Heartland Views

Senator Grassley and Grandma

2009-08-24T08:21:00.004-05:00

It's a shame Senator Grassley didn't read my July posting on the Lewin Group study he is so fond of quoting ("Grassley's Talking Points").

He could have spared himself the embarrassment of having a senior citizen question the credibility of the Lewin Group in a recent town hall meeting in Adel, Iowa. He also could have avoided having the obvious conflict of interest highlighted on national television:

In fairness, it's possible that Senator Grassley wasn't aware of the fact that the Lewin Group is owned by UnitedHealth Group, a leading health insurance company. Maybe he never made it past the cover page of the study, since the first page clearly explains the connection to UnitedHealth. More likely, he was simply repeating "talking points" put out by opponents of health care reform, and never actually read the study.

In any case, at a time when opponents of health care reform such as Senator Grassley are trying to scare seniors with threats that the federal government will decide when to "...pull the plug on Grandma," there's something especially inspiring about an Iowa senior pointing out the obvious bias in the Lewin study.

At least one Grandma in Iowa isn't so easily frightened. Bless her heart; we could use more like her.

Health Care Secrets

2009-07-30T18:33:00.002-05:00

Opponents of health care reform, including Senator Chuck Grassley, have been fond of citing a study by the Lewin Group (see "Grassley's Talking Points").

Grassley, along with other Republican Congressmen, chose to focus only on the Lewin Group conclusion that 119 million Americans would opt for a public option, if it were available. I suppose they'll need to update their talking points, since the Lewin study has updated their study based on a more recent bill, the American Affordable Health Choices Act of 2009.

For the benefit of Senator Grassley and others, the new talking point is 103.4 million people opting for a public option. It's hard to tell why this is such a terrible thing, and it doesn't explain why so many people would choose a public option, or how much this would cost.

You won't hear the reason from Republican opponents of health care reform, but the latest report has some interesting findings:

"Family premiums under the public plan would on average be about $2,148 less for families (about 20 percent lower) than comparable private insurance."

"Assuming the exchange is opened to all firms, we estimate that the number of uninsured people would be reduced by 32.6 million people."

"Reductions in the cost of covering workers would result in higher net income which would be subject to taxation. The available research indicates that over time these savings would be passed back to workers in the form of increased wage growth, resulting in increased personal income and payroll tax payments."

"We estimate that these tax effects would result in increased federal tax revenues of $48.2 billion over the 2010 through 2019 period if the exchange is open to firms of all sizes."

And my personal favorite:

"If all firms are eligible for the exchange, and therefore the public plan, national spending would increase by about $1.3 billion. Thus, the Act would reduce the number of uninsured by 32.6 million people without significantly increasing national health spending."

No, that's not a typo. It's an increase of $1.3 billion, not $1 trillion. $1.3 billion is the combined cost of individuals (who will see insurance premiums decline) and the government (that will have higher costs dues to subsidies to cover many who are now uninsured). $1.3 billion is about a $100 for each taxpayer.

So we have 32.6 million more people insured, health insurance premiums going down by 20%, and higher income for workers, at a total cost of $100 per taxpayer. Sounds terrible, doesn't it?

As things now stand, we won't be getting a public option for health care, but at least when you get "health insurance reform" instead of the public option proposed in this legislation (which is what's likely to happen), you'll at least know what your missing out on.

You might also ask Senator Grassley and other Republicans who oppose the public option why they don't include this information in their talking points.

Grassley's Talking Points

2009-07-28T08:05:00.003-05:00

Our own Senator Chuck Grassley should be a little more careful about the company he keeps, and whose talking points he uses.

In his July 23 editorial in the Des Moines Register, "Health-care reform should work for you," Grassley gives us a dire warning of what will happen if there's a public option for health care:

"I caution those who favor driving 119 million Americans into a government-run plan. The federal government is an unfair competitor and would run private insurers out of business, leading to a Canadian-style health-care system."

Setting aside the question of why private insurers could not compete with a government run system, the estimate of 119 million represents about 70% of individuals who now have private health insurance, and is far higher that any other estimates, including those provided by the Congressional Budget Office. Where did this figure come from?

It turns out this comes from a study published in April by a company called the Lewin Group. Senator Grassley describes the Lewin Group as a "think tank," but there's far more to the story. Grassley's just one of the many Republican Congressmen citing the Lewin Group as an "objective" source to bolster their argument against a public option for health care:

So who is this Lewin Group, and how objective are they? Well, at one time they actually were an independent research and consulting firm. They were purchased two years ago by Ingenix, the nation's largest provider of health-care billing information to companies like Aetna, UnitedHealth and CIGNA.

Ingenix made headlines earlier this year when they agreed to pay $400 million to settle lawsuits alleging that they distorted data to keep ("reasonable and customary") reimbursement rates artificially low, thereby reducing the payments owed by the insurance companies who use their data. Of course, this also means patients were forced to pay the difference.

By any measure, $400 million is a large settlement. But Ingenix is owned by UnitedHealth Group, one of the nation's largest health insurers, and they can afford it.

Senator Grassley should be a bit more careful about who he allows to put words in his mouth.

Birth of a Political Party

2009-07-22T10:44:00.001-05:00

It's difficult to keep up with the right-wing these days. Even after reading about the reservist refusing orders to be mobilized to active duty a few weeks ago, I gave little thought to the conspiracy theories regarding President Obama's citizenship.

I recall when the issue came up before the election, after rumors surfaced that Obama's middle name is really Muhammed, causing the Obama campaign to post a copy of the original birth certificate on their website. As with any good conspiracy theory, each answer raised new allegations and demands for more information.

When I heard the rumor again a month or so later, I took a look at the documentation provided on several sites (including FactCheck.org), and forgot about it. But when I read recently that the fringe element clinging to this theory had been given a name ("Birthers") by the media, I realized the controversy would never die.

It's not surprising that those who make a living feeding ignorance have continued to keep this alive. Questions about Obama's citizenship raised by many media conservatives before the election live on with a more elite group of "trash for cash" media personalities. Even Lou Dobbs has decided to join the Rush Limbaugh/Sean Hannity crowd. Inside sources say Lou has been thinking about making a change ever since he heard about the eight year $400 million contract Rush signed last year. There's money to be made here.

Still, I object to elected officials pandering to fringe groups to score cheap points, and possibly pick up a few votes and/or donations. On the surface, there's nothing wrong with Congressman Bill Posey's (R-FL) amendment (H.R. 1503) to Federal Election Campaign Act of 1971, requiring that a presidential candidate provide a birth certificate. I'm all for it.

But while Posey and the bill's nine co-sponsors may claim this "has nothing to do with Obama," the truth is that it's intended to cater to the Birthers, and imply that Obama's presidency isn't legitimate.

It's by no means clear that Republicans can control the fringe elements they've created. Just ask Congressman Mike Castle (R-DE), who recently lost control of a town hall meeting to a Birther. If you haven't seen the video, it's worth viewing (click here), if only to get an advance preview of the Republican party of the future.

Maybe this will all give "birth" to a new political party... to replace the party that seems so determined to destroy itself.

Real Money

2009-07-21T09:55:00.003-05:00

“A billion here, a billion there, and pretty soon you’re talking real money”
________________ Illinois Senator Everett Dirksen (deceased)

It's been nearly impossible to keep track of all the government programs intended to avert a total meltdown of our financial system. The overuse of acronyms such as TARP, TALF, PPIT, and TLGP doesn't help, except when making a rough estimate of the total ($100 billion for each letter is a good rule of thumb).

A few financial journalists have attempted to keep up with the potential liability resulting from all these programs. Most gave up as the total went over $10 trillion late last year. The federal government hasn't made this easier, since the information (when it's even available) is scattered over a dozen or so websites.

Apparently, no one in Congress thought to ask "what does all this add up to?" But a new report released by the special inspector general overseeing the $700 billion TARP bailout will make it difficult to avoid the question.

Special Inspector General Neil Barofsky will be testifying today before the House Committee on Oversight and Government Reform and has made it clear that the Treasury Department and Federal Reserve aren't disclosing enough information about how taxpayer money is actually being spent. He's estimating that the total potential taxpayer liability of all these programs adds up to a cool $23.7 trillion.

How much is $23.7 trillion? Well, it's enough to buy every stock traded on the U.S. stock market...twice. It's enough to buy every taxpayer a quarter of a million dollar home. It's enough to pay off the entire national debt, and still have $12 trillion left over. It's also enough to pay for Obama's health care plan for 200 years.

It's important to note that the government hasn't fully utilized many of these programs, so it's more useful to think of this as how much the government was willing to spend to avert a financial crisis. It's also an indication of how severe last September's near-meltdown really was.

The good news is that the amount of the $23.7 trillion the government has actually had to use has come down in recent months, and the report shows a current balance of $3 trillion, which is the lowest it's been since late last year.

As you watch Congressmen reading talking points from health insurers and drug manufacturers posturing about how health care is "too expensive," you might wonder where they've been over the past year.

Cheney's Silence

2009-07-16T16:22:00.002-05:00

After coming out of his secret hiding place and showing up on every talk show except Oprah in recent months, former Vice President Dick Cheney must have seen his shadow. Maybe he felt he had sufficiently frightened the American public with predictions of another terrorist attack on American soil, and was able to declare "mission accomplished" and go back into hiding.

Or perhaps he got wind of Panetta's plans to visit Congress, and wisely decided to keep quiet for a few weeks. Last week's revelation that the CIA had failed to inform Congress of a covert "program" in violation of the National Security Act of 1947 was compounded by news this past weekend that this was under direct orders from former Vice President Dick Cheney.

CIA Director Leon Panetta didn't learn about the program until he was in office for almost 5 months, and within 24 hours notified both the House and Senate subcommittees. Panetta and members of the Senate and House intelligence committees have not said what the secret program actually was, although there has been widespread media speculation that the program in question involved the creation of groups whose mission was to assassinate al-Qa’eda operatives.

Much of this speculation has been fueled by current and former CIA employees that claim such a program was "on again-off again." But none of them can actually say with certainty that this was the program that caused Panetta to rush over to Congress with such urgency.

If this is actually what the "secret" CIA program was about, I can only say that the lack of curiosity inside the beltway is astounding. It's not like George Bush didn't make his intentions clear. A Washington Post article published shortly after 9/11 (CIA Weighs 'Targeted Killing' Missions) described the steps Bush took to authorize exactly such a mission. And in numerous public statements, Bush made his plans very clear.

At least up until now, there has been bipartisan agreement on this objective. Even Obama, in effect, sanctioned assassination in the October 7 Presidential debate: "We will kill bin Laden. We will crush al Qaeda. That has to be our biggest national security priority."

Given all this, wouldn't you think Congressional intelligence committees would have asked about this at some point in the last eight years? Wouldn't you think Panetta would have looked into this after a few days in office? The CIA has said the al-Qa’eda program never went beyond "brainstorming," so what was it that Cheney wanted to be kept secret?

Cheney's silence is telling us that we haven't heard the whole story.

A Congressional Visit to Wise County

2009-07-12T10:07:00.004-05:00

With speculation growing that Congress will not be able to pass health care legislation before they recess in August, you might be tempted to think this is the result of partisan bickering, or perhaps the lobbyists who are spending millions to make sure this legislation gets stalled out.

But Republican Senator Judd Gregg has a more creative explanation: "the calendar doesn’t work.’’ Apparently there's just not enough time to play politics with the confirmation hearings of Supreme Court nominee Sonia Sotomayor, and still work on health care. And, since Congress didn't invent the Gregorian calendar (which, apparently, is broken), we can't hold them accountable.

Of course, we also can't expect Congress to shorten it's month long August "recess" just to deal with a problem that affects 75 million adults (42 percent of the under-65 adult population) who are either uninsured or underinsured in America.

They could better spend their time visiting this year's free medical clinic in Wise County, Virginia, Last year's clinic treated more than 2,500 people at the Wise County fairgrounds over a three day period, but thousands that came from surrounding states were turned away. It's sponsored by Remote Area Medical, a remarkable organization that provides free medical services, thanks to the efforts of medical professionals who volunteer their time. It's a no-frills event, with patients being treated in tents and cattle stalls.

It was a visit to the Wise County medical clinic a couple for years ago that led Wendell Potter to leave a well-paying job and speak out against the industry he had been a part of. Potter had been the head of Public Relations for CIGNA (one of the nation's largest insurers), but came to realize the fundamental untruth behind the lies he helped create.

In a recent interview with Bill Moyers on PBS, Potter explained how his trip to Wise County changed his views on the health care industry he had been a part of:

"It was absolutely stunning. It was like being hit by lightning. It was almost --what country am I in? I just it just didn't seem to be a possibility that I was in the United States. It was like a lightning bolt had hit me."

"But when you're in the executive offices, when you're getting prepared for a call with an analyst, in the financial medium, what you think about are the numbers. You don't think about individual people. You think about the numbers, and whether or not you're going to meet Wall Street's expectations. That's what you think about, at that level. And it helps to think that way. That's why you--that enables you to stay there, if you don't really think that you're talking about and dealing with real human beings."

Although Wendell Potter testified before the U.S. Senate last month, Senator Gregg's feeble excuse suggests they have yet to really understand the problem. Imagine what would happen if you explained to your boss that you didn't do the job you were hired to do because "the calendar doesn’t work."

You might find yourself unemployed, and standing in line for health care in Wise County.

Transparency Redacted

2009-07-10T08:48:00.002-05:00

It looks like there's been another delay in the release of a classified 2004 report on the CIA’s interrogation and detention program. The report was supposed to be released on June 19, was delayed until June 26, and was then delayed until July 1. Then White House spokesman Robert Gibbs told reporters that the report would not be released until this week.

For those who aren't aware of this report, it has been described as the "Holy Grail" of torture-related documents. Completed by former Inspector General John Helgerson in May 2004, it was released reluctantly and in heavily redacted form by the Bush administration in May, 2008. (click here to view the redacted version)

The Obama administration agreed to declassify the document following a lawsuit brought by the American Civil Liberties Union (ACLU). The report is based on the most comprehensive study of CIA torture practices ever completed, and is based on more than 100 interviews, a review of the videotapes, and 38,000 pages of documents.

We already know much of what's likely to be contained in the report, but it contains important information on recent claims made by former Vice President Dick Cheney. News reports have suggested that it will further contradict Cheney's claims torture of "high-value" detainees produced valuable intelligence, and saved "hundreds of thousands of lives."

Some have suggested that the delay is designed to protect the CIA from further embarrassment, rather than for reasons of national security. Whatever the reason, the CIA has now said that release of the report will be delayed (for a fourth time) until August 31. The ACLU's response makes it clear they aren't happy about the latest delay:

"It is apparent that the CIA report is not being delayed for legitimate reasons, but to cover up evidence of the agency's illegal and ineffective interrogation practices. It is time for the president to hold true to his promise of transparency and once and for all quash the forces of secrecy within the agency. The American public has a right to know the full truth about the torture that was committed in its name."

All of this is getting lost in the political theater behind CIA Director Leon Panetta's recent disclosure of an intelligence program that was hidden from Congress for eight years. Of course, we have no information on the program, because it's a secret. A former top Bush administration official (anonymously, of course) assures us that it's no "no big deal," but doesn't explain why it's been a secret since 2001. This gives plenty of room for both sides to play politics.

I must admit, the first time I heard the word "redacted," I had to look it up. But I know what "transparency" means, and this isn't it.

Not Part of the Club

2009-05-17T23:16:00.003-05:00

The reaction to Sen. Arlen Specter's (D-Penn) announcement that he would leave the Republican Party a couple of weeks ago was predictable.

It's been clear for years that there's no room for RINO's (Republicans In Name Only) in Rush Limbaugh's Republican party, and Rush made his opinion very clear: "It's ultimately good. You're weeding out people who aren't really Republicans."

But while Rush was weeding his garden, other Republicans offered more thoughtful comments. In a written opinion the New York Times, Sen. Olympia Snowe (R-Maine) gave voice to the frustration of moderate Republicans:

There is no plausible scenario under which Republicans can grow into a majority while shrinking our ideological confines and continuing to retract into a regional party. Ideological purity is not the ticket back to the promised land of governing majorities — indeed, it was when we began to emphasize social issues to the detriment of some of our basic tenets as a party that we encountered an electoral backlash.

Specter and Snowe recently received a great deal of publicity when they voted, along with Susan Collins (R-Maine), in favor of Obama's stimulus plan. So it's not surprising that Snowe would come to Specter's defense. But they have more in common than their vote on a single bill.

They are both on the hit list of the conservative "Club for Growth," an organization that targets moderate GOP incumbents who do not adhere to their narrow agenda. The group has a very specific method they use to control voter "choice." By funding the primary campaign of far-right Republican challengers, they make certain they get "true" Republicans on the ballot; even if it means the Republican party ultimately loses the election. It's kind of like "weeding the garden" with money...lots of money.

But the more interesting story is how Specter and Snowe came to be on the Club for Growth's "RINO Watch" in the first place. It wasn't because they betrayed the trust of Senate Republicans determined to defeat Obama's reckless stimulus spending, in a valiant effort to balance the budget. On the contrary.

More than eight years ago, when the first of the Bush tax cuts was under consideration. Olympia Snowe had the audacity to suggest something new: include a "trigger" that ties tax cuts to surpluses (For those of you that don't recall, "budget surplus" is an obsolete political term that goes back to the Clinton years).

The idea was simple: the "trigger" would have delayed spending for new government programs and "phased-in" tax cuts until the surplus reached specified levels. In other words, taxes would be cut only in proportion to spending, and only as long as the plan to reduce the national debt was on schedule.

By proposing the trigger (S. Con. Res. 21), Sen. Snowe was, in effect, "nominating herself as an early possible target" of the newly formed Club for Growth. Among the other 10 Senators supporting Snowe's bipartisan proposal: Sen. Specter and Sen. Collins.

Needless to say, Sen. Snowe's proposal to control government spending didn't make it into the Bush tax legislation (Economic Growth and Tax Relief Reconciliation Act of 2001). The "true" Republicans were in charge, and the era of big spending, big government, and big deficits was underway.

The Largest Building in the World

2009-05-04T17:05:00.001-05:00

From the outside, you'd never guess that this modest 5 story building in the Cayman Islands is the official headquarters of more than 12,000 companies, including subsidiaries of major United States corporations, such as Pfizer, Coca-Cola Co, Proctor and Gamble, FedEx, and Intel.

It's called the Ugland House, and it's a favorite tax haven of major corporations, not to mention wealthy individuals who want to avoid paying billions in taxes and work on their tans at the same time. According to the U.S. Treasury, this costs the government about $100 billion each year in lost tax revenues, including $40-$70 billion from individuals and $30-$60 billion from corporations.

It's not a new tax scam. In fact, it's been around for years. In 2004, David Evans of Bloomberg Markets wrote an excellent article describing the growing problem:

"In 2001, almost half of the money U.S. companies earned outside the U.S. - 47 percent - was accounted for in offshore tax havens, such as the Cayman Islands, which has no corporate income tax..."

Every few years, the issue would make the front page and a few politicians would promise to tackle the problem. In 2001, a few Congressmen kicked up a fuss when the General Accounting Office (GAO) reported that 24 government contractors were receiving $35 billion in government payments at their address in the Caymans. Apparently, government contractors are supposed to pay taxes like everyone else.

A few years later, John Kerry made offshore tax havens an issue in his bid for the Presidency. But the American public wasn't buying. Apparently we were mesmerized by the latest version of voodoo economics: "allowing businesses to pay no tax on profits they make overseas will create jobs in America...don't worry, be happy."

In June, 2007, Senate Finance Committee chairman Max Baucus specifically requested a study of Ugland House: “I want the GAO (Government Accountability Office) to go looking in one of the most likely places shady tax transactions could be sheltered, and that’s this building in the Caymans.”

After a year of trips back and forth to the Caymans, the GAO completed their work, and released a study intended "to help Congress better understand the nature of U.S. persons' business activities in the Cayman Islands." The only real conclusion was that the problem had grown (there were now 18,857 companies in this little 5 story building) and, sure enough, it was a tax scam. Still no action.

In today's announcement of plans to crack down on overseas tax havens, President Obama, referred to Ugland House as "either this is the largest building in the world or the largest tax scam in the world."

Funny, it doesn't look that big from the outside. My guess is that it's about to get a lot smaller.

You Can't Handle the Truth

2009-04-23T10:19:00.004-05:00

President Obama's dilemma on torture recalls this famous line uttered by Jack Nicholson's character, Col. Nathan R. Jessep, in the movie "A Few Good Men." Jessep continues:

"And my existence, while grotesque and incomprehensible to you, saves lives...You don't want the truth. Because deep down, in places you don't talk about at parties, you want me on that wall. You need me on that wall."

President Obama has, apparently, come to the same conclusion: Americans don't want to know the truth about the torture of military detainees. The issue will be divisive for Americans, who are already struggling with the economic repercussions of an administration that catered to special interests at the expense of the American people. We can't handle the truth. Not now.

The problem is that the torture issue is not going to go away, and we don't think of ourselves as a nation that values truth only when it's convenient. Obama's insistence that we look "forward and not backward" can't be reasonably applied to the concept of justice. Justice always looks at the past. And, with all due respect, it's not his call.

The report released yesterday by the Senate Armed Services Committee sheds light on the role of Bush administration officials in approving the military's use of torture. The report was approved by the Armed Services Committee on November 20, 2008, and was declassified by the Department of Defense this week.

Along with other information gradually coming out, we now have a very different picture of the issue:

The interrogation techniques were adapted from methods used by Chinese Communists on U.S. soldiers during the Korean War, not to gather intelligence, but to coerce false confessions.
The Bush administration was more focused on finding a link between Al Qaeda and Iraq, than on gathering intelligence that might prevent future attacks.
The abuses discovered several years ago were not simply the result of a few "bad apples," as we were led to believe. The direction came from "senior officials" in the Bush administration.

Sen. Carl Levin, chairman of the Armed Services Committee, had this to say about the importance of this new information:

If we are to retain our status as a leader in the world, we must acknowledge and confront the abuse of detainees in our custody. The Committee's report and investigation makes significant progress toward that goal. There is still the question, however, of whether high level officials who approved and authorized those policies should be held accountable.

Former Vice President Dick Cheney has come out of hiding place in recent weeks, and is now in the news more often than Paris Hilton. The Armed Services Committee report may provide a clue as to why. In interviews with FOX News and elsewhere, he makes it makes it very clear what he thinks about the idea of being "held accountable."

Maybe he thinks of himself as the fictional Col. Jessep, who considered himself above the law. Let's hope he's right... in the end, Jessep is led out of the courtroom in handcuffs.

A Tangled Web

2009-03-20T14:39:00.003-05:00

The hard part of rewriting history is getting your story straight. By now, most Americans realize that Saddam Hussein was not involved in the 9/11 attacks on the World Trade Center and the Pentagon, although this certainly wasn't the case a few years ago.

To make the rewrite of history complete, however, it's important to "erase" the idea that the Bush administration ever implied that Saddam Hussein was involved. George Bush got the ball rolling in a speech to the Saban Center for Middle East Policy last December:

"It is true, as I have said many times, that Saddam Hussein was not connected to the 9/11 attacks. But the decision to remove Saddam from power cannot be viewed in isolation from 9/11."

This is a good start. I especially like the part about the "many times" he's made this statement. But it falls short of saying that he never said there was a connection between Saddam and 9/11.

For that we had to wait for former secretary of state Condoleezza Rice's interview with PBS’s Charlie Rose a couple of days ago:

ROSE: But you didn’t believe it had anything to do with 9/11
RICE: No. No one was arguing that Saddam Hussein somehow had something to do with 9/11.
ROSE: No one.
RICE: I was certainly not. The President was certainly not. … That’s right. We were not arguing that.

The puzzled look on her face is a nice touch; kind of like saying "where did you ever get such a ridiculous idea?" By now, you may even be wondering how you ever came up with idea that Saddam was involved in 9/11. Could it have been the left wing media?

It would take too long to list the statements that might have led you astray, but you can sort through the collection of misleading statements found on the website, "Iraq on the Record" and find a few.

Still, the rewrite of history is going along pretty well, except former press secretary Ari Fleischer apparently didn't get the memo that they're not using the fictitious Saddam story anymore. On MSNBC's Hardball with Chris Matthews last week, Fleischer made it very clear that Saddam was involved in the 9/11 attack:

"After September 11th having been hit once how could we take a chance that Saddam might strike again? And that's the threat that has been removed and I think we are all safer with that threat removed."

Like I said, the hard part is getting your story straight

Uptick Update

2009-03-10T13:46:00.001-05:00

Last July, I wrote about a little known rule, the "uptick rule," used to regulate short selling of securities (Selling Fannie and Freddie Short). The rule was put in place after the Crash of 1929 to prevent fear from creating a stampede of selling and another stock market crash.

The rule was eliminated by the SEC, effective July 6, 2007, and my question at the time was: "why would the SEC eliminate a rule that was put in place more than 70 years ago to prevent another market crash?"

The stock market (S&P 500 index) is down about 46% since I wrote the article, and 57% since the rule was eliminated:

As I said at the time, eliminating the uptick rule didn't "cause" the mess we're in, but by helping short sellers drive down the price of stocks, it made it more difficult for businesses (especially banks) to attract new capital to deal with the housing crisis, and ultimately put the economy as a whole at risk.

A couple of weeks ago, in testimony before the House Financial Services Committee, Fed Chairman Ben Bernanke said restoring the rule “might have had some benefit.” Yesterday on CNBC, legendary investor Warren Buffett said "probably the uptick rule is a good idea." And today, Rep. Barney Frank said he has spoken to the SEC, and is "hopeful the uptick rule will be restored within a month," sending markets higher (when something is obvious to Barney Frank, it's obvious to just about everyone).

The truth is that no one really knows how much impact reinstating this rule this will have, and by now it may be too late: trillions of dollars have been lost, and the recovery will take years. The special interests that lobbied to have this rule eliminated have made their fortunes selling America short. Some, like John Paulson of the Paulson & Co. hedge fund will walk away with billions in profits.

This is little more than a footnote in the history of our current economic crisis, but in catering to special interests at the expense of the American people, it says a lot about President Bush's cavalier view of the importance of government regulation, and whose interests he really cared about.

Hedge Hogs - Part II

2009-03-09T11:17:00.002-05:00

After a failed attempt by the SEC to regulate the growing number of hedge funds (Hedge Hogs - Part I), the Bush administration sent a clear message in early 2007; something like "this is part of my plan to deregulate financial markets entirely: leave hedge funds alone."

Apparently Sen. Chuck Grassley (R-IA) wasn't paying attention. More likely, "Iowa’s favorite curmudgeon" understood the importance of regulating hedge funds, and he has an annoying habit of doing what he believes is right.

So Grassley attempted to bring hedge funds under SEC oversight a few months later. Realizing that the SEC needed Congressional action to begin the process by registering hedge funds, he sponsored the "Hedge Fund Registration Act of 2007" (S.1402). In his May 15, 2007 announcement, Sen. Grassley said:

The goal of my initiative is to make our financial markets more transparent. Openness is key to trust in those markets.

Considering that hedge funds controlled up to $3 trillion in assets last year, requiring that they register with the SEC doesn't seem like a bad idea. Hedge funds control almost a third of the stock market trading activity, and it seems like we should spend at least as much time regulating them as we spend on, say, fishing licenses.

Grassley's bill was read twice on the Senate floor, and referred to the Senate Committee on Banking, Housing, and Urban Affairs where Chris Dodd (D-CT) and Richard Shelby (R-AL) immediately recognized the importance of this legislation and sprung into action. Just kidding: the Committee website shows a list of all they accomplished...nothing. No hearings; no expert testimony; no referral to the SEC for comment. It's called "killed in committee."

I can understand Richard Shelby toeing the Republican party line, but Chris Dodd is a Democrat. There must have been something else going behind the scenes. One possibility might be that Dodd was too busy counting his political contributions... from hedge funds.

According to opensecrets.org, Sen. Dodd received $693,250 in contributions from hedge funds in 2008; more than many politicians running for the Presidency. Not bad for someone whose 6 year term expires in 2011, and isn't even running for reelection. It's called "payoff."

Last month Sen. Grassley again introduced a bill to require hedge funds to register with the SEC, the Hedge Fund Transparency Act. (S.344) Needless to say, he won't be getting campaign contributions from hedge funds when he runs for reelection in a couple of years.

Grassley's latest effort has again been referred to the Senate Committee on Banking, Housing, and Urban Affairs. This one is worth keeping an eye on.

Hedge Hogs - Part I

2009-03-06T18:02:00.001-06:00

As conservatives busily rewrite the history of our current financial crisis, and insist that they never intended deregulation to prevent the Securities and Exchange Commission (SEC) from doing it's job, I hope they don't forget to include role of hedge funds.

Traditionally the province of wealthy clients and institutional investors, hedge funds use a variety of derivatives and investment strategies (including short selling). On any given day, hedge funds account for about a third of transactions, so their impact on the markets is huge. Their investors are often willing to accept returns on a "no questions asked" basis, and since they are not regulated, they make great Ponzi schemes (just ask Bernie Madoff).

A few years ago, in a fit of regulatory zeal, then SEC Chairman William Donaldson decided to attempt to regulate hedge funds, saying they had been central figures in a variety of market trading abuses and that registration was at least a way for regulators to begin to understand them. He wanted to shine a light in what he described as a "dark corner" of the market. So the SEC issued a ruling in December 2004 requiring that hedge funds register by February 1, 2006 (this even caused Bernie Madoff to register).

So much for William Donaldson. He resigned "following repeated criticism from the two other Republican members of the agency and from some business groups and administration officials that his enforcement and policy decisions had been too aggressive," according to a New York Times report at the time.

The U.S. Court of Appeals for the District of Columbia overturned the regulation in June, 2006 and sent it back to the SEC to be reviewed. For technical reasons, Congress would need to pass a law to give the SEC oversight of hedge funds. But by then, President Bush had finally found what he had been looking for; an SEC Chairman, Christopher Cox, who understood the meaning of "deregulation." So the SEC regulation was dropped.

In February, 2007, the New York Times reported that the Bush administration said that there was "no need for greater government oversight of the rapidly growing hedge fund industry and other private investment groups to protect the nation’s financial system. Instead, the administration, in an agreement it reached with the independent regulatory agencies, announced that investors, hedge fund companies and their lenders could adequately take care of themselves by adhering to a set of nonbinding principles."

Within six months (July, 2007), two Bear Stearns hedge funds had collapsed. In announcing SEC plans to prosecute fraud in the case of these funds almost a year later, SEC Chairman Cox stated "hedge funds are by no means unregulated when it comes to fraud. Those who commit fraud at the expense of investors will always be the target of a relentless SEC."

It may be that Cox was beginning to understand that the point wasn't to protect hedge fund companies themselves, but to protect their clients (and financial markets) from the hedge funds. He may have even realized the absurdity of the idea that "nonbinding principles" would be adequate. But his reference to a "relentless SEC" makes me believe he was overmedicated.

The collapse of the Bear Stearns hedge funds was followed by the Bear Stearns bailout...and eventually Fannie and Freddie. The rest, as they say, is history.

Balancing the Future

2009-02-27T13:24:00.003-06:00

President Obama presented his budget plan ("A New Era of Responsibility") to Congress yesterday, and as you might expect it's controversial. There's really not much in the 10 year "blueprint for our future" that we did not already know, but it's the first realistic budget we've had in a long time and it's sobering, to say the least.

Obama has said he wants to restore "a sense of honesty and accountability to our budget." This means his budget includes expenses not included in recent years: little things like the cost of the war in Iraq or the annual fix to the Alternative Minimum Tax (AMT). As President Obama said to Congress, "for seven years, we have been a nation at war. No longer will we hide its price."

Even apart from leaving out major expenses, the Bush administration had a tendency to overlook obvious problems and paint an "optimistic" picture for taxpayers. The budget Bush prepared a year ago for the 2009 fiscal year (starting October 1, 2008) included a deficit of $407 billion, and projected a balanced budget by 2012. At the time, the Democratic staff of the Senate Budget Committee pointed out that the 5 year budget omitted almost a trillion dollars in cost from the war in Iraq and the annual AMT fix.

A lot has happened in the last year, but even the mid-year review in late July, 2008 only increased the projected 2009 deficit to $482 billion, and projected a budget surplus by 2012! Keep in mind that Congress had already provided the initial $70 billion in Fannie/Freddie bailout funds, $29 billion in loan guarantees to allow Bear Stearns to be "saved," and we were only weeks away from the $700 billion Troubled Asset Relief Program (TARP). This was at best incompetent, and at worst dishonest.

The Obama approach is a big change from the fictitious budgets we've had in recent years, and Republican opposition is already lining up. One of the points of contention will be Obama's plan to allow the Bush tax cuts for wealthy Americans to expire in 2010. Hedge funds are upset because their special loopholes will be closed. Lobbyists are coming out of the woodwork and swarming around our nation's capital to be certain they don't have to make any sacrifices.

President Obama deserves credit for giving us a clear picture of what we are facing, but as it stands, the 10 year plan is unacceptable. Over this period, it projects an increase of $7 trillion in our National Debt. Even allowing for the cost to bring our economy out of a serious depression, rescue the financial system, and pay ongoing costs as a result of the war(s), this is excessive.

Maybe a realistic 10 year plan will make us all realize the consequences of the past 8 years, and begin an honest discussion about who we are as a nation and what we plan to leave our children and grandchildren.

TARP Payback

2009-02-18T13:29:00.001-06:00

It seems the big banks don't like the executive compensation limitations Obama announced two weeks ago (see Reigning in Wall Street), and now they are "threatening" to repay loans from the Troubled Asset Relief Program (TARP) early.

So far, Goldman Sachs, Bank of America Corp., JPMorgan Chase & Co., and Morgan Stanley have said they plan to pay back the loans early. It may be that this was simply a reaction to the grilling they endured at the hands of House Financial Services Committee members. Apparently they didn't see the drubbing the automakers took in December for a measly $17.4 billion in loans. They missed the part where the CEO's of the Big 3 automakers were asked if they would work for $1 a year. More likely it never occurred to them that they would come under the same scrutiny, even though taxpayer funds to bail out banks far exceeds anything given to the automakers. They are, after all, banks.

Some of the banks have claimed that they were pressured to take TARP funds by former Treasury Secretary Hank Paulson, and there may be some truth in this. After promising Congress to use TARP funds to buy mortgages and mortgage-related assets, Paulson decided to dole it out to his buddies on Wall Street and hope for a "trickle down" effect. It didn't work.

At least in public, Paulson claimed the idea was to avoid any "stigma" from accepting TARP funds (after all, we wouldn't want anyone to have their feelings hurt over this disaster). This way, none of the other banks would know who was about to go broke, and either would investors or the American taxpayer. He even applauded the willingness of the initial group of banks to accept government money, saying "these are healthy institutions, and they have taken this step for the good of the U.S. economy."

The problem: banks must lend to each other for credit markets to function smoothly, and the banks themselves couldn't tell who was about to go broke. Very little TARP money was actually used to provide loans, and the hope that confidence would improve as a result of TARP loans was replaced with growing uncertainty and a lack of consumer confidence. The Paulson strategy of secrecy failed.

So the Obama administration has put compensation restrictions in place, and the message is clear; we will allow banks to fail, and the Paulson game of "Who's Got the Button?" is over. The message to the banks: if you don't need taxpayer money, send it back. If you do, don't expect to continue to hand out bonuses larger than the average American will earn in a lifetime. It's a step toward transparency.

It will be interesting to see how many other banks decide to take him up on the offer.

More Priority

2009-02-14T15:36:00.002-06:00

"We got plenty of money in Washington. What we need is more
priority."

George W. Bush, June 2, 2008

Notwithstanding his grammar, and the apparent lack of awareness of the fact that he nearly doubled the National Debt in only eight years, there's a grain of truth in Bush's statement.

Nowhere is this more evident that in the reaction to the economic stimulus plan (American Recovery and Reinvestment Act of 2009) that cleared the House this week. With a ten year cost of $787 billion, this is definitely a "big ticket" item, and deserving of close scrutiny. But those who cried "pork" without an alternative solution did nothing to help the process.

Is it worth it? One way to look at it is to consider the benefits. The non-partisan Congressional Budget Office has estimated that it will create 3.6 million jobs next year and as many as 11.6 million over the next five years.

The latest estimate from the CBO also shows that the stimulus includes $288 billion in tax benefits, so the "spending" part is just under $500 billion.. Tax credits generally provide less economic stimulus than direct spending, and the least stimulative of these is the Alternative Minimum Tax (AMT) patch for 2009. At a cost of $70 billion, The Tax Policy Center has said this change provides "virtually no economic stimulus," because it benefits only upper middle income taxpayers.

The AMT fix was inserted by our own Sen. Chuck Grassley. In his defense, this issue has been around for a long time. If we're going to "patch" the AMT every year, as we have since 2001, maybe we should make the patch permanent. But let's not count the $70 billion cost for the 2009 AMT patch as part of the stimulus; this would have been done anyway.

Another way of looking at the stimulus is to compare it with other "big ticket" items in recent years:

- The Bush 2001 tax cuts (EGTRRA): $1.35 trillion (mostly to top 10% income levels)

- The War in Iraq: $1.7 to $3 trillion

- The Bank Bailouts: $2 trillion+

It's worth noting, that a number of Republicans in both houses of Congress offered up extending the Bush tax cuts beyond their 2010 expiration as the primary solution to our economic woes. The estimated cost according to the Center on Budget and Policy Priorities: $4.4 trillion over 10 years. How exactly is this going to stimulate the economy? This sounds more like the definition of insanity: "doing the same thing over and over again and expecting different results.”

Since the Senate Republicans objected so strongly to the stimulus plan, it's worth taking a look at the voting on the 2001 Bush tax cuts for wealthy Americans. (click here) Only two Republican Senators voted against the 2001 tax cuts for wealthy Americans (including, to his credit, John McCain). But for some reason, many of these same Senators feel they can't support spending half this amount to create almost 12 million jobs during an economic crisis.

Like the man said, "what we need is more priority," or at least different priorities.

Reigning in Wall Street

2009-02-04T14:01:00.004-06:00

After publicly criticizing Wall Street for paying employees $18.1 billion in bonuses for 2008 (see Wall Street Arrogance), President Obama announced plans to limit compensation for executives at banks will receive assistance at taxpayers' expense to $500,000.

Full details have not yet been released, but at this point it appears the gesture is largely symbolic. It's been reported that this only applies to the top five executives in each company, and would not be applied to those firms that have already received assistance from the Troubled Asset Relief Program (TARP). Setting aside the opinions of those that will cry "government interference" and "socialism" at this latest move, this doesn't go far enough. If a bank takes TARP money, they should expect the government to control excessive spending, at least under this administration.

Obama is astute enough to understand the outrage of taxpayers reading about $50 million jets and million dollar bonuses, and this has put him in a difficult position. Next week the White House will release a bank bailout plan (in addition to the $825 billion stimulus plan working its way through Congress) with a two or three trillion dollar price tag. Obama needed to try to get the bonus issue out of the way first to avoid public outrage.

Someone will sit down in the next few days and calulate that the new limitations would have reduced $18.1 billion to something like $17 billion, and this will then be seen as only a token effort. A step in the right direction, perhaps, but not enough to calm taxpayers that have suffered as a result of Wall Street greed.

I've already resigned myself to the liklihood that I won't like the bailout plan. Obama doesn't have any good choices at this point. He can only play the hand he's been dealt.

P.S. The misspelling of "reining" is purely intentional.

Wall Street Arrogance

2009-01-29T16:52:00.001-06:00

In a rare moment, Obama displayed his obvious displeasure at recent news that Wall Street banks paid employees $18.4 billion in bonuses for 2008, saying:

"It is the height of irresponsibility. It is shameful, and part of what we are going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility. The American people understand that we have got a big hole we have got to dig ourselves out of but they don't like the idea that people are digging a bigger hole."

At a time when taxpayers are being asked to digest two rounds of TARP at $350 billion each, an $825 billion stimulus package, and a $3 trillion plus "Good Bank, Bad Bank" plan, you wouldn't think this would need to be explained. The $4 billion payout to Merril Lynch employees (only a few days before their new owner, Bank of America, had to ask for more TARP money) illustrates the arrogance and greed on Wall Street.

By the way, the $18.4 billion is well below last year, but it's the sixth largest in history, and roughly equal to bonuses paid in 2004 when the stock market was soaring. It seems "pay for performance" is a foreign concept on Wall Street.

Obama really has his work cut out for him.

Good Bank, Bad Bank

2009-01-28T16:20:00.001-06:00

Wall Street, the last bastion of capitalism, received good news today. The markets (especially financial stocks) soared following reports that the Obama administration is giving strong consideration to the so-called "Good Bank, Bad Bank" alternative to the financial crisis.

The idea is fairly simple. Remove all the bad assets from the banks and "sell" them to someone at prices well above the current market prices. You can guess who'll be buying the toxic assets. Think of it as a TARP (Troubled Asset Relief Program) on steroids.

The premise is that banks will take advantage of the instant improvement in their balance sheets, and increase lending. Of course, all the evidence from the first $350 billion TARP installment is that it won't actually increase lending, and the banks will continue to hoard the cash.

The estimated loss to taxpayers is somewhere in the $3 trillion to $4 trillion range. Details are sketchy at this point, and it's not clear what, if anything, taxpayers will get in return. This is really not a new idea, and was considered when the Bush administration proposed the first TARP program. The critical question then and now: how much above the market value of these assets will the government pay?

It's really not much different than nationalizing the banks, except taxpayers don't get to keep the "good bank" capital or assets, which virtually guarantees a massive loss. More important to Wall Street, those who own bank bonds and stock have their assets preserved, which would not be the case if the banks were allowed to fail. Essentially, this is a direct subsidy to stock and bondholders.

Naturally, Wall Street thinks this is a great idea: the solution of "privatizing gains, but socializing losses" is even better than real capitalism.

I hope President Obama can find a better solution.

It Ain't Kansas

2009-01-26T16:18:00.001-06:00

Republican Congressman Todd Tiahrt (Kansas) acted just in time to have the "no jet" provision removed from the second TARP Bill, saying it "would place in jeopardy well-paying jobs in Wichita and across our industry and significantly also tarnish our image of business aviation."

So he must feel satisfied that his efforts came just in time for the largest recipient of TARP funds and loan guarantees, Citigroup. Today it was revealed that Citi is adding a brand new Dassault Falcon 7X for $50 million to its fleet of corporate jets.

Apparently, Citi is not only "too big to fail," they are also "too big to fly commercial." No word yet from Republican Senator Richard Shelby (Alabama) who gave the automakers such a beating that they drove into Washington DC last month, and have since announced plans to sell all their jets.

It's also worth noting that the almost $400 billion in financial assistance to Citigroup is quite a bit larger than the $17.4 billion package extended to the Big 3 automakers combined.

The workers in Merignac, France where the Dassault Falcon 7X is built would like to thank Rep. Tiahrt, the Republican Party, and the American taxpayers for their generosity.

Arrogance and Stupidity

2009-01-25T06:32:00.000-06:00

Arrogance....

These days, it takes a lot to draw the attention of the media, but news of former Merrill Lynch CEO John Thain's excessive spending on decorating his office was too much to resist, especially since this is (indirectly) now taxpayer money. So here are just a few things he bought with your money:

$87,000 for an area rug.
$87,000 for a pair of guest chairs
$68,000 for a 19th Century Credenza
$35,000 for a "commode on legs"
$1,500 for a parchment waste can

Add on another $800,000 to hire famed celebrity designer Michael Smith, and you come up with $1.22 million.

Thain took the helm of Merrill Lynch on December 1, 2007 for an $83.8 million pay package (ranking him # 8 in Fortune's 2007 list of the 25 best paid executives in America), and while he wasn't decorating his office managed to lay off 4,200 workers in his first six months on the job.

During Thain's year at Merrill, they lost about $40 billion and wiped out 80% of shareholder equity, but in the Wall Street version of "pay for performance" this means bonuses! Amid public criticism, Thain abandoned his initial request for a $10 million bonus, but was able to sneak through $4 billion in bonuses for other employees a month early, to avoid any questions being asked by Merrill's new owner, Bank of America.

Stupidity....

It apparently never occurred to Bank of America CEO Ken Lewis to ask more about Merrill's toxic mortgages before offering to buy the company last September, but by mid-December he was getting nervous.

It seems Merrill was now estimating losses of $21 billion in the final three months of the year and forgot to mention it. Maybe this wasn't such a good deal after all. BofA only learned this after the December 5 shareholder vote to approve the deal, but they could walk away from the deal, which was scheduled to close on January 1, 2009.

His only other alternative was to find someone foolish enough to take this mess off his hands. So he flew out to Washington to talk to Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson, who provided assurances that BofA would be moved to the front of the bailout line.

In mid-January, we learned that the Federal government had committed to provide an additional $20 billion in TARP funds on top of the $25 billion BofA already received, and guarantee 90% of an additional $118 in bad assets. BofA's shareholders have now lost more than 80% of the value of their stock at the time the Merrill deal was announced.

No Congressional hearings. None of the political posturing about excessive union wages the automakers had to endure last month. Just a behind the scenes deal by the Bush administration that was revealed to the general public more than a month later.

So, indirectly, taxpayers are paying for John Thain's $35,000 commode, $4 billion in bonuses to Merrill employees, and a lot more.

So who's stupid here? As they say in poker - if you don't know who the sucker is, it's you.

Trickle Down Bailouts

2008-12-11T17:11:00.000-06:00

Not surprisingly, yesterday's report from the Government Accountability Office (GAO) was highly critical of the use of funds from the Troubled Asset Relief Program (TARP).

Apart from the fact that the $350 billion initial fund was not used as intended (to buy mortgages and mortgage-related assets), it's now obvious to everyone (including the GAO) that the TARP has been a total failure.

Treasury Secretary Hank Paulson apparently decided to take advantage of the loosely worded legislation that enabled the TARP (Emergency Economic Stabilization Act of 2008) to use the money in whatever way he chose; which means passing it out to his buddies on Wall Street.

No dragging the CEO's before Congress to be interrogated. No requirement that the CEO's agree to work for no compensation. No questions about whether they flew or drove to the hearings. No insistence that they provide elaborate business plans to show how they will use the funds.

So after an initial $25 billion bailout, Citigroup made a phone call to get another $20 billion a couple of weeks ago, along with FDIC (not TARP) protection on $306 billion of "problem loans." Insurance giant AIG picked up $85 billion, followed by another $37.8 billion, and then additional funds bringing the total up to $152.5 billion. Yesterday, AIG disclosed that they face another $10 billion in losses from speculative trades that "haven't been explicitly detailed before," according the Wall Street Journal.

None of this has done anything to address underlying causes, such as falling home values and mortgage defaults. It's classic "trickle down" economics; pour enough money into financial institutions and eventually some of it will trickle down to the homeowner facing foreclosure. Except it hasn't worked, prompting the White House to ask banks last week to stop hoarding cash.

The failure of the TARP led to additional actions that bring the total direct and indirect financial obligations the government has assumed to well over $7.8 trillion.

Congress has learned its lesson, and is determined to make an example of someone. So they're putting automakers through the wringer. At this point, it looks like the proposed bailout of the automakers will drag on for at least a couple more days and, at best, the automakers may receive loans totaling $15 billion.

If Congress doesn't extend the loans, the result will be lost jobs (as high as 6 million by some estimates). This, of course, will lead to more mortgage foreclosures and trillions more in bank bailouts. It doesn't make sense, except in the fantasy world of "trickle down" economics.

Maybe the automakers should ask Citigroup if they can "trickle down" 5 percent or so of the bailout they received to keep 6 million workers employed.

The Mother of All Bailouts

2008-11-24T15:23:00.000-06:00

Sunday night's announcement of another bailout of Citigroup came as no surprise, but the potential size goes beyond anything we've seen up to this point. It also stretches the finances of our government to the breaking point.

The deal adds another $20 billion from the Troubled Asset Relief Program (TARP). This is on top of the $25 billion they got last month. The expensive part, however, is the government's agreement to protect a $306 billion pool of Citi's "troubled assets," by paying for 90% of losses in excess of $29 billion.

This required contribution from several government agencies, and creates a real threat to the finances of our government. Under terms of the deal, the government's share of the $306 billion will be paid by Treasury ($5 billion), the FDIC ($10 billion), and the remainder by the Federal Reserve.

The Federal Reserve is already highly leveraged, and "if the Federal Reserve Bank were a commercial lender, it would be a candidate for receivership, based on its capital ratios," according to an article in Barron's this past weekend. The Citigroup agreement only makes matters worse.

Bush was enthusiastic in his support of the plan this morning, saying "The first step for recovery is to safeguard our financial system." Referring to the Citigroup rescue, Bush said "We have made these kind of decisions in the past. We made one last night and if need be we will make these kind of decisions to safeguard our financial system in the future."

So, after the spectacle of having the CEO's of GM, Ford, and Chrysler appear before Congress last week, we have a quick weekend deal behind closed doors that will cost far more than the $25 billion requested by the automakers. With the Citigroup bailout, there aren't 2.5 million jobs involved, but some things are more important than rising foreclosures and unemployment.

As it turns out, Bush's "trickle down" ideology applies to government bailouts as well as tax cuts for the wealthy. Citi's largest shareholder, Saudi Prince Alwaleed bin Talal, expressed his appreciation, saying "following that action Citi is now 'well-capitalized.'" The value of the Saudi Prince's holdings went up by more than $500 million today.

Not bad for a non-union worker.