Many of the headlines over the past week read “Confirm Geithner or Else!” As corruption in Washington continues to run amuck, “too big to fail” seems to be the excuse to overlook past and current wrongdoings.
Tim Geithner is now too big to fail. The economic crisis is too dangerous to let a man who is too big to fail sit on the sideline. Geithner must be “Superman.” He must have powers that are extraterrestrial, as there is no one else in the financial sector that has the ability to put the economy back on track again according to President Obama and members in the Senate who approved of his nomination.
Well folks, all I can say is if you liked the way the economic crisis has been handled under the Bush Administration, you will no doubt be thrilled with what’s to come. For those who expected change, brace yourselves for a difficult dose of reality. Real change would have been a free-market solution. Instead, Geithner will continue policy that will further erode the free market and expand the power of the government.
Tim Geithner has not sat idly on the sidelines for the past year. He has already had extensive involvement in the government’s response to the financial mayhem. Based on Geithner’s record, he seems to think that bailouts are the solution. He advocated the rescue of Bear Stearns and played a key role in the rescues of American International Group (AIG), Bank of America and Citigroup. It’s a good thing that top executives in these companies put the funds to good use. AIG felt lavish executive retreats were necessary. Bank of America paid huge bonuses to Merrill Lynch executives. Citigroup partnered with the New York Mets baseball team by paying a $400 million naming-right expenditure to call the stadium where the Mets play “Citi Field.” Some may rightfully argue the cost/benefit of such a decision, and it would be a legit argument if the company did not receive federal money. Besides, I thought the credit markets were frozen!
Based on the testimony Geithner gave at his confirmation hearing, I am left wondering what exactly those “superpowers” are.
Geithner said, “Senators, the ultimate costs of this crisis will be greater, if we do not act with sufficient strength now. In a crisis of this magnitude, the most prudent course is the most forceful course.” He says Obama’s stimulus plan “will meet that test.” (1)
It is interesting that the scare tactics continue in an effort to give the government an excuse to spend trillions of dollars and hold stakes in our largest banks; when in reality, this “crisis” isn’t even close to what was experienced in the 1970’s. Has Geithner seen Obama’s stimulus plan? Perhaps he could explain how the same tax incentives that were part of Bush’s plan last year and the massive government spending that includes handouts to states to fund safety-net programs as well as free contraceptives would stimulate the economy. The aim is to stimulate the economy isn’t it? It’s possible that Speaker Pelosi was thinking about a different kind of stimulation…
Geithner mentions the Senate’s passage of the second Troubled Asset Relief Program (TARP) tranche, but says “we have to fundamentally reform this program” to ensure there’s enough credit to support the recovery. He also says the nation needs “investments” in infrastructure, a strategy “to get us back as quickly as possible to a sustainable fiscal position” and then “comprehensive financial reform” so the world will “never again face a crisis of this severity.” (1)
It seems that Citigroup didn’t have a problem getting credit. Nowhere in his testimony does Geithner mention repeal of the Community Reinvestment Act – the act which played a key role in the housing debacle. This act forced banks through government mandates to loan money to people who could not afford to repay which led to the birth of the subprime mortgage market. Instead of overusing the word “crisis,” his plan should focus on transparency and prudent lending standards.
Geithner may not wish to tip his hand at the moment, but I would expect to see proposed changes to the Financial Accounting Standards Board Statement Number 157 which has failed in the attempt to value illiquid assets and has earned the phrase “mark-to-make-believe accounting.”
As for infrastructure spending…there is an idea that’s never been tried before. His expertise in economics should reveal to him that most of the benefits of infrastructure spending are delayed and could take effect during an inflationary period. In addition, the money is rarely used for what it was intended, and we don’t see real economic growth when the government spends money. History has proven that the government cannot spend the country out of recession. This kind of spending can make our dollar worthless, however!
Geithner’s responsibilities also include oversight of the Internal Revenue Service (IRS). It is comical that we entrust a person who has evaded taxes to be in charge of the IRS. Geithner claims his mistakes were innocent. However, if they were innocent, should America have confidence in a man who has difficulty using Turbo Tax (a software that people with no accounting/financial background can easily use), has difficulty understanding IRS Publication 503, and doesn’t realize he has to pay Social Security tax, Medicare tax and employed an immigrant housekeeper who lacked proper work papers?
In summary, Geithner’s appointment further illustrates that there is no real change in Washington. In addition to Geithner’s tax problems, there is a very questionable record of “expertise.” He’s played a pivotal role in managing TARP funds. It’s quite clear that the first half of TARP funds were misspent. As President of the New York Federal Reserve Bank, his supervision of corporate giants like Citigroup was questionable. Although Geithner talked about holding such institutions to the highest regulatory standards, the record shows that New York Fed relaxed the standards as the company bet big on subprime mortgages and had massive risk exposure to other perilous investments.
So why is it that we have so much confidence in people such as Geithner to fix a problem when they have shown poor judgment and played a role in causing the problem? Answer: the elite financial club has its benefits.
(1) http://blogs.wsj.com/economics/2009/01/21/live-blogging-tim-geithners-confirmation-hearing/
This column is also cross posted at our new website: http://www.conservativetoday.org/
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Tuesday, January 27, 2009
Tuesday, January 20, 2009
Obama’s Coronation
Today, people in all parts of the political spectrum should briefly set aside politics and reflect on the moment in history Obama’s inauguration represents. His victory represents a significant movement towards an end to racial divides. For that reason, everyone can be proud of America for the great strides that have been made over the past four decades to allow this moment in history. However, as historic as this inauguration is, it is possible to go overboard. It is as equally important to not lose sight of the growing problems facing America.
The manner in which the media has portrayed Obama would lead one to believe that the coronation of a monarch was taking place in America as opposed to swearing in its 44th President. The masses couldn’t be happier. People have gone to great lengths to be a part of this historic event. From school closings and vacation days from the jobs that they once feared they would lose to opening up tight budgets to allot for the purchase of all of that special Obama paraphernalia. The most expensive inauguration in America’s history (makes Sarah Palin’s $150,000 wardrobe look like pocket change) would lead one to believe that the economy may be recovering. If only that were the case…
The day after Obama’s victory, I wrote a column titled “America’s Impending Hangover: How it’s Love Affair with Obama Will Be Short-lived.” Today’s inauguration will mark the peak of “Obamamania.” It is now time for him to deliver on the mountain of promises in which he campaigned. He has roughly one year to blame George W. Bush. However, after that time period, the Kool-aid will run out; and people will expect results. Let’s go through some of the highlights of Obama’s promises, and the ones he has already broken…
Foreign Policy
I predicted that this would be the area in which Obama would deviate off his campaign rhetoric the most. Remember his promises to end the Iraq war? Remember how he said he would begin withdrawing troops on his first day in office? We’ve gone from that analogy to his retention of Robert Gates as Secretary of Defense – whose team he harshly criticized throughout the campaign. Obama never acknowledged that the surge allowed exactly what he wished – a responsible transition to the Iraqi army. One had to dig deep for this information, as the mainstream media would never report any kind of success in Iraq. However, the media will be changing its tune shortly on this topic in order to give Obama credit for the victory in Iraq – something that was well in hand long before he took office. For all of you anti-war folks out there - don’t be too disappointed when he escalates the war in Afghanistan. That’s one promise I believe he’ll keep.
Obama’s pledge to close Guantánamo Bay is sheer political rhetoric to please his left-wing constituents that donated big money to his campaign. The bottom line is he cannot close this camp without a plan for its detainees. What kind of a plan could be devised on our soil to incarcerate suspected militant combatants - dangerous enough to the point where their home country will not take them back? Obama knows if he leans too far left on matters of national security, and America suffers an attack under his watch; the love affair is over. He has a second term to think about.
Economic Policy
In my last column, I have already outlined the major flaws in Obama’s so called stimulus plan. In this column, I’ll focus more on what is absent from the plan that should be part of that plan.
Let’s begin with the housing debacle. Nowhere do I see a call to repeal the Community Reinvestment Act.
- The act that forced lending institutions to loan money to people who had no financial means to repay (so much for the deregulation argument)
- The act that artificially drove the cost of housing “through the roof” by adding droves of buyers to a market in which they did not belong
- The act that is largely responsible for the rapidly declining housing prices and foreclosures
Stay tuned for a more detailed analysis, as this topic deserves a separate column.
The number keeps changing, but as it stands now, Obama plans to create 3 to 4 million new jobs within the first two years of his presidency. Last I checked, the private sector creates jobs; and the government makes it more difficult, but we’ll roll with this for illustration purposes. If we go with the conservative estimate of 3 million, that’s roughly 4,110 new jobs per day. Our unemployment rate is currently 7.2 percent. If we net 28,770 new jobs per week, he’ll have that number back down to a stable 5 percent in no time! If that is the case, then there is no need to extend unemployment benefits, as it would be counter productive.
Obama has championed the age-old failed tactic of borrowing and spending to prosperity. It’s never worked in the past; it’s not going to work now. Instead of multi-billion dollar bailouts for individual states, the banking industry and other failed politically connected businesses, absent are reduced tax rates and government spending. Real change would have been proper implementation of supply side economics which has NEVER been done. President Reagan was close; but he failed to restrain government spending and reduce the size of government to sustain long-term success.
In summary, our new President has come to a crossroad. In order to be successful and continue to ride the wave of adoration and idolization, he must abandon his extreme left-wing ideology. Otherwise, when the world feels the effect of America’s 1+ trillion dollar deficits, this “slobbering love affair” (as Bernie Goldberg accurately describes it) will soon be over.
The manner in which the media has portrayed Obama would lead one to believe that the coronation of a monarch was taking place in America as opposed to swearing in its 44th President. The masses couldn’t be happier. People have gone to great lengths to be a part of this historic event. From school closings and vacation days from the jobs that they once feared they would lose to opening up tight budgets to allot for the purchase of all of that special Obama paraphernalia. The most expensive inauguration in America’s history (makes Sarah Palin’s $150,000 wardrobe look like pocket change) would lead one to believe that the economy may be recovering. If only that were the case…
The day after Obama’s victory, I wrote a column titled “America’s Impending Hangover: How it’s Love Affair with Obama Will Be Short-lived.” Today’s inauguration will mark the peak of “Obamamania.” It is now time for him to deliver on the mountain of promises in which he campaigned. He has roughly one year to blame George W. Bush. However, after that time period, the Kool-aid will run out; and people will expect results. Let’s go through some of the highlights of Obama’s promises, and the ones he has already broken…
Foreign Policy
I predicted that this would be the area in which Obama would deviate off his campaign rhetoric the most. Remember his promises to end the Iraq war? Remember how he said he would begin withdrawing troops on his first day in office? We’ve gone from that analogy to his retention of Robert Gates as Secretary of Defense – whose team he harshly criticized throughout the campaign. Obama never acknowledged that the surge allowed exactly what he wished – a responsible transition to the Iraqi army. One had to dig deep for this information, as the mainstream media would never report any kind of success in Iraq. However, the media will be changing its tune shortly on this topic in order to give Obama credit for the victory in Iraq – something that was well in hand long before he took office. For all of you anti-war folks out there - don’t be too disappointed when he escalates the war in Afghanistan. That’s one promise I believe he’ll keep.
Obama’s pledge to close Guantánamo Bay is sheer political rhetoric to please his left-wing constituents that donated big money to his campaign. The bottom line is he cannot close this camp without a plan for its detainees. What kind of a plan could be devised on our soil to incarcerate suspected militant combatants - dangerous enough to the point where their home country will not take them back? Obama knows if he leans too far left on matters of national security, and America suffers an attack under his watch; the love affair is over. He has a second term to think about.
Economic Policy
In my last column, I have already outlined the major flaws in Obama’s so called stimulus plan. In this column, I’ll focus more on what is absent from the plan that should be part of that plan.
Let’s begin with the housing debacle. Nowhere do I see a call to repeal the Community Reinvestment Act.
- The act that forced lending institutions to loan money to people who had no financial means to repay (so much for the deregulation argument)
- The act that artificially drove the cost of housing “through the roof” by adding droves of buyers to a market in which they did not belong
- The act that is largely responsible for the rapidly declining housing prices and foreclosures
Stay tuned for a more detailed analysis, as this topic deserves a separate column.
The number keeps changing, but as it stands now, Obama plans to create 3 to 4 million new jobs within the first two years of his presidency. Last I checked, the private sector creates jobs; and the government makes it more difficult, but we’ll roll with this for illustration purposes. If we go with the conservative estimate of 3 million, that’s roughly 4,110 new jobs per day. Our unemployment rate is currently 7.2 percent. If we net 28,770 new jobs per week, he’ll have that number back down to a stable 5 percent in no time! If that is the case, then there is no need to extend unemployment benefits, as it would be counter productive.
Obama has championed the age-old failed tactic of borrowing and spending to prosperity. It’s never worked in the past; it’s not going to work now. Instead of multi-billion dollar bailouts for individual states, the banking industry and other failed politically connected businesses, absent are reduced tax rates and government spending. Real change would have been proper implementation of supply side economics which has NEVER been done. President Reagan was close; but he failed to restrain government spending and reduce the size of government to sustain long-term success.
In summary, our new President has come to a crossroad. In order to be successful and continue to ride the wave of adoration and idolization, he must abandon his extreme left-wing ideology. Otherwise, when the world feels the effect of America’s 1+ trillion dollar deficits, this “slobbering love affair” (as Bernie Goldberg accurately describes it) will soon be over.
Wednesday, January 7, 2009
Obama's $800 Billion "Bridge to Nowhere"
Change we can believe in? For those who believed that “change” was coming to Washington, the details of Obama’s economic stimulus plan will be very disappointing. It turns out that “Obamanomics” is nothing more than a continuance of the failed economic policies of the past. What a surprise! Does the President-elect know that the change from “tax and spend” to “tax cut and spend” has been the type of “change” that the Bush Administration enacted? All throughout the campaign, Obama pledged not to continue the “failed policies of George W. Bush.” Now, he’s stealing a page right out of Bush’s fiscal policy. Let’s go through the details…
We’ll begin with the tax proposals. Obama’s plan includes the following: On the individual side, he proposes a $500 individual tax credit ($1,000 for couples). On the business side, the proposal consists of an extension of the Net Operating Loss (NOL) carryback feature to 5 years (currently 2 years), tax credits to businesses that create jobs or avoid layoffs, increasing the amount that allows small businesses to write off a wide range of expenditures up to $250,000 (currently $175,000) and doubling the renewable energy tax credit.
Fiscal conservatives understand that tax cuts only work when they are coupled with spending restraints – not when they are used as an inducement to win bipartisan support. Speaking of inducement; when the tax code is used to encourage behavior, the result is never what was intended.
The problem with Obama’s individual tax credits is 1) checks of this nature were part of the Bush plan in early 2008, which failed to “stimulate” the economy; and 2) if this credit is made a permanent part of the tax code, many of the recipients are people who already have no federal income tax liability which basically makes it a form of welfare.
On the business side, there is a catch to the NOL carryback feature. Write-offs are retroactive to expenditures made as of January 1, 2009. In other words, businesses have to invest the money in order to receive the credit. The problem with giving tax credits to businesses that hire or avoid layoffs is that businesses who were already planning on hiring will be the only ones to benefit from the credit. Troubled businesses that are forced to let workers go will not be saved by a small tax credit. Chalk this up to Obama’s lack of private sector experience. Apparently, he hasn’t looked into the costs of TOTAL compensation for a worker.
Many of these tax credits are nothing more than extensions of the credits already enacted by the Bush Administration, yet we were led to believe that John McCain was Bush’s third term! In all seriousness, it is most unfortunate that the Obama Administration will not play the card that the Bush Administration missed – addressing the fact that the United States has the SECOND HIGHEST corporate income tax rate in the world. Instead of playing games with tax credits that have ridiculous stipulations, reducing the corporate income tax rate would bring relief to ALL sectors of business while simultaneously encouraging business to come back to the United States. More businesses in the United States leads to job opportunities and will curtail jobs being lost to tax-friendly overseas environments. In addition, businesses would have fresh capital to grow and expand.
Moving on to the spending side of this turkey….
Most of the spending in Obama’s plan is nothing more than welfare to individual states. Up to $200 billion is being proposed to expand the federal share of Medicaid which makes one wonder exactly how that will stimulate the economy. A majority of the remainder will be used to spur the growth of federal infrastructure spending. When was the last time infrastructure spending has pulled the economy out of recession? Another problem with infrastructure spending is that the money is rarely spent on what it was intended. When money of this nature is allocated to states, it’s time for politicians to become famous. It’s time for a new community center or a face lift for a school. There is no political publicity in road and bridge repair. Besides, if they actually were fixed, then it removes politicians’ ability to complain that there is a lack of funding! Lastly, infrastructure spending does not happen immediately as there are numerous federal mandates (government red tape) that require strict compliance. It is very likely that the economy could be in an inflationary expansion period by the time the spending proposals take effect.
In short, the Obama plan grossly misses the mark. In addition, the $800 billion price tag is abhorrently understated. Obama’s plan will end up well over the $1 trillion mark if Congress approves. Reckless government spending at a time where our national debt is creeping up to 70 percent of our gross domestic product can make the last bout of inflation look mild. Let's not forget that "crisis" is a friend of the state. The scare tactics being used as a means to inject billions of dollars of "artificial" money into the economy will only pave the road for bigger problems in the future.
We’ll begin with the tax proposals. Obama’s plan includes the following: On the individual side, he proposes a $500 individual tax credit ($1,000 for couples). On the business side, the proposal consists of an extension of the Net Operating Loss (NOL) carryback feature to 5 years (currently 2 years), tax credits to businesses that create jobs or avoid layoffs, increasing the amount that allows small businesses to write off a wide range of expenditures up to $250,000 (currently $175,000) and doubling the renewable energy tax credit.
Fiscal conservatives understand that tax cuts only work when they are coupled with spending restraints – not when they are used as an inducement to win bipartisan support. Speaking of inducement; when the tax code is used to encourage behavior, the result is never what was intended.
The problem with Obama’s individual tax credits is 1) checks of this nature were part of the Bush plan in early 2008, which failed to “stimulate” the economy; and 2) if this credit is made a permanent part of the tax code, many of the recipients are people who already have no federal income tax liability which basically makes it a form of welfare.
On the business side, there is a catch to the NOL carryback feature. Write-offs are retroactive to expenditures made as of January 1, 2009. In other words, businesses have to invest the money in order to receive the credit. The problem with giving tax credits to businesses that hire or avoid layoffs is that businesses who were already planning on hiring will be the only ones to benefit from the credit. Troubled businesses that are forced to let workers go will not be saved by a small tax credit. Chalk this up to Obama’s lack of private sector experience. Apparently, he hasn’t looked into the costs of TOTAL compensation for a worker.
Many of these tax credits are nothing more than extensions of the credits already enacted by the Bush Administration, yet we were led to believe that John McCain was Bush’s third term! In all seriousness, it is most unfortunate that the Obama Administration will not play the card that the Bush Administration missed – addressing the fact that the United States has the SECOND HIGHEST corporate income tax rate in the world. Instead of playing games with tax credits that have ridiculous stipulations, reducing the corporate income tax rate would bring relief to ALL sectors of business while simultaneously encouraging business to come back to the United States. More businesses in the United States leads to job opportunities and will curtail jobs being lost to tax-friendly overseas environments. In addition, businesses would have fresh capital to grow and expand.
Moving on to the spending side of this turkey….
Most of the spending in Obama’s plan is nothing more than welfare to individual states. Up to $200 billion is being proposed to expand the federal share of Medicaid which makes one wonder exactly how that will stimulate the economy. A majority of the remainder will be used to spur the growth of federal infrastructure spending. When was the last time infrastructure spending has pulled the economy out of recession? Another problem with infrastructure spending is that the money is rarely spent on what it was intended. When money of this nature is allocated to states, it’s time for politicians to become famous. It’s time for a new community center or a face lift for a school. There is no political publicity in road and bridge repair. Besides, if they actually were fixed, then it removes politicians’ ability to complain that there is a lack of funding! Lastly, infrastructure spending does not happen immediately as there are numerous federal mandates (government red tape) that require strict compliance. It is very likely that the economy could be in an inflationary expansion period by the time the spending proposals take effect.
In short, the Obama plan grossly misses the mark. In addition, the $800 billion price tag is abhorrently understated. Obama’s plan will end up well over the $1 trillion mark if Congress approves. Reckless government spending at a time where our national debt is creeping up to 70 percent of our gross domestic product can make the last bout of inflation look mild. Let's not forget that "crisis" is a friend of the state. The scare tactics being used as a means to inject billions of dollars of "artificial" money into the economy will only pave the road for bigger problems in the future.
Thursday, December 18, 2008
The Governor of New York’s “Obesity Tax” – The Absence of Logic and Freedom
The age of credit, bizarre monetary policy and the power of the Federal Reserve have given way to incredible levels of fiscal irresponsibility in all levels of government. State governments now have huge budget deficits which have led to ridiculous proposals such as Governor David Paterson’s “obesity tax.” Bad economic policy has now allowed the government to broaden its horizon to levy taxes on “goodies.” The governor’s proposals also include higher taxes on gasoline, taxi rides, bridge tolls, cable and satellite TV services, cigars, beer, movie and sports event tickets, music downloads (aka the “Ipod" tax), health clubs and spas and much more.
While all these taxes are outrageous and quite indicative of classic liberal “tax and spend” policies, the focus of this column will be on the “obesity tax” because this type of tax leads to a problem far more perplexing than archetypal liberal fiscal policy.
Nutritionists’ efforts to increase awareness and encourage healthy lifestyles are praiseworthy. However, their efforts become misguided when suggestions of a tax are touted. The result leads to a loss of individual freedom and erroneous taxes, as taxes should not be levied to encourage or discourage certain kinds of behavior.
The governor’s proposal will levy an 18 percent tax on soda and other drinks that contain less than 70 percent of real fruit juice. What is next? A “French fry tax?” How about an overall fast food consumption tax? A processed food tax? Taxes on butter? Taxes on meat that is not 95 percent lean? Taxes on pork (a ham tax perhaps?) to offset “pork” barrel spending? The possibilities are endless.
Advocates of the soft drink tax say soft drinks have empty calories, which means there is no nutritional value. While this is a true statement, is it prudent for the government to remove one’s ability to make their own choices? What role do government bureaucrats have in determining what is considered nutrient dense? Where is that line drawn? These are questions that people who are in favor of a national healthcare system must ask themselves.
Crisis is a friend of the state and always comes at the loss of personal and individual freedoms. The Bush Administration has successfully nationalized the banking industry and has laid the groundwork for the largest artificial economic stimulation in America’s history that will be executed by the Obama Administration. One’s freedom to prosper will be in jeopardy when inflation reaches what could be a record high level and further erosion of the dollar sets in which weakens purchasing power.
We now have what is deemed as an “obesity” crisis which calls for the government to step in and levy taxes on unhealthy food products. If the government is going to provide healthcare, it is going to use taxes to discourage unhealthy behavior; and it will eventually extend far beyond a tax on soft drinks.
In conclusion, the government can take care of you for one small price: your freedom.
“Government never takes freedom in one swift move. It regulates and legislates it away, a little at a time– mostly in the name of 'protecting' you.”
–R. E. Bierce
While all these taxes are outrageous and quite indicative of classic liberal “tax and spend” policies, the focus of this column will be on the “obesity tax” because this type of tax leads to a problem far more perplexing than archetypal liberal fiscal policy.
Nutritionists’ efforts to increase awareness and encourage healthy lifestyles are praiseworthy. However, their efforts become misguided when suggestions of a tax are touted. The result leads to a loss of individual freedom and erroneous taxes, as taxes should not be levied to encourage or discourage certain kinds of behavior.
The governor’s proposal will levy an 18 percent tax on soda and other drinks that contain less than 70 percent of real fruit juice. What is next? A “French fry tax?” How about an overall fast food consumption tax? A processed food tax? Taxes on butter? Taxes on meat that is not 95 percent lean? Taxes on pork (a ham tax perhaps?) to offset “pork” barrel spending? The possibilities are endless.
Advocates of the soft drink tax say soft drinks have empty calories, which means there is no nutritional value. While this is a true statement, is it prudent for the government to remove one’s ability to make their own choices? What role do government bureaucrats have in determining what is considered nutrient dense? Where is that line drawn? These are questions that people who are in favor of a national healthcare system must ask themselves.
Crisis is a friend of the state and always comes at the loss of personal and individual freedoms. The Bush Administration has successfully nationalized the banking industry and has laid the groundwork for the largest artificial economic stimulation in America’s history that will be executed by the Obama Administration. One’s freedom to prosper will be in jeopardy when inflation reaches what could be a record high level and further erosion of the dollar sets in which weakens purchasing power.
We now have what is deemed as an “obesity” crisis which calls for the government to step in and levy taxes on unhealthy food products. If the government is going to provide healthcare, it is going to use taxes to discourage unhealthy behavior; and it will eventually extend far beyond a tax on soft drinks.
In conclusion, the government can take care of you for one small price: your freedom.
“Government never takes freedom in one swift move. It regulates and legislates it away, a little at a time– mostly in the name of 'protecting' you.”
–R. E. Bierce
Friday, December 12, 2008
George W. Bush: Czar or President?
Republicans in Congress, who are being closely watched by their constituents, stood their ground and killed the bailout bill for the “Big Three” automakers. Finally, a victory against corporate welfare; and Republicans are acting like conservatives again! Not so fast…
Until today, the Bush administration was opposed to using funds from the Troubled Asset Relief Program (TARP) to aid the ailing auto companies according to a Bloomberg report. “Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry.” This statement is indicative of the Bush administration’s position according to Treasury spokeswoman Brookly McLaughlin.
The last line of President Lincoln’s Gettysburg address states: “and that government of the people, by the people, for the people, shall not perish from the earth.” It seems that the people no longer have a voice in their government. Our elected officials spoke on our behalf, yet President Bush feels he has the power to override the decision.
Bush’s use of the term “czar” is very disconcerting. His administration has presided over government intervention at extraordinary levels in every aspect from national security to the most disturbing involvement in the economic sector. The administration’s intervention in the financial sector has led to forced partial nationalization of nine of America’s largest banks. Billions of dollars have been given to politically connected institutions to jumpstart and continue peculiar monetary policy along with the continued abuse of credit.
As for the auto industry, the government takes a stake by way of the bailout and will appoint the industry with a “car czar.” Why the term czar? Is there an advantage to using the governing style of former Russian emperors? Just who will this car czar be, and what gives him/her the expertise in overseeing such a transaction? A business does not have to look any further than the federal government for examples of gross mismanagement. With the federal debt approaching $11 trillion and deficits that are likely to surpass $1 trillion, the government isn’t the institution to seek cost structure advice. Therefore, how does a person appointed by a President who has presided over the worst monetary policy arguably since the Hoover and FDR administrations going to get the “Big Three” back on track again? Answer: It won’t happen.
We loan the industry the money so they can pay their bills, then what? Without the major changes that I and other writers have outlined in previous columns, the American taxpayers will be at a crossroads again shortly – this time with a $15 billion sunk cost.
The events that have transpired over the latter half of 2008 have fiscal conservatives and free-market advocates in frenzy. True conservatives know that crisis is a friend of the state. Crisis and people’s desperation give the government the power to overrule the will of the people in order to experiment – experiment with trillions of dollars as if it were pennies. As Herbert Hoover laid the groundwork for FDR, George Bush has laid the groundwork for Barack Obama. George Bush has set up the framework for the largest governmental intervention experiment in possibly all of America’s history, as I believe it will surpass the New Deal.
For those fiscal conservatives who still think they have representation in the Republican Party, it is unwise to have blind faith. Don’t be fooled by temporary victories such as the Senate’s. There is no need to be frustrated with Barack Obama or the Democratic Party. Obama will do what he was elected to do and execute the principles his party has always stood for and conservatives have always opposed. After all, it’s not his administration who is agreeing to appoint “car czars,” approved government handouts to select income groups passing it off as “fiscal stimulus” and handed out billions of dollars to irresponsible companies as if it were pocket change.
Sadly, the world will have to see the fallout first before it sees the light…
Until today, the Bush administration was opposed to using funds from the Troubled Asset Relief Program (TARP) to aid the ailing auto companies according to a Bloomberg report. “Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry.” This statement is indicative of the Bush administration’s position according to Treasury spokeswoman Brookly McLaughlin.
The last line of President Lincoln’s Gettysburg address states: “and that government of the people, by the people, for the people, shall not perish from the earth.” It seems that the people no longer have a voice in their government. Our elected officials spoke on our behalf, yet President Bush feels he has the power to override the decision.
Bush’s use of the term “czar” is very disconcerting. His administration has presided over government intervention at extraordinary levels in every aspect from national security to the most disturbing involvement in the economic sector. The administration’s intervention in the financial sector has led to forced partial nationalization of nine of America’s largest banks. Billions of dollars have been given to politically connected institutions to jumpstart and continue peculiar monetary policy along with the continued abuse of credit.
As for the auto industry, the government takes a stake by way of the bailout and will appoint the industry with a “car czar.” Why the term czar? Is there an advantage to using the governing style of former Russian emperors? Just who will this car czar be, and what gives him/her the expertise in overseeing such a transaction? A business does not have to look any further than the federal government for examples of gross mismanagement. With the federal debt approaching $11 trillion and deficits that are likely to surpass $1 trillion, the government isn’t the institution to seek cost structure advice. Therefore, how does a person appointed by a President who has presided over the worst monetary policy arguably since the Hoover and FDR administrations going to get the “Big Three” back on track again? Answer: It won’t happen.
We loan the industry the money so they can pay their bills, then what? Without the major changes that I and other writers have outlined in previous columns, the American taxpayers will be at a crossroads again shortly – this time with a $15 billion sunk cost.
The events that have transpired over the latter half of 2008 have fiscal conservatives and free-market advocates in frenzy. True conservatives know that crisis is a friend of the state. Crisis and people’s desperation give the government the power to overrule the will of the people in order to experiment – experiment with trillions of dollars as if it were pennies. As Herbert Hoover laid the groundwork for FDR, George Bush has laid the groundwork for Barack Obama. George Bush has set up the framework for the largest governmental intervention experiment in possibly all of America’s history, as I believe it will surpass the New Deal.
For those fiscal conservatives who still think they have representation in the Republican Party, it is unwise to have blind faith. Don’t be fooled by temporary victories such as the Senate’s. There is no need to be frustrated with Barack Obama or the Democratic Party. Obama will do what he was elected to do and execute the principles his party has always stood for and conservatives have always opposed. After all, it’s not his administration who is agreeing to appoint “car czars,” approved government handouts to select income groups passing it off as “fiscal stimulus” and handed out billions of dollars to irresponsible companies as if it were pocket change.
Sadly, the world will have to see the fallout first before it sees the light…
Tuesday, December 9, 2008
Rod Blagojevich: Windy City Politics at its Best
December 9, 2008 marks the day the world gets an inside look into Chicago politics. This is not to say that people are unaware of Chicago’s tainted political image, as history has painted that picture very well. However, in lieu of the fact that one of Chicago’s own has just been elected President, people’s memories will be refreshed. Illinois Governor Rod Blagojevich was taken into federal custody this morning apparently before he could go for his morning workout.
“Blago,” as he’s often referred to in Illinois, has left his state in sheer disgrace. For those who haven’t paid attention, below is a summary of the Governor’s corrupt and idiotic policies:
Economic Policy
Far left lunacy is actually a kind description. Perhaps the most famous was his idea of a “gross receipts tax.” For those who have studied basic accounting, yes, you read that correctly. To clarify for those who haven’t, our governor thought it would be a brilliant idea to tax Illinois businesses on revenue BEFORE expenses are deducted. If Blago had a modicum of economic knowledge, he would realize that this type of taxation would not only stifle economic growth, but also increase the price of products and slow job creation. How so? Taxes are a cost to business, which is ultimately passed onto the consumer. Just as materials and labor are factored into the cost of a product, so is a company’s tax burden. When costs increase, business is forced to do more with less, which eventually leads to layoffs, and takes away the ability to use capital to pursue opportunities that lead to growth. A tax of this nature would simply drive business out of the state of Illinois. Why not relocate to neighboring Indiana? In summary, the outcome of a gross receipts tax would mean higher prices for consumers, less jobs and would ultimately LOWER tax revenue for the government. After all, if business leaves, there will be no tax to levy. Perhaps politicians at the federal level will take note of this and rethink our federal corporate income tax rate.
More recently, Blago threatened Bank of America by saying that the state would halt its dealings with the bank because it recently canceled a credit line to Republic Windows & Doors, a local factory on the verge of bankruptcy. Seeing that the current credit crisis stemmed from banks being required to comply with federal mandates that forced them to loan money to people who could not afford to repay, it’s not exactly a stellar idea that politicians use this kind of leverage to force lending institutions into making unwise decisions. Some politicians never learn, do they? Does this sound like extortion?
Corruption
Speaking of extortion, let’s move on to what has brought about the federal charges Blago is currently facing.
Instead of working on a plan to replace President-elect Obama’s vacant Senate seat with someone who is qualified, he thought it would be better to auction it off to the highest bidder. Why not enlist it on EBay?!
Blago also threatened to illegally withhold state aid to the currently ailing Chicago Tribune on the sole basis that the newspaper’s editorial writers weren’t saying very nice things about him. He demanded that these writers be fired in order to receive aid. Since I do not receive state aid, I’ll continue on…..
One of the most famous plays in Chicago’s corrupt political playbook is the famous “pay-to-play” politics. If you are a contractor looking to do business with the state government, Blago will throw work your way in exchange for a campaign donation. The deeper your pockets, the more business you receive.
One can only wonder what more will be uncovered as the Feds begin to build their case. Plenty has already been caught on tape.
Illinois residents are left to wonder if the corruption will ever end. As comical as is sounds, Blago was brought in with the intent to end corruption. He replaced former Governor George Ryan who is currently serving a six-year prison sentence (currently seeking a pardon) on charges of racketeering and fraud. Instead, the corruption continues, and Blago enjoys the lowest governor approval rating in over three decades according to Chicago Tribune polls.
Blago joins a long list of Illinois politicians who have been tied to scandals. While President-elect Obama has not been charged with any wrongdoing in the midst of this controversy, he is cut from the same cloth of the corrupt Chicago political machine and shares many of the same political connections (Rahm Emanuel and Tony Rezko, for example). It would be unfair to accuse one political party of corruption, as both Democrats and Republicans have been convicted of crimes; however, the media has done a very good job downplaying the depth of corruption that plagues Chicago politicians. Obama faces an uphill battle in the eyes of those all too familiar with “Windy City” politics.
“Blago,” as he’s often referred to in Illinois, has left his state in sheer disgrace. For those who haven’t paid attention, below is a summary of the Governor’s corrupt and idiotic policies:
Economic Policy
Far left lunacy is actually a kind description. Perhaps the most famous was his idea of a “gross receipts tax.” For those who have studied basic accounting, yes, you read that correctly. To clarify for those who haven’t, our governor thought it would be a brilliant idea to tax Illinois businesses on revenue BEFORE expenses are deducted. If Blago had a modicum of economic knowledge, he would realize that this type of taxation would not only stifle economic growth, but also increase the price of products and slow job creation. How so? Taxes are a cost to business, which is ultimately passed onto the consumer. Just as materials and labor are factored into the cost of a product, so is a company’s tax burden. When costs increase, business is forced to do more with less, which eventually leads to layoffs, and takes away the ability to use capital to pursue opportunities that lead to growth. A tax of this nature would simply drive business out of the state of Illinois. Why not relocate to neighboring Indiana? In summary, the outcome of a gross receipts tax would mean higher prices for consumers, less jobs and would ultimately LOWER tax revenue for the government. After all, if business leaves, there will be no tax to levy. Perhaps politicians at the federal level will take note of this and rethink our federal corporate income tax rate.
More recently, Blago threatened Bank of America by saying that the state would halt its dealings with the bank because it recently canceled a credit line to Republic Windows & Doors, a local factory on the verge of bankruptcy. Seeing that the current credit crisis stemmed from banks being required to comply with federal mandates that forced them to loan money to people who could not afford to repay, it’s not exactly a stellar idea that politicians use this kind of leverage to force lending institutions into making unwise decisions. Some politicians never learn, do they? Does this sound like extortion?
Corruption
Speaking of extortion, let’s move on to what has brought about the federal charges Blago is currently facing.
Instead of working on a plan to replace President-elect Obama’s vacant Senate seat with someone who is qualified, he thought it would be better to auction it off to the highest bidder. Why not enlist it on EBay?!
Blago also threatened to illegally withhold state aid to the currently ailing Chicago Tribune on the sole basis that the newspaper’s editorial writers weren’t saying very nice things about him. He demanded that these writers be fired in order to receive aid. Since I do not receive state aid, I’ll continue on…..
One of the most famous plays in Chicago’s corrupt political playbook is the famous “pay-to-play” politics. If you are a contractor looking to do business with the state government, Blago will throw work your way in exchange for a campaign donation. The deeper your pockets, the more business you receive.
One can only wonder what more will be uncovered as the Feds begin to build their case. Plenty has already been caught on tape.
Illinois residents are left to wonder if the corruption will ever end. As comical as is sounds, Blago was brought in with the intent to end corruption. He replaced former Governor George Ryan who is currently serving a six-year prison sentence (currently seeking a pardon) on charges of racketeering and fraud. Instead, the corruption continues, and Blago enjoys the lowest governor approval rating in over three decades according to Chicago Tribune polls.
Blago joins a long list of Illinois politicians who have been tied to scandals. While President-elect Obama has not been charged with any wrongdoing in the midst of this controversy, he is cut from the same cloth of the corrupt Chicago political machine and shares many of the same political connections (Rahm Emanuel and Tony Rezko, for example). It would be unfair to accuse one political party of corruption, as both Democrats and Republicans have been convicted of crimes; however, the media has done a very good job downplaying the depth of corruption that plagues Chicago politicians. Obama faces an uphill battle in the eyes of those all too familiar with “Windy City” politics.
Tuesday, December 2, 2008
New Year’s Resolution for Consumers: Add a “Credit” Diet to a Weight Loss Commitment
The government has been non-stop in rewarding irresponsibility. A recession is the perfect excuse for the government to spend trillions of dollars propping up politically connected institutions. Capitalism goes further and further down the drain as the government continues to buy ownership in failed financial institutions. There is no end in sight to reckless government spending as more and more “needy” institutions line up for some cash. Currently, the government has not drawn the line on bailouts. In fact, there are plans for another $500 billion in spending. With China (one of our biggest buyers of Treasury bonds) enacting an enormous stimulus package of its own to the tune of $586 billion, one has to wonder if they will sell their Treasury bonds to finance their own government spending. Investors have turned to the U.S. dollar during these turbulent times, which can induce China to sell. However, upon sale of said securities coupled with insane amounts of government spending, it is very likely that the U.S. dollar will suffer a worse fate than it did in 2007. Don’t get used to those low gas prices just yet…..
The government refuses to learn from history. Government-injected spending has always prolonged the agony and has paved the way for bigger and more costly problems in the future. Over the years, “funny money” has severely weakened consumer purchasing power. What ever happened to the days of buying cars for cash, and a $20,000 mortgage? Answer: the Fed, World Bank and the International Monetary Fund (IMF) bailouts. In addition, these institutions were only interested in protecting large commercial banks. After decades of protection, now they are too big to fail! There’s a reason why small banks are virtually non-existent in your local neighborhood.
The IMF has been bailing out entire countries since the 1940’s. From Mexico to Hungary, Iceland, Pakistan, Tanzania, South Korea, Ukraine … the list goes on. As a result, the world has all of this “funny money” floating around. Currencies are devalued, global inflation sets in; and nations are riddled with debt. With each “crisis,” the price tag for bailouts grows. The Fed dealt with million-dollar crises in the early part of the 20th century. Today, the Fed is dealing with trillion-dollar crises, and the more artificial money the Fed injects into the economy, the more costly bailouts will be in the future.
Some economists are predicting a global financial apocalypse. I don’t believe the future is that dismal, but something does need to change because there will be a point in time where the Fed, IMF and World Bank will no longer be able to supply money to crashing economic sectors and nations. That time is coming soon – possibly in the next 20 to 30 years.
What is the solution? It’s certainly not the government. Rather than treat the disease, the government treats the symptoms. The remedy starts with the consumer. In the coming months, our new President and government officials are going to tell you, the consumer, to SPEND SPEND SPEND! Help is on the way. People in lower-income brackets may even get another $600 check from the government to spend away in order to “boost” the economy. It worked wonders last time, didn’t it? My condolences to all who thought Obama wouldn’t continue Bush’s economic policies.
There IS a solution. Consumers must go on a credit diet. People must learn to exercise some fiscal discipline. The government won’t do it, but consumers can lead the way. People have always been the solution to our nation’s problems, and that will not change. Consumer contractions in spending will force the market to react. Short-term deflation will pale in comparison to the long-term problems that lie ahead if consumers do not force the government to change its economic policy.
For those who have read my columns for some time, there is one message that is constant: BAD ECONOMIC POLICY. You, the consumer, can reverse course by changing your household economic policy:
1) Minimize credit card debt with an ultimate goal of paying off everything that is charged on a monthly basis. All credit cards charge a higher rate of interest depending on the type of card and individual risk. It is impossible to forge ahead when minimum payments comprise a portion of your monthly expenses.
2) Don’t buy too much house! The mentality that a big house = wealthy cannot continue. A home is NOT an investment when you will repay 3 to 4 times what it is worth in mortgage interest alone. In addition, state governments have raised property taxes to the point where one is basically “renting” their house from the government. Owning a home is still the best option. After all, why pay the landlord’s taxes through rent and forego a tax deduction? However, the key is to own a smaller home and avoid a huge tax burden and mortgage.
3) Take advantage of easy-to-use software programs that help with budgeting. Do not live beyond your means. If you are borrowing money for the family vacation, something is severely wrong.
In summary, the consumer needs to kick their addiction to credit. The government will continue to feed into the problem by propping up failed institutions for appeasing the hunger for credit. The only way to reverse course is for the consumer to overcome their addiction. It is a fallacy to believe that the supply of “funny money” is endless. What’s next? Quadrillion dollar bailouts? The government may have killed capitalism, but it cannot destroy the will of the consumer to prosper by making smart credit decisions. Opportunity will always be out there even in the most precarious situations.
The government refuses to learn from history. Government-injected spending has always prolonged the agony and has paved the way for bigger and more costly problems in the future. Over the years, “funny money” has severely weakened consumer purchasing power. What ever happened to the days of buying cars for cash, and a $20,000 mortgage? Answer: the Fed, World Bank and the International Monetary Fund (IMF) bailouts. In addition, these institutions were only interested in protecting large commercial banks. After decades of protection, now they are too big to fail! There’s a reason why small banks are virtually non-existent in your local neighborhood.
The IMF has been bailing out entire countries since the 1940’s. From Mexico to Hungary, Iceland, Pakistan, Tanzania, South Korea, Ukraine … the list goes on. As a result, the world has all of this “funny money” floating around. Currencies are devalued, global inflation sets in; and nations are riddled with debt. With each “crisis,” the price tag for bailouts grows. The Fed dealt with million-dollar crises in the early part of the 20th century. Today, the Fed is dealing with trillion-dollar crises, and the more artificial money the Fed injects into the economy, the more costly bailouts will be in the future.
Some economists are predicting a global financial apocalypse. I don’t believe the future is that dismal, but something does need to change because there will be a point in time where the Fed, IMF and World Bank will no longer be able to supply money to crashing economic sectors and nations. That time is coming soon – possibly in the next 20 to 30 years.
What is the solution? It’s certainly not the government. Rather than treat the disease, the government treats the symptoms. The remedy starts with the consumer. In the coming months, our new President and government officials are going to tell you, the consumer, to SPEND SPEND SPEND! Help is on the way. People in lower-income brackets may even get another $600 check from the government to spend away in order to “boost” the economy. It worked wonders last time, didn’t it? My condolences to all who thought Obama wouldn’t continue Bush’s economic policies.
There IS a solution. Consumers must go on a credit diet. People must learn to exercise some fiscal discipline. The government won’t do it, but consumers can lead the way. People have always been the solution to our nation’s problems, and that will not change. Consumer contractions in spending will force the market to react. Short-term deflation will pale in comparison to the long-term problems that lie ahead if consumers do not force the government to change its economic policy.
For those who have read my columns for some time, there is one message that is constant: BAD ECONOMIC POLICY. You, the consumer, can reverse course by changing your household economic policy:
1) Minimize credit card debt with an ultimate goal of paying off everything that is charged on a monthly basis. All credit cards charge a higher rate of interest depending on the type of card and individual risk. It is impossible to forge ahead when minimum payments comprise a portion of your monthly expenses.
2) Don’t buy too much house! The mentality that a big house = wealthy cannot continue. A home is NOT an investment when you will repay 3 to 4 times what it is worth in mortgage interest alone. In addition, state governments have raised property taxes to the point where one is basically “renting” their house from the government. Owning a home is still the best option. After all, why pay the landlord’s taxes through rent and forego a tax deduction? However, the key is to own a smaller home and avoid a huge tax burden and mortgage.
3) Take advantage of easy-to-use software programs that help with budgeting. Do not live beyond your means. If you are borrowing money for the family vacation, something is severely wrong.
In summary, the consumer needs to kick their addiction to credit. The government will continue to feed into the problem by propping up failed institutions for appeasing the hunger for credit. The only way to reverse course is for the consumer to overcome their addiction. It is a fallacy to believe that the supply of “funny money” is endless. What’s next? Quadrillion dollar bailouts? The government may have killed capitalism, but it cannot destroy the will of the consumer to prosper by making smart credit decisions. Opportunity will always be out there even in the most precarious situations.
Friday, November 28, 2008
America’s Hefty Stimulus Packages: Money Just Might Grow on Trees!
Think back to speeches President Bush gave during spring of 2008 assuring Americans and the rest of the world that the fiscal stimulus package, which gave checks to a select group of taxpayers (lower income people who pay little, if any tax), would keep America out of a recession. We saw the results of this effort in the latter part of the summer – a hemorrhaging Dow Jones Industrial Average and negative third-quarter GDP growth. Remember Bear Stearns, and the assurance to taxpayers that if they bailed them out, it would stop a domino effect of collapsing banks and investment houses? Then came Fannie Mae, Freddie Mac (both partly owned by the government) AIG, Citigroup, Bank of America, Goldman Sachs and many others lining up for federal handouts. The line for free money has now expanded to the auto industry, possibly the airline industry and network television.
On one side, we have the federal government handing out money with little consequence; and on the other side, the recipients of said federal dollars have plenty to spend lobbying the government. These actions give merit to the old saying “money grows on trees.”
All of the financial institutions who received government assistance actively lobby the federal government. As a matter of fact all of these institutions have received a very nice return-on-investment (ROI)*:
On one side, we have the federal government handing out money with little consequence; and on the other side, the recipients of said federal dollars have plenty to spend lobbying the government. These actions give merit to the old saying “money grows on trees.”
All of the financial institutions who received government assistance actively lobby the federal government. As a matter of fact all of these institutions have received a very nice return-on-investment (ROI)*:
While lobbying should not be banned, it is worth noting how much money these cash-flow deprived firms invest in their “best interests.” If America was still a capitalistic society, lobbying would not be an issue. However, when the government decides to bail out poorly run and irresponsible companies from an ROI standpoint, capitalism has given way to a mild form of extortion!
In spite of all that has happened, the spending that the Bush administration has enacted is only a drop in the bucket compared to what the Obama administration plans to spend. Hard to believe, isn’t it? After all, the Bush administration doubled the size of our national debt. Obama initially proposed a plan with a price tag of $175 billion during his campaign. The cost of his package could now easily exceed the Bush/Paulson $700 billion plan. We all know how these plans have their way of “porking up” as they move through Congress. This, of course, does not include the cost of all of the other promises Obama has made: tax cuts for many of whom do not pay federal income tax and healthcare reform, for example.
All through the campaign, Obama convinced voters that a vote for McCain is a vote for a third Bush term. If he represents change, then why does he plan to continue where Bush left off in terms of injecting billions of federal dollars into large corporations that are horribly run and fiscally irresponsible? None of these companies are required to restructure, change their business models, streamline their processes or obtain new leadership. One has to ask how this plan is nothing more than a band-aid. If the aid carries these companies through a recession, what will their position be when inflation sets in and interest rates rise? The absence of a long-term solution is eminent.
The Obama administration doesn’t seem to be too concerned with the fact that our federal deficit will be over $1 trillion after all of the “fiscal stimulus” is enacted. It makes one wonder if money really does grow on trees. This is the change America has elected. Haven’t we seen this before? Does the “New Deal” ring a bell? When has government-injected spending been successful in the past? The harsh reality is that America’s total debt could very well exceed 80% of the nation’s GDP in two years – its highest level in over 60 years.
In spite of all that has happened, the spending that the Bush administration has enacted is only a drop in the bucket compared to what the Obama administration plans to spend. Hard to believe, isn’t it? After all, the Bush administration doubled the size of our national debt. Obama initially proposed a plan with a price tag of $175 billion during his campaign. The cost of his package could now easily exceed the Bush/Paulson $700 billion plan. We all know how these plans have their way of “porking up” as they move through Congress. This, of course, does not include the cost of all of the other promises Obama has made: tax cuts for many of whom do not pay federal income tax and healthcare reform, for example.
All through the campaign, Obama convinced voters that a vote for McCain is a vote for a third Bush term. If he represents change, then why does he plan to continue where Bush left off in terms of injecting billions of federal dollars into large corporations that are horribly run and fiscally irresponsible? None of these companies are required to restructure, change their business models, streamline their processes or obtain new leadership. One has to ask how this plan is nothing more than a band-aid. If the aid carries these companies through a recession, what will their position be when inflation sets in and interest rates rise? The absence of a long-term solution is eminent.
The Obama administration doesn’t seem to be too concerned with the fact that our federal deficit will be over $1 trillion after all of the “fiscal stimulus” is enacted. It makes one wonder if money really does grow on trees. This is the change America has elected. Haven’t we seen this before? Does the “New Deal” ring a bell? When has government-injected spending been successful in the past? The harsh reality is that America’s total debt could very well exceed 80% of the nation’s GDP in two years – its highest level in over 60 years.
Thursday, November 20, 2008
A memo in regard to welfare
One of my academic concentrations is Criminology. Therefore, I feel that it is my duty to approach social issues in today's time, from as much of a Sociological perspective as I can. I am going to start by looking at the issue of welfare and the perceptions of liberals and conservatives regarding this.
As a college student, I have been well-versed in the liberal rhetoric regarding the reasons why we should have a welfare system. Here are a few: There are constraints that do not allow lower class people, especially minorities, to break the bonds of being limited to tertiary jobs where they are limited to less than $21,000 a year. Poor educations in minority neighborhoods combine with a lack of economic opportunities to cause this. Therefore, there needs to be something to help these people along in order for them to survive.
These arguments are liberal 101 when it comes to this issue.
What they fail to account for is the fact that dependency is not going to solve any of the problems they cite as being the cause of this poverty. The only way to get out of poverty is to better yourself through means of education and jobs. In order to get these things, it may take minorities moving out of urban ghettos, much like some have.
Coupled with this, the institution of family must be restored in America. This means we should get rid of programs that reward being single and having multiple children. We must promote the family structure. By doing this, we will be providing positive role models for the youth of America.
Crime is glorified in this culture as well. This needs to stop. I realize that urban culture is unique, but if these people ever want to better their situations they need to stop embracing these things. Crime being viewed as legitimate in lower class areas is merely the result of a culture that doesn't want to work for what it has.
I often hear liberals bash others for stereotyping minorities, but many of these stereotypes have been born from the findings of Sociologists themselves, most of which are liberal in nature. I once read a book entitled "Slim's Table." It is by a sociologist named Mitchell Duneier, and studies a restaurant setting of Valois, where older Black patrons spend much of their time. They are of a lower class, but hold the same stereotypes that others do about the youth in their neighborhood. They are not sympathetic to Republican leaders, but hold many conservative views when it comes to their beliefs about the youth.
My overarching point here, though it may be lost, is that we need to stop compounding problems with methods that seem to be in the best interest of the targets, but really only perpetuate a culture of poverty and violence. Jason Lewis, a local talk radio host put this best for me. He said something to the effect that if Dairy Queen started handing out free hamburgers and shakes to everyone in a neighborhood, people would start believing that they needed them. This is how the welfare system is in America. It does not provide any better benefits than the tertiary sector of jobs, but also provides just enough to where people don't feel the need to rid themselves of it. There has to be a better way.
As a college student, I have been well-versed in the liberal rhetoric regarding the reasons why we should have a welfare system. Here are a few: There are constraints that do not allow lower class people, especially minorities, to break the bonds of being limited to tertiary jobs where they are limited to less than $21,000 a year. Poor educations in minority neighborhoods combine with a lack of economic opportunities to cause this. Therefore, there needs to be something to help these people along in order for them to survive.
These arguments are liberal 101 when it comes to this issue.
What they fail to account for is the fact that dependency is not going to solve any of the problems they cite as being the cause of this poverty. The only way to get out of poverty is to better yourself through means of education and jobs. In order to get these things, it may take minorities moving out of urban ghettos, much like some have.
Coupled with this, the institution of family must be restored in America. This means we should get rid of programs that reward being single and having multiple children. We must promote the family structure. By doing this, we will be providing positive role models for the youth of America.
Crime is glorified in this culture as well. This needs to stop. I realize that urban culture is unique, but if these people ever want to better their situations they need to stop embracing these things. Crime being viewed as legitimate in lower class areas is merely the result of a culture that doesn't want to work for what it has.
I often hear liberals bash others for stereotyping minorities, but many of these stereotypes have been born from the findings of Sociologists themselves, most of which are liberal in nature. I once read a book entitled "Slim's Table." It is by a sociologist named Mitchell Duneier, and studies a restaurant setting of Valois, where older Black patrons spend much of their time. They are of a lower class, but hold the same stereotypes that others do about the youth in their neighborhood. They are not sympathetic to Republican leaders, but hold many conservative views when it comes to their beliefs about the youth.
My overarching point here, though it may be lost, is that we need to stop compounding problems with methods that seem to be in the best interest of the targets, but really only perpetuate a culture of poverty and violence. Jason Lewis, a local talk radio host put this best for me. He said something to the effect that if Dairy Queen started handing out free hamburgers and shakes to everyone in a neighborhood, people would start believing that they needed them. This is how the welfare system is in America. It does not provide any better benefits than the tertiary sector of jobs, but also provides just enough to where people don't feel the need to rid themselves of it. There has to be a better way.
My Response to GM’s “Urgent Message”
If I were in the “Big Three’s” top management, I’d be ASHAMED to send this kind of a letter to customers – pathetically asking for financial aid. As a matter of fact, this is so pitiful; I’ll commit it to a column. My comments are in italics below each paragraph.
Dear Michelle,
Dear under-worked and overpaid GM executive,
You made the right choice when you put your confidence in General Motors, and we appreciate your past support. I want to assure you that we are making our best vehicles ever, and we have exciting plans for the future. But we need your help now. Simply put, we need you to join us to let Congress know that a bridge loan to help U.S. automakers also helps strengthen the U.S. economy and preserve millions of American jobs.
I’m glad you think I made the right choice, but I wish I could say the same for the decisions GM has made over the years. If GM is making their “best vehicles ever,” why are 4 of your 6 brands’ market share rapidly evaporating to your competitors? GMC, Pontiac, Saturn and Buick have not been viable players in the market for quite some time. Exactly what are those exciting plans for the future? I’ve been hearing about all of this good news in your annual reports for the past 10 years – I’m still waiting.
Despite what you may be hearing, we are not asking Congress for a bailout but rather a loan that will be repaid.
Repaid, how? Has GM realized that they cannot continue on the current path? Explain to the taxpayers what changes your company intends to make and convince them that a loan will not simply prolong the inevitable. Chrysler’s Lee Iacocca at least had a sound PLAN… not just a promise of a bright future and to make the “bestest” vehicles ever! He also did not use federal dollars. The government simply guaranteed private loans in exchange for stock warrants. Seeing that Chrysler is now back in the same predicament, why should the taxpayers commit resources AGAIN?
The U.S. economy is at a crossroads due to the worldwide credit crisis, and all Americans are feeling the effects of the worst economic downturn in 75 years. Despite our successful efforts to restructure, reduce costs and enhance liquidity, U.S. auto sales rely on access to credit, which is all but frozen through traditional channels.
Successful efforts? Why is GM’s labor cost almost double that of their competitors’? Exactly what has GM restructured? Why do losing divisions like Pontiac, Saturn and GMC still exist? Why did the executive team use corporate jets as transportation to beg taxpayers for money? Is that an example of cost reduction? I think GM’s problems go far beyond the limited access to credit markets.
The consequences of the domestic auto industry collapsing would far exceed the $25 billion loan needed to bridge the current crisis. According to a recent study by the Center for Automotive Research:
• One in 10 American jobs depends on U.S. automakers
• Nearly 3 million jobs are at immediate risk
• U.S. personal income could be reduced by $150 billion
• The tax revenue lost over 3 years would be more than $156 billion
Please don’t insult the average consumers’ intelligence by quoting an Ann Arbor think tank. Let’s look at the bigger picture. This is not about lost jobs and tax revenue because a reckless loan to a company who STILL doesn’t have a firm grasp of competition in a global environment will only make the OVERALL economic environment worse, and put GM, Ford and Chrysler in a shoddier situation in the future. How many jobs and lost tax revenue will be at stake at that point? Do we patch the leak here, or do we figure out what is causing the leak?
Discussions are now underway in Washington, D.C., concerning loans to support U.S. carmakers. I am asking for your support in this vital effort by contacting your state representatives. Please take a few minutes to go to www.gmfactsandfiction.com, where we have made it easy for you to contact your U.S. senators and representatives. Just click on the "I'm a Concerned American" link under the "Mobilize Now" section, and enter your name and ZIP code to send a personalized e-mail stating your support for the U.S. automotive industry.
Let me assure you that General Motors has made dramatic improvements over the last 10 years. In fact, we are leading the industry with award-winning vehicles like the Chevrolet Malibu, Cadillac CTS, Buick Enclave, Pontiac G8, GMC Acadia, Chevy Tahoe Hybrid, Saturn AURA and more. We offer 18 models with an EPA estimated 30 MPG highway or better — more than Toyota or Honda. GM has 6 hybrids in market and 3 more by mid-2009. GM has closed the quality gap with the imports, and today we are putting our best quality vehicles on the road.
I’ll show my support for GM by offering the following suggestions:
1) Stop whining to taxpayers, and file Chapter 11. You’ve let the United Auto Workers’ Union govern you, and as a result your labor costs are almost twice that of your competitors. Chapter 11 bankruptcy laws will allow you renegotiate your labor contracts, pension plans and other employee entitlement programs in an effort to reduce costs. GM, Ford and Chrysler can no longer afford to sacrifice the quality of their vehicles to make up for higher labor costs.
2) Replace management across the board. Your leadership is horrendous. Your current CEO has seen GM’s stock drop NINETY-FIVE percent during his watch. If an NFL team loses ninety-five percent of their games, do the head coach and his coaching staff return next year? Hire leadership who has an understanding that corporate jets and other executive perks cannot be afforded in a highly competitive global environment. A cost-reduction effort needs to be implemented at ALL levels – not just the bottom.
3) Dissolve your unprofitable brands, and consider joining forces with one of your American competitors – perhaps Chrysler. These actions will result in an immediate costs savings of billions.
4) GM is still lagging behind in fuel efficiency in spite of your boasting about new hybrid vehicles. Fuel efficiency is the road to victory in regaining market share.
Please share this information with friends and family using the link on the site.
I most certainly will – just not in the way you intended.
Thank you for helping keep our economy viable.
Thank you in advance for scrapping your plan to beg for money and devising a long-term strategy that will restore confidence in our markets.
Tuesday, November 18, 2008
How Much of a Role did Mark-to-Market Accounting Play in the Credit Crisis?
Not many people outside of the financial world would consider the possibility of a technical accounting rule playing a role in the credit crisis. Unfortunately, it takes a crisis of this magnitude to bring these concepts to light.
In a nutshell, mark-to-market accounting assigns the current market price to a held financial instrument. For example, if you buy 100 shares of XYZ Corporation’s stock at $10 per share, the value of your shares would be worth $1,000 (100 shares x $10/share). Six months later, the stock is trading at $20 per share. The “mark-to-market” value of the stock would now be $2,000 (100 shares x $20/share). By employing mark-to-market accounting, the net worth of your asset just doubled. In the simplest terms, this practice makes sense. The current value of the stock should be recorded on a company’s books regardless of whether this affects their balance sheet positively or negatively. However, there are two things to consider: 1) potential for major abuse when applied to more complex financial instruments – especially debt instruments and 2) how both realized and unrealized gains/losses affect the market’s perception of an entity.
The Financial Accounting Standards Board (FASB) issued Statement No. 157 in November 2007 with the intent to establish a framework for measuring fair value in generally accepted accounting principles (GAAP) and expand disclosures about fair value measurements. (1) FAS 157 established a hierarchy of asset classes which attempts to assign values to assets that are not as liquid as a stock that trades on the market everyday. In other words, how is a value assigned when it cannot be assessed by its current trading price? The trade value of a stock can be verified at any time, but what about financial instruments that do not trade in the market on a daily basis? Assets are broken down into three levels:
Level one: consists of assets that have an identifiable market price (price of a stock that trades on the market).
Level two: is a class of assets that do not have market prices. A model is then constructed to determine the assets’ fair value. Some inputs include but are not limited to prices of similar securities and interest rates.
Level three: is comprised of assets that don’t have market prices, and the valuation techniques used to price “level two assets” are not available. As a result, an entity is allowed to use its own assumptions bearing in mind that the asset should be priced based on what a willing buyer would pay.
The analogy behind the level three asset classification is what gives what gives way to the famous term “mark-to-make believe.”
The value of mortgage-related securities relies heavily on assumptions – assumptions that had a positive effect during the housing boom, but now have a very negative affect as banks are now recognizing billions of dollars in losses.
What happens when investors panic and sell? What assumptions can be used to value financial instruments being sold in mass panic? This is where things get murky. Assets being sold out of panic make it extremely difficult to assign value. In addition, the inputs that are used are nothing more than educated guesses by accountants. What a way to halt trading in the market when things go astray! The problem with many valuation techniques is that they overstate the value of assets, which then overstates losses.
Mark-to-market accounting also wreaks havoc on the liability side of things. Bond prices are inversely related to the company’s risk. In other words, if the price of a bond falls, it is in response to the market’s perception that the company’s risk has increased. Think Goldman Sachs and Lehman brothers here. Mark-to-market accounting allows these entities to record GAINS on their income statement. One may ask why on Earth they would be allowed to do this. For those who stayed awake during Accounting 101: remember the basic accounting equation? Shareholders’ equity = Assets – liabilities. When the value of the bonds decrease, the result is a decrease in total liabilities which means shareholders’ equity INCREASES…hence the gain. It’s a wonder how Lehman Brothers was able to report $2.4 billion in pre-tax profits by “marking to market” its liabilities. Then, shortly after the collapse of the market bubble, the company is bankrupt. (2)
In summary, the FASB and the Securities and Exchange Commission should rethink the use of mark-to-market accounting in publicly traded companies. Perhaps it should remain only in the futures exchange where the practice originated. Accounting should be uniform and give a conservative, accurate picture of where an entity stands. There are too many unknown factors, and blind assumptions are made when applying valuation techniques. This gives way to artificial market bubbles and extreme volatility when the bubbles burst. If entities are able to use mark-to-market accounting which allows unrealized gains to manufacture synthetic profits which then quickly spirals into realized losses, the housing bubble and burst will the first of many in the future.
(1) http://www.fasb.org/st/summary/stsum157.shtml
(2) http://seekingalpha.com/article/97845-mark-to-market-accounting-kill-it-before-it-eats-us-alive
In a nutshell, mark-to-market accounting assigns the current market price to a held financial instrument. For example, if you buy 100 shares of XYZ Corporation’s stock at $10 per share, the value of your shares would be worth $1,000 (100 shares x $10/share). Six months later, the stock is trading at $20 per share. The “mark-to-market” value of the stock would now be $2,000 (100 shares x $20/share). By employing mark-to-market accounting, the net worth of your asset just doubled. In the simplest terms, this practice makes sense. The current value of the stock should be recorded on a company’s books regardless of whether this affects their balance sheet positively or negatively. However, there are two things to consider: 1) potential for major abuse when applied to more complex financial instruments – especially debt instruments and 2) how both realized and unrealized gains/losses affect the market’s perception of an entity.
The Financial Accounting Standards Board (FASB) issued Statement No. 157 in November 2007 with the intent to establish a framework for measuring fair value in generally accepted accounting principles (GAAP) and expand disclosures about fair value measurements. (1) FAS 157 established a hierarchy of asset classes which attempts to assign values to assets that are not as liquid as a stock that trades on the market everyday. In other words, how is a value assigned when it cannot be assessed by its current trading price? The trade value of a stock can be verified at any time, but what about financial instruments that do not trade in the market on a daily basis? Assets are broken down into three levels:
Level one: consists of assets that have an identifiable market price (price of a stock that trades on the market).
Level two: is a class of assets that do not have market prices. A model is then constructed to determine the assets’ fair value. Some inputs include but are not limited to prices of similar securities and interest rates.
Level three: is comprised of assets that don’t have market prices, and the valuation techniques used to price “level two assets” are not available. As a result, an entity is allowed to use its own assumptions bearing in mind that the asset should be priced based on what a willing buyer would pay.
The analogy behind the level three asset classification is what gives what gives way to the famous term “mark-to-make believe.”
The value of mortgage-related securities relies heavily on assumptions – assumptions that had a positive effect during the housing boom, but now have a very negative affect as banks are now recognizing billions of dollars in losses.
What happens when investors panic and sell? What assumptions can be used to value financial instruments being sold in mass panic? This is where things get murky. Assets being sold out of panic make it extremely difficult to assign value. In addition, the inputs that are used are nothing more than educated guesses by accountants. What a way to halt trading in the market when things go astray! The problem with many valuation techniques is that they overstate the value of assets, which then overstates losses.
Mark-to-market accounting also wreaks havoc on the liability side of things. Bond prices are inversely related to the company’s risk. In other words, if the price of a bond falls, it is in response to the market’s perception that the company’s risk has increased. Think Goldman Sachs and Lehman brothers here. Mark-to-market accounting allows these entities to record GAINS on their income statement. One may ask why on Earth they would be allowed to do this. For those who stayed awake during Accounting 101: remember the basic accounting equation? Shareholders’ equity = Assets – liabilities. When the value of the bonds decrease, the result is a decrease in total liabilities which means shareholders’ equity INCREASES…hence the gain. It’s a wonder how Lehman Brothers was able to report $2.4 billion in pre-tax profits by “marking to market” its liabilities. Then, shortly after the collapse of the market bubble, the company is bankrupt. (2)
In summary, the FASB and the Securities and Exchange Commission should rethink the use of mark-to-market accounting in publicly traded companies. Perhaps it should remain only in the futures exchange where the practice originated. Accounting should be uniform and give a conservative, accurate picture of where an entity stands. There are too many unknown factors, and blind assumptions are made when applying valuation techniques. This gives way to artificial market bubbles and extreme volatility when the bubbles burst. If entities are able to use mark-to-market accounting which allows unrealized gains to manufacture synthetic profits which then quickly spirals into realized losses, the housing bubble and burst will the first of many in the future.
(1) http://www.fasb.org/st/summary/stsum157.shtml
(2) http://seekingalpha.com/article/97845-mark-to-market-accounting-kill-it-before-it-eats-us-alive
Saturday, November 8, 2008
Oil Speculation: Good or Bad?
One of the most difficult things to hear during the Presidential campaigns was the continued bashing of oil speculation. We elect officials to represent us in Washington and carry out the people’s business, yet most do not have even a beginner’s grasp of how our markets work. I don’t know which was worse during the campaign: Obama’s instance that high oil prices were due to the war in Iraq coupled with investor greed, or McCain’s populist pandering that illustrated his ignorance on the topic as well.
In order to understand the truth behind oil speculation, we must first understand a very simple concept of economics: supply and demand’s effect on prices. Speculation does not just begin on a whim. In other words, investors don’t dump investments in other sectors to flock to the commodity market as Paul Krugman would like you to believe. Increased demand is what drives oil speculation. Globalization has caused global poverty to decline rapidly this decade. In fact, since 2002, the world economy has grown 4.6% which happens to be the highest sustained rate since the 1960’s according to Michael Mussa of the Peterson Institute.(1) When economies prosper, an increased demand for oil is the result.
Now that we have established the motive for speculation, the process must be explained. Speculation is not greed driven. It’s a HEDGE against future price increases. If an investor buys oil futures, that person is betting on the fact that oil prices are going to continue to rise. The contract locks them into today’s prices. However, if one person buys a futures contract that means someone else is selling it. The seller has different expectations than the buyer. The seller believes that prices will DECLINE in the future. In addition, the person bidding up and buying oil futures must then turn around and sell the oil later. This means that the more people’s bidding drives up the prices, the greater prices will FALL in the future. The economic growth the world has enjoyed since 2002 has now come to a halt with the global credit crisis. This means that demand for oil is no longer as strong as it was before. As a result, crude oil is currently trading in the low $60 range as opposed to the $140 range this past summer.
Critics of speculation argue that speculation restricts supply. This statement is false. If a person buys an oil contract now to lock in today’s prices, they cannot sit and hold the oil off the market. They have two options: 1) take delivery of the oil or 2) sell the contract to another investor. In any event, when the contract expires, there is no net effect on oil supply.
Think of speculation as an insurance policy. If you own a company whose profitability is severely hurt by high oil prices, it’s in your best interest to lock in today’s price. If you are correct and the price of oil continues to rise, your business can survive and your employees whose livelihood depends on the success of your business will thank you. If you are wrong and prices drop, you will lose money; however you are still in business and can recover as opposed to shutting your doors had the opposite happened.
Should they not be allowed to do this? Are critics saying that business can’t hedge to survive? What’s the alternative? Should companies close their doors, lay off workers and be deprived of capital to grow? Who does that hurt?
The bottom line is this. If speculation was driven out of pure greed, then we would have seen what we saw in early 2008 years ago. After all, if it’s solely greed driven, then these greedy speculators can drive up the price any time they wish. Remember that there are two sides to these contracts. The global credit crisis blindsided the market, and now people are seeing instant relief at the pump thanks to those greedy speculators who are now recovering from losses.
(1) Samuelson, Robert J. “Let’s Shoot the Speculators!” Newsweek (July 2008) Online.
In order to understand the truth behind oil speculation, we must first understand a very simple concept of economics: supply and demand’s effect on prices. Speculation does not just begin on a whim. In other words, investors don’t dump investments in other sectors to flock to the commodity market as Paul Krugman would like you to believe. Increased demand is what drives oil speculation. Globalization has caused global poverty to decline rapidly this decade. In fact, since 2002, the world economy has grown 4.6% which happens to be the highest sustained rate since the 1960’s according to Michael Mussa of the Peterson Institute.(1) When economies prosper, an increased demand for oil is the result.
Now that we have established the motive for speculation, the process must be explained. Speculation is not greed driven. It’s a HEDGE against future price increases. If an investor buys oil futures, that person is betting on the fact that oil prices are going to continue to rise. The contract locks them into today’s prices. However, if one person buys a futures contract that means someone else is selling it. The seller has different expectations than the buyer. The seller believes that prices will DECLINE in the future. In addition, the person bidding up and buying oil futures must then turn around and sell the oil later. This means that the more people’s bidding drives up the prices, the greater prices will FALL in the future. The economic growth the world has enjoyed since 2002 has now come to a halt with the global credit crisis. This means that demand for oil is no longer as strong as it was before. As a result, crude oil is currently trading in the low $60 range as opposed to the $140 range this past summer.
Critics of speculation argue that speculation restricts supply. This statement is false. If a person buys an oil contract now to lock in today’s prices, they cannot sit and hold the oil off the market. They have two options: 1) take delivery of the oil or 2) sell the contract to another investor. In any event, when the contract expires, there is no net effect on oil supply.
Think of speculation as an insurance policy. If you own a company whose profitability is severely hurt by high oil prices, it’s in your best interest to lock in today’s price. If you are correct and the price of oil continues to rise, your business can survive and your employees whose livelihood depends on the success of your business will thank you. If you are wrong and prices drop, you will lose money; however you are still in business and can recover as opposed to shutting your doors had the opposite happened.
Should they not be allowed to do this? Are critics saying that business can’t hedge to survive? What’s the alternative? Should companies close their doors, lay off workers and be deprived of capital to grow? Who does that hurt?
The bottom line is this. If speculation was driven out of pure greed, then we would have seen what we saw in early 2008 years ago. After all, if it’s solely greed driven, then these greedy speculators can drive up the price any time they wish. Remember that there are two sides to these contracts. The global credit crisis blindsided the market, and now people are seeing instant relief at the pump thanks to those greedy speculators who are now recovering from losses.
(1) Samuelson, Robert J. “Let’s Shoot the Speculators!” Newsweek (July 2008) Online.
Friday, November 7, 2008
ExxonMobil's $400 Million Insult
The following article provides a simple, in depth explanation of how oil companies achieve record profits but do NOT gouge consumers. Bill O’Reilly -- ARE YOU LISTENING??? Before you think a windfall profits tax is the answer, understand that is a cost that you, the consumer will pay. Corporations do not pay income tax. The tax will pass on to you at the pump. Also note that the federal government makes more money per gallon (by way of gasoline tax) than the oil companies do. Oil companies make about $.05 cents per gallon profit, yet the federal government gets $.46 cents per gallon in tax revenue. It is quite interesting that a nickel per gallon profit is considered obscene.
This article was brilliantly written by Glenn Kenny. As a former employee of “big oil,” I concur with his analysis:
http://www.fool.com/investing/dividends-income/2006/05/24/exxonmobils-400-million-insult.aspx
This article was brilliantly written by Glenn Kenny. As a former employee of “big oil,” I concur with his analysis:
http://www.fool.com/investing/dividends-income/2006/05/24/exxonmobils-400-million-insult.aspx
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