Author: bill

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The Deadly Embrace – The Goldman Sachs/SEC Affair

I find the Goldman Sachs/SEC affair to be an intriguing affair. In a very public display the SEC alleges Goldman Sachs of fraud. Here are some of the more interesting facts I have collected so far:

  1. Although the information released by the SEC is impressive the SEC opts for a civil fraud case.
  2. Despite lots of former Goldman Sachs employees in the Obama administration and large Democratic campaign contributions, Goldman Sachs is blind sided by the announcement.
  3. Steve Liesman of CNBC appears to have identified significant exculpatory information in SEC testimony that weakens the SEC case.
  4. The primary victim of the fraud case is a German bank, IKB. The Business Insider highlights the facts that this bank thought they were an expert in the CDO market. From 2000 this bank had been successfully selling these risky investments to its clients. In a trial currently underway in Germany, IKB’s former chief executive Stefan Ortseifen, stands accused of misleading investors about the perilous state of IKB’s finances in the summer of 2007.

What was the SEC doing?

The SEC was arguably asleep at the wheel in both the Madoff scandal and the Stanford scandal. This week we find out that the SEC had an attorney who spent most of the day watching porn. For an organization that is bereft of positive publicity, this news story should have been a shining light of good government in action. However, this story seems to have avoided the high road, too.

  1. As Ben Stein remarked on a recent Wealthtrack episode, the SEC has all of the laws it needs to prosecute fraud as a criminal case. Yet the SEC chose to pursue a civil case. Shouldn’t it be IKB pursuing the civil fraud case?
  2. The timing of the SEC disclosures appears to be politically motivated. A finance reform bill is pending in the Senate and these disclosures and the subsequent public outrage appear to be a political gambit designed to raise political pressure on the bill’s opponents and to expedite the bill’s passage.
  3. As the Washington Post and Rush Limbaugh pointed out, The White House appears to have successfully used “insider information” on the Goldman Sachs news release to raise campaign contributions via targeted web searches.

My theory is that Goldman Sachs and the SEC are involved in a deadly embrace. Despite this being a lose-lose proposition, I am afraid they won’t settle any time soon. Although the Democratic pundits will claim a major victory when the Senate passes the finance reform bill, there is bad blood brewing on Wall Street over the handling of this affair. I doubt the voter cares too much about a civil fraud case involving a German bank heavily involved in speculating on US real estate.

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Ideas for an essay called Ohio Farmer I

For the last two weeks I have been listening to the Anti-Federalist Papers from www.audioowl.com on the way home from work and during my walks. I had been curious about the constitutionality questions raised by the Health Care Reform bill. My gut was telling me that the constitutional implications from the insurance mandate would have caused a serious fight amongst our founding fathers. I was amazed and entertained by their arguments against expanded Federal powers. Like Cato Institute I feel I should make an attempt to pay homage to their letters with an essay. Since I am technically a farmer in the state of Ohio my essay will be titled, “Ohio Farmer I”. Here are some of my ideas for the essay.

  • I suspect that the Anti-Federalists would take great offence at this extension of federal power. As a core belief they believed that the Federal government must necessarily have limited powers to avoid the inevitable devolution into a despotic or dysfunctional government.
  • I suspect that the Anti-Federalists would laugh out loud at the willingness of the Supreme Court to enable and encourage increase Federal power grabs by Congress through the legal concept of  “double deference”. It is an interesting question whether they would be more repulsed by the power grab by Congress or the willingness of the Supreme Court to look the other way. Randy Barnett discusses this concept of  “double deference” on The Volokh Conspiracy and in the Scrutiny Land article.
  • I suspect that they would look at the history of these Federal power grabs as inevitably leading to a dysfunctional form of governing that is neither responsible to the people or to the original goals of the legislation.  They would see our entitlement crisis as the natural result of a fundamentally flawed approach to governing and budgeting. I doubt they would be able to grasp the size of our budget deficit and the thought process that justified it.
  • Finally I suspect that the Anti-Federalists whose ultimate desire was to form a more perfect form of government would have some recommendations to restore balance amongst the branches of government and to reduce these huge intractable political problems with entitlements into much smaller political problems that are much easier to solve.
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Great Ideas about Health Care Reform

My boss and I came to same realization on Friday. We would be more in favor of the individual mandate if the Federal government required everyone to buy one of our products, too. We are hurting just like the hospitals. Hospitals have un-insured patients and we have dead beat customers. Why can’t we get a piece of this mandate pie?

Here is a great idea that will help balance the budget. Instead of paying tax refunds in cash, they should give out GM or Chrysler rebates. This is definite step up from California’s IOU idea.

Don’t fret that the health care bill is doomed to failure but take pride that “politics as usual” has brought us in full circle to our fore fathers predicament, “Does too much federal power corrupt absolutely?”

Being a state official responsible for finding the funding for an expanded Medicaid system is just part of the job description, vassal for Washington.

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Confessions of a Health Insurance Scofflaw

Back in 2000 when I moved from Texas to Ohio I was given the opportunity to buy health insurance at what I thought was an exorbitant price of $350 per month. I declined. On Friday I commented on a post that about the insurance mandate that the insurance mandate is very expensive option for me for what I consider to be a hospital billing problem. Today I calculated about how much I saved by not having health insurance or having a low cost high deductable plan. Just for the health insurance premiums alone I would have spent $52,970. I used this slide from the Kaiser Family Foundation and its 131% increase to estimate my health insurance premium increases. This looks like a pretty conservative number since it assumes I can get a comparable low deductible policy today for $457 per month. From Quicken I can say that my medical and dental costs over this time period was about $37,900. Based on my ten year experience you can save a lot of money by being a savvy health care buyer.

Yesterday Ann Althouse and Les Jones both commented on an interview in the Wall  Street Journal with the Nobel economist, Gary Becker. They focused on his comment:

Here in the United States,” Mr. Becker says, “we spend about 17% of our GDP on health care, but out-of-pocket expenses make up only about 12% of total health-care spending. In Switzerland, where they spend only 11% of GDP on health care, their out-of-pocket expenses equal about 31% of total spending. The difference between 12% and 31% is huge. Once people begin spending substantial sums from their own pockets, they become willing to shop around. Ordinary market incentives begin to operate. A good bill would have encouraged that.

Although I agree with that statement I am most concerned about the following statement in the article since it links a bad health care policy with aggravating our current economic malaise. The next logical step for people frustrated with the current health care policy is to “game the system” and watch the legislators fumble around trying to explain how the policy is actually working quite well. Already we are seeing several unintended consequences such as, “AT&T Sees $1 Billion Charge Tied to Health”. There is definitely some passive-aggressive behavior going on here. You might call this scenario the sequel to “Jobs saved or created”.

Bad legislation, maintained by self-seeking interest groups. Back in 1982, I remind Mr. Becker, the economist Mancur Olson published a book, "The Rise and Decline of Nations," predicting just that trend. Over time, Olson argued, interest groups would form to press for policies that would almost invariably prove protectionist, redistributive or antitechnological. Policies, in a word, that would inhibit economic growth. Yet since the benefits of such policies would accrue directly to interest groups while the costs would be spread across the entire population, very little opposition to such self-seeking would ever develop. Interest groups””and bad policies””would proliferate, and the nation would stagnate.

Gary Becker: ‘Basically an Optimist’—Still
Sat, 27 Mar 2010 03:48:35 GMT

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The Long, Painful Road to Austerity

Despite the drama about the health care debate the country continues down its path to austerity. The only way we can get off the path is if the economy shows a robust, vigorous recovery of permanent employment and consumer spending. The states, counties, and cities desperately need more tax revenue. It is not surprising that this week Arizona’s governor signed a budget-balancing bill that cuts benefits immediately and threatens to cut even more benefits if a sale tax increase is not approved. Like most states Arizona has been trying to develop a budget to deal with the shortfall in tax revenue. It is ironic that one of the major spending cuts is a $385 million cut in the state’s Medicaid program. For many states the growth in Medicaid has become too large a burden for a weak economy. When it comes down to laying off teachers, police men, or cutting Medicaid, Medicaid is going to get cut. Many states view the Medicaid expansion as an unfunded mandate. So Congress votes to expand Medicaid coverage and Arizona cuts it.

Governor signs Arizona budget-balancing bills

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Why does “free money” fail to stimulate the economy?

In the old days the Federal Reserve could hint at lower interest rates and the stock market and economy would take off. Eventually inflation would rear its ugly head and the Federal Reserve would be forced to raise the interest rates to rein in inflation fears. That was the old days.

In this economy the Federal Reserve is lending money at extraordinary low rates and neither the economy or the inflation rate have taken off. The Federal Reserve’s favorite tool is not working very well with this economy. This brings up an even more ominous question. What if the Federal Reserve’s favorite tool continues to not work when the economy heats up?

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Where are the green jobs?

Talk about unintended consequences!

 

According to The Hill, wind executives are engaging in a lobbying-flurry on Capitol Hill this week, going after the “Buy American” agenda that Senator Chuck Schumer is pushing with regard to renewable power projects funded with stimulus grants. Schumer has become somewhat agitated to learn that most (79%) of the US stimulus money spent on renewable energy has gone overseas creating manufacturing jobs abroad, but creating little but taxpayer debt here in the U.S.

The Hill quotes Donald Furman, senior vice president with Iberdrola Renewables as admitting that Schumer’s buy-American plan “will cause my company not to build the number of projects that it was going to build simply because we can’t get the equipment that would satisfy the requirement.”

This admission is only surprising because it was made in public. Anyone who knows that China’s labor rate is under $1.00 per hour, and that China holds 95% of the rare earth elements needed to produce most renewable energy systems could have told you that manufacturing of renewable equipment is going to happen mostly in China.

U.S. Wind Industry: Turbine Construction Won’t be Domestic
Kenneth P. Green
Fri, 12 Mar 2010 06:00:58 GMT

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As the Screw Turns

This week I found interesting relationships between seemingly unrelated events.

  • As Senator Bunning tried  to make his case that now is the time to start cleaning up the debt crisis, he was pilloried by Republicans, Democrats, and the press for being heartless to the unemployed. It was during these discussions I came to the conclusion that unemployment insurance is more like triage rather than part of a larger solution for unemployment. The question of whether to extend unemployment insurance seems to be most closely related to the prevailing political winds at the time. At this time the political winds are to extend unemployment. Several people showed that the unemployment figures remain mostly unchanged at the beginning and at the end of the unemployment insurance extensions. So the plan is we spend a lot of money to kick the can down the road.
  • Greece passed an austerity budget and there were strikes and rioting, Clashes in Athens as Greek PM seeks EU debt help (AP). By the end of the week it looked like the Greek population is finally coming to grips with the reality that budget cuts are inevitable.
  • I ran across an intriguing slide presentation, “The Nightmare Scenario: How The U.S. Government Would Look Under An Austerity Budget”, on The Business Insider. This presentation uses the Irish austerity measures as the template.
  • There was a referendum in Iceland to repay Britain and the Netherlands for a failed Icelandic bank, Icelanders balk at Icesave deal, 93.3% vote ‘no’ (AFP). It appears that Icelandic population do not feel obligated to pay for the mistakes of others.
  • Barney frank threw a scare into the mortgage backed securities markets when he casually  “noted that debt issued by the two mortgage finance companies is different from bonds issued by the Treasury Department” . This evidently caused a panic among investors. On Friday the Treasury Department was forced to reiterate their financial support for Fannie Mae and Freddie Mac.
  • Finally we see that Rick Perry Wins Heated Texas GOP Primary. Populism is alive and well in Texas as he said , "From Driftwood, Texas, to Washington, D.C. we are sending you a message tonight: Stop messing with Texas!".
  • Although I doubt the Democrats will not agree, the Instapundit is wondering if our economy has gone beyond the triage stage, HAS OBAMA DONE IRREVERSIBLE DAMAGE YET? Neo-Neocon says “yes.” I’d say it depends….

Although I doubt the United States will install an austerity budget as severe as Ireland, I think it is inevitable that some states and cities will balance their budgets with “Irish”-like budget cuts. Extreme situations will require extreme solutions. Eventually a federal austerity budget will become inevitable because entitlement cuts are intractable political issues. As shown in California neither party was willing to cut the budget until they are forced to do something embarrassing like issuing IOUs. I think that the wise men and women in Washington will try and put a muzzle on Barney Frank to avoid an Icelandic-type public opinion blow up the mortgage market before it has a chance of recovering.