Tax, Regulate, and Subsidize

"The government's view of the economy could be summed up in a few short phrases:  If it moves, tax it.  If it keeps moving, regulate it.  And if it stops moving, subsidize it."

- Ronald Reagan

It certainly seems that this former President was at the top of his game in saying this, and that what was true over thirty years ago remains equally true today.

 
What brought these comparisons about was the recent revelation by JP Morgan Chase, that poor monitoring of a worse strategy of investment cost the bank some $2 billion of its own money in the last six weeks.  Now there was a day when $2 billion was real money, but those days are almost as far behind us as the Presidency of Ronald Reagan.  After all, JP Morgan Chase is a bank worth almost $2.3 trillion; which is a bit more formidable sum to consider, unless of course, you're a national government.

There are those now calling for the bank's CEO Jamie Dimion to resign from the Federal Reserve Board (if not from the bank), including a former Obama adviser and now Senatorial candidate in Massachusetts Elizabeth Warren.  Of course you all remember Ms. Warren's latest claim to fame, that of being 1/32 Cherokee Indian.  Now that claim has come into serious question, if not disrepute (in a distraction that radio personality Mark Steyn cleverly calls Fauxcahontas).  My math skills may be a little rusty, but Warren's potential error on her pedigree seems to be something on the order of 3% and JP Morgan's on the order of .01%.  But let's set that, along with her campaign pontifications aside.

We could take up instead those made by White House press secretary Jay Carney, using his pressroom podium as a bully pulpit to speak on why this situation is justification for the 'Dodd-Frank Wall Street Reform and Consumer Protection Act', and to make the case that its perhaps additional federal regulations of the banking industry should be taken up at the federal level.  Of course Mr Carney fails to point out that the type of trading being done by the bank was not covered under Dodd-Frank and that it was the bank and not federal regulators that caught the problem, but it's seldom that the a political candidate's spokesperson will let the facts get in the way of a bit of campaign rhetoric. So maybe we should set aside the statements of Mr Carney as well in the spirit of fairness (to what I don't know).

Since some are setting the federal government up as a fiscal watchdog, let's look instead at the numbers of a couple instances of recent money loss under federal oversight.  In it's most recent quarter of operation (admittedly 12 weeks and not 6), the US Post Office lost $3.2 billion.  What's more, it lost $3.3 billion in the fourth quarter of 2011, and $3.1 billion in the third quarter last year.  In fact, according to Business Insider, it has lost some $20 billion since 2007. Billions of dollars lost through the execution of a lousy strategy and poor monitoring that sound vaguely familiar, if considerably more egregious; and all of this oversight was performed by Congress.

But let's face it people even $20 billion is chump change in the great scheme of things (pun intended).  After all, isn't Congress responsible for oversight of the national budget?  Now, of course the Senate hasn't seen fit to exercise its responsibility of passing a budget in over 1100 days (3 years for those of you not using the Mayan calendar).  Even though the Senate has a clear Democratic majority however, I'm sure that the fault must lie with the Republicans. The House, to its credit, has passed a couple of budgets since evil Republicans, with their nefarious ringleader Congressman Paul Ryan, started proposing draconian cuts; but nothing has seemingly come of these efforts as in a spirit of bi-partisan compromise that does little more than allow the madness to continue.

So in the first fiscal quarter of 2012, the national debt has gone up not $2 billion, $3 billion, or even $20 billion; but a staggering $320 billion (at least according to the Congressional Budget Office).  In fact, at the time that this was posted, the National Debt stood in excess of $15.7 trillion dollars.  So let me get this straight.  The government that loses millions in green energy projects, billions each quarter on the Post Office, and hundreds of billions each quarter in the deficit increase of the federal budget would like greater control on how private businesses spend or invest their own money and show no outrage (or interest for that matter) over their own apparent fiscal irresponsibility. 

OK, then.  Well it certainly seems (based on these facts) as though the government has made its case, and earned that right to impose further controls using Sec of State Hilary Clinton's 'suspension of disbelief' view of the world.  (Sorry, the sarcasm key got stuck and this just typed itself.)

We are after all, certainly taxing the profits made by banks like JP Morgan Chase already, and have increasingly sought to regulate them.  There are those in Congress and the White House who would like even more regulation on 'too big to fail' banks. You know, perhaps with enough government regulation, we might just be able to move beyond stage two of former President Reagan's quote and the bailouts that have already occurred and truly begin to permanently subsidize banks with taxpayer dollars.   


     

Ideology And Vaclav Havel

"Why bother with a ceaseless and in fact hopeless search for truth when truth can be had readily, all at once, in the form of an ideology or doctrine?  Suddenly it is all so simple.  So many difficult questions are answered in advance!  So many laborious existential tasks from which our minds are freed once and for all!"

- Vaclav Havel

Havel is notable for being the last president of Czechoslovakia and the first president of the Czech Republic; and I find this quote from the noted essayist, poet, and politician occasionally poking out its ugly head as I watch both the political left and the right participating in Washington's 'business as usual'.   

The endless puppet show of the Republican debates goes on, as the mainstream media continues to tell us that Mitt Romney is the presumptive candidate; ignoring anyone else in the field, unless it's to speculate on when that current challenger will implode certainly seems to fit the bill.  Perhaps they feel that by the power of repetitive suggestion that non-Democrats will stop paying attention, accept their shrill and dismissive rhetoric as gospel, and stop questioning those seeking the highest office in the land on the Republican side. 

Meanwhile, any candidate questioning the pre-existing national party doctrines as defined by political pundits is marginalized to the point of non-existence.  Caught up in what Thomas Sowell would call 'Stage One Thinking', and ignoring the potential risks of sound-bite solutions that candidates are forced to give in the debate format they are handed, they refuse to accept anyone and anything beyond per-established political doctrine.  If this is what party politics and the electoral process has come to, maybe it's time to leave the party.  

The President continues a speaking tour that's little more than campaign to swing states at taxpayer expense to promote a plan that has already turned into a carcass picked more cleanly than last week's Thanksgiving turkey.  Some less cynical than I, might even find it strange that he feels he can do more good promoting it in stump speeches than working in Washington with legislators already caught up in their own ideologies.  Perhaps this is what leadership has come to mean (though I highly doubt it); though one cannot help but question how the oft heralded spirit of compromise is supposed to work when what we're handed is little more than strictly adhered to ideology from the bully pulpit of the White House.  

This however, is how the current resident of the White House got to reach that exalted position (as did many of those before him), and it's no doubt the way he intends to maintain 'the last job he will ever have'. This too is a well-known doctrine of politics.

Meanwhile the 'dance of the dead' (well, brain dead at least) goes on in Washington, where 535 legislators can't agree on the what a budget is or how to pass one, don't seem to know what constitutes a spending cut and can't agree on when such a cut will happen even when they agree that in fact it must, and attempts to operate the nation's economy on a principle of 'Wimpy Economics' that says we can pay for spending cuts tomorrow with tax increases today.

And while most agree that closing some of the loopholes in the tax code that Congress itself created is a good idea, ideology (and the 2012 elections) prevent them from doing so.  While most likewise agree that we cannot continue to spend and increase our national debt at current rates, ideology again prohibits them from doing anything to address this problem as well.

They ignore common sense and the basic principles of math including addition, subtraction, and the calculation of percentages; all the while telling us that they do so in the name of an ideology that's either inconsistent, contradictory, or both.  And while both parties attempt to tell us that this debate is all about holding firmly to such ideology, we all know that it's more about political expediency and not throwing away a gig that pays in excess of $165k in tough economic times.  Even those as apparently ignorant as those we hired as 'public servants' know better than to do anything that might lead them to having to look for a new job in this economy.

Adding insult to injury, we watch in stunned silence as information is released that the Federal Reserve lent over $7 trillion dollars to banks around the world (and plans to lend more).  Of course why we would expect a group of unelected bureaucrats who are nothing more than independent bankers to do otherwise is a mystery to me.  After all, who better than the financial experts who either participated in or blithely sat by and watched as the world's economy went to hell should we trust to act in our best interests rather than their own (or that of their brother bankers)?  

And while we prop up the world's financial system with electronically printed money that our grandchildren's grandchildren will be paying for, we have the comfort of knowing that those running the banks will continue to receive the exorbitant bonuses promised to them by contract, as those in charge simply play the game by the rules that they created, following the time honored ideology that got us where we are today.


I wonder if Mr. Havel chuckles or cries as he recognizes the terrible truth he has taught us?

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Apology Not Accepted

I was struck yesterday by the appearance of Akio Toyoda at a meeting the House Committee on Oversight and Government Reform. It was not that he offered the expected apology over the recent safety issues that his company's products have experienced, which genuine or not was simply good corporate theater. Instead, I was struck by the fact that this hearing was being held in a Congressional committee purportedly dedicated to government oversight and reform, and the sheer gall of members of Congress for thinking that they had the stature to hold such hearings. 


Was it not the failure of Congressional oversight of Fannie Mae and Freddie Mac that contributed greatly to the bursting housing bubble? Was it not the failure of Congressional oversight in the banking industry that allowed this bubble to expand into a banking crisis requiring a massive bailout? Was it not a failure of Congressional reform and oversight that allowed the Federal Reserve to live in an unnatural relationship with major banks and brokerage houses of this country, largely causing the escalation of the current financial crisis? Was it not a failure of Congressional oversight that has allowed the Social Security and Medicare to become bankrupt in all but name? Was it not a failure of Congressional oversight and reform that allows the deficit to spiral out of control, forcing Congress to recently raise the debt ceiling yet again? (An effort that they admit will be but a stop gap measure ...) 


Where do these politicians get the brass ones to call anyone in front of the cameras to perform in a rather poorly acted version of the Spanish Inquisition? How can they who have failed in their own tasks so grandly and consistently ask anyone to submit to questioning that is little more than a public pillory? How can members of this group that has so greatly placed the safety of every man, woman, and child in this country at risk attempt to show righteous indignation over the apparent lapse of one company to serve the needs of its customers? 


There is a difference between Toyota and Congress in such lapses however. With Toyota, they are not only willing to admit past their mistakes, but their record of pride and dedication can lead to no other conclusion than that they will resolve the issues recently come to light to everyone's satisfaction. 


With Congress however, there is no admission of guilt for failure forthcoming, nor any real possibility that they will do anything substantive to address the issues (mostly of their own creation) that lie before them. I am therefore more than willing to accept the apology that Mr. Toyoda has generously offered. As for Congress, even if they ever do finally offer an apology (Olympic hockey finals being played in Hell has a better chance), it will not be accepted.

Money For Nothing

"That ain't workin', that's the way do it. Money for nothin' and your chicks are free." 
- Dire Straits 


While I'm not sure what the "chicks are free" part of this lyrics from a song first released on the 1985 Dire Straits "Brothers in Arms" album means in relation to the banking bailouts, the "money for nothin" part certainly strikes a chord (pun intended) these days. You can't help but think about it when considering the furor made over the year end bonus packages of bank executives by the Pay Czar and President. 


The news has been filled lately with stories about how banks are returning to profitability and paying back TARP money that was loaned to them by the government, fulfilling the prophecy by political leaders that the original investment is thereby justified. I think that I've made myself clear about not liking the government stepping into the employee compensation process, but one has to wonder how such compensation could have been earned in such difficult times. How did these corporations justify an expenditure for lavish salary packages at a time when the economy has been mostly stagnant? Obviously, the payment of these bonuses must be predicated on the successful management of their respective organizations.


It appears that under the guidance of these so-called over compensated managers that even in these difficult financial times banks, unlike many other businesses, were able to make profits. It seems that these talented financial wizards were able to play the system now managed rather closely by the Federal Reserve and the Federal Government, like a cheap fiddle. The Federal Reserve has been lending money to financial institutions recently at an effectively 0% lending rate in order to stimulate the economy and prime the system with capital. The banks, instead of lending this money out to people and small businesses as intended, used this all but "free money" to buy out the now discounted assets of other financial organizations. They also used it to buy the debt incurred by the very government that they were being bailed out by and borrowing from, at interest rate returns of up to 4%. 


So what we are basically seeing here is that banks borrowed money from the government to buy loans that the government was forced to make in some part to finance the money that they were both giving and loaning to the banks. The end result of this nonsensical "Capital Carousel" was that these supposedly incompetent bank executives were able to cash in and make a profit on the even more incompetent leadership and policies of the government claiming the wisdom and ability to know how best they should operate. 


This may appear to be nothing more than trickery and deserving of little praise, but you have to give these managers credit (sorry, poor choice of words) for being able to manipulate the system handed to them to the advantage of their employers. 


You may not like these people, but you have to admit that they are probably smarter than (or in cahoots with ) the government employees who were supposed to monitor and control them. You don't have to admire these people, but they may therefore be worthy of some sort of credit and compensation. It may not be rock and roll, but I believe that even Dire Straits founding member Mark Knopfler would agree that if ever anything did, this may qualify as "Money for nothin'".

The Safety Net

My ideological counterpart at the Toledo Free Press Don Burnard, wrote an interesting piece for this weekend's edition of the the paper (I was absent this weekend, but will be returning soon). I say interesting because there are parts of it with which I am in total agreement. 


That is not to say that we don't disagree on a few major points however. Mr. Burnard writes.: "One of the biggest differences between this recession and the Great Depression is that the Depression was a combination of government spending, regulation and the advent of World War II brought us out of it. Today, wartime spending is adding to the problem rather than helping." 


I would agree that our current level of wartime spending is not helping an already horrible situation; though I am sure that as is typical, military contracts are stimulating some parts of the economy. I would disagree however, with the premise that government spending and regulation brought us out of the Great Depression, as many economists now agree that FDR's policies in fact extended a crisis that would have corrected itself more quickly without the government's intervention. 


I find instead that one of the biggest differences between this recession and the Great Depression is that in 1929, the country was not already burdened with the crushing debt of the very "safety net" that he looks to for salvation. There was no Welfare, no food stamps, no Medicare and Medicaid, and no Social Security system to burden the federal debt at a far greater level than the "two wars" that we are fighting. 


 In fact, I would point out that according to the Obama Administration, we are not actually fighting wars, but Overseas Contingency Operations; but that's beside the point. I agree with Mr. Burnard that we have little chance of "emerging victorious" from either of these conflicts. No amount of time or money is going to change the culture of Pakistan, Afghanistan, Iraq, Iran, or most parts of the Middle East. There have been tribal wars going on in each of areas for thousands of years; and it is sheer hubris to believe that we can force an American mindset or peace on these areas by force of will. 


I believe in fact that the only responsibility that we have in any of these conflicts is that in Iraq, since it was only through our support and funding that Saddam Hussein was able to take power and make a mess of that country in the first place. I likewise disagree with the repetitive cheer voiced in the column that all of this is the fault of the Bush Administration. I believe that this ridiculous policy notion can trace its history back through many years and many presidents on both sides of the aisle, with such examples of Korea, Viet Nam, Panama, Grenada, and Nicaragua on the list of attempts at nation building or enforcing American values on a foreign population. 


I agree wholeheartedly that both parties have been the willing accomplices of special interests in the banking industry, among others. The efforts to subvert capitalism in recent years has been a truly bi-partisan effort; with little change between a Republican or Democratically controlled Congress, and with both Bush and Obama attempting to orchestrate the flawed process. Bush may need to take credit for starting this snowball rolling, but the Obama Administration must likewise take credit for its increased size and speed. 


The solution proposed is the worthy call to build a solid middle class (which cannot be done by the government by the way); but quickly becomes tainted, as its only purpose apparently would be to provide a "strong tax base" (code for increasing taxes) to fund the growth of this safety net. Forgive me if I cringe while reading those words. I have a copy of the Declaration of Independence and Constitution before me, and in no place is such an obligation of the citizenry therein established. The government in this country was created to serve the people, not act in loco parentis. 


I do not believe, as potentially accused, that Mr. Burnard is a socialist, a communist, or a co-conspirator in a global plot to take over the economy. (I chose not to wear my tin foil hat while writing this, though many say I look damn good in it.) I do believe however, that he is misguided in his proposed solution through drinking a bit too much of the progressive Kool-Aid that so many now seem to use as their primary form of sustenance. I believe that many of the problems that he cries out against, and that I agree need solutions, have been caused by the continued and increased interference of government in business. 


I would agree that banking bailouts are wrong and should never have been done, but so is the creation of a "salary czar" to insure some equitable distribution of monies between workers and management. I believe that bailing out corporations like GM and Chrysler is wrong, but so is taking the recompense due to legitimate bond holders and giving it to the UAW. I especially believe that adding to the already poisonous debt load that this country is burdened with in the name of expanding the safety net that Mr. Burnard sees as its salvation is without a doubt the wrong direction for this country.

Banking Confusion

I have been trying to follow the government handling of the banking bailouts lately, but I must tell you that I am beginning to find the whole thing rather confusing. 

Let me see if I have this right. It was the injudicious use and improper lending of money that got the banks in trouble in the first place. Much of this improper lending was done under threat from the Justice Department of the Clinton Administration in the first place (but I only throw that out as a sidelight). 

Having overextended themselves, these banks then found themselves in a rather precarious capital position when the those people to whom they lent money couldn't pay it back. The stock market responding in turn, then found itself in an equally precarious position, which made the bank's position even worse. The government agreed to loan these banks government (taxpayer) dollars in order to remain solvent, in exchange for “preferred stock”, a position which would place the government (taxpayers) first in line for receiving any dividends from the bank’s return to profitability. The government (taxpayers) would not however, receive the same voting rights as those owning common stock, and would therefore have little to say in how the bank ran from day to day. Being a government however (especially a progressive one), ours was unwilling to be in a position where they could not control how these businesses were run and reneged on their promise to not interfere. 

The banks, realizing that they were in yet another bad deal, this time at the hands of the government (remember the cause now), decided that in the choice between the rock and the hard place, they preferred the rock. Many therefore announced that they would like to give the government (taxpayers) their money back. 

Now you would think that the government would welcome a repayment of monies that were at serious risk, would take their money (with interest), and would go back to the business of government (which is normally bad enough). Instead, the government refused repayment (of taxpayer money remember), and announced to the banks that they would like to exchange the preferred stock for common stock. This meant that we would be far less likely to get this money paid back (HEY!), but that the government would now have a voting interest in how the banks were run from day to day. 

So starting out with an issue caused by government interference with the operation of banks on a day to day basis, they attempt to fix the problem by throwing government (taxpayer) money at it. When this solution proves even more egregious than the original problem to these businesses, those businesses decided to step back from this fix. The government, which remember again caused the problem in the first place, rejects getting its (our) money back, and in turn chooses more of the same and perhaps even greater control than that which caused the problem in the first place. The sum total of this assistance program in fact, is that in the name of capitalism, our government would like to commit the socialist act of nationalizing the banking industry. See my confusion?