The Seventh Sense

Thanks, But I Think I Know What 10% Means

The New York Times has a graphic today explaining the unemployment rate, which is at 10%.

Um, could you go over that again?
 

Reich: Hold On To Your Wallets

Clinton economic advisor Robert Reich isn't impressed with the Dow breaking 10,000:

How did the Dow break 10,000 when the rest of the economy is in the toilet?

1. Corporate earnings are up -- mainly because companies have been cutting costs. Payrolls comprise 70 percent of most companies' costs, which means companies have been slashing jobs. In the end, this is a self-defeating strategy. If workers don't have jobs or are afraid of losing them, they won't buy, and company profits will disappear.

2. Federal borrowing has filled the gap that consumers and businesses created when the latter began to reduce their debt. Federal debt, in other words, has kept the economy from tanking. Can't keep up forever, though.

3. With such horrid employment numbers, Wall Street figures the Fed will keep interest rates low for some time, and continue to flood the economy with money. That's good news for the Street because it means money stays cheap -- and with cheap money the Street can make lots of bets on almost everything under the sun and moon. As a result, the Street's earnings are way up. But this, too, is temporary. At some point the Fed is going to worry about inflation and a falling dollar.

4. Investors of all stripes want to get in early and ride the wave. Pension funds, mutual funds, and other institutional investors figure the bull market has more oomph in it because, well, other investors will jump in. Think Ponzi scheme. Nice for now, but watch out if you're one of the last in.

In other words, this is all temporary fluff, folks. Anyone who hasn't learned by now that there's almost no relationship between the Dow and the real economy deserves to lose his or her shirt in the Wall Street casino.

Thank you, Mr. Happy Fun Guy.  Although, you're probably right.

Lesson Not Learned

WSJ:

Wall Street On Track To Award Record Pay

Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year -- a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture.

Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.

Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year’s $117 billion—and to top 2007’s $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels.

I have no comment.

That's because I'm speechless.  We're facing double digit unemployment because of these bastards, the deficits are huge because we bailed out these bastards, and now they're increasing their own compensation?

UPDATE:  Thankfully, Kevin Drum, while as dumbfounded as me, can eke out a few thoughts:

There's an insanity here that's almost beyond analysis.  Wall Street can spark an economic slowdown that misses destroying the planet and causing a second Great Depression only by a hair's breadth — said hair being an 11th hour emergency infusion of trillions of taxpayer dollars — and then turn around and use those trillions to return to bubble levels of profitability within 12 months.  And they can do it even though the rest of the economy is still suffering through the worst recession since World War II.  It's mind boggling.

Is there any silver lining here?  Probably not, but I'll try: If Wall Street can shrug off the worst recession of our lifetimes as if it's a minor fender bender and get the party rolling all over again in less than 12 months, it means the next bubble is already in the works and its collapse will be every bit as bad as this one.  That in turn means it will almost certainly happen while today's politicians are still in office.  So maybe news like this will finally spur lawmakers to realize once and for all that the financial industry needs to be cut down to size.  Half measures won't do it.  Self-regulation won't do it.  Compensation limits won't do it.  Byzantine, watered-down rules won't do it.  Something like a Morgenthau Plan for Wall Street is the only thing that has even half a chance of working.

Will Congress finally get this?  Probably not.  The financial lobby is just too strong.  But we can hope.

RELATED:  The Dow surpassed 10,000 today.  Republicans are downplaying the significance of that.  And while I tend to agree with them (10,000 is just a number), recall that Republicans weren't singing that tune a few months ago.  The Wall Street Journal ran an entire editorial on this in early March. The drop in the Dow, the WSJ insisted, was a direct result of investors evaluating "Mr. Obama's agenda and his approach to governance."  Karl Rove and Lou Dobbs made the same case. So did Rush Limbaugh, Sean Hannity, and Fred Barnes. It was one of Mitt Romney's favorite talking points for a while, too.

To Republicans, Obama was to blame for the continuing fall of the Dow last spring.  But now that it keeps going up and up?  Well, the Dow doesn't mean anything.

But since when has logical, or even rhetorical, consistency been a characteristic of today's Republican party?

UPDATE TO RELATED:  OMG!  Fox News is pitching that the surge in the Dow is an example of the "Bush recovery"!!

Health Insurance And The Free Market

Tthose opposed to health care reform do so because they want to keep "their" insurance.  (Forget for a moment that under the Obama health care public option, you can keep "your" insurance).

But how many people can actually claim that "their" health insurance is actually theirs?  I mean, did they select it?  Was it their choice?

I buy insurance for my car; I get to pick the insurance company.  But health care?  No, I'm on the plan offered by my employer.  As are most workers. 

In fact, most of us don't choose our insurer. Twelve percent of us are on Medicare. Thirteen percent are on Medicaid. Fifteen percent are uninsured. And 53.4 percent get our health-care coverage from our employers.

This is one of the reasons why the free market hasn't worked in the field of health care.  The real consumers of the product aren't the ones who buy it -- we don't get to pick and choose our insurer, like we do with auto insurance. 

And what about employers?  Well, they don't have much incentive for helath care cost control.  Health insurance is part and parcel of employee compensation.  If employers were to pay lower premiums, that just obligates them to play higher wages.... and vice versa.  It's a zero-sum game.

So as the proxy consumers of health insurance, employers don't have a stake in the matter.

In other words, in the free market of health insurance, there is no "invisible hand" that keeps prices low and benefits high.  There's no consituency for cost control.  Which may explain why health care costs are so ridiculously high in the first place.

All the more reason why a public option should be available.

The New Gilded Age

The first Gilded Age was a time in the late 19th-early 20th century.  It was a time of huge ecnomic disparity.  On the one end, you had masses of poor immigrants and farmers, huddled in tenement shacks, and ekeing out a living.  Child labor, poor health -- these were the earmarks ofOn the other end of the spectrum, you had huge "robber-barons" with incredible wealth owned such as Cornelius Vanderbilt, John D. Rockefeller, Andrew Carnegie, Henry Flagler, and J.P. Morgan.

Well, new figures have come out, and we're now living in a situation where the disparity between the wealthiest in the country vs the poorest in the country are even greater than the Gilded Age.  Here's the chart that explains it all:

As of 2007, the weathiest top 0.01% in this country received 6% of the entire national income.

Look, I'm no socialist, but I think these people, whoever they are, can afford to pay higher taxes than people who make even, say, $100,000 per year.  Seriously.  If someone making $100,000 pays 36% in taxes, then someone making $10,000,000 a year can probably be put in a brand new uber-rich tax bracket of 40%, which will reduce the deficit, pay for health care reform, etc.*

I mean, as Charlie Sheen said, "How many yachts can you ski behind?"

* Remember, this isn't the burden you might think it is.  Our tax rates are progressive and marginal.  In other words, under my plan, a person making $10M a year will pay 36% in taxes on every dollar he earns above $100,000 but under $10M.  Then, for every dollar above $10M, he pays 40%.

Good Economic News

Everyone expected the unemployment numbers from last month to go up (it was 9.5% in June) to 9.6%, which is (on the whote) good, since that would mean that unemployment rate is going up at a slower late than previous months.  That would, of course, mean that the recession is slowing down.

Didn't happen.

The unemployment rate went down..... that's the first time it's gone down in 15 months.  In other words, the runaway train didn't just slow down (as analysts had predicted), it actually went in reverse.

AFTERTHOUGHT:  Not that we don't have a long way to go.....

Obama's Bear Market

Remember about four months ago when all you could read from conservative blogs was crap like this:

The Obama Bear Market

With yesterday’s declines, we now have an “official” Obama bear market, defined as a 20% decline. The S&P 500 index closed at 850 on the last trading day before Obama’s inauguration, and now it’s at 682. And it barely took six weeks.

Don’t let ANYONE tell you that this is Bush’s fault, or that Obama inherited the decline. The stock market by definition is a leading indicator. It predicts the future for corporate earnings, not the present or the past.

The stock market is saying that with Obama in office, the outlook for business is poor. And with his promises of higher taxes and more regulation, Obama is doing his very considerable best to reinforce the negative perception.

Next time you open your 401(k) or mutual fund statement, try not to flinch at the thought that a great big bear with Obama’s face is looking over your shoulder.

-- Redstate, March 6, 2009

Even legitimate news organizations got on the "Obama bear market bandwagon".

Well...

The numbers are a bit breathtaking: In a little more than four months, the Dow Jones industrial average has leapt more than 2,500 points — nearly 39 percent — to close above 9,000 for the first time since January.

That's right.  When Obama took office, the Dow was at 9,034.  It closed yesterday at 9,069.

Will they credit Obama?  Don't hold your breath.

UPDATE:  Heh.  Conservatives are all now, like, "I can't remember that".  The fun starts at 4 minutes in....

UPDATE: Better video:

Better Conservative Criticism Please

Yes, the Obama Administration spendt billions of dollars in economic stimulus spending, and yes, it is important that that money be spent wisely.  If conservative critics want to identify wasteful ways in which that stimulus money is spent, then all the power to them.  In fact, the Obama Administration has made this very easy -- by making sure that recovery.org lists the projects on which government spending is allocated.

But conservatives need to be, you know, accurate in their criticism, or else it is just wasteful oversight.

Yesterday, spurred by a Drudge report headline, conservative bloggers and pundits (like Glenn Beck) were all up in arms about the federal government spending $1.19 million of taxpayer funds to buy just two pounds of ham.

Great story.  Sadly, not accurate at all.

In truth, that particular program spent $1.19 million on buying 760,000 pounds of ham -- that's 380 tons -- to be distributed to local organizations that assist low-income Americans through food banks, food pantries, and soup kitchens.  The ham merely came in two-pound units.

Some conservatives then backtracked, arguing that the ham purchases were still overpriced (compared to what you could buy at Food Lion), but of course, purchasing the ham was only part of what the stimulus money was for.  There was also expense required in distributing it.

Then, as a further display of their incompentence, conservatives such as Glenn Beck complained that $1.4 million was spent "to repair a door" at Byess Air Force Base, Building 5112.

Uh, no.  The truth, Glenn?  $1.4 million in recovery money was provided to Byess Air Force Base, but $1.2 million of that was to repair four gas lines -- only $250,000 was to the repair the door..... and it was an aircraft hanger door.  Excuse me, hanger doors, plural.

The bottom line is: if you have to make up things to criticize Obama's policies, you're probably not on solid ground and should keep your mouth shut.

The Badly-Titled USA Today Story Has Legs

Background here.  Basically, USA Today printed an article which (from the headline) made it seem that Obama was sterring stimulus money to counties that voted for him, while steering it away from counties that voted for McCain.

From the article itself, one can glean that this simply isn't true, and that poorer counties (the ones most in need of stimulus spending) tend to vote Democratic.  One of those correlation-not-causation things.

Even Adam Hughes, the director of federal fiscal policy for the non-profit OMB Watch, explained that “it would be almost inconceivable for [the spending imbalance] to be the result of political tinkering.”

That didn't stop some right-wing blogs from misprepresenting the article.

Nor did it stop Fox News:

Of course, Fox News selectively quoted from the USA Today article, leaving out the parts which showed that the Obama-voting counties traditionally receive more federal aid historically, including many years prior to the election.

Meanwhile, Kevin Drum weighs in:

I just got around to reading the piece, and aside from the factual statement in the lead, it doesn't insinuate that the money is being unfairly distributed.  In fact, every single paragraph after the lead quotes people saying that there's nothing dubious going on and the money is just being distributed by formula.  The piece doesn't quote a single person, not even Sarah Palin, suggesting that there's any monkey business going on here.

But if there's no hanky panky, why bother publishing the story in the first place?  My guess: it's the old problem of reporters not being willing to spike a story when it doesn't pan out.  Brad Heath spent a bunch of time analyzing stimulus spending, but when everyone he called told him there was nothing amiss he just hated the idea of spending all that time and not getting anything out of it.  So he wrote it up anyway, ending up with a nonsensical piece that basically rebuts its own reason for existing.  Dumb.

Yup.

Read The Whole Article, People

Shame on USA Today for their article entitled:

Billions in aid go to areas that backed Obama in '08

Why, that kind of makes the reader think that Obama is rewarding the parts of the country that voted for him at the expense of those who voted for McCain.

Certainly there's support for that theory.  As the article explains, 872 counties that supported Obama received about $69 per person, on average. The 2,234 that supported McCain received about $34.

So naturally, conservatives are howling.

Never mind exactly how the Obama team managed to employ all the people necessary to pull off a scheme like this.  The facts are the facts, right?

Of course, what conservative critics fail to acknowledge, probably because USA Today stuck it deep into the article, is that those same 872 counties that supported Obama in 2008 also "collected about 50% more government aid than those that supported McCain" in the years 2005 through 2007.  Now how did Team Obama pull that one off, with a Republican White House?

The simple truth is that counties which are populated by the less well-off are historically the counties that require more government aid, regardless of who is in the White House.  And those same counties also tend to vote Democrat.

Nothing to see here.

Unemployment Rate Highest In 26 Years

It's now at 9.5%.  Thanks Barack quips the rightwing Gateway Pundit.

Gateway Pundit is either stupid or disingenuous.  Unemployment numbers are a lagging indicator, because employers tend to wait until economic improvement is solidified before they start rehiring again.

Plus, the unemployment rate dropped only 0.1% from May's 9.4%.  This is good news, as it appears that we might not hit the 10% mark as many economists predicted.

And of course, this recession is in its 20th month.  Obama has only been President for five months.  To blame Obama for the bad unemployment numbers is like blaming your lung cancer on the last cigarette you smoked.

Financial Regulation

This subject is waaaay above my pay grade, but -- shooting from the hip here -- I think Obama needs to do at least these things:

(1)  Get rid of the alphabet soup of federal regulators.  Just as our national defense and security was merged under the new Department of Homeland Security, many financial regulation departments can be merged/eliminated with one board overseeing every aspect of the financial community.

(2)  For God's sake, don't allow financial institutions to pick which oversight department gets to regulate them.  That was bone-headed from the start.  If financial institutions get to pick which regulatory body oversees them, then they will do exactly what they did -- pick the most lax regulator (in recent years, it was the Office of Thrift Supervision, which was too overworked to actually do any oversight).  In fact, what happened was that regulatory bodies competed to get business by effectively saying to financial institution that they were lax in oversight.  How dumb is that?

(3)  Allow the Fed to limit the amount that large financial institutions can leverage.  That's pretty straightforward and self-explanatory.

(4)  Set clear rules.  The markets like certainty; business likes certainty.  If you establish regulations, make them airtight... without loopholes.

(5)  Include oversight of ratings agencies.  It is staggering that all those agencies gave those toxic assets AAA ratings, when they were clearly junk.  Of course, the financial institutions are the ones who pick the ratings agencies, so there is a conflict of interest.  At the very least, those ratings agencies should be audited to make sure they "did the work", rather than just act as a rubber stamp to various financial packages.

(6)  End unregulated financial products.  Every consumer good -- from soup to nuts -- is overseen by at least one federal agency (like the Consumer Product Safety Commission, the FDA, etc.).  The same should be true for financial products.  Nothing should be traded on any market -- either the public one or the private one -- without someone in government looking at the nature of the commodity to see if it has the potential to create economic turmoil.  This obviously applies to the credit swaps of the recent past, but all future financial products.

(7)  Executive compensation reform.  Bonus compensation should be tied to merit and success, not an automatic "gimme".

Today Obama rolls out his plan for overhauling the financial regulatory system.  We'll see what the details are....

Who's Deficit Is It?

To answer this question, David Leonhardt of the New York Times crunches the numbers (from the CBO).  The self-explanatory results are in this graph (click to embiggen all the way):

 

The GOP is gearing up to paint the deficits as "Obama's fault".  And clearly, Obama has, by his own admission, run up deficits in order to get the economy back on track.  But the bleak future in terms of government debt is primarily the result of the Bush economic policies.  Be on the lookout for false GOP "blame Obama" rhetoric as the months and years continue.

Leonhardt also points out that inherited or not, Obama hasn't yet provided any credible plan for reducing federal deficits in the long term.  This is true, and eventually he's going to have to.  The inescapable answer will includes higher taxes.  Hopefully, the higher taxes will be placed on those who benefitted most under Bush's deficit-creating policies.

What Obama's "Socialism" Looks Like

Conor Clarke in The Atlantic:

Have you heard that the United States is headed toward socialism? Jonah Goldberg says it is. Alabama Senator Richard Shelby says it is. Phyllis Schlafly says it is. Richard Viguerie says it is. The Republican National Committee says it is. We must be getting pretty close.

How close? This is what socialism looks like:

 

The hot-pink portion of this pie chart is the percentage of listed American business assets that have recently been nationalized by the American government (ie, General Motors). Obama's version of socialism is so sneaky you can hardly see it!

Read the whole thing.

And let's not forget that Obama has said repeatedly that the government is taking an ownership stake (meaning owning stock, not controlling the companies) only for the time being. He wants AIG and GM to eventually go private again.

Furthermore, if Obama was really a socialist he would be seizing entire industries, not reluctantly getting involved in specific companies which requested the government involvement in the first place.

Government having an ownership stake in companies is nothing new anyway.  The First National Bank established in 1791 was owned partially by the government.  As was the Tennesee Valley Authority and, in present times, Amtrak.

Still, some conservative critics have responded to Clarke's chart negatively, saying that it doesn't reflect government spending as a percentage of GOP.  To which, Clarke responds:

But I wasn't interested in the government spending as a percentage of GDP! The socialism charge that I've been hearing for the past week hasn't had much to do with the size of the federal government. The charge has been that the government now thinks it can run private industry -- GM, AIG, whatever -- better than, well, private industry.

[That said]....

 

I don't have a whole lot to say about this, except (1) I agree that it's "not pretty" and (2) If you're going to equate an increase in the deficit or in federal spending as a percentage of GDP with socialism, then every modern American president (with the partial exception of Bill Clinton!) is a socialist. In which case I'm not sure Barack Obama has a lot to worry about.

Michael Moore On GM

No love lost.

Reagan Did It

Wasn't it Rush Limbaugh who once said of Ronald Reagan: "We as a nation owe Reagan a debt that can never be repaid" or something like that?

Well, Nobel Prize in Economics award winner Paul Krugman points out the ironic truth of that tribute:

“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.

He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression.

For the more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn — the turn that made crisis inevitable — took place in the early 1980s, during the Reagan years.

Attacks on Reaganomics usually focus on rising inequality and fiscal irresponsibility. Indeed, Reagan ushered in an era in which a small minority grew vastly rich, while working families saw only meager gains. He also broke with longstanding rules of fiscal prudence.

To be sure, the current economic crisis has many fathers, and Democrats are among them, if only because they acquiesced in bad fiscal legislation.  As Krugman writes:

There’s plenty of blame to go around these days. But the prime villains behind the mess we’re in were Reagan and his circle of advisers — men who forgot the lessons of America’s last great financial crisis, and condemned the rest of us to repeat it.

For the entire history of our nation, up until the Reagan presidency of the early 1980's, we were not a debtor nation.  Household debt was only 60 percent of income when Reagan took office, about the same as it was during the Kennedy administration. By 2007 it was up to 119 percent.  Our great wealth as a country rested on debt, rather than labor.  That's Reagan's legacy.

And yet, one wonders why Republicans still have the image of being the fiscally responsible party.  Maybe no longer....

Still Bad But Better?

The big news today is the latest unemployment number. It stands at 8.9% with another 539,000 jobs shed. It's the highest unemployment number since 1983 and is up from last month's 8.5 percent.

BUT...not reaching the 600,000 jobs lost, as many expected we would, is important psychologically, and it could be an indicator of a slowing in the recession.

Hopefully.

Bachmania!

Time to spread a little lovin' once again to "America's Worst Legislator"^TM, Rep. Michelle Bachmann (R-MN).

First of all, she weighs in with her thoughts about the swine flu pandemic alert:

"I find it interesting that it was back in the 1970s that the swine flu broke out then under another Democrat president Jimmy Carter," said Bachmann. "And I'm not blaming this on President Obama, I just think it's an interesting coincidence."

Interesting coincidence?  How?  If you're not blaming this on President Obama, then what is your point, Congresswoman?

Oh, and by the way, the swine flu outbreak occured in 1976.... under President Gerald Ford.

And earlier this week, Bachmann took the House floor to give a speech:

"As a matter of fact, the recession that FDR had to deal with wasn't as bad as the recession Coolidge had to deal with in the early 20s. Yet, the prescription that Coolidge put on that -- from history -- is lower taxes, lower regulatory burden, and we saw the 'Roaring 20s,' where we saw markets and growth in the economy like we'd never seen before in the history of the country. FDR applied just the opposite formula. The Hoot-Smalley Act, which was a tremendous burden on tariff restrictions. And then, of course, trade barriers, and the regulatory burden and tax barriers. That's what we saw happen under FDR that took a recession and blew it into a full-scale depression. The American people suffered for almost ten years under that kind of thinking."

Now, what is interesting about this is that she was reading from a prepared script, so she obviously had done some research.  

Or maybe not.

First of all, there was never such a thing called "the Hoot-Smalley Act".

Secondly, "a tremendous burden on tariff restrictions"?  What the fuck does that mean?

Now, there was something passed during the Great Depression called the Smoot-Hawley Act, and it did exacerbate the bad economic conditions.  Except that FDR didn't pass it.  It was signed into law by Herbert Hoover, a Republican, in June 1930.  And the bill was sponsored by Sen. Reed Smoot and Rep. Willis Hawley.  They were both... yes, you guessed it... Republicans.  FDR showed up on the scene almost 3 years later, in March 1933.

Finally, the notion that "FDR took a recession and blew it into a full-scale depression" is simply false -- you don't need me to tell you how to read graphs....

Change We're Believing

For the first time since 2004, most Americans think we're going in the right direction.

[T]he percentage of Americans saying the country is headed in the right direction rose to 48 percent, up from 40 percent in February. Forty-four percent say the nation is on the wrong track.

Not since January 2004, shortly after the capture of former Iraqi dictator Saddam Hussein, has an AP survey found more "right direction" than "wrong direction" respondents. The burst of optimism didn't last long in 2004.

And it doesn't happen much.

Other than that blip five years ago, pessimism has trumped optimism in media polls since shortly after the invasion of Iraq in the spring of 2003.

The "right track" number topped "wrong direction" for a few months after the Sept. 11, 2001, attacks, according to non-AP media polls, and for several months late in the Clinton administration.

So far, Obama has defied the odds by producing a sustained trend toward optimism. It began with his election.

In October 2008, just 17 percent said the country was headed in the right direction. After his victory, that jumped to 36 percent. It dipped a bit in December but returned to 35 percent around the time of his inauguration and has headed upward since.

What is extremely remarkably about the nation's optimism is that it arrives at a time when Americans have every reason to be very pessimistic.  This is not "the era of good feeling"; we're in crisis mode.  And yet, the majority is optimistic.

Take that, teabaggers.

Robert Reich's Tax Day Guide

...specifically as it relates to the tea party protests:

No one likes to pay taxes, so tax day typically attracts a range of right-wing Republicans, kooks, and demagogues, all of whom tell us how awful we have it. Herewith a short citizen's guide (that is, a citizen's guide that's short rather than a guide for short citizens) responding to the predictable charges:

1. "Americans pay too much in taxes." Wrong: The United States has the lowest taxes of all developed nations.

2. "The rich pay too much! The top ten percent of income earners pay over 72 percent of all income taxes!" Misleading: The main reason the rich pay such a large percent is they've become so much richer than the bottom 90 percent in recent years. If you look at what they pay as individuals -- the percent of their incomes over and above the highest rate below them -- you'll see a steady decline over the years. When Republican Dwight Eisenhower was president, the marginal rate on the highest earners was 91 percent (after deductions and tax credits, closer to 50 percent); by 1980 it was still up there, at 70 percent (an effective rate of closer to 45 percent); under Bill Clinton, it was 38 percent (an effective rate closer to 28 percent).

Look at the after-tax earnings of families and you'll see what's really going on. Between 1980 and 2000, the after-tax earnings of famlies at the top rose more than 150 percent, while the after-tax earnings of families in the middle rose about 10 percent. The Bush tax cuts of 2001 and 2003 raised the after-tax incomes of most Americans by a bit over 1 percent -- but raised the after-tax incomes of millionaires by 4.4 percent.

3. "The bottom 60 percent pay only 3.3 percent of the taxes!" Misleading again. Most Americans are paying more in sales taxes than they ever have. Property taxes have also been rising at a steady clip. And Social Security taxes have also risen (thanks to the Greenspan Commission), while earnings over about $100,000 aren't subject to Social Security taxes. So-called "sin" taxes (mostly beer and cigarettes) have also skyrocketed. All of these taxes take a bigger bite out of the paychecks of people with lower incomes than they do people with higher incomes.

4. "Obama is raising your taxes!" Wrong. Obama is cutting taxes for 95 percent of Americans, by about $400 per person a year -- not a whopping tax cut, to be sure, but not a tax increase by any stretch. Only the top 2 percent will have a tax increase, but even this tax increase is modest. Basically, they go back to the rates they were paying under Bill Clinton (their deductions will be limited to 28 percent, which is only fair). And they won't start paying this until 2011 anyway.

5. "The huge debts we're wracking up will cause your taxes to rise!" Wrong again. When it comes to the national debt, as I've said before, the relevant statistic is the ratio of debt to the gross domestic product. The only sure way to bring that debt down and make it manageable in future years is to get the economy growing again -- which requires that, in the short term, the government spend a lot of money (because consumers and businesses won't). In the long term, the biggest source of concern is rising health-care costs. And that's something Obama and Congress are aiming to tackle.

6. "We have a patriotic duty to stand up against Washington taxes!" Just the opposite. We have a patriotic duty to pay taxes. As multi-billionaire Warrent Buffett put it, "If you stick me down in the middle of Bangladesh or Peru or someplace, you'll find out how much this talent is going to product in the wrong kind of soil. I will be struggling thirty years later." President Teddy Roosevelt made the case in 1906 when he argued in favor of continuing the inheritance tax. "The man of great wealth owes a particular obligation to the state because he derives special advantages from the mere existence of government."

Shhhh! Ix-Nay On The Overnment-gay Ending-spay

From The Washington Times:

Michelle Poland, 33, a project manager from Southern Maryland who subcontracts map-making projects for the federal government, stood on the fringes of the rally with a large hand-painted sign that read, "Tax slavery sucks."

"I'm completely against the way my money is being spent," Ms. Poland said. "If we already have an extreme debt, we shouldn't spend more money."

Right.  For starters, the government should cut out the middlemen who get paid with our tax dollars for subcontracting out map-making projects.

Report From The Winston-Salem Teabag Event

While I could only stay for the first hour or so of the 3 hour "protest", I can report the following:

First of all, I take bad pictures, made even worse by the fact that I used a cell phone camera which was set to black/white (which actually seems to be blue/white).  I'll pepper the most legible photos here. [UPDATE:  BlueNC was there and took better photos].

The turnout was quite good.  I would estimate about 800.  Very few minorities (natch).  Mostly the elderly (men and woman).  The middle age was mostly women (to my surprise). And there were comparatively few under 30.  There were a few families, and little girls were forced to carry signs that they didn't understand.

What exactly were they protesting?

Well, was like I posted a couple of days ago: it was basically "whatever you got", to paraphrase Jimmy Dean.

Going from the (handmade, yard-sale quality) signs, one clear thrust of the protest dealt with taxes, even though the Obama administration is cutting taxes for all except the very richest of Americans. Even then, the message wasn't clear. 

A few signs said "No Taxes", but these were mostly held by kids (and presumably made by them as well).  Most of the tax-related signage didn't go that far, but contained messages like "Taxed Enough Already" (the first letters forming "TEA") or "I already pay enough taxes".  Apparently these people were protesting future tax increases.

One sign read "10% of the people pay 72% of the income taxes!!  Is that fair??"  I'm not sure what the signholder's intention was.  The wealthiest 10% of Americans do pay the lion's share of income taxes -- but that's because they receive the lion's share of income.  That does strike me as fair.  I would rather have the wealthiest 10% of income-earners pay 72% of the taxes rather than try to squeeze it out of the poorest 10% (or even the middle 10%), wouldn't you?

I didn't ask this sign carrier what he meant.  It's probably not a good idea to, as this CNN reporter found out today:

[It's interesting for the teabagger in the above clip to invoke Lincoln in his anti-tax screed.  Anyone want to guess the president who first mandated income taxes?  Bueller? Bueller?  And by the way, FOX aired this clip, cutting out the guy with the Obama-Hitler poster]

Of course, I'm trying to find logic where perhaps none exists.  As publius writes:

The tea parties, however, don’t have much to do with logic.  I’m sure our modern-day Samuel Adamses aren’t supporting big military spending cuts.  I doubt they care that taxes are unchanged or lowered on 95% of families.  I suspect they had almost nothing to say about the spending and executive overreach of the Bush years.  Logical consistency, remember, isn’t the point.

The point is that tea parties give them an opportunity to reaffirm their own ideological self-image.  In their own heads, they want to be “small government” people.  In this sense, the tea parties are simply atonement – trying to “out out” the damned spot. 

Still, as I said, it was clear that the tea party protests are loosely about taxes. [RELATED: 48% of Americans think they pay just the right amount in taxes]

The other clear thrust of the protest dealt with the other end of the economic equation: government spending.  Here, the message was even more disjointed.  Many people objected, for example (again, going by the signs) to the bailouts.  Others, to government "pork".  And still others, to the stimulus.  Many of the signs expressed concern about the deficit.

I personally don't have a problem with people expressing concerns about the government running up deficits.  It should be a concern.  But I was left to wonder where these people were when Bush was turning the huge surplus that Clinton gave him into a massive trillion dollar deficit.

One could argue, "well, Bush had to spend the massive amounts of money -- we were attacked and that led to us fighting wars in Iraq and Afghanistan".  Fair point, but we're still fighting those wars.  And more importantly, what is the reasoning which leads one to condone deficit-spending in order to rebuild Iraq's infrastructure, but get upset about deficit-spending to rebuild our own infrastructure to combat an economic crisis?

But I digress.

Once the speakers took the stage, it got more interesting (for me).  It was quite clear that their goal was to channel this mass discontent into pleas to join their organization, their think tank, their whatever. 

The first speaker, an organizer from ncteaparty.com was refreshingly candid.  He acknowledged that he knew diddly-squat about organizing protests, and suspected that most of the people there had never been to a protest.

The second speaker was a woman from the John Locke Foundation, and it was clear to me that she was either (1) stupid or (2) catering to the naivety of the crowd.  It was remarkable.  She said she was going to talk about "freedom".  And then she proceeded to talk about excessive government spending. 

It was never made clear to me what excessive government spending has to do with "freedom".  I mean, here were hundreds of people exercising their freedom to assemble, their freedom to protest, etc.  Even I, an opponent of everything said there, was moved by the "vox populi"ness of the tea party protest.  I LOVE it when the people speak, even if I don't agree with them.

I apparently was the only one struck by the irony that these people were free to protest, and yet they had these speakers and signs that somehow suggested that the policies of the Obama government were infringing on freedoms.  What freedoms they never said. 

But every time this particular speaker used a phrase with the word "freedom" in it, people applauded.  When she failed to use that buzzword (or other patriotic buzzwords), people sat on their hands.  It was clear to me that many people in this crowd weren't really listening to, or not understanding, what was said so much as they were looking for an auditory cue to wave their flags (literally in some cases).

This same woman also talked about responsibility.  She took on, for example, the car industry.  They had the responsibility of running their own businesses.  They could have, she said, not hired union workers.  But they did.  Now those auto manufacturers have to take responsibility for their actions, and not rely on government bailouts.

It was a cogent argument (one which I won't refute here), but as I listened to her, I wondered how her anti-union message would have been received at a tea party in Detroit or Flint.

This woman, as I said, was from the John Locke Foundation.  She touted their alternative budget as being better than then the one presented by the NC legislature, which (she said) was full of tax increases and wasteful government spending. 

She railed in particular against the NC government spending so much money on "social programs" (adding that such exhuberant spending limits "your freedom" although, again, I don't know what one has to do with the other).

I took a gander at the John Locke alternative budget to the one passed by the NC lesiglature.  As expected, it lowers taxes drastically, and cuts government spending to "social programs", just as the speaker said it would.  But at the rally, the speaker didn't bother to mention what some of these "social programs" were.  I will:

• Cultural programs ($26,509,810 less) -- NC Arts Council, for example, gets over $8 million less
• Blind and Deaf/Hard of Hearing Services ($1,247,231 less)
• Public Health ($20,565,091 less) -- includes $2,000,000 less for HIV prevention, $329,000 less for public health testing (includes elimination of jobs there), $2,000,000 less for the Breast and Cervical cancer program, elimination of UNC's OASIS program, etc.
• Vocational rehabilitation programs ($3,591,938 less) -- including merging the entire disability administration with the Blind and Deaf Services (which was gutted -- see above)
• Crime Control and Public Safety ($4,468,222 less) -- including Flood Map planning, National Guard and rape assistance programs
• Agriculture services ($23,160,175 less [more than half of that area's budget]) -- including pesticide control, food testing
• Clean Water Management Trust Fund (elimination in its entirety -- all $100,000,000): John Locke Foundation would let industries self-police
• Miscellaneous: Cut DMV Driver's License Division by $4.7 million by merging DMV offices (because they're not crowded enough)

The list goes on and on and on.

And then, this same woman, griped that the North Carolina government cut spending on transportation and prisons too much.

Now, why does government budget spending increases in any of the above programs "take away your freedoms", but a failure to increase spending in transportation/prison as high as John Locke's budget also "take away your freedoms"?  This apparently was lost on the audience.  But they booed and cheered appropriately, as long as whatever was said was being couched in jingoistic nationalistic terms (like "freedom").

By the way, I'm not saying that limiting government spending is bad.  Some things are worth spending money on; others, maybe not so much.  The point is: it's entirely subjective.   I'm just saying that if she had bothered to provide a complete list of these eeeeevil social programs to the flag-waving audience, I have no doubt that most of them would have said (at some point): "Wait a second.  That's a good program."

But to rail against ALL taxes as oppressive, or ALL government spending as "wasteful", is just plain oversimplified to the point of silliness.

And that brings me to MY main point.

These protesters were not stupid or evil.  They just hadn't thought things through. 

It's easy to be against "wasteful government spending" when you're never called upon to even think about what is supposedly "wasteful". 

[UPDATE: Andrew Sullivan picks up on this point as well:

Protesting government spending is meaningless unless you say what you'd cut.

If you favor no bailouts, then say so. If you want to see the banking system collapse, then say so. If you think the recession demands no fiscal stimulus, then say so. If you favor big cuts in Medicare, Medicaid, social security and defense, then say so. I keep waiting for [tea party promotor Glenn] Reynolds to tell us what these protests are for; and he can only spin what they they are against.

All protests against spending that do not tell us how to reduce it are fatuous pieces of theater, not constructive acts of politics. And until the right is able to make a constructive and specific argument about how they intend to reduce spending and debt and borrowing, they deserve to be dismissed as performance artists in a desperate search for coherence in an age that has left them bewilderingly behind.]

It's easy to be against high taxes, if your brain isn't allowed to consider what that tax money will be spent on.  It kind of reminded me of the rabble in this Simpsons episode, where the townspeople couldn't simply grasp the connection between taxes and social services:

The most striking thing about the whole protest was the constant reference to the government as "they".  Apparently, the tea bag segment of the population loves America, but hates the American government.  They love the Founding Fathers, but hate the government that the founding fathers formed.  They profess to love the Constitution, but they hate the government created by that document.  And I'm not talking about the "Obama government" -- these people generally hate government as a concept.  (They only complain about it, however, when a Democrat is at its head.)

The second speaker that I listened to was from the Civitas Institute.  He again fired the masses by going for those jingoistic phrases.  He was big on the symbolism of "Don't Tread On Me".  The Civitas Institute had 7 or 8 Gadsden flags throughout the plaza, all bearing the iconic snake and bearing the words "Don't Tread On Me". 

I won't get into this speaker too much, except to say that he was either stupid, or playing on the naivety of the crowd he was addressing.  At one point, for example, he said this:

"...And whatever happened to the free market?  I mean, these bailouts?  Let me ask you: What would have happened if AIG had gone bankrupt?  I'll tell you what: it would have gone bankrupt.  But nooooo, we had to save it.  It was 'too big to fail'." [boos, cheers, etc.]

This is just plain wrong, and there's not an economist -- on the left or right -- who would agree with this speaker's assessment of the AIG bailout.  Look, AIG insures banks.  Big banks.  Big banks who made bad investments, and took out insurance on those bad investments.  If AIG had failed, then those banks would be unable to collect that insurance, and THEY would have failed.  And then other banks would freeze up, and there would have been no flow or credit to businesses large and small.  Companies would fold, and the unemployment rate would be twice what it is now.

So the point of bailing out AIG wasn't to save AIG, its golden-parachuting senior management, or even its employees.  The point was, ultimately, to save Main Street, and us.  And anyone who doesn't recognize that shouldn't get in front of a microphone to talk about it.  (That said, one can legitimately complain about the amount of the AIG bailout, or certainly the terms tied to the bailout, or any number of related issues.  But to complain the necessity of it?  Moronic.)

As I left the tea party to return to work (much to my sadness, because nationally-syndicated columnist and K'vegas resident Nathan Tabor was due to speak), the Civitas speaker was going on about government "takings", a legal reference to property.  The Constitution does not allow the government to "take" your property without "just compensation".  To this guy, that meant that the government cannot regulate your property, which, of course, is an entirely different thing.

The example he used was an "intermittent stream", which is a stream that forms when it rains a lot.  North Carolina land use laws do not permit building on an areas that have intermittent streams -- where there is a stream during the rainy season.  Yes, that was his outrage, and he went on about it, invoking the flag, and freedom, and Thomas Paine.

Again, the audience sat on its hands (seriously, he's talking about streams???) until he said a sentence that included the word "freedom" or "God" or "America".  Then, applause.

He then turned to the example of toilets, saying that because the government has so many regulations regarding toilets, the third-largest thing being smuggled in from Mexico (after drugs and people) is toilets.  I don't know if that Mexico "fact" is true or not, but his point was that toilet smuggling is a consequence of "needless" government regulation.  And the audience cheered.  What he didn't the audience was that in the 1990's, the federal government essentially banned high-flow toilets because they wasted water.  That creates a problem, especially in times of drought.  Now, had he mentioned that to the crowd, I'm sure there would have been a handful of tobacco farmers who get hit hard whenever there is a drought or water shortage.  And their take on that "needless" government regulation would have been quite different.

Again, that was my point.  The people had legitimate concerns, but in the end, they hadn't thought things through. 

Anyway, the toilet hissy-fit was my cue to leave.

I'll leave the coda to This Modern World's Greg Saunders:

In the grand scheme of things, getting people to complain about taxes on April 15th might be the easiest thing in the world. It’s right up there with “eating ice cream on a hot summer day” and “laughing whenever Glenn Beck cries”. Bitching about taxes is America’s true pastime. So when a few thousand people gather on tax day to whine about their taxes (after getting massive tax breaks, btw), it’s hardly the second coming of the American Revolution. Hell, I remember a time six years ago when millions of people took to the street to protest the government. We all saw how well that worked out.

When their rallying cry is “Grrrr…I hate you TAXES!”, there won’t be a whole lot left to keep the tea bagging movement together after April 15th. Manufactured-populism and a fractured-understanding of American history will only take you so far. The great-great-great-great grandchildren of liberty will have to find some other crusade to motivate them like birth certificate forgeries or investigating whether Bo Obama was really a rescue dog. Sure, some die-hards will stick around like the asshole who keeps flipping through your DVD’s at three in the morning oblivious to the fact that the party is over, but within a few weeks, the only people left to carry the “tea party” torch will be the GOP & Fox News personalities trying to recapture the “good times” with all the subtlety and humility of Chubby Checker trying to get everyone to do the twist.

I’m going to miss the “Tea Party” movement. I’m going to miss the powdered wigs and the lunatic ranting. I’m going to miss the ideological uncertainty and the unpragmatic futility (seriously, you’re mailing tea bags to the White House to demand lower taxes after you just got a tax cut?). Most of all, I’m going to miss the jokes. These last few weeks have been a golden age for juvenile humor that passes for insightful political commentary. It’s a rare movement that chooses to describe itself with terminology that also means “testicle slapping” and those of us who relish in the foolishness of conservative activism will be much worse off for it.

Happy Teabag Day!

I'll resist the urge of many of my liberal co-bloggers (as well as members of the librel drive-by media) to make snickering sexual references about the hissy-fit-a-thon being thrown across the country.  But I just wanted to remind you it is happening.

The gist of the rather nebulous complaints by these teabaggers is that the government taxes and spends too much, which is why these event are held on Tax Day.  None of these people, mind you, have concrete example about where they want to cut federal spending. 

Oh, sure, they'll tell you that the "pork" and "wasteful spending" needs to be cut out, and that's hard to disagree with.  Unfortunately, they would be hard-pressed to tell you what the pork actually is.  To cut federal spending as much as they want to, on the scale of ten to 40 percent, you would have to do a hell of a lot more than drop spending for bridges-to-nowhere.  You would have to gut major major programs.

 

What, exactly, would they propose to cut?\

Obama, I thought, did well, to explain the need for federal spending.  It's buried in this clip for Olbermann last night.

Next Victim Of The Recession: Blockbuster

Blockbuster might be joining Circuit City and CompUSA soon:

Blockbuster may be counting down the days until it's forced to close its retail stores, the company revealed in a filing with the Securities and Exchange Commission this week. In the filing, the company revealed that it may not be able to meet the terms of a recent $250 million loan, and that there was "substantial doubt" about its ability to continue as a business in the near future.

Poll Of The Day: Only 53% Of Americans Say Capitalism Is Better Than Socialism

This comes from Rasmussen Reports which, as polling firms go, tends to be woefully inadequate and partisan (to the right).  But it is still astonishing.

Now, this survey doesn't mean that 47% of Americans think socialism is better.

The question was quite simply: "Which is a better system - capitalism or socialism?"

The response:

53% Capitalism
20% Socialism
27% Not sure

Here's the party breakdown:

Republicans - by an 11-to-1 margin - favor capitalism. Democrats are much more closely divided: Just 39% say capitalism is better while 30% prefer socialism. As for those not affiliated with either major political party, 48% say capitalism is best, and 21% opt for socialism.

Age also plays a factor:

Adults under 30 are essentially evenly divided: 37% prefer capitalism, 33% socialism, and 30% are undecided. Thirty-somethings are a bit more supportive of the free-enterprise approach with 49% for capitalism and 26% for socialism. Adults over 40 strongly favor capitalism, and just 13% of those older Americans believe socialism is better.

No doubt, the right wing will take this and run with it.

But I'm not sure the poll tells us very much.

First of all, I don't think Americans have a complete understanding of what "capitalism" and "socialism" mean.  They certainly don't have a unified understanding about what those terms mean in this context. 

I like capitalism, but I don't favor, say, unbridled capitalism.  I like a government-managed economy.  After all, capitalism brought about slavery, child labor, etc.  Is a government-managed free market economy "capitalist" or "socialist"?

And socialism?  Certainly our public education system is socialist (we don't have schools compete in the free market).  On the other hand, our medical system is capitalist, but should be socialist (i.e., socialized medicine)

Which leads to my second criticism of the poll: the either-or nature of the question renders it virtually meaningless.

So the results are surprising, but I'm not sure the poll actually tells us anything.  As Steve Benen writes:

Perhaps "capitalism" lost some of its appeal when our economy collapsed. Maybe a lot of people heard the media connect Obama and "socialism," and since they like the president, they figure socialism can't be that bad. In a similar vein, if right-wing blowhards like Limbaugh keep screaming that socialism is manifestly evil, there may be some who assume the economic model must have merit.

Perhaps.  Perhaps not.  Which is why the poll tends to shed more light than heat.

Defense Department Doing The Right Thing

These two graphs on United States defense spending are worth 2000 words:

 

 

Yeah, there's a war on terrorism and we're in Iraq and Afghanistan, but do we really need to spend over $400 billion, or 20% of our budget on defense?

Now, defense secretary Robert Gates' proposed defense budget hasn't actually cut defense spending, but he seems to have his focus in perspective.  Gone are wasteful Cold War defense programs.  Gone are huge expenditures for, say, revamping the Navy (I mean, think about it -- to what extent is the next generation of submarines going to keep this country save against terrorists?  Not much).  Huge missile defense "shields" are scaled back to more realistic missile defense programs.  

The Reality-Based Community's Mark Kleiman gives some specifics:

"New DoD budget in brief: Less F-22's, gold-plated Presidential helicopters, cruisers, amphibians, aircraft carriers, missile defense. More Predator drones, intelligence/ surveillance/ reconnaissance, special forces, Army choppers, F-35s, F-18s. You'd almost think that this budget was planned in the interests of national security rather than either defense contractor and lobbyist satisfaction or providing new toys for the boys. So far, Obama's decision to keep Gates is looking pretty good."  

Gates' emphasis seems to be on counterinsurgency programs -- i.e., programs specifically tailored to the present threat to the United States which aren't in the form of great nations like the "Soviet Menace":

Gates shifted the budget request to allow for institutionalized support for irregular warfare — a key goal of the generation of counterinsurgency theorist-practitioners who have emerged from Iraq and Afghanistan. Support for programs desired by counterinsurgents, such as training and mentoring partner militaries in counterinsurgency, have been funded through ad-hoc budgeting during the two wars, but Gates heralded an end to that practice. “Our contemporary wartime needs must receive steady long-term funding and a bureaucratic constituency similar to conventional modernization programs,” he said. Training partner militaries, for instance, will be part of a $500 million effort to “boost global partnership capacity efforts.”

Seems like a win-win.  Better defense for (one hopes in the future) less money.

UPDATE:  AmericaBlog correctly sees this as a "Nixon going to China" moment.

Diplomacy In Action

For those who ever doubted that effective diplomacy cannot lead to results, and that our new president is a skilled diplomat, read this:

According to sources inside the room, President Obama just played peacemaker in a spat between French President Nicolas Sarkozy and Hu Jintao, President of the People's Republic of China.

In the finaly plenary session among the G-20 leaders, Sarkozy and Hu were having a heated disagreement about tax havens.

***

The exchange between Sarkozy and Hu got so heated, said a source -- who is not a member of the Obama administration -- it was threatening the unity of the G-20 leaders' meeting.

Obama to the rescue:

But Mr. Obama, according to this account, stepped between the two men, urging them to try to find consensus, and giving them a "pep talk" about the importance of working together.

The senior adminstration official said that Mr. Obama pulled Mr. Sarkozy aside, took him to a corner, "and discussed possible alternatives," the senior official said.

Once they arrived at one, President Obama "sent a message to the Chinese" that a counter-offer was on the table. The Chinese spent some time considering the offer. But they took a few minutes.

So Mr. Obama, with the assistance of translators, suggested that he and Mr. Hu have a conversation as well. They, too went to the corner to talk. After a few minutes, Mr. Obama called upon Mr. Sarkozy to join them.

"Translators and sherpas in tow, they reached an agreement," the official said. "There was a multiple shaking of hands."

And that's how it's done.

Quote Of The Day

From Barack Obama, at a meeting with bank CEOs last week:

“My administration is the only thing between you and the pitchforks.”

That's probably more true than not.

Local Unemployment Still Worse Than National Level

March numbers are out:

Nationwide, the unemployment rate is 8.5%.

Below is an updated chart showing job losses in this recession compared to five prior recessions.

 

Robert Reich, Clinton economist, doesn't mince words.  "It's a depression", he blogs.

The March employment numbers, out this morning, are bleak: 8.5 percent of Americans officially unemployed, 663,000 more jobs lost. But if you include people who are out of work and have given up trying to find a job, the real unemployment rate is 9 percent. And if you include people working part time who'd rather be working full time, it's now up to 15.6 percent. One in every six workers in America is now either unemployed or underemployed.

This is still not the Great Depression of the 1930s, but it is a Depression. And the only way out is government spending on a very large scale. We should stop worrying about Wall Street. Worry about American workers. Use money to build up Main Street, and the future capacities of our workforce.

Lovely.  it's even worse locally.

In North Carolina, the unemployment rate is at 11.3% (February numbers, just released), up 1% from January.  The unemployment rate went up in every one of NC's 100 counties, except Caswell County, which went down a mere 0.2% from 13.2% to 13%. 

In Forsyth County, the unemplyment rate is at 10%, up 1.2% from January's 8.8%.

Winston-Salem's unemployment rate rose to 10.4%, up from 9.2%.

Credit Crisis Primer

You know who you are.  You know there is something bad going on with the economy, and it has to do with subprime mortgages and credit default swaps or blah blah yada yada something.

But you don't know what any of that means.

Welcome to the Credit Crisis Primer.  This explains in very simple terms and fun graphics exactly what is going on, and how we got into this mess.  A must see, even if you think you understand the current economic situation.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Photo Of The Day

Obama (dead center) seems to be the only one aware that their picture was being taken....

 

It kind of make him look like a dork.

UPDATE:  OMG.  The "photo of the day" just got beaten out by another photo of the day from the same shoot.  Apparently, the photographer told the G20 group to "go nuts".  The result?

 

Okay, now they all look like dorks.

Stock Market Watch: Obama's Bull Market?

It was less than a month ago when conservative pundits were chomping at the bit to call the stock market downturn by the name "Obama's Bear Market"

WALLACE: Well, as we've been discussing, the stock market is officially in bear territory, down exactly 20% since the Obama inauguration. Brit, John McCain didn't want to answer the question, but I'll ask you. Is this the Obama bear market?

HUME: It's kind of a bear market within a bear market. The market was already down tremendously over the previous year, and I think most people entered this period of the new Obama administration thinking that it probably was bottoming out and that he would give by his very presence and by what he would offer real hope and that it would at least change the psychology a bit. It has changed the psychology, it seems, for the worse and I think he does bear responsibility for that, and the impression that he has managed to leave is that he's too busy with massive new spending and a scatter shot stimulus bill which was reckless and breathless new initiatives. On top of that you have this budget with all these breathtaking new initiatives to reorder our lives in a multitude of ways.

In the meantime, first order of business, the unfinished business of the previous administration. First order of business for the new administration, the financial crisis, the credit crisis. And, so far, no plan of any discernible shape of dealing with that. A couple of pieces in place as Governor Kaine pointed out. But that's what the market is looking for. It hasn't come. It's very hard. But, that's the big problem.

This meme was all over the place at the beginning of March.

What's happened since?

 

And today, the market is up over 8,000.

Not bad when you consider that the market opened at 7,949 on January 20, the day Obama took office.

The Republican Budget

Well, having been deservedly mocked last week when they brought out their budget (you remember, the one that had no numbers?), the GOP tried again today.

To their credit, it has numbers this time.

But not surprisingly, it has the tired old GOP plan.  This time it is 62 pages long (pdf).

Once again, their idea is to make the Bush tax cuts permanent.  But that's just a start.

Tax cuts for the wealthy?  Sure, it's in there.  Of course, everyone gets tax cuts under the GOP plan.  In fact, there's only two tax brackets -- a 10% bracket for individuals making under $50,000 (families under $100,000) and a 25% bracket for everyone else (the top income tax bracket right now is 36%).  Corporate tax rates also drop to 25%.

Oh, and capital gains cuts.  Because the average American is getting killed by taxes on their cappital gains (NOT!)

To balance the lack of income, Republicans intend to stop spending.  Well, to freeze spending across-the-board (except, of course, for the Pentagon, because this is the GOP plan) for five years.

And things like Social Security?  Well, they basically say that it will dry up in 2041, so we should lower payouts starting in..... 2036.  Lower payouts by 0.25% per year.... starting oonly five years before it's dry?  And that will buy us, what?   One or two more years before Social Security is totally gone?  That's a plan?

Later on, the GOP plan acknowledges that their social secuirty solution is just the beginning of a "process" which will eventually "move toward a consensus for saving and strengthening Social Security".  In other words, their plan to save Social Security is to... hope that someone comes up with a plan someday.

And Medicare?  The GOP answer is to privatize it.  In other words, make it go away (since we already have things that assist with medical cost payments -- they're called insurance companies).

Perhaps the most amusing feature of the budget is the scoring.  Yup, they've gone and figured out the long-term effects of their plan for the next 70 years.

 

Wow.  Well, obviously, the Republican alternative is the way to go.  I mean, it's a graph, for crying out loud, that takes into account all the ideological positions of every future Democrat and Republican elected official.

Seriously, though... how were they able to draw those lines?  How, for example, would one explain that tiny little dip and bump on the Republican line around 2044/2045?  I mean, is that a real dip/bump, or did the graph drawer have a shaky hand?

UPDATE:  Actually, this deficit projection is funnier when you realize two things: (a) the GOP plan lowers the top tax rate from 35% to 25%, but allows taxpayers the option to pay the 35% rate if they want to (if not, it's 25%) and (b) the deficit projections in the graph above assume that higher income people -- all of them -- will choose to voluntarily pay the higher tax rate.

UPDATE:  Oh, this is rich.  You see that ominous looking blue line going up up up on the graph below?  Turns out that the GOP projections aren't based on the Obama budget at all.  The Congressonal Budget Office (CBO) never ran a "Long-Term Alternative Fiscal Scenario" on the Obama budget.  That ominous blue line represents the long-term alternative fiscal scenario that the CBO worked out eight months ago -- on Bush's budget!

UPDATE:  And then there's this gem:

* Energy. Our budget lays a firm foundation to position the U.S. to meet three important strategic energy goals: reducing U.S. dependence on foreign oil, deploying more clean and renewable energy sources free of greenhouse gas, and supporting economic growth. We do these things by rejecting the president's cap-and-trade scheme, by opening exploration on our nation's oil and gas fields, and by investing the proceeds in a new clean energy trust fund, infrastructure and further deficit reduction.

If you bother to unpack that, what they're proposing is to fund new clean energy by (1) doing such things as off-shore drilling and (b) using money that we save by permitting factories to pour CO2 into the air.

Why Michelle Malkin Should Never Be Listened To

From her site:

The soul-fixer-in-chief is here to dry your tears

By Michelle Malkin  •  March 31, 2009 12:44 AM

Reuters is running a story on the Obama administration’s new federally subsidized counseling services/referrals for those suffering from depression related to the economy. As usual, the government’s prescription for pain is…more government. The economic psychology guide was developed with help from the Departments of Labor, HUD, Treasury, and GSA.

Let's unpack this, shall we?

1.  "Reuters is running a story on the Obama administration's new federally subsidized counseling services/referrals...."

Here's the Reuter's story that Malkin links to.

Is there anything in the story which suggest the counselling services/referrals are "new"?  Nope.  And why not?  Because Malkin, to put it charitably, made it up.

In fact, the Substance Abuse & Mental Health Administration has been around for quite some time.  And they have been making referrals and providing consumer information for quite some time as well, long before Obama came along.

And is this referral service "federally subsidized"?  Well, yes, I suppose.  The website, like all government (.gov) websites, is paid through taxpayer dollars.  Presumably the research and information done on this site was done with public dollars as well.

But again, this is nothing new.  This government agency is only doing what it is supposed to be doing pursuant to the rules and regulations.... not to mention executive orders signed by people like George W. Bush.

2.  "As usual, the government’s prescription for pain is…more government."

Uh, no.  Again, Malkin is pulling this out of her ass.  The SAMHA government website to which she links actually says something else:

Even with these coping techniques, however, sometimes these problems can seem overwhelming and you may need additional help to get through "rough patches." Fortunately, there are many people and services that can provide help. These include your:

• Healthcare provider
• Spiritual leader
• School counselor
• Community health clinic

So the prescription for pain includes private institutions, including religious ones, as well as a variety of public and private mental health centers.

******

While Malkin and Matt Drudge snicker and snark at the suggestion that tough economic times lead to emotional and mental difficulties, we all know otherwise.

Losing one's job is no joking matter and it does lead to suicide, murders, and other issues.  It's no laughing matter.  And certainly not a matter to be lied about in order to score cheap political points.

Frank Sinatra, Paul Newman, and Rob Lowe To Blame For Economic Crisis

ABC News:

Brazil's President, Luiz Inacio Lula da Silva, has raised a few brows by suggesting the global financial crisis has been caused by "white people with blue eyes".

WTF?

Oh, oh, oh... I see.

Fun With The GOP Budget

Like me (see post below), everyone else is laughing at the GOP budget, and their helpful graphs. 

Yes, it's spoof time.

Nate Silver has some fun:

 

 

 

And others join in:

 

 

 

The Republican Alternative "Budget"

Today was the big day where Republicans were going to come out with the alternative budget proposal, because Obama was all like "Oh, yeah?  You got some better ideas??  Let's see them!" and the Republicans were all like "Okay, We will!"

So the only problem with their budget, released this afternoon to much ballyhoo and hype, is that it isn't a budget.  There is an appalling lack of things that make it resemble a budget -- not just things like deficit projections, income projections, etc. -- but also things like, uh, numbers.

That's right... it's a "budget" with almost no numbers.  I'm no economist, but one would expect a budget to have lots of those.  Shit, even Bush famously said, when he revealed the first budget of his presidency, "It's clearly a budget.  It's got a lot of numbers in it."

So what does the GOP alternative have?  Well, it's 12 pages of generalities, mostly criticizing the Obama budget (things we've heard), and giving bland statements about what the GOP would do better.

They will "undo" the stimulus bill, they say.  I don't know how you do that.  The stimulus has passed and the money is out the door and on the way to states.  But, whatever.  They will under it.

Oh, and they call it a "stimulus" bill -- in air quotes.  I guess they don't want to acknowledge that it will stimulate the economy.

What does it offer?  Oh, here's a surprise.  Tax cuts.  Tax cuts.  Mostly for the wealthy.

Predictable.

But best of all, you get helpful graphics like this, explaining the Republican budget considerations for health care.

 

That's either a really bad flowchart, or the beginnings of a molecule.

Anyway, it's a bit devoid of specifics.  Kinda like this.

But it ain't no budget.

I Love Michelle Bachman

This is why.  She presses Treasury Secretary Tim Geithner on the Constitiutional authority for the Treasury to give out TARP money, apparently not understanding that Congress, of which she is a member, passed a bill which provided not only the TARP money, but the authority of the Treasury to dole it out.

In an interview with after the hearing, Bachmann said, “My intent to the line of questioning is legitimate because I have a number of constituents that ask me ‘Can they do this?’”

Geithner is understandably confused at the stupidness of the question.  It's kind of like asking "Where in the Constitution does it say we have to sit on chairs?" 

Still Geithner answered the question, saying "the laws of the land, of course", which is technically correct.  Article I, Section I grants Congress the right to legislate, and the TARP funds were legislated to give authority to the Treasury.  Article I, Section 8 would have been a good answer, too.

Bachmann also asked if the United States was giving up the dollar. “I’m wondering would you categorically renounce the United States moving away from the dollar and going to a global currency as suggested this morning by China and also by Russia, Mr. Secretary?”

Of course, China and Russia were not advocating a "global currency".  They were merely suggesting that the international community use something other than the dollar as its reserve currency.

Very Risky Business

In the Washington Monthly, Senator Byron L. Dorgan -- I'll only include snippets:

Last spring, when the stock market took its hair-raising ride, in one corner of Wall Street there was more than the usual anxiety. In fact, there was stockbrokers-looking-for-upper-floor-windows kind of fright. In April, clients of the giant Bankers Trust New York Inc.--including Procter & Gamble--took multimillion dollar losses on a kind of trading most Americans had never even heard of, called "derivatives." A rumor went around the Street: Maybe something truly sinister was brewing. Maybe this was a ... derivatives collapse.

***

More trouble comes from exotic new derivatives called "swaps." Say Company A has borrowed money at a floating interest rate but is worried that rates might rise. It wants to lock in the rates at the lower level. So it calls a derivatives dealer--often a major bank--to find another company, call it B, which is willing to bet that the floating rates will be more favorable than the set rate. A swap results: Company A will pay a fixed rate of interest to Company B, which will pay a floating market rate to Company A. The risk to Company A is that rates will fall but A will be obligated to pay the higher, fixed rate. The risk to Company B is that B will end up paying higher rates than the fixed rate it receives from A. If you had trouble following that, then you are starting to get the idea. And all of this can be done without anyone even knowing, since such transactions can be done "off book"--effectively concealing them from stockholders and employees. Procter & Gamble bought a floating rate deal like this from Bankers Trust, losing a reported $157 million in the process.

***

But the truly scary thing is how losses like these could spread through the entire banking system. Suppose X, our film company, had entered into a swap with a New York bank. That bank in turn might then enter an offsetting contract with another bank which in turn might continue to pass along that risk on and on and on, perhaps using exchange-traded futures. So now a default by X could create a domino effect: X could not pay its bank, and its bank therefore couldn't make the payments on its offsetting contract, and so on until the chain of losses enters the exchange, where the originally esoteric bet can hurt real businesses. This is not mere fantasy.

***

All that stands between the public and a financial disaster of this sort is the guardians of the banking system in Washington. Regrettably, they are outgunned by the derivatives dealers in several ways. For one, there are fewer examiners than dealers, and many examiners are young and inexperienced. Worse, exotic derivatives--the stuff the big boys are doing--just don't fit within the existing scheme of federal finance regulation. It's a little like asking traffic cops to stop the nation's computer crime.

You get the idea.

But here's the thing: this was written in 1994.

And he proposed a solution back then, too:

The threat is not from foreign competition, or Government deficits or regulation. It is from Wall Street, and a new form of sophisticated financial bingo called derivatives. Even Fortune magazine--hardly a carping business critic--is warning that derivatives could swamp our economy in a sea of red ink.

Fortune estimates the new derivatives game at some $16 trillion, which is more than twice our Nation's total economic output. A single default, the magazine said, could ignite a chain reaction that runs rampant through the financial markets. `Inevitably, that would put deposit insurance funds, and the taxpayers behind it, at risk.'

That is a risk that Congress must not permit. Already the taxpayers of this country are footing the bill for the $500 billion bailout of the savings and loan industry. A gang of financial high-fliers tried to get rich quick on junk bonds and inflated real estate loans, and the taxpayers had to clean up the mess. Congress learned a lesson, or should have, at least.

That is why I am introducing today a bill to protect the taxpayers of this country from a replay of the savings and loan fiasco. Specifically, my bill would prevent banks and other institutions with Federal insurance from playing roulette in the derivatives market. If an institution has deposits insured by the Federal Government, it should not be involved in trading risky derivatives for its own account. Such proprietary trading involves a degree of risk that is totally out of step with safe and sound banking practices. It will not occur if my bill is enacted.

Perhaps we should have listened to him.

The AIG Exec Resignation

By now, if you're atturned to this sort of thing, you have read the resignation of AIG executive Jake DeSantos which was printed in the New York Times.  I encourage you to read the whole thing, but here's a snippet:

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:
I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.
....
I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. ....
....
My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.
....
You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.
As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.
Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

....

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

The right wing blogosphere is all afluster about the letter.  It represents a voice that we haven't heard in this public outrage about the AIG bonuses -- the voice of an actual AIG executive.  And the right wing feels sympathy for this man.

So do I.  He was not in AIG's Financial Products division.  He had nothing to do with AIG's catastrophic and bone-headed financial manueverings.  I do not think him a villian or one of those greedy Wall Street S.O.B.s.  To be vilified nation-wide and in the halls of Congress?  It must suck for him.

But my sympathy can extend only so far.  After all, while he may not have been in the AIG-FP Division, he certainly benefitted from it.  Furthermore, there are people who are facing much harder times than him.  After all, if he can afford to give his $750,000 bonus to charities, he's not really one of the people in this country who is experiencing severe pain by the economic downturn.

AIG Execs Return Bonuses

At least 9 of the top 10 have returned the bonus though as an overall percentage of the $218 billion, it still has plenty of room to grow.

Nine of the top 10 recipients of �controversial bonuses at the insurer AIG have pledged to hand back the money �following a public and political outcry over multimillion-dollar rewards at the crisis-stricken company.

New York state's attorney general, Andrew Cuomo, revealed last night that most of the biggest winners from a �controversial "retention scheme" at AIG have succumbed to pressure by forsaking their awards.

Of those working at AIG's financial products division, which ran up vast losses on toxic derivatives, 15 of the 20 top bonus winners are giving back the money.

Cuomo said: "A number of them have risen to the occasion and I applaud them."

The money being returned amounts to $30m out of the bonus scheme's total payout of $165m. Cuomo, speaking on a conference call, revealed that about $80m of the total went to Americans. Some of the rest is likely to have gone to British staff at AIG's key financial products office in London.

He expressed a hope that more bonuses would be returned and said he expected his office to recoup about $80m.

CNNMoney says the figure is up to $50 million and 15 of the top 20.

Good.  Admirable.  Can we focus on something else now?

"Nice Little Country You Have Here; Be A Shame If Something Happened To It"

Wall Street Journal:

Meanwhile, Treasury Secretary Timothy Geithner and his colleagues worked the phones to try to line up support on Wall Street for the plan announced Monday. They told executives they don't favor using the tax code to retroactively penalize specific individuals who had received bonuses, according to people familiar with the calls. They asked officials to sign on "in pencil, not ink," and to "validate" or "express support" for the plan, these people say.

Some bankers say they turned the conversations into complaints about the antibonus crusade consuming Capitol Hill. Some have begun "slow-walking" the information previously sought by Treasury for stress-testing financial institutions, three bankers say, and considered seeking capital from hedge funds and private-equity funds so they could return federal bailout money, thereby escaping federal restrictions.(...)

Bankers were shell-shocked, especially when Congress moved to heavily tax bonuses. When administration officials began calling them to talk about the next phase of the bailout, the bankers turned the tables. They used the calls to lobby against the antibonus legislation, Wall Street executives say. Several big firms called Treasury and White House officials to urge a more reasonable approach, both sides say. The banks' message: If you want our help to get credit flowing again to consumers and businesses, stop the rush to penalize our bonuses.

Wow.  They want bailouts, no strings attached, and if they receive criticism, they threated to destroy the economy.

That's economic terrorism

Don't Get Fooled By Freecreditreport.com

Econ4U:

The Federal Trade Commission (FTC) recently issued a warning about deceptive websites that claim to offer free credit reports. These sites actually end up charging their customers for credit monitoring subscriptions, and they don’t even offer anything you can’t already get for free.

As the FTC says, “Despite the musical claims of some TV commercials, the only authorized source to get your free annual credit report under federal law is AnnualCreditReport.com.”

Federal law requires each of the big three credit bureaus to give you a free credit report every year. That means you can get three credit reports annually, all without paying a dime.

Many financial advisers recommend that you check your credit report once a year to make sure that the information is correct and to protect your identify.  Because you have three free reports, however, you can check your credit report every four months and have peace of mind year-round.

Here’s a video from the FTC explaining the difference between AnnualCreditReport.com and all the imitators. The difference? Their service is actually free.  “FreeCreditReport.com’s” annoying jinglers are hoping you forget to cancel your “free” account so they can hit you with the associated fees.  Those commercials don’t come free you know.

How Now Dow Jones

The Dow is up over 400 points right now.  If it stays that way, it will be the 15th largest gain in history (point-wise, not percentage-wise).

I guess that means Wall Street likes Geitner's plan... but I'm not sure that's a good thing or a bad thing, seeing as how Wall Street got us in this mess in the first place, and made a mint by doing so.

UPDATE (3:41 pm):  It's now up 434.72.

UPDATE (4:00 pm):  Dow closed up just shy of 500 points (497.48), making it the 5th largest point gain in history, and, at 6.84%, the 20th largest percentage gain in history.

Tea Parties And "Going Galt"

Outside the Beltway's Alex Knapp:

I’ve been following the growing “Tea Party” and “Going Galt” movements with no small amount of amusement, in part because there is really just too much sweet, delicious irony surrounding both of these groups of people (who, I might add, are largely the same people). Here’s a few observations:

• The “Tea Parties”, of course, started springing up in response to Obama’s stimulus package, a package whose largest fiscal component is a tax cut that will largely benefit the people in the income brackets who make up the Tea Party movement. That I find funny.

• The folks in the blogosphere largely cheerleading the Tea Parties are the same folks in the blogosphere who cheerleaded the war in Iraq. So apparently, government intervention to the tune of $650 Billion is okay to spend when it comes to an unnecessary war that in no way advances American interests, but not okay when it comes to building bridges, cutting taxes, helping state governments meet budget shortfalls, or making sure that Americans don’t get covered in lava. Gotcha.

• Some of the biggest proponents of the “Going Galt” bandwagon in the blogosphere and at Pajamas Media are Glenn Reynolds and his wife, both of whom have jobs (Professor of Law at a public university; forensic psychiatrist) that are dependent on public, taxpayer-funded institutions.

Let’s call the “tea party” and “going Galt” nonsense what it is: unprincipled partisan hackery. If these were truly principled protests, they’d have been around all through the Bush and Republican-controlled Congress years, too.

Yup.

And Knapp gets bonus points with me for pointing out that the Ayn Rand Institute is a non-profit corporation.

PPIP aka "The Geitner Plan"

Get used to that acronym.

It's the shorthand term for the plan, unveiled today, about how to deal with the "toxic assets", which is at the core, the epicenter, the root, of all our current economic woes:

Here it is in a nutshell:

Under the new so-called "Public-Private Investment Program", taxpayer funds will be used to seed partnerships with private investors that will buy up toxic assets backed by mortgages and other loans.

The goal is to buy up at least $500 billion of existing assets and loans, such as subprime mortgages that are now in danger of default.

Treasury said the program could potentially expand to $1 trillion over time, but that the hope is that the program would not only help cleanse the balance sheets of many of the nation's largest banks, which continue to suffer billions of dollars in losses, but help get credit flowing again.

The government will run auctions between the banks selling the assets and the investors buying them, hoping to effectively create a market for these assets.

To kickstart things, the administration said it will commit $75 billion to $100 billion and would consider how the program is progressing before committing more money.

As a public service, I copy from Brad Delong's "Geitner Plan FAQ", which attempts to explain it in simple terms:

Q: What is the Geithner Plan?

A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world's largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off--in either case at an immense profit.

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money--for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

Q: Where does the trillion dollars come from?

A: $150 billion comes from the TARP in the form of equity, $820 billion from the FDIC in the form of debt, and $30 billion from the hedge fund and pension fund managers who will be hired to make the investments and run the program's operations.

Q: Why is the government making hedge and pension fund managers kick in $30 billion?

A: So that they have skin in the game, and so do not take excessive risks with the taxpayers' money because their own money is on the line as well.

Q: Why then should hedge and pension fund managers agree to run this?

A: Because they stand to make a fortune when markets recover or when the acquired toxic assets are held to maturity: they make the full equity returns on their $30 billion invested--which is leveraged up to $1 trillion with government money.

Q: Why isn't this just a massive giveaway to yet another set of financiers?

A: The private managers put in $30 billion and the government puts in $970 billion. If we were investing in a normal hedge fund, we would have to pay the managers 2% of the capital and 20% of the profits every year. In this case, the private managers' returns can be thought of as (a) a share of the portfolio's total return proportional to their 3% contribution, plus (b) a "management incentive fee" of (i) 0% of the capital value and (ii) between 0% (if the portfolio returns 3% per year) and 9% (if the portfolio returns 10% per year)--much less than hedge-fund managers typically charge. the Treasury is only paying 0% of the capital value and 17% of the profits every year.[1]

Q: Why do we think that the government will get value from its hiring these hedge and pension fund managers to operate this program?

A: They do get 17% of the equity return. 17% of the return on equity on a $1 trillion portfolio that is leveraged 5-1 is incentive.

Q: So the Treasury is doing this to make money?

A: No: making money is a sidelight. The Treasury is doing this to reduce unemployment.

Q: How does having the U.S. government invest $1 trillion in the world's largest hedge fund operations reduce unemployment?

A: At the moment, those businesses that ought to be expanding and hiring cannot profitably expand and hire because the terms on which they can finance expansion are so lousy. The terms on which they can finance expansion are so lazy because existing financial asset prices are so low. Existing financial asset prices are so low because risk and information discounts have soared. Risk and information discounts have collapsed because the supply of assets is high and the tolerance of financial intermediaries for holding assets that are risky or that might have information-revelation problems are low.

Q: So?

A: So if we are going to boost asset prices to levels at which those firms that ought to be expanding can get finance, we are going to have to shrink the supply of risky assets that our private-sector financial intermediaries have to hold. The government buys up $1 trillion of financial assets, and lo and behold the private sector has to hold $1 trillion less of risky and information-impacted assets. Their price goes up. Supply and demand.

Q: And firms that ought to be expanding can then get financing on good terms again, and so they hire, and unemployment drops?

A: No. Our guess is that we would need to take $4 trillion out of the market and off the supply that private financial intermediaries must hold in order to move financial asset prices to where they need to be in order to unfreeze credit markets, and make it profitable for those businesses that should be hiring and expanding to actually hire and expand.

Q: Oh.

A: But all is not lost. This is not all the administration is doing. This plan consumes $150 billion of second-tranche TARP money and leverages it to take $1 trillion in risky assets off the private sector's books. And the Federal Reserve is taking an additional $1 trillion of risky debt off the private sector's books and replacing it with cash through its program of quantitative easing. And there is the fiscal boost program. And there is a potential second-round stimulus in September. And there is still $200 billion more left in the TARP to be used in other ways.

Think of it this way: the Fed's and the Treasury's announcements in the past week are what we think will be half of what we need to do the job. And if it turns out that we are right, more programs and plans will be on the way.

Will it work?

One of the biggest difficulties in getting the program off the ground was how to price the soured assets. If the government paid too little, banks would take the hit. But if the government overpaid, then already-soaked taxpayers would feel the pinch.

One nagging concern, however, is whether the government's involvement will actually spur banks and private investor groups, such as hedge funds, pension plans and insurance companies to participate.

Administration officials indicated Sunday they had gotten support from private investors and banks who have been briefed about the program. But some analysts questioned whether the government's help would be enough to push investors and banks toward figuring out a price.

At the same time, there are fears that investors may be reluctant to participate in light of the fact that Congress has retroactively altered the terms of many of the government rescue programs so far.

Regulators indicated, however, that they had few other attractive alternatives.

Letting banks continue to hold these assets on their books, for example, would only drag out the crisis and could put the country in a position similar to what happened in Japan during that country's so-called Lost Decade in the 1990s.

But if the government bought all the bad assets on its own, taxpayers would take on all of the risk. By investing with private firms under the current plan, the expectation is that taxpayers would share the risk -- as well as any potential returns.

So it may work, it may not.  DeLong thinks so.  But Paul Krugman (the Nobel Prize winning economist and a guy who is rarely wrong) writes this about the plan:

This is more than disappointing. In fact, it fills me with a sense of despair....

[T]he real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.

He goes on to explain that the Geitner plan isn't really "new"; it's just an extension of the Paulson plan, which didn't work.  The problem with the Geitner plan, Krugman says, is that it assumes that the banks are solvent.  We don't know this, of course, because nobody knows the value of the "toxic assets" which the banks hold.

Krugman is of the opinion that the government should simply nationalize the banks because they are (for the most part) not solvent:

There’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.

That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.

Where do I come down on this?  I'm not sure I even understand it entirely.  But clearly, the Obama Administration is doing something just short of nationalization of the banks. 

There may be political reasons for this.  With the Geitner plan, no congressional approval is needed.  For nationalization of the banks, Congress will have to approve.  And they won't unless it can be shown to them that all other options are exhausted. 

Kevin Drum argues that if nationalization is the last resort, and Treasury wants to show it tried everything else first, the Geithner plan may eventually put Congress in a position where it has no other credible choice.

Like it or not, there's only one way to get this support: show that (a) one or more of the big banks really is insolvent and (b) every other option for rescuing them has been exhausted. Geithner's plan does both. If it works -- well and good. But if it fails -- if nobody is willing to participate, or if the auction demonstrates that the market price for toxic assets really is accurate -- then banks will be forced to mark their assets to those prices. Plug in those marks to Geithner's stress tests and it's likely to prove to everyone's satisfaction that some of our big banks really are insolvent. At that point, even skeptics will be forced to accept nationalization as the only remaining alternative.

Politically, I don't see any other way forward. Bank nationalization will be complex, costly, and contentious. To work, it will almost certainly have to include a broad guarantee of all bank system obligations, something the public won't be happy about. Congressional support won't be easy to come by. Geithner's plan will either work or else it will pave the road for that support. It might not be pretty, but that makes it a plan worth trying.

So the PPIP might be a good move politically.  But it might, as Krugman warns, simply delay the only solution, which is nationalization of the banks.  And the more we delay, the more our economy tanks and jobs get lost.

UPDATE:  I'm not one for using the Dow as a barometer for the wisdom (or lack thereof) of Washington goings-on, but the fact that the market is up 312 points (as of noon today) is encouraging.

  

Triad Jobless Rate

December 2008:  8.5%

January 2009: 10.4%

Palin Rejects 31% Of Federal Stimulus Money

First Mark Sandford, Governor of South Carolina.  He rejected stimulus money.

Now Sarah Palin.  She's rejecting 31% of the federal stimulus money.

What do these two have in common?  They both have their eye on a 2012 presidential run.  They want to be able to get up before the crowds and say, "I said 'thanks but no thanks' when they offered my state federal stimulus money."

What is most alarming is what she is taking money for, and what she is refusing money for?

She is accepting $642 million in federal stimulus money for highways, water and sewers, medicare, and.... uh.... a boat (that's one boat) costing $116 million.

What is she REFUSING money for?  She's rejecting $288 million, most of it for education-related stimulus ($177 million) including special education, technology, "fiscal stabilization" money, emergency food assistance and school lunch programs, immunizations, infant learning and additional funding for schools with a high proportion of poor students.

Nice, Sarah.  Way to keep 'em stupid.

A lot of her constituents, and many in the Alaska legislature are none too happy.

Money Problem Solved

I hope this gets talked about more:

Absent supplementals, the United States currently runs a defense budget of just over half a trillion dollars, a number which does not include defense-related spending in other departments. By the kindest calculations, this means that the U.S. spends roughly four to six times as much on defense as our closest competitor. By less kind calculations, we spend about 10 times as much as any other country in the world, accounting for somewhere around 50 percent of aggregate world defense spending. Although the absolute numbers have changed since the early 1990s, the ratios have not. The U.S. has simply dominated world defense spending since the collapse of the Soviet Union, in spite of the fact that most of the other top defense spenders (France, U.K., Japan) are close U.S. allies.

If an analyst had proposed, during the Reagan administration, that the U.S. outspend the Soviet Union by a factor of 5-10, he or she would have been laughed out of government by Republicans and Democrats alike. Today, however, debate over the defense budget almost never results from the question "How much do we need to spend?", or even "Should we spend more or less?", but rather "How much more should we spend?" And this is simply insane, given the massive advantage that the United States enjoys over any potential competitor, and the security gains that the United States has accumulated since the end of the Cold War.

While there are advocates for higher defense spending, almost no one thinks that the U.S. defense budget approaches optimality; even hawks can find half a dozen or so expensive projects that need to be canceled.

Shovel-Ready Projects In Winston-Salem

The total cost of all the projects submitted by Winston-Salem  in the 2008 U.S. Conference of Mayors report is $618,050,000.  This does not mean these projects will get done with North Carolina's federal stimulus gift.  That's up to Bev Perdue.

Description	City	State	Jobs	Cost	Program Type	Vote Ratio
Union Cross Road widening	Winston-Salem	NC	160	$60,000,000	Streets/Roads	-70
Salem Creek connector and Research Parkway	Winston-Salem	NC	80	$16,000,000	Streets/Roads	-28
Peace Haven and US 421 interchange improvements	Winston-Salem	NC	75	$15,000,000	Streets/Roads	28
Resurfacing of streets	Winston-Salem	NC	60	$14,000,000	Streets/Roads	6
Peters Creek Parkway Interchange Replacement at Business 40	Winston-Salem	NC	70	$12,000,000	Streets/Roads	-14
Roadway projects supplemented by local bonds	Winston-Salem	NC	120	$12,000,000	Streets/Roads	-15
University Parkway widening	Winston-Salem	NC	20	$11,000,000	Streets/Roads	-35
US 52 ramp and Vargrave Street Reconfiguration	Winston-Salem	NC	10	$8,000,000	Streets/Roads	-21
Traffic signal sytem upgrades	Winston-Salem	NC	50	$6,000,000	Streets/Roads	19
Sidewalk construction	Winston-Salem	NC	80	$6,000,000	Streets/Roads	-11
Clemmonsville Road extension	Winston-Salem	NC	50	$5,000,000	Streets/Roads	8
Brookstown Phase II, $7,000,000 could create up to 500 jobs at build out	Winston-Salem	NC	100	$5,000,000	Streets/Roads	-22
Kernersville Road super-street at Sedge Garden Road	Winston-Salem	NC	50	$3,000,000	Streets/Roads	-11
Bridge Replacement projects	Winston-Salem	NC	50	$2,000,000	Streets/Roads	35
Greenway construction (Transportation)	Winston-Salem	NC	50	$1,000,000	Streets/Roads	-8
Two Way of 3rd, 4th, and 5th Streets	Winston-Salem	NC	30	$800,000	Streets/Roads	-23
Old Salem Sidewalks Repair, Streetlight Upgrades and Tree Replacement Project	Winston-Salem	NC	20	$750,000	Streets/Roads	-11
Intersection Traffic Safety Projects	Winston-Salem	NC	20	$600,000	Streets/Roads	10
Martin Luther King Jr Drive traffic calming and pedestrian safety	Winston-Salem	NC	10	$500,000	Streets/Roads	-38
Elledge Waste Water Plant system rehabilitation and land buffer enhancements	Winston-Salem	NC	150	$51,000,000	Water	19
Chitty High Service Pumping Station - Standby Power	Winston-Salem	NC	160	$51,000,000	Water	16
Rebuld of Thomas Water Treatment Plant	Winston-Salem	NC	125	$25,000,000	Water	19
Water Supply reservoir dam rehabilitation	Winston-Salem	NC	125	$25,000,000	Water	20
Neilson Water Treatment Plant	Winston-Salem	NC	100	$15,000,000	Water	18
PTRP stormwater project	Winston-Salem	NC	150	$12,000,000	Water	6
New Elevated Water Tanks	Winston-Salem	NC	20	$6,800,000	Water	6
Neighborhood water/sewer rehabilitation	Winston-Salem	NC	20	$6,000,000	Water	12
Drainage Improvements on Private Property	Winston-Salem	NC	80	$5,500,000	Water	-14
Winston-Salem State University Campus Distribution System Improvements	Winston-Salem	NC	25	$4,600,000	Water	-23
Replcement of 2" water mains	Winston-Salem	NC	50	$4,000,000	Water	9
Water Tank Rehabilitation	Winston-Salem	NC	20	$3,700,000	Water	6
Construction and Maintenance Facilities Improvements	Winston-Salem	NC	25	$3,500,000	Water	-5
Muddy Creek Find and Fix Project	Winston-Salem	NC	15	$3,000,000	Water	7
Water and Sewer GIS/Work Order Management System	Winston-Salem	NC	10	$2,700,000	Water	9
Wastewater Collection Improvements	Winston-Salem	NC	50	$2,000,000	Water	4
Yadkin River Land Protection Buffer Purchase	Winston-Salem	NC	10	$1,000,000	Water	-6
Reentry job corp for water suply creek cleanups	Winston-Salem	NC	20	$400,000	Water	-1
PTRP: road, utility and other infrastructure, could create up to 20,000 new jobs at build out	Winston-Salem	NC	300	$26,200,000	CDBG	18
City Yard relocation and redevelopment	Winston-Salem	NC	80	$8,000,000	CDBG	-15
Goler (workforce/affordable housing)	Winston-Salem	NC	100	$8,000,000	CDBG	-26
Airport Business Park, could create up to 1200 jobs at build ou	Winston-Salem	NC	50	$5,000,000	CDBG	5
Sedge Garden Gymnasium	Winston-Salem	NC	50	$5,000,000	CDBG	-32
Playgrounds parks and recreation centers	Winston-Salem	NC	25	$4,500,000	CDBG	3
New C&D landfill construction	Winston-Salem	NC	10	$4,000,000	CDBG	-23
Civic Plaza Park	Winston-Salem	NC	30	$3,000,000	CDBG	-18
Storm drainage projects	Winston-Salem	NC	80	$3,000,000	CDBG	12
Storm water floodplain housing buy-out and open/park space creation	Winston-Salem	NC	20	$2,400,000	CDBG	-3
New industrial park, could create up to 2500 new jobs at build out	Winston-Salem	NC	200	$2,000,000	CDBG	0
Public infrastructure to support film and theater production	Winston-Salem	NC	20	$1,000,000	CDBG	-24
Greenways and trails (Parks access)	Winston-Salem	NC	30	$1,000,000	CDBG	1
Revitalizing Urban areas Redevelopment,	Winston-Salem	NC	100	$500,000	CDBG	-5
Swimming pool spray park conversions	Winston-Salem	NC	100	$500,000	CDBG	-38
Public Safety Center LEED based renovation	Winston-Salem	NC	250	$9,500,000	Energy	9
City Parking Deck Energy Efficient Lighting and other Upgrades	Winston-Salem	NC	150	$6,000,000	Energy	-9
Energy efficient lighting upgrades at and around City facilities	Winston-Salem	NC	80	$4,000,000	Energy	-7
Business 40 lighting replacement	Winston-Salem	NC	20	$3,000,000	Energy	7
Energy Efficent HVAC upgrades at Coliseum, Convention Center and Bowman Gray Stadium	Winston-Salem	NC	50	$3,000,000	Energy	-3
City building renovations for LEED	Winston-Salem	NC	50	$2,000,000	Energy	4
Johnson Square Apartments repair and renovation	Winston-Salem	NC	80	$3,600,000	Housing	-45
Law Enforcement Training Facilities-completion of up fit to training building and construction of in-door city-county firing range	Winston-Salem	NC	150	$40,000,000	Public Safety	-25
Firing range	Winston-Salem	NC	30	$12,000,000	Public Safety	-104
Emergency Operations Center	Winston-Salem	NC	100	$6,000,000	Public Safety	11
Defensive driving vehicle training facility	Winston-Salem	NC	50	$5,000,000	Public Safety	-33
Additional special puropse officers	Winston-Salem	NC	46	$4,600,000	Public Safety	-30
Fire Station 8 relocation	Winston-Salem	NC	25	$3,000,000	Public Safety	13
Construction of fire station 19	Winston-Salem	NC	25	$2,700,000	Public Safety	19
additional school resource officers	Winston-Salem	NC	25	$2,500,000	Public Safety	5
Fire Station 21	Winston-Salem	NC	25	$2,000,000	Public Safety	15
Fire Apparatus replacement	Winston-Salem	NC	0	$1,200,000	Public Safety	16
Additional patrol officers -expansion of police visibility and crime prevention efforts	Winston-Salem	NC	20	$1,200,000	Public Safety	18
Fire Station 22	Winston-Salem	NC	25	$1,000,000	Public Safety	18
Decentralized district substations	Winston-Salem	NC	30	$1,000,000	Public Safety	2
Fire Station renovations	Winston-Salem	NC	50	$1,000,000	Public Safety	20
Fire vehicle maintenance facility	Winston-Salem	NC	20	$700,000	Public Safety	17
Mobile command post (for police and fire)	Winston-Salem	NC	0	$500,000	Public Safety	-8
Tasers for law enforcement officers	Winston-Salem	NC	0	$500,000	Public Safety	-25
Reentry job corp for grafitti removal and city parks and public space maintenance	Winston-Salem	NC	20	$400,000	Public Safety	-8
Crime lab/forensics equipment	Winston-Salem	NC	0	$350,000	Public Safety	17
Youth gang prevention education materials	Winston-Salem	NC	0	$250,000	Public Safety	-24
Streetcar	Winston-Salem	NC	80	$14,000,000	Transit	-167
Fixed Route and Paratransit Buses	Winston-Salem	NC	20	$7,100,000	Transit	-21
Union Station/Davis Garage, could create up to 250 jobs at build out	Winston-Salem	NC	100	$5,000,000	Transit	12

[Source: Stimuluswatch.org]