Clear The Mist

And Now Back to the Stock Market

2009-09-14T14:20:00.004-06:00

It has been some time since a comment on the stock market and the state of the economy.

On the surface to many, including CNBC-type pundits and others with professional self-interest, most appears well in the stock market. We've experienced about a 50-percent move up since the March lows, with many stocks far exceeding that. Also on the surface to many, all appears to be on the mend in banking and even in housing in certain regions of the nation. Recent surveys show improvements in consumer confidence and yes, even manufacturing activity. Honestly, I forgot that we manufactured anything here except bad mortgages and creatively packaged financial derivatives products.

The next "big thing" is apparently going to be chopped and repackaged life insurance policies. Talk about "death panels!" We don't want the gubbamint doin' death panels. But hey Wall Street? Just fine with us!

Back to the real subject, though. We live in a consumer-driven economy. Our wallets and credit cards account for something like 70-percent of economic activity in the United States. And no, it is not all accounted for by the wealthiest two-percent. Sorry folks. This pundit does not think that they need even more unaffordable tax cuts, as much as some Republican politicians and pundits might have us believe that is the route to follow.

I could use a tax cut though. How about you? When I see my health insurance premiums increase nine-percent or so in 2010, and my income stagnate, I suspect I will be spending less - again! - or relying on credit cards to fill my material desires. But since people continue to express concern about job security, will they really ring the registers? Perhaps for Christmas. Maybe not. Too early to say, in my opinion, though spending addicts may say, "What the heck" by the time December comes around.

The recovery in the stock market is not unprecedented. However, it feels - and in some ways looks - like it is built on beach sand and not bedrock. To the extent that we are seeing earnings growth - the "bedrock" of the stock market - well it's largely a result of "downsizing." Hey that's you, isn't it! You may be among the millions of people that have lost their jobs over the past year or so, not to mention the millions that lost their jobs during George W. Bush's stewardship of the economy.

Given soft demand for goods and services - slow or no revenue growth - what better way to prop up profits than to fire the people....hmmmmm....that BUY YOUR STUFF. Oh sure, you can have your business rely on the federal government for incentives and bailouts. Worked for a month or so for the auto industry with "cash for clunkers." It's also working for banks, especially the largest banks, you know, the "too big to fail" banks that still plague us.

Remember all the bank and Wall Street "stuff" that precipitated the worst recession since the 1930s? Mortgage-backed securities and derivatives and such? To a great extent, they are still on the books of the largest financial institutions in the nation. Only now, we don't seem to be worrying what they are worth because the feds changed the rules - well at least for a period. With all the foreclosed properties clogging the housing market and with all the potential for millions more down the road, who cares how much those mortgage-backed securities are really worth! Especially since housing prices are predicted to continue to fall in many regions of the country.

Oh, almost forgot. Commercial mortgages and construction loans. With retailers and others continuing to "downsize" and close locations, with corporations consolidating office space and continuing, yes, to ship manufacturing overseas - well we'd rather support a Chinese worker than an American one, being the patriotic Republicans and business managers that many are - what about those loans?

Wall Street must be onto something. Bundling life insurance policies! After all, you recall - or do you - those stories about investment bankers jumping out of buildings during the Great Depression, right? Maybe this economy will slash average life expectancy and those chopped and bundled life insurance policies will pay off handsomely. Who needs jobs? We don't need to build things; we can just kill people off by keeping conditions bad.

But then, we'll have to worry about the actuarial integrity of life insurance companies. I hope they have sufficient reserves to pay everyone off.

Oh yes, the stock market. I got sidetracked worrying about PEOPLE'S JOBS and stuff like that.

I maintain that it is still a challenge to value many companies based on projected earnings because I still see too many uncertainties in the economy. So I must keep a sharp eye on those pesky technical indicators of stock market strength. And they are truly a mixed bag.

A couple of things stick out, though. First, the good old Advance/Decline line. What's that? (# of Advancing Stocks - # of Declining Stocks) + Previous Day's A/D Line Value. It's a cumulative thing. It has been climbing a very steep wall since the March bottom. In fact, it is at its highest value in history, near as I can tell. Looks like a good thing. Investors are accumulating stocks - at least more are increasing in price every day. But the climb seems unprecedented in its scope and time. And it is not like we've been experiencing record volume, day in and day out, to support this advance. Lots of cash remains on the sidelines, in safe havens.

Second, all analysts have their favorite short- and long-term trend lines of the popular stock market indices. I have mine, but you don't need to know what it is just now. In any event, having absolutely nothing else to do with my time, I spent a few moments to go back in time, oh a little more than two decades. Helps to put these trends in perspective.

When the stock market climbs too far too fast, like anything else the law of gravity tends to bring it back down. No, not necessarily back to wear it started, but usually to the soft, warm, cushy support of one or more coveted trend lines.

In our current scenario, the stock market is about 15-percent above trend line. Historically speaking, this is pretty high. In fact, we don't often see the stock market double-digit percentages above this trend line. Going back to, say, 1987, we've seen this about six other times. On average, the stock market has pulled back about nine-percent each time. I tossed out the two outliers of three-percent and 55-percent that began in February 1996 and August 1987, respectively.

True, only two of these declines represented double-digit percentage declines - the 55-percent bubble of 1987 and 18-percent in 1997. The others? "Small potatoes."

So what might we be looking at here? Well, case #1: the stock market falls out of bed and either erases all of its gains since March, or perhaps a third of them or thereabouts. Case #2: not much in percentage decline, but months of treading water, perhaps after an initial decline in the ten-percent neighborhood.

This market is fragile, as is the underlying economy. Without improving prospects for job creation, increasing personal incomes, and stability in housing, unless the United States suddenly becomes a ginormous engine of exports to the rest of the struggling world, a flat U.S. economy will eventually translate into flat stock market prospects, and it is more than likely to begin with at least a small thud.

The slightest disappointment, out of Washington or elsewhere, or perhaps it could be a big disappointment, like, oh for instance how are independent auditors going to do with all those possibly nearly worthless toxic assets on the books of financial institutions at year-end audit time? Can't hide them in plain sight forever, can they?

Citi, JPMorgan Chase, Morgan Stanley, Bank of America, AIG, and lots of small little known banks and other players, are still - pardon my street lingo - full of crap. Answer me this: to the extent that you have not written off billions of dollars of paper whose underlying assets are defaulted mortgages on now or soon to be foreclosed homes and businesses, well just how do you plan to handle that? How do you place a value on non-recyclable trash?

I can't offer up a day or value for this stock market's top. Could the S&P500 advance another 100 points? Sure, why not. But at this point, unless we begin to see some solid fundamental improvement in the economy and not simply a deceleration of its decline, the higher we go from here, the bigger the fall will be. It's gravity.

Obama's Speech on Health Care Reform - and so?

2009-09-10T12:57:00.003-06:00

One thing is clear in the aftermath of President Obama's well-delivered (did we expect otherwise?) speech on health care reform before the September 9 Joint Session of Congress...oh yes, and the American people.

Insurance companies seem to have come out potential winners? The publicly trade stocks of all the health insurers, the usual suspects, are up today and up substantially. As of this writing, with less than one hour to go in today's trading session, the common stocks of Aetna, Cigna, United HealthGroup and Wellpoint are up, for the most part, between two- and five-percent. What does this suggest? That Wall Street expects to see higher profits and solid growth from these companies in the years to come, at least at first blush.

While the President did "mention" a role for a public option, clearly there was no strong emphasis on it. Rather, if legislation does pass, we can expect to see the following benefits - via private health insurance companies:

1. Elimination of pre-existing conditions clauses;
2. No more cancellations based on development of disease, annual or lifetime caps on benefits, or failures to disclose adolescent acne.
3. An "exchange" - still fuzzy on that one - where people can go to find insurance policies and maybe even a public option, too.

There was more, but that was the nut of much of the President's speech.

So we may look forward to all of these wonderful benefits that the health insurance industry will be more than happy to splash upon us. Here's the rub: what about cost controls? Sure, United HealthGroup (United), the largest health insurer in the U.S., will be more than happy to write policies with pre-existing conditions and other cancellation clauses. But at what price?

Did I mention price? If I have a pre-existing condition - which I do (multiple sclerosis) - you mean that United will now be happy to write a policy for me "at a fair price?" Oh, gee, did I say "fair price?" We heard no mention about the effect of these "benefits" on policy pricing.

Several things are likely to happen. First possibility: United raises all premiums in order to recoup or maintain their profit margins in exchange for accepting higher risk customers. Second possibility: United will happily write me a policy if I am willing to pay 50-percent more for it than a healthier person. I just pulled that 50-percent out of my ass. It could be 20-percent or 100-percent, maybe even less. But who knows? No mention of policy cost in the President's speech.

It's kind of like a crack dealer, not that I have firsthand experience, mind you. Based on the dealer's analysis of you when he meets you on the street, he could charge you anything he likes, right? I suppose, anyway.

Car dealers can be the same way, especially if you're a woman, right?

The Republican responses to the President's speech are so far pretty much little changed, as if they really didn't pay attention while he was speaking last night. Even the Louisiana Congressperson's televised response was clearly written weeks ago. Nope, the Republican talking points are little changed. The damned Dems still want a government takeover of the entire health care system. Funny that I didn't hear that last night, nor did I read it in the transcript, nor have I EVER heard it except from a teeny weeny spectrum of legislators.

The Republicans are clearly all gahgah about the possibility of tort reform and the elimination of what they pen as "junk lawsuits," which I personally define as any lawsuit in which a Republican or corporation is not the winner. But that aside, the numbers clearly demonstrate, thanks to work available from AM Best's Aggregates and Averages, that malpractice lawsuits are not the horned devil and deep-pocketed demon cause of skyrocketing health care costs they are made out to be. They are, rather, the proverbial drop in the bucket.

Look. Everyone wants to make a buck and why not? People should be allowed, encouraged and honored to succeed, but succeed fairly, without someone, without millions of people feeling they've been ripped off. I fear, and I suspect I am not alone in this, that we just may be opening the floodgates for health insurance companies, the very same folks that we have worked so hard to paint as villains or at least culprits in this mess, to generate yet greater profits and revenues, charging consumers still higher prices. This time, however, they may have even greater "justification" for it because we will be empowering them to assume greater risk in their underwriting thanks to legislation.

The health insurers may just have succeeded in getting the payoff they've been hoping for through their "investments" in Senators and Congresspersons. So what if insurance companies have been paying out less and less of each premium dollar, the result being increased profits for stockholders and increased salaries and BENEFITS for executives. So what if they haven't felt a huge priority to make their administrative functions more efficient without sticking it to policyholders. They've been investing in a Golden Goose and it just might finally be paying off in the months to come.

Is It Racisim, Pure and Simple?

2009-09-04T09:45:00.002-06:00

On Tuesday, September 8, President Obama, yes PRESIDENT Obama, not that "black guy occupying the White House," is giving a speech to elementary school students nationwide.

The subject? "The goal of the speech is to encourage students to set goals for themselves." This according to Heather Higginbottom, deputy director of the White House Domestic Policy Council. In addition, according to Higginbottom, "The whole lesson plan speaks to setting goals in increasing their educational achievement."

So while the United States faces something like a thirty percent dropout rate and we continue to fall behind developing countries, such as China and India, in academic achievement, Right Wing Republicans have their panties burning up.

School districts in at least six states are declining to show the President's speech. Even school districts in a relatively highly educated state like mine, Colorado, are inundating school administrators with phone calls and emails demanding that the speech not be broadcast or parents will keep their children home on Tuesday.

Presidential addresses to school children are far from unprecedented. Gosh golly, even Republican presidents, including George H. W. Bush - the only truly elected Bush - gave speeches to school children, yes broadcast nationwide, encouraging to set goals, to achieve.

So what's different this time around? Must be that damned black man in the White House and all that socialist indoctrination stuff he be indoctrinatin' our keeds wit.

If the "Birthers" didn't get to all "true, white Americans" and the "killin' grandma Deathers" crowd and the "tax the middle class" crowd and the "takin' away our precious guns" crowd and whomever I've missed hasn't "done the job," well let's just put it on our kids. "We gotta protect our precious Right Wing white kids from the evil socialist black man that is livin' in da White House."

Sadly for America, the Republican Party has been more than gleeful to stand back while they allow the organization of every hate group among us to work to destroy this nation's duly elected President.

Wackos, even wackos over the age of 65, do not understand that Medicare is a government program. But Republican cowards have encouraged people to believe that if Obama takes control of health care in the United States, Medicare will be lost.

Yes, even actual members of Congress are spewing daily diatribes of misinformation and lies about the President's agenda and programs. You can't go anywhere on the "Internets" without being bombarded with phony, but really good looking lists of items in the Democrats' health care bills that are, well, phony and non-existent.

The Republicans actually use misinformation from a wholly-owned subsidiary of the second largest health insurance company, United Health Group, aka the Lewin Group, to support and promote false claims about a) what health care reform is all about and b) how beneficial and altruistic the existing system is.

But back to education. Seems like dem same white folk, the macho gun-totin' to political events, the Deathers and Birthers, the Nazis that simultaneously seem to claim that Obama is a Nazi and that is bad and that Obama is a socialist and THAT is bad, not to mention the millions of blue collar, middle-class Americans that have lost their jobs and, at the same time, believe that government should do nothing to restore the economy, now do not care about their children's education and future in a rapidly changing world.

And of course, all of these folks seem to claim to be Christians on top of it all. Yes, I am quite sure that Jesus, not to mention his Father, would be quite happy to support hatred, racism, health care only for the shrinking few that can afford it, and gun rights above anything else. I am pretty sure that I read all of that in the Bible. In fact, I must be certain of it. In fact, for two centuries or more (I am trying to be conservative, hahah), self-described MEN of faith have stood before their congregations and preached hatred and segregation of blacks and whites, support for immoral wars, hatred of the dreaded Muslim hoards that are out to wipe us all out, all the while leaving out Jesus' principle teachings for people that believed in him and his mission - as a Jew, I might add - that we should take care of the poor, feed the hungry, and behaved towards others as we would have others behave towards us, etc. etc.

What drives the "Joe the Plumber" and "Sarah Palin" mentalities in our nation? Really. What drives it? Is it only about Republicans battling Democrats? That has been going on for decades upon decades. But truly, we have never seen such hatred and falsehoods spewing forth from this day's "loyal opposition" party. Elected representatives threatening secession from the country, even threatening revolution. What is this all about? And it is supported by "pulpit occupiers", many of whom are more interested in selling books and DVDs, and raising money each Sunday to support their lavish lifestyles and palace-like mega-places of prayer.

Yes, I am fearful that we may face losing America, not the whites only America, not the gun totin' America, not the tax breaks for the wealthiest America, but the America where opportunities are available for everyone, where education in schools is valued and encouraged, where religious freedom is honored and respected and not institutionalized as part of a government philosophy, as Bush II attempted.

George W. Bush was a major proponent of "looking into a person's eyes and seeing their soul," albeit he obviously needed new prescription glasses. Maybe each of us needs to look into our own soul - if we can.

There IS "right." But it's clearly NOT the "right" of the Right. If this nation cannot rediscover its soul, if it cannot even make room for the President of the United States to have an inspiring conversation with elementary school children about their education, for cryin' out loud! What have we come to?

A Return Home

2009-08-28T09:42:00.002-06:00

Last evening, our son returned home to us from his 2nd tour in Iraq,

So now, once again, the transition to back to "real life" begins anew. How many times are we as Americans, not to mention all the other sons, daughters and families affected going to experience this event as a result of immoral and costly - in so many ways - military adventures!? Before we all stand up, at least those of us that are rational and not blinded by the mindless hatred and vitriol of the Right Wing?

We have battles at home to fight, do we not? Battles for fairness and affordability in health care and housing; education; jobs; jobs; jobs.

We have battles to fight to win back spirituality from the immoral leadership of so-called Christianity and Islam and Judaism, etc. in the United States and abroad. At least as far as Christianity is concerned, how out of touch from the loving teachings of Jesus can we stray before divine forces or karma or whatever you choose to call it turns the tables on us?

While self-described leaders of Evangelical and other congregations make millions of dollars through book sales, radio and television programs and guilt-based pandering for contributions, many of them preach violence and hellfire against physicians that operate within our nation's laws, supporting domestic terrorism. Imams in Islam support and encourage the strapping on of bombs for suicide missions, thinking that the Prophet Muhammad's teachings - his original teachings - justify murder and will send their practitioners to heaven for crying out loud.

In the health care battle, where are the religious leaders when it comes to following and preaching Jesus' teachings regarding caring for the least among us? Scripture, it seems, be it Christian, Jewish, Islamic or anything else, is twisted daily to justify selfishness, lack of caring, murder and war.

I'm not so sure that Jesus, in particular, would be similarly inclined.

Our religious communities are led by hypocrites and non-believers. They have infested politics and poisoned the public mind, here and worldwide, with lies and distortions.

I just spent the past hour or so calling many of my elected representatives in Washington. You know, the ones that we elected in November for change? The ones that are supposed to listen to the will of the majority of their constituents and Americans, most of which are in favor of a public option in health care reform legislation, for example, most of which want our troops in Iraq and now in Afghanistan to be returned home, the ones that want the large banks and financial institutions to "PAY" dearly for their bailout as a result of their recklessness in speculating in our financial affairs?

At least here in Colorado, many of our elected Washington representatives seem willing to stand for anything - except re-election, that is. I'm sure it is no different anywhere else.

Isn't it time, really time, that we force the folks that we elected to stand up?

Returning from War....to What?

2009-08-22T11:22:00.004-06:00

Along with dozens or hundreds of our brother, sisters, sons, daughters, fathers, mothers, and friends that return to us daily from Iraq or Afghanistan, with physical wounds and mental/emotional injuries, our son landed in the United States last night. He had spent the last year "serving" in Iraq, his second tour there, and the past eight and a half years serving on active duty and the so-called Reserves for the U.S. Army.

So I ask myself and all of you, "To what country is he/are they returning?"

The normal normal in Iraq or Afghanistan is for well-armed militias and just regular citizens to walk the streets with semi- and automatic weapons strapped to their sides. Patrolling in neighborhoods and markets, you can understand the innate lack of trust and the suspicion that our soldiers had to bare every single day.

The new normal in the United States? Crazy people who think the world revolves around the Second Amendment attending political meetings with what? Semi- and automatic weapons strapped to their sides. Even Presidential events are not respectful enough for these right wing wackos to leave their killing machines at home for a few hours.

If we just reflect on the days of at least my youth, when President Kennedy, Senator Kennedy, Martin Luther King, Jr. and others were gunned down - murdered - by wackos with hidden guns, what can we reasonably expect in a society where law enforcement - police and even Secret Service, and no doubt FBI - thinks it's just an exercise of Second Amendment "rights" to allow well-armed crazies to stand around in proximity to the President of the United States and other elected representatives of "We The People?"

Does their right to openly display arms in a free and democratic society trump the general public's, let alone the President's, right to feel safe?

Having lived through "Columbine" in our own community, having experienced the sorrow of so many other communities that have experienced public school, college, and gun violence even in churches - forget about all the "random" and senseless gang violence and domestic violence - I have seen enough. Haven't you? We can have philosophical and intellectual, even constitutional debates about what the Second Amendment really intended and means. That's democracy at work. But strapping on guns specifically for attending political events? Well, that's just plain inciting and threatening violence.

We have members of Congress, governors, talking about secession from the Union, about revolution, right wing fascist-supporting talk radio and television hosts spewing outright lies and aiding and abetting those who would bring down our government in the name of "news" and "truth." These people, I fear, are powerful yet lack the intellectual IQ to know truth if it bit them in the ass. Further, they hide behind religion, some even suggesting that their belligerent and sometimes violent (the murders at and bombings of abortion clinics) actions are condoned by God, or at least Christianity. No better than the twisted logic that Islam condones living by the sword.

So our son has returned to "civilization." Exactly where is the civility? Where is the acceptance of "the other" in our society?

Pray that our sons and daughters do not experience what so many of us may have experienced - presidents and others murdered in the streets. Sounds like Iraq, Afghanistan or Pakistan, does it not?

No thanks to you, Mr. President

2009-08-22T10:44:00.000-06:00

Dear Mr. President,

No thanks to you, we heard from our son, Zachary Reynolds, last night. After a year in Iraq - his 2nd tour - and more than eight years in the Army, his plane had landed in New Hampshire, on their way to Fort Dix, NJ. He expects to be back home in Colorado at the end of the month.

Mr. President, my wife and I - and so many others - voted for you to bring our sons and daughters home from that immoral war. So far, too few have returned home to their families. And now more of them are being committed to an un-winnable war in Afghanistan. This expansion, plus your lack of leadership and clarity on health care and the deep need for an expansion of Medicare or a Medicare-like option, are very sad failings of your Presidency to date. The early returns are in: you are failing us all, not just us progressives.

Get it together, Mr. President! This is my third email to you just this week. Unless you begin to honor your commitments to the majority that elected you, not to mention the 70+% of Americans that are demanding a "public option" in health care reform, you will lose our support for your administration and leadership - or lack thereof. I worked tirelessly on your campaign here in Colorado and committed, between me and my wife, pretty much as much money as was permitted by law. So did many many of my progressive friends. Unless these policies are truly yours, you are being ill-served by many of those that you selected to serve you in Washington. Perhaps it is time to clean house, reflect on your own promises, and delivery for the American people.

A Letter to the President

2009-08-17T16:34:00.002-06:00

Dear Mr. President,

Every day that goes by without you honoring your promise to the American people regarding a public option in health care reform is a day that will increase the American people's dissatisfaction with you.

I have read the proposed legislation in both the House and the Senate. Honestly, why does this have to be hundreds, and in the case of the House, over a thousand pages of legislation? Mr. President, you need to keep it simple, yes so that even conservatives in both parties can understand it.

First, open Medicare to everyone. Scale the premiums based on income and structure them in a way in which premiums pay for the program. On the same item, charge higher premiums for seniors whose taxable and/or non-taxable income is above a certain level. Why should someone earning $500,000 in retirement pay the same Medicare premiums as someone who is disabled or earns little more than Social Security? Simple!

Next, require insurance companies to eliminate pre-existing conditions exemptions AND do not allow them to pass along alleged increased resulting costs, or potential costs, in the premiums. It MUST be affordable. The combination of just those two initiatives would put pressure on insurance companies to increase their competitiveness.

Next, insist that Medicare be permitted to negotiate with pharmaceutical companies on pricing. Insurance companies do it. It simply makes no sense that Medicare cannot. Create a public web site where people can readily see, not only pricing of private insurance companies, but their expense payout ratios.

Next, eliminate the ridiculous practice, actuarially unjustifiable, whereby insurance companies can charge lower premiums to large employers while sticking it small employers and individuals. I understand risk pooling to be most efficient when there are more people in a very large pool as opposed to separating those pools into little ones and big ones. This is a practice that is ONLY designed to try to rationalize charging higher prices for the very same product to some people, but not others. And it is obviously those that can least afford it, sole proprietors, entrepreneurs, small businesspersons, that are charged the highest premiums and penalized the most when a single individual in their group encounters health problems.

Mr. President, as a Medicare consumer, a result of being disabled with multiple sclerosis, I also purchase a Medicare Part B supplement and a Medicare Part D plan, both provided by private insurance companies. Having a wider public option, such as the simple one - opening Medicare to all, would also potentially broaden the free market for Medicare supplemental plans. It seems like a potential win/win.

Mr. President, it is time to get off the pot and take control. Senators Conrad and Grassley are not your friends, just to name two obvious ones. And Senator Reid, well he does not deserve to be majority leader. A leader he is not! Take charge, Mr. President.

I have outlined a very simple proposal. Anyone can understand it, probably even my Great Danes. And it can be done in such a way that just may not cost the federal government a dime.

Lies & Liars

2009-08-06T11:47:00.003-06:00

I can't say I have been overwhelmed by comments in various venues in which "Clear The Mist" posts appear. But perhaps I can. And so sadly, it seems that irrational thinkers, people that simply cannot think "out of the box" or act from a place of compassion balanced with some degree of practicality, can too easily overwhelm real democratic speech and social progress.

Oh gee, am I talking about Republican and conservative politicians, whose only ability to speak is derived from someone else's "talking points? You all know the ones. Thems that have money and don't want anyone to share in prosperity? Thems that blindly follow mythically epic blatant lies about proposed health care legislation, including but not limited to "old folks will have to choose how they want to die" or "Medicare is NOT socialized health care" or "the government will step between the patient and physician" - my personal favorite, though the old folks must die canard is picking up points.

Them great thinkers, the same ones that sold us on the Iraq War and cost us thousands of sons and daughters, not to mention tens of thousands (if not far far more) Iraqi lives. The ones that believe that torture is just fine so long as we are doing the torture. And yes, the ones, that have no concept of what it took us in terms of government intervention in the economy to jump-start America and begin to dig us out of the Great Depression, painting FDR as some Great Satan and Herbert Hoover as a hero.

Some people should get over their own narrow-minded, myth-based concept of reality.

Are deepening federal deficits, not to mention state deficits, a good thing? Surely not. But they are necessary and in the long-run can be resolved in many ways.

Is a substantial and comprehensive overhaul of our clearly broken health care system long overdue and necessary for the health of Americans AND the health of businesses? No question whatsoever. Medicare needs some tweaks and not much more. Then it will be "ready for primetime" and can be held up as an example of how health care should be practiced and delivered in the United States.

Those who believe that merely tinkering with the current for-profit insurance industry delivered system will solve the problems are sadly mistaken, be they Republican or Democrat. You want to whine about the myth that government will step between you and quality health care with rationing and whatever else. But you don't whine about insurance companies doing precisely that.

If you actually have health insurance, how many times have you experienced - or even heard from a relative or friend or neighbor - an insurance company denying benefits for a diagnostic procedure or a particular treatment, or even a simple drug? It happens every day!

To the lobbying firms, and those that have hired them, that have been organizing the fascist brown shirt thugs that believe more in disrupting democratic town hall meetings rather than engaging in rational discourse, you won't succeed in turning the United States into 1930s/40s Italy or Germany - unless we fail to take their threat to our freedoms seriously, take a stand and say "ENOUGH!"

These fringe elements do not speak for the great majority of Americans who, poll after poll since before the 2008 election clearly show, want reform. We are finished with neoCON Republican and conservative lies and liars.

Or at least we should be.

B.O. - Backbone & Obama

2009-08-03T09:25:00.005-06:00

Well it did not take a recent week of well-needed vacation for this commentator to crystallize his concern about the politics/policies of the Obama administration, the lack of leadership and backbone of the Democratic Party, generally, and the need for substantial reform.

So on Sunday, National Economic Council Director Lawrence Summers suggested that a middle-class tax increase might not be out of the question as part of a solution to reduce the enormous projected federal budget deficits. Really! This after then Senator Obama campaigned so strongly against it during his White House run? Are we receiving mixed signals here? Or are lobbyists for the wealthiest two-percent of Americans and their corporate bosses once again winning the "Battle of Backbone" when it comes to formulating policies that will lead the way for perhaps decades to come?

There is genuine concern among many economists and analysts, including yours truly, that we may see a "double dip" recession. Assuming that we have seen a bottom in terms of manufacturing activity and production generally, having avoided a general collapse of the nation's financial system - for which I largely credit bold action by the Obama administration - we just may not be out of the woods. This should not come as new news to anyone.

Dangers may be ahead.

We must be concerned about the fragility of the commercial real estate market. This multi-trillion dollar market remains fractured as a result of a) a weak office market, b) closings of thousands of retail outlets which affect shopping centers, malls, center cities, not to mention jobs that may be gone for a very long time, c) shuttering of manufacturing plants - domestic of course - that leaves swaths of empty real estate, much of which was "single use" suitable without huge amounts of new investment.

We must further be concerned about the debt burden in the commercial real estate market: Who and how will maturing debt on questionable properties be refinanced? Will banks make necessary funds available?

Next on the list of potential landmines is ever-growing rates of default on credit card debt. These default rates are currently at record levels, the result of continuing job losses, the absence of any real income growth, and last but not least, the outrageous policies of banks increasing interest rates and fees on credit cards, even among their better or best customers. Slashing of credit lines on even good customers is not helping the issue either.

The banks are claiming that they need to raise rates and fees in order to cover increasing losses. But their own cost of money is at record lows, allowing them to increase profit margins. The federal government is largely giving money away to the banks, charging one-percent, two-percent, etc. to the banks while the banks get to increase rates to consumers from nine-percent or twelve-percent to as high as thirty-percent, even more.

Since the Obama administration took the reins in January, nothing has been done to address the "to big to fail" dilemma with financial institutions. Rather, the opposite has occurred. As "smaller" banks continue to fail, they are taken over by larger banks, creating yet more ever larger banks, increasing concentration and reducing competition.

Little has been done in actuality to stabilize the mortgage market, allowing homeowners to successfully refinance. It seems that while programs have been created by the federal government to support refinancing, the banks have no incentive to use them. They believe they can make more money by allowing even more homes to enter foreclosure because the potential fees they can earn outweigh what the government would otherwise pay them as incentives to refi mortgages.

On the surface, all the legislation looked good. But in practice, the special interests were too strong to allow the passing of anything with real teeth.

On the health care reform front, we are following one diluted bill after another through Congress, none of which seem to really have the kind of reform that would financially benefit consumers, let alone the federal government. Will we have a public option similar to Medicare? Will Medicare be permitted to actually negotiate drug prices, saving hundreds of billions of dollars? Will health insurance reform, eliminating pre-existing conditions clauses, etc. actual result in fair premiums? Or will it simply allow the insurance companies to charge even more for the privilege of covering folks with pre-existing conditions? Or even raising rates on EVERYONE as a result?

I, for one, would happily accept a modest increase in the payroll tax - not income tax - to cover both stabilization of Medicare and availability of a Medicare program for people under 65 or not disabled. I, for one, believe that payroll taxes should be paid by EVERYONE that earns above an established minimum income. The fact that people earning say $250,000 or $25 million have not paid a Medicare tax in the past is not an argument for not paying it in the future. They are the people that most benefit from "The American Dream," are they not?

Republicans and conservatives - yes I'm talking about you irrational Blue Dogs, also - like to focus on the currently "unfunded" $12+ trillion 75-year deficit in Medicare. True, this is an audited number. However, if you assume that the size of the American workforce remains unchanged over the next 75 years - how likely is that!? - this unfunded deficit amounts to an average of about $160 billion annually. Again, that amounts to an average of about $1,100 a year in new taxes for every working person.

Realistically, that kind of gap would not be closed by equally taxing every worker, would it? That's not what we want. Those that can afford more should pay more, no? Further, if we had REAL reform of health care, both public and private, we could actually realize savings even if some people saw increased tax rates. I would gladly pay a little bit more in taxes while paying at least that much less for health care. And I thought that was the whole idea about health care reform, beyond covering many millions of people that cannot afford coverage.

And how about either giving people that are forced into bankruptcy as a result of medical bills some type of break - like not destroying their credit scores - or writing off their medical bills above some acceptable threshold, or having a catastrophic loss fund at the federal level? There are dozens of ideas that can be evaluated to address this ever-mounting concern.

And how about putting an end to the Canadian health care system myths once and for all? You know the ones: Canadians hate their system; their taxes are measurably higher as a result (though their medical out-of-pocket expenses are pretty minimal); they must wait months and months for important procedures; they flood across the border to New York or Michigan or Minnesota for health care; on and on. Stop it already. Let's just call lies lies.

Having personally undergone a two-disc spinal fusion, I understand the importance of a strong backbone. But does President Obama and the Democratic majority on the Hill?

As The Market Turns?

2009-03-23T14:10:00.004-06:00

February 19, 2008...."A reasonable person cannot simply abandon equities. Once the market turns, it will turn with a vengeance." - Clear The Mist

In response to the Timothy Geithner plan for a partnership between the federal government and private capital pools to purchase "toxic assets" from banks, the stock market soared today.

The DJIA closed at 7776, up more than 497 points, or 6.8 percent. The broader S&P 500 Index closed a tick below 823, up more than 54 points, or more than 7 percent. Even the tech heavy NASDAQ closed at 1556, up more than 98 points, or nearly 6.8 percent. All in one day.

Since reaching its bear market lows earlier this month, the U.S. stock markets are up about 20 percent.

Don't get too excited yet. Equities indices remain close to 50 percent below their 2007 peaks and all-time highs. So if you think the train has pulled away from the station, or the space shuttle has already zoomed away, relax.

A couple of things about the new Geithner Plan ("Plan"). Will private capital show up for the dance? At what prices will banks - if at all - be willing to sell their currently unpriceable assets? AND, perhaps more concerning to taxpayers and our international trading partners, while private investors have the possibility of earning big profits off this scheme, they are protected by the Treasury against big losses. Why? Because the way the current Plan is proposed/structured, you and I, as a taxpayers, stand to absorb the vast majority of any potential losses.

I am not proposing an alternative solution, mind you. And I am happy to accept fault for criticizing the Plan while not proposing one myself. It's very Republican of me, isn't it.

But I must remain skeptical about this Plan. While I believe that bad mortgages represent a relatively small percent of mortgage-backed securities or CDOs (collateralized debt obligations), given how complicated these instruments are, I'm unsure how you accurately price them - even if you are a so-called expert. It all bears further patience.

Regarding the current bear market rally, let us keep in mind that we've been there before. I hate to bring it up, but during the calamitous bear market of 1929-32, investors - what remained of them - experienced no less than 9 rallies of 15 percent or better. In fact, one rally was some 40 percent! The ultimate result, though, was an overall stock market decline of about 86 percent.

Now bear markets do not announce their ends with fanfare. They do not end simultaneous with the end of recessions. I think we all know this. Conventional history shows us that markets bottom some six months before the economy. So the question remains: when will the economy bottom?

Many pundits are pointing to the "fact" that many stocks that are reporting disappointing earnings and other events are not responding with further declines. They suggest that we see this when investors have "priced in" pretty much all the bad news. This may or may not be the case. I hate to be the cynic. But when investors have sold as much out of equities as they have over the past six months, clearly some feel the urge to reinvest en masse, especially when we see daily gains of 4, 5, 6 percent or more. We just hate missing trains, especially after so much money has been lost.

I, for one, need to see more clarity on the Plan. When and how will investments actually be made? I, for one, need to see some tangible evidence of an improving economic world. I don't even mean increasing corporate profits. A leveling off of unemployment trends would be very nice for starters.

Clearly, as I have stated in prior postings, many many stocks are cheap. It doesn't mean they are as cheap as they can possibly get. But as I have also said, averaging your investments is only prudent, especially given this market's volatility. There is a sense in the air of a change in psychology. But again, we've experienced that before during big rallies in prior big bear markets.

And The Day Isn't Yet Over

2009-03-02T10:49:00.003-07:00

So alright. On February 19, I reiterated my commentary regarding yet deeper declines in the stock market. So, sadly, this morning's decline to lows not seen 1997 is no surprise.

We have yet to see the worst of the bad economic news. Safe havens, such as healthcare stocks, dividend yield, etc. in the equities markets, are pretty much as weak as all other sectors. Sure I can make the argument that long-term investors should take advantage of these declines and average down. But I can just as easily make the argument that people should simply take advantage of any semblance of rallies to sell equities and just wait out the ongoing financial carnage.

In recent months and weeks, so-called professionals have been arguing for investment in corporate bond and other fixed income sectors, including U.S. Treasury securities. I have to admit. After spending more than forty years investing, not to mention my educational and professional training and experience, that strategy in this climate leaves me scratching my head.

Managed corporate bond funds, in particular, do not have a great history of investor returns. Sure, you can find and/or develop portfolios of "high quality" bonds - whatever that still means - that produce "respectable" current yields. However, at some point in the not too distant future - and as usual before naive investors see it coming - those yields will be more than offset by an environment of rising interest rates and declining principle values of those wonderful bonds.

As far as the safety of U.S. Treasury securities, a few voices in the media have been cautioning about a developing "Treasury Bubble." Yields are too low and not reflecting risk, but rather reflecting the relentless flight to safety, nor are they reflecting the real possibility of damaging inflation...once we conclude the current deflationary spiral. The only "Treasury" investment strategy that seems to make any sense is to keep maturities short. And I mean short.

A 90-day Treasury bill currently yields less than 0.25 percent annually, six-months 0.4 percent, a ten-year maturity yields an anemic 2.92 percent. Any glimmer of strong inflation, oh perhaps driven by multi-trillion dollar federal deficits and record expansion of the money supply, will drive those yields higher by orders of magnitude. An increase in 10-year yields to say 8 percent - not out of the unpredictable - would drive the principle value of those 10-year Treasuries down by 64 percent. Sound familiar?

We've seen it all before. Well, some of us did. Some of us simply read about these cycles in textbooks, too often in academic passing. Perhaps fewer of us managed investors through these cycles. How many fixed income fund managers were actually managing these instruments, say in the 1970s and 1980s? How many were preparing to complete high school or college in those years? How many were trained at the same "B" schools that produced the very same management geniuses that have led us to our current circumstance?

PERSPECTIVES

For years, I've retained a yellowing newspaper article in my desk. Dated July 3, 1998, it's an Associated Press story titled "Study: Blunders kill new airlines."

Subtitled "Big carriers' tactics not to blame, institute says," it was based on a study conducted by George Washington University's Aviation Institute. In short the article points directly at the recycling of senior management in the airline industry, with "famous names" ans "properly educated" executives moving from one failed airline to another. The study examined 129 airline bankruptcies from 1979 through February 1998. It found that more than 97 percent of the 39 airline bankruptcies in the 1990s had senior executives who had been involved in a previous Chapter 11 bankruptcy - in the same industry! Further, the study found that "more than 75 percent had executives who had been involved in at least TWO Chapter 11s, 50 percent had top officials in at least three bankruptcies and 15 percent had executives who were involved in at least four bankruptcies."

Past is precedent. Today's "airline" industry is the financial industry, is it not?

Universities need to drastically rethink how they "construct" business leaders. Businesses need to rethink how they retain and hire future business leaders.

Now is this simply sour grapes coming from a former business executive who graduated from Michigan State University rather than the University of Michigan, or Harvard Business School, or Wharton, etc.? That's for my readers to judge, of course. To preempt your judgment, however, I'll simply say no. But the Ivy League of "B" schools has "educated" us to where we are. Corporations have supposedly sought out the "best and brightest" from these fine institutions, as government has sought the same "rocket scientists" from Goldman Sachs and Morgan Stanley, et al to lead us out of this generational catastrophe. We are caught on a hamster wheel, are we not?

Someone needs to begin thinking outside the box, or at least reflecting very seriously on financial and economic history. Are we doomed to condemn the entire U.S. economy to the fate of the airline industry? Seems like that is where we are navigating.

WHITHER THE STOCK MARKET

So many stocks are "cheap" says the conventional wisdom of the financial establishment and CNBC talking heads crowd. General Electric (GE - NYSE) at less than $8.00 when it was happily trading at more than $30 less than a year ago? That list is inexhaustible. Price in a vacuum does not reflect "cheapness." Price must be based on earnings power. And no one, I repeat no one, is in a position to estimate corporate earnings power over from here for the next two to three years. There may be some good guesses. But will you base your financial future on guesses?"

Let's look at the S&P500 Index, shall we? Last fall, I suggested downside risk to 700 on the S&P500. Depending on when you caught up with me, the S&P500 was trading at somewhere between 1,000 and 900, anywhere from 20 to 30 percent ago. On February 19, well a possible "bottom" looked more like 650 - 600 than 700. But all of that is based on earnings declining to perhaps a core of $60, with a price/earnings multiple (P/E) of no more than ten.

When the market last traded at these levels - bordering on 1996 - the S&P500 Index traded at a P/E of about 17 or so. Earnings were a mere $40 - 44. Assuming that earnings collapse to those levels - which is not unreasonable - would you pay 17 times those earnings in light of all the economic uncertainty? Or would you be more willing to pay something closer to 10 times?

450 on the S&P500 Index? Keep in mind: 10x multiples were far from uncommon in the 1970s and first half of the '80s. By the way, that period followed a fairly lengthy market earnings valuation in the teens and greater during the 1960s and early '70s. What goes around comes around? History repeating itself?

The stock market has nothing to grasp onto at this point. As I have been writing this piece, the market has declined from 720 to 704, the DJIA around 100 points. Oh it may rebound somewhat before the end of the day. But that'll simply be short sellers taking profits, not necessarily bargain-hunters.

Myself? The thought of earning less than one percent annually disgusts me. But it just may be reality for most investors for the next year, or two, or three, at least until the giant cloud of uncertainty is resolved.

CONSUMER SPENDING

Our economy has been dominated by consumer spending, driven by debt accumulation, for well over a decade now. You can blame people for being imprudent, for living above their means, yada yada. But the truth is that business has driven people to become consumer animals rather than production engines or, god forbid, savers and conservative investors. Jobs are disappearing as business contracts, leaving us consumer animals either with less money to consume with or greater fear that their ability to consume will just evaporate.

The Harvard MBA crowd has shipped job category after job category overseas to take advantage of lower costs, creating higher profits - profits for the few. How many good paying manufacturing or product development jobs have we created here in the U.S.? How much of those higher profits from cheap foreign labor has found its way to higher wage rates for our fellow Americans?

When the economy turns, and it surely will, how much of that next round of higher profits will find its way into the pockets of workers here at home? As opposed to yet fatter profit margins for the few?

General Motors prays that $40,000 (god! $40,000!!!!) Chevy Volt plug-ins will save it. Forget about the absolute lack of economic rationale for paying $40,000 for a Chevy Volt for a moment. But the greater question to ask is how many Americans will be able to afford - let alone qualify to finance - that Chevy Volt?

The Chevy Volt represents the lack of genius that has created this mess. Is this the business management that we want to lead the nation in the future? In business or government? They don't get MY vote. It's the airline industry all over again. Only this time, the airline industry represents the entire economy.

Whine Whine Whine

2009-02-19T17:22:00.004-07:00

Today, the Dow Jones Industrials Average (DJIA) fell decisively through its November 2008 low, reaching its lowest level since October 2002. The broader S&P500 Index is not far behind, though it has yet to test the November 2008 low. Don't bank on that one holding much longer.

For what it is worth, Merrill Lynch has revised its estimate of earnings for the S&P500 down to $42 for 2009. The most pessimistic Wall Streeters that make their livings guessing about such things have been comfy cozy with $60 - $70, as have I.

Back in October, I estimated that we would see market lows in the range of 7,200 on the DJIA and 700 on the S&P500. The basis was a dramatic decline in corporate profits - to that $60 - $70 range on the S&P500 range. While we are only in February, and therefore premature to "accurately" guess about these things, it seems that the likelihood of Merrill Lynch, of all institutions, being close to the mark for corporate earnings estimates is increasing.

7,200 on the DJIA? That's pretty much a "done deal." 700 on the S&P500 Index? That's only about ten-percent lower than the current level. And if corporate earnings on the S&P500 plunge below $60 this year - or are least expected to - well look out below. 600 - 650 on the S&P500 is more likely.

A reasonable person cannot simply abandon equities. Once the market turns, it will turn with a vengeance. But short of equities - high quality ones - cash remains king and queen. Corporate bonds? Forget about them. Just when you aren't expecting, interest rates will begin rising and bond prices will begin falling. It is a losing proposition. I, for one, am avoiding them like the plague.

Now to the whining.

Wahhhhhhhhhhhhhhhhhhhhhhh! To all the politicians - primarily Republicans - and those among us that oppose just about anything that stands even a snowball's chance is limiting this Great Recession, especially Obama's recently revealed mortgage/housing plans, get over it. Yes, there are irresponsible people that irresponsibly took out unaffordable mortgages and purchased larger homes that they really didn't need. There are people that bought rental homes, be it one or ten, betting as businesspeople that they would generate profits. But they bet as businesses, not as prudent homeowners. The current Obama plan does nothing to assist them, and I believe rightly so.

Sure. I'd love to be able to refinance our home at a lower rate and save some money. But I'm not sure that my neighborhood has been hit as hard as others, many others. But if one of my neighbors needs assistance and this program makes it available, hallelujah! Take it. I won't lose any sleep just because someone else is being helped.

Honestly, where is the compassion? There seem to be some folks that have money, are quite comfortable, either have secure jobs or sufficient assets to survive protracted unemployment, have no problem spending $700 a month on a Lexus lease, and they begrudge those that have less a little assistance. They fail to see the greater picture. Every foreclosure negatively impacts the housing market and eventually, if not now, their own neighborhoods.

They complain about government interference in the housing market when, in fact, the government's been there all along. Do they honestly think that home ownership would be as broad-based as it has been for decades if it was not for the tax deductibility of mortgage interest, for example? Talk about a subsidy. Government involvement in housing is nothing new.

We live in extraordinary times, and these times call for extraordinary compassion and action. My fear is that Obama's current plan may simply not be sufficient. But neither is the Stim, round one.

We Have Met The Enemy...and It Is Us.

2009-02-12T14:51:00.003-07:00

First the stock market...

After the stock market stumbled to the best test yet of the late November 2008 lows, traders experienced a major bounce off today's lows to close largely even for the day. If you're a technician, however, the afternoon bounce wasn't all that significant, with still substantial volume in the day's declining stocks. Yes, the technology-heavy NASDAQ market saw a much greater proportion of its volume in higher trading stocks. However, this is all "technical stuff" and reflects less the current or even future status of the economy.

Market analysts continue to lag reality with their rosy forecasts for corporate earnings, so many stocks look inexpensive. But, as usual, aren't they missing the greater picture here?

Now the broader outlook and the "Enemy"

3.6 million jobs lost over the past 13 months, about half of those in the past three months. There is no evidence that the rate of job losses has reached bottom. And the employment picture does not account for the even greater numbers of part-time workers that want full-time work but cannot find it. Nor does it account for the millions that have simply dropped out of the workforce over the past several years...OK, over the past eight years.

Yes yes, economists will tell you, with significant justification, that employment is a lagging indicator of economic growth - or lack thereof. So no, we won't see the end of the "Great Recession" (I did not coin that name myself.) when we see the end of the current unemployment trend.

Here's the thing. Now follow me on this. Businesses lay off - fire - workers for two general reason: 1) demand for their products declines or is projected to decline; 2) a business' profits are declining or predicted to decline.

It is the latter that is so troublesome. We are caught on a seeming perpetual motion machine. Businesses respond to reduced demand, actual or projected, by firing workers. Firing workers further reduces potential demand for products. Firing workers places more mortgages and credit cards at risk. Increasing the pool of risky mortgages continues the pressure on home values. Increasing THAT pressure increases the risks of credit card delinquencies and defaults. All of this circles back to the banking and business communities, resulting in yet more firings. The downward spiral puts pressure on commercial real estate markets as a result of store closings and other business "downsizing," putting even more pressure on the banking system.

Now certainly, none of this is news to many readers. But it is to some.

So how do we get off the gerbil's treadmill? Hmmm?

Historically - well we do not have a lot of precedence for messes like this - governments intervene and spend money in an effort to a) maintain and create jobs, b) maintain or strengthen social safety nets, and c) stimulate the availability of capital for lending and investment.

President Obama will shortly sign into law "The Stem." While we can point to many aspects of it as "better than doing nothing" as the Republican Party would have us do - what else would you expect from them; they have a lot of experience doing nothing, going back to Herbert Hoover.

The Stem is loaded with ineffective tax cuts. Obama bought three needed Republican votes with those. The Stem is light on infrastructure investment. Yes, there is money for energy, roads, dams, yada yada. But is it sufficient to really make a difference? This commentator would love to believe so. But we need lots more than $789 billion, considering that more than $250 billion of the Stim is tax cuts. Any credible economist agrees that we get far more bang for the buck with actual spending as opposed to tax cuts. But Republicans are not very good students of facts. Hence the ridiculous magnitude of tax cuts in the Stim.

Oh, did I mention that if you are unemployed, you can look forward to receiving $25 a week more in unemployment benefits? $25? That just might pay for your gasoline while searching for those disappearing jobs, not to mention the ones that the Stim will not create thanks to the tax cuts.

If you are employed, you can look forward to $400 a year in tax cuts ($800 if you file a joint tax return). $400? Oh, that's about $14 a week. Heck, we can all return to Starbucks.

If you are receiving Social Security benefits, smile when you receive that one-time $250 extra super-duper bonus check.

And the latest? The rumors / news that rallied the stock market this afternoon? Our government is considering a plan to finally help struggling homeowners. While the details have not yet been formalized, it looks like the federal government may be going into the mortgage subsidizing business, not to mention credit card financing. As it stands at this hour, the Treasury may use part of the remaining TARP funds to subsidize those good ole' banks and reduce interest rates on deteriorating loans. They may even cram down principal values on those loans to reflect the collapse in home values. Oh all of this will be "standardized." So all banks will conform to the same set of standards when evaluating mortgages - assuming all of this comes to pass, of course.

Now I am all for FINALLY helping homeowners. Something in this regard is long overdue. You didn't, however, expect that George W. Bush and his pals would help anyone, did you? It was always up to Obama.

The problem is, sadly, this type of government-subsidized assistance - which could run into the hundreds of billions of dollars even if they are currently talking about $50 - $100 billion - can only serve to place an artificial floor on home values. When would it stop? Beyond the folks that will meet the standards for the program initially, we still have two issues. First, when does the flood of qualifying people end? Second, if you fail to qualify by just a skinny little hair of an actuarial formula, what then? Does the government modify its "standards" downward? And when does THAT stop?

I am not suggesting that I have a better solution. Fact is, no one does. We are swimming in uncharted waters.

One thing that does occur to some of us that think about these issues, though. What if, what if businesses that could actually afford it, public and private, maintained higher levels of employment even if it meant lower profits for their owners? Why do profitable businesses find it necessary to "downsize," to "rationalize their size," to "adapt to new economic realities?" More employment maintained, fewer mortgages and credit cards at risk, less stress on stressed health care and social services systems, more folks actually able to buy stuff.

So OK, my company (well not really mine) generates profits of only $100 million in 2009 instead of the possible $200 million - which, of course, is down from 2008's $400 million. But that $100 million keeps lots of folks employed. And there's a multiplier effect in all of it, as I think I've tried to outline.

And before I forget, I sure did get a chuckle out of those large bank CEOs testifying on Capital Hill the other day, largely suggesting that few, if any, people have had their credit card interest rates explode or credit lines cut since those very same banks took tens of billions of dollars from the TARP.

There is ample evidence that they, indeed, have done that, and done it indiscriminately. This becomes another perpetual motion machine. Slash lines of credit on folks, even if they are strong, consistent payers, and guess what? Their credit scores go down, making them appear to be higher credit risks. So they do not qualify for that new lower-cost mortgage or a new car loan. All thanks to the banks. The banks that our tax dollars are saving from insolvency.

Now not all business owners or managers are cruel. Some people do step up and work overtime to preserve jobs. But many, and I'm mainly talking about large employers here, just don't get it.

We Have Met The Enemy...and It Is Us.

TROUBLED WATERS AHEAD?

2009-01-14T15:47:00.005-07:00

After faint hits at rallying, with investors, portfolio managers, and securities analysts, alike forgetting about - THE RECESSION, the stock market is off to its worst yearly start ever. Ever!

As usual, analysts are only NOW getting with reality and slashing - well so far cutting - earnings estimates for 2009. DUH!!!!!!!!!! Where were they when the handwriting was all over the walls like gang graffiti as recently as October? November? December?

Earlier this week, we saw Citigroup, Inc. (C - NYSE) forced to sell a 51 percent stake in its Smith Barney brokerage biz to JPMorgan Chase (JPM - NYSE). Why? They badly need capital. And if you're wondering what's left of Citigroup after Smith Barney, well....largely one of the largest banks in the world. "Too Big To Fail?" How many times will we hear that round in 2009?

Just today, we learned that Bank of America (BAC - NYSE) has gone back to the Fed, hat in hand, "asking" for more TARP money to cover Merrill Lynch losses. "Too Big To Fail?"

Here's the thing about the financial sector: Rather than establishing a mechanism where we can encourage the establishment of new banks, or even solidify the standing of smaller banks that have actually been well-run, the Bush brain trust has seen fit to toss tens upon tens of billions of dollars at the biggest banks, the ones that worked overtime to get us into this mess in the first place.

Rather than establishing broad programs to attack the foreclosure problem - which will only worsen as unemployment continues to rise and as the largely un-talked about ticking time bomb of option-ARM mortgages looks to explode over the next 12 - 18 months, the Fed is feeding bad banks, banks that believe there is no one to which they can actually lend.

Analysts talk about a possible, if not likely, turnaround in auto sales later this year, some suggesting that December 2008 may have actually been the bottom for auto sales. Two questions:

1) As unemployment becomes ever more problematic, who is going to buy these cars?

2) As credit scores decline - as a result of unemployment, bad mortgages, and the rules of credit scoring changing mid-game - who will be able to qualify for a loan?

The likelihood of the stock market not only retesting the November 2008 lows but breaking them, as was reiterated here in December - sorry about the hiatus - is not off the table.

Will there be pockets of strength? Sure. It's more than likely that the worst of the wholesale selling is behind us. So there will be some boats that float, and some that are and will continue to become just plain too cheap to not own if you are looking down the road a few years.

Lots of stocks declined today and the volume behind the declines relative to volume on the buy side was pretty darned heavy. Given the breadth, the good news to take away is that prices could have declined much more than they did. I can easily make a case for many many stocks simply being too cheap to not purchase. But so long as clueless analysts being slow or unwilling to pull the trigger on downgrades and slashing earnings estimates, well cheap is too relative for most folks to be able to sleep at night.

GEORGE "HOOVER" BUSH & HIS FINANCIAL DEBACLE

2008-12-21T17:40:00.003-07:00

No need for editorial comment on this one. Ripped from The New York Times of Sunday, December 21, 2008.

December 21, 2008
The Reckoning
White House Philosophy Stoked Mortgage Bonfire
By JO BECKER, SHERYL GAY STOLBERG and STEPHEN LABATON

“We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.” — President Bush, Oct. 15, 2002

WASHINGTON — The global financial system was teetering on the edge of collapse when President Bush and his economics team huddled in the Roosevelt Room of the White House for a briefing that, in the words of one participant, “scared the hell out of everybody.”

It was Sept. 18. Lehman Brothers had just gone belly-up, overwhelmed by toxic mortgages. Bank of America had swallowed Merrill Lynch in a hastily arranged sale. Two days earlier, Mr. Bush had agreed to pump $85 billion into the failing insurance giant American International Group.

The president listened as Ben S. Bernanke, chairman of the Federal Reserve, laid out the latest terrifying news: The credit markets, gripped by panic, had frozen overnight, and banks were refusing to lend money.

Then his Treasury secretary, Henry M. Paulson Jr., told him that to stave off disaster, he would have to sign off on the biggest government bailout in history.

Mr. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.

“How,” he wondered aloud, “did we get here?”

Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed.

There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.

But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.

As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”

The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.

“There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”

Looking back, Keith B. Hennessey, Mr. Bush’s current chief economics adviser, says he and his colleagues did the best they could “with the information we had at the time.” But Mr. Hennessey did say he regretted that the administration did not pay more heed to the dangers of easy lending practices. And both Mr. Paulson and his predecessor, John W. Snow, say the housing push went too far.

“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”

For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security. The housing market was a bright spot: ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college.

Lawrence B. Lindsay, Mr. Bush’s first chief economics adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.

“No one wanted to stop that bubble,” Mr. Lindsay said. “It would have conflicted with the president’s own policies.”

Today, millions of Americans are facing foreclosure, homeownership rates are virtually no higher than when Mr. Bush took office, Fannie and Freddie are in a government conservatorship, and the bailout cost to taxpayers could run in the trillions.

As the economy has shed jobs — 533,000 last month alone — and his party has been punished by irate voters, the weakened president has granted his Treasury secretary extraordinary leeway in managing the crisis.

Never once, Mr. Paulson said in a recent interview, has Mr. Bush overruled him. “I’ve got a boss,” he explained, who “understands that when you’re dealing with something as unprecedented and fast-moving as this we need to have a different operating style.”

Mr. Paulson and other senior advisers to Mr. Bush say the administration has responded well to the turmoil, demonstrating flexibility under difficult circumstances. “There is not any playbook,” Mr. Paulson said.

The president declined to be interviewed for this article. But in recent weeks Mr. Bush has shared his views of how the nation came to the brink of economic disaster. He cites corporate greed and market excesses fueled by a flood of foreign cash — “Wall Street got drunk,” he has said — and the policies of past administrations. He blames Congress for failing to reform Fannie and Freddie. Last week, Fox News asked Mr. Bush if he was worried about being the Herbert Hoover of the 21st century.

“No,” Mr. Bush replied. “I will be known as somebody who saw a problem and put the chips on the table to prevent the economy from collapsing.”

But in private moments, aides say, the president is looking inward. During a recent ride aboard Marine One, the presidential helicopter, Mr. Bush sounded a reflective note.

“We absolutely wanted to increase homeownership,” Tony Fratto, his deputy press secretary, recalled him saying. “But we never wanted lenders to make bad decisions.”

A Policy Gone Awry

Darrin West could not believe it. The president of the United States was standing in his living room.

It was June 17, 2002, a day Mr. West recalls as “the highlight of my life.” Mr. Bush, in Atlanta to unveil a plan to increase the number of minority homeowners by 5.5 million, was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime.

Mr. West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment — just the sort of creative public-private financing Mr. Bush was promoting.

“Part of economic security,” Mr. Bush declared that day, “is owning your own home.”

A lot has changed since then. Mr. West, beset by personal problems, left Atlanta. Unable to sell his home for what he owed, he said, he gave it back to the bank last year. Like other communities across America, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Mr. Bush’s tour.

“I just don’t think what he envisioned was actually carried out,” she said.

Park Place South is, in microcosm, the story of a well-intentioned policy gone awry. Advocating homeownership is hardly novel; the Clinton administration did it, too. For Mr. Bush, it was part of his vision of an “ownership society,” in which Americans would rely less on the government for health care, retirement and shelter. It was also good politics, a way to court black and Hispanic voters.

But for much of Mr. Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers like Mr. West.

So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.

Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing costs.

And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as Mr. West did. Many economic experts, including some in the White House, now share that view.

The president also leaned on mortgage brokers and lenders to devise their own innovations. “Corporate America,” he said, “has a responsibility to work to make America a compassionate place.”

And corporate America, eyeing a lucrative market, delivered in ways Mr. Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment.

“This administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight,” said L. William Seidman, who advised Republican presidents and led the savings and loan bailout in the 1990s. “To make the market work well, you have to have a lot of rules.”

But Mr. Bush populated the financial system’s alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more.

Like Minds on Laissez-Faire

The president’s first chairman of the Securities and Exchange Commission promised a “kinder, gentler” agency. The second was pushed out amid industry complaints that he was too aggressive. Under its current leader, the agency failed to police the catastrophic decisions that toppled the investment bank Bear Stearns and contributed to the current crisis, according to a recent inspector general’s report.

As for Mr. Bush’s banking regulators, they once brandished a chain saw over a 9,000-page pile of regulations as they promised to ease burdens on the industry. When states tried to use consumer protection laws to crack down on predatory lending, the comptroller of the currency blocked the effort, asserting that states had no authority over national banks.

The administration won that fight at the Supreme Court. But Roy Cooper, North Carolina’s attorney general, said, “They took 50 sheriffs off the beat at a time when lending was becoming the Wild West.”

The president did push rules aimed at forcing lenders to more clearly explain loan terms. But the White House shelved them in 2004, after industry-friendly members of Congress threatened to block confirmation of his new housing secretary.

In the 2004 election cycle, mortgage bankers and brokers poured nearly $847,000 into Mr. Bush’s re-election campaign, more than triple their contributions in 2000, according to the nonpartisan Center for Responsive Politics. The administration did not finalize the new rules until last month.

Among the Republican Party’s top 10 donors in 2004 was Roland Arnall. He founded Ameriquest, then the nation’s largest lender in the subprime market, which focuses on less creditworthy borrowers. In July 2005, the company agreed to set aside $325 million to settle allegations in 30 states that it had preyed on borrowers with hidden fees and ballooning payments. It was an early signal that deceptive lending practices, which would later set off a wave of foreclosures, were widespread.

Andrew H. Card Jr., Mr. Bush’s former chief of staff, said White House aides discussed Ameriquest’s troubles, though not what they might portend for the economy. Mr. Bush had just nominated Mr. Arnall as his ambassador to the Netherlands, and the White House was primarily concerned with making sure he would be confirmed.

“Maybe I was asleep at the switch,” Mr. Card said in an interview.

Brian Montgomery, the Federal Housing Administration commissioner, understood the significance. His agency insures home loans, traditionally for the same low-income minority borrowers Mr. Bush wanted to help. When he arrived in June 2005, he was shocked to find those customers had been lured away by the “fool’s gold” of subprime loans. The Ameriquest settlement, he said, reinforced his concern that the industry was exploiting borrowers.

In December 2005, Mr. Montgomery drafted a memo and brought it to the White House. “I don’t think this is what the president had in mind here,” he recalled telling Ryan Streeter, then the president’s chief housing policy analyst.

It was an opportunity to address the risky subprime lending practices head on. But that was never seriously discussed. More senior aides, like Karl Rove, Mr. Bush’s chief political strategist, were wary of overly regulating an industry that, Mr. Rove said in an interview, provided “a valuable service to people who could not otherwise get credit.” While he had some concerns about the industry’s practices, he said, “it did provide an opportunity for people, a lot of whom are still in their houses today.”

The White House pursued a narrower plan offered by Mr. Montgomery that would have allowed the F.H.A. to loosen standards so it could lure back subprime borrowers by insuring similar, but safer, loans. It passed the House but died in the Senate, where Republican senators feared that the agency would merely be mimicking the private sector’s risky practices — a view Mr. Rove said he shared.

Looking back at the episode, Mr. Montgomery broke down in tears. While he acknowledged that the bill did not get to the root of the problem, he said he would “go to my grave believing” that at least some homeowners might have been spared foreclosure.

Today, administration officials say it is fair to ask whether Mr. Bush’s ownership push backfired. Mr. Paulson said the administration, like others before it, “over-incented housing.” Mr. Hennessey put it this way: “I would not say too much emphasis on expanding homeownership. I would say not enough early focus on easy lending practices.”

‘We Told You So’

Armando Falcon Jr. was preparing to take on a couple of giants.

A soft-spoken Texan, Mr. Falcon ran the Office of Federal Housing Enterprise Oversight, a tiny government agency that oversaw Fannie Mae and Freddie Mac, two pillars of the American housing industry. In February 2003, he was finishing a blockbuster report that warned the pillars could crumble.

Created by Congress, Fannie and Freddie — called G.S.E.’s, for government-sponsored entities — bought trillions of dollars’ worth of mortgages to hold or sell to investors as guaranteed securities. The companies were also Washington powerhouses, stuffing lawmakers’ campaign coffers and hiring bare-knuckled lobbyists.

Mr. Falcon’s report outlined a worst-case situation in which Fannie and Freddie could default on debt, setting off “contagious illiquidity in the market” — in other words, a financial meltdown. He also raised red flags about the companies’ soaring use of derivatives, the complex financial instruments that economic experts now blame for spreading the housing collapse.

Today, the White House cites that report — and its subsequent effort to better regulate Fannie and Freddie — as evidence that it foresaw the crisis and tried to avert it. Bush officials recently wrote up a talking points memo headlined “G.S.E.’s — We Told You So.”

But the back story is more complicated. To begin with, on the day Mr. Falcon issued his report, the White House tried to fire him.

At the time, Fannie and Freddie were allies in the president’s quest to drive up homeownership rates; Franklin D. Raines, then Fannie’s chief executive, has fond memories of visiting Mr. Bush in the Oval Office and flying aboard Air Force One to a housing event. “They loved us,” he said.

So when Mr. Falcon refused to deep-six his report, Mr. Raines took his complaints to top Treasury officials and the White House. “I’m going to do what I need to do to defend my company and my position,” Mr. Raines told Mr. Falcon.

Days later, as Mr. Falcon was in New York preparing to deliver a speech about his findings, his cellphone rang. It was the White House personnel office, he said, telling him he was about to be unemployed.

His warnings were buried in the next day’s news coverage, trumped by the White House announcement that Mr. Bush would replace Mr. Falcon, a Democrat appointed by Bill Clinton, with Mark C. Brickell, a leader in the derivatives industry that Mr. Falcon’s report had flagged.

It was not until 2003, when Freddie became embroiled in an accounting scandal, that the White House took on the companies in earnest. Mr. Bush decided to quit the long-standing practice of rewarding supporters with high-paying appointments to the companies’ boards — “political plums,” in Mr. Rove’s words. He also withdrew Mr. Brickell’s nomination and threw his support behind Mr. Falcon, beginning an intense effort to give his little regulatory agency more power.

Mr. Falcon lacked explicit authority to limit the size of the companies’ mammoth investment portfolios, or tell them how much capital they needed to guard against losses. White House officials wanted that to change. They also wanted the power to put the companies into receivership, hoping that would end what Mr. Card, the former chief of staff, called “the myth of government backing,” which gave the companies a competitive edge because investors assumed the government would not let them fail.

By the spring of 2005 a deal with Congress seemed within reach, Mr. Snow, the former Treasury secretary, said in an interview.

Michael G. Oxley, an Ohio Republican and then-chairman of the House Financial Services Committee, had produced what Mr. Snow viewed as “a pretty darned good bill,” a watered-down version of what the president sought. But at the urging of Mr. Card and the White House economics team, the president decided to hold out for a tougher bill in the Senate.

Mr. Card said he feared that Mr. Snow was “more interested in the deal than the result.” When the bill passed the House, the president issued a statement opposing it, effectively killing any chance of compromise. Mr. Oxley was furious.

“The problem with those guys at the White House, they had all the answers and they didn’t think they had to listen to anyone, including the Treasury secretary,” Mr. Oxley said in a recent interview. “They were driving the ideological train. He was in the caboose, and they were in the engine room.”

Mr. Card and Mr. Hennessey said they had no regrets. They are convinced, Mr. Hennessey said, that the Oxley bill would have produced “the worst of all possible outcomes,” the illusion of reform without the substance.

Still, some former White House and Treasury officials continue to debate whether Mr. Bush’s all-or-nothing approach scuttled a measure that, while imperfect, might have given an aggressive regulator enough power to keep the companies from failing.

Mr. Snow, for one, calls Mr. Oxley “a hero,” adding, “He saw the need to move. It didn’t get done. And it’s too bad, because I think if it had, I think we could well have avoided a big contributor to the current crisis.”

Unheeded Warnings

Jason Thomas had a nagging feeling.

The New Century Financial Corporation, a huge subprime lender whose mortgages were bundled into securities sold around the world, was headed for bankruptcy in March 2007. Mr. Thomas, an economic analyst for President Bush, was responsible for determining whether it was a hint of things to come.

At 29, Mr. Thomas had followed a fast-track career path that took him from a Buffalo meatpacking plant, where he worked as a statistician, to the White House. He was seen as a whiz kid, “a brilliant guy,” his former boss, Mr. Hubbard, says.

As Mr. Thomas began digging into New Century’s failure that spring, he became fixated on a particular statistic, the rent-to-own ratio.

Typically, as home prices increase, rental costs rise proportionally. But Mr. Thomas sent charts to top White House and Treasury officials showing that the monthly cost of owning far outpaced the cost to rent. To Mr. Thomas, it was a sign that housing prices were wildly inflated and bound to plunge, a condition that could set off a foreclosure crisis as conventional and subprime borrowers with little equity found they owed more than their houses were worth.

It was not the Bush team’s first warning. The previous year, Mr. Lindsay, the former chief economics adviser, returned to the White House to tell his old colleagues that housing prices were headed for a crash. But housing values are hard to evaluate, and Mr. Lindsay had a reputation as a market pessimist, said Mr. Hubbard, adding, “I thought, ‘He’s always a bear.’ ”

In retrospect, Mr. Hubbard said, Mr. Lindsay was “absolutely right,” and Mr. Thomas’s charts “should have been a signal.”

Instead, the prevailing view at the White House was that the problems in the housing market were limited to subprime borrowers unable to make their payments as their adjustable mortgages reset to higher rates. That belief was shared by Mr. Bush’s new Treasury secretary, Mr. Paulson.

Mr. Paulson, a former chairman of the Wall Street firm Goldman Sachs, had been given unusual power; he had accepted the job only after the president guaranteed him that Treasury, not the White House, would have the dominant role in shaping economic policy. That shift merely continued an imbalance of power that stifled robust policy debate, several former Bush aides say.

Throughout the spring of 2007, Mr. Paulson declared that “the housing market is at or near the bottom,” with the problem “largely contained.” That position underscored nearly every action the Bush administration took in the ensuing months as it offered one limited response after another.

By that August, the problems had spread beyond New Century. Credit was tightening, amid questions about how heavily banks were invested in securities linked to mortgages. Still, Mr. Bush predicted that the turmoil would resolve itself with a “soft landing.”

The plan Mr. Bush announced on Aug. 31 reflected that belief. Called “F.H.A. Secure,” it aimed to help about 80,000 homeowners refinance their loans. Mr. Montgomery, the housing commissioner, said that he knew the modest program was not enough — the White House later expanded the agency’s rescue role — and that he would be “flying the plane and fixing it at the same time.”

That fall, Representative Rahm Emanuel, a leading Democrat, former investment banker and now the incoming chief of staff to President-elect Barack Obama, warned the White House it was not doing enough. He said he told Joshua B. Bolten, Mr. Bush’s chief of staff, and Mr. Paulson in a series of phone calls that the credit crisis would get “deep and serious” and that the only answer was big, internationally coordinated government intervention.

“You got to strangle this thing and suffocate it,” he recalled saying.

Instead, Mr. Bush developed Hope Now, a voluntary public-private partnership to help struggling homeowners refinance loans. And he worked with Congress to pass a stimulus package that sent taxpayers $150 billion in tax rebates.

In a speech to the Economic Club of New York in March 2008, he cautioned against Washington’s temptation “to say that anything short of a massive government intervention in the housing market amounts to inaction,” adding that government action could make it harder for the markets to recover.

Dominoes Start to Fall

Within days, Bear Sterns collapsed, prompting the Federal Reserve to engineer a hasty sale. Some economic experts, including Timothy F. Geithner, the president of the New York Federal Reserve Bank (and Mr. Obama’s choice for Treasury secretary) feared that Fannie Mae and Freddie Mac could be the next to fall.

Mr. Bush was still leaning on Congress to revamp the tiny agency that oversaw the two companies, and had acceded to Mr. Paulson’s request for the negotiating room that he had denied Mr. Snow. Still, there was no deal.

Over the previous two years, the White House had effectively set the agency adrift. Mr. Falcon left in 2005 and was replaced by a temporary director, who was in turn replaced by James B. Lockhart, a friend of Mr. Bush from their days at Andover, and a former deputy commissioner of the Social Security Administration who had once run a software company.

On Mr. Lockhart’s watch, both Freddie and Fannie had plunged into the riskiest part of the market, gobbling up more than $400 billion in subprime and other alternative mortgages. With the companies on precarious footing, Mr. Geithner had been advocating that the administration seize them or take other steps to reassure the market that the government would back their debt, according to two people with direct knowledge of his views.

In an Oval Office meeting on March 17, however, Mr. Paulson barely mentioned the idea, according to several people present. He wanted to use the troubled companies to unlock the frozen credit market by allowing Fannie and Freddie to buy more mortgage-backed securities from overburdened banks. To that end, Mr. Lockhart’s office planned to lift restraints on the companies’ huge portfolios — a decision derided by former White House and Treasury officials who had worked so hard to limit them.

But Mr. Paulson told Mr. Bush the companies would shore themselves up later by raising more capital.

“Can they?” Mr. Bush asked.

“We’re hoping so,” the Treasury secretary replied.

That turned out to be incorrect, and did not surprise Mr. Thomas, the Bush economic adviser. Throughout that spring and summer, he warned the White House and Treasury that, in the stark words of one e-mail message, “Freddie Mac is in trouble.” And Mr. Lockhart, he charged, was allowing the company to cover up its insolvency with dubious accounting maneuvers.

But Mr. Lockhart continued to offer reassurances. In a July appearance on CNBC, he declared that the companies were well managed and “worsts were not coming to worst.” An infuriated Mr. Thomas sent a fresh round of e-mail messages accusing Mr. Lockhart of “pimping for the stock prices of the undercapitalized firms he regulates.”

Mr. Lockhart defended himself, insisting in an interview that he was aware of the companies’ vulnerabilities, but did not want to rattle markets.

“A regulator,” he said, “does not air dirty laundry in public.”

Soon afterward, the companies’ stocks lost half their value in a single day, prompting Congress to quickly give Mr. Paulson the power to spend $200 billion to prop them up and to finally pass Mr. Bush’s long-sought reform bill, but it was too late. In September, the government seized control of Freddie Mac and Fannie Mae.

In an interview, Mr. Paulson said the administration had no justification to take over the companies any sooner. But Mr. Falcon disagreed: “They absolutely could have if they had thought there was a real danger.”

By Sept. 18, when Mr. Bush and his team had their fateful meeting in the Roosevelt Room after the failure of Lehman Brothers and the emergency rescue of A.I.G., Mr. Paulson was warning of an economic calamity greater than the Great Depression. Suddenly, historic government intervention seemed the only option. When Mr. Paulson spelled out what would become a $700 billion plan to rescue the nation’s banking system, the president did not hesitate.

“Is that enough?” Mr. Bush asked.

“It’s a lot,” the Treasury secretary recalled replying. “It will make a difference.” And in any event, he told Mr. Bush, “I don’t think we can get more.”

As the meeting wrapped up, a handful of aides retreated to the White House Situation Room to call Vice President Dick Cheney in Florida, where he was attending a fund-raiser. Mr. Cheney had long played a leading role in economic policy, though housing was not a primary interest, and like Mr. Bush he had a deep aversion to government intervention in the market. Nonetheless, he backed the bailout, convinced that too many Americans would suffer if Washington did nothing.

Mr. Bush typically darts out of such meetings quickly. But this time, he lingered, patting people on the back and trying to soothe his downcast staff. “During times of adversity, he bucks everybody up,” Mr. Paulson said.

It was not the end of the failures or government interventions; the administration has since stepped in to rescue Citigroup and, just last week, the Detroit automakers. With 31 days left in office, Mr. Bush says he will leave it to historians to analyze “what went right and what went wrong,” as he put it in a speech last week to the American Enterprise Institute.

Mr. Bush said he was too focused on the present to do much looking back.

“It turns out,” he said, “this isn’t one of the presidencies where you ride off into the sunset, you know, kind of waving goodbye.”

Kitty Bennett contributed reporting.

Copyright 2008 The New York Times Company

BOTTOMLESS IRRESPONSIBILITY

2008-12-11T11:22:00.003-07:00

On the plus side, the stock market hasn't tested its November bottom... On the negative side, the stock market hasn't tested its November bottom...yet.

Much negative news has clearly been ingested, if not digested by the financial markets - rising unemployment, declining industrial and business activity - worldwide, the spending of several trillion dollars domestically so far with little to show for it. Although, one must admit, had the Treasury and Federal Reserve NOT printed trillions of dollars to date, exactly where would we be? I shudder to ask and cringe at responding.

We have not reached the bottom of the burst housing bubble. Previously creditworthy folks still cannot buy automobiles. Many banks that claim to be refinancing difficult mortgage loans on better terms are often refinancing in such a way as to actually increase a homeowner's monthly payments.

A decision on federal loans to U.S. automakers has yet to be made - by anyone. It seems to be a "let them eat cake" mentality with no regard for human beings with jobs and mortgages, let alone buying power.

While Wall Street and an as yet unknown number of investors try to sort out the estimated $50 billion Bernard Madoff scam - "eh small potatoes!" - we can only wonder...

As has just begun to be reported in recent days and weeks, have we discounted the millions of projected mortgage defaults yet to come over the next several years? Have we discounted rising defaults on credit card and other consumer debt? How about commercial mortgage debt?

How long will the prices of oil, gasoline, natural gas and fuel oil remain relatively low? Will OPEC succeed in slashing production as demand declines worldwide, something they have usually failed to do?

How long will deflation be with us? When will the enormous wave of inflation that we have created reach our shores?

I truly hate to toss out more questions than answers at this writing. But here's the point...we can all take for granted that the stock market - historically - has been a pretty accurate leading indicator of turns in the economy. But in order to accomplish that, it needs reliable data.

Sorry...not enough data. Far too many unknowns. This recession is unlike any recession in the real life memories of those who are managing money.

Cash remains king (or queen).

Not Since the 1930s

2008-12-01T14:33:00.003-07:00

Not since the late 1930s has the stock market technically been as low as it is now. After a week of rallying, the DJIA dropped 680 points, surrendering more than half its recent gains. The S&P 500 Index and NASDAQ responded in kind, with the broader index shedding nearly 8 percent in one day.

The economic news is bad - manufacturing worldwide, unemployment data, newly announced pending layoffs from major financial institutions.

And worse yet, both Ben Bernanke and Hank Paulson spoke today, reinforcing investors' lack of confidence in the Bush administration's team of economic knuckleheads.

Wall Street remains slow to comprehend the depth of this recession. Hence, in addition to their employers' lack of desire to see stocks' earnings estimates reduced, let alone SELL recommendations shouted out, analysts simply lack the broader outlook to highlight the dangers that still remain.

If anyone expects that we will not see continued waves of tax selling before year-end, well the awakening may be very rude. We will no doubt see a retest of earlier lows. We are less than 600 DJIA points away. I've suggested even lower lows before this market reaches bottom, 7200 on the DJIA and 700 on the S&P500. Investors strongly dislike uncertainty and we have months of it ahead of us.

The good news is that the market will eventually truly reach a bottom. But it won't be a bottom based on wishful thinking or some respected investment strategist waving a magic wand. We will need evidence of a slowdown of the slowdown. And regardless of where you look, we are not close to having that vision.

CITI, OBAMA & RALLIES

2008-11-24T09:24:00.002-07:00

First off, the federal bailout of Citigroup (C).

After "forcing" Citi to take $25 billion in TARP funds from the Economic Emergency Stabilization Act of 2008 last month, and watching Citi just sit on the money rather than loaning any of it out as was the intent, Treasury comes to Citi's stockholders' rescue by giving it yet another $20 billion.

In exchange, us taxpayers receive $27 billion of preferred stock paying an 8 percent annual dividend, plus warrants to purchase 254 million shares of Citi common stock at $10.61 per share (Citi is trading this morning around $6 per share).

Given that Citi's total market value was less than $25 billion on Friday, it seems to me that we have the short end of the deal. Oh did I mention that we also cover 90 percent of the losses from a $306 billion pool of toxic garbage mortgage-backed and other securities after Citi absorbs the first $29 billion of pretax losses?

Sounds like a real deal for taxpayers! The common stock warrants will represent all of about 4 percent of Citi's total common stock should the warrants be exercised. Even if you assume that Citi's stock returns to its all-time high of some $55 per share, taxpayers stand to make all of $11 billion for assuming what could amount to $60 billion or more of losses on Citi's toxic asset portfolio.

Right now, it's difficult to estimate the extent of possible taxpayer losses. Anything is a guess, given the lack of public disclosure. I'm not sure if Treasury even knows what they've gotten into.

Citi has been badly managed for years. They've been encouraged to create, expand and manage tens of billions of dollars - if not more - of bad mortgage products and other derivative products.

But we had to save Citi. The largest bank and financial conglomerate was again "too big to fail." Citi's failure as a company, if not a bank, would have swamped the economy ad financial markets.

But we did not extract a sufficiently large price from Citi. I can only account for this because the guys running Treasury are all pals with the idiots running Citi - into the ground.

The Obama Rally

The Obama team has put together a qualified and competent economic team. It appears that they will propose an enormous stimulus package upon taking office on January 20. The rally in the market is a reflexive "anything should help" rally, not to mention that the appointment of anybody to fill what has become a vacuum of action in Washington is better than anything.

The Market

We are experiencing a very common rally in a bear market, not a bottoming of a bear market.Even if the DJIA and the S&P 500 were to recover all the way to 9500 and 1,000, respectively, it alone would not suggest the end of the downtrend. Don't forget. We can look forward to at least another year of very bad economic news. AND the auto industry mess is still unresolved.

Unless you are a trader, the best strategy is to take advantage of major rallies to lighten up on equities holdings. I expect that safe, high dividend yield stocks will continue to outperform and a good strategy will continue to be to buy them on weakness.

But don't get fooled. We can look forward to lots more pain.

BABIES & BATH WATER

2008-11-20T15:06:00.005-07:00

HOLY COW!

I suppose if you were not prepared for the stock market's devastation and its wholesale destruction of wealth and security, what could you say about the ferociousness of this bear market?

Today alone:

S&P500 Index: 752.44 down 54.14 or 6.71 percent. Intraday low of 747.78. Lowest level since 1997.

Dow Jones Industrials Average: 7552.29 down 444.99 or 5.56%. Intraday low of 7507.60. Lowest level since 2002.

NASDAQ: 1316.12 down 70.30 or 5.07%. Intraday low of 1314.90. Lowest level since 2003.

In past months, when this observer suggested that the stock market could likely see the DJIA as low as 7,200 and the S&P500 Index at 700, the targets were predicated on several factors: 1) a bear market decline on the order of the 1973-75 decline - that was around 48 percent, and 2) a return to the price/earnings valuations (PE) in the pre-1995 era - a much lower average PE of around 14 or so.

So where are we now?

Since peaking at 1565, the S&P500 is down 52 percent. The DJIA is down 47 percent. NASDAQ is down 74 percent.

Honestly, you have to go back to the 1930s to see such breadth of declines. From March 1937 to March 1938, the stock market declined by more than 54 percent. Except for November 1929 through July 1932, when the market declined by a staggering 86 percent, no other bear market has been as powerful.

Let's look at some scenarios in attempting to value stocks going forward through this dramatic recession. Everything is based on a return to an historic "norm" PE of 14.

S&P500 earnings decline to 2005 levels: S&P500 value 979

S&P500 earnings decline to 2002 levels: S&P500 value 386

S&P500 earnings decline to 1997 levels: S&P500 value 556

Using a simplistic approach of averaging those corporate earnings levels, you can make a case for the S&P500 Index declining to 640. That would translate into a DJIA of 6400.

Recently, Standard & Poor's reduced their earnings forecast on the Index component companies for 2009 to about $49. Applying a PE of 14 to that number and you arrive at 686. By the way, the average S&P500 earnings for the aforementioned three periods was about $46.

The trouble is this, as if those numbers are not frightening enough. How predictable are corporate earnings in this environment? If the Big Three auto manufacturers cannot recover, the ramifications for the entire economy are monumental. Metals producers, electronics, glass, rubber, carpet, etc. will all be severely affected.

The other assumption here is that a PE of 14 will be seen as reasonable - not 12 or even 10. And if you lived through the 1970s and were an investor, those lower PEs were commonplace.

Bottom line: 7200 on the DJIA and 700 S&P500 may be too easy to reach. Investment managers and analysts that are suggesting we are at or very close to a stock market bottom should be history. They have no reasonable basis for such conclusions.

I have been pointing out the high dividend yields of many quality companies that are likely to survive the current devastation. Yet the yields continue to increase. The suggestion to me is that investors don't care. They just want to preserve their principal. As do I and as should you.

CASH REMAINS KING

2008-11-19T14:04:00.004-07:00

Today, the stock market continued its trend to testing, and more than likely, taking out the prior October 2008 lows. In fact, both the DJIA and the S&P500 closed at their lowest since 2003.

The DJIA closed down more than 5 percent at 7997. The S&P500 closed down more than 6 percent at less than 807, smashing its October low of 830.

I haven't even commented on NASDAQ, which declined more than 6.5 percent today, blasting below its October lows.

While, as previously stated ad nauseum, we will likely see periodic rallies from such new lows, the stage seems set to reasonably expect to see the market continue to decline to 7200 DJIA and 700 S&P500.

Citigroup (C), the financial services and banking behemoth, set the tone for today, dropping more than 23 percent. Insurance companies, considered by average Americans to be pretty safe places, saw enormous losses, continuing trends not seen since the 1930s.

Pretty much, no place seems safe, feels safe if you are an investor. Oh, well gold was up 30-cents and ounce.

If you've been following any of the Capitol Hill testimony by the Big Three auto makers, I'm sure you are not reassured. After two days of testimony by the CEOs of GM, Ford and Chrysler, and the President of the UAW, no one in the Senate or the House is flashing any strong signals that they believe anything they are being told. It has been quite the spectacle. The CEOs of these manufacturing giants could not even tell their inquisitors how much cash they had on hand nor how much they really needed, let alone precisely when. Are you feeling warm and fuzzy yet?

If anything is being accomplished by these hearings, it is that management of these companies is as incompetent as anyone has been willing to suspect. Furthermore, they did their very best, including GM Chairman/CEO Wagoner in later interviews, how valuable they were to a recovery process. Really?

These are the folks that, on one hand, tout how many of their vehicles get more than 30mpg in the U.S. - on the highway. But guys, how about how many get more than 30mpg in urban driving? Hmmm?

They talk happily about how many new hybrids they "plan" to introduce in two years. But why didn't you produce them earlier? Like Toyota? Like Honda? Where has your management been? What have THEY been driving? SUVs?

The sad thing is that no one has grilled them about the higher fuel efficiency of dozens of models they manufacture and sell in Europe, and why they do not offer them here. No doubt, they have plenty of excuses.

Sadly, on one hand these guys just have to go. When I was an analyst in the '80s - back in Detroit of all places - it was all too evident then that U.S. auto management was in need of a major tuneup. But these companies cannot be allowed to fail. As has been accounted here before, there are simply too many jobs at risk, too many industries, too many small businesses and large businesses.

The auto execs seem to place the bulk of blame for their predicament on the recent economic downturn and tightening of credit. It's not like they've helped their own cause, requiring credit scores of well in excess of 700 - well in excess of 700 - to qualify for an auto loan. In light of this, to whom do they think they'll be selling cars? To Wall Street investment bankers? Oh gee. I forgot. They are all out of work. No job, well maybe no loan.

They've helped destroy their own market.

I fully expect that Congress will come to the rescue. Why not?! They've "tried" to rescue our major banks and the nation's largest insurance company, AIG, not to mention Fannie Mae and Freddie Mac.

Giant strings need to be attached to any auto bailout. This issue of more efficient European vehicles being available for manufacture here needs to be addressed. Labor costs MUST be brought down to levels competitive with domestic operations of foreign producers such as Honda, Toyota and Hyundai. Hybrid technology needs to be rolled out much much faster. GM needs to forget about charging - pun intended - $40,000 for an electric Chevy Volt.

Business as usual, led by the same tired management, must come to an end. Out-of-the-box thinking and management has to be injected into this industry. If not, they'll be back to the public trough sooner than you'll need to fuel up your Cadillac Escalade.

WHITHER THE STOCK MARKET?

2008-11-13T10:23:00.005-07:00

This morning, we find ourselves - well the stock market - on the predicted way to test the October 2008 lows of 7,900 on the DJIA and 830 on the S&P500 Index.

As I write this, we are at DJIA 8,086 and S&P500 830. In just the past six trading days, the DJIA has fallen nearly 15 percent, the S&P500 16 percent. Finally, the markets are focused on this powerful recession and the seeming inability of the U.S. Treasury or the Federal Reserve to formulate an effective policy to mitigate damage.

With 240,000 job losses last month, unemployment is now the highest in a quarter of a century, at 10.1 million Americans. Add in the approximate 17 million that have dropped out of the workforce, and "real" unemployment/underemployment exceeds 17.5 percent!

There will likely be a lot of coal in holiday stockings this year. That does not bode well for retailers, who earn as much as 50 percent of their annual profits and/or sales from the winter holiday season. Circuit City is done. Linens n Things is done. Mervyn's. Fortunoff. Lillian Vernon. Sharper Image. STA Restaurants (Bennigan's). Airlines, banks, investment banks. The list marches on. Sadly, it's not over.

These companies, both well-managed and not, all represent jobs and human lives.

A few weeks ago, I suggested that the stock market has the potential to slide further to new lows, down to perhaps 7,200 DJIA and 700 on the S&P500 Index. I have not changed that position.

Also, I suggested that investors, should they not be able to resist the temptation to be invested rather than remaining in cash, consider stocks that have historically high and "likely" safe dividend yields. Please refer to the disclaimer stated elsewhere on this site. I'd like to repeat the list of examples from October 17, with the yields then and now:

Pfizer (PFE) - now 8.1% then 7.54% P/E below 10
Bristol-Myers Squibb (BMY) - now 6.3% then 7.18%
Dow Chemical (DOW) - now 7.9% then 6.92% P/E below 10
Verizon Communications (VZ) - now 6.3% then 6.71%
AT&T (T) - now 6.0% then 6.28% P/E below 10
General Electric (GE) - now 8.2% then 6.23% P/E below 10
International Paper (IP) - now 8.2% then 5.58% P/E below 10
Eli Lilly & Co. (LLY) - now 5.8% then 5.47% P/E below 10
Glaxosmithkline (GSK) - now 5.4% then 5.42%
Merck & Co. (MRK) - now 5.6% then 5.39% P/E below 10
DuPont (DD) - now 6.1% then 4.85% P/E below 10
Kraft Foods (KFT) - now 4.3% then 4.22%

Volatility will continue. Don't get me wrong. But it is much better to get paid while you are waiting for the market to bottom. So far every pundit and expert that has suggested the formation of a market bottom has been, well dead wrong. Historically, the kind of stocks that I have illustrated here do not trade with such high dividend yields. Sure, there is always the danger of a dividend being cut. But companies such as these have long records of dividend maintenance, if not annual increases, regardless of recession or expansion.

Buyer Beware. Your stockbroker is not your friend - for the most part, rarely has been. Analysts are always late to the table to downgrade stocks as evidenced by a recent downgrading of General Motors just days ago. Mutual fund managers don't get paid for holding 80 percent cash - as I am. Buy and hold doesn't work. Preservation of capital in this most uncertain of environments is paramount.

What are YOU doing?

AMERICAN AUTO INDUSTRY - TO SAVE OR NOT TO SAVE

2008-11-12T15:23:00.006-07:00

The "Big Three," U.S.-based automobile manufacturers, General Motors (GM), Ford Motor (F) and Chrysler (C), are all failed companies - in the United States that is.

With the past year's spike in gasoline prices, the lucrative market for gas-guzzling SUVs, pick-up trucks, Hummers, luxury cars, and the myriad of other inefficient products has collapsed. The Big Three are now left with a mix of uncompetitive products that few people want, let alone can afford.

GM promises better times ahead - maybe in 2010 - with their electric Chevrolet Volt. Sounds promising. But GM, in their infinite wisdom, thinks that Americans will be willing, not to mention able, to shell out perhaps $40,000 for a Chevy Volt, rationalizing it because they will have to spend that much less for fuel. Here's the problem with GM's lack of thought: who is going to finance $40,000 automobiles for the middle-class? Banks? GMAC?

With the U.S. in the midst - well just in the early stages - of a major recession, people losing jobs by the hundreds of thousands, consumers slamming the breaks on discretionary expenditures (like new cars), and lenders tightening their standards, who will be left standing to buy the ill-priced Chevy Volt?

The U.S. auto industry has been mismanaged for decades. Of that, there is no doubt. The market generally allows most mismanaged companies to fail, to file for Chapter 11 bankruptcy protection, to hopefully reorganize - or liquidate and go out of business. However, given the state of the U.S. economy, thanks in every large part to an unregulated mortgage securities industry, "too big to fail" is the anthem of the day.

Treasury Secretary Henry Paulson and his crew are so perplexed as to what to do to stop the hemorrhaging, they seem to have given up on the $700 billion plan to buy "toxic" securities - mortgage-backed securities - from banks and other financial institutions. Taxpayer money is being used to make direct investments in banks - oh, and the insurance giant and world's worst speculator, AIG - hoping that the banks will actually lend it out. But now the banks have a problem, an increasingly huge problem. To whom can they lend these tens of billions? Consumers? With job losses mounting and no daylight in sight, fat chance. Businesses? Capital spending is dropping like a dead weight in industry after industry. Retail giants are slashing spending on inventories, new retail outlets, closing less profitable ones, even closing up shop entirely - think Circuit City and Linens n Things, etc. Auto dealers? Surely you jest.

But back to automobiles. This is what we need to know:

According to the Center for Automotive Research (CAR), as of September 2008, the Big Three employed 239,341 hourly and salaried workers, the motor vehicle and parts industries directly employed 732,800 workers in the U.S. That's a total of more than 771,000 employees. Spinoff employment, defined by CAR as expenditure-induced jobs, or jobs associated with restaurants, dry cleaners, banks and other retailers and services used by those employees, as well as suppliers to the motor vehicle and parts manufacturers, totaled 1,427,663 employees. That is a total of about 2.4 million jobs.

CAR recently prepared a flawed report titled "The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers." Dated November 4, 2008, I say flawed because while they diligently used two scenarios for their analysis, one reviewing the effects of a 100 percent shutdown of Big Three auto manufacturing in the U.S., the other - and more plausible - a 50 percent reduction, oddly enough they assumed that all of the direct Big Three employees would be out of work in the first year. I have to assume that this was simply an error, badly proof-read by two PhDs. If I take the liberty of focusing on their 50 percent reduction scenario - which would be closer to the mark if we witnessed GM halting substantial production and Ford and/or Chrysler contracting - and reducing their projection of nearly 2.5 million immediate job losses by reducing their estimate by some 150,000. This leaves job losses at "only" about 2.3 million.

At the Big Three, these are classic middle-class jobs. In 2007, production workers earned an average of $67,480, skilled workers $81,940 (U.S. Dept. of Labor, Bureau of Labor Statistics data). While anyway you evaluate this data, we are talking about an enormous amount of human pain. 2.3 million of our friends, family and neighbors losing good-paying jobs, dignity and their ability to pay their mortgages, credit cards, college tuition, property, sales and income taxes, even WalMart bills.

In fact, the flawed version of CAR's analysis estimates that personal income would decline in the first year by some $150 billion, personal income taxes by some $24 billion, and Social Security receipts by $21 billion.

The analysis did not address the potential impact on the ongoing housing price decline spiral, something that is absolutely critical to stop.

Can we, as a nation, really afford to allow any of the Big Three to fail, to substantially contract or even close? This is both an economic question and a moral question. Regardless of how we feel about the historically incompetent management of the auto industry in the U.S., the potential cost of a federal bailout is dwarfed by the potential tsunami cost to the economy. While we can readily estimate the immediate effects of a catastrophic failure of a critical manufacturing industry, it is far more difficult to measure the longer-term effects. CAR makes an attempt to do this. However, in their analysis, they seem to assume that many of these folks will fairly rapidly find themselves back at work, within a year or two. I'm not sure how plausible that is, are you?

While a lot of discussion has been fixated on the high production costs of the Big Three in the U.S. - high salaries and benefits, skyrocketing health care costs, pension costs - and these certainly are a competitive reality, less often is it mentioned that the root cause of the Big Three's predicament is their failure to produce desirable, fuel-efficient cars in the U.S.

Let's look at who produces what, based on federal government fuel economy measures of the 2008 model year. This list includes ONLY passenger cars manufactured in the U.S. Also, these measures are based on highway mileage, not city driving (which I believe to be a better measure of fuel economy).

Chrysler 29.3 mpg
Ford 29.5 mpg
General Motors 29.4 mpg

Honda 35.2 mpg
Nissan 33.5 mpg
Toyota 34.7 mpg

The difference between the foreign manufacturers' U.S. production and the Big Three is glaring.

But following is what really stands out as almost criminal:

The Civil Society Institute (CSI) is a not-for-profit think tank that focuses on energy and ecological issues. They illustrate what they call a startling “fuel-efficient car gap” between autos manufactured and sold in the U.S. versus Europe.

CSI found that the number of vehicle models sold in the United States that achieve combined gas mileage of at least 40 miles per gallon actually has dropped from five in 2005 to just two in 2007 — the Honda Civic hybrid and the Toyota Prius hybrid.

CSI states that "Overseas, primarily in Europe, there are 113 vehicles for sale that get a combined 40 mpg, up from 86 in 2005. Combined gas mileage is the average of a vehicle’s city and highway mpg numbers.
CSI further states that nearly two-thirds of the 113 highly fuel-efficient models that are unavailable to American consumers are either made by U.S.-based automobile manufacturers or by foreign manufacturers with substantial U.S. sales operations, such as Nissan and Toyota.

"These cars sold in Europe meet or exceed U.S. safety standards, so there is no reason why they shouldn’t be made available to U.S. consumers," said CSI President Pam Solo.

In fact, the bottom line is that, based on the same "combined gas mileage" standard, automobiles sold in Europe are about twice as fuel efficient as autos sold in the U.S.

So what's wrong with this picture? For years, it has been speculated and/or observed that the Big Three actually know how to produce more fuel efficient automobiles. They have fought increased federal and state (California) standards for decades - successfully, whining that they either did not have the technology of it might bankrupt them.

Certainly, if the Big Three began manufacturing many of the cars here that they do so overseas, we would not solve the energy crisis overnight. There are well over 250 million automobiles on the road in the U.S. It would likely take more than 20 years to replace all of them with more fuel efficient vehicles. But as we built and sold them, we would so a solid, incremental decline in the need for importing crude oil and gasoline from volatile foreign nations, eventually eliminating the need. No amount of new oil drilling in the U.S. would come close to having that impact - ever.

So how do we proceed? The Big Three are suggesting bailout packages ranging from $25 billion to $50 billion. Seems like pocket change compared with the well over $1 trillion the federal government has already committed to saving the U.S. economy. These "bailout" estimates are dwarfed by the financial impact of sitting back and allowing GM or Ford or Chrysler to slip down the drain. remember, CAR estimates the financial impact of a 50 percent contraction of the industry in the first year alone at nearly $200 billion, with lasting effects for years to follow.

Financially, the argument for a bailout is obvious and compelling, the argument against a bailout riddled with political and economic inconsistency.

But can we trust current management of any of the Big Three with the task of rebuilding the U.S. auto industry? Look at their track records. Their companies are where they are largely because of their decisions to produce what they produced, to go for the huge profits from selling fuel-guzzling behemoths. Now many academics and so-called experts argue that their role is to produce and sell what their customers tell them they want. But tell me: which customers haven't wanted more fuel efficient vehicles? At any time? To a product end-user, lower operating costs is lower operating costs. Families and businesses, alike, benefit from lower operating costs.

Now the Big Three have argued for decades that producing fuel efficient vehicles, "even if it were possible," would add to their costs and deter buyers. Really?

The Big Three and others are selling cars - granted, small cars - for under $10,000 outside of the U.S. True, the average price of a car in Europe is much closer to U.S. prices. In some countries, they are much higher, some about the same, some lower, depending on a bizarre array of tax policies.

But surely, the Big Three have the technology and capability to transfer their foreign expertise to the U.S. Any bailout of the Big Three MUST require a wholesale transformation of vehicle production here and preserve jobs. It must emphasize the scale of fuel economy they produce routinely in Europe and have deliberately failed to offer here at home.

Strong political will is required for this. Congress must hear from its constituents on this. Do we really want to see 2.3 million of our neighbors lose their jobs, more homes plummet into foreclosure, further dragging our home values down? How about all of you in retail and other businesses that rely on stable employment?

It is time to be heard on this issue. Do it.

Charter for Compassion

2008-11-11T09:08:00.003-07:00

A Charter for Compassion, crafted by a group of leading inspirational thinkers from the three Abrahamic traditions of Judaism, Christianity and Islam and based on the fundamental principles of universal justice and respect.

The TED Prize is presented to three individuals each year to support an idea that can change the world. In 2008, Karen Armstrong, author and religious thinker, received the Prize and was asked to make one wish. Her wish was for TED's assistance in the creation, launch, and propagation of a Charter for Compassion. The Charter will reconnect people of all faiths to the core idea that all traditions share: The Golden Rule. It is a grassroots effort to lift the voice of compassion above the current noise of hate, violence, and division.

The Charter will be written by the world using an innovative Internet platform and will be guided and finalized by a council of religious leaders. The Charter for Compassion website will be launched on November 11th, 2008 and will be a place for people to submit their own words and read, rate, and comment on others submissions.

Beyond the Charter itself, the website will be a place for the world to share their personal stories of compassion. It is imperative that we reflect the voices of people of all religions, ethnicities, languages, countries, and backgrounds.

The goal is to have a bank of narratives on how compassion (or the lack thereof) has touched individual lives, captured in the speaker’s native language. We are looking for personal stories; stories that overcome the boundaries of religion and culture, and show what it means to live a life of compassion.

People want to be religious, says scholar Karen Armstrong; we should act to help make religion a force for harmony. She asks the TED community to help her build a Charter for Compassion – to help restore the Golden Rule as the central global religious do

Karen Armstrong is a provocative, original thinker on the role of religion in the modern world.

Why you should listen to her:

Religious thinker Karen Armstrong has written more than 20 books on faith and the major religions, studying what Islam, Judaism and Christianity have in common, and how our faiths shaped world history and drive current events.

A former nun, Armstrong has written two books about this experience: Through the Narrow Gate, about her seven years in the convent, and The Spiral Staircase, about her subsequent spiritual awakening, when she developed her iconoclastic take on the major monotheistic religions – and on the strains of fundamentalism common to all. She is a powerful voice for ecumenical understanding.

Armstrong's TED Prize wish asks us to help her assemble a Council on Compassion, where religious leaders can work together for peace.

"I say that religion isn't about believing things. It's ethical alchemy. It's about behaving in a way that changes you, that gives you intimations of holiness and sacredness."

Karen Armstrong on Powells.com

PLEASE VISIT:

http://www.tedprize.org/category/karen-armstrong/

WE HAVE SPOKEN

2008-11-05T09:41:00.002-07:00

Not much to say this morning. So many of us are grateful for the opportunity to have been able to volunteer and serve so many candidates this year, especially President-Elect Barack Obama. And many of us can now take some time and rest, recuperate and re-energize, for the BATTLE of HOPE has just begun.

So much more work to do: revitalizing the economy, helping those among us that are most in need, renewing our commitment to education, changing our health care system so that its emphasis is better placed on benefiting its users, restoring the world's confidence and trust in America, ENDING the immoral War in Iraq and bringing our sons and daughter safely home. And so many other issues to effectively address.

Obama's election is a milestone in so many ways. Many interest groups will claim that it is THEIR triumph. But it is everyone's triumph.

I look forward to our rights under the U.S. Constitution being fully restored. I look forward to fair trade replacing free trade. I look forward to a revised tax system that maintains its progressive formula while improving the position of the lower and middle classes as those that have benefited most in recent years pay a fairer share. I look forward to the Medicare Drug Plan being revised so that the federal government can negotiate pricing with pharmaceutical companies - just like the Veteran's Administration has done for years. I look forward to a greatly accelerated renewable and alternative energy program that ends our reliance on imported fossil fuels forever. I look forward to the use of diplomacy and the end of the Bush/Cheney "bombs first" policies.

Nothing will be easy. But the tone has been set.

If you were like me, you may have shed tears at some point yesterday. For me, the first wave hit at about 2:30pm Mountain time, as I was home for half an hour, taking a break from my Campaign volunteer duties, relaxing into my routine meditation rhythm. Then again, last night during Obama's Chicago speech.

While I have either campaigned or phone banked or canvassed or simply showed my support for many presidential candidates over the decades, beginning with Robert F. Kennedy's candidacy in 1968, this campaign for Obama has truly been the most transformative in so many ways.

As a nation, we have the opportunity to awaken to a more spiritual, less combative rising sun. Let us all take stock of the challenges that we all face, both in America and worldwide. We have the opportunity to retake the higher moral ground as a nation.

Let us all hold our government accountable. Let us all continue to raise our voices in support of the issues that we hold dear.

BACK TO THE MARKETS

2008-11-03T09:22:00.002-07:00

As we find ourselves on the eve of Election Day, with lots of questions to open up regardless of who wins, a quick comment on the state of the stock market and the economy.

We had a good rally in equities last week, but we still closed out one of the worst months in stock market history. It is strange how many market pundits and professionals feel good about the markets as a result. Essentially none of the fundamentals have changed.

* Unemployment is going to increase substantially.

* The nation's manufacturing index has seen its bottom fall out, declining to its lowest levels since 1982.

* General Motors and Chrysler are pleading for a federal bailout. Personally, I prefer to see bankruptcies, the old fashioned way to restructure badly managed businesses. GM and Chrysler dug their own holes, relying on low MPG, bloated and expensive vehicles rather than offering a broad range of products that actually appeal to a broad market.

* Many people see uncertainty as far as government fiscal policy, deficit management, etc. regardless of who wins tomorrow. So safe havens in the stock market continue, in my opinion, to be well positioned companies that pay good dividends and have the wherewithal to continue to pay them during a big recession. I've mentioned many of these names in prior posts.

* While we have been looking for lower interest rates internationally as well as domestically, we really haven't seen sufficient cuts as yet. We might; I would not take the negative argument for granted. Big European rate cuts, as well as cuts in China, would go a long way to mitigating worldwide recession. But it is still an uncertainty to be considered when investing. Insufficient cuts would be viewed negatively by the investment community. But even big rate cuts may not have any positive effect, at least lasting positive effect, since we still cannot accurately forecast the breadth and length of the recession.

* We are seeing some progress in the financial community regarding home mortgages, with JPMorgan Chase doing workouts on bad WAMU mortgages, at least on a temporary basis. But with a potential flood of two million or more possible foreclosures over the next several months, much more must be done.

* We still face uncertainties regarding potential default increases on auto and credit card debt.

* The still unregulated, decentralized credit default swaps arena, a $62 Trillion or so market, remains a huge black cloud over the markets and economies worldwide. Even if we are able to move forward with regulating this market, there could be major unpleasant "surprises."

Bottom line: there is little logical rationale for markets to continue a sustained rally from its October 2008 lows. That said, while we could certainly see ongoing rally periods, potentially of explosive nature, they are likely to be short-lived. Markets dislike uncertainty, even if some pundits and professionals, alike, voice delight about what they think are low valuations. Remember: valuations based on earnings forecasts are pretty much worthless as we enter recessions. Analysts are universally slow in cutting forecasts, and universally laggards in issuing outright SELL recommendations.

All of this suggests a continuing bias towards not only testing October's lows, but very possibly establishing new ones. You can choose to sell on rallies or buy on further declines. I'm not so sure about buying on further rallies unless you are getting good, safe dividends as insurance along the way. It's simply speculation.

As the computers and androids always say in science fiction films and novels, "NEED MORE DATA."

Stock market bottoms are

VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE

2008-10-31T10:47:00.004-06:00

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TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS

RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES
RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES
RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES
RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES

HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL

EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION

VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS

JOHN MCCAIN

2008-10-31T10:26:00.002-06:00

http://www.youtube.com/watch?v=GEtZlR3zp4c

http://www.youtube.com/watch?v=Lh-T2iGkLJY&feature=channel

http://therealmccain.com/

http://bravenewfilms.org/blog/38133-mccain-s-spiritual-guide-wants-america-to-destroy-islam

http://bravenewfilms.org/blog/31567-john-mcbush-2008

http://bravenewfilms.org/blog/34701-why-won-t-mccain-support-our-vets

http://votevets.org/index_html

http://www.votesmart.org/issue_rating_category.php?category=66&go.x=2&go.y=12&can_id=53270&type=category

OBAMA'S MESSAGE TO AMERICA

2008-10-30T10:27:00.001-06:00

In case you didn't catch it Wednesday evening:

http://www.youtube.com/watch?v=GtREqAmLsoA

PALIN'S $40 BILLION NATURAL GAS PIPELINE MYTH

2008-10-29T14:07:00.003-06:00

You can fool a good portion of the people a good portion of the time.

Simply by repeating a lie over and over again, and having the media simply look the other way and not ask the correct questions, a lie can fester into a perceived truth. Such is the myth of the Alaskan natural gas pipeline that Vice Presidential candidate and newly annointed "wack job," Sarah Palin, perpetuates during the closing days of the presidential campaign. And of course, poor John McCain bought it hook, line, and sinker.

Here are the simple facts, much of which is excerpted directly from the web site of TransCanada Corporation.

On August 1, 2008, TransCanada Corporation (TSX, NYSE: TRP) (TransCanada) received the support of the Alaska Legislature to award it a license for the Alaska Pipeline Project under the Alaska Gasline Inducement Act (AGIA).

"The Legislature’s decision represents a significant milestone in advancing this major natural gas pipeline project to connect stranded U.S. natural gas reserves to Alaskan and Lower 48 consumers. We are pleased to receive this vote of confidence from the representatives of the people of Alaska," stated Hal Kvisle, TransCanada’s president and chief executive officer. "This ratification of our license under AGIA will facilitate TransCanada’s continuing commercial negotiations with potential shippers, improving the likelihood of a successful open season and the construction of a natural gas delivery system from Prudhoe Bay to Lower 48 markets."

TransCanada will now move forward with project development, which will include engineering, environmental reviews, aboriginal relations and commercial work to conclude an initial binding open season by July 2010. During this period, TransCanada will continue its efforts to align with potential shippers. If sufficient firm contracts are secured in the open season, TransCanada would begin construction after regulatory approvals are received. TransCanada is targeting to have the pipeline in service by September 2018.

TransCanada applied under AGIA to build a 4.5 billion cubic feet per day (bcf/d), 48-inch diameter natural gas pipeline running approximately 1,715 miles (2,760 km) from a new natural gas treatment plant at Prudhoe Bay on Alaska’s North Slope to Alberta. Integration of the pipeline with TransCanada’s Alberta System will provide access to diverse, Lower 48 markets across the U.S. The application includes provision for expansions up to 5.9 bcf/d through the addition of compressor stations in Alaska and Canada.

With more than 50 years’ experience, TransCanada is a leader in the responsible development and reliable operation of North American energy infrastructure including natural gas pipelines, power generation, gas storage facilities, and projects related to oil pipelines and LNG facilities. TransCanada’s network of wholly owned pipelines extends more than 59,000 kilometres (36,500 miles), tapping into virtually all major gas supply basins in North America.

OKAYYYY THEN. WINK WINK

Here's the plain English:

The pipeline project is still in the earliest planning stages. In fact, you could say that it isn't even in the "planning stage." Rather, it is in the CONCEPTION STAGE. Largely where it has been for years and years. The only thing that has changed since Palin became governor is that TransCanada now has the rights to "think" about building a pipeline. NO CONSTRUCTION CONTRACT. NO CONSTRUCTION HAS BEGUN. NO HARD DEADLINE OR TARGET FOR GAS DELIVERY. NADDA. ZILCH. TransCanada is performing some engineering and environmental work. But that's about it.

During 2007 and 2008 to date, TransCanada has issued ONE PRESS RELEASE regarding the Alaska Pipeline Project. That was on August 1, 2008.

Here's a problem with the proposed pipeline. The United States has an abundance of natural gas. It has really only ever been an issue of price when it has come to building pipelines, either in Alaska or the continental U.S. But in recent weeks, as the price of crude oil has collapsed, prices have fallen so far that major natural gas producers and explorers have been scrambling for cash and selling properties.

Shipping of yet more natural gas from Alaska to the rest of us would more than likely keep pressure on natural gas prices. This is usually a huge disincentive for to produce more, let alone invest $40 billion in a new pipeline project.

Fact is anyway, more than thirty percent of crude oil is used for transportation fuels. Natural gas accounts for a drop in the bucket. Republicans have done virtually nothing to encourage the use of natural gas as a transportation fuel despite the fact that the technology has existed for years, with millions of natural gas-fueled automobiles tooling around Europe. Sure, you see the occasional fleet of natural gas powered municipal buses and other fleets around the U.S. But nothing is really being done to facilitate the availability of natural gas as a transportation fuel, let alone providing incentives.

So just what would we do with more natural gas? The biggest key to slashing our dependence on oil imports is the conversion of our automotive fleet to "something else." Natural gas, electricity, wind power, Flinstones' foot power, whatever.

THE SARAH PALIN / JOHN MCCAIN $40 BILLION Alaska Pipeline Project IS JUST A SIMPLE LIE.

POLITICS OF HATE, POLITICS OF WAIT

2008-10-28T15:00:00.005-06:00

One week to go. Lots of people have voted early. Lots of people have voted absentee ballots. LOTS OF PEOPLE HAVE NOT YET VOTED!

I'm not disturbed by the latter observation. Most people don't bother to vote until Election Day, period. It is disconcerting that people that have likely made up their minds choose to wait until November 4 to cast their votes. They might have to endure enormous lines, some polls may close before all voters vote. The weather - rainstorms, snowstorms, frogs and locusts - might discourage some voters from venturing out, convinced that the election is in the bag for their candidate (I am assuming they would be Obama voters).

My candid advice to anyone that has not yet voted, yet has the legal opportunity to do so early? GET OFF YOUR ASS AND VOTE AND DO IT NOW!

Just because every poll seems to be saying the same thing, that Barack Obama will win on Tuesday, November 4, does not assure anyone of that becoming reality. People still must vote, not just think about or pray about it.

Besides, Election Day is one week away. And the POLITICS OF HATE are heating up from the Far Right. We haven't heard the last of the "Robocalls." We haven't heard the last of veiled or outright racist hatred epithets. We haven't heard the last about "Joe/Barack the Socialist" or "Joe/Barack the Marxist" or "Joe/Barack the Taxer" or "Joe/Barack the Appeaser" or "Joe/Barack the Who Knows What."

We certainly haven't heard the last from John McCain the Liar or Sarah Palin the Liar or the Republican National Committee the Liars, or the rest of the Right Wing "distortion trust."

The next week will be ugly. And spin doctors have been known to pull rabbits out of hats at the eleventh hour. The Bush administration seems to be doing their darnedest to insight more enemies and potential conflicts with attacks on Pakistani and Syrian soil, despite ongoing protests from those governments and even the Iraqi government.

I can expect John McCain to demand that Barack Obama take a public stand on Alaska Senator Ted Stevens felony conviction. After all, we can forget that Stevens has been "pallin' around" with Palin for years, despite what she says on the stump.

And who knows what dirt will be dredged up about all those under $200 contributors to Obama's campaign, myself included? Or the fact that Obama has actually accepted contributions from firms/employees on Wall Street as well as Main Street, and how that might be spun.

As quickly as the polls universally swung to Obama's direction, they can swing right back, pun intended. That is why it is soooooo important to vote and vote as soon as you can!

In multiple states, attempts continue to disenfranchise voters, new and old, for any number of reasons. Yes, this year the Democrats have been aggressive in filing lawsuits to reverse or prevent these actions. Here in Colorado, Republican Secretary of State Mike Coffman - who is running for Congress in my own district - is being sued because of the possible disenfranchisement of tens of thousands of potential voters. And many pundits - and experts - believe that Colorado could be The STATE to watch on Tuesday.

Enough people who have been claiming they will vote MUST get out and actually vote so that disenfranchisement does not cost Democrats the election. Hey! I would like to continue to live in the United States as an American. A McCain win on November 4 just might be sufficient to push me off the cliff to find a new country to call home. I'll take higher taxes and single-payer healthcare in the UK or elsewhere if it means I won't remain under the crushing foot of Right Wing "I'm Patriotic and You're Not!" Republicans.

One last thought for the day: John McCain has been so concerned about taxing and spending and the need to freeze or slash (depending on the day) spending in order to pull us out of our dire economic circumstances. Yet at the same time, this great student of history - McCain, I mean - accuses Barack Obama of wanting to pursue Herbert Hoover policies. Let's not forget our history - our real history. Hoover cut spending at just the wrong time, exacerbating a huge financial crisis and transforming it into the Great Depression. Rather than "deficit be damned" and stimulating the economy by investing in it, Hoover pulled the plug and everyone watched as the nation circled the drain, landing with one loud "glug glug glug, THUMP."

GET OUT AND VOTE!!!!!!!!!!!!!!!!!!!!!!!

BACK TO THE FUTURE? AGAIN? OR IS IT BACK TO THE PAST?

2008-10-28T14:18:00.004-06:00

Well today, the U.S. stock market rise about 11 percent. The Dow Jones Industrials Average exploded for nearly 900 points to close above 9,000. The S&P500 Index also rose about 11 percent to close up more than 90 points to more than 940. And yes, the NASDAQ Composite rose more than 140 points to close above 1,600.

It feels to some like an eternity since we've been that high. And many pundits are already expounding that we have likely seen the bottom in U.S. stock prices and it's time to BUY BUY BUY!

HOLD ON THERE BOBALOUIE!

The stock market is back to where it was five short days ago. The market rose today on fairly light volume, suggesting not so much a huge influx of buyers and bargain-hunters, but perhaps more a lack of sellers today. Now this could be due to "sellers' exhaustion." It could be due to an absence of anything else to sell. But it certainly isn't due to a change in the fundamental outlook for the economy.

We are still staring down the barrel of a recession of still unknown proportions and length. While there has been some very modest movement to unfreeze credit markets, those all-important markets are still pretty stuck. We are looking at the likelihood of somewhere between two and three million homes going into foreclosure between now and the end of the year, barring dramatic action that is not yet in the equation.

An 11 percent one-day move in stock prices is not going to dent consumers' desire or ability to spend spend spend this Christmas. And who knows? Credit card issuers - banks - may not allow consumers to spend spend spend.

The Conference Board's index of consumer confidence plunged from 61.4 in September to 38 this month, the lowest reading recorded in 41 years. That's 1967, people.

After many stocks have declined anywhere from 50- to 75-percent off their highs, Wall Street securities analysts are just now issuing sell recommendations...but darned few of them. I guess the Harvard Business School logic is that if you thought U.S. Steel was a bargain at $195 a share, it had to be an even bigger bargain ALL THE WAY DOWN to $30 a share. Sure makes sense to me. I call that "The Lemming Logic of Financial Analysis" or LLOFA.

Thanks to LLOFA, tens of millions of retirement plans have been driven off a cliff this year. Oh no. It's not the first time, of course. But one must wonder...does it ever get any better? Do "highly educated, highly trained" people ever learn from history, let alone their own experience?

A poorly functioning clock is right twice a day, so they say. The investment industry only prays that we can't tell time the rest of the time. Or we are too attention deficit impaired to remember any past experiences.

I guess I don't quite fit that mold.

Sure, stocks are cheap if you believe that they'll have good earnings next year - the earnings estimates that analysts have yet to get around adjusting for a recession of ANY magnitude. And stocks appear cheap based on last year's earnings, very cheap. But unless you believe that this recession will be of shallow and short-term duration - which you know I do not - all you can say is it's nice to have an 11 percent up day for a change. But one day does not a trend make. And this day ignores any possibility of a recession.

Defense - no, not the manufacturers of grown-up war toys - remains the best strategy, in my humble opinion. Can the market still decline to 7,200 and 700 on the DJIA and S&P500, respectively? Nothing has changed from five days ago other than the market has been down and up and down and up.

If you are a trader, no doubt you'll find opportunities to bet on. But until there are clearer signals about our economic health, can you really return to serious investing? Five days...Where will the market be five days hence? Just after a presidential election?

BARGAINS OR FOOL'S GOLD?

2008-10-24T08:32:00.001-06:00

CORRECTED: THERE WAS A SMALL ERROR IN THE ORIGINAL POST REGARDING TARGETS FOR THE S&P500 INDEX, WHICH WAS FIRST PROPOSED ON OCTOBER 10.

Although this commentator was recently quoted in a print media outlet as "a former stockbroker," most of my career in the investment arena was spent as a securities analyst, portfolio manager, and research director. Be that as it may, as investor attempt to find their way, with most serious investors likely keeping most of their cash on the sidelines, many market pundits and manager/advisor wannabe's are simply perplexed.

Lately, as I observe all of the financial media via print, television, Internet outlets, and investment firms, there is talk mainly regarding two schools of thought - bargains and volatility.

BARGAINS:

A reasonable person - investor or otherwise - might define "bargain" as something that can be purchased at a below-market, or below-true value, price. I suppose you could define bargain in other ways. But these definitions seem to apply to things like stocks and real estate. So I'll stick with them.

In order to identify a bargain, you need to be able to relate its price to some historic norm or, on a more speculative scale, to a reasonable expectation of future value based on performance. Herein lies the problem with the argument for bargain-hunting.

How reliable are forecasts for future earnings? Sure, if you are that now rare "buy and hold" long-term, ten-year investor, you might be able to throw darts. However, if you're more focused on one, two, three, even five-year horizons, can you truly forecast, with any accuracy, earnings for many companies? And if you can, what value do you place on those earnings? In the face of a severe recession, how accurate can corporate CEOs really be when discussing future prospects with analysts?

I know, some readers may be thinking that I am beating the proverbial dead horse. But as you watch the incredible market volatility, particularly in light of the observation that quite "suddenly" market professionals have only just begun to consider the makeup of the current recession - it's depth and length - you just have to wonder what people are thinking, and who's best interests they have at heart, when they suggest that the stock market is at or near a bottom.

VOLATILITY

The other day, a number of supposed investment professionals were quoted in our daily newspaper regarding volatility:

"I don't believe this volatility is the real norm..."

"Volatility will persist..."

"The current volatility level has to do with the unique circumstances of the global credit crisis and the bottoming of the bear market."

"It is not uncommon for volatility to increase for prolonged periods."

"Definitely abnormal, but tumultuous times bring volatile markets."

"Unfortunately market volatility is here to stay for a while."

"For now we will continue to see wild swings in either direction."

Oh my! And these folks are actually paid to manage billions of our dollars? Golly gee! The market is volatile. Yep.

BACK TO THE FUTURE?

On October 10, I suggested that this stock market might not see a bottom until around 7,200 on the DJIA and 700 on the S&P500 Index. This morning, the stock market has, so far, hit an intraday low of about 8,200 and 853, respectively. We can be looking at further declines of 12 percent or more in the much-watched averages. Some stocks will decline more, some less, of course.

But this bear is not finished growling.

This morning, OPEC announced "their intention" to cut oil production by 1.5 million barrels a day. That's more than "Sister Sarah" and other oil industry "experts" believe can be pumped from ANWR ten years hence! It's a pretty big cut, even given collapsing near-term demand for oil.

I keep harkening back to the recession of 1973-76 and THAT stock market decline. We are in the midst of the biggest market collapse since at least that period, and perhaps yes, since the 1930s.

The following questions do not yet have clear answers:

How high will employment reach?

How much will gross domestic product (GDP) decline? And for how long?

When the dust clears, will there be a U.S. auto industry? And if not, how startling will be the ripple effects throughout the economy? Under Clinton (yes) and Bush trade policies, we have shipped a huge portion of our basic manufacturing capacity for goods overseas, perhaps not to return...ever. We could yet see several million more Americans out of work, and perhaps one or two million is a low number.

Will declining energy prices once again dent our will to switch to alternative fuel sources?

When will inflation finally rear its ugly head? While it is imperative for interest rates to continue to decline internationally in order to try to mitigate the recession, the end result of such declines is often inflation. And that will again result in much higher interest rates - bad for home buyers, for credit card holders, for the bond market, for equities, for everyone.

Despite OPEC's decision to cut production, the price of crude oil has plummeted. This morning, it broke $63 a barrel, down 57 percent from its peak. This is good news for consumers of energy, bad news for producers, bad news for developers of alternatives, possibly fatal news for General Motors and the development of the Chevy Volt electric plug-in.

Gold continues its march lower, suggesting that inflation is not yet seen as a problem, but rather deflation. And the evidence is all around us.

I must say, at the same time all this volatility and horrible economic news is before us, circumstances have created potentially great "bargains" in equities - assuming that you can see an end to the current recession and your investment horizon is long enough. Baby Boomers perhaps cannot see ten years down the road as an investment horizon for equities. At some point, especially after they evaluate their third quarter 401(k) and other retirement plan statements, they will (we will) at least gradually shift to less volatile investments. This will create less demand, perhaps for equities.

As suggested in earlier posts, this commentator has tip-toed back into the market during this recent leg of the bear. But 75-80-percent cash still feels pretty good to me. No one catches bottoms, well most professionals don't. Sure, we can all agree that bear markets bottom before recessions end. But when will this recession end? It is not like any recession that we've experienced in some time. And virtually no one that is managing money right now, hundreds of billions of dollars of investment portfolios, was around the stock market in the early '70s, let alone the 1930s. No, I wasn't around for the 1930s either. But I didn't learn about the investment climate of the 1960s and '70s through text books and lectures during my MBA years, either, I lived them. "B school" didn't teach me anything about effective investment management despite my investment in the degree. I simply had to get my hands dirty.

Today, we have a system of portfolio managers and securities analysts that too often landed in their positions simply because they "went to school." Think about that next time you open up your reports from your mutual funds and retirement plans. These folks often rely on other analysts, or equally bad, what self-serving CEOs of corporations tell them. They see trees, but not the forest. They follow unsustainable trends. They "go with the flow" and explode with the bubbles.

CORPORATE TAXES

2008-10-23T15:59:00.003-06:00

John McCain loves to talk about taxes, especially corporate taxes, comparing our 35 percent corporate tax rate to that of Ireland (11 percent) and the rest of the world. What McCain and all other pro-corporate tax welfare advocates fail to state is that essentially no U.S. corporation pays that kind of tax rate.

The following is excerpted from an article by Citizens for Tax Justice from September 2004.

Citizens for Tax Justice 1311 L St. NW, Washington, DC www.ctj.org 202-626-3780
WEDNESDAY, SEPTEMBER 22, 2004 at 12:30 P.M. EDT
CONTACT: Bob McIntyre, 202/626-3780, ext. 22

Bush Policies Drive Surge in Corporate Tax Freeloading

82 Big U.S. Corporations Paid No Tax in One or More Bush Years

Eighty-two of America’s largest and most profitable corporations paid no federal income tax in at least one year during the first three years of the George W. Bush administration — a period when federal corporate tax collections fell to their lowest sustained level in six decades. This is one of the many troubling findings of a major new report on corporate tax avoidance by Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP). The report covered 275 profitable Fortune 500 corporations, with total U.S. profits of $1.1 trillion over the three-year period.

“The sharp increase in the number of tax-avoiding companies reflects the results of aggressive corporate lobbying and a White House and a Congress eager to do the lobbyists’ bidding,” said Robert S. McIntyre, director of CTJ and co-author of the report with T.D. Coo Nguyen of ITEP.

Skyrocketing Corporate Tax Avoidance

In part due to a major expansion in corporate tax breaks in 2002 and 2003, along with continued failure by Congress and the White House to curb abusive corporate offshore tax sheltering, corporate tax avoidance has skyrocketed. For example:

# Eighty-two of the 275 companies, almost a third of the total, paid zero or less in federal income taxes in at least one year from 2001 to 2003. Many of them enjoyed multiple no-tax years. In the years they paid no income tax, these companies earned $102 billion in pretax U.S. profits. But instead of paying $35.6 billion in income taxes as the statutory 35 percent corporate tax rate seems to require, these companies generated so many excess tax breaks that they received outright tax rebate checks from the U.S. Treasury, totaling $12.6 billion. These companies’ “negative tax rates” meant that they made more after taxes than before taxes in those no-tax years.

# Twenty-eight corporations enjoyed negative federal income tax rates over the entire 2001-03 period. These companies, whose pretax U.S. profits totaled $44.9 billion over the three years, included, among others: Pepco Holdings (–59.6% tax rate), Prudential Financial (–46.2%), ITT Industries (–22.3%), Boeing (–18.8%), Unisys (–16.0%), Fluor (–9.2%) and CSX (–7.5%), the company previously headed by our current Secretary of the Treasury.

# In 2003 alone, 46 companies paid zero or less in federal income taxes. These 46 companies, one out of six of the companies in the study, told their shareholders they earned U.S. pretax profits in 2003 of $42.6 billion, yet received tax rebates totaling $5.4 billion. In 2002, almost as many companies, 42, paid no tax, reporting $43.5 billion in pretax profits, but $4.9 billion in tax rebates. From 2001 to 2003, the number of no-tax companies jumped from 33 to 46, an increase of 40 percent.

# After 2001, the average effective rate for all 275 companies dropped by a fifth, from 21.4 percent in 2001 to 17.2 percent in 2002 and 2003, less than half the statutory 35 percent corporate tax rate that corporations ostensibly are supposed to pay.

The Size of the Corporate Tax Subsidies

Over the 2001-03 period, the 275 companies in the survey earned almost $1.1 trillion in pretax profits in the United States. Had all of those profits been reported to the IRS and taxed at the statutory 35 percent corporate tax rate, the 275 companies would have paid $370 billion in income taxes over the three years. But instead, the companies reported only about half of their profits — $557 billion — to the IRS. Over the three years, the effective tax rate on the companies as a group was only about half the ostensibly required 35 percent rate.

Wide, Economically-Distorting Disparities in Tax Rates

The study found wide disparities in taxes among industries and among companies within particular industries. Over the 2001-03 period, industry effective tax rates for the 275 corporations ranged from a low of 1.6 percent to a high of 27.7 percent. In 2003, the range of industry tax rates was even greater, ranging from a low of –30.0 percent (a negative rate) up to a high of 27.9 percent.

# Aerospace and defense companies enjoyed the lowest effective tax rate over the three years, paying only 1.6 percent of their profits in federal income taxes. This industry’s taxes declined sharply over the three years, falling to –30.0 percent of profits in 2003.

# Other very low-tax industries, paying less than half the statutory 35 percent tax rate over the entire 2001-03 period, included: transportation (4.3%), industrial and farm equipment (6.2%), telecommunications (7.5%), electronics and electrical equipment (10.8%), petroleum and pipelines (13.3%), miscellaneous services (14.4%), gas and electric utilities (14.4%), computers, office equipment, software and data (16.0%), and metals & metal products (17.4%).

# Not a single industry paid an effective tax rate of more than 29 percent, either for the entire three-year period or in any given year.

Conclusion

The study points out that the losers from widespread corporate tax avoidance include:

# The general public, who must pay higher taxes, lose public services, or be responsible for big future debt burdens.

# Relatively disadvantaged industries and companies that will find it harder to compete for investment capital with tax-favored corporations.

# The U.S. economy, which is harmed by the distortions that corporate subsidies produce.

# State governments and state taxpayers, which see their corporate tax systems erode along with the federal system.

# The integrity and sustainability of the tax system as a whole.

“Most of the loopholes and tax dodges that corporations use to slash their taxes may be technically ‘legal’ in the sense that the tax law allows them,” said McIntyre. “But remember that these subsidies got into the tax code because corporations lobbied to put them there. Saying something is ‘legal’ doesn’t mean that it’s right.”

You can download the entire report from:
http://ctj.org/html/publist.htm#history

THE CLUELESSNESS (OR DECEPTION) OF THE MCCAIN/PALIN CAMPAIGN & REPUBLICANS

2008-10-22T10:27:00.004-06:00

Several days ago, the political world potential - hopefully - imploded for one Republican Rep. Michele Bachmann (MN). On Chris Matthews, MSNBC "Hardball" program, Rep. Bachman, when asked by Matthews if she believed Obama held anti-American views, she replied, "Absolutely. I'm very concerned that he may have anti-American views. That's what the American people are concerned about. That's why they want to know what his answers are."

Further, Rep. Bachman called for the media to launch an investigation of Congress to determine who is pro-American and anti-American.

To paraphrase, former Senator Lloyd Bentsen, from his 1988 Vice-Presidential debate with Dan Quayle, "Representative Bachman, I knew Joseph McCarthy. You're no Joe McCarthy." Well, I really did not personally know McCarthy. But even as a very small child, and as a student of history, I know enough about demagoguery to scream about it when I see it.

The McCain/Palin team and their "band of reckless and ruthless brothers and sisters," try as they may out of desperation, will never be as successful in destroying lives as was Joe "the liar" McCarthy. Seems like everyone on the Republican side wants to label people "Joe." I wonder how popular the name, Joe, is amongst their children.

So now - suddenly - Bachmann says she regrets using the term "anti-American" while discussing Democratic presidential candidate Barack Obama's views? Why you may ask? Because since her remarks, her Democratic opponent, Elwyn Tinklenberg, has raised more than $1 million in campaign contributions. In just a few days!

Well no wonder she has regrets. a remark that could threaten her re-election bid. Prior to her remarks, she only held a 4-point lead over Tinklenberg. This week's polls should be quite interesting.

Bachmann claims to have never seen "Hardball" prior to her appearance. Ever! Is she just too busy? Does she not have access to television or electricity?

But Bachmann's remarks are all too typical of a political movement that has lost all credibility.

McCain and Palin, and their surrogates, continue to talk taxes. They continue to claim that Obama will raise taxes on all the Joes and Jills out there, that he will be sending tax dollars - "your tax dollars - to people that don't even pay taxes.

Of course, they conveniently lie about virtually every aspect of Obama's tax proposals. The ones that will cut taxes for "working families." As opposed to "non-working" families. They forget, probably because "they" have never paid their fair share of them, that most members of the lower and middle income strata in America pay payroll taxes on 100 percent of their earnings, unlike the folks that earn more than $250,000, who pay payroll taxes only only a minority of their income.

And they lie about Obama's healthcare plan as well as their own. I guess they don't have access to the "Internets." I guess they don't really know anything about their own federal healthcare plan that is far from a single payer Medicare plan, but rather a menue of private plan choices called the Federal Employees Health Benefits Plan, or FEHBP.

You can learn everything you need to about FEHBP right here:

http://www.opm.gov/insure/health/index.asp

Obama simply says keep your current insurance, or if you can't or do not wish to, or just plain do not have health insurance, you can take a look at FEHBP and the very same variety of choices that are available to members of Congress and other federal employees.

On one hand, I am morally, emotionally, intellectually, and spiritually disappointed that we have had to once again endure such a negative political campaign season. But on the other hand, most polling shows that Americans are responding negatively to the negativity. Hand in hand with that, many voters are actually sensitive to the real issues.

I just hope that by the end of the day on November 4, people will have sifted out the lies and chosen to side with actual facts.

Cluelessness may be an excuse for checking the wrong boxes on the ballot. It is not an excuse for running a political campaign.

SOCIALISM...REPUBLICAN STYLE

2008-10-19T13:16:00.004-06:00

Dictionary.com Unabridged (v 1.1)

–noun
1. A theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.
2. Procedure or practice in accordance with this theory.
3. (in Marxist theory) The stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles.

American Heritage Dictionary

-noun

1. Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.
2. The stage in Marxist-Leninist theory intermediate between capitalism and communism, in which collective ownership of the economy under the dictatorship of the proletariat has not yet been successfully achieved.

Webster's Revised Unabridged Dictionary

-noun

A theory or system of social reform which contemplates a complete reconstruction of society, with a more just and equitable distribution of property and labor. In popular usage, the term is often employed to indicate any lawless, revolutionary social scheme. See Communism, Fourierism, Saint-Simonianism, forms of socialism.

[Socialism] was first applied in England to Owen's theory of social reconstruction, and in France to those also of St. Simon and Fourier . . . The word, however, is used with a great variety of meaning, . . . even by economists and learned critics. The general tendency is to regard as socialistic any interference undertaken by society on behalf of the poor, . . . radical social reform which disturbs the present system of private property . . . The tendency of the present socialism is more and more to ally itself with the most advanced democracy. --Encyc. Brit.

McCain and Palin...oh and the rest of their Republican supporters are so out of touch with the concepts of socialism, like virtually all of McCain's campaign tactics, the use of these labels is only designed to frighten uninformed people into once again voting against their own interests. It is likely to fail, thankfully.

McCain and Palin have criticized Obama's proposal to raise taxes on high earners and require that businesses provide health insurance. Palin referred to the plan as "a little bit like socialism."

Over the weekend, McCain said: "At least in Europe, the socialist leaders who so admire my opponent are upfront about their objectives."

William Wallace, a former vice president and chief operating officer of the Federal Reserve Bank of Dallas, said the country's progressive tax code, which Mr. McCain does not propose abolishing, is "socialist in nature.

Let's not forget that just recently McCain voted FOR allowing the federal government to take ownership stakes in private banks - as did Obama.

According to the nonpartisan Tax Policy Center, Mr. Obama's plan would reduce taxes for 80 percent of households, while raising them for 10 percent. Mr. McCain's plan would lower taxes for 60 percent of households, and raise them for 1 percent.

At a rally in St. Louis on Saturday, Obama said, "John McCain is so out of touch with the struggles you are facing that he must be the first politician in history to call a tax cut for working people 'welfare.'"

McCain, Palin and their surrogates scream - without any factual basis whatsoever - that Obama will raise taxes on small business that provide 16 million jobs, that his proposals to hike taxes will kill jobs. But less than 2 percent of all small businesses in the country earn enough to qualify for the top tax brackets, according to the Tax Policy Center. The majority pay either 15 percent or 25 percent, according to the center.

Social Security, Medicare, Medicaid, programs that have been phenomenal successes by any measure even despite shortcomings and flaws, they can all be considered socialistic in nature. Conservative Republicans have been working tirelessly to weaken, even eliminate these critical social safety nets since FDR first proposed the first programs during the depths of the Great Depression.

Ronald Reagan, the conservative Republican "God-substitute," wailed away about the evils of Medicare well before he became an iconic political power.

Where would we be, as a nation, without these critical programs?

It's like the 2000 election myth of George W. Bush's "compassionate conservatism." I'm still looking for evidence of anything resembling compassionate action in any of Bush's record, let alone that of Republicans since the "Reagan Revolution."

Nope, I'm looking...don't see it at insurance companies...don't see it in any plan to propose Social Security invest in the volatile stock market...don't see it in a Republican administration that almost annually reduces Medicare physician payments...nope, don't see it in tax giveaways to the wealthiest Americans...nope, don't see it in free trade agreements that are far from "fair" trade agreements...I just don't find it anywhere. It was all a myth, all a lie.

Yet, America? You fell for it in 2000 and 2004. And thanks to you all falling for it, millions more people are without health insurance, without jobs, and living in failing communities in every single state - including Arizona and Alaska. The only thing that keeps Alaska afloat is, ironically, oil company taxes - which Sarah Palin was proud to increase as governor! Hmmm.

Justices Rule Against Ohio G.O.P. in Voting Case

2008-10-17T12:56:00.002-06:00

October 18, 2008

By ADAM LIPTAK and IAN URBINA

WASHINGTON — The Supreme Court on Friday overturned a lower court’s order requiring state officials in Ohio to supply information that would have made it easier to challenge prospective voters. The decision was a setback for Ohio Republicans, who had sued to force the Ohio secretary of state, a Democrat, to provide information about database mismatches to county officials.

The decision has the potential to affect as many as 200,000 of the 660,000 new voters who have been registered in Ohio since Jan. 1, according Social Security Administration and state election officials.

The Supreme Court, in a brief, unsigned decision, said lower federal courts in Ohio should not have ordered the secretary of state, Jennifer Brunner, to turn over the information. The court acted just before a deadline requiring Ms. Brunner to act set by a federal judge in Columbus.

A 2002 federal law, the Help America Vote Act, or HAVA, requires states to check voter registration applications against government databases like those for driver’s license records. Names that do not match are flagged. Ohio Republicans sought to require Ms. Brunner to provide information about mismatches to local officials.

Those officials could use information to require voters to cast provisional ballots rather than regular ones. They could also allow partisan poll workers to challenge people on the lists. Given Democratic success in registering new voters this year, those actions would probably affect that party’s supporters disproportionately.

The court said it expressed “no opinion on the question whether HAVA is being properly implemented.” But it said that Congress probably had not intended to allow private litigants like political parties to sue to enforce the part of the law concerning databases.

Ms. Brunner welcomed Friday’s ruling from the Supreme Court.

“Our nation’s highest court has protected the voting rights of all Ohioans, allowing our bipartisan elections officials to continue preparing for a successful November election,” Ms. Brunner said. “We filed this appeal to protect all Ohio voters from illegal challenges and barriers that unfairly silence the votes of some to the advantage of others.”

Edward B. Foley, a law professor at Ohio State, said the Supreme Court’s action in letting state authorities handle matters in the face of a late challenge was consistent with a general premise of election law. “Federal court intervention is a last resort, even if it’s not at the last minute,” Professor Foley said.

A federal judge in Columbus ordered Ms. Brunner to supply the information on Oct. 9, and the United States Court of Appeals for the Sixth Circuit, in Cincinnati, affirmed that decision on Tuesday by a vote of 10-to-6.

The majority decision in the Sixth Circuit acknowledged that the question about whether private parties may sue under the 2002 law was a close one. But Judge Jeffrey S. Sutton said that question could be deferred, as what the Republican party sought was just information.

No one argues, Judge Sutton wrote, “that a mismatch necessarily requires a voter to be removed from the rolls.” A mismatch may merely prompt further investigation, he said, one that may be satisfied with an explanation as simple as a recent address change.

Voting experts and state election officials added that many voters were likely to be flagged erroneously because the databases used to check voter registrations were prone to errors. Most non-matches are the result of typographical errors by government officials, computer errors, use of nicknames or middle initials, not voter ineligibility, they said.

In one audit of match failures in 2004 by New York City election officials, more than 80 percent of the failures were found to have resulted from errors by government officials; most of the remaining failures were because of immaterial discrepancies between the two records.

Ms. Brunner had also argued that requiring so many voters to cast provisional ballots would raise tensions at the polls and worsen lines and confusion on Election Day in a year when she is expecting unprecedented turnout.

The state Republican Party rejected those arguments.

“Secretary Brunner has fought every effort to validate hundreds of thousands of questionable registrations,” said Ohio Republican Party Chairman Robert Bennett. “As far as I’m concerned, Secretary Brunner is actively working to conceal fraudulent activity in this election.”

The Ohio Republican Party had said it wanted the list so that local election officials could clear up any discrepancies before Election Day and in cases where that was not possible, those voters should vote using a provision ballot. Provisional ballots in Ohio are held for 10 days before being counted while workers check eligibility, and they are often subject to partisan wrangling and legal fights.

Friday’s decision also means that the Ohio Republican Party will not be able to make public information requests to get the data so that poll workers can raise voter challenges at the polls.

In 2004, President George W. Bush won Ohio by a margin of about 118,000 votes. During that race, litigation over Republican plans to challenge about 35,000 voters went to Justice John Paul Stevens on the eve of the election. Justice Stevens said it was too close to the election to intervene, but he added that he expected both sides to act in good faith. The Republicans dropped plans for their challenges.

Polling in the state shows Senator Barack Obama, the Democratic presidential nominee, with a slight lead on his Republican challenger, Senator John McCain.

http://www.nytimes.com/2008/10/18/washington/18scotus.html?hp

Copyright 2008 The New York Times Company

Health Care Issues Side By Side

2008-10-17T12:47:00.002-06:00

Want to know the candidates' proposals for health care?

Here is a side-by-side comparison prepared by the Henry J. Kaiser Family Foundation:

http://www.health08.org/healthissues_sidebyside_results.cfm?McCain=yes&Obama=yes&HCR=yes&x=68&y=7

http://www.health08.org/healthissues_sidebyside.cfm

Is 'Joe the Plumber' a plumber? That's debatable

2008-10-17T12:39:00.001-06:00

By JOHN SEEWER
The Associated Press
Friday, October 17, 2008; 12:36 AM

HOLLAND, Ohio -- Joe the Plumber's story sprang a few leaks Thursday. Turns out that the man who was held up by John McCain as the typical, hard-working American taxpayer isn't really a licensed plumber. And court documents show he owes nearly $1,200 in back taxes.

"Joe," whose name is Samuel J. Wurzelbacher, was cited repeatedly in Wednesday night's final presidential debate by McCain for questioning Barack Obama's tax policy.

Wurzelbacher instantly became a media celebrity, fielding calls during the debate and facing reporters outside his home near Toledo on Thursday morning for an impromptu nationally televised news conference.

The burly, bald man acknowledged he doesn't have a plumber's license, but said he didn't need one because he works for someone else at a company that does residential work.

But Wurzelbacher still would need to be a licensed apprentice or journeyman to work in Toledo, and he's not, said David Golis, manager and residential building official for the Toledo Division of Building Inspection.

State and local records show Wurzelbacher has no license, although his employer does. Golis said there are no records of inspectors citing Wurzelbacher for unlicensed work in Toledo.

And then there was the matter of his taxes.

Wurzelbacher owes the state of Ohio $1,182.98 in personal income tax, according to Lucas County Court of Common Pleas records.

In January 2007, Ohio's Department of Taxation filed a claim on his property until he pays the debt, according to the records. The lien remains active.

At the debate, McCain cited Wurzelbacher as an example of someone who wants to buy a plumbing business but would be hurt by Obama's tax plans.

Wurzelbacher, a self-described conservative, had spoken to Obama at a rally Sunday near his home and asked him whether his tax plan would keep him from buying the business that currently employs him, which earns more than $250,000 a year.

"Your new tax plan is going to tax me more, isn't it?" Wurzelbacher asked.

Obama said that under his proposal taxes on any revenue from $250,000 on down would stay the same, but that amounts above that level would be subject to a 39 percent tax, instead of the current 36 percent rate.

McCain said Obama's plan would stop entrepreneurs such as Wurzelbacher from investing in new small businesses and keep existing ones from growing.

The McCain campaign posted a Web ad featuring the exchange between Wurzelbacher and Obama.

During an afternoon taping of "Late Show with David Letterman," McCain said he had not yet spoken to Wurzelbacher, and apologized for the press attention he had received.

"Joe, if you're watching, I'm sorry," McCain said.

Wurzelbacher had to deal with a clog of two dozen reporters outside his home on a narrow street lined with ranch- and split-level homes Thursday morning. No detail about the divorced father of a 13-year-old boy was too small: Was he a registered voter? Did he have a plumbing license? Whom will he vote for?

Leaning against his black Dodge Durango SUV, Wurzelbacher at first was amused by it all, then overwhelmed and finally a little annoyed.

"I don't have a lot of pull. It's not like I'm Matt Damon," he said "I just hope I'm not making too much of a fool of myself."

He indicated he was a fan of the military and McCain but wouldn't say who will get his vote. He is registered as a Republican, the county elections board said, because he voted in the GOP primary in March.

Wurzelbacher said a McCain campaign official contacted him several days before the debate to ask him to appear with the candidate at a Toledo rally scheduled for Sunday.

He told reporters he's unsure if he'll attend, since he's now scheduled to be in New York for TV interviews.

On Thursday in New Hampshire, Obama said McCain was misleading voters by proposing tax plans that favor the rich while criticizing an Obama tax plan that would raise taxes only on people making more than $250,000 a year, just 5 percent of all taxpayers.

"He's trying to suggest that a plumber is the guy he's fighting for," Obama said. "How many plumbers you know that are making a quarter-million dollars a year?"

Wurzelbacher said he felt a bit overwhelmed by all the attention.

"I'm kind of like Britney Spears having a headache. Everybody wants to know about it," he joked.

___
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/16/AR2008101600728.html?sub=AR

Associated Press writer Sharon Theimer in Washington contributed to this report.

© 2008 The Associated Press

Joe the Plumber was once Joe the Alaskan

2008-10-17T12:30:00.001-06:00

By Kyle Hopkins / McClatchy Newspapers | Friday, October 17, 2008 |

ANCHORAGE, Alaska - The star of Wednesday night’s presidential debate used to live in Alaska.

And for once we’re not talking about Gov. Sarah Palin.

Long before he was "Joe the Plumber," Joe Wurzelbacher lived in North Pole and Eielson Air Force Base outside Fairbanks, according to Alaska public records. A family member says Wurzelbacher came to the state in the mid-1990s and stayed about four years - long enough to have the son who can be seen standing next to him in the now famous YouTube clip of Wurzelbacher grilling Sen. Barack Obama about taxes.

Kelly Morrison watched the debate with her husband in Anchorage. As the candidates sparred over someone named Joe the Plumber, her husband kept telling Morrison that it had to be the Joe they know.

Morrison’s sister, Jennifer, is Wurzelbacher’s ex-wife. They’ve known him for years. At one point, Joe worked as Morrison’s plumber when they both lived in Arizona.

Then someone on TV said Joe’s last name.

"I’m like, ’That’s Joe!’ And (my husband) said, ’I’ve been trying to tell you that the whole time," Morrison said.

Alaska records show Wurzelbacher listed a North Pole address in 1992 and 1993, and Eielson Air Force Base address in ’94 and ’95. He applied for hunting permits, owned an old Ford and a new Dodge, and paid a $76 fine in Fairbanks court for speeding.

It was unclear Thursday afternoon whether Wurzelbacher registered to vote while living in Alaska, and if so with which party, Division of Elections Director Gail Fenumiai wrote in an e-mail.

Wurzelbacher’s son was born in the Fairbanks area in 1995, Morrison said.

"Jennifer had called up to Joe to tell him that she was in labor and Joe made it down the stairs just in time, his baby was delivered on the wooden floor in their home," Morrison said.

"That was a huge thing for us. ... We joked with them and said, ’OK, you did it the Alaskan way,’" Morrison said.

"I met (Joe) when he was working for Roto-Rooter," said her husband, John.

Morrison said Wurzelbacher served in the Air Force and that as far as she knows, he and her sister never met Gov. Sarah Palin, who is now Sen. John McCain’s running mate.

Obama and McCain argued again and again over which candidate would be a better president for "Joe the Plumber" during the debate. All those shout-outs made Joe a media superstar overnight.

Even Wurzelbachers who have nothing to do with Joe started fielding questions.

Doug Wurzelbacher, a California dog musher who lived in Palin’s own stomping grounds - the Mat-Su Valley - in 2001 and 2002, said his phone started ringing Thursday from friends, and some strangers.

They wanted to know: Where the two related?

Meanwhile, bloggers discovered the Wurzelbacher name in sled-dog race results online - and that the musher was from Palin’s part of Alaska - and questions began flying about a possible Doug-and-Joe connection and whether Joe, who confronted Obama in front of television cameras in Ohio, was a plant.

"There’s something smelly about the plumbing in this story," someone wrote on the Daily Kos.

Doug said he’s never met Palin and that while his last name is a rare one, he’d never heard of Joe before the debate.

"Somewhere along the line, I got to be related to him, but I don’t know him," Doug said

Morrison first met Joe Wurzelbacher in Ohio in the late ’80s, when he was dating her sister.

"She said, ’I’m going to bring my boyfriend home and I think he’s the one. You’re my older sister and I want you to tell me what you think and here comes this big guy walking through the front door," Morrison said.

The Wurzelbachers married and moved to Fairbanks, then left the state about four years later to be closer to family, she said. Jennifer now lives in Michigan and declined to be interviewed. The couple’s son, Joey, lives with his father, Morrison said.

Morrison said she last talked to Wurzelbacher maybe two years ago. "He wanted to actually come up here and do some hunting and fishing."

___

© 2008, Anchorage Daily News (Anchorage, Alaska).

Visit the Anchorage Daily News online at http://www.adn.com/
Article URL: http://www.bostonherald.com/news/politics/2008/view.bg?articleid=1126197

U.S. Economy: Sentiment Drops by Record; Housing Starts Decline

2008-10-17T12:24:00.002-06:00

By Shobhana Chandra and Bob Willis

Oct. 17 (Bloomberg) -- Confidence among Americans fell by the most on record and single-family housing starts hit a 26- year low, posing an increasing threat to consumer spending that accounts for more than two-thirds of the economy.

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 57.5 this month from 70.3 in September. The measure averaged 85.6 last year. Construction of single-family homes dropped 12 percent last month to a 544,000 annual rate, the Commerce Department said in Washington.

Today's figures show that the tightening credit crunch has spurred a further step down in the three-year real-estate recession. Falling property values, along with the crash in stocks, threaten to cause the first decline in consumer spending since 1991, and put pressure on the Federal Reserve to cut interest rates again this month.

"Even gasoline-price decreases were overpowered by the massive destruction of wealth," said Michael Feroli, an economist at JPMorgan Chase & Co. in New York who used to work at the Fed. "Things are pretty awful in the economy and that should make itself felt through weaker consumer spending."

Economists' Forecasts

The confidence index was forecast to fall to 65, according to the median of 61 economists surveyed by Bloomberg News.

Starts on all residential properties, including condominiums, slid to 817,000, below all 74 forecasts in a Bloomberg News survey.

Builders will find it difficult to lure buyers into the market after stock prices plunged this month and banks made it harder to qualify for a mortgage. Declines in construction are likely to continue to hurt economic growth well into 2009, extending the housing slump into a fourth year.

"Builders have stopped building in large measure, but they waited too long to stop building," Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University, said in a Bloomberg Television interview. "At this point they've got to clear the inventory."

Recovery Delayed

The biggest housing slump in a generation was showing signs of nearing a bottom when financial markets began to implode in September, leading to the government takeover of mortgage finance companies Freddie Mac and Fannie Mae, the failure of banks and a $700 billion government rescue plan this month.

"These things are putting a new nail" in the real-estate market's coffin, David Seiders, chief economist at the National Association of Homebuilders, said in an interview on Bloomberg Television yesterday. "This sort of vicious feedback loop is still in play."

Building permits, a sign of future construction, dropped 8.3 percent to a 786,000 pace, matching the lowest level since November 1981.

Starts of single-family homes dropped to record lows in three of four regions in September, led by a 24 percent slump in the Midwest.

The University of Michigan's index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 56.7 from 67.2.

Record Low

Its gauge of current conditions, which reflects Americans' perceptions of their financial situations and whether it is a good time to buy big-ticket items like cars, slumped to 58.9, the lowest level ever, from 75.

There was mixed news on price expectations. Consumers said they projected an inflation rate of 4.5 percent over the next 12 months, compared with 4.3 percent in the September survey. Over the next five years, the figures tracked by Fed policy makers, Americans expected a 2.8 percent rate of inflation, down from the prior month and the slowest estimate in a year.

Shoppers are paring expenses. Sales at U.S. stores open at least a year rose 1 percent last week from a year earlier, slowing for the eighth time in nine weeks, the International Council of Shopping Centers and Goldman Sachs Group Inc. said in a statement on Oct. 14.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aDdPW6jDDSsQ&refer=home

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

GET OVER IT, ALREADY

2008-10-17T12:15:00.001-06:00

The Republican party, John McCain, and Sarah Palin need to get over themselves. We've heard all too much about ACORN and alleged voter registration fraud. We've heard all too much about William Ayers and the lack of a relationship with Barack Obama. We've heard enough about the aforementioned parties' lies about the Obama tax plan raising taxes on the middle class.

We've heard enough about McCain's reckless proposal for the government - taxpayers - to purchase hundreds of billions of dollars of depreciated mortgages, bailing out banks while we take the losses.

We've heard enough about McCain's ridiculous health care plan. Taxing employer-paid health benefits and giving a family a $5,000 tax credit so they can purchase their own insurance? Analysis after analysis has definitively shown that the plan will collapse the nation's employer-based health benefits structure. They show that unless you want a truly bare-bones, negligible benefits health insurance plan, no one can purchase insurance for $5,000 for a family.

We've heard enough of the lies about Obama's proposal to give people access to the FEHBP, Federal Employees Health Benefits Plan, wherein federal employees get to select from a menu of insurance plans managed by private health insurance companies. It is clearly not a government run health plan; far from it. John McCain lies when he continually repeats his rants on this important subject.

We've heard enough about "drill, baby, drill" when major oil companies sit on tens of millions of acreage without having drilled for years.

We've heard enough about how John McCain has a record of supporting veterans causes when every major veterans organization gives McCain repeated low and even failing grades.

We've heard enough about Colombia being our largest agricultural products trading partner when we clearly know from government data that Canada is our largest partner.

McCain wants to freeze government spending, a huge error that Herbert Hoover made. He failed to stimulate the economy. Yet McCain denies the facts of history when he suggests that Obama's plans to spend and invest are the same as Hoover's record.

John McCain has nothing to say, nothing. He can't even accurately read national polls. He claims that Obama wants to see us defeated in Iraq, yet another lie.

Perhaps worst of all, McCain and Palin rallies seem to bring out the worst in attendees, with crowd calls for killing Obama, calling him a traitor, etc.

McCain has spent too many years in Washington. He has accomplished little.

Let's continue the momentum of the Obama campaign until the hour of voting on November

HAVE WE HIT BOTTOM?

2008-10-17T08:47:00.003-06:00

Has the stock market hit bottom? Rock bottom?

This month, we have seen the DJIA hit 7900, a level not seen since 2003. The S&P500 Index hit a low of 830, also not seen since 2003.

* Since the market hit those intraday lows, we have seen enormous worldwide government interventions in the financial system.

* We have begun to see evidence of credit markets unfreezing.

* Construction of new homes dwindled to a 17-year low in September as home builders sought to reduce the number of unsold homes. Housing starts fell 6.3% in September to a seasonally adjusted annual rate of 817,000, the lowest since January 1991, the Commerce Department estimated Friday. Starts of single-family homes tumbled 12% to 544,000, the lowest since February 1982. The September estimates were much worse than the annual rate of 870,000 that was expected by economists. Building permits fell 8.3% to 786,000, a 27-year low. Permits for single-family houses fell 3.8% to 532,000, the lowest in 26 years.

* While investors wait for absolute bottoms on individual stocks, or an absolute cycle low for the general market, dividend yields on financially strong, high quality companies have increased to historic highs.

* Price/earnings valuations on many solid companies have fallen to at or close to single digits, a far cry from the multiples of the 20s and more that "historically-impaired" investors had grown accustomed to since 1995.

Some examples - again, read my disclaimer on this site and do not take this information as an investment recommendation. All of these stocks are representative of high dividend yields, consistent dividend growth, and low price/earnings ratio values based on last year's earnings.

Pfizer (PFE) - 7.54% P/E below 10
Bristol-Myers Squibb (BMY) - 7.18%
Dow Chemical (DOW) - 6.92% P/E below 10
Verizon Communications (VZ) - 6.71%
AT&T (T) - 6.28% P/E below 10
General Electric (GE) - 6.23% P/E below 10
International Paper (IP) - 5.58% P/E below 10
Eli Lilly & Co. (LLY) - 5.47% P/E below 10
Glaxosmithkline (GSK) - 5.42%
Merck & Co. (MRK) - 5.39% P/E below 10
DuPont (DD) - 4.85% P/E below 10
Kraft Foods (KFT) - 4.22%
Intel (INTC) - 3.53%

The stocks mentioned here are not necessarily selling at the lowest prices that we may see in coming days, weeks, or even months. However, if you are an accumulator over time, they are typical of the kinds of values that you might look for. You may do better, faster, if you are a trader, with high growth oriented stocks such as technologies. You may even benefit from any recovery in traditional energy.

However, given the high risks of a steep recession that the worldwide economy still face, better to be prudent than piggy?

Between now and yearend, we are likely to see continued volatility. You may see individual investors, mutual funds, pension funds, and hedge funds decide to take additional end-of-year losses - or profits.

So if you are inclined to put some of your cash back to work in stocks, be forewarned, understand the ongoing risks. But when we begin to see historically low price/earnings ratios and high dividend yields in financially sound companies, perhaps it is time to return.

CHANGES to CLEAR THE MIST

2008-10-16T14:28:00.008-06:00

Please note: Clear The Mist has made some changes. Under "RESOURCES," you will find numerous videos of interest.

You can also access CLEAR THE MIST'S favorite videos at:
http://tinyurl.com/5nmneu

Verizon and AT&T Provided Cell Towers for McCain Ranch Senator's Wife Did Not Receive Favors, Campaign Says

2008-10-16T10:32:00.003-06:00

The following story appeared in the Washington Post. You know, I am outraged, aren't you? I get lousy cellphone reception our home. I'd like Verizon to install a free cellphone tower on the roof of our home.

And if that wasn't enough, don't you think that Cindy and John McCain could afford to have actually paid for the portable cellphone tower?

By James V. Grimaldi
Washington Post Staff Writer
Thursday, October 16, 2008

Early in 2007, just as her husband launched his presidential bid, Cindy McCain sought to resolve an old problem -- the lack of cellphone coverage on her remote 15-acre ranch near Sedona, Ariz., nestled deep in a tree-lined canyon called Hidden Valley.

Over the past year, she offered land for a permanent cell tower, and Verizon Wireless embarked on an expensive public process to meet her needs, hiring contractors and seeking county land-use permits.

Verizon ultimately abandoned its effort to install a permanent tower in August. Company spokesman Jeffrey Nelson said the project would be "an inappropriate way" to build its network. "It doesn't make business sense for us to do that," he added.

Instead, Verizon delivered a portable tower known as a "cell site on wheels" -- free of charge -- to the McCain property in June, after the Secret Service began inquiring about improving coverage in the area. Such devices are used for providing temporary capacity where coverage is lacking or has been knocked out, in circumstances ranging from the Super Bowl to hurricanes.

In July, AT&T followed suit, wheeling in a portable tower for free to match Verizon's offer. "This is an unusual situation," AT&T spokeswoman Claudia B. Jones said. "You can't have a presidential nominee in an area where there is not cell coverage."

Ethics lawyers said Cindy McCain's dealings with the wireless companies stand out because her husband, Sen. John McCain (R-Ariz.), is a senior member of the Senate commerce committee, which oversees the Federal Communications Commission and the telecommunications industry. He has been a leading advocate for industry-backed legislation, fighting regulations and taxes on telecommunication services.

McCain and his campaign have close ties to Verizon and AT&T. Five campaign officials, including manager Rick Davis, have worked as lobbyists for Verizon. Former McCain staff member Robert Fisher is an in-house lobbyist for Verizon and is volunteering for the campaign. Fisher, Verizon chief executive Ivan G. Seidenberg and company lobbyists have raised more than $1.3 million for McCain's presidential effort, and Verizon employees are among the top 20 corporate donors over McCain's political career, giving his campaigns more than $155,000.

McCain's Senate chief of staff Mark Buse, senior strategist Charles R. Black Jr. and several other campaign staff members have registered as AT&T lobbyists in the past. AT&T Executive Vice President Timothy McKone and AT&T lobbyists have raised more than $2.3 million for McCain. AT&T employees have donated more than $325,000 to the Republican's campaigns, putting the company in the No. 3 spot for career donations to McCain, according to the nonpartisan Center for Responsive Politics.

"It raises the aura of special consideration for somebody because he is a member of the Senate," said Stanley Brand, a former House counsel for Democrats and an ethics lawyer who represents politicians in both parties.

McCain campaign spokesman Brian Rogers said that the senator is not a regulator and that Cindy McCain received no favors from Verizon or AT&T.

"Mrs. McCain's staff went through the Web site as any member of the general public would -- no string-pulling, no phone calls, no involvement of Senate staff," Rogers said. "Just because she is married to a senator doesn't mean she forfeits her right to ask for cell service as any other Verizon customer can."

Verizon spokesman Nelson said: "I am not going to talk about individual customers and their requests."

The company navigated a lengthy county regulatory process that hit a snag on environmental concerns. The request ultimately prevailed when a contractor for the company invoked the Secret Service after John McCain secured the Republican nomination.

After checking with Verizon and the McCain campaign, Secret Service spokesman Eric Zahren said an e-mail sent in May by the service's technology manager could be perceived as a request for temporary coverage under the service's contract with Verizon.

"This was something that was being addressed before we were out there," Zahren said. The agency could have made do with existing cell coverage in the area, he said, because it uses multiple layers of communication, including a secure land radio network. Zahren said the contractor was not authorized to invoke the Secret Service in dealings with the county.

Documents that The Washington Post obtained from Arizona's Yavapai County under state public records law show how Verizon hired contractors to put a tower on the property. At that point, many counted McCain out of the race.

On Sept. 18, 2007, a contractor in Mesa, Ariz., working for Verizon surveyed the McCain property. Another contractor drafted blueprints that called for moving a utility shed and installing a 40-foot tower with two antennas and a microwave dish, surrounded by a six-foot wooden fence.

Construction costs would be $22,000, records show. Industry specialists said the figure probably covers only the tower and fence because the antennas, dish and power source would run the cost into the six figures. On Dec. 4, Cindy McCain signed a letter authorizing Verizon Wireless to act on her behalf to seek county land-use permits.

Coverage maps that a Verizon contractor submitted to the county show that the tower would fill gaps in unpopulated parts of Coconino National Forest and on about 20 parcels of land, including a handful of residences, and two small businesses open by appointment only.

"It is fairly sparsely populated in that pocket along Oak Creek," said Kathy Houchin, the Yavapai County permitting manager.

Three telecommunications specialists The Post consulted said the proposed site covers so few users that it would be unlikely to generate enough traffic to justify the investment. Robb Alarcon, an industry specialist who helps plan tower placement, said the proposed location appears to be a "strategic build," free-of-charge coverage to high-priority customers. A former Verizon executive vice president, who spoke on the condition of anonymity because he worked for the company, agreed with Alarcon, saying, "It was a VIP kind of thing."

Verizon spokesman Nelson declined to comment when asked whether this had been considered a "strategic build."

Cindy McCain signed a contract with Verizon on May 6, granting free use of her property for a year in exchange for "the benefits of enhanced wireless communications arising from operation of the Facility."

Over Memorial Day, McCain hosted potential vice presidential running mates at the ranch, but the area still lacked coverage. Richard Klenner, then the wireless communications chief of the Secret Service, which had recently started providing protection, sent an e-mail to Verizon.

"Is there any way of speeding up the process?" he asked, adding that he wanted Verizon to "explore every possible means of providing an alternative cellular or data communications source in the referenced area and provide any short-term implementation of any type as a solution in the interim."

Staff researcher Madonna Lebling contributed to this report.

© 2008 The Washington Post Company

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/15/AR2008101503575.html

RESCUE ME!

2008-10-15T16:21:00.003-06:00

For those investors, or simply those Americans and others that are concerned about the stock market's back-pedaling subsequent to virtually every Treasury and federal government pronouncement regarding the enormous steps they are undertaking on order to save the western world's financial system, times they must be a puzzlin'.

After the DJIA recovered to an intraday high of about 9,800 on Tuesday, and the S&P500 Index's 1,040, we have been witness to declines of 8.6 percent and 12.7 percent, respectively. Or 1,220 DJIA points and 132 S&P500 points. Ouch!

So much for any market pundits and professionals that thought stocks had hit bottom, or that it was time to jump back into the pond with your life's savings.

Positive: governments around the world, including the U.S., have stepped in with literally trillions of dollars (read inflation) in order to buy interests in banks, guarantee bank-to-bank transactions, increase insurance on bank deposits, propose to buy mortgage-backed securities. So why does the market seem so skeptical? Or does it?

It is more likely than not that the banking system will be saved from collapse. For that, you can breath easier about ATM access, etc. And governments will not stop at implementing any other measures that they can create or expand upon in order to maintain the system. No one wants to endure another Great Depression!

But what seemed to suddenly dawn on many stupified and sophisticated investors over the past two days is that, DUH!, we are in some kind of recession, and it is likely to be very very painful.

OK, this is news to some and not to others. I hate beating dead horses, even if their souls have already moved on.

So if we are in a recession, and if we will continue to be in a recession for an as yet undetermined period, how do you estimate the earnings of public companies? And assuming that you can make a reasonable stab at that, what value do you place on them?

In prior posts, I've laid out the case for current and lower levels of stock prices. We could still see last week's lows tested, perhaps even taken out (that means even lower lows). Given all the uncertainty, it truly is risky business to be investing right now.

Now some pundits and "professionals" are trying to make the case for buying small amounts of stock, the old "averaging down your costs" philosophy. Ultimately, depending on your time horizon, this will likely work - so long as you are not averaging down to zero.

I expect that we will see lower prices in the stock indices, and certainly in many individual stocks. But smart investors that do their work will find bargains at this level and as the market tests its prior lows. This all assumes, of course, that the wunderkids that are working frantically to save us financially get the job done. That's not yet a foregone conclusion, particularly because we do not know what inflation will look like in a year or two. Do I see some shimmering gold, I mean metal gold?

We typically fight inflation by raising interest rates in order to curb economic activity. After all, we wouldn't want there to be a housing price bubble or Internet bubble or tulip bubble or anything like that! But we are caught between the proverbial rock and hard place.

Raise interest rates? Well, we can't do that; after all we are encouraging nations worldwide to LOWER them. Ours are already at historic lows. Can't get much closer to zero. No, I'm afraid that it will take years to wind all of this mess down.

Stock markets may likely find decent value levels and we will once again find interest in growth companies, value companies, high dividend yield companies, whatever flavor suits you.

Thanks to years of non-regulation, deregulation, anti-regulation, systemic damage has been done to confidence. And without confidence, people are hard-pressed to invest very much. They feel that the deck is too heavily stacked against them. Right now, it sadly is.

LET'S JUST TELL THE TRUTH, OK?

2008-10-15T14:25:00.002-06:00

On October 3, I posted a story titled "The Reckoning." It appeared that day in The New York Times and was written by Stephen Labaton.

Essentially, it was a narrative regarding an April 2004 meeting that underscored the Bush administration anti-regulatory policies, gutting regulatory oversight and competence, and the incompetence of the S.E.C. under Bush. That meeting opened the floodgates to bank deregulation and the mortgage-backed securities profiteering that has gutted our economy.

Today - October 15 - an anonymous reader posted the following comment:

"All the commissioners present at that meeting, were appointed by President Clinton."

Sadly, this is just another example of how the right-wing finds it easy to simply ignore FACTS.

The "anonymous reader's" claim is entirely false, kinda like alleging that Barack Obama is a Muslim terrorist, etc. Honestly, I love to receive comments. But PLEASE PLEASE PLEASE check your facts.

The aforesaid claim/comment is entirely FALSE. It is either a simple fabrication, for which the right-wing Bush/McCain policy apologists are reknowned, or a simple error in researching facts.

Actually, every single commissioner on the Securities & Exchange Commission in April 2004 were President George W. Bush appointees. Every single member that was appointed by President Clinton had been replaced no later than 2002.

Let's keep facts straight.

source: http://www.sec.gov/about/annrep03.shtml

WHIPPIN' BUTT

2008-10-15T08:44:00.004-06:00

I don't know about you, but someone might infer a slight hint of racism in John McCain's comments to one of his overstated crowds the other day.

"We're a couple points down, OK, nationally, but we're right in this game," McCain said to cheers. "The economy has hurt us a little bit in the last week or two, but in the last few days we've seen it come back up because they want experience, they want knowledge and they want vision. We'll give that to America."

"We're going to spend a lot of time and after I whip his you-know-what in this debate, we're going to be going out 24/7," McCain said.

After that comment, McCain added, "I respect Senator Obama, we will conduct a respectful race and be sure everyone else does too."

WHIP HIS "YOU-KNOW-WHAT?"

Now that's what I call respectful! The McCain/Palin dynamic duo continue to foment sad right-wing anger in their crowds. On their crowds, it is sad that they have to resort to exaggerating the size of their crowds. You can be sure, usually based on factual things such as fire marshal estimates, that anytime they claim a crowd of tens of thousands, it's usually something well below 10,000.

But back to the point. The Republican team is tone-deaf to the noise emanating from their crowds - "kill him," "traitor," "off with his head." Personally, I have nightmares about what this says about the safety of Barack Obama after he wins the election. And every American, every person that is aware of their soul, that holds Christian, Jewish, Muslim or any other spiritual value set should shudder and condemn McCain, Palin, and the entire cadre of Republican denialists that embrace them.

Weeks ago, we all remember McCain's stated "turning of the page" with their campaign, essentially abandoning a dialogue of issues in exchange for personal attack.

A couple of points down in the race. Really. It's never over until it's over, as they say. But it sure seems like recent polls, both nationally and in so-called battleground states shows Obama extending double-digit leads. I wonder if McCain reads the same newspapers and magazines that Sarah Palin DOESN'T?

John McCain unveiled his clearly hurried economic stimulus plan yesterday, encouraging senior citizens to divest themselves of their retirement accounts at an accelerated rate, demanding that the federal government buy up BAD mortgages at face value and then renegotiate them, causing taxpayers to incur potentially huge losses. And last but not least, proposing to slash the capital gains tax in half. Now that's a winner! As Obama said after hearing about McCain's plan, who has capital gains? And it turns out that some 60 percent of capital gains taxes are paid by guess who? People that earn over $1 million a year. Now THAT'S real help for the middle class.

I doubt that Obama will take anything for granted in tonight's debate. It just doesn't seem to be in him. Will McCain toss in the towel and bring up scary names and the Republican's favorite card, the fear factor? And how would Obama respond? Issues, issues, issues, That is what is capturing American voters - solutions to real issues.

Tonight's debate will surely be "must watch TV."

END OR BEGINNING? Part Deux

2008-10-13T14:56:00.004-06:00

Recalling the post of October 12: "So what's next this coming week? At this writing, Sunday afternoon, it remains unclear if statements by Henry Paulson at Treasury, and negotiations with our European and Asian partners will be sufficient to calm markets and free up the credit markets. If there is a solid glimmer of sunshine before Monday's opening of New York trading, we may very well see the markets continue its bounce off Friday's lows. But few bear markets end so spectacularly. And we still have a major recession to account for, increasing unemployment, slowing or declining exports, and a continued slide in home values. So once worldwide credit markets begin to stabilize, all eyes will focus on the future, and it does not look very bright for the next year or two from where this person sits."

So here we sit:

The DJIA exploded up more than 936 points, or more than 11.1 percent.
The S&P 500 Index soared by 104.13, or 11.6 percent.
Even the technology-heavy NASDAQ Composite soared by 194.74, or 11.8 percent.

General Motors was up by a third, Ford up more than 20 percent. Microsoft up nearly 20 percent. One would think that we had missed the RECESSION. OOPS!

While anyone that owns stocks, in a retirement account or mutual fund, etc. has to cheer the market's performance, keep some things in mind:

Because of the Columbus Day holiday, the all-critical credit markets were closed today. A very large chunk of today's "buying" was short covering. After all, after last week's debacle, who would not have not expected some rally?

Yes, the rallies began last night, in Asia and European markets, setting New York's stage. Yes, as was "hoped for" on Sunday, world economic leaders did seem to come together with a commitment to support the financial markets - and at unbelievable cost. Collectively, we are talking about a rescue plan worldwide that will cost well over $2 Trillion! That's, at least, what we know now. And, as we've said, we still do not know where all the bodies are buried.

NEXT?

So what's next? Personally, I'd love to believe that we've experienced all the carnage, I really would. Have we seen the lowest of the lows? Perhaps, but we cannot yet be certain. History tells us that large rallies, be they one day wonders or one's that take days, weeks, months, always occur in the midst of bear markets.

* We still have to see if the credit markets "unfreeze."

* We still have to recalibrate economic growth expectations and earnings potential for a recession. No one yet really knows how big this recession will end up being, let alone how long it will take to recover.

* Of course, now that we are really beginning to understand the magnitude of government interventions in trying to prevent a Depression, it is more than likely that a tsunami of inflation is waiting out there - somewhere down the road. How will we deal with that? Well, typically by increasing interest rates, trying to slow economic growth.

But that's not the problem we are facing, is it? We are faced with central bank treasuries, worldwide, gone mad in printing money. It's not just the good ole' USA, now.

And we may not yet be finished with the deflation of commodities prices worldwide. Sure oil may not entirely collapse. Vested interests will try to cut production in an attempt to stabilize prices. But demand for oil may fall off so sharply that even that manipulative effort may not work. Then there's demand for everything else - metals, food, building materials, etc. Governments will attempt, in some cases, to stimulate demand with new stimulative measures. We're speedily talking about it in the U.S. already - more printing presses please.

I am not saying that we shouldn't stimulate demand. One of the major failings of good ole' Herbert Hoover in the early Great Depression years was to NOT stimulate demand. You know, the core value of good old Republican conservative economic theory: slash spending in the midst of an economic crisis that is partly based on falling demand - for employees, for goods and services. Surely the free market will save the day. Didn't work in the 1930s, won't ever work.

Today Barack Obama unveiled his own short-term stimulus plan that included tax credits for businesses that hire new employees, limited tax-free withdrawals from retirement plans, a 90-day foreclosure moratorium, a doubling of the $25 billion in loan guarantees for the U.S. auto industry, among other middle-class friendly recommendations. And he is calling for them now, not in January.

Today's John McCain plan: "The campaign for Republican presidential candidate John McCain on Monday criticized an economic rescue plan suggested by Democratic rival Barack Obama, saying that it focused too much on new government spending."

"Americans were hoping today that Sen. Obama would now tell us that he has decided that the economy is bad enough that he is not going to move forward with his tax increases," former Ohio Republican Congressman Ron Portman said in a conference call with reporters.

"We've heard a lot of promises for new spending…and that's not the way we are going to get ourselves back on track," he added.

Portman cited mounting deficits as one of the reasons for the troubled economy, and said that McCain's "pro-growth and pro-jobs" plan will "offer tax relief by keeping spending under control."

Hmmm. Just like he and his associates kept spending under control for the past eight years. And more tax cuts for the most affluent, trickling down their benefits just like they have since the Republicans' beloved Ronald Reagan came to office.

The stock market bear isn't dead. No doubt, we will see lots of folks taking tax losses before December 31. We'll see several more job loss reports in the months to come, lower corporate profits, more people struggling to stay in their homes. The good news for those folks that the Republicans left behind? (sounds biblical doesn't it?) Lower gasoline prices, perhaps; kinda like a tax cut.

But it remains to be seen if there will be any home heating relief this winter. Forecasts are already calling for higher bills. Will credit free up so that people can buy automobiles or new homes? Will their home values stabilize?

Will people once again vote against their own interests?

Three weeks to go. Hold onto your wallets and purses.

The Post-Binge World

2008-10-13T11:31:00.002-06:00

October 12, 2008
Op-Ed Columnist

By THOMAS L. FRIEDMAN

My friend Rob Watson, the head of EcoTech International, has a saying about Mother Nature that goes like this: “Mother Nature is just chemistry, biology and physics. That’s all she is.” And because of that, says Rob, you cannot spin Mother Nature. You cannot bribe Mother Nature. You cannot sweet talk her, and you cannot ignore her. She’s going to do with the climate whatever chemistry, biology and physics dictate. And Mother Nature always bats last, and she always bats a thousand.

There is a parallel with markets. At their core, markets are propelled by fear and greed. They’re just the balance at any given moment of those two impulses. Over the long run, you cannot spin the market. You cannot sweet talk it into going up or beg it not to go down. It’s going to do whatever it’s going to do — whichever way greed and fear tug it. And the market always bats last and it always bats a thousand.

What am I saying? We are where we are today because we went on a credit binge and we’re now paying the price. Because it was the biggest credit binge the world has ever been on, a lot of wealth is going to be wiped out. Now what you’re witnessing is the market re-evaluating and re-pricing every asset in the world, without mercy, telling each stock, bond and bank what its value is in a post-credit binge world.

So why, despite the Congressional bailout, haven’t banks started lending again?

You have to go back to the beginning of the problem. After the fall of the Berlin Wall, virtually every economy in the world moved to a capitalist system, which eventually made the world awash with money looking for investments. It didn’t take long for financial engineers to figure out how to move home mortgages and commercial loans from a transaction between you and your local bank — or between your company and a syndicate of banks — to something much more diffused and fragmented. While your bank may have initiated the mortgage or the corporate loan, it was quickly sold to an aggregator who turned these different loans into bonds and then sold them all over the world in small pieces to banks and money market and pension funds.

The good news about this democratization of finance is that it powered enormous growth around the world. More people than ever grew out of poverty faster — or got rich faster. But the process became so lucrative that people — imbeciles — who should not have been selling these things got into the food chain of selling them. Banks and insurance companies that should not have even nibbled on them, gorged on them. And companies that should not have been dependent on raising capital through them became dependent.

So when some of these loans inevitably turned bad, the whole financial system got infected. Eventually everyone stopped lending to everyone else because no one knew what the other bank’s assets were worth. Indeed, if all the banks were really honest about the value of these toxic assets on their balance sheets, many of them would be under water.

The whole story of the last few months has been about different government plans to get the banks lending again. But the market is not waiting. It just keeps saying to the big banks and insurance companies: “We think you’re carrying a lot of junk on your books, and if you don’t mark it all the way down and re-price it to what it is really worth today, we will re-price you — fairly or not.” The market is going to do what it is going to do.

So what could ease this crisis? “There is going to have to be a workout,” said the financial strategist David Smick, author of “The World Is Curved,” a book about the hidden dangers in today’s global economy. “There will have to be a restructuring of all these institutions to clean up their balance sheets and recapitalize them.” Banks and insurance companies will have to be reconstituted, merged or left to die, until these toxic assets are properly priced and off the books.

The government’s job — which it is still trying to figure out exactly how to do — will be to provide a safety net of guarantees for the surviving banks, so they will be honest about pricing their assets, and then, once they have been, to help recapitalize them. “Government’s other job,” added Smick, “is to quickly establish the new rules of the road for truth-in-lending on a global basis. We still need these kind of lending facilities if the economy is going to grow again.”

This workout promises to be painful, complicated and protracted. Government will have to do its part. But it must regulate the excesses without smothering the underlying innovative, entrepreneurial and risk-taking attributes of our economy, which are what will ultimately bail us out — as they always have.

“I have no idea what the stock market is going to do next month or six months from now,” Warren Buffett told CNBC on Friday. “I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well.”

http://www.nytimes.com/2008/10/12/opinion/12friedman.html?ei=5070&emc=eta-1

Copyright 2008 The New York Times Company

Insider’s Projects Drained Missile-Defense Millions

2008-10-13T11:14:00.002-06:00

October 12, 2008
Insider’s Projects Drained Missile-Defense Millions
By ERIC LIPTON

WASHINGTON — They huddled in a quiet corner at the US Airways lounge at Ronald Reagan National Airport, sipping bottomless cups of coffee as they plotted to turn America’s missile defense program into a personal cash machine.

Michael Cantrell, an engineer at the Army Space and Missile Defense Command headquarters in Huntsville, Ala., along with his deputy, Doug Ennis, had lined up millions of dollars from Congress for defense companies. Now, Mr. Cantrell decided, it was time to take a cut.

“The contractors are making a killing,” Mr. Cantrell recalled thinking at the meeting, in 2000. “The lobbyists are getting their fees, and the contractors and lobbyists are writing out campaign checks to the politicians. Everybody is making money here — except us.”

Within months, Mr. Cantrell began getting personal checks from contractors and later returned to the airport with Mr. Ennis to pick up a briefcase stuffed with $75,000. The two men eventually collected more than $1.6 million in kickbacks, through 2007, prompting them to plead guilty this year to corruption charges.

Mr. Cantrell readily acknowledges concocting the crime. But what has drawn little scrutiny are his activities leading up to it. Thanks to important allies in Congress, he extracted nearly $350 million for projects the Pentagon did not want, wasting taxpayer money on what would become dead-end ventures.

Recent scandals involving former Representative Randy Cunningham, Republican of California, and the lobbyist Jack Abramoff, both now in prison, provided a glimpse into how special interests manipulate the federal government.

Mr. Cantrell’s story, by contrast, pieced together from federal documents and dozens of interviews, is a remarkable account of how a little-known, midlevel Defense Department insider who spent his entire career in Alabama skillfully gamed the system.

Mr. Cantrell worked in a division that was a small part of the national missile defense program. Determined to save his job, he often bypassed his bosses and broke department rules to make his case on Capitol Hill. He enlisted contractors to pitch projects that would keep the dollars flowing and paid lobbyists to ease them through. He cultivated lawmakers, who were eager to send money back home or to favored contractors and did not ask many questions. And when he ran into trouble, he could count on his powerful friends for protection from Pentagon officials who provided little oversight and were afraid of alienating lawmakers.

Senator Ted Stevens, the Alaska Republican, for example, chewed out Pentagon officials who opposed a missile range Mr. Cantrell and his contractor allies were seeking to build in Alaska, prompting them to back off, while a staffer for former Senator Trent Lott, Republican of Mississippi, intervened when the Pentagon threatened to discipline Mr. Cantrell for lobbying, a banned activity for civil servants.

“I could go over to the Hill and put pressure on people above me and get something done,” Mr. Cantrell explained about his success in Washington. “With the Army, as long as the senator is not calling over and complaining, everything is O.K. And the senator will not call over and complain unless the contractor you’re working with does not get his money. So you just have to keep the players happy and it works.”

The national missile defense program has cost the United States more than $110 billion since President Ronald Reagan unveiled his Star Wars plan 25 years ago. Today, the missile defense effort is the Pentagon’s single biggest procurement program.

The Army declined to discuss the Cantrell case, other than to say it had taken steps to try to prevent similar crimes from happening again.

But some current and former Defense Department officials say the exploiting of the system that preceded Mr. Cantrell’s kickback scheme has had a damaging impact, slowing progress toward building a viable missile defense system by diverting money to unnecessary or wasteful endeavors. That pattern of larding up the defense budget with pet projects pushed by lawmakers and lobbyists is a familiar one.

“What they did may have been a scandal,” said Walter E. Braswell, Mr. Ennis’s lawyer, referring to the actions of his client and Mr. Cantrell. “But even more grotesque is the way defense procurement has disintegrated into an incestuous relationship between the military, politicians and contractors.”

Dr. J. Richard Fisher, one of Mr. Cantrell’s former bosses, said: “The system needs to change. But it is not likely to do that. There is just too much inertia — and too much self-interest.”

Getting Around the System

Towering over the highway near the entrance to Huntsville is a replica of the Saturn V rocket, the powerful missile that lifted the first man to the moon.

Created in Huntsville, it is a fitting icon for this once-sleepy cotton mill town, now so dominated by the aerospace industry that it is nicknamed Rocket City. An estimated 18,000 uniformed and civilian federal employees work in the aerospace industry in the Huntsville area today, augmented by about 40,000 others, who work for federal contractors.

Michael Cantrell grew up on a dairy farm nearby, listening to the rumble of rocket test flights. As a young engineer, he became a civilian employee of the Army and quickly impressed his bosses. “Mike moved at the speed of sound,” said Lt. Gen. Jay Garner, who briefly headed the missile command.

By 1990, Mr. Cantrell, then 35, took over an experimental program to develop faster, cheaper and lighter missiles that could intercept and knock out enemy missiles flying within the atmosphere. Under the Reagan administration, money was plentiful for such research, but with the fall of the Soviet Union and the arrival of the Clinton administration, Pentagon bosses were forced to make budget cuts.

Like other Army employees, Mr. Cantrell was prohibited from lobbying or even visiting Capitol Hill unless he had permission from his agency’s Congressional liaison, a prohibition intended to block employees from promoting initiatives that Pentagon leaders did not see as a priority.

But General Garner said it was obvious to his managers what they had to do if they did not want their programs — and jobs — eliminated.

“If the money does not end up in the palm and you need it,” he said in an interview, “the only other place you can go to get it is the Congress.”

Soon enough, Army missile program managers started opening what amounted to their own lobbying shops in Washington, according to Mr. Cantrell and his former supervisors.

Mr. Cantrell became a regular on Capitol Hill, both in the halls of Congress and in the bars and restaurants where Hill staffers gather after hours. He set up a makeshift office in the US Airways lounge at Reagan National Airport, where he followed up on pitches for money to lawmakers and hid out from his Defense Department bosses. He identified lobbyists who could prove useful and contractors — many of them campaign donors — with projects that needed nurturing.

With the backing of the New York Congressional delegation, for example, he blocked cuts in financing for a sophisticated wind tunnel in Buffalo, where he promised to test his missile components. With help from then Representative Curt Weldon, Republican of Pennsylvania, who wanted Army assistance for a “technology corridor” in his district, Mr. Cantrell managed to get millions more for his program. Eventually, a dozen or so lawmakers helped him.

“It was like I was going hunting in Washington,” Mr. Cantrell said. “And I would always come up with money.” One colleague was so impressed with Mr. Cantrell’s record that she gave him a bobblehead doll carrying a briefcase marked with dollar signs.

The Pentagon had objected to Mr. Cantrell’s financing requests, but he was not discouraged. “He kept trying to kill our programs,” Mr. Cantrell said of one supervisor. But “we would go around” and get a lawmaker “to whack him.”

Inspired by his successes, Mr. Cantrell soon embarked on a more ambitious project that would all but guarantee sustained financing.

His proposal, which was based on the premise that Congress would significantly increase annual financing for his experimental missile defense work, involved not just five test launchings, but the construction of a new launching site on a remote Alaskan island and the lease of a mothballed Navy helicopter carrier, which would be used to send the simulated attack missile.

The Launching Project

It was easy to find willing partners.

The program’s main contractors, including the defense giant Lockheed Martin, prepared presentations for Congress making the case for an extra $25 million to $50 million a year for the project.

Officials in Alaska, who had been seeking money for a spaceport on Kodiak Island to launch commercial satellites, eagerly chimed in. And nearly a dozen lawmakers also did their part, Mr. Cantrell said, including Senator Stevens of Alaska; Senator Richard C. Shelby, Republican of Alabama; Senator Olympia J. Snowe, Republican of Maine; and Representative C. W. Bill Young, Republican of Florida, all members of the Appropriations or Armed Services committees with missile defense contractors in their districts.

But the military already had rocket launching sites around the globe, and Gen. Lester L. Lyles of the Air Force, who then ran the missile defense program, had no intention of spending money on another one.

General Lyles and his deputy, Rear Adm. Richard D. West of the Navy, were particularly incensed when they learned of the plans to lease the helicopter carrier, the Tripoli, and spend several million dollars renovating it.

Summoned to Washington in 1997 to explain the project, Mr. Cantrell offered little information. That only further infuriated his bosses.

“Who in the hell is in charge of this program?” Admiral West finally demanded in an exchange both men recall.

Mr. Cantrell was ordered to remove his experimental equipment from the planned launching. But the money kept coming. Mr. Stevens’s office had called to insist that the Kodiak project proceed, Admiral West and Lt. Gen. Edward G. Anderson, then the head of Army Space and Missile Defense Command, said in interviews.

“I got hammered pretty hard,” Admiral West recalled. The military men backed off, and the construction at Kodiak continued.

Mr. Cantrell said he knew that building a new launching facility was wasteful. “It doesn’t make sense,” he said. “The economics of it, they just don’t work.”

But he did not care.

“I went up there to get the money,” Mr. Cantrell said of his dealings on Capitol Hill. “And we got what we needed.”

Mr. Cantrell and his deputy, Mr. Ennis, visited Kodiak Island on the afternoon of the inaugural test launching in November 1998. The Air Force had substituted other equipment for Mr. Cantrell’s payload.

The two men, armed with a cooler filled with Miller Lite beer, watched the launching from a trailer, emerging just in time to see the missile burn an orange streak into the sky. They had hidden out to avoid any local newspaper reporters who might discover that Mr. Cantrell’s missile parts — the justification for millions of dollars in spending — were not even being tested. “There is no way we can explain this,” Mr. Cantrell remembered telling Mr. Ennis.

Fearless

The hand that grabbed Mr. Cantrell by the shoulder startled him.

It was General Lyles, who happened to be on Capitol Hill when he spotted Mr. Cantrell outside Mr. Lott’s office. It was February 1998, even before the dispute over the Alaska project had played out. But the general said he immediately suspected Mr. Cantrell was up to no good.

“Are you over here lobbying?” General Lyles asked in an exchange the two men recalled.

Mr. Cantrell had been working with Mr. Lott, then Senate majority leader, for several years. The lawmaker included several million dollars in the defense budget for an acoustics research center in his home state, and Mr. Cantrell made sure it went to the intended recipients: the University of Mississippi in Oxford and a Huntsville defense contractor that had a branch office in Oxford. In turn, Mr. Lott’s office helped get extra financing — $25 million or so every year — for Mr. Cantrell’s program.

It was an arrangement that Mr. Cantrell did not want to discuss with General Lyles. While he did not consider himself to have been lobbying that day, he readily acknowledges that he often did.

“I just mumbled a lot,” he recalled of his response to the general.

By then, Mr. Cantrell felt confident that he could find his way out of any trouble with the help of his many friends in Washington. Several were lobbyists or consultants working on his behalf; he had /placed them with friendly contractors, allowing them to bill the government for the costs, even though federal law prohibits paying any expenses associated with lobbying.

For example, Mr. Cantrell arranged for James Longley, a former Republican congressman from Maine who started his own consulting firm, to be hired as an employee by Computer Systems Technology, a missile defense contractor.

“The man could put ‘honorable’ in front of his name and go places with that,” Mr. Cantrell explained, saying that Mr. Longley introduced him to lawmakers and appealed to senior Pentagon officials to protect Mr. Cantrell’s program.

Mr. Longley, in an interview, insisted that he never sought money from Congress, but simply provided strategic advice to Mr. Cantrell.

But several people, including Dr. Fisher, one of Mr. Cantrell’s bosses, thought the arrangement improper.

“Here is an ex-congressman out there promoting Mike’s programs,” Dr. Fisher said. “He can call himself what he wants, but he is basically a lobbyist.”

The incident with General Lyles prompted a formal investigation into Mr. Cantrell’s activities that same year.

But Mr. Cantrell got Mr. Longley to call Army officials. Then Mr. Lott’s office requested that the case be closed, Mr. Cantrell said. Eric Womble, a former aide to Mr. Lott, said he could not remember taking such a step, but added that it would not have been surprising.

“Senator Lott’s staff protects people who are trying to help us and help the nation,” Mr. Womble said.

Soon, the investigation of Mr. Cantrell came to a close. He got only an oral warning from his boss.

That episode would embolden Mr. Cantrell. On several occasions, he would again be caught violating Pentagon rules and each time escape with nothing more than a reprimand.

“If you have the Senate majority leader’s office calling over to get you out of trouble, you can’t help but get a little cocky,” Mr. Cantrell said.

The Fallout

From the US Airways club, Mr. Cantrell could see the symphony of the arriving and departing planes, the Potomac River and off in the distance, the Capitol dome.

One day in 2000, Mr. Cantrell met in the airport lounge with Mr. Ennis, his deputy, and a Maine contractor to figure out how to pocket some of the government’s money.

There were easy ways to cheat. The prototype missile nose cone and heat shields that the Army had paid the Maine company to design for the Alaska tests. Why not hire the business to pretend to design them again? Mr. Cantrell asked.

The ballute — an odd cross between a balloon and a parachute — had been rejected by experts as a tool to strike an enemy missile. But why not pay the Maine company to develop them anyway? Mr. Cantrell suggested.

He could pull off such shenanigans because, by then, he had an extraordinary degree of independence. Mr. Cantrell’s experimental missile program, which had cost nearly $250 million, was about to be canceled. No working missile system had been built — and almost none of the components had ended up being tested in real launchings as planned. The effort had produced some benefits for the players involved: Congress sent an annual allotment of extra money to the Alaska launching site now totaling more than $40 million, and one of the contractors that had worked with Mr. Cantrell initially to pitch the space port, Aero Thermo Technology, had secured a no-bid federal contract to provide launching services.

Now Mr. Cantrell was on to another assignment overseeing missile defense research in Huntsville, and through his friends on the Hill, he was once again getting money for projects that the Pentagon did not want.

Mr. Cantrell, who by now was helping to oversee 160 or so contractors and managing a $120 million a year contracting budget, said he knew that if he only requested a few million dollars at a time for his scheme, there would be little scrutiny of his requests or demands that he prove that the work was actually done.

For example, the missile nose cones and other parts now made round trips from Huntsville to Maine with little or no change. Mr. Cantrell or his deputy simply marked off the work as complete, and that was the end of it.

For nearly six years, from 2001 to 2007, the men collected kickbacks from contractors. During one visit to the US Airways Club, Mr. Ennis picked up a briefcase stuffed with $75,000 in cash, according to federal court records. Mr. Cantrell also got checks, ranging from $5,000 to $60,000, once or twice a month, court records show.

The Maine contractor, Maurice H. Subilia, is under investigation; his lawyer, Toby Dilworth, a former federal prosecutor, declined to comment. Dennis A. Darling, a Florida contractor who got government research grants and then divvied them up with Mr. Cantrell, was indicted last month on a charge of paying Mr. Cantrell $400,000 in bribes from 2005 to 2007.

With his new wealth, Mr. Cantrell, now 52, built himself a $1.25 million home in an exclusive Huntsville neighborhood called the Ledges.

Mr. Cantrell, who received the bulk of the kickbacks, acknowledges his crime but he ticks off the failings of the system that he exploited: lawmakers who are eager to please contractors and campaign donors; unwillingness by the Army to push back against members of Congress whose agendas were at odds with those of the military; and little scrutiny.

“We just paid for meaningless work,” he said. “And there was so little oversight that no one noticed.”

Admiral West, the former deputy director of the Pentagon missile defense program, faults Mr. Cantrell for wrongdoing, but says there were multiple missed opportunities to investigate his activities.

“The blame needs to go around widely here,” he said. “Congress should know better; the contractors, too.”

Mr. Cantrell, who is awaiting sentencing on conspiracy and bribery charges, now spends his days sitting in the kitchen of his father-in-law’s house; his dream home was seized by the federal government.

On top of the kitchen table, next to a King James Version of the Bible and bottle of Extra Strength Excedrin, is a stack of books on how to master poker. Mr. Cantrell has reduced them to mathematical formulas pinned onto a bulletin board in front of a computer terminal, where he plays Internet poker for hours at a time. Even now, he is trying to beat the system.

http://www.nytimes.com/2008/10/12/washington/12missile.html?pagewanted=1&ei=5070&emc=eta-1

Copyright 2008 The New York Times Company

How McCain Will Steal the Election from Obama (Sort Of)

2008-10-13T11:09:00.001-06:00

Torn from today's Huffington Post

Tom Matzzie
Posted October 12, 2008 | 01:53 PM (EST)

How McCain Will Steal the Election from Obama (Sort Of)

http://www.huffingtonpost.com/tom-matzzie/how-mccain-will-steal-the_b_133989.html

Imagine an election where one of the participants calls foul. Investigations are launched or at least called for. Prosecutors raise the specter of charges, the U.S. attorney and FBI get involved. No voter fraud is ever actually found. But by the time that conclusion is reached, the myth has been solidified both to soothe the loser's supporters and condemn the winner.

Sound familiar? Sound like the recent ACORN scandal?

Well, actually I'm talking about the 1960 election between John F. Kennedy and Richard M. Nixon. That Nixon was cheated out of a win is the stuff of legend on the Right. The allegations say that Kennedy loyalists fixed the vote counts in Illinois and Texas--swinging 51 electoral votes and a majority in the Electoral College to Kennedy. In more hyperbolic versions there is alleged involvement by the mob, the Teamsters Union or legendary Chicago mayor Richard Daley.

The story goes on that Nixon, "for the good of the country," conceded honorably and exited the scene. No matter that Nixon was later chased out of the White House for cheating in an election. The myth endures.

This whole story--maybe to be replayed with Obama playing Kennedy and McCain playing Nixon--is a canard. It is a fable. A lie made up by the conservative movement to hold together their fraying coalition.

In 2008 the stakes are bigger than they've ever been before for conservatives and the canard is that much more important to them.

In the case of Obama the conservative movement is lining up a serious of story elements. They are:

• Obama was a community organizer.
• ACORN, a group that does community organizing, has committed voter fraud.
• Obama is from Chicago.
• You know what happens in elections in Chicago. Remember the 1960 election.

The story is half true and half lies. As we all know, Barack Obama is from Chicago and was a community organizer. Those are the only true parts of the conservative story. But the other two facts are myths: the 1960 election wasn't stolen (says the conclusion of recounts and investigations in 1960 and numerous academic studies since). And, ACORN has not committed voter fraud. Not one bit.

The facts about ACORN are worth getting out. ACORN is an organization that, among other things, registers low-income people to vote. One of the ways they do this is to hire door-to-door canvassers from the neighborhoods they are working in. This sort of work is tightly regulated. So, when one of the thousands of people they give jobs to doesn't do their work right and brings back bogus or phony voter registration cards, the law REQUIRES that ACORN turn the forms in to the voter registration office. The law, rightly, doesn't want anybody throwing out voter registration forms for any reason.

But ACORN goes a step farther. They have people assigned to do quality control on all the cards--calling people on the forms after they fill them out. When they find bad information on the cards they attach a cover sheet to the card but, as mentioned above, they turn in the cards as required by law. The effect is that a few bad canvassers or a poorly run office will mean that bad cards are submitted as part of the normal process. But ACORN has done everything possible to make sure voting officials know to check the forms.

The sad fact is that in at least one state--Nevada--the voting officials disregarded ACORN's cover sheets flagging the voter registration forms. That should have never happened. The resulting blowup was a scandal in search of a scandal.

The stunning con of this whole thing is the assumption that bad voter registration cards being submitted will lead to vote fraud. If somebody submits a card for Mickey Mouse it isn't like Mr. Mouse is going to show up to vote. There is no voter fraud if nobody votes.

But the big story here is what the Right is doing. Their attacks on ACORN open up the door for two things.

First, the ACORN myth allows the Republicans to do more purging of the voter rolls--the process of removing people from the voter rolls because of arbitrary anomalies in the voter registration databases. Richard L Hasen, author of the Election Law Blog and a distinguished law professor at Loyola Law School in Los Angeles recently wrote, "Careless purging--driven by unsubstantiated fears about voter fraud--can lead to many eligible voters being incorrectly removed from the polls." Already in Ohio the Republican Party is pushing for more purging and they found a federal judge who agreed citing ACORN's activities.

Second, in the event that campaigning, purging and intimidating voters doesn't work, the Right is creating a myth like they did in 1960. They are creating the myth of a stolen election. Conservatives plan to claim that ACORN and Barack Obama stole the election. Their hope is to steal the legitimacy of what is looking like a massive repudiation of Bush, conservatives and the Republican Party. The Right plans to steal the election by trying to steal the legitimate defeat of them by progressive forces.

And why wouldn't they? The entire Republican coalition could be shattered with this election. White suburban voters who once voted Republican on tax issues are running away from Republicans on a host of issues--including taxes. Independent are looking more and more like Democratic voters. Barack Obama may even win a majority of male voters. All of them are joining with urban votes, voters of color, young people, working class union members and others to form a long-term governing majority for progressives--a progressive majority.

Conservatives are scared of a progressive majority. And they're going to lie, cheat and steal to prevent it from happening. But they can only be successful if we let them.

The best way to deflate the conservative fable is to win with an overwhelming landslide that guarantees there won't be a dispute of the results.

We also need to confront the Republican vote purging and suppression. Already big efforts by the Obama campaign, the DNC and independent groups are working on this. Progressives and Democrats are united in this effort.

But we also need to make sure the ACORN canard doesn't get to live in daylight. It is time to circle the wagons and make sure John McCain and the Right can't steal the election...even if we win.

For progressives, the ball is in our court.

END OR BEGINNING?

2008-10-12T12:52:00.007-06:00

Let's review some scary stock market history - of 2008 - shall we?

Prior to restarting "Clear The Mist" on September 22, 2008, this commentator had a history of increasing concern about the potential for a major bear market, particularly after the failure of investment bank behemoth Bear Stearns.

I'd like to quickly review this record:

July 15 - With the Standard & Poor's 500 Index (S&P500) closing at about 1,500, due to various factors, I cautioned that we could see the S&P500 decline to the 1,080 area, or market drop of about 28 percent. On the Dow Jones Industrials Average (DJIA), this suggested a decline to about 10,080. What largely drove this analysis was the combination of unknowns surrounding what we knew and did not know about the quality of mortgage-backed securities, plus the fact that it seemed pretty clear that we were already in a recession and likely headed to a substantial and sustained one.

September 8 - After the conservatorship of Fannie Mae and Freddie Mac, plus observing the months' long steep deterioration of stock markets in Asia and Europe, I lowered my potential downside target for the U.S. stock market to 9,500 DJIA and 1,018 S&P500.

October 3 - The case for a very steep recession increased substantially. Based on the possibility that corporate profits could possibly decline to levels not seen since the 2001-2002 recession period, targets for the DJI and S&P500 were revised downward to 8,000 and 800, respectively. Also posted here at "Clear The Mist."

October 8 - Based on various technical and fundamental indicators of the stock market, and looking more closely at the 1973-74 bear market, this commentary began settling on a DJIA of about 8,300 and S&P500 of about 830. The 1973-74 market decline began to look more comparable based not only on various indicators - which are not important to go into here - but also on the kind of trigger that we experienced back then. You may or may not recall the OPEC oil shock, long gas lines and shortages, and resultant spiraling inflation and interest rates. The effects of the oil shock rapidly rippled through the economy worldwide. Governments were hard-pressed to devise solutions and countermeasures. Does it all sound familiar?

During the day on October 10, we hit intraday lows of DJIA 7,900 and S&P500 830.

October 10 - The potential downside was revised to a possibility of 7,200 DJIA and 700 S&P500. Barring a Great Depression-type scenario, this forecast, essentially another 15 percent on the DJIA and 22 percent on the S&P500 based on Friday's close, would clearly mark the steepest percentage decline in stock prices since the 1930s.

Why such a pessimistic scenario? First, let me caveat two items: 1) please note that these are only my opinions and should not be relied upon as recommendations, advice or bets (as clearly stated elsewhere on this site); 2) this commentator sees this, based on what we know at this time, as clearly a worst-case type scenario - barring a Depression, once again.

In my opinion, any analyst or pundit or "guru" that suggests they can reasonably estimate valuation of stocks in this market based on future near-term earnings is smoking something that I'd like to try. And even if they can successfully model what corporate earnings might be over the next year or two, they other key is this: what valuation will be placed on those earnings, either estimated or actual? I, for one, believe that valuation models, at least for the time being, are out the window.

If the international community is not successful - and that includes the U.S. - in immediately taking necessary action to free up the credit markets, bring worldwide interest rates down considerably, and taking other critical steps, all prognostications go by the wayside.

NEXT?

So what's next this coming week? At this writing, Sunday afternoon, it remains unclear if statements by Henry Paulson at Treasury, and negotiations with our European and Asian partners will be sufficient to calm markets and free up the credit markets. If there is a solid glimmer of sunshine before Monday's opening of New York trading, we may very well see the markets continue its bounce off Friday's lows. But few bear markets end so spectacularly. And we still have a major recession to account for, increasing unemployment, slowing or declining exports, and a continued slide in home values. So once worldwide credit markets begin to stabilize, all eyes will focus on the future, and it does not look very bright for the next year or two from where this person sits.

Secretary Paulson has announced that he will begin a program of investing a portion of the $700 billion in EESA authorization in banks and perhaps other financial institutions, as has the UK. This is a positive step, initially proposed by Barack Obama and Senate/Congressional Democrats. It would be easy and simple to stand on "free market" principles and suggest that government has no right to buy chunks of the private economy. But in this instance, at this time, it is because the private sector has failed us that free market folks must support government involvement.

Today, it was reported that insurance giant AIG, now effectively owned/controlled by taxpayers, knew a year or more ago that they had serious problems in the credit default swaps business. According to reports, not only did they know, but they decided to go the extra mile and attempt to hide it from their auditors. I'm sure we'll hear a lot more on this subject in the days and weeks to come.

November's election is no longer about party loyalties, Republican or Democrat. It's about "Country First," as one of the candidates is fond of saying. But in this case, putting "Country First" is about the middle-class, it is about standing up for the least among us, and yes, it is about assuring that we have a fully functioning banking system - even if that requires government intervention and ownership.

From the mid-'90s through 2006, Republicans controlled Congress and pushed an agenda of deregulation. It actually began under Ronald Reagan. For the past two years, since Democrats gained majorities, Republicans have been there every step of the way to block any piece of legislation that could have mitigated our current situation.

If voters do not get it done on November 4, when will we have another opportunity? Can the U.S. really risk waiting yet another four years? Can your 401(k) or 403(b) or IRA or your home equity?

AFTER THE CRASH? OR...

2008-10-09T14:21:00.005-06:00

First to General Motors and Ford Motor:

This morning, I cautioned about the precarious nature of the U.S. auto industry. Today's stock performance of Ford and General Motors was startling. GM declined nearly 30 percent today. Ford declined nearly 19 percent. Late in the day, it was disclosed that credit ratings on GM debt may be cut.

The market value of General Motors is now just about $2.7 billion. Its peak in 2000 was $52 billion. In March 1929, GM's market value was $4 billion. 1929. As much as the company has grown since 1929, its market capitalization is a third lower than it was prior to the start of the Great Depression.

The stock market shed another 679 points on the Dow Jones Industrials Average (DJIA) today, or about 7.3 percent of its value, to close at 8579. The DJIA is down a staggering 40 percent since reaching its all-time of 14,164 just one year ago.

The Standard & Poor's 500 Index (S&P500) declined more than 75 points today, or about 7.6 percent, to close at just under 910. The S&P500 is down 41 percent from last year's peak of 1,565.

Sounds like there must be bargains galore, you say. You may want to think again.

Other than the market crash of the Great Depression, the worst bear market decline we have experienced was 1973-74, when the market declined by 46 percent.

You may or may not recall 1973-74? The OPEC oil shock, resultant inflation, higher interest rates. Does some of that sound familiar? The problem with the analogy is this: I'd love to say they are similar, but a reasonable market analyst and any investor must think. Today, we are dealing with a failure of the banking system - financial system - worldwide. Credit is unavailable - for the most part. The federal government has stepped into the "free markets" in unprecedented fashion.

It has taken over AIG, the world's largest insurance company, initially loaning it $85 billion, then loaning it another $37.8 billion just yesterday. AIG has taken down at least $61 billion of those loans to date. And AIG has written about $440 billion in credit default swaps, essentially unregulated insurance policies that essentially any well-healed investor or speculator can purchase, betting that a debt issuer may default. You do not even have to own the underlying debt; it's just a Las Vegas bet. The worldwide maarket for these instruments is estimated to be about $62 Trillion.

Your government has had to take over Fannie Mae and Freddie Mac, watch Lehman Brothers fail, arrange for Bear Stearns to be taken over, observed (encouraged?) Merrill Lynch to be taken over by Bank of America, arranged for WAMU (the largest savings bank in the nation) to be acquired by JPMorgan Chase, arranged for the takeover of Wachovia by Citigroup, only for Citi to be outbid by Wells Fargo. They have committed at least $700 billion to the potential purchase of mortgage-backed securities in the hopes that it may reliquify banks and identify a floor for sinking home values.

Banks have been failing in Europe, Iceland, and the UK. Russia's stock market has melted down (the Russian government even closed it for a period), as have markets in China and elsewhere.

I listen to business news and nightly news on television and what I generally hear is "market professionals/experts" telling us - for weeks, even yesterday, today, and likely tomorrow - how many bargains there are in the stock market.

Today, I opened one of our local newspapers to comments by six local bank and investment managers.

Here are some of their comments, printed this morning, October 9, 2008, discussing signs that investors would see when the stock market hits bottom:

"low valuations (check)"

"Extreme volatility is usually indicative of a bottoming process...investors that are panicking are selling, and long-term investors are buying. These to me are signs of a turnaround."

"We are hopeful that Rock Bottom is the song."

"...unemployment rates need to fall back to 5.5 percent from 6.1 percent, and existing homes has to get back to around 5.5 million, up from 4.9 million."

I won't embarrass anyone by attributing any of those quotes. Ad surely some people would want to argue, "Hey, they were taken out of context." But the point is that the economy is beset with so many problems, and so many of the people that are managing investments are hard-pressed to be able to look back into the twentieth century for market experience.

We are only in the early stages of a major recession, a worldwide recession. We cannot fairly value stocks because we have no real idea what corporate earnings will be this year, 2009, even 2010. Once we can fairly predict earnings, the next question will be how to value them. Prior to 1995, markets generally valued earnings at price/earnings ratios (stock price divided by earnings per share), in the low- to mid-teens. Frequently, stocks were valued at less than ten times earnings, and they weren't necessarily considered bargains.

Professionals talk about long-term investors, typically ten or more years. Many investors, like my fellow Baby-boomers, don't see ten years down the road. And beyond the few hundred families that control the vast majority of our nation's wealth - thanks to Republican tax and deregulation policies - most of the remaining wealth, particularly stock market wealth, is/was owned by Baby-boomers.

In September, something like $72 billion was withdrawn from mutual funds. In the first week of October, that number was around $50 billion. Despite the stock market having declined by 40 percent (and this is only the second week of October), who do you see stepping up to buy the so-called long-term bargains?

Now I understand that investment managers have a vested interest to protect. I was once one of them. Analysts are no less complicit. Some, if not most, of those "vested interest" folks were happy to issue "Sell" or "Underweight" opinions on companies whose stocks had already fallen anywhere from 30 percent to 70 percent. Thanks folks! Your timeliness continues to be awe-inspiring!

Now the Treasury is talking about buying outright interests in banks. That's how little confidence people have in the banking system.

For all practical purposes, credit scores have become meaningless as people shop for automobiles or homes. Credit is in dire shortage, and only gold-plated credits are receiving anything. These are the same folks that really really need to retain those Bush tax cuts, and really really really need John McCain's proposed additional tax cuts.

Now I do not begrudge anyone from earning a fair living. But to quote Barack Obama, "ENOUGH!" Everyone else in the United States needs tax relief. I mean how many high end autos does one need? How many homes does one need? How many millions of dollars does one need for a comfortable retirement?

If ever there needed to be a coordinated call for a financial revolution in America, isn't it now? Taxes need to be paid by someone. Shouldn't the people and businesses that are most capable of paying taxes actually pay them? Now I'm not suggesting that we return to what a friend of mine looks fondly back on as "the good old days," where tax rates for the most affluent were multiples of today's rates. But how many people reading this can afford to pay higher taxes? Most people I know struggle to pay today's rates, let alone their other routine expenses.

We were encouraged to buy more home than we really needed. We were encouraged to use more credit card lines than we needed. We were encouraged to accumulate more auto loan debt than we needed. GM hopes that we will happily lay out $40,000 for a small Chevy Volt because it runs mainly on electricity. I am philosophically hard-pressed to "invest" $20,000 in a car. But that's me.

Going back to GM and Ford. GM has about 150,000 employees in the U.S.; Ford has about 85,000. Suppliers, dealers, and other related employers account for at least 100,000 more.

And some stock market guru, a wealth manager, is talking aimlessly about needing unemployment to get back to 5.5 percent? From where? From the current understated 6.1 percent? Or from the potential 7 to 10 percent or more that is likely to come if we cannot void a very deep recession. Does anyone really think that people will be flooding stores this holiday season, business as usual? Or that simply changing presidents will change consumer behavior, allowing employment levels to magically rebound?

President Bush is going to speak tomorrow morning at 8am Eastern. I am so excited! No doubt, anything he says will provide FDR-like hope and confidence! Frankly, the less he says the better; he has become irrelevant, unless of course, you consider Herbert Hoover to have been relevant in some ironic fashion.

So is it time to talk about investment strategies "AFTER THE CRASH?" We can always talk and plan, and hope that we still have investments to manage, especially for retirement income. Sure, talk. Talk. I expect that we'll see even more bargains.

WHEELS FALLING OFF?

2008-10-09T09:07:00.000-06:00

WILL General Motors (GM) and Ford Motor (F) really make it?

Their stocks are trading at multi-decade lows. European markets are weakening. U.S. sales have fallen off the cliff - along with Chrysler, Honda, Nissan, Toyota...

Back in 1983, Ford found its Ford Motor Credit unit shut out of the commercial paper markets. Ford and the stock market, generally, "had a very bad year."

GM is counting, so they say, on the 2010 introduction of the electric Chevy Volt. Ford has what in the pipeline?

Both of these companies are relatively low on cash. GM has been looking to sell European assets. It's been generally profitable overseas, but not here.

If you just look at the stocks, I suppose you could say, "Hey what bargains! The prices are so low!" Or you could say, "This looks like the track that many of the shaky banks followed. Maybe there is considerable risk here."

If one or both of these companies do not file for bankruptcy protection with the next year or so, they will have dodged a huge bullet. But perhaps one or both will be rescued by the Japanese or Koreans? Or perhaps GM and F will actually merge?

In addition to the risk associated with the cratering of these two companies, think of the potential impacts on their suppliers, dealers, allied service businesses (the neighborhood restaurants) AND THE HUNDREDS OF THOUSANDS OF EMPLOYEES.

Ford Motor bonds, as another hint, are selling at yields exceeding 30 percent. Bargain? I hardly think so.

McCain's "NEW" Plan?

2008-10-08T10:20:00.005-06:00

In last night's debate with Barack Obama, John McCain unveiled his so-called "New" plan for the federal government to buy up to $300 billion in mortgages.

"Both homeowners who are already delinquent on their mortgages and those who owe more than their homes are worth would be eligible for the McCain-backed refinancing plan," McCain senior policy adviser Douglas Holtz-Eakin said.

Trouble is, the recently passed Emergency Economic Stabilization Act of 2008 already gives the Treasury the ability to do just that.

The other problem is that while it all sounds good, on paper, it would be a proverbial drop in the bucket. While $300 billion seems like a lot of distressed mortgages, it represents about 2.5 percent of outstanding U.S. mortgages.

According to Federal Reserve Board data - based on the June quarter, by the way, the charge-off and delinquency rate on residential mortgages was a staggering 4.11 percent. I say staggering because three years earlier the rate was only 1.47 percent.

4.11 percent of residential mortgages represents about $493 billion, a tad higher than $300 billion. But keep in mind: the Federal Reserve Board data that I quoted was from June 2008, their most recent quarterly report.

But the bottom line remains: McCain's "New" plan, announced during the October 7 debate is nothing new. EESA already gives Treasury the authority to purchase mortgages and make adjustments to them.

And by the way, perhaps just as frightening: charge-off and delinquency rates on commercial loans, credit card and other consumer loans, as well as leases are all high.

Why doesn't John McCain propose that bank credit card operations voluntarily reduce the interest rates they charge credit card holders? Even people with good credit, that have honorably managed their credit card debt, are paying higher interest rates because of the banks' desire for higher margins. Life just isn't fair.

McCain might ask someone on his economic team to come up with something new, don't you think?

Finger on the Button?

2008-10-08T10:03:00.002-06:00

http://www.youtube.com/watch?v=fAyK-enrF1g

"I have a temper, to state the obvious, which I have tried to control with varying degrees of success because it does not always serve my interest or the public's." - John McCain

During last night's debate, John McCain said we need "a cool hand at the tiller," but McCain has proven to be a loose cannon. He has accosted his Congressional colleagues on both sides of the aisle on everything from the federal budget to diplomatic relations. He is known for hurling profanities rather than settling disagreements calmly. His belligerence is legendary. Even conservative Senator Thad Cochran of Mississippi has said, "He is erratic. He is hotheaded. He loses his temper and he worries me."

When someone earns the nickname "Senator Hothead," the public ought to call his character into question. McCain's propensity to explode undermines his abilities as a rational decision maker, particularly on national security issues -- which could prove disastrous considering our country is already involved in two wars.

Watch the video and send it to friends: http://www.youtube.com/watch?v=fAyK-enrF1g

With the election less than four weeks away, here's a chance for you to take concrete action:

Alert your friends to McCain's rage. Send them this video and ask them to pass it on.
Post this video on all your blogs and networking sites like Digg -- critical tools for reaching those outside the choir. Make sure it gets viewed so many times it ends up on YouTube's homepage, so undecided swing state voters can see it easily.

Get the latest on McCain with a free video subscription from Brave New PAC, and encourage others to sign up too.

McCain's temper is critical to his decision-making abilities, and his character must be discussed. As Drew Westen writes, "The political brain is an emotional brain. It is not a dispassionate calculating machine, objectively searching for the right facts, figures and policies to make a reasoned decision." That why it's so crucial people know the real Senator Hothead.

Yours,
Robert Greenwald
and the Brave New PAC team

---
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Laugh Lines from John McCain

2008-10-08T09:54:00.003-06:00

By now, we are all familiar with John McCain's laugh line about the pork spending on grizzly bear studies. You know the one - about paternity tests, etc.?

Turns out that anti-pork McCain did NOT vote against the bear pork. He voted FOR it.

The following form factcheck.org:

"Outrageous" Exaggerations
November 20, 2007
McCain's ad revisits some oft-mentioned examples of pork, but is he really the one who rooted them out?
Summary
Republican presidential candidate John McCain cites three absurd-sounding examples of pork-barrel spending in a recent ad: a "bridge to nowhere," a study of the DNA of bears and a Woodstock museum.

McCain is known for fighting against earmarks, the other term lawmakers use for funding of pet projects back home. But he appears to have chosen these three because they're easy to mock, not because he had significant involvement in removing them from the budget.

* He never specifically went after the "bridge to nowhere," and he was absent for key votes on its funding.
* While he tried to cut money for several other projects in the same bill, he never proposed cutting the bear study and voted for the final bill containing it.
* He wasn't present for the most important votes on the Woodstock museum, including one on an amendment he co-sponsored to kill the earmark and divert some of the funds.

Analysis
John McCain’s ad, “Outrageous,” which began running November 12, touts the Arizona senator's long-standing fight against pork-barrel spending. The ad includes three examples of projects that McCain deems unnecessary and claims that “one man” has “the guts to stand up to wasteful government spending.”

It is indisputable that McCain has been a vocal opponent of earmarks, and indeed of all government spending that he considers wasteful (he has said that Congress spends money “like a drunken sailor”). He has been recognized for his efforts both by the media and by taxpayer advocacy groups.

But the three examples of spending highlighted in the ad – a “bridge to nowhere,” a study of bear DNA and a museum dedicated to Woodstock – seem chosen more for their impact than for any direct involvement McCain had in attacking them. In fact, he voted in favor of the bill that included the bear study funding; he was absent for key votes on the Woodstock museum (including one on an amendment he co-sponsored); and he never specifically tried to eliminate the bridge earmark and missed some crucial votes on that one, as well.

For what it's worth, we’ll note that the three projects together cost a little under $300 million, which is a tiny fraction of yearly earmark activity. The Office of Management and Budget reports that the fiscal 2005 budget included 13,492 earmarks totaling $18.9 billion dollars. The taxpayer watchdog group Citizens Against Government Waste gives a higher estimate for that year – 13,997 projects for a total of $27.3 billion – and estimates that 2006 earmark activity cost $29 billion. That would make earmarks account for about 0.2 percent of the gross domestic product.

A Bridge to Nowhere
McCain’s ad cites “$233 million for a bridge to nowhere,” calling the cost “outrageous.” Funding for the “bridge to nowhere,” also known as the Gravina Island bridge in Alaska, was tacked on to a 2005 transportation bill, along with projects from many other states. Whether it was truly a “bridge to nowhere” is debatable: Gravina Island, while it has almost no permanent population, is also home to the Ketchikan International Airport, which processes about 200,000 passengers a year. Alaskan officials hoped that the bridge would simplify airport access and allow development on Gravina, according to Alaska’s Department of Transportation. The bridge was not the only or the most expensive project attached to the transportation bill, and it may not have been the most frivolous. But it became a symbol for government pork.

John McCain 2008 ad:
"Outrageous"

Announcer: $233 million for a bridge to nowhere. Outrageous. $3 million to study the DNA of bears in Montana. Unbelievable. A million dollars for a Woodstock museum in a bill sponsored by Hillary Clinton. Predictable. Who has the guts to stand up to wasteful government spending? One man, John McCain.

McCain: I'll stop wasteful spending by Congress and restore Americans' trust in their government. I'm John McCain and I approve this message.
The transportation bill did include a total of $223 million (not $233 million, as the ad says) earmarked for the Gravina bridge – $100 million for construction, plus $18.75 million a year for four years, and an additional $48 million to build an access road. McCain tried, unsuccessfully, to add a “sense of the Senate” amendment to the bill, stating a general objection to earmarks; in the end he voted against the legislation. Several months later, Sen. Tom Coburn (R-Okla.) tried to divert the Gravina funds to a bridge in need of repair over Lake Pontchartrain near New Orleans. McCain was not present to vote on Coburn’s amendment proposing this change, which did not pass. Instead, Congress removed Gravina’s earmarks, tossing that money into Alaska’s general transportation pot to be used however the state chose. McCain wasn’t there for that vote, either.

In light of the furor over the “bridge to nowhere,” Alaska’s governor opted to use the money for other pursuits. The bridge was never built, but McCain has been using it as his prime pork example since 2005, even blaming it for the Minneapolis bridge collapse in August 2007. (He cited it as an example of a pet project that diverted money from necessary highway maintenance.)

Paternity Tests for Bears

The ad goes on to criticize an earmark that provided “$3 million to study the DNA of bears in Montana.” This is not the first time McCain has poked fun at the bear project. He first mentioned it on the Senate floor, while discussing the 2003 Omnibus Appropriations Bill that included funding for the project:

McCain (Senate floor, Feb. 13, 2003): Because these appropriations are never discussed with nonmembers of the Appropriations Committee, one can only imagine and conjure up an idea as to how this might be used. Approach a bear: That bear cub over there claims you are his father, and we need to take your DNA. Approach another bear: Two hikers had their food stolen by a bear, and we think it is you. We have to get the DNA. The DNA doesn't fit, you got to acquit, if I might.

Good laugh lines, maybe, but the United States Geological Service’s Northern Divide Grizzly Bear Project didn’t study DNA for paternity tests or forensics. Rather, it explored a means of estimating Montana’s grizzly bear population by analyzing bear fur snagged on barbed wire. The project was funded partly by federal appropriations – about $1 million per year in add-ons to USGS in 2003 through 2005, $400,000 in 2006 and $300,000 in 2007, plus a $1.1 million earmark through the Forest Service in 2004, according to the study’s principal researcher, Katherine C. Kendall. Part of that funding was doled out as part of the omnibus appropriations bill McCain discussed in February 2003.

Despite the fun McCain had ridiculing the bear project on the Senate floor, he didn’t actually try to remove it from the bill. He did introduce several amendments, including three to reduce funding for projects he considered wasteful or harmful, but none removing the grizzly bear project appropriations. And despite his criticisms, he voted in favor of the final bill.

A Hippie Museum

The last earmark McCain highlights in the ad is $1 million for a Woodstock museum, which, he mentions not-so-subtly, was proposed by Sen. Hillary Clinton, the leading Democratic presidential contender. The earmark would have allotted $1 million to New York state’s Bethel Woods Center for the Arts, future site of a museum celebrating the 1969 Woodstock music festival and its effect on American culture.

But McCain wasn’t present for the vote on an amendment he co-sponsored (spearheaded again by Coburn) to remove the stipulated funding for the museum and reroute about a third of it to maternal and child health services. He was out on the campaign trail.

It’s true, as the McCain campaign points out, that McCain’s vote would not have changed the outcome. Still, we wonder whether voters might have a different view of McCain’s ridiculing of the museum not just in this ad but in two others, as well as a presidential debate, if they knew of his absence for the key votes.

The ad claims that “one man” has the audacity to stand up to “wasteful government spending,” but in fact, several men were actively involved in removing the Bethel Woods Center earmark: Coburn led the charge, and Republicans Jon Kyl of Arizona and Jim DeMint of South Carolina were co-sponsors along with McCain. McCain was the only one to miss the vote.

Where's the Beef on Pork?

As we noted, we do not dispute that John McCain has been a tireless crusader against earmarks. In fact, in another recent ad, “Guts,” McCain focused on the 2003 Boeing scandal, in which McCain was considered to be the harshest critic of a wasteful government contract; he was described by the New York Times as having “almost single-handedly thrown one roadblock after another before the arrangement.”

But in this ad, with its focus on issues in which McCain played a minor role, we find that he is overstating his case and misleading his viewers.

– by Jess Henig
Sources
United States House of Representatives and United States Senate. H.R. 3: Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users. 109th Congress, 1st session. 29 July 2005.

United States House of Representatives and United States Senate. H.R. 3058: Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies Appropriations Act, 2006. 109th Congress, 1st session. 20 Oct. 2005.

Coburn, Tom. SA 2165 to H.R. 3058. 109th Congress, 1st session. 20 Oct. 2005.

United States House of Representatives and United States Senate. H.J. Res. 2: Consolidated Appropriations Resolution, 2003. 108th Congress, 1st session. 13 Feb. 2003.

United States House of Representatives and United States Senate. H.R. 3043: Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2008. 110th Congress, 1st session. 7 Nov. 2007.

Coburn, Tom. SA 3321 to H.R. 3043. 110th Congress, 1st session. 16 Oct. 2007.

Wayne, Leslie. "Unusual Pentagon-Boeing Deal is Attacked." The New York Times. 10 June 2003.

http://www.factcheck.org/outrageous_exaggerations.html

I DO NOT BELIEVE IN CONSPIRACY THEORIES...I DO NOT BELIEVE IN CONSPIRACY THEORIES...I DO NOT BELIEVE IN CONSPIRACY THEORIES...

2008-10-07T13:49:00.005-06:00

LIONS and TIGERS and BEARS! OH MY!!

Those that know me well, know that I am extremely skeptical of anything that smacks of a "conspiracy theory." I rejected the idea that the World Trade Center attack on 9/11 was an inside job. I don't believe that pharmaceutical companies are selling mind-control agents, turning otherwise rational people into neo-conservative right wing fascists. I do not believe that the Apollo lunar landings were faked on a Hollywood soundstage.

And I'm not certain that I believe the information that is contained in the web links listed below. However, I must confess: for some time, there has been a teeny little voice in the back of my head - or pit of my stomach - that there could be an October Surprise in this year's election cycle. I actually toyed with the idea that, if not this year, then in some election year, there could be a fabricated rationalization for the postponement of a November election and even the institution of marshal law.

But honestly, I've had other things on my hands, on my mind, and in my heart. I strongly believe in the inherent goodness of humanity, despite lots of evidence to the contrary. But let's face it. If you reject the idea of "original sin" - which I do, and you believe that man and woman are inherently good and loving creatures, the ugliness, war, crime, genocide, etc. that we see in our world is certainly the product of human activity. It has nothing to do with any concept of theology wherein the center is claimed to be that of a Loving Source, be it Christian, Jewish, Muslim, Sufi, Hindu, Zoroastrian, Native American, Australian Aboriginal, or any other number of spiritual paths that one might name or not be able to name. And if you happen to side with comedian/political satirist Bill Maher's non-religion philosophy of basic goodness without the need for the rest, you can still share the same "feeling" that humankind at least has the inherent capacity for goodness, even if elements of it sometimes behave in ways that are inconsistent with that.

So I pass along this list of web links anyway, because it never hurts to be informed, or to glimpse the thoughts and actions of other people. We can agree, we can disagree, we can remain skeptical, we can be respectful. But we should probably be informed in any event.

Again, I do not adhere to conspiracy theories. But how do you really know a conspiracy theory from worldly reality anyway? Certainly, when it comes to the deep belly of the government and its workings and plans, I have no more insight than 300-some odd million of us.

But we do know that each election cycle, nefarious people engage in voter suppression activities, both overt and covert. We do know that segments of our population, be they based on geography or ethnicity or age, etc. are denied the Constitutional and lawful right to vote; this is fact, pure and simple.

We do know that people play phony "guilt by association (or non-association)" games all the time, especially during election season. We do know that sides take words out of context. Often they simply tell lies. And too often, the "Fourth Estate," our media, fails to ask the critical questions of candidates and their associates.

Now some people that read this message may feel it inappropriate for a particular forum. I can respect that. All I can say is, ignore it, press the DEL button, whatever.

Peace to all.

So with that, here's the list. I hope, for whatever it is worth, that you take the short time to explore these links. If you feel that anything there rings reasonable, perhaps you will feel an obligation to pass it along.

http://www.youtube.com/watch?v=_XgkeTanCGI

http://www.youtube.com/watch?v=HaG9d_4zij8

http://www.youtube.com/watch?v=p6KRXnYgu5I&NR=1

http://www.youtube.com/watch?v=_bH1mO8qhCs&feature=related

http://www.house.gov/sherman/

http://www.endofamericamovie.com/

YOU KNOW YOU'RE IN TROUBLE WHEN...

2008-10-07T12:00:00.003-06:00

While the stock market has not yet closed for the day, it is down well over 300 points at this writing. Most of this decline has come since the beginning of Federal Reserve Chairman Ben Bernanke's mid-day conference and press briefing.

I'll get back to that in a moment.

YOU KNOW YOU'RE IN TROUBLE WHEN...

Shares of clearance-priced goods retailers Big Lots (BIG) and Family Dollar (FDO) are trading down substantially - in light of the fact that the impact of the recession is increasing almost daily. FDO is down more than 5 percent so far today; BIG is down about 7 percent. The stocks are down 26 percent and 29 percent, respectively off their 52-week highs.

Seems like the folks that typically rely on this class of low-end retailer are not even shopping. This strikes me as disturbing. You would think that at least expectations for these retailers might be holding up, given that more people might have to resort to shopping at their stores in order to save money. What is this saying about expectations for the severity of the recession and its deepening in the months to come?

OK, back to Ben Bernanke. He is an exceptional Princeton academician. Many people have argued that he is either the right person in the right place at the right time, or that he is way out of his league. It crushes me to have to paraphrase CNBC market pundit Jim Cramer when he screamed on television during the summer of 2007 that Bernanke had to go!

But he convinced me that "HE KNOWS NOTHING!!," to famously quote Cramer.

Despite critical commodities prices having fallen 40 percent or more, despite the U.S. stock market having fallen about 30 percent from its all-time high, wiping out several trillion dollars of wealth - and hence potential consumer and business buying power, Bernanke remains concerned about inflation!

Speaking to the National Association for Business Economics this morning, "The combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased," Bernanke said. "At the same time, the outlook for inflation has improved somewhat, though it remains uncertain.

"By potentially restricting future flows of credit to households and businesses, the developments in financial markets pose a significant threat to economic growth," Bernanke said in his first public talk since testifying before Congress two weeks ago.

Really! You don't say! Is that a fact! "Significant threat to economic growth"? "The outlook for inflation...remains uncertain"?

While commodities-driven inflation is clearly non-threatening at this time, while we are no longer concerned about "slowing economic growth," but deflationary contraction, Bernanke is still concerned about inflation.

That's the wrong signal to investors, credit providers, and consumers, both here and internationally.

So...YOU KNOW YOU'RE IN TROUBLE WHEN...the Chairman of the Federal Reserve seems as divorced from reality as some of our politicians.

Again, according to Bernanke, "Even households with good credit histories are now facing difficulties obtaining mortgage loans or home equity lines of credit," Bernanke said. "Banks are also reducing credit card limits, and denial rates on automobile loan applications reportedly are rising."

Hello? Anybody home? The economy, worldwide, is in big trouble. The American middle class - and lower income classes - are dog-paddling to remain afloat. But Bernanke remains concerned about inflation.

There was one last comment by Bernanke that really troubled me. I don't have the quote handy, but essentially he attributed at least part of the decline in employment to "higher productivity." My words cannot capture the ignorance and insensitivity of those words. It has seemed to me, for some time, that if we truly, really truly, were seen as increasingly more productive, well that we'd create more of those productive jobs here at home. We wouldn't be off-shoring them, and we wouldn't be giving our "productive workers" - McCain's "fundamentals of our economy" - substantially lower-paying service sector jobs, like at McDonald's or Walmart, instead of expanded jobs building new generation automobiles or energy systems, etc.

YOU KNOW YOU'RE IN TROUBLE WHEN...the all-critical position of Federal Reserve Board Chairman is filled by someone that is so out of touch with reality as......well as John McCain and George W. Bush?

Paul Krugman on McCain's Non-Healthcare Plan

2008-10-06T18:13:00.003-06:00

Op-Ed Columnist
Health Care Destruction

By PAUL KRUGMAN
Published: October 5, 2008

Sarah Palin ended her debate performance last Thursday with a slightly garbled quote from Ronald Reagan about how, if we aren’t vigilant, we’ll end up “telling our children and our children’s children” about the days when America was free. It was a revealing choice.

You see, when Reagan said this he wasn’t warning about Soviet aggression. He was warning against legislation that would guarantee health care for older Americans — the program now known as Medicare.

Conservative Republicans still hate Medicare, and would kill it if they could — in fact, they tried to gut it during the Clinton years (that’s what the 1995 shutdown of the government was all about). But so far they haven’t been able to pull that off.

So John McCain wants to destroy the health insurance of nonelderly Americans instead.

Most Americans under 65 currently get health insurance through their employers. That’s largely because the tax code favors such insurance: your employer’s contribution to insurance premiums isn’t considered taxable income, as long as the employer’s health plan follows certain rules. In particular, the same plan has to be available to all employees, regardless of the size of their paycheck or the state of their health.

This system does a fairly effective job of protecting those it reaches, but it leaves many Americans out in the cold. Workers whose employers don’t offer coverage are forced to seek individual health insurance, often in vain. For one thing, insurance companies offering “nongroup” coverage generally refuse to cover anyone with a pre-existing medical condition. And individual insurance is very expensive, because insurers spend large sums weeding out “high-risk” applicants — that is, anyone who seems likely to actually need the insurance.

So what should be done? Barack Obama offers incremental reform: regulation of insurers to prevent discrimination against the less healthy, subsidies to help lower-income families buy insurance, and public insurance plans that compete with the private sector. His plan falls short of universal coverage, but it would sharply reduce the number of uninsured.

Mr. McCain, on the other hand, wants to blow up the current system, by eliminating the tax break for employer-provided insurance. And he doesn’t offer a workable alternative.

Without the tax break, many employers would drop their current health plans. Several recent nonpartisan studies estimate that under the McCain plan around 20 million Americans currently covered by their employers would lose their health insurance.

As compensation, the McCain plan would give people a tax credit — $2,500 for an individual, $5,000 for a family — that could be used to buy health insurance in the individual market. At the same time, Mr. McCain would deregulate insurance, leaving insurance companies free to deny coverage to those with health problems — and his proposal for a “high-risk pool” for hard cases would provide little help.

So what would happen?

The good news, such as it is, is that more people would buy individual insurance. Indeed, the total number of uninsured Americans might decline marginally under the McCain plan — although many more Americans would be without insurance than under the Obama plan.

But the people gaining insurance would be those who need it least: relatively healthy Americans with high incomes. Why? Because insurance companies want to cover only healthy people, and even among the healthy only those able to pay a lot in addition to their tax credit would be able to afford coverage (remember, it’s a $5,000 credit, but the average family policy actually costs more than $12,000).

Meanwhile, the people losing insurance would be those who need it most: lower-income workers who wouldn’t be able to afford individual insurance even with the tax credit, and Americans with health problems whom insurance companies won’t cover.

And in the process of comforting the comfortable while afflicting the afflicted, the McCain plan would also lead to a huge, expensive increase in bureaucracy: insurers selling individual health plans spend 29 percent of the premiums they receive on administration, largely because they employ so many people to screen applicants. This compares with costs of 12 percent for group plans and just 3 percent for Medicare.

In short, the McCain plan makes no sense at all, unless you have faith that the magic of the marketplace can solve all problems. And Mr. McCain does: a much-quoted article published under his name declares that “Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”

I agree: the McCain plan would do for health care what deregulation has done for banking. And I’m terrified.

http://www.nytimes.com/2008/10/06/opinion/06krugman.html?_r=1&ref=opinion&oref=slogin

GOOD NEWS!

2008-10-06T14:21:00.003-06:00

Good News.....I say partly tongue in cheek.

Oil down 40 percent
Natural Gas down 48 percent
Heating Oil down 41 percent
Gasoline down 41 percent
Corn down 46 percent
Wheat down 40 percent
Copper down 38 percent
Cattle down 15 percent

The implosion in commodities prices that has accompanied the implosion in securities markets is, in one sense, a great blessing for consumers. Barring an unlikely reversal, we should see lower gas prices, lower winter heating bills, even lower food prices.

Of course, do you - or will you - have money to pay for any of it? Have you found yourself out of a house or out of a job yet? Or are you relatively secure in those departments? Sometimes declining prices - some of us call that deflation - help consumers out. But if you've lost your house and/or job, well yes, every little bit helps. But there's not much consolation in lower gas prices when you don't have anyplace to drive - or worse yet, you've had your car repossessed.

The other side of this multi-sided coin is that declining commodities prices usually means that the associated industries may be shedding jobs. Prices down, profits down, jobs down. Executive salaries and bonuses? Oh, well that's another story, isn't it. Executives in those jobs shedding industries will not doubt, as they always do, receive handsome bonuses for "trimming costs," "downsizing."

Just as an aside, not that I was unaware of the compensation schemes at major investment firms and large corporations, I was angered and quite mesmerized to listen to Richard Fuld, Chairman and CEO of Lehman Brothers rationalize his $500 million (give or take $150 million) in compensation in recent years. Fuld disputed that he had pocketed that much over the past eight years, saying: "I would say to you that that 500 number is not accurate.

"I think for the years you're talking about here I believe my cash compensation was close to $60 million and the amount I took out of the company over and above that was closer to $250 million. Still a large number though."

In the immortal style of Governor Sarah "Joe Six-Pack" Palin, "Oh gosh golly gee."

Henry Waxman (D), Chairman of the House Oversight and Government Reform Committee, inquired of Fuld in somewhat deadpan style, "You've been able to pocket close to half a billion dollars and my question to you is that fair for a CEO of a company that's now bankrupt? It's just unimaginable to so many people."

While I'm not certain that anything practical will come of the House hearings, like some kind of mandated or jawboned executive compensation reform, they are underscoring the degree to which outrageous, and immoral - almost evil - greed has overtaken corporate board rooms, leaving not only Joe Stockholder with absolutely no say, but raping the mainly middle class employees of these companies that make it all possible for these folks to take home millions and billions. And ultimately, we all pay for the excess, don't we?

You might want to investigate Carl Icahn's "The Icahn Report" and his new "United Shareholders of America" activities.

http://www.icahnreport.com/

At least it's someplace to begin.

Concluding my report.

Today, we experienced a dramatic decline in the stock market, with the DJIA down over 800 points before rebounding to close down ONLY 369 points. Part of the recovery was bargain-hunting, part was an anticipation that the U.S. will be successful in jawboning European and Asian countries to simultaneously reduce interest rates along with us. While any interest rate reductions can only be welcomed at this point - they can't do any near-term harm, and perhaps some good - for the most part, interest rate levels are so much higher around the world that our trading partners will have to slash their rates so much more than us, well just say that I am skeptical we can pull it off.

Any rate cuts may well be greeted with cheers on Wall Street and you will see people coming back to hunt for the many seeming bargains to be had. But this commentator sees little evidence for a bottom in securities markets at this time. Growth and profit expectations for the balance of this year and likely all of 2009 are likely to be abominable. Unemployment will, at a minimum, creep higher here in the U.S. and likely go much higher much faster overseas. Say what you will about the declining economic power of the U.S. The fact is that we remain the little engine that generally drives world growth. Who would the Chinese be building stuff, let alone poisoning food for, if we weren't around to keep buying? By the way, did you hear that Chinese melamine, that apparently ubiquitous, miracle plastic that manipulates stupid people into thinking the protein content of their food, human and animal, is higher, has no been found in - tadah! - Cadbury chocolate candy. Personally, I prefer "Green & Black's" organic chocolate, never cared for Cadbury. But apparently millions of people do. I gave up on the Hershey's and Mars and Nestle's of the world ever since it became all too evident that they keep their product costs low by purchasing most of their cacao all too frequently from producers in Africa that utilize child slave labor. But alas, another story for another time?

So...please have mixed feelings about the implosion in commodities prices, be you consumer or investor or both. These things are never EVER good economic signs. The sweeping breadth of it all is actually quite frightening.

Just an aside, and please review my disclaimer in this site, I sold fifty-percent of my remaining equity holdings this morning as the decline had just begun. I am very happy holding 80 percent cash in our investment portfolios, and quite content that we are pretty much where we were at the start of the year. Talk about dodging bullets. When you are 56-years old, there is no such thing as investing long-term. Unfortunately, most stock market pundits and advisors and economists and mutual fund managers and securities analysts and all too many investors don't seem to grasp that. Keep that in mind when you read the typical "one size fits all" EXPERT advice in your newspapers.

No doubt, lots of those excessively paid experts will once again, sigh, be called upon in the days to come to offer up their own opinions, most all of which will likely prove to be incorrect.

McCAIN'S HEALTHCARE CATASTROPHE - AN EXAMPLE

2008-10-05T10:44:00.002-06:00

After reading the details of John McCain's healthcare proposal, the one in which he says you'll receive a tax credit of $2,500 and $5,000 for families - sounds great, doesn't it - he downplays the fact that as part of his plan, employer-based health insurance plans would become taxable income to employees.

So let's take a look at a real-life example:

First, though, let me emphasize that McCain doesn't advertise the entire truth of his plan. It's not REALLY a tax credit. Rather, the $5,000 - in the case of a family - would be paid DIRECTLY to an insurance company of your choice. So you really never see the money. BUT you would see the tax increase!

Also, there is nothing whatsoever in McCain's plan to preclude insurance companies from continuing to increase premiums. Simply because more people would be forced - because employers would drop health benefits like hotcakes - to shop for their own insurance policy, is not assurance that health insurance plans would become any more affordable.

In fact, without the purchasing pressure of businesses - that's another debate for another time - it would be akin to a banning of collective bargaining and unions, turning the clock back to the beginning of the 20th century when employees of sweat shop manufacturing companies were left on their own to "bargain" for wage increases. We all know how well THAT worked. There was NO middle class, let alone a shrinking middle class.

Alright, to the example:

In my family's situation here in Colorado, where we do not have a gold-plated health plan, where our annual deductible is a whopping $4,000 for in-network coverage and $8,000 out-of-network, the total cost of our plan is about $14,800 a year. Currently, we pay about $4,500 of that. And we are talking about a family of two. Now sure, we might be able to find a plan that is cheaper or even more expensive. But for people that may have, oh, a chronic medical condition, or some past history - even it has been cured, or you are in a particular age group, well there is every logical reason to believe that the so-called free market won't work in their favor.

So back to the example:

McCain's plan would increase our taxable income by at at least $10,400 It would result in a net increase in our federal taxes of $2,600. It would also result in an increase of our state taxes by nearly $500, for a total tax increase of $3,100/year.

So now our employer drops health insurance benefits - of course, we do not know this for sure, but let's just make the assumption. We go into the marketplace. We shop for comparable coverage. Keep in mind that we do NOT have a gold-plated plan. So now we find a plan and the annual premium is $14,800. My bad assumption here is that next year's premium remains unchanged, a ridiculous assumption under any scenario. I cannot recall many years in recent history where the trend was for premiums to increase at less than double-digits.

McCain's plan would then pay "our" $5,000 "tax credit" DIRECTLY to the insurance company, leaving us with a net out-of-pocket annual premium of $$9,800.

The end result, if John McCain has his way, is that we would be in dire financial straits. We would owe an additional $3,100 in income taxes. We would have to pay $9,800 in health insurance premiums, adding up to $12,900 a year. Currently, our share of health insurance premiums is about $4,500.

Now some might argue that for people that are earning less than us - by the way, we earn far less than Barack Obama's "rich" threshold of $250,000 - the impact of McCain's plan would not approach our situation. Well look at it this way. Many, if not most, people that earn less than we do probably have less in discretionary income, right? That probably suggests that paying for reasonable health insurance coverage might be as big a budget problem for them as it would be for us. The absolute numbers may be much lower. But nevertheless, the impact on those families is likely to be as great or even greater.

I could generate a table of various income levels, tax rates, deductions, family size, etc. But I suspect that we'd arrive at the same place.

McCain's healthcare proposal is ridiculous and would decimate the middle class, what remains of it. It would likely drive more people into bankruptcy or mortgage default or simply to go without health insurance, placing even greater burdens on emergency rooms, etc. Talk about a step backwards. It all seems part of the conservative agenda to role back all of FDR's New Deal economic reforms. Everyone for themselves, No role for government to provide any social assistance policies.

Now on the comfortable side of a potential John McCain win in November, it is far less likely that he would receive any mandate in Congress to get such a radically destructive policy into law. So breath some sigh of relief.

One final thought. Putting my so-called $5,000 tax credit directly into the hands of insurance companies is not too far from the Republican Medicare Drug Plan which forbade the government from actually negotiating with drug companies for the best prices on prescription drugs. So much for the free market; a windfall for Big Pharma. And McCain's new plan would be a windfall for insurance companies.

AND SO GOES THE STOCK MARKET

2008-10-03T15:37:00.003-06:00

Well while we were greeted to an exciting opening that took the stock market higher, based on the Dow Jones Industrials Average (DJIA), by well over 300 points, reality set in after the House passed EESA and we closed down 157 points. For the week, the markets sustained their heaviest losses since post 9/11. DJIA down 7%, S&P500 down 9% and NASDAQ down 10%.

The climate is new, at least to many of the people entrusted to manage these days. Most of these managers weren't even born, or were quite young, in the "before times," when stocks traded at much lower valuations.

As example, since 1995, the average price:earnings ratio (PE ratio) of equities was around 25. That's stock price divided by earnings per share in case you're a novice. Now many analysts will debate, including yours truly, whether or not PEs are reasonable tools for making investment decisions and valuing stocks. Without going into all of that at this time, let me just say the following:

If you are a "believer" in the use of PE ratios for at least some reasonable portion of your investment toolbox, prior to 1995, the average PE ratio was - gulp - less than 14.

Now that's average. In either period - the really really time-tested long one (before most current analysts and money managers were even being educated as analysts and money managers) - investors paid higher PE ratios for faster growing companies and they paid less for slower growth. Sometimes much less, like 50% or more less.

There are many reasons why stocks have gone through these periods of lower and higher valuations:

1. Inflation
2. Deflation
3. Interest rates - high and low
4. Economic stagnation or contraction
5. Economic expansion
6. Invention of Individual Retirement Accounts and other new investment retirement pools
7. Mutual fund industry growth - or lack thereof

I can add to this list. But let's keep it somewhat simple for now.

With the growing threat of a major, deep and protracted recession in our midst, I would not be surprised to see professional investment folks - really really smart ones - revisit "the olden days." The "before times."

This is only a very short version of this observer's analysis. I'll take more time at a later date to go into greater detail.

However, if equities return to the level of earnings that we saw, for example, in 2002, the S&P500 Index could be well below 800 and the DJIA at or below 8,000. This could be very scary for many people. It would, or should, send all of my fellow MBAers back to the history books.

Worse than that, however, it would have an enormously negative impact on the value of retirement accounts, just at the time that us Baby Boomers are beginning to retire - or wish to retire.

Can we change the outlook? Perhaps. But more on that in later postings.

THIS, THAT & THE OTHER THING

2008-10-03T11:26:00.002-06:00

THIS:
The House of Representatives, at least a majority, has seen the light. They have passed the Emergency Economic Stabilization Act of 2008 (EESA) as previously passed by the Senate.

The vote: 263 Yea 171 Nay

THAT:
Democrats: 172 Yea 63 Nay

Republicans: 91 Yea 108 Nay

I look forward to seeing how the voters will respond on November 4.

THE OTHER THING:
While some may say that the stock markets are relieved that the bill was passing, investors are realistic enough to know that what overshadows everything still remains as a huge weight on the economy:

1. Will the EESA help?
2. Will the Federal Reserve cut interest rates in an attempt to stabilize economic deterioration?
3. Will foreign central banks - really really key in all of this - also cut interest rates and stop their ridiculous fight against non-existent inflation?
4. Will further economic stimulus by the federal government be needed?
5. Now that it should be self-evident that we are in a recession, how long and how deep will it be? It looks like a really big one from this chair.
6. How bad will corporate earnings be in the 3rd and 4th quarters of this year? And how bad will they be in 2009 and beyond?
7. How much more stock will unregulated hedge funds continue to dump on the markets?
8. After a new president is sworn in next year, what will the world look like? What flexibility will he have to restructure regulatory bodies, implement key spending programs, and revise tax structures? Will promises be kept, delayed, or simply altered?

Markets hate uncertainty. Now they will focus quite a bit more on recession, which may be the deepest and most prolonged since World War II (we don't mention the dreaded "Depression" word here, hahah).

As of the time of this writing, the Dow Jones Industrials Average has swung about 631 points since opening this morning - about 350-points up, then retreating 281-points from its intraday peak an hour ago. It will continue to be a wild ride.

If you are an investor, two things to keep in mind: 1) safety first, 2) safe dividends next.

Lobbyist Hired by Freddie Mac to Work on McCain Is Now Senator's Aide

2008-10-03T11:14:00.003-06:00

By Matthew Mosk and David S. Hilzenrath
Washington Post Staff Writers
Friday, October 3, 2008; A09

When mortgage giant Freddie Mac feared several years ago that Sen. John McCain was too outspoken on the issue of executive pay, it pinpointed a lobbyist known for his closeness to McCain and hired him to work with the senator.

Mark Buse, a longtime McCain adviser who had been staff director of the Senate commerce committee, signed on as a Freddie Mac lobbyist, and his firm, ML Strategies, earned $460,000 in lobbying fees in late 2003 and 2004, according to lobbying disclosures. Buse is now chief of staff at McCain's Senate office.

Buse was one of many strategic hires made by Freddie Mac in its efforts to sew up support and manage opponents on Capitol Hill, a push that peaked in 2004 with the retention of 34 outside lobbying firms. Over the past decade, Freddie spent more than $95 million on lobbying, while its sister company, Fannie Mae, spent more than $79 million.

The connections have become a hot political issue for both Republicans and Democrats in the presidential campaign. McCain has highlighted Democratic Sen. Barack Obama's association with high-level figures from Fannie Mae, including former chairman and chief executive James Johnson, who once led Obama's vice presidential search.

McCain's own entanglements include his campaign manager, Rick Davis, who earned more than $2 million as president of an advocacy group that defended Fannie and Freddie against stricter regulation. Davis's lobbying firm, Davis Manafort, also received monthly payments of $15,000 from Freddie Mac as recently as August.

The story of how Buse came to get involved is emblematic of the interconnections among Fannie, Freddie and the lawmakers whose support was critical for their business.

McCain campaign spokesman Brian Rogers said the hiring of Buse did not influence McCain. "I think the reality is that John McCain takes positions, you know, based on what he believes is in the public interest, period," Rogers said. "If these folks thought they were getting something out of John McCain . . . it's not based in fact."

Buse was providing Freddie Mac "with advice on how to deal with issues of concern to them, you know, both in the commerce committee and in the Senate at large," Rogers said. Through the McCain spokesman, Buse declined to comment.

Freddie Mac's interest in Buse dates back to mid-2003. That May, McCain presided over a hearing on executive pay at which he condemned "a disconnect between CEO pay and performance at many of America's corporations" and said that "these kinds of excesses are making a lot of Americans angry."

Freddie Mac became a target of criticism the following month when the company announced it had fired its president and forced out two other top executives. Soon Freddie Mac revealed that fired president David W. Glenn would get stock options worth nearly $6 million. Leland C. Brendsel, who was forced to retire as chief executive after 21 years at the company, walked away with compensation worth $24 million.

Concern over the golden parachutes sparked calls in Congress for tougher oversight. McCain told a newspaper in August 2003 that he planned to hold hearings on executive compensation oversight and on Fannie Mae and Freddie Mac.

"Senator McCain was talking about limiting executive compensation, and Buse was retained to nip that in the bud," said a former lobbyist who insisted on anonymity because of continuing relationships with the companies.

The commerce committee, which McCain chaired, considered taking up legislation to address Fannie and Freddie in 2003 but refrained from doing so because it lacked jurisdiction, Rogers said.

McCain continued to talk about the compensation issue. But inside Freddie Mac, Buse's effort was viewed as "hugely successful," a former Freddie Mac lobbyist said. "The statements didn't go away completely, but in terms of Senator McCain doing anything about it, it just never materialized. As far as I know, Buse was the only person working that issue for Fannie or Freddie, so he got a lot of credit internally for the results."

As a Freddie Mac lobbyist, Buse participated in a meeting on executive compensation with aides to members of the commerce committee, said sources informed about the matter who insisted on anonymity to avoid professional repercussions. Freddie Mac spokeswoman Sharon McHale said she was unable to get any information on Buse's relationship with the company.

McCain campaign spokesman Rogers said Buse "met with, obviously, a variety of staff." He said Buse never spoke with McCain about Freddie Mac, Fannie Mae or executive compensation.

McCain co-sponsored a bill to overhaul regulation of Fannie and Freddie in September 2003 and again in 2006. "He helped sound the alarm on the risk that Fannie and Freddie posed to the taxpayers unless they were reformed," Rogers said. McCain also advocated requiring companies to count stock option awards as expenses, a move opposed by many corporations because it could depress their earnings and make options less plentiful.

The lobbying reports filed by Buse's firm say his work for Freddie Mac involved "general issues affecting the mortgage industry." The forms listed four other ML Strategies employees as lobbyists for Freddie Mac, but a spokeswoman for the firm, Gina P. Addis, referred questions about their work to Buse.

Buse was nicknamed "The Ferret" because he helped his boss, McCain, find pork-barrel provisions buried in legislation. McCain has said he considered Buse to be like a son.

Buse left the commerce committee staff to lobby, signing on clients as diverse as oil giant Exxon Mobil, Wall Street firm Goldman Sachs and the Pharmaceutical Research and Manufacturers of America, according to the government records. He also represented telecommunications clients affected by the committee.

Buse returned to McCain's office this year as chief of staff.

Davis, the McCain campaign manager, last week defended his long association with the Homeownership Alliance, saying he served as "the public face of an organization that promoted homeownership."

But people who worked for Fannie Mae, Freddie Mac and the Homeownership Alliance said the group's central mission was promoting Fannie and Freddie.

Kenneth A. Guenther, a former alliance chairman, said it was "committed to putting out the word in terms of the good things that Fannie and Freddie were doing to promote home ownership, particularly minority home ownership."

Davis said he had taken a leave of absence from his lobbying firm, Davis Manafort, for 18 months and earned no income from the firm. He added: "I have taken no compensation from my company, and our work for the Homeownership Alliance had ended about a year, year-and-a-half before that even started. So it's been over three years since there's been any activity in this area and since I've had any contact with those folks."

Sources familiar with the arrangements, however, corroborated news reports last week that Davis Manafort received monthly payments of $15,000 from Freddie Mac as recently as August. As first reported by Newsweek, documents on file with the Virginia State Corporation Commission show that as of March 31, Davis was still listed as an officer and director of the firm.

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/02/AR2008100203812.html?nav=rss_politics

Staff writer Zachary A. Goldfarb, research director Lucy Shackelford and staff researcher Julie Tate contributed to this report.

Crisis Hits Main Street as Employers Cut More Jobs

2008-10-03T10:12:00.002-06:00

EXCERPTED - read the complete story at:
http://www.bloomberg.com/apps/news?pid=20601087&sid=abRY32CorQYI&refer=home

By Shobhana Chandra and Rich Miller

Oct. 3 (Bloomberg) -- U.S. payrolls plunged in September, signaling the economy may be heading for its worst recession in at least a quarter century as the 13-month-old credit crisis on Wall Street finally hits home on Main Street.

Employers cut the most jobs in five years in September as cash-squeezed companies pulled back in an effort to bolster pinched profits. In its last employment report before Americans choose their next president, the Labor Department said the unemployment rate was 6.1 percent, a climb of 1.4 percentage points from a year before.

"If credit markets remain dysfunctional, the current recession could turn out to be as severe as any in the postwar period," said former Federal Reserve governor Lyle Gramley, now senior economic adviser at the Stanford Group Co. in Washington.

The spreading crisis is also having reverberations on the campaign trail, as polls show anxious voters increasingly see Democrat Barack Obama as the candidate best placed to see the U.S. through its economic travails. The unemployment rate has only risen twice in the year leading up to elections since World War II, and in each case the incumbent party lost.

"This country can't afford Senator McCain's plan to give America four more years of the same policies that have devastated our middle class and our economy for the last eight," Obama, 47, said in a statement.

McCain's Reaction

Arizona Senator John McCain, 72, took the opportunity to paint his opponent as a tax-and-spend liberal, whose prescriptions would exacerbate the crisis.

"Unlike Senator Obama, I do not believe we will create one single American job by increasing taxes, going on a massive spending binge, and closing off markets," McCain said in a statement. "Our nation cannot afford Senator Obama's higher taxes."

Job losses accelerated as the credit crisis deepened last month, forcing the failure or government takeovers of Lehman Brothers Holdings Inc., Fannie Mae, Freddie Mac and American International Group Inc.

The figures came hours before a scheduled vote in the House of Representatives on a $700 billion rescue plan for the U.S. financial industry pushed by Treasury Secretary Henry Paulson. The Senate approved the legislation two days ago after the House rejected an initial version of the bill Sept. 29.

Today's report showed that hours worked -- considered a good proxy for the state of the overall economy -- matched the lowest level since records began in 1964. That indicates the likely current recession may be at least as severe as the 1981-82 slump, during which gross domestic product shrank by 2.7 percent.

Payrolls fell by 159,000 in September, the Labor Department said in Washington. Aside from a 9,000 gain in government payrolls, all major categories showed declines except education and healthcare.

"The really bad news here is that job losses are now widespread," said Nariman Behravesh, chief economist at Global Insight Inc., a Lexington, Massachusetts, forecasting firm. "The problems in housing and manufacturing are now spreading everywhere. We are in a recession, there is no debate about that."

Health Services

Even the vibrant health-services industry is showing signs of succumbing to the economy's troubles. Health care employment rose 17,000, about half the average monthly gain for the prior 12 months.

Total payrolls were forecast to drop 105,000 after declining by a previously estimated 84,000 in August, according to the median of 76 economists surveyed by Bloomberg News. The jobless rate was projected to remain at 6.1 percent.

Rate Forecasts

Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said the unemployment rate may eventually rise to more than 7 percent as the credit crunch takes its toll on the economy. If that happens, that would make the overall rise in unemployment the biggest since the early 1980's.

Workers' average hourly wages rose 3 cents, or 0.2 percent, to $18.17 from the prior month. Hourly earnings were 3.4 percent higher than September 2007. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from August and a 3.6 percent gain for the 12-month period.

After today, the total decline in payrolls so far this year has reached 760,000. The economy created 1.1 million jobs in 2007.

Americans will go to the polls on Nov. 4 and the October jobs report is due Nov. 7.

`Angry' Voters

"Voters are extremely angry, and they want someone to blame," said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis.

Obama has opened up a lead over Republican rival John McCain in the aftermath of their first debate and amid growing concerns about the economy, according to a Pew Research Center survey taken Sept. 27 to Sept. 29. A mid-September poll from Washington- based Pew had shown the candidates were in a statistical tie.

Earlier in September, a Bloomberg/Los Angeles Times poll showed more respondents said Obama would do a better job handling the financial crisis than McCain, and almost half of the voters believed he had better ideas to strengthen the economy than his rival.

Factory payrolls fell 51,000 after decreasing 56,000 in August. Economists had forecast a drop of 57,000.

Today's report also reflected the housing slump. Payrolls at builders declined 35,000 after falling 13,000. Financial firms decreased payrolls by 17,000, the most since November last year.

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 82,000 workers after eliminating 16,000 in the previous month. Retail payrolls slid by 40,100 after a 25,400 drop.

Hewlett-Packard

In the past month, Hewlett-Packard Co., the world's largest personal-computer maker, announced it will cut 24,600 jobs, and auto-parts maker Federal-Mogul Corp. said it would eliminate 4,000 positions globally.

Marriott International Inc., the world's largest hotel chain, yesterday reported third-quarter profit fell 28 percent as U.S. companies and consumers cut back on travel.

Without action from Congress, "the resulting credit squeeze could threaten businesses," Chief Financial Officer Arne Sorenson said on a conference call. There are "tens of thousands of jobs at stake in our company alone, and we are typical."

Mounting job cuts will further limit consumer spending, which accounts for more than two-thirds of the economy. A Bloomberg survey in September predicted spending will be unchanged this quarter, the weakest performance since 1991.

The ISM on Oct. 1 said manufacturing shrank in September at the fastest pace since the last recession in 2001. The odds the central bank will lower its benchmark rate by a half percentage point, to 1.5 percent, were almost 100 percent today, up from 32 percent a week ago.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net