The governor has called for public sector union members (excluding policeman, fireman and the state police) to contribute approximately 5% of their pension costs and 12% of their health care costs for the next two years. The unions have agreed to this. While this may seem like a lot, remember, most of us have no pension plan and we typically pay 20% of the health care insurance costs, if not 100% or we have no coverage at all. These issues are small potatoes and the union knows it. The major issue as reported by the media is the governor wants to end collective bargaining on everything except wages. The union leadership call this an attack on human rights. This is bullshit. Why? First of all collective bargaining is not a human right. As the media has not bothered to point out the collective bargaining issue is an issue of money and political power. The governors plan include the following changes:
1) The Gov. wants to end the ability of the unions to charge MANDATORY dues to it union members. If the union is so great, why are the dues mandatory? Because the unions need this money to contribute to Democratic legislators who they hope to elect. They hope to get them elected so the Democrats can then repay the union with more and more benefits and protections. This makes the mobsters actions of the 1920's and 30' s look like childs play. Come to think of it isn't this essentially paying a bribe for future considerations. "Hey you rub my back I'll rub yours". The process has essentially become a rigged system of vote buying through continued lavish benefits.
2) He wants the unions to have to recertify every year, i.e., have the union members vote for whether they want the union anymore. In addition, this would change the way the union counts votes, requiring the majority of union members to vote for recertification, not simply the majority of voting members as is currently the practice.
3) He wants to end the practice of the unions forcing the state to buy union members health insurance through the union health insurance company, which allows the union to skim 20% off the top of the premium the state pays.
4) He wants to let the local school committees have the flexibility to determine which teachers are the best and worst respectively for their school systems, and be able to reward/terminate them respectively, regardless of tenure or seniority. This is called bringing performance based criteria to bear on the teachers (something that is sorely needed in every school system in this country!)
These are the main points behind the governors collective bargaining changes. The Democrats and unions, as they are tied at the hip, fear the loss of money and with it the loss of political power. This is not an issue of the Koch brothers or big bad corporations. The unions are public sector employee unions, being paid and receiving benefits at the expense of the taxpayer. The governor and the Republican legislators were voted into office after running on a platform of change and reduced spending. The union protesters, and even moreso, the Democratic legislators who have fled, are the ones who should be ashamed of their actions. To repeat a phrase from our illustrious President, the Republicans should simply say "We won" and ram the legislative actions through, just like the US Senate and House did with Obamacare. Difference is, the US people support the Wisconsin governor and they do not support Obamacare. If the Democrats and the unions do not like the legislative changes, then they should run the next time on a platform of more benefits from the taxpayer.
Sunday, February 27, 2011
Capitalism Shortcircuited
Capitalism is the finest creator of wealth the world has ever seen, when it is allowed to run its course. The problem has become the desire of politicians to "protect the little guy" and smooth the business cycle. Capitalism will always be characterized by booms and busts. This is the true essence of capital formation, concentration, massive uneven wealth creation and then the inevitable bust as too much capital is deployed in a concentrated manner. Proving the axiom of too much of a good thing is a bad thing. Applying this truism to the mortgage banking debacle, "free money" in the form of zero down payment mortgage financing, no income verification mortgages and the panoply of other ridiculous mortgage financing schemes, led people who had no business getting a mortgage to obtain one. The federal government through the CRA, and Fannie and Freddie facilitated the great housing bubble. The builders, real estate agents, mortgage brokers and banks all piled in, seeing the money they could skim at every point in the process. To not jump in they would have had no business sense. Legislators of both major political parties were more than happy to receive campaign contributions from all the associated parties, and keep the financing wheels greased. Of course, the investment banks were the ones who made the most money off the mortgage fiasco, as they sliced and diced the bonds to sell to investors. However, as is true of everything in life, all good things must come to an end. This is where the problem started.
I cannot state the following clearly enough: The investment banks should have been allowed to fail. They should have been forced to bear the burden of their losses as they all took in the previous gains from the business. The main reason they were not forced to fail is not because of fear of systemic failure. The primary reason was the United States had a Secretary of the Treasury named Hank Paulson, former Chairman and CEO of Goldman Sachs. He along with the many hundred if not thousands of ex Goldman employees who staff government positions, saw that their huge retirement plans, stuffed with Goldman stock, would be crushed. If essence, he and his cronies throughout the government pressured a know nothing Congress to bail out the banks and thereby save their own asses. A failure of the investment banks would surely have caused disruption in banking markets, but other banking entities in the US and other countries could have stepped forward and taken up the slack. Instead we have a chicken coop run by the foxes periodically slaughtering the chickens and saying a fisher did it.
What this results in is the privatizing of the gains by the banks, and the socializing of the losses to the taxpayer. A colossal ripoff if there ever was. We should have let capitalism run its course. Banks would have failed, homes would have been lost, but the US taxpayer would not have been left holding the bag.
I cannot state the following clearly enough: The investment banks should have been allowed to fail. They should have been forced to bear the burden of their losses as they all took in the previous gains from the business. The main reason they were not forced to fail is not because of fear of systemic failure. The primary reason was the United States had a Secretary of the Treasury named Hank Paulson, former Chairman and CEO of Goldman Sachs. He along with the many hundred if not thousands of ex Goldman employees who staff government positions, saw that their huge retirement plans, stuffed with Goldman stock, would be crushed. If essence, he and his cronies throughout the government pressured a know nothing Congress to bail out the banks and thereby save their own asses. A failure of the investment banks would surely have caused disruption in banking markets, but other banking entities in the US and other countries could have stepped forward and taken up the slack. Instead we have a chicken coop run by the foxes periodically slaughtering the chickens and saying a fisher did it.
What this results in is the privatizing of the gains by the banks, and the socializing of the losses to the taxpayer. A colossal ripoff if there ever was. We should have let capitalism run its course. Banks would have failed, homes would have been lost, but the US taxpayer would not have been left holding the bag.
Thursday, February 17, 2011
Wisconsin MayHem and Haw
As I look at the union workers protesting in Wisconsin, having their "day of rage", I have to ask, what is it they are protesting against? Is it the fact that they will have to "sacrifice" by having their benefits cut to match (or most likely still exceed) the average private sector worker benefits? Are they sacrificing their job as many of their counterparts in the private sector have over the past three years? Are they really sacrificing by not being able to bargain for the "collective" anymore? It is about time these unions and their workers realized that the high pay, benefits and time off they receive as "public servants" is over. They can start to feel the impact of stagnating wages, and having to actually pay for their benefits like most Americans do. They will not be able to get fat any more at the public trough. This next part will really irritate them, they will no longer be able to just take from the private citizens whose taxes pay for their wages, health benefits and pensions. So much rage at having to live like the common non-unionized American.
Friday, February 4, 2011
Fed-up...to no good.
The Federal Reserve is now the largest holder of U.S. Treasury debt. The Fed now holds $1.10 Trillion of U.S Treasury debt, while China holds $896 billion of Treasuries and Japan holds approximately $877 billion. The Fed is not even half way through QE2 and by June could hold almost $1.6Trillion in Treasury debt. Think about that for a minute. One "government entity" is currently the largest holder of U.S. Treasury debt. This is without parallel in the history of civilization.
A little background: The U.S. government is currently spending approximately $3.0 trillion per year under the current administration and congress. However, the government is only taking in approximately $1.6 trillion in taxes from all sources. This means the U.S. government is short about $1.4 trillion or 46% of the entire federal budget. In my experience as a small business lender and corporate lender for a number of large commercial banks, if a company came to us looking for a loan to cover these negative cash flows, the conversation typically didn't last very long, and neither did the company.
The U.S. government typically was financing shortfalls through continued Treasury issuance. It appears however, that the major buyers of the past, are starting to reduce their buying and their current debt positions, thereby leading to the U. S. Fed becoming the biggest buyer of last resort. This will not end well. The reasons are twofold.
The first is that the U.S. government is essentially printing money to cover its operating cash shortfall. If you or I tried this we would be in jail. However, being a sovereign nation the U.S. can print more money if it chooses. In the history of civilization, every country with a fiat currency has ended up the same way. In an effort to inflate away debt, they have debased their currency. In the end the currency becomes worthless and the country defaults on its debts. This typically results in hyperinflation and the destruction of savings.
The second problem, (as if the first wasn't bad enough), is that the U.S taxpayer is on the hook for the debt one way or the other. The government will either try and raise taxes to offset the growing cash flow inbalances, thereby hurting the economy further, or a scheme will be concocted whereby the government will nationalize savings (IRA's, 401K's etc., - study Argentina 2000 crises) and require those funds be invested in U.S Treasuries as a way to offset the debt.
The strategy of the U.S. government, and to a large degree the states, has been to throw money at various groups, report/spin economic data and HOPE that things will return to normal in the second half of 2011 and into 2012. This is not a plan, this is a recipe for disaster, and we are headed toward that at a rapid pace.
The fact is that the federal governments' actions to date via mortgage programs, bailing out the six biggest banks in this country under TARP (they should have been allowed to fail), bailing out GM and Chrysler to save union jobs, pensions and heath care benefits, Cash for Clunkers, the $800BN+ Stimulus Plan, QE1 and QE2 and others have at best only delayed the day of reckoning. In the end, the result of all this wasted money ($3.2 trillion and counting), will be a financial debacle the likes of which have never been seen in the history of man.
This additional major step of monetizing the debt via the Fed buying U.S. Treasuries, will lead to the destruction of the U.S dollar and the middle class in the U.S.
I am not one to offer advice, on the belief that most people don't want any, and the ones looking for it never listen anyway. However, if I can offer some potentially life saving advice (for the good of your families if not yourself), please convert some of your hard earned money into precious metals, i.e., silver and gold U.S. Eagles.
A little background: The U.S. government is currently spending approximately $3.0 trillion per year under the current administration and congress. However, the government is only taking in approximately $1.6 trillion in taxes from all sources. This means the U.S. government is short about $1.4 trillion or 46% of the entire federal budget. In my experience as a small business lender and corporate lender for a number of large commercial banks, if a company came to us looking for a loan to cover these negative cash flows, the conversation typically didn't last very long, and neither did the company.
The U.S. government typically was financing shortfalls through continued Treasury issuance. It appears however, that the major buyers of the past, are starting to reduce their buying and their current debt positions, thereby leading to the U. S. Fed becoming the biggest buyer of last resort. This will not end well. The reasons are twofold.
The first is that the U.S. government is essentially printing money to cover its operating cash shortfall. If you or I tried this we would be in jail. However, being a sovereign nation the U.S. can print more money if it chooses. In the history of civilization, every country with a fiat currency has ended up the same way. In an effort to inflate away debt, they have debased their currency. In the end the currency becomes worthless and the country defaults on its debts. This typically results in hyperinflation and the destruction of savings.
The second problem, (as if the first wasn't bad enough), is that the U.S taxpayer is on the hook for the debt one way or the other. The government will either try and raise taxes to offset the growing cash flow inbalances, thereby hurting the economy further, or a scheme will be concocted whereby the government will nationalize savings (IRA's, 401K's etc., - study Argentina 2000 crises) and require those funds be invested in U.S Treasuries as a way to offset the debt.
The strategy of the U.S. government, and to a large degree the states, has been to throw money at various groups, report/spin economic data and HOPE that things will return to normal in the second half of 2011 and into 2012. This is not a plan, this is a recipe for disaster, and we are headed toward that at a rapid pace.
The fact is that the federal governments' actions to date via mortgage programs, bailing out the six biggest banks in this country under TARP (they should have been allowed to fail), bailing out GM and Chrysler to save union jobs, pensions and heath care benefits, Cash for Clunkers, the $800BN+ Stimulus Plan, QE1 and QE2 and others have at best only delayed the day of reckoning. In the end, the result of all this wasted money ($3.2 trillion and counting), will be a financial debacle the likes of which have never been seen in the history of man.
This additional major step of monetizing the debt via the Fed buying U.S. Treasuries, will lead to the destruction of the U.S dollar and the middle class in the U.S.
I am not one to offer advice, on the belief that most people don't want any, and the ones looking for it never listen anyway. However, if I can offer some potentially life saving advice (for the good of your families if not yourself), please convert some of your hard earned money into precious metals, i.e., silver and gold U.S. Eagles.
Thursday, February 3, 2011
Transparently Opaque
The most transparent White House ever has just blocked the White House press corps from covering President Obama's recent speeches. A President who claimed his administration would be the most transparent ever has just shut down Q&A from the national press corps. I guess the teleprompter could not be loaded with responses to reporters questions fast enough.
Actually this follows a pattern:
A) July 20, 2009 - White House delays report on budget update as unemployment rises.
B) December 28, 2010 - White House delays 2012 budget
C) January 22, 2011 - White house delays Fannie/Freddie report.
Is there a problem in the White House nobody wants to talk about? Could it be that nobody is running the asylum? Is an administration staffed by career politicians and civil servants in way over its head? How can the most transparent administration this country has ever seen, presided over by the most intellectual President ever, have such a hard time generating reports and budgets. Better yet, it doesn't trust its leader to do even simple things like respond to reporters' questions.
Actually this follows a pattern:
A) July 20, 2009 - White House delays report on budget update as unemployment rises.
B) December 28, 2010 - White House delays 2012 budget
C) January 22, 2011 - White house delays Fannie/Freddie report.
Is there a problem in the White House nobody wants to talk about? Could it be that nobody is running the asylum? Is an administration staffed by career politicians and civil servants in way over its head? How can the most transparent administration this country has ever seen, presided over by the most intellectual President ever, have such a hard time generating reports and budgets. Better yet, it doesn't trust its leader to do even simple things like respond to reporters' questions.
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