major economies on remedies for the global economic crisis.

Reports the Associated Press:

"China is telling the U.S. to be careful, not to overspend and keep an eye on the dollar," said Kelvin Lau, regional economist at Standard Chartered in Hong Kong. "There are risks that China cannot control, so they're depending on the U.S. to maintain fiscal prudence and keep the dollar reasonably stable."

But economists said his comments reflect fears that higher U.S. budget deficits from Washington's $787 billion stimulus package could drive down the dollar and the value of China's Treasury notes.

"Inside China there has been a lot of debate about whether they should continue to buy Treasuries," said Frank Gong, chief China economist for JP Morgan.

Beijing is trying to increase its leverage at the London G-20 meeting by reminding its partners of its role in financing U.S. spending, Gong said.

"Without China's buying (Treasuries) and continuing to fund U.S. deficit spending, interest rates could have been much higher. That could be very destabilizing in this very recessionary environment," he said. "By attracting a lot of attention to this issue, China is already increasing its influence ahead of the G-20 meeting."

Finance officials from the G-20 meet this weekend. U.S. Treasury Secretary Timothy Geithner is pressing for a new coordinated global stimulus. Japan is supportive but European governments are reluctant to make expensive commitments before they see how current plans are working.

Writes John W. Schoen, senior producer at

After months of preliminary work, several major fault lines have opened, largely between the U.S. and European countries, say analysts. The Obama administration ... has been pressing European countries to boost spending. For their part, the Europeans have been urging quick action on tightening financial regulations.

On Tuesday Federal Reserve Chairman Ben Bernanke outlined the issue facing U.S. financial regulators, but pointedly lowered expectations for the April G-20 summit. “I think it's asking too much for a meeting like that to come out with detailed proposals in many different areas,” he said...

In response to U.S. calls for more government spending, the EU has said it is doing its part with a package that amounts to between 3 and 4 percent of Europe’s gross domestic product. The $780 billion amounts to about 5.5 percent of the U.S. GDP, but is spread over two years.

While the U.S. is expected to continue to urge European countries to spend more, that will likely be a tough sell. With the exception of Germany, Great Britain and France, most European governments’ finances are already stretched to the limit.

Meanwhile, the president said Friday many families are feeling "incredible pain" but promised the government is providing help through its spending programs. Obama and his advisers prefer to accentuate what little positive news they can scratch from economic indicators.

Consumer spending in January increased over sales during the December holiday season. The trade deficit dropped to $36 billion, lowest since October 2002, as American companies imported less due to the weakening economy.

However, while America’s deficit with many of its trading partners declined sharply, the politically sensitive shortfall with China bucked the trend, rising by 3.5 percent to $20.6 billion. That also could be a concern expressed by the Chinese Prime Minister Wen.

The New York Times offers this assessment from Lawrence Summers, Obama's No. 2 man at Treasury:

Summers acknowledged that huge sums are being borrowed by the U.S. government to support recovery efforts. And while things should get better under Obama’s programs, things could also get worse “if deflation sets in, if GDP (gross domestic product) collapses further,” Summers said.

“If that happens, the magnitude of the federal borrowing, as large as it is, will be dwarfed. It will be far, far larger.”

Again, exactly the fears expressed by the Chinese.

Wednesday, March 11, 2009

Killing Sprees Confound Mental Health Fixes

These gun massacre sprees in schools, townships and churches are a painful reminder we live in a culture inhabited by a lot of seriously sick people who are ticking time bombs. Any number of variables seem to set them off.

The most recent tragedies:

A 17-year-old gunman in Winnenden, Germany, killed at least 16 students and teachers at his former school Wednesday before he died.

In rural Alabama on Tuesday, Michael McLendon gunned down 10 people, including at least five of his family members, before he took his own life.

The list of similiar episodes seems endless as well as aimless.

Invariably, each of the killers are profiled by psychiatrists, psychologists and others in that forensic fraternity seeking answers. What they find are deviant behavorial red flags unrecognized by untrained minds of friends and family. It takes more than tough love to say a loved one is whacko and requires psychiatric help that may or may not defuse the ticking bomb. Compounding that is possible legal ramifications for interfering school and health care officials.

I was a peripheral witness as a reporter on the day of July 18, 1984, when James Huberty shot and killed 22 and injured 19 at a McDonald's restaurant in San Ysidro, Calif. I can assure you that bloody scene is engraved forever in the recesses of my brain.

In trying to reconcile these horror images, several broad truths seem to emerge no matter what the experts say.

First, the mass killings seem to go in cycles which indicates to me a "copy cat" influence involved and gives some sicko an idea to gain the same notoriety for his 15 minutes of fame.

Second, the victims are usually but not always the focus of the killer's demented irrationality.

Third, by the end of the shooting spree, the gunman is dead by his own means or killed by police.

Finally, gun laws have absolutely no deterrent on shooting massacres. Guns are the tools used by these sick minds to carry out their rampages.

In the United States, anti-gun advocates blowoff their agendas every time a massacre occurs whether it's Tuesday's spree in Alabama, the 2007 slaughter at Virginia Tech University or the Columbine High School killings in Colorado.

The indelible truth is if a criminal or sicko wants a gun, there's never been a law written to prevent him from obtaining one. In Europe, all firearms are banned yet the school shootings in Weddenden, Germany, or recent ones in Finland and Scotland, still occur.

Just for the record to those antigun advocates, I am not a member of the National Rifle Association, I support the Second Amendment and I think all guns should be registered. I draw the line at allowing hunters to own automatic weapons such as Uzis to shoot wild game. Other than that, I really don't give a damn.

What stuck a stake in my heart this morning was reviewing lists of killing rampages of schools and wondering: Why schools? Here's an abbreviated list compiled by The Associated Press:

Sept. 23, 2008: Matti Saari, 22, killed nine fellow students and a teacher before shooting himself at a vocational school in Kauhajoki, Finland.
Feb. 14, 2008: Former student Steven Kazmierczak, 27, opens fire in a lecture hall at Northern Illinois University in DeKalb, fatally shooting five students and wounding 18 others before committing suicide.
Nov. 7, 2007: Pekka-Eric Auvinen, 18, shoots and kills eight people and himself at a high school in Tuusula, Finland.
April 16, 2007: Cho Seung-Hui, 23, fatally shoots 32 people in a dorm and a classroom at Virginia Tech in Blacksburg, then kills himself in the deadliest mass shooting in modern U.S. history.
Nov. 20, 2006: Sebastian Bosse, 18, goes on a rampage at his former high school in Emsdetten, Germany, near the Dutch border, shooting and injuring four students and the school janitor. Police commandos later found Bosse dead.
April 26, 2002: Robert Steinhaeuser, 19, previously expelled from a school in Erfurt, Germany, kills 13 teachers, two former classmates and a policeman, before committing suicide.
April 20, 1999: Students Eric Harris and Dylan Klebold open fire at Columbine High School in Littleton, Colorado, killing 12 classmates and a teacher and wounding 26 others before committing suicide in the school's library.
March 13, 1996: Thomas Hamilton, 43, killed 16 kindergarten children and their teacher in Dunblane, Scotland, and then killed himself.

That's a death toll of 99 innocent victims, not counting the nine shooters themselves. The list did not include Charles Whitman's carnage of 14 dead and 31 injured from the Tower on the University of Texas campus on July 31, 1966. And, we're talking only schools and then only where multiple victims were slaughtered.

When you add in the Alabama spree, the church shootings, the McDonald's massacre and the others the death toll exceeds numbers so painful we do not want to contemplate. It is a challenge beyond the scope of our mental health capabilities.

WebMD posts this decade-old study on its website but I doubt the incident rate has changed much.

The United States leads the world's richest nations in gun deaths -- murders, suicides, and accidental deaths due to guns - according to a study published April 17, 1998 by the Centers for Disease Control and Prevention (CDC) in the International Journal of Epidemiology.
The U.S. was first at 14.24 gun deaths per 100,000 people. Two other countries in the Americas came next. Brazil was second with 12.95, followed by Mexico with 12.69.
Japan had the lowest rate, at 0.05 gun deaths per 100,000 (1 per 2 million people). The police in Japan actively raid homes of those suspected of having weapons.
The 36 countries in the study were the richest in the World Bank's 1994 World Development Report, having the highest GNP per capita income.
The United States accounted for 45 percent of the 88,649 gun deaths reported in the study, the first comprehensive international scrutiny of gun-related deaths.
The gun-related deaths per 100,000 people in 1994 by country were as follows:
U.S.A. 14.24
Brazil 12.95
Mexico 12.69
Estonia 12.26
Argentina 8.93
Northern Ireland 6.63
Finland 6.46
Switzerland 5.31
France 5.15
Canada 4.31
Norway 3.82
Austria 3.70
Portugal 3.20
Israel 2.91
Belgium 2.90
Australia 2.65
Slovenia 2.60
Italy 2.44
New Zealand 2.38
Denmark 2.09
Sweden 1.92
Kuwait 1.84
Greece 1.29
Germany 1.24
Hungary 1.11
Ireland 0.97
Spain 0.78
Netherlands 0.70
Scotland 0.54
England and Wales 0.41
Taiwan 0.37
Singapore 0.21
Mauritius 0.19
Hong Kong 0.14
South Korea 0.12
Japan 0.05

These numbers and per capita rates speak for themselves.