The $700 Billion Give Away

The three page proposal by Henry Paulson was clearly written.  There was no misunderstanding of the language.  It was an improper proposal because the plan put too much authority in the hands of the Treasury Secretary.  In just two weeks the House of Representatives rewrote the proposal into a 110 page law that is not understandable by most people.  I have read 12 pages of this bill entitled ‘‘Emergency Economic Stabilization Act of 2008.’’  I know you have to write law in proper legal form but this law has been written to hide its true purpose and provide political coverage.  Even the candidates for president (Obama is a Harvard law graduate) have given mediocre support for this law.

 

An example is the section on executive pay.  This was written to obfuscate the issue.  It obviously is not intended to prevent golden parachutes to incompetent executives. Apparently Chris Isidore of CNNMoney.com agrees.

 

SEC. 111. EXECUTIVE COMPENSATION AND CORPORATE

GOVERNANCE.

(a) APPLICABILITY.—Any financial institution that sells troubled assets to the Secretary under this Act shall be subject to the executive compensation requirements of subsections (b) and (c) and the provisions under the Internal Revenue Code of 1986, as provided under the amendment by section 302, as applicable.

(b) DIRECT PURCHASES.—

(1) IN GENERAL.—Where the Secretary determines that the purposes of this Act are best met through direct purchases of troubled assets from an individual financial institution where no bidding process or market prices are available, and the Secretary receives a meaningful equity or debt position in the financial institution as a result of the transaction, the Secretary shall require that the financial institution meet appropriate standards for executive compensation and corporate governance. The standards required under this subsection shall be effective for the duration of the period that the Secretary

holds an equity or debt position in the financial institution.

(2) CRITERIA.—The standards required under this subsection shall include—

(A) limits on compensation that exclude incentives for executive officers of a financial institution to take unnecessary and excessive

risks that threaten the value of the financial institution during the period that the Secretary holds an equity or debt position in the financial institution;

(B) a provision for the recovery by the financial institution of any bonus or incentive compensation paid to a senior executive officer

based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; and

(C) a prohibition on the financial institution making any golden parachute payment to its senior executive officer during the period

that the Secretary holds an equity or debt position in the financial institution.

(3) DEFINITION.—For purposes of this section, the term ‘‘senior executive officer’’ means an individual who is one of the top 5 executives of a public company, whose compensated is required to be disclosed pursuant to the Securities Exchange Act of 1934, and any regulations issued thereunder, and non-public company counter parts.

 

If Congress refuses to go along with this bill I will totally understand.  If this law is adopted I fear that it may be a wasted effort.

90210 Is Not What It Used To Be

The truth is that everyone is feeling the effect of this recession.  Home price are really taking a beating in Los Angeles.  Beverly Hills 90210 prices fell an average of 19.1%.  The average selling price was over $2.6 million.  My zip code is down more than 40%.  My source for these devastating numbers is DataQuick News/Los Angeles Times.

 

Neither the drop in home prices nor the impending recession stopped Neiman Marcus from opening a new store in the Westfield Topanga Shopping Center this month.  My wife and I walked through the store on opening day.  Shoppers were dressed as if going to a very fancy party or perhaps the Oscars or Emmys.  Well, that’s Los Angeles. The glitz is everywhere. 

 

For those of us not earning a few thousand dollars an hour we will have to tear up those credit cards and pay off the bills.  The party is over.   

$700 Billion, California Democrats Have Major Misgivings

The news reports indicate that it’s the Republicans who have concerns about the bailout package but look at my Democratic representatives.  They too are voicing their concerns.

 

I called my congressman and both senators to voice my objections to the bailout.  

 

Henry Waxman a leading congressman and I am in his district:

“I have serious reservations about the Administration’s bailout proposal. The structure of the plan appears designed to maximize returns for Wall Street and minimize protections for the taxpayer.” This was part of a one page press release.

 

Dianne Feinstein, Senior California Senator

On September 26, 2008, Senator Feinstein speaks on the Senate floor about the national economic crisis and Congressional efforts to negotiate an economic rescue bill. Click here to watch the video.

 

Nancy Pelosi, Speaker of the House and San Francisco congresswoman

“We’re very pleased that the President acknowledged last night in his remarks four of the principles that we had been looking for, which was oversight, forbearance for homeowners, CEO compensation, and equity for the American taxpayer. We think in making this large of investment, the taxpayer should have sole ownership, some upside to it, get some of the benefit of the investment.”  This was part of her statement this past Thursday.

The Difference Between Strategy and Tactics

John McCain and Barak Obama argued about the differences in their first debate.  The argument drove me to the dictionary even as the debate continued. Wisegeek.com has a complete write up on the topic.  The answer according to this web site?

 

Essentially, strategy is the thinking aspect of planning a change, organizing something, or planning a war. Strategy lays out the goals that need to be accomplished and the ideas for achieving those goals. Strategy can be complex multi-layered plans for accomplishing objectives and may give consideration to tactics.

 

Tactics are the meat and bread of the strategy. They are the “doing” aspect that follows the planning. Tactics refer specifically to action. In the strategy phase of a plan, the thinkers decide how to achieve their goals. In other words they think about how people will act, i.e., tactics. They decide on what tactics will be employed to fulfill the strategy.

I believe the surge was a tactic not a strategy.  The strategy was the plan to take control of Iraq in an effort to reduce terrorism.  I have posted the question on the wisegeek web site.

Wisegeek response:

“I’d have to say the surge was a tactic, which is what Senator Obama stated.He also talked about looking at the larger “strategic” issues of planning in Afghanistan. Some strategy would necessarily look to tactics. However he demonstrated clear understanding of the differences, which Senator McCain appeared not to. It’s funny how you write a piece a few years ago, and then it becomes relevant again! thanks for your comments!
PS You can find the first 2008 presidential debate full transcript online too, which can prove helpful in fact checking.”

McCain to Media, “I’ve got a partner that’s a good maverick”

Wow! What a statement.  What’s important?  Well McCain calls himself a “maverick” so it all fits.  Despite Sarah Palin’s gaffs, John McCain is not likely to drop her from his ticket.    If you missed the Katie Couric interviews here is part of the transcript.  James Rainy’s Los Angeles Times column tells you what she said.  Her responses clearly showed her lack of understanding.  This was the really mind blowing part.

 

” . . . where it is the taxpayers looking to bail out. But ultimately, what the bailout does is help those who are concerned about the healthcare reform that is needed to help shore up our economy. Um, helping, oh — it’s got to be all about job creation too. Shoring up our economy, and putting it back on the right track. So healthcare reform and reducing taxes and reining in spending has got to accompany tax reductions, and tax relief for Americans, and trade, we’ve got to see trade as opportunity, not as a competitive, um, scary thing, but 1 in 5 jobs being created in the trade sector today. We’ve got to look at that as more opportunity. All of those things under the umbrella of job creation. This bailout is a part of that.”

 

CNN reports that even conservative columnist Kathleen Parker, who was an early supporter of Palin says “out of her league.” David Brooks, George Will, and David Frum have all publicly questioned Palin’s readiness to be vice president.  All of these columnists are conservatives.

 

Can you imagine Sarah Palin as president of the United States?  I cannot.  It is one more reason to vote for Obama.

The Sky Is Falling!

Like a cartoon character John McCain is running around in circles.  Not knowing what to do he keeps running in circles.  He reminds me of the story of Chicken Little.  Could Foxy Woxy really be Henry Paulson?           

 

Let me retell the story as posted on http://www.geocities.com/mjloundy/.

One day Chicken Little was walking in the woods when —KERPLUNK — an acorn fell on her head

“Oh my goodness!” said Chicken Little. “The sky is falling! I must go               and tell the king.”

On her way to the king’s palace, Chicken Little met Henny Penny. Henny Penny said that she was going into the woods to hunt for worms.

“Oh no, don’t go!” said Chicken Little. “I was there and the sky fell on my head! Come with me to tell the king.”

So Henny Penny joined Chicken Little and they went along and went along as fast as they could.

Soon they met Cocky Locky, who said, “I’m going to the woods to hunt for seeds.”“Oh no, don’t go!” said Henny Penny. “The sky is falling there! Come with us to tell the king.”

So Cocky Locky joined Henny Penny and Chicken Little, and they went along and went along as fast as they could.

Soon they met Goosey Poosey, who was planning to go to the woods to look for berries.

“Oh no, don’t go!” said Cocky Locky. “The sky is falling there! Come with us to tell the king.” So Goosey Poosey joined Cocky Locky, Henny Penny and Chicken Little, and they went along as fast as they could.

Then who should appear on the path but sly old Foxy Woxy.

“Where are you going, my fine feathered friends?” asked Foxy Woxy. He spoke in a polite manner, so as not to frighten them.

“The sky is falling!” cried Chicken Little. “We must tell the king.”

“I know a shortcut to the palace,” said Foxy woxy sweetly. “Come and follow me.”


But wicked Foxy Woxy did not lead the others to the palace. He led them right up to the entrance of his foxhole. Once they were inside, Foxy Woxy was planning to gobble them up!

 

Just as Chicken Little and the others were about to go into the fox’s hole, they heard a strange sound and stopped.

 

It was the king’s hunting dogs, growling and howling.


How Foxy Woxy ran, across the meadows and through the forests, with the hounds close behind. He ran until he was far, far away and never dared to come back again.

After that day, Chicken Little always carried an umbrella with her when she walked in the woods. The umbrella was a present from the king. And if — KERPLUNK — an acorn fell, Chicken Little didn’t mind a bit. In fact, she didn’t notice it at all.

 
 

 
The End

 

 

We Will Scare Them Into Agreement

I watched the president’s speech tonight.  Halloween haunted houses will not be scarier.  The speech was designed to frighten everyone into agreeing with his plan to bail out Wall Street.  He had the audacity to ask us to believe him when he is the man who led this nation into the war in Iraq with faulty data.  That he had the chutzpa to make his presentation without a piece of evidence to support his dire predictions is remarkable.

 

Just look at these quotations from the speech.

–We’ve seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money.

–We’re in the midst of a serious financial crisis,

–Financial assets related to home mortgages have lost value during the housing decline. And the banks holding these assets have restricted credit.

–The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses.

 

If Congress buys this malarkey they should all be removed from office.

 

 

It is 3 a.m and the candidate who can provide leadership ought to win the presidency.

The Lottery Is a Wonderful Thing

California finally has a budget for the fiscal year that started July 1.  You see the problem is that our laws require a 2/3 majority to pass all spending bills.  The Democrats have a majority of the legislature but not the required two thirds.  The state goes through this every year.  It’s not likely to change because the districts have been so gerrymandered that it’s almost impossible to change the control of any district.

 

Gov. Arnold Schwarzenegger has done the best anyone could, given the government structure.  It was a fabulous idea for balancing the budget.  We will borrow $10 billion from future lottery revenue.  Maybe the Federal government can use that method to finance the bail out of Wall Street.

 

I am not certain that anyone really cares. Beverly Hills, Malibu, La Jolla, and Calabasas too, are all doing great this year.  What’s to worry?

You Have Got to Be Kidding!

Henry Paulson is the highly respected Secretary of the Treasury.  He has outstanding credentials for the job.  He was the CEO of Goldman Sachs before taking his job as Secretary.  In fact he spent his entire working career at Goldman Sachs.  His wealth is estimated, according to Wikipedia, to be over $700 million.

 

So here is the problem.  Many of his friends have got to be some of the most influential people on Wall Street.  Do you suppose he might be concerned with saving those friends and their businesses?  The markets are collapsing and those Wall Street companies are in serious trouble.  Perhaps he is just protecting those friends.

 

Am I overly suspicious?  Just read the proposal by Mr. Paulson.  I especially like (fascinated with) Section 8.  “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

 

The Sunday morning talk shows provided no insight into Mr. Paulson’s thinking.  Thanks to my DVR I saw the interviews on This Week, Face the Nation and Meet The Press.  No one thoroughly questioned Mr. Paulson.  The late Tim Russert would have conducted the kind of cross examination that this situation calls for.  At the very least Tom Brokaw should have asked Chris Dodd what Mr. Paulson had said that “drew the breath out of the room.”  The hosts just accepted Mr. Paulson’s words without question.  How disappointing.  NBC needs to find a replacement for Tom Brokaw.

 

The Newsweek cover story calls Mr. Paulson “The Captain of the Street.” It’s an article written by Daniel Gross who usually writes an insightful column.  The lack of specifics for the general public makes me very skeptical.

 

I was happy to find this article on the Time Magazine web site. 

 The House Speaker says “we will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome.”

Mr. Paulson may be correct in his evaluation.  If he is correct, his proposal is just a starting point.  This situation is not a political issue.  America needs to protect itself from a recurrence these sorts of situations in the future.  

What has the Government Deregulated?

Perhaps the question ought to be, has deregulation by government been successful? Maybe the question should be, how does deregulation affect a free economy? 

 

Let’s look at the items that are involved.

 

1. Jim Cramer at Bucknell University

An impassioned and sometimes fiery Jim Cramer, the investing guru and host of CNBC’s “Mad Money,” told a packed audience at Bucknell University’s Weis Center that government deregulation was nothing short of a “covert attempt” to eliminate the federal government’s responsibilities to its citizens.  He blamed both Republicans and Democrats for a “hands-off democracy” and “rough-and-tough capitalism,” but was especially critical of government institutions like the Federal Reserve under then-Chairman Alan Greenspan for failing to “curb the Internet boom before it became the dotcom bomb recession of 2001.”

He said Greenspan could have curtailed that boom by using the rules that Congress gave the Fed to curb excessive margin lending that exacerbated the Internet stock boom.

2. Airline Industry

This is part of a commentary and explanation from alternet.org. The High Price of Airline Deregulation dated September 15, 2005.  “In the 27 years before airline deregulation, no airline went bankrupt. Since 1978, 160 airlines have come and gone. In the last quarter-century, the rate of bankruptcy among air carriers has been as much as 10 times higher than that of the general business community. In 2005, virtually all major airlines are either in bankruptcy (United and US Air were joined Wednesday by Delta and Northwest) or on the verge of bankruptcy. How did we come to this?

In the late 1970s, the airline system was straining under an inflexible and cumbersome regulatory system. A long, drawn-out proceeding was needed simply to get permission from the Civil Aeronautics Board (CAB) for employees of two affiliated airlines to wear similar uniforms! Something needed to be done.”

We all know what is happening today in the airline industry.  The high cost of fuel is driving up prices and reducing service.

 

3. Radio and Television Industry

This is Los Angeles.  It’s the second largest city in the nation.  The UHF local television stations are channels 2, 4,5, 7, 9, 11, and 13.  Channels 2 and 9 are owned by the same company.  Channel 5 is owned by the Tribune Company along with the Los Angeles Times newspaper.

 

The Tribune Company also owns the Chicago Tribune, Newsday, Hartford Courant, Orlando Sentinel, and the Baltimore Sun.  Tribune Broadcasting is now immersed in television, with 23 stations located in 19 markets including WGN.

 

Radio is now dominated by major companies that own multiple outlets in many cities.  At least threee major stations in Los Angeles are own by Clear Channel.  The are KFI AM, KOST FM, and KTLK AM.

 

Most cable televison stations are owned by the large networks Fox, NBC, ABC, and CBS.  This is no news to anyone.   

 

4. California Energy Utilities

The crises of 2000 and 2001 resulted from the gaming of a partially deregulated California energy system by energy companies such as Enron and Reliant Energy. The energy crisis was characterized by a combination of extremely high prices and rolling blackouts.  The city of Los Angeles was spared because the city owns the water and power company that serves those living within the city limits.  The rest of the state’s population suffered from the deregulation.  The governor’s sucessful recall was a consequence of this horrible event.  Someone actually acquired a recording of manipulators laughing about the entire situation and tellinghow they had impacted the state. 

 

5. Banking and Financial Industry

It’s obvious there was little or no oversight.  Banks are now permitted to act a stock brokers.  Mortgage companies were allowed to enter the banking system (Countrywide Mortgage had its own bank).  Insurance companies were permitted to operate banks.  There are no capital requirements established for stock brokerage companies, insurance companies, or investment banks.  No one said “No” to home loans for those who could not afford them.

 

6. Food and Drug Administration

There have been numersous incidents of a lack of oversight by the FDA in the management of food processing companies.  The one coming to mind ws the slaughtering of sick cows at a processing plant in the Los Angeles area that was caught on video tape.

 


McCain Embraces Regulation After Many Years of Opposition is an article in the Washington Post that defines John McCain’s changing views on government regulation.  His long term views are quite apparent.  Conveniently he now supports the regulations he staunchly opposed.

 

Barack Obama is too new to have a record.  It will be easy for him to take a strong position in favor of more regulation.