Thursday, October 09, 2008


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.


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.

Wednesday, October 08, 2008

McCain's "NEW" Plan?

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?

"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:

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.

Robert Greenwald
and the Brave New PAC team

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Laugh Lines from John McCain

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

"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?
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.

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:

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
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.

Tuesday, October 07, 2008



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.


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.


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?

Monday, October 06, 2008

Paul Krugman on McCain's Non-Healthcare Plan

Op-Ed Columnist
Health Care Destruction

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.


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.

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.

Sunday, October 05, 2008


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.