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Saturday, December 26, 2009

The Great Recession Conspiracy

In June, 2009, David Zetland and I wrote a short book to explain what has happened to our economy, who caused it, what should be done about it, and finally, we take a shot at looking into the future. It is priced at $4.95 and is available at Take a look at the reviews. They capture exactly what we were trying to accomplish.

It is also available as a Kindle book from Amazon.

As every day goes by, we look smarter and smarter (but we are not). It is just that Washington refuses to recognize the truth about much of anything.

Tuesday, December 22, 2009

Jobs, jobs, job, jobs and more jobs

In the year ended September 30, 2009, small business bankruptcies in California increased by 81% over 2008. Nationwide small business bankruptcies are up 44%. There is no way to know how many more small businesses simply closed down and went out of business.

The Obama administration simply does not understand that what small businesses need is customers, not tax breaks for hiring new employees.

The reason that this is extremely important is that small businesses create over two-thirds of all new jobs, year in, year out. By letting small businesses fail, the Obama administration is destroying any real chance of economic recovery.

For the first quarter EVER, the number of homes in foreclosure topped ONE MILLION! The Obama administration simply does not understand that when you do not have a job, you can't make mortgage payments.

Jobs, jobs, jobs, It is jobs stupid!!! The lack of comprehension of this simple fact by the millionaire economists and politicians in Washington is getting really scary!!

Friday, December 18, 2009

They Just Don't Get It

It seems that no one in the Obama administration has the slightest clue as to how 300 million Americans really live. Here is more evidence.

Nine months ago, they trumpeted about a program to head off foreclosures (more than 300,000 a month continue). They said they would save the homes of four million people. But the have only rescheduled 500,000 loans and 498,000 of them are only short term modifications.

What the bone heads in Washington don't seem to understand is that when you have no job, you have no income, which means you can't make any payment.

Making Homes Affordable is one more dumb stunt by the Washington millionaires.

Wednesday, December 16, 2009

Three Major Failures

I have taken the last month off writing this blog so I could lick my wounds and sulk.

I worked diligently and hard because I really wanted to believe that Obama would/could change the way business gets done in Washington. It turns out that Change We Can Believe In is no change at all. Here are the big winners on the three most important problems facing the U.S. today.

Healthcare: The Insurance companies.
Jobs: Goldman Sachs.
Afghanistan: The defense industry.

The losers: The rest of us.

Saturday, October 24, 2009

And Now It Begins!

In our book, The Great Recession Conspiracy, we warned that politics would interfere with sound business judgment by managers in companies that the U.S. Government now owns.

Well, it didn't take long and every taxpayer just lost money because of it. Here is the story;

The U.S. Government owns a 34% stake in Citigroup and can use that stake to demand management actions of which the Treasury Department approves. Now Citi owned a subsidiary named Philbro that was dedicated to trading comodities. Philbro was hugely profitable for Citi and it was run by a man named Andrew Hall. Hall had a contract with Citi that rewarded him handsomely for achieving big results. And last year, Andrew Hall performed brilliantly! In fact, he did so well that Citi owed him a $100 million bonus.

And therein lies the rub. The government could not let Citi pay Andrew Hall a bonus of $100 million because it would look bad. But on the other hand, if they didn't pay him, he would go to court and win his case because he had really tight contract.

So how did the Treasury Department solve this problem? They forced Citi to sell Philbro so somebody else would have to pay the bonus. Well, Occidental Petroleum stepped up as the only buyer and took over Philbro with a payment of $450 million. Well and good, except for one thing. $450 million was just about the level of profits that Philbro generated for Citi every year.

Basically, Citi got ONE years profits for Philbro and absolutely nothing else. Any private sector manager who made such a bad deal would be fired on the spot. However, the Secretary of the Treasury does not work in the private sector so he can get away with it.

Just wait until the government weighs in with similar decision making at GM, Chrysler, et al.

Friday, October 23, 2009

Pay Caps? A Truly Stupid Idea

It is truly amazing how the White House and Congress can, given a choice, always pick the wrong solution. The problem is not excessive pay (yes, I know it can be grotesque), but it is the conditions that allow it to occur that are at fault. Here are the conditions;

1) Wall Street Bankers can gamble with borrowed money because if they lose their bets, the U.S. government will cover their losses.
2) Wall Street Bankers are encouraged to gamble by taking short term risks because the pay out is short term.

End of story. Instead of capping pay, the government should do this;
1) Limit the amount of money used for short term gambling by increasing reserve requirements.
2) Pay bonuses in company stock awarded in 20% increments over the next five years so that very quickly individual managers have a huge stake in the financial success of the bank over time.

The last thing we need is the U.S. government meddling with the pay systems of private companies. That is a truly stupid idea.

And by the way, did you notice which Wall Street Bank was excused from the pay caps?

If you said Goldman Sachs you would be right again.

Sunday, October 18, 2009

Goldman Sachs Redux

In our book, The Great Recession Conspiracy, we speculate that Goldman Sachs actually runs the U.S. Government. In today's New York Times, Frank Rich comes to exactly that conclusion (using a lot of our arguments).

Read it for yourself at

Saturday, October 17, 2009

The Deficit Numbers Are In

The U.S. is facing a record deficit and here is the reason why;

$113 Billion spent on the "Stimulus" package (assume for a second that it was all spent on programs that created jobs or extended unemployment benefits)
$154 Billion was spent rescuing Wall Street Banks.
$96 Billion was spent buying out Freddie and Fannie

So $250 Billion went to banks and less than half that amount went to ordinary citizens.

Now do you understand why there are huge bonuses for Wall Street Bankers and record (almost) unemployment for everyone else?

And it doesn't stop there. Since the FED has lowered interest rates to nearly zero, banks can borrow almost unlimited funds to buy highly risky financial products and so make huge profits.

Does this sound familiar? Does anyone still believe that Wall Street banks do not run Congress?

Friday, October 16, 2009

The Reports Are In!

The White House has released the figures for the jobs created or SAVED in the last nine months due to the Stimulus bill. The grand total is 30,000 jobs!

To put that nine month total in perspective, 39,300 Californian workers lost their jobs in the past MONTH!

The U.S. economy has been losing roughly 250,000 jobs a month and they want you to believe that 30,000 is important progress???

And now it gets worse. The White House says that these 30,000 in nine months show that the stimulus package is well on its way to creating 3,500,000 jobs by the end of the year. Good grief! Do they think none of us can add or subtract?

And now it is beginning to get really ugly. In the third quarter, there were 937,840 foreclosures on homes, a 23% increase over the third quarter 2008. At the beginning of the recession, most of the foreclosures were on toxic, liar loans, but now the most foreclosures are on fixed rate loans to people with good credit ratings, e.g., people who have lost their jobs.

No question, the worst is yet to come!

Thursday, October 15, 2009

Goldman Sachs Strikes Again!!

In the third quarter of 2008, Goldman Sachs needed billions of your tax dollars to avoid bankruptcy. Then we bailed out AIG and the largest share of those billions went directly to Goldman Sachs.

Now we have completed the third quarter of 2009 and Goldman Sachs have just recorded quarterly profits o $3.03 Billion!

Conspiracy anyone??

Tuesday, October 13, 2009

Recovery? Not Yet!

Over 15 million Americans are currently unemployed and another (roughly) 15 million are under employed or have given up looking. In September, 2009, over 200,000 jobs disappeared. Official unemployment is just under 10%.

The recession will be over when the demand for goods and services begins to grow and the economy begins to expand. That is unlikely to happen in the forsee able future. Here are the numbers to demonstrate the problem.

Typically, our economy is supported by about 20% in government expenditures, about 10% in business expenditures and the remaining 70% is represented by consumer spending. Consumer spending is slightly overstated because rent from your own, owned house is imputed as rent, but never mind. The point is the same. Our economy is driven by consumer spending and therein lies the problem.

U.S. households are carrying a huge amount of debt which they are correctly paying down now, but that is money they can't spend. Household savings are now in the 6-8% range and that is a good thing long term, but a bad thing in the near term.

In addition, we have all of those unemployed people who are not spending anything they don't have to spend. Now add in the people whose unemployment benefits are about to run out. Then add in all the people who are wisely limiting their spending because they might lose their jobs.

When you add all that up, you can make your own estimate of when the recession will end.

Monday, October 12, 2009

Maybe This Time

In our book, The Great Recession Conspiracy (available at, we point out that the fastest way to get out from under the huge number of impending foreclosures is to give Bankruptcy Court Judges jurisdiction over those loans. Single family, owner occupied, home mortgages are the ONLY mortgages they can not rule on.

A bill to make this change recently sailed through the House but was defeated in the Senate 45-51 last spring. Now Dick Durban, the senior senator from Illinois, is attaching such a provision to any bill he can find, and he thinks that this time is will pass.

Let's hope so. Last time, the multi-millon dollar contributions from the Wall Street Banks stopped it cold. See our book for details.

Friday, October 9, 2009

Too Big To Fail

Gary Stern was the President of the Minneapolis Federal Reserve Bank until recently. In 2004, he and Ron Feldman wrote an important book called Too Big To Fail. They demonstrate clearly that allowing banks to become to big to fail is an extremely wasteful idea. You can hear an extremely insightful interview with Gary Stern at stern on t.html.

Thursday, October 8, 2009

Who Is Elizabeth Warren?

She is;
*A professor on the Faculty of the Harvard Law School
*She is the Chair of the Congressional Oversight Commission
*She is the ONLY person in Washington you can believe
*She is your ONLY friend in Washington

Meet Elizabeth Warren at

Wednesday, October 7, 2009

Goldman Sachs AGAIN!!

Now you have to follow the bouncing finger here. First, CIT is a huge financial company that specializes in lending to SMEs, and CIT is in deep financial dodo, tottering on bankruptcy actually. In June, 2008, CIT negotiated a $3 Billion financing deal with Goldman Sachs to keep CIT going.

Without disclosing it, the U.S. Treasury bought $2.3 Billion in CIT preferred stock using TARP money last fall.

If CIT goes into the tank, which is extremely likely, Goldman Sachs will get a $1 Billion payout, plus their original investment. Since the preferred stock which you own will be worthless, your money will be transferred directly to Goldman Sachs, once again!!

However, if you owned Goldman Sachs stock, you can smile all the way to the bank.

Monday, October 5, 2009

Cash for Clunkers Redux

In July, we pointed out that all the Cash for Clunkers program would do is shift automobile sales forward. Now the evidence is in. U.S. auto sales for September were 745,997, down 41% from August and down 23% compared to September 2008. Are there no economists in Washington who have heard of, and understood, Price Elasticity??

Sunday, September 27, 2009

Devolve Regulation To The States

In our book, The Great Recession Conspiracy, we suggest that one of the steps that should be taken to ensure we do not repeat the Great Recession in the future is to remove bank regulation from Washington and transfer it to the state attorney generals.

Here is some very good evidence why this is an important action. Today's Washington Post carries a story headlined, "As Subprime Lending Crisis Unfolded, Watchdog Fed Didn't Bother Barking". One incident from the article is especially pointed. Beginning in 1999 (ten full years ago) a group of Chicago based community groups presented research to the Federal Reserve Bank that the high interest subprime loan originators were focused on black and Hispanic neighborhoods. They held those meetings THREE time a year and their complaints were dismissed out of hand every time.

We really need to get control of our lives away from Washington, a place where cutting self interest deals seems to be the only activity practiced. Read the rest of the article to watch indifference at work for a decade.

Tuesday, September 22, 2009

You've Gotta Love This!

Henry Blodget runs a site he calls The Business Insider. He has started a clock to count down the time until Treasury Secretary Tim Geithner leaves Treasury for a really good paying job at Goldman Sachs.

His point is that Geithner has been so good to Wall Street (Agreed!!) that he can pick where his next chair will be.

But before you get to worried about Timmy's finances, remember he was paid just under One Million Dollars for his last year at the New York Fed.

Henry also commiserates with Timmy because he can't sell his million dollar house in New York. But he doesn't deserve much sympathy here either. When he couldn't sell it for six months, he RAISED the price. Still couldn't sell it. And this guy is in charge of your money????

Monday, September 21, 2009

Pittsburgh Revisited

Today, the G20 group of countries is convening in Pittsburgh to consider, among other things, the fate of the world's financial system. The location is very appropriate. Business Cycles teach us that contractions aid in transferring resources from old, out dated industries to the new growth industries that drive the economy to expand and create new wealth.

Pittsburgh has understood that fact very, very well. Until the 1980's, Pittsburgh was synonyms with steel. Then other materials began to take the place of steel and plants began to close down. In the 1980's, Pittsburgh lost 100,000 jobs.

But the city government did not spent any time or money trying to save the steel industry. Instead, they invested in, and encouraged, the growth of health care and education in Pittsburgh. Carnegie Mellon University and the University of Pittsburgh, and the University of Pittsburgh Medical Center are highly visible symbols of the city's new direction.

The population has leveled off at about 313,000, and the city has become a center for high tech inovation.

Let's hope that the message of Pittsburgh is not lost on its newly arrived guests.

Numbers To Scare The Hell Out Of You

The Kaiser Family Foundation has just released their 2009 Employer Benefits Survey. Last year, the average cost of health-care insurance for an average family was $13,375, and increase of 138% over the past decade. On that track, the number for 2019 will be $30,083!

Understand clearly, that is the amount that wages are being reduced to cover the health care costs of your employer.

Now here is where Congress comes to play. The main "tool" that the government says it wants to use to "bend the upward curve in cost increases" is called "comparative effectiveness review". Study after study has shown that we pay an incredible amount of money for medical procedures that simply do not work, period. The government wants to collect all that data and make it available to everyone involved in health care.

Here comes Congress! They have inserted a provision in the current health care legislation that prohibits the government from using any of this evidence in deciding what Medicare and Medicad would cover.

We have a government that does not learn from its own mistakes, and now refuses to use facts in developing legislation!!!!

Sunday, September 20, 2009

Medical Costs

Today's Los Angeles Times reports on a five year study by the Dartmouth Atlas Project on the costs of the last two years of life. Here are the results for selected California hospitals;

National average: $46,412

Highest Cost (All Los Angeles County Hospitals)

White Memorial $130,992
Alhambra $120,756
Hollywood Presbyterian $115,097
Cedars Sinai $106,951
Brotman $102,909

Lowest Cost

Redwood Memorial (Humboldt County) $35,990
St. Joseph (Humboldt County) $41,020
French (San Luis Obispo County) $41,686
St. Elizabeth (Tehama County) $41,751
Barton Memorial (El Dorado County) $43,326

And these differences are just inside one state, California. The national differences are even wider.

Now you can see what the value of a living will is and what it can accomplish.

Saturday, September 19, 2009

A Suprising Finding

The credit reporting company, Experian, wanted to understand the characteristics of the people who walk away from their mortgages. Accordingly, they studied 24 million! credit files they control.

First finding (and a surprise) is that defaults are much, much more widely done than was previously thought. There were 588,000 in 2008, double the 2007 number.

Second finding (no surprise) was that the defaults were concentrated in markets where house prices had risen the most and cratered the most. Hence, California had the most and Florida second most.

Third finding (and a huge surprise!) was completely contrary to conventional wisdom. Most people thought that most of the people walking away from their mortgages were poor people with equally poor credit scores. Not True! Two-thirds of the people who walked away from their mortgages had high incomes and high credit scores. Further, they do it in a precipitous, apparently planned, manner. Lower income folks try very hard to hang onto their homes by making partial payments, making late payments, etc. High score folks simply stop making payments altogether. They seem to understand that their actions will severely affect their credit scores, but figure this is the better course of action now.

The government response to these findings is that lenders should get better at screening such people when they apply for loans.

Geezzzzz...............Is that stupid advice or not? You are the loan officer when this well dressed couple show up to apply for a loan. They have a great credit score (meaning a great credit history) and a significant down payment. Your job is to look deeply into their minds to discover
whether they might walk away from their mortgage at some time in the future depending upon future events that neither of you can foresee or control.

Are you beginning to suspect that the multi-millionaires who run the government in Washington are completely out of touch with how real human beings (you and me) live and behave?

Thursday, September 17, 2009

Can The Future Be Built In America?

That is the cover story of this week's Business Week, and it plays on themes in our book, The Great Recession Conspiracy, and several entries in this blog.

First, the story highlights three brand new technologies that are about to disrupt old businesses.
1) Light emitting chips that are as bright as incandescent bulbs will replace the lighting business that exists now.
2) Fuel cells will power electric cars and replace petroleum.
3) Solar panels will replace electric generating plants.

All of that is good since we are shifting resources from old technologies to newer, more efficient technologies. That is one of the good things Business Cycles accomplish. You can read more about it in our book.

The other theme in the article is that U.S. government policies are encouraging manufacturers to move there plants overseas. This is not about low cost labor since all three of these new products will be made on automated production lines. It is about government policies that do not encourage the creation of new high tech jobs in the U.S. Previous entries have discussed how important to the growth of the U.S. economy is creating exactly this kind of jobs. Take a minute and go back to the pieces on JOBS. Then read the article in Business Week.

Tuesday, September 15, 2009

Uncle Ben Speaks

Uncle Ben, otherwise known as the Fed Chairman, announced today that the recession is officially over. I imagine that will come as a surprise to the 15 million people without jobs, and to the 15 million people working reduce hours, or who have simply given up looking, and to the (maybe) 15 million more worried about losing their jobs (and their health insurance).

And that is why, boys and girls, you should pay no attention to the pronouncements of Washington economists. What you care about is whether the economy is continuing to shrink (and all signs are that it is).

On the other hand, read the post about the Happy Talk Paradox. From that point of view, Uncle Ben is doing the right thing.

One Year Plus One Day

As the anniversary of Lehman Brothers fades into the distance, it is time to consider what purpose Wall Street banks serve. As you know from earlier posts, just three banks now control over 30% of all deposits in the U.S. That is a tremendous amount of power over the economy to be held by just a handful of people.

The financial system's function is to collect the savings in the economy and direct them to productive uses to make the economy grow. The borrowers of the savings pay the owners of the savings for the privilege of using the savings. Banks serve the job of intermediary and get paid a fee for doing the job of collecting savings and parceling them out to worthy borrowers. Simple enough, right? And vital to the growth of the economy, right?

In 1996, the financial firms in the S&P 500 earned $65 Billion for making the financial system function. By 2007, that payment had grown to $232 Billion, that is growth from 19.5% of the total profits of the S&P 500 to 27%.

In 2007, the profits of financial firms accounted for a full 40% of the total profits of all U.S. corporations. They earned those profits without manufacturing a single thing.

It seems to me that it is high time to ask again what is the purpose of the financial system and how should the members be paid.

Monday, September 14, 2009

My Apologies

I meant to say the Federal Reserve Deposit Corporation, not the Federal Reserve Bank. The FDIC is expert in taking over failed banks of any size.

My apologies for trying to do to many things at once.

What Should Have Happened One Year Ago

The smarter way to handle Lehman Bros. would have been to make them into a commercial bank under the jurisdiction of Federal Deposit Reserve Board. Then the Fed could simply have taken them over and sold of the bits. That is what they have been doing for decades and doing it extremely well.

It would have taken less than 24 hours. That is how long it took Goldman Sachs to become a commercial bank so they could tap into the U. S. Treasury.

World economy on the verge of collapse? What a bunch of crap!!

One Year On, Wall Street Reform

Today's Los Angeles Times has this headline, "Crisis has not altered Wall Street". The copy says, "But on the whole, Wall Street has recovered more quickly than expected with little difference in how it does business. And the unapologetic pursuit of money remains as deeply rooted as ever."

And today, the President delivered a speech on Wall Street about Wall Street. He said Wall Street bankers should be ashamed of themselves and they should stop doing the things that led to the recession.

Good luck with that idea Mr. President.

Sunday, September 13, 2009

Lehman Brothers Redux

If you go to, click on Sunday Business, you will find two articles of interest. They are both nuanced stories about the people who caused the recession, and those who are suffering from it. The stories are:

"Tales from Lehman's Crypt", and "Big Spenders? They Wish."

It will be worth your time.

Saturday, September 12, 2009

Nothing Has Changed

Monday marks the one year anniversary of Lehman Brothers demise and the turmoil in financial markets reached its zenith. Now we have invested Billions and Billions of dollars in banks, auto manufacturers and a sundry bunch of other companies, and apparently, the U.S. Government has learned absolutely nothing from the experience.

Virtually nothing on Wall Street, where the recession began, has shown any appreciable change. Investment bankers still focus on risky investments to drive up their bonuses. The eight major U.S. and European banks have 141,000 employees in their investment bank operations and they are on track to pay an average of $543,000 each in bonuses. Would you be willing to take risks with someone else's money if you could get a $543,000 bonus on top of an already healthy salary?

Don't bother to answer!

And all of the financial "innovations" (CDOs, derivatives, etc.) are all still in full use and traded out of sight of the market. In addition, Wall Street banks are adding "Death bonds" to their arsenal of ways to take risks without recourse (see earlier post for details).

Economists have a term for what is happening and there is absolutely no" moral hazard" anymore. The bankers on Wall Street are more direct about the situation, they call it I.B.G. (which means that when the deal goes south "I'll Be Gone").

In short, everything is in place for another financial meltdown. Given how inept the government's response has been the current recession, you should be afraid, very afraid.

Friday, September 11, 2009

It Ain't Over Redux

The administration is proclaiming that the recession is over because they are reporting a tiny increase (maybe?) in GNP for the third quarter. But other facts tell a different story.

In the third quarter, 39,800,000 people were living below the poverty line ($22,025 for a family of four). This is the highest level of poverty in eleven years. These folks cannot be expected to drive up consumer spending which accounts for two-thirds of all the economy.

In 2008, 46,300,000 Americans had no health insurance, up from 31,000,000 in 1987. A substantial number of these people will have no choice but to use hospital emergency rooms for medical care, further driving up health care costs.

And 15 million people remain unemployed and another 15 million, or so, are either underemployed working shorter hours or have simply given up looking. Five of the 15 million will run out of unemployment benefits in the next few months.

End of the recession? Hardly!

Wednesday, September 9, 2009

It Ain't Over Until It Is Over

Yogi Berra could have been talking about the U.S. economy today. The happy talk clowns in Washington are saying it's over, it's over, etc. etc.

What they don't mention is that there are currently 5 million mortgages in the U. S. that are 60 days, or more, late in payments. In addition, there are an unknown number of Option Arms (see earlier post for explanation) due to be reset. That is a huge time bomb just waiting to go off in our faces, and you should be very, very careful in your spending plans.

And that leads us to a brand new concept in economics which I chose to call the Happy Talk Paradox. If you have read our book, The Great Recession Conspiracy, you are familiar with the well known economic conundrum, the Savings Paradox. The Savings Paradox says that what is good for individuals is bad for the entire economy, e.g., if individuals save instead of spending the economy cannot grow.

You would also know that the Business Cycle is driven by psychology, not finance, and that a Contraction (recession) ends when everyone starts believing everything is going to get better. Therefore, it is good government policy to encourage the idea that everything is getting better, e.g., Happy Talk. However, individuals should be very, very careful about abandoning caution and saving until the next expansion really is underway.

Hence, the Happy Talk Paradox. The best government policy for the entire economy is to encourage optimism, but the best government policy for individuals is to encourage pessimism.
So the Happy Talk Paradox, and you have just witnessed the creation of economic theory.

What is truly interesting today is that Alan Greenspan admitted in an interview on the BBC that the Business Cycle is driven by psychology (see The Great Recession Conspiracy), but then he utterly failed to understand what that means. So sad.

Tuesday, September 8, 2009

Something Really Important To Watch

There is a case before the Supreme Court that will be decided this week that has the potential to change the U.S. Government forever, and you should be watching it play out.

Here is the thing. We now have a government run by special interests. You can read how Goldman Sachs runs the U.S. Treasury in our book, The Great Recession Conspiracy, but the same thing applies to health care, agriculture, drugs, etc. etc. The entire IRS book of tax laws is simply a collection of rules favoring one special interest or another. The special interests run the government by making huge campaign contributions to members of Congress willing to carry water for the special interest. In short, we now have the best government money can buy.

If you want a different source, try Henry Waxman's new book, The Waxman Report. It details how a 29 year old lawyer goes to Congress and spends the next 30 years there. He even states plainly that money makes the whole process work and we should quit worrying about it. That is really bad advice.

So the case before the Court is Citizens United v. Federal Election Commission. Citizens United made a movie critical of Hillary. Citizens United wants to be excluded from the 2002 McCain-Feingold campaign finance law. If the Court supports Citizens United, it will basically remove all constraints from corporate cash flowing into government and special interests will rule the government openly.

Stay tuned. It is still your country.

Sunday, September 6, 2009

They Are At Again!!

Remember CDO's? If not, you can find a very good description in our book, The Great Recession Conspiracy. Well, today's New York Times describes the next big "innovation" in finance on Wall Street.

It goes like this; life insurance will be sold to elderly and very sick people, who will, in turn sell those policies to Wall Street Banks for current cash against the final payout of the insurance, e.g., the Wall Street Bankers will bet you die soon enough for them to make a huge profit.

For example, you might buy a $1 Million policy and sell it to a Wall Street Banker for $400,000 cash right now.

But hang on, it gets worse. Then they will bundle these death bet policies into bundles and sell them off to other investors, and collect huge fees for doing that job.

Does nobody in Washington ever learn anything?? The Wall Street crooks are duplicating the "innovations" that basically caused this recession and nobody seems to care!!

Thursday, September 3, 2009

Credit Where Credit Is Due

If you have read our book, The Great Recession Conspiracy, you would know I have great reservations about Tim Geithner because of his ties to Goldman Sachs.

But his recent actions to address the problems that lead directly to this recession are very encouraging. First, he has identified the two big problem areas; 1) Banks that are so large that they might bring down the whole financial system, and 2) Banks and other financial organizations that take huge financial risks which can lead to enormous losses. (Goldman Sachs fits into both categories.) Geithner is proposing that such institutions hold much, much larger reserves than is required today. That is exactly what we proposed in the Great Recession Conspiracy.

We recognize that there is a downside to greater reserves. It will reduce bank profits somewhat and it will reduce the money in the economy that is available to lend. We don't see either of this side effects nearly as dangerous and expensive as the costs of small reserves that led to this crisis.

Stay tuned and watch this one carefully since it is probably the key to how the financial system will function going forward.

Success Revisited

O.K., Joe Biden says the $800 Billion stimulus package saved or created 750,000 jobs. Today's Washington Post says that in August ALONE 280,000 jobs were lost.


A Definition of Success We Can't Live With

Yesterday, VP Joe Biden said that the government's stimulus program (just short of $800 Billion) was a great success because it has saved or created 750,000 jobs. No evidence or detail was provided.

The facts are that 15,000,000 are currently unemployed and a best guess is that there are another 15,000,000 people are working shorter hours or have given up looking for work.

I wonder how they would define failure???

Monday, August 31, 2009

We Need NEW Jobs, Part Two

Today's rant is a riff on the last commentary on the need to create new jobs. This week's Business Week focused on the fact that basic R & D in the U.S. is waning. The labs at Bell Labs, Xerox's PARC, and Hewlett-Packard's lab are just a few examples of very large labs that were extremely productive, but are now gone or sharply reduced. The basic research that came out such labs having been driving our economy for over fifty years. We really need to find some way to reignite our basic research engine.

Consider this fact; right now we need 6.7 million new jobs just to replace the ones lost forever in this recession, and another 10 million to keep up with population growth. In the 1990's, the U.S. economy created 2.2 million new jobs a year, but in 2007 it had fallen to 900,000 jobs. But there is more. There are roughly 130 million jobs in the U.S. Twenty percent (20%) pay $60,000 or more, while the other 80% pay an average of $33,000. One of the reasons for this discrepancy is that low paying jobs in fast food outlets cannot be out sourced, but research scientists can work any where.

We just spent $3 Billion on that ill-advised Cash for Clunkers program. That amount would have completely funded a basic research lab the size that Bell labs used to be. There is a huge need to fund and to encourage the creation of new labs, and the expansion of existing labs. We can do that in a lot of relatively inexpensive ways. For example, we could give companies a tax credit for the dollars they spend on basic research. Or we could fund new research labs run by universities and private organizations with one time grants. Or we could exclude the first X% of profits that Venture Capitalists realize on their investments in start up ventures, and maybe allow tax credits for up to X$ in losses on investments that do not pay out.

Now compare those expenditures with the $800 Billion we spent (?) to bail out Wall Street banks, and then compare the return on investment we are likely to see any time in the future.

There was a time, it seems to me, that Congress could see something beyond the next election, but apparently that now longer applies. And that is tragic because the future of the United States is much longer than the next election cycle.

Saturday, August 29, 2009

We Desperately Need NEW jobs!!

There are roughly 15 million people unemployed in the U.S., and as many as another 15 million are underemployed (working shorter hours) or have given up looking. The numbers say that pretty much everybody has significantly reduced their spending.

And that brings us to what economists call The Savings Paradox. The paradox is that it makes perfect sense for individuals to cut back on their spending, but since the economy is about 70% driven by consumer spending, what is good for individuals is not good for the whole economy.

So we are in great need of some new source of jobs to get people back to work so they can resume spending and drive the economy into a new expansion phase. For decades now, all the evidence says that the overwhelming source of NEW jobs is small businesses. The question becomes what has this administration done to support start up small businesses? And the answer is NOTHING!!

The primary thing that the government has done about the recession is to transfer huge amounts of your money to coffers of Goldman Sachs, and to a much lesser extent, other Wall Street banks. The result of that action has been to REDUCE the amount of lending done by these financial monsters.

Oh yes, they also transferred billions of dollars to new car dealers to clear out their lots. What has actually happened is that 2010's auto sales have been moved forward to 2009. What a stupid stunt!

Back to the real problem. The recession can not end until people go back to work. Since most of the jobs that were lost are not coming back, it is vitally necessary to create new jobs. And that means entrepreneurs starting new businesses, but the government is doing nothing to support that activity. In our new book, The Great Recession Conspiracy, we show exactly how to make this process work. Read all about it at

Friday, August 28, 2009

Here We Go Again

Today's Washington Post reports these unnerving facts;

1) J. P. Morgan Chase now holds more than $1 of every $10 on deposit in the entire U.S.
2) The Bank of America also holds more than $1 out of every $10.
3) Wells Fargo also holds more $1 out of every $10 on deposit.

Not only do these three banks control over 30% of ALL deposits in U.S. banks, they also issue 1/2 of all new mortgages and two out of every three credit cards.

Did anybody mention "Too Big To Fail"?????

Thursday, August 27, 2009

Now For The Other Shoe

So far, most of the attention has been on sub-prime mortgages, liar loans, etc. Now comes the problem of Option Arms (Adjustable Rate Mortgages). They are so awful that nobody offers them any more. They came in four flavors;
1) Make a payment that doesn't even cover the interest, let alone pay down the principle.
2) Pay just the interest.
3) The equivalent of a 30 year fixed rate mortgage.
4) The equivalent of a 15 year fixed rate mortgage.

Three quarters (75%) of the Option Arms were written as #1 with the borrower picking a monthly payment they liked regardless of the financial reality. But after some period of time, the interest rate is "re-set", and the payments can double.

Barclay's Capital says they expect 81% of the Option Arms written in 2007 to default, and it is beginning to happen now. Although fewer Option Arms were written compared to sub-prime mortgages, Option Arms are now defaulting at a rate twice as high as sub-prime defaults.

Get ready for more foreclosures and for more people to lose their homes.

Wednesday, August 26, 2009

It Ain't Over Until It Is Over

Wise old Yogi Berra got that right. A brand new problem is emerging from the debris of the Great Recession Bailout. The Federal Deposit Insurance Corporation is the organization that takes over failed banks and sells off their assets. It also guarantees that your deposits up to $250,000 will be paid.

The FDIC funds this activity with a fee it collects from member banks. Now here is the problem. The FDIC is just about broke. There are an increasing number of small and medium size banks going broke. A year ago, the FDIC had 252 banks on its "watch list". Today, it has 305.

The FDIC has just two ways to replenish its coffers. It can raise its fees on member banks, which can be expected to push more banks off the cliff. It can also borrow money from the U.S. Treasury, which will flood the economy with even more money (read inflation).

You may ask, why are these banks now in trouble? And the answer is that they have been avoiding valuing correctly, or selling, the home mortgages they have on their books.

Look at it this way. They have been kicking the can down the road and now the road is coming to an end.

So the message here is this: Beware of the happy talk clowns in Washington who want you to believe the Recession is over simply because some companies are beginning to replenish their inventories.

But Paul Krugman's question remains appropriate, "Who is going to buy all that stuff?"

Monday, August 24, 2009

How To Pay For Social Security

As you know, you are taxed at the rate of 6.2% of your income to finance Social Security. Your employer is taxed an equal amount. But when your income reaches $106,800 (if it does), the tax stops, e.g. is capped. Last year, there were 17,813,000 households in the U.S. who earned more than $100,000, but paid no more into Social Security than you did, but who will get exactly the same benefits as you will (do).

If all those rich folks made a Social Security contribution without a cap, it would raise $326 Trillion!! End of Social Security problem.

Write or email your congress persons. And do it now.

High Speed Rail Nutiness

Robert Samuelson, the Washington Post columnist, has a spot on column today. But first note that I usually don't much agree with Samuelson because he is often whiny about things. Today, however, he is right on target.

His point is that since 1971, we have spent $35 Billion in subsidies to keep Amtrak going. You can see the operating results for Amtrak in our book, The Great Recession Conspiracy, and they are pretty awful. In the U.S., 140 million people go to work every day and exactly 78,000 of them ride Amtrak, and you pick up $50 of the cost of each and every ticket.

Now the government is proposing spending $11 TRILLION on some high speed rail projects between now and 2019. This money would be "seed" money to build ten high speed rail corridors, i.e., Philadelphia to Pittsburgh, Los Angeles to San Franciso/Sacramento, etc.

Estimates are that construction costs could fall between $22 Million a mile to $132 Million a mile, so take $50 Million a mile as a working number and calculate the cost of each corridor for your self. The government says it will take 1 million cars of the road, and even if that were to come true, it is less than 1/2 of 1% of the 254 million registered vehicles.

Proponents of the high speed rail project point to Europe as a model of why it would work in the U.S. I have ridden the high speed trains in France and Spain, and they are quite nice. The country side does go by pretty fast at 200 MPH.

The problem is that Europe ain't America. First thing, population densities are very, very different. That means there are more densely populated metropolitan areas to support rail lines in Europe. In Britain, the 653 persons per square mile, in Germany 611, and 259 in France. In the U.S., it is 86 persons per square mile. And distances in the U.S. are much, much greater in the U.S. than in Europe. When the trip is about 400 miles, air travel is cheaper and, of course, much faster.

As you know, we have a marvelous transportation system called the Interstate Highway System which is in great need of repair, updating, and expansion. That is where our dollars should be going.

Now here is the really troubling thing about the High Speed Rail project. Our government never seems to learn anything from actual events. Amtrak is a horribly expensive boondoogle, but now we should expand it. If you would like more lessons in government "non-learning", see The Great Recession Conspiracy.

Friday, August 21, 2009

Good Grief!!

The President just announced that "they" didn't anticipate the reaction to the Cash for Clunkers program. Every sales person, every marketing manager, et al, could have told him what would happen when the price of something was reduced by $4,500. All of those economists and none of them have heard of price elasticity???

It seems clearer every day that nobody in the government has any notion of how the real world works. Is that because they have never had to experience the world you and I live in?

Wednesday, August 19, 2009

I am beginning to worry

One of the things that really impressed me when Barack Obama was running for the nomination, and again when he was running for president, was his superb political instincts (with an occasional slip up). But in the last six months, that skill seems to have eluded him on two very important occasions.

But first, let's get some things straight. The overwhelming number of his cabinet appointments have been superb. I have major reservations about Eric Holder, but I will give him the benefit of a doubt.

His economic team is a complete disaster!! The Goldman Sachs gang that can shoot straight and the truly scary Larry Summer are simply awful. We describe all of that in our book, The Great Recession Conspiracy.

What is beginning to worry me is the incredible ineptness of his handling of the health care crisis. And it is a crisis. We are now spending 18% of our GNP on health care and the rate of annual increase shows we are on track to reach 30% in a couple of years. Forty seven million U.S. citizens do not have health care insurance and are using emergency rooms for their health care needs. If you do not understand there is crisis, you might has well stop reading here.

In addition, we get lousy returns for our health care investment. Our life span is significantly shorter than our European contemporaries and our infant death rate is worthy of a third world country, to name a few shortcomings.

So the fact that we need health care reform is beyond question. But how the Obama team is going about the job is simply unbelievably awful, and the results of that incompetence appear every day.

First thing, there is NO health care bill, period. There are three Congressional "discussion papers", and they are all different. Since Obama has no Health Care bill, he has to defend bits and parts of the three working papers that he has had no hand in creating. Hence, he looks like a complete fool defending ideas he doesn't even believe in. On the other hand, the opposition can pick tiny pieces of insanity out of this working papers and crucify Obama on each of them. See the wack job from Alaska for one, but just one, example. For another see Chuck Grassely babbling about health care in the U.K. about which he knows absolutely nothing. He is, otherwise, a pretty sensible guy.

But here is the real problem. Obama has got everything bass ackward. When you sort out the wack jobs, there are still real concerns among really sensible people about how he intends to pay for his proposal. He should have addressed that incredibly important problem before he went on the present his proposal, whatever that turns out to be. Here is what he should have said and done.

There are six, relatively, simple steps he could have proposed to pay for his plan before the fight about what was in the proposed health care bill began. He would have automatically enlisted support of the "blue dog" Democrats who are worried about the costs, among others.

1) Outlaw pharmaceutical advertising directly to consumers. $40 billion dollars are spent annually to promote "prescription only" drugs directly to consumers. That is simply a stupid waste of money that big pharma could save to off set other new expenses.

2) Address fraud in Medicare as it exists today. Nobody knows exactly what the real number is, but most everybody agrees its somewhere between $1 and $500 BILLION. One example: Numerous clinics have been found to recruit "patients" from around the country, and paying them cash, while the clinic bills for a wide variety of phony procedures.

3) Fund digitizing medical records. An large number of medical problems occur every day because hospitals do not have accurate patient records for each patient. Each of those problems have a significant, and unnecessary, cost.

4) Recently, controlled experiments have shown that hospital infections can be reduced by 95% with simple programs of hand washing, specifically designed procedures, sterile gowns and gloves, etc., and the cost has come out at $17 per patient!! And the savings are in the hundreds of thousands of dollars in each hospital.

5) Computer programs and analysis show the cost/benefit results of various procedures and pharmaceuticals should be funded immediately. The same procedures at the Mayo Clinic cost $100,000 more than if they were performed at UCLA Medical Center. Peter Orzag has started this project and it should be funded immediately.

6) 60%, 70%, 80%, 90% of our medical expenditure is spent on the last two weeks, two months, two years of life. You pick the combination of definitions that suits you, and the result is still the same, the majority of our health care expenditure is spent on end-of-life heroic procedures. A "living will" goes a very long way to avoid useless, heroic procedures and allows individuals to have a hand in final arrangements. I have a living will and everyone I know has one. Obama has one, but he has allowed the wacko jobs on the right fringe to hijack this very, very important issue and relabel it as "Killing Grannies".

Yes, I am beginning to worry that what will come out of Congress will be a counter-productive hash that will do nothing to solve the problem. Remember that every dollar spent on health care is a dollar that cannot be spent on education, repairing roads, invested in wind and solar power, and your own pet project.

Sunday, August 16, 2009

Time to Be an Optimist? Not Likely!

Business Week magazine this week claims to be optimistic about the economy. Here is the lead paragraph from the Editor's Memo.

"It's a tough time to be an optimist. Unemployment is a scourge, sapping the public's spirit and creating hardship for millions. Many key Presidential initiatives have sunk into the mire that passes for the legislative process and will emerge, if at all, muddied beyond recognition. The stimulus is trickling our inefficiently, elements of the financial industry resorting to their old, risky ways, and the huge cost of the current and proposed programs--from the auto bailout to cap-and-trade and health-care reform (not mention two wars)--threatens to produce unprecedented deficits."

This guy agrees with everything we have been saying here, and he comes out an optimist!!

Go figure.

Thursday, August 13, 2009

What The Government Really Should Have Done

There is a great deal of back slapping and self congratulation going on in Washington these days about how wise and courageous government policy pulled the country back from the abyss. That claim deserves some close scrutiny.

What actually happened is one man, basically, declared we were facing an abyss, Henry Paulson, former chairman of Goldman Sachs. He then convinced a few other people that there was an abyss. What there actually was is a couple of investment banks facing considerable losses because of their own bad judgment. And the lead troubled bank was Goldman Sachs.

Paulson's plan was to transfer huge amounts of your money to Goldman Sachs and a couple of other banks to keep them from bankruptcy.

So what should have happened? Those deeply troubled banks should have been made to change from investment banks to commercial banks. That can be done in less than 24 hours. In fact, that is what they did AFTER they received billions of dollars of your money.

As soon as they became commercial banks, they would have become wards of Federal Deposit Insurance Corporation, which would have forced them into bankruptcy, re-organized them, sold off assets, and cleaned up the mess. The FDIC is extremely skilled and practiced at that job and has been doing effectively for decades and is doing it today.

Would that action have cost a lot of money? Absolutely, but not nearly as much as the bail out plans that were actually put into place.

In addition, the policy of moral hazard would have been firmly established. Or, in Colin Powell's terms, "You break it, you own it".

In addition, we would not have to be faced with the egregious bonuses now being paid by the same Wall Street banks.

Finally, we would have solved the Too Big To Fail problem for once and for all. (maybe)

But if we had followed this plan, Goldman Sachs would probably be out of business today instead to rolling in record profits.

Oh damn, I knew there was something I overlooked in this scheme. Can you figure out what that would have been?

Wednesday, August 12, 2009

They are at it again!

Yes, the Business Cycle is driven by psychology. When everyone thinks things are going to get better, they actually do, so on one hand you can't complain about all the happy talk coming from Washington this week.

The trouble is that the facts undercut the happy talk. Right now, there are about 15 million unemployed Americans and about another 9 million are only working part time. With 67% to 70%
of the U.S. economy driven by consumer spending, recovery cannot begin until those people start spending money again, and that won't happen until they have jobs.

But the really scary part is that about 5 million have been unemployed for six months or more. The jobs they did are gone and they are not coming back, end of story. The government should be spending money on re-training those people for jobs that actually exist now! Instead they are spending $3 Billion on buying up old automobiles. That program has one good outcome and two very bad ones.

The good outcome is that auto dealers lots are now emptying out. But the first bad outcome is that there is every appearance that all the program has done is shift sales ahead by six to twelve months so that very shortly the auto companies and their dealers will be back begging for another bailout. What do you think the chances are that they will get it?

The second bad outcome is that the Clunkers program has seriously reduced the supply of older, cheaper cars that low income people need to be able to buy to get on with their lives. Not only that but the prices on the used cars that are available has gone up. Even a dumb economist should know that when supply is shrunk and demand remains constant prices will go up!

But I guess you shouldn't be surprised by all of this since Washington's economic policies are being set by millionaire economists and lawyers who don't have the faintest idea how you and I live. And it looks like, given the evidence, that they truly don't give a damn either.

Friday, August 7, 2009

Goldman Sachs Strikes Again

Remember just a few weeks ago when President Obama was outraged at the huge bonuses being paid at Goldman Sachs and other Wall Street banks? Well, he has now gone silent on that subject.

The BBC reported yesterday that the reason for this new found silence is that Larry Summers convinced Obama that he was hurting the morale of Wall Street bankers by complaining about their outrageous bonuses.

Hurting the morale of Wall Street bankers? What about the morale of 15 million Americans without jobs who don't have salaries, let alone bonuses??

This administration, which started out with such high hopes, is rapidly becoming a bunch of spend thrift thugs. Best estimates are that a tiny 12 cents of out every Stimulus Bill dollar actually went to anything remotely able to stimulate the economy. The other 88 cents went to pet projects of Nancy Pelosi and her gang.

As we pointed out, and explained, in The Great Recession Conspiracy, the U.S. is on a direct path to bankruptcy. Since the U.S. cannot declare bankruptcy, it will print new money to pay the bills, and that is called inflation, pure and simple!

Thursday, August 6, 2009

Cash For Clunkers

Here are the top ten trade-ins;
1)1998 Ford Explorer
2)1997 Ford Explorer
3)1996 Ford Explorer
4)1999 Ford Explorer
5)Jeep Grand Cherokee
6)Jeep Cherokee
7)1995 Ford Explorer
8)1994 Ford Explorer
9)1997 Ford Windstar
10)1999 Dodge Caravan

And here is what they bought with their cash and trade-in;
1)Ford Focus
2)Honda Civic
3)Toyota Corolla
4)Toyota Prius
5)Ford Escape
6)Toyota Camry
7)Dodge Caliber
8)Hyundai Elantra
9)Honda Fit
10)Chevy Cobalt

Two easy conclusion; Ford has certainly learned the lesson of the market for improved mileage. The second is much more worrisome. Where are all the high quality Chevrolets that Fritz the new CEO said that GM now makes??

And remember that we now own GM. What do you think are the chances that our investment in GM will ever pay off?

But hang on, it gets worse. Yesterday, the government gave out $2.4 Billion in grants to develop electric vehicles. On the face of it, that is a good thing. As we said in our book, The Great Recession Conspiracy, we are in a long term trend to replace petroleum with electricity as a power source. However, GM got $146 Million of that money while Ford got only $30 Million. And what is GM going to spend that money on? The Chevy Volt! A years away from production car with a projected cost of $40,000!

When will the insanity end???

Wednesday, August 5, 2009

The Facts About The Recession

The happy talk idiots in the government are starting to babble that the recession is over, and that is pure crap!

Here are the facts:

More than 7 million people lost their jobs between January and June, 2009. That is the steepest job loss since World War II.

Unemployment is now averaging 24.5 weeks (over six months) and that is the longest since the government started tracking it in 1948.

Beware happy talk.

Change We Are Having A Hard Time Believing In

All during Obama's campaign for President, he repeatedly promised that he would change how Washington works. He also promised to take better care of the middle class, e.g., us. Now the score card is beginning to be clear.

The Treasury dumped Billions of dollars into big banks so they could modify "toxic" (their word, not mine) loans. There are roughly 4 million homeowners who need to modify their loans but only 9% (360,000) of those loans have been modified. Two of the big banks have even worse records. Wells Fargo has only modified 6% of its loans and Bank of America is even poorer at 4%.

We have talked about the obscene bonuses being awarded by Goldman Sachs and others as U.S. household incomes continue to decline, but here is brass ring to watch.

A bond trader who works for Citibank earned a bonus of $100 Million by trading in oil futures and driving up the price of gasoline. There are apparently no questions about the legality of his contract. But here is the kicker! We own a substantial portion of Citibank's stock, e.g., we own the damn place.

So here is where the score card gets filled out. The administration has done very little to help home owners and even less to create jobs for ordinary folks, so watch to see how they handle the $100 million pay day.

Monday, August 3, 2009

They just don't get it!

Today's Washington Post ends a story on how the recession is ending with the following paragraph.

"Even as the nation starts producing more goods and services, though, the joblessness is expected to continue rising--both because the expansion is expected to be weak initially and because businesses are behaving with extreme caution, making them reluctant to hire even if they do see rising demand for their products."

That sentence is so wrong headed, it is hard to know where to start. First of all, the idea that the nation is producing more goods and services is based on a distortion of the facts, e.g., they left out automobiles and aircraft to get a tiny positive number. Add those two factors back in and the drop in production is substantial.

Next, the next expansion, whether weak or strong, cannot begin with ever increasing unemployment. Fifteen million unemployed with benefits expiring will never produce the improving confidence in the future needed to end a contraction.

There won't be any increase in demand until people have jobs and confidence in the future. Period. Neil Irwin, the Washington Post Staff Writer responsible for this silliness obviously has not read our book, The Great Recession Conspiracy.

Sunday, August 2, 2009

The Unintended Consquences of Social Systems

Let's begin with the fact that ALL of the government's economic team are millionaires and in some cases multi-millionaires. That explains a lot about the incredibly stupid decisions they are making.

Remember that Cars for Clunkers requires that a car, to be destroyed in return for a $4,500 credit toward a new car purchase, has to be driveable. Today, according to, I could buy a 2002 Ford Focus LX Sedan for $4,500 and that there are hundreds more cars for sale for less than that amount within 50 miles of where I am sitting. All of them are driveable.

Under normal conditions, the dealer taking in a used car in trade for a new car would sell the used car at a local auction. Those low level auctions are the primary source of the used cars that are sold in the little independent auto sales lots in your city.

What is happening now is that the number of used cars for sale at those auctions is reduced so the supply for independent lots is restricted. Remember what happens when the supply of something is limited and the demand remains the same. That's right; the price goes up!

So what the Cash for Clunkers has accomplished is to raise the price of used cars for the very people who are most hurt by the Wall Street banker's recession, i.e., the gardeners, housekeepers, nannies, etc. for the Wall Street bankers and the Obama economic team.

Another Government Screw-Up

There are currently 15 million people in the U.S. who are unemployed and 10% of them (1.5 million) are facing an immediate end to their unemployment insurance benefits. The stimulus bill could have put a lot of those people back to work if the money had been given to city mayors across the country. Instead, the money was given to governors who immediately played politics with the money. For example, high speed rail transport may be a good idea, but it will be years and years before it creates any jobs.

But the dumbest idea to come from Washington lately is the Cash for Clunkers program. We talked about the inappropriateness of the program earlier, but a whole new problem has emerged. The first $1 Billion Congress appropriated for the program was gone in a couple of weeks. Now the House of Representatives has voted another $2 Billion to extend it.

When will the hand out stop? What will happen next year when new car sales are low because the Cash for Clunkers program simply shifted demand forward a year?

If car owners can get a bail out gift, why not washing machine owners? We could get rid of old washing machines and replace them with new machines that conserve water and electricity. Wouldn't that be a good idea? What is your good idea for the next bail out?

And let's be clear about this; Cash for Clunkers is not about stimulating the economy, creating jobs, or anything actually important for the economy-it simply about clearing the car lots of car dealers across the country.

Saturday, August 1, 2009

The Recession Is NOT Over

If you have read our new book, The Great Recession Conspiracy, you understand that the Business Cycle is driven by psychology, not finances. As we discussed the other day, there is no sign that consumer attitudes are becoming positive about the future. Unemployment continues to increase so there is no basis for confidence.

If you understand the Business Cycle, you know that credit is the hand maiden of the Business Cycle. Credit expands when the economy is expanding and shrinks when the economy is contracting. Now the facts; the fifteen largest U. S. banks actually REDUCED their lending by 2.8% in the second quarter compared with the first quarter.

So here is the bottom line; pay attention to what people actually do and ignore the number waving fools in the government and on Wall Street.

Friday, July 31, 2009

Monday Morning Smile

(via JWT) Judy Wallman, a professional genealogy researcher in southern California, was doing some personal work on her own family tree. She discovered that Harry (senator (D) from Nevada ) Reid's great-great uncle, Remus Reid, was hanged for horse stealing and train robbery in Montana in 1889. Both Judy and Harry Reid share this common ancestor.

The only known photograph of Remus shows him standing on the gallows in Montana territory.

On the back of the picture Judy obtained during her research is this inscription:
Remus Reid, horse thief, sent to Montana Territorial Prison 1885, escaped 1887, robbed the Montana Flyer six times. Caught by Pinkerton detectives, convicted and hanged in 1889.
So Judy recently e-mailed Senator Harry Reid for information about their mutual great-great uncle.

Believe it or not, Harry Reid's staff sent back the following biographical sketch for her genealogy research:
Remus Reid was a famous cowboy in the Montana Territory. His business empire grew to include acquisition of valuable equestrian assets and intimate dealings with the Montana railroad. Beginning in 1883, he devoted several years of his life to government service, finally taking leave to resume his dealings with the railroad. In 1887, he was a key player in a vital investigation run by the renowned Pinkerton Detective Agency. In 1889, Remus passed away during an important civic function held in his honor when the platform upon which he was standing collapsed.
That's real POLITICAL SPIN!!! That's how it's done folks!

Outrageous Behavior

Nine banks took part in the TARP bank bailout last year. Those banks that filled up at the public trough paid 5,000 of their employees bonuses of more than $1,000,000 each, on top of their regular salaries!

Goldman Sachs alone paid 953 traders more than a MILLION DOLLARS in bonuses. That is almost a fifth of all the high paid bankers.

All told, in 2008, those nine banks paid bail out money bonuses of $32.6 Billion at exactly the same time that they LOST $81 Billion.

What we have done is reward the people who brought on The Great Recession with stunning amounts of money!!!!

Thursday, July 30, 2009

Is The Recession Over?

Some wishful thinking government people are now saying that the recession is over. Don't believe it! There are currently 15 million unemployed Americans and the recession won't be over until that number shrinks considerably. Here's why.

Normally, about two-thirds of the U.S. economy is driven by consumer spending and one-third by industrial spending. Recently, that share exceeded 75% as consumers dipped into their home equity, and did some other borrowing, but that is another story for another day.

What concerns us here is that U.S. consumers have cut back sharply on their spending and have resumed saving some of their income. All of this behavior is good, but the economy cannot begin to grow again until consumers regain their confidence about the future and start spending again. So with 15 million unemployed and, maybe, twice that number seriously worried about losing their jobs, we have about 45 million households making sharp cutbacks in their spending. Since companies watch consumer expenditures closely, they won't start producing products and services to sell to consumers until they see increased spending.

Since there are about 117 million households, in total, in the U.S. roughly 40% of all U.S. households are severely limiting their expenditures. The recession cannot end, and the next expansion cannot begin, until more households begin to spend again. Period.

Watch unemployment numbers and pay no attention to talking heads in Washington. You have a very good indicator of what is going to happen to the economy, and it is better than anything that is coming from Washington.

Wednesday, July 29, 2009

Wall Street Banks Strike Again

As you are well aware, almost everybody in the U.S. is outraged at the bonus paychecks that went to the Wall Street Bankers whose behavior led directly to the current recession. And those bonus checks just keep rolling out. Every one of Goldman Sachs 30,000 employees are on track to receive average annual bonuses of $777,000.

Congress is aware of the outrage and is in the process of passing legislation to reign in those out of control bonuses. The guts of the law is that shareholders would have an annual vote on salaries and bonuses of top employees.

Now that is spineless enough, but here is the kicker. The vote would be NON-BINDING, which means that the managers are completely free to ignore the vote. Hence, business as usual!!

The subtext of our book, The Great Recession Conspiracy, is that there is a cabal of Wall Street banks that actually run the U.S. Treasury Department, and do so only in their own interest. And it looks like no one in Congress is willing to take this cabal apart. So we are laying the ground work for our next recession even before we recover from this one.

Monday, July 27, 2009

Anti-Dismal: The Great Recession of 2008-9

Anti-Dismal: The Great Recession of 2008-9 You will find updates on The Great Recession Conspiracy there and you can vent all you wish. You can find the book at It is also a Kindle book.

Enjoy. It is a short read.

James W. Taylor

Friday, July 24, 2009

Health Care in the USA

Today, $18 out of every $100 of our Gross National Product (the pie we all have to share) is spent on health care, and it is headed for $30 in five years, if current trends continue. Those dollars crowd out investments in education, highways, defense and other important uses because the size of the "slice" is growing faster than the "pie".

This might be defensible if we were getting good value for this money, but the truth is that our health is not as good as most other developed countries on almost every measurement.

The President has made controlling health care expenditures the hall mark of his administration, and he made a quite good speech about it the other day. But he ducked the real issue.

We can make some improvements in making medical records more widely and easily available and that can reduce some costs. Since a stunning 30% of all Americans are clinically obese, there are some significant cost reductions associated with achieving a healthier life style.

But the only real source of cost control is the R word, rationing. Estimates vary depending on assumptions, but 80% or 50% of all health care dollars are spent on the last two months or two years, of life. So there is no question that the real source of cost containment lies in some very, very difficult questions and their answers.

Fortunately, the subject is being gingerly introduced for public discussion. On July 20, 2009, the Los Angeles Times ran an editorial entitled, "The reality of rationing". A couple of weeks ago, the President raised the topic in a meeting with doctors and other health care professionals. He used a personal example to make the point. His grandmother was diagnosed with terminal cancer and given nine months to live. Some months later, she fell and broke her hip. Should she have received an artificial hip, with its months of recovery time, at government expense?

The more you think about that little story, the more you realize just how difficult making such decisions will be. But before you get to discouraged, remember that insurance companies have been making exactly these decisions for a long time now, but they have been making them out of sight.

Thursday, July 23, 2009

Good News, Bad News; You decide

Goldman Sachs has set aside $11.4 Billion for employee bonuses in the first six months of this year. Note that the bonuses are on top of already handsome salaries. At this rate, all of Goldman Sachs 30,000 employees are on track to receive 2009 annual bonuses of about $773,000. That is double last year's number and exceeds the 2007 bonuses of $700,000.

The reason that Goldman Sachs can pay these bonuses is that you lent them a lot of money last year. However, Goldman Sachs has now paid that money back and the U.S. Treasury seems to have made a profit $318 Million on that loan.

You do the math. And remember that everyone of those 30,000 employees will pay exactly $6,621.60 into the Social Security account.

So who gets the last laugh here?

Wednesday, July 22, 2009

Loan Modification Programs

Yesterday, the Federal Reserve Bank of Boston released a very interesting report on how the government's Home Affordable Modification is working. The program offers lenders $1,000 for each mortgage they modify, and another $1,000 for each modified mortgage still performing after three years. The modified loan must not exceed 31% of the home owner's income.

Over 1 million homes have faced new foreclosure proceedings in the past four months, but only 350,000 borrowers have even been offered modified loans.

Here is why the Bank says the program is not working very well. First thing is that roughly 30% of the borrowers will eventually pay off their mortgages anyway, but nobody knows which loans fall in that 30% so banks are reluctant to offer modifications to anyone.

The second thing is some borrowers default on modified loans later and the declining house values make later foreclosures even more expensive for the bank. However, the Fed doesn't mention that the majority of the modified loans have higher monthly payments than before because the banks have loaded the loans with fees, late payment fines, etc. etc.

So another pie in the sky government program crashes when it comes face to face with the real world. But then the people who devise these programs are millionaires and they have no concept of meeting monthly bills and mortgage payments. What did you expect?

More really bad news. Neil Barofsky is the special inspector general for TARP (remember he called for an accounting of how the TARP money was spent and got slapped down by the Treasury Department) and I think one of the few people involved with economics in this government that you can trust.

Anyway, he released a report yesterday that says the commitments made by the U.S. government in all its various bailout programs could cost as much as $23.7 Trillion!!
(For perspective, the total U.S. government debt today is about $10 Trillion.) The Treasury Department immediately went ballistic trying to discredit him.

Yesterday, Bill O'Reilly, the buffoon of Fox News, said that he thinks the U.S. is headed for bankruptcy. When Bill O'Reilly and I agree on something, you should be afraid, very afraid!

Tuesday, July 21, 2009

How Much Power Can One Person Have?

One sole human being decided that there was no systemic risk-the world financial system would collapse-if Lehman Brothers went bankrupt. However, he then decided that such a risk existed if Goldman Sachs were allowed to fail. The most momentous economic decision of this century was basically made by a single, unelected bureaucrat!

There is no evidence that I can find that indicates any consideration was given to the idea that the market-and the country-had the capacity to heal itself (as it is doing now) without the staggering sum of bailout money Hank Paulson removed from the public purse (for the benefit of Paulson's former firm, Goldman Sachs).

Think about it. It is your money!

Monday, July 20, 2009

The U.S. Treasury Follies Continue

The Special Inspector General Neil Barofsky wants the Treasury Department to publish regular, detailed reports on how the banks that got your dollars used that money. Remember, after the first objective for TARP funds-buying "toxic" mortgages failed-the TARP was re-tooled to increase lending by banks. It is now nine months into this boondoggle and lending by those banks has actually DECREASED!

But here is today's beauty story. The U.S. Treasury Department flatly refuses to report on how the money was actually used!! Their reason is that money is fungible, which means one dollar looks pretty much like any other dollar. As of today, the score is Stupidity 100 and Transparency 0!

You also receive and spend fungible money, but you have no trouble knowing how much you spent for food, gas, taxes, etc., etc. Sure, you can do what the U.S. Treasury Department cannot do. Amazing!

Is it just possible that the Treasury Department simply does not want you to know how much of your money went directly to Goldman Sachs to fund their record breaking profits and incredible bonuses? Naw..........what government would allow that to happen?

Saturday, July 18, 2009

Larry Summers Lies Again

On Friday, Larry Summers spoke to the Peterson Institute for International Economics, a Washington think tank. He said the government's $787 Billion stimulus plan was on track and doing just fine. Which is the best evidence that I can think of to prove that Summers either has no idea what is actually happening, or does not care as long as Goldman Sachs continues to get rich.

There are two outstanding characteristics of the Business Cycle when a Contraction begins. The first is rising job losses and the one that closely follows is tightening credit. Both of those characteristics are running rampant in the economy today and nothing the government has done to date shows any sign of changing that fact.

The jobless rate is currently 9.5% and shows every indication of continuing to go up. The core business of banking-lending money-is in the tank as defaults on existing loans continue to rise and banks respond by tightening loan standards.

But wait, it gets worse. Summers also said the obscene profits recorded by the major banks this year (profits that were made possible by tax payers money), "...were a positive sign for the economy".

Now, by all accounts, Summers is a very bright guy so he has to know he is lying and trying to put a good face on the enormous amount of your money that has been transferred to Goldman Sachs.

The U.S. Treasury Department is out of control and being run by Goldman Sachs. That is not in your best interests. Be afraid, very afraid!

Friday, July 17, 2009

The Question of the Day!!

Congress is now looking at what has happened in the past nine months and it apparently does not much like what it sees. Yesterday, Congress was interviewing Hank Paulson and Congressman Stephen Lynch asked Ol Hank this question; "If you had to come up here with Mr. Bernanke and said, 'I've got a plan to take $700 billion in taxpayer money. I want to give it to my pals in the nine biggest banks in America', how many votes do you think you would have got up here?"

Apparently Mr. Lynch has begun to figure out what happened, and that is a good thing.

However, the really important issue is somewhat different. Ken Lewis, president of Bank of America, has testified that Hank said that if B of A backed out of rescuing Merrill Lynch after Lewis discovered how deeply in debt Merrill Lynch was actually, he would get Lewis, his top management and all of the board of directors fired. If the government can fire the entire management of a perfectly legal, profitable American company, what comes next?

If you want a cogent examination of this issue, you can find it in our book, The Great Recession Conspiracy. The book is published online at It is also available as a Kindle book.

Thursday, July 16, 2009

U. S. Homes in Foreclosure

Right now, today, there 1.5 million U.S. homes in foreclosure. That means a big bump up in homeless families is coming.

Is there anybody who still thinks the government's policies for dealing with this Contraction (Recession) are working??

Wednesday, July 15, 2009

The Really Great Recession Conspiracy

15 Million people unemployed today.
500,000 bankruptcies so far this year.
33 bank failures so far this year.

But Goldman Sachs has record profits for the second quarter of this year; $3.44 Billion, a record in the company's history. Goldman Sachs is on track to pay each of its 30,000 employees annual bonuses of $770,000!!

This is the SAME Goldman Sachs that last year led the line to get money from the U.S. Treasury. The SAME Goldman Sachs that received the most money from the AIG bailout.

The traders at Goldman Sachs are doing exactly the same things that caused the recession in the first place. Why isn't the U.S. government screaming its head off? Because Goldman Sachs own the U.S. Treasury and Obama's economic advisors. Even Dick Durbin, the senor senator from Illinois says that is true.

You can read the awful story at It is also available as a Kindle book. Wall Street bankers are on track to bankupt the United States of American, and nobody seems much interested in doing any thing about it!!

Tuesday, July 14, 2009

Jeeezzzzz........ Will it never end??

Today, the government's Mr. Outside in running GM, Steve Rattner, was forced to resign due to an ongoing investigation by the New York State Attorney General into his role in bribing a pension fund with $122 Billion to give management of their funds to selected companies.

His replacement is another former Wall Street banker named Ron Bloom. Although Bloom has no experience running a manufacturing company, he is already full of promises about how he is going to run things at GM.

This is a perfect example of two really scaring trends we discussed in our book, The Great Recession Conspiracy. One is the steady stream of Wall Street bankers through the Treasury Department, and the other is the rapidly growing incursion of the U.S. government into running the private sector.

Are France yet??

Monday, July 13, 2009

The Absolute Wrong Priorities

Yesterday, CNN released a current summary of how the government is spending your money.

The largest amount, 220.9 Billion were spent on stimulating the economy, but since there is no transparency or accountability, it is impossible to evaluate this expenditure. However, the rest of expenditures are easier to understand.

GM & Chrysler bail out $93 Billion
Prevent foreclosures $37.7 Billion
Bail out other companies $17.7 Billion
Credit easing $ 8 Billion
Extending unemployment $ 8 Billion

It is hard to imagine a more perverse order of priorities. While there is no way we can evaluate absolute expenditure levels without the better information (which the government continues to fail to provide), we certainly know what the rank order should be.

#1) Extending unemployment insurance and extending medical care policies
#2) Credit easing to make the reduction in the housing inventory easier
#3) Preventing foreclosures is a very good idea, but the numbers of dollars don't come close to matching the number of foreclosures taking place.

But the $110.7 Billion spent bailing out companies is a complete waste. Notice that the $110 Billion that is wasted, is twice the amount spent where it should be spent.

The government's economic team has no idea whatsoever about how to deal with this contraction in the economy (except, of course, to enrich Goldman Sachs).

Sunday, July 12, 2009

LA Times "President Urges Public Patience on Recovery

On July 11, 2009, President Obama said, "As a result of the swift and aggressive action we took in the first few months of this year, we've been able to pull our financial system and our economy back from the brink". That's crap!! The only substantial thing this administration has accomplished is to finish the task begun by the Bush administration, and that is to transfer obscene amounts (Billions) of our money to a few Wall Street banks. Almost nothing has reached places or people where it could really do some good.

He now says that his plan was intended to work not in a few months, but over two years. This is absolute evidence that his administration has no idea what they are doing!!

The first sign of a contracting economy (a recession) is job losses. Accordingly, the first government actions should be to deal with this fact. That begins with enemployment insurance and extended medical insurance. The government has made some minor efforts in this direction.

The second task should be to create jobs for those who have become recently unemployed. We have a huge infrastructure repair job that could produce millions of useful jobs immediately, but for all practical purposes, the government has ignored this task. first, they have dedicated too little money to the purpose and second, they have given it to state governors to allocate. That made the use of the money immediately political. They should have given the money to mayors who know what their cities need and know how to get it done fast.

While job losses are tragic from the perspective of the newly unemployed, it is monumentally tragic for the whole economy. With 14.5 million people unemployed now, that means that 580 man/woman hours of valuable work are lost to the economy every WEEK!

There is nothing wrong with creating green jobs, or improving mass transit, or digitizing medical records, or finding alternitive energy sources, or any of the admirable projects that the Presidentis touting. What is dreadfully wrong is confusing the need for those long term projects with the immediate need to put people back to work. This government is frightening in its lackof understanding of basic human and economic behavior. What is equally frightening is all of the economic advisors with direct connections to Goldman Sachs!

Saturday, July 11, 2009

The Overwhelming Failure of Economists

Robert Samuelson writes in the Washington Post as follows;

"One intriguing subplot of the economic crisis is the failure of most economists to predict it. Here we have the most spectacular economic and financial crisis in decades--possibly since the Great Depression--and the one group that spends most of its waking hours analyzing the economy basically missed it."

And the basic explanation is that the economics profession has been hijacked by theoretical mathematical economists who have no understanding of history or human behavior David Zetland and I explain what really happened to the economy in our new book, The Great Recession Conspiracy. We explain in simple terms how history and psychology explain everything.

Impossible to Get Mortgages

Today's New York Times reports on a dentist with a six figure income, a good credit score, and a hefty down payment. Since she only recently graduated from dental school, she can't supply two years worth of tax returns, so she can't get a mortgage.

In Dover, NH, a real estate investor who owns a gas station tried to buy a $301,000 house for his family with 10% down. He can't get a loan because he is self employed.

The Home Affordable Refinance Program was designed to help non-delinquent borrowers refinance mortgages held by Fannie Mae or Freddie Mac, and it was supposed to benefit 4 to 5 million families. To date, only 13,000 refinancing have taken place.

This is what happens when you try and run the entire economy and country from Washington.

The arrogance, and ignorance, in Washington continues to be amazing!!

Friday, July 10, 2009

Spending the Stimulus Money

Two thirds of all Americans live in metropolitan areas, and they live with traffic jams, pot holed roads and unsafe bridges. Nevertheless, the New York Times reports that the 100 largest metro areas have received less than half of the stimulus money awarded to date. The reason is simple. Congress gave STATE GOVERNMENTS the right to allocate how the money is spent and state governments are notorious for favoring rural constituencies over metropolitan voters.

In our book, The Great Recession Conspiracy, we described how to get the fastest results from the stimulus money, and that is to give it to MAYORS! Every mayor knows what is needed in his/her city, knows how to spend the money to get the best, fastest results. And they are on record that they would be happy to provide detailed accounts of how they spent the money.

But it seems it is politics as usual in Washington and that means your money is getting wasted and there is precious little to show for it!

Talk about reducing our dependence on foreign oil? The Texas Transportation Institute estimates that we wasted 2.8 Billion gallons of gas waiting in traffic jams last year.

Politics as usual and Change You Can Believe In is fast disappearing.

Thursday, July 9, 2009

One of the absolutely frustrating things that comes out of Washington policies is the realization that the pampered millionaires who advise Obama on financial policies have absolutely no knowledge of how real Americans live. The cash for clunkers law is today's perfect example.

Here is the basic deal; from August 1, 2009 until November 1, 2009 the U.S. government will pay auto dealers $3,500 to $4,500 to buy cars that get less than 18mph in an effort to remove cars that get less than 18mph from the road.

Here is real life where us non-millionaires live:

1) The majority of cars on the road that get less than 18mph are Hummers, Cadillac Escalades, Land Rovers, and the like. You cannot touch one of them, even an old one for $3,500 so the law is useless in accomplishing its major objective.

2) According to, for $3,500 you can buy a 1994 Chevrolet Astro Van, or a 1988 Ford Bronco. For people who drive cars like these, the $3,500 is effectivley a down payment on a more expensive car which, undoubtedly, will be financed. Encouraging people with very limited economic resources to take on more debt right now is stupid beyond comprehension.

3) For a program scheduled to last three months, Congress has funded enough money to buy 250,000 cars. To put that in perspective, 250,000 cars is about one week's sales in this really depressed market.

4) Most cars on the road today get better than 18mph so none of them qualify.

So the net result of this completely unrealistic law is to waste taxpayer's money (that's you) without doing anything serious to reduce our dependence on imported oil.

With apoligies to Kurt Vonnegut, "So it goes".

Wednesday, July 8, 2009

The Congressional Budget Office (CBO), a reliable non-partisan government office today forecast that the Federal Debt will reach $12 Trillion by September 2009 and $13 Trillion by September 2010. That means that each and every U.S. citizen owes (somebody has to pay) about $200,000. No point in shrugging your shoulders and expecting someone else to pay your share. Ain't gonna happen!

This has many, many hidden costs. For example, just paying the interest on the Federal debt costs us $565 Billion dollars! Think about how many schools that could build, or how many good teachers in could train, or how many really smart kids could get scholarships. If education is not your interest, think about how many decrepit portions of the U.S. highway system could be repaired with that money, or how many bridges could be retrofitted to keep from killing you one day as one of them did in Minneapolis not long ago.

The big problem is that this government is simply not addressing the real problems in the economy. In "The Great Recession Conspiracy", we explain why the government is wrong footed in its economic policies and what should be done. You can read it for yourself at or on a Kindle book reader. Read it and then tell us what you think.

Tuesday, July 7, 2009

In our new book, "The Great Recession Conspiracy" (available at, David Zetland and I warned that the U.S. Government has become an owner (and manager) of a wide variety of private organizations, i.e., General Motors, AIG, Chrysler, Citibank, Freddie and Fannie, and a clutch of other banks. We also pointed out that the government has a proven track record of being a lousy manager primarily because there is endless political interference.

This rapid spread of government control over private enterprise is happening with breath taking speed. Here is a current example. Lots of companies lend money to their customers to allow them to buy the company's products. General Electric and Wal-Mart good examples of companies who have such a finance function. Now the government wants to re-classify these companies as banks, and to extend government regulation, and over-sight, of their operations. GE and Wal-Mart are two of the world's best managed companies and neither one of them had anything to do with the looting of the U.S. Treasury. That was the work of a small group of Wall Street bankers and you can read the details in"The Great Recession Conspiracy".

How long to you think GE and Wal-Mart will remain well managed companies if politicians and beaucrats start calling the shots from Washington? Just one example; what if Congress starts deciding where Wal-Mart can buy their products, or where GE can locate manufacturing plants? Are we France yet?

And if you think that is bad enough, the government would also be managing, among many others, Harley Davidson since they also lend their customers money to buy their HOGS. Can you imagine Congress designing Harleys? Good Grief!!

Monday, July 6, 2009

There are an increasing number of columnists exploring the ideas we raised in" The Great Recession Conspiracy". Robert Samuelson wrote a piece in today's (July 5, 2009) Washington Post entitled "Economists Out To Lunch". Yesterday's New York Times carried a piece by Frank Rich entitled "Bernie Madoff Is No John Dillinger", and Matt Taibbi wrote a long piece in Rolling Stone which he called "The Great American Bubble Machine".

More and more people are beginning to understand that just a few Wall Street bankers are running the U.S. Treasury Department, and that they are not running it for your benefit!