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Monday, May 31, 2010

The Savings Paradox

One of the few things in economic theory that really make sense is The Savings Paradox. We discuss it in detail in our book, The Great Recession Conspiracy, which is available at, which is also available as a Kindle book, at Google Books, lulu, ebookmall and Barnes and Noble.

Here is the basic problem set forth in the Paradox. When the Business Cycle is in the Contraction Phase, it is advantageous to the whole economy for consumers to spend money to begin the move to the Expansion Phase. But, in the Contraction Phase, it is advantageous for individuals and households to save as much as possible as a cushion against an unknown future. As we say in the book, If you didn't need it yesterday, you don't need it today.

During the last Expansion Phase, U.S. household savings rate fell drastically. In some quarters, the U.S. savings rate was negative, meaning we were borrowing more than our income.

But when the Great Recession began (the current Contraction Phase) in 2007-08, U.S. households lost an estimated $15 TRILLION in wealth (housing prices, investments, savings). So U.S. households shifted gears and are now saving and paying down debt, sensible actions for individuals, but not so good for the total economy.

And this changed behavior is real. In March, 2010, late payments on credit cards fell to an all time low. The actual savings rate is now 3.6%, not great by world standards, but a significant improvement over the recent past. In addition, outstanding credit card debt has fallen over $100 BILLION in the last year. American Express says more customers are making more than the minimum payment, and paying down their balances faster.

But all that money is not going into driving the economy forward. When you add the Savings Paradox to the 30 Million unemployed/underemployed Americans, you can understand that it is unlikely that there will be a surge in household spending in the near future.

All this makes it so much more important that the government follow the Jobs Program we outline in The Great Recession Conspiracy. Sorry to say, as long as Larry Summers sits at Obama's right hand, that ain't likely to happen.

So the best advice for now is CASH, CASH, CASH, and no/little debt.

Sunday, May 30, 2010

Pay attention here. It is your money.

Read this from the Sunday NY Times and then read the terrific book, The Big Short, that Michael Lewis wrote.

Shorting Reform

To: Wall Street chief executives

From: Your man in Washington

Re: Embracing the status quo

Our earnings are robust, our compensation has returned to its naturally high levels and, as a result, we have very nearly regained our grip on the imaginations of the most ambitious students at the finest universities — and from that single fact many desirable outcomes follow.

Thus, we have almost fully recovered from what we have agreed to call The Great Misfortune. In the next few weeks, however, ill-informed senators will meet with ill-paid representatives to reconcile their ill-conceived financial reform bills. This process cannot and should not be stopped. The American people require at least the illusion of change. But it can be rendered harmless to our interests.

To this point, we have succeeded in keeping the public focused on the single issue that will have very little effect on how we do business: the quest to prevent taxpayer money from ever again being used to (as they put it) “bail out Wall Street.”

As we know, we never needed their money in the first place, and by the time we need it again, we’ll be long gone. If we can keep the public, and its putative representatives, fixated on the question of whether their bill does, or does not, ensure there will be no more bailouts, we may entirely avoid a discussion of our relationship to the broader society.

Working together as a team we have already suppressed debate on many dangerous ideas: that those of us deemed too big to fail are too big and should be broken up, for instance, or that credit default swaps and collateralized debt obligations and other financial inventions should simply be banned. We are now at leisure to address the few remaining threats to our way of life. To wit:

1. Washington will attempt to limit our ability to exploit the idiocy of institutional investors a k a our “customers.” The Senate appears intent on forcing our most lucrative derivatives business onto open exchanges, where investors can, for the first time, observe the prices we give them. This measure — which I’ve come to call the “Making the World Safe for Germans With Money Act” — will prove difficult to defeat. Our public strategy here, as elsewhere, must be to complicate the issue.

To the mere mention of open, public exchanges for derivatives, you should always respond, “That will destroy liquidity in these fragile and complex markets.” Most people don’t even know what “liquidity” means, or what causes it or why they actually need to have more rather than less of it — or what, even, the point is of a market that requires privacy to operate. They will assume that you must understand it better than they do. For that reason alone it is useful.

The other point you should make to our elected officials (privately, please) is that our profits function as a fixed point in an uncertain universe. If they curtail our ability to shaft German investors in one way, we will simply find some other way to do it.

Shockingly, the Senate version of the bill more or less would require us to cease to trade derivatives entirely. This unpleasant idea was introduced by Senator Blanche Lincoln of Arkansas, and it leads me to a point that is worth underscoring: We do not have a problem with the American people, we have a problem with American women. Elizabeth Warren, our TARP supervisor, continues to ask questions about what we did with our government money; Mary Schapiro has used her authority at the S.E.C. to sue Goldman Sachs. Of the four Republican senators who crossed over to vote with the Democrats, two were women — and one of the guys posed naked for Cosmopolitan magazine.

Going forward, we should discourage women from seeking higher office — or indeed, any position in which they might exert influence over our activities. More immediately, in your private conversations with Larry Summers, Tim Geithner and male Republican senators, you should simply refer to Blanche Lincoln as “unhinged.” They’ll get it.

2. Our slow cousins at Moody’s and Standard & Poor’s are likely to suffer a blow to their already lowly status. They are virtually certain to be stripped of their designation as Nationally Recognized Statistical Ratings Organizations. Whatever that means, it presents no threat to our way of life. Just the reverse: the more miserable it is to work at Moody’s, the less capable (and more manipulable) Moody’s employees will be.

The lone remaining risk to the status quo is the Franken amendment — introduced by Senator Al Franken of Minnesota — which would prevent us from personally selecting the ratings agencies that offer opinions on our offerings. It creates a board inside the Securities and Exchange Commission to assign ratings agencies, thereby removing the direct incentive the raters have to please us. (Of course, it preserves their indirect incentive: that is, that we might one day offer them jobs.)

The Franken amendment thus gums up what has been heretofore a very cleanly rigged system. In addition to encouraging public references to Stuart Smalley and Mr. Franken’s other theatrical embarrassments, we should remind our friends on Capitol Hill and in the press that “the Franken amendment will give the federal government the same control over finance it has seized in health care.”

3. There is a slight, but real, risk that public opinion will yank us in some unexpected direction. Over the past few months, a curious pattern has emerged: the more open the debate, the more radical the outcome.

In private, reasonable discussions we were able to persuade our friends in the Senate to prevent votes on amendments hostile to our interests — the worst of which, I might add, was dreamed up by yet another female senator. But the minute a vote was held, and senators sensed the cameras watching, even our friends abandoned us to the mob. All of these people are continually engaged in the same mental calculation: are the votes I might gain with this remark or this idea or this position greater than the votes I can buy with the money given to me by Wall Street firms? With each uptick in the level of public scrutiny — with every minute of televised debate — our money means less.

In the short term, we must do whatever we can to dissuade Representative Barney Frank from allowing any part of these discussions between senators and representatives to be televised. In the longer term we must return to the shadows. Do your work in private; allow your money to speak for you; and remember, the only way we’ll get the financial reform we need is if we pay for it. No one else can afford it.

Michael Lewis, a contributing editor at Vanity Fair, is the author, most recently, of “The Big Short.”

Thursday, May 27, 2010

Another Example of a Half Truth

The following piece appeared as an opinion piece in today's Washington Post. The writer understands that business is an actual force for good in the economy. He points out that businesses can innovate in ways government cannot. He uses an example of walk-in clinics which are a good example. But then he uses online schools like the University of Phoenix as an example of bringing innovation to education. In my experience, online colleges are simply a way to transfer money from the U.S. Treasury to private individuals. Something like 90% of Phoenix's income is directly from student loans of government funds. The only innovation here is a new way to loot the Treasury.

Let me tell you one example. I once worked for an online university (one of six I was involved with before I understood what they were really doing) called American International University. At the end of a term, I was told that I had a student in the class who was a single mother, in Boston I think. She never turned in an assignment, she never participated in an online project, she never participated in online discussions, and she never took an exam in the entire period. Accordingly, I gave her an F, along with suggestions about how to do better next time. My boss at AIU demanded that I give her an A because they wouldn't get paid by the government otherwise. I told him that was not my problem, but I got fired so I guess it was my problem.

And by the way, about Phoenix. I got fired there because a retired Marine gunnery sergeant, a high school graduate, told me I didn't know how to write. That was after sixty, or more, published books and articles. I guess he knew something that neither my editors or I knew. I loved the way that all the managers at Phoenix, that I saw, drove new, top of the line Mercedes.

Business can be a force for good

By Matt Miller
Thursday, May 27, 2010;

With oil gushing in the Gulf of Mexico and Wall Street fighting new rules after helping wreck the economy, it may seem an odd moment to make the case for business's contribution to society. But we shouldn't throw the baby out with the oil-drenched bathwater.

That's because the radical inefficiency of our education and health-care sectors are also atop the news this week -- something that only entrepreneurial business innovation can fix.

Consider how crazy our approach to schooling must seem to saner nations. The United States already has a shorter school year than most rising powers. Yet schools across the country are shutting down a week early to save money amid budget crises; many districts plan even shorter school years next year. All this while America spends more on education as a share of gross domestic product than most advanced nations, with mediocre results.

How can it be that the rich country that spends more finds itself shrinking children's time on task, when we're already shortchanging learning time compared with what world-class school systems offer? The only possible answer is inefficiency. We're simply not spending our money wisely.

Or take health care. News came this week that private-sector pay shrank to its lowest percentage ever of overall personal income, largely because soaring health costs have been diverting more and more of workers' "compensation" into health benefits. We're spending 17 percent of GDP on health care while other advanced nations spend 10 to 11 percent. Yet we have no better public health outcomes, and 50 million of our neighbors have no coverage at all.

How can the richer United States spend nearly twice as much per person on health care without better outcomes and with so many left in the cold? Again, the only possible answer is epic, mind-bending inefficiency. We're simply not spending our money wisely.

Yet here's the problem. Every dollar of health care or education "waste" is somebody's dollar of income. This iron law of politics makes real reform a nightmare to navigate. It's why Obamacare will focus on expanding coverage before controlling costs. It's why we throw more Pell grants or debt at students struggling to pay soaring college bills even though this only gives colleges license to ratchet up prices ever higher.

Politicians who want to stay in office can't defy this dynamic. Entrepreneurs, given the chance to ply their talents, can. And liberals -- paradoxically, the group that tends to bash business the most -- have the greatest stake in these entrepreneurs' success.

Here's why. Making our health-care and education sectors run smarter and better will become a national imperative in the era of permanent fiscal pressure ahead, an effort with special stakes for those who believe in using government for affirmative purposes. Even if taxes are inevitably going up as the baby boomers retire, there will be limits to how high voters will let taxes rise. That means the vast waste in our health-care and education systems will soon take a huge bite out of other liberal priorities.

Put simply, every dollar that goes to Medicare that isn't needed for quality health care is a dollar we can't spend on a poor child. That's what the tradeoffs will look like before long. And whether the left likes it or not, business is the one social force that can help solve this dilemma through efficiency-boosting innovations that deliver more for less.

I'm not talking about the far right's pure privatization agenda, which aims to privatize profit in these sectors while socializing risk. I'm talking about innovations like Minute Clinics, which runs 500 low-cost retail health-care clinics staffed by nurse practitioners. Or online degree-granting firms like the University of Phoenix, which are challenging the traditional, bloated model of higher education with computer-based offerings tailored to adult students hungry for professional advancement.

These and countless related innovations are fiercely resisted by the medical industrial complex, or the education "blob." To these incumbents, re-engineering costs to deliver more for less is a mortal threat. The task for farsighted political leaders is to make the world safe for such innovations in spite of this resistance. And to help citizens remember that BP and Goldman Sachs aren't the only faces of modern business.

"Efficiency" and "innovation" aren't usually associated with loftier concepts like "opportunity," "justice" and "security" -- but at this point in American economic history, they're the only way to pay for them. So keep a corner of your mind focused on the indispensable social contributions of entrepreneurs even as we rein in the excesses of some big businesses gone bad.

Matt Miller, a senior fellow at the Center for American Progress and co-host of public radio's "Left, Right & Center," writes a weekly column for The Post. He can be reached at

We have An Incredibly Dysfunctional Government

Here is the basic problem. We have something like 30 million people without jobs, or working short hours, or have given up looking. That is about one in five employed Americans.

The only growth in our economy has come from businesses restocking shelves (a one time bump), extremely wealthy people buying jewelery and yachts (a one time bump), and people who have stopped paying on their mortgages (a short term bump).

Seventy percent (70%) of our economy comes from consumer spending (20% from government spending and 10% from business spending). Most consumer are cutting back on their spending for a variety of reasons, i.e., rebuilding savings, providing protection from lost jobs, etc.

Small businesses have generated something like 70% of all new jobs over the past decades.

But small businesses are not hiring because their order books are down and they are cutting expenses, not hiring new employees.

O.K., that is the basic problem. Now here is what our dysfunctional government has done about the problem.

For every new employee a small business hired who had been unemployed for six months, or more, they could get a tax holiday on their social security contribution for the rest of the year.

Two huge problems with that lousy idea. One; no small business ever hired an additional employee to get a tax break. Two; to get the tax break, the business had to prove the new employee had been unemployed for six months or more, e.g. more paper work, exactly the thing that small business hate because it directs employees away from profit making work.

Now comes the lousy health care bill. In California, the major insurers are raising rates 12% to 23% for businesses with fifty (50) or fewer employees. The result is that small businesses are firing people to reduce costs, or giving up company paid health insurance for their employees.

If this is not dysfunctional, then I do not know what the word means!!

As far as I can tell, we have the enormously arrogant Larry Summers for this stupidity. Yet it seems that Obama really trusts Larry because he thinks Larry is really smart. What do you think?

Wednesday, May 26, 2010

An Interesting Piece of Distortion

Here is a good example of a half a truth. Yes, we have a huge government and too much of it is ineffective, or even counter-productive (See the Gulf of Mexico for today's example). The real problem is that we have the best government money can buy and that is why the entire IRS code is simply a collection of special interest favors. When the AEI guy who wrote the following piece talks about re-distributing income, he fails to mention that just 10% of all Americans receive 90% of all the income. Nor does he mention that since roughly 2000, middle class Americans have suffered falling incomes while the richie riches have gained all out of proportion. So read the following Washington Post editorial with a critical mind. It is an interesting piece of distortion.

Just compare the protests in America with those in Europe. Here, we see tea partiers demonstrating against the government's encroachment on the free enterprise system and protesting the fact that the state is spending too much money bailing out too many people. Why are people protesting in Greece? Because they want the government to give them even more. They are angry because their government -- in the face of its worst economic and perhaps existential crisis in decades -- won't pay the lavish pensions to which they feel entitled. There's no better example of the cultural difference between America and Europe today, yet it is toward European-style social democracy that the 30 percent coalition wants to move us.
This Story

Fortunately, it is hard to dismiss the voice of the voters in some of our most recent electoral contests. Scott Brown won the late Ted Kennedy's Senate seat from Massachusetts in January by declaring himself not an apparatchik Republican but a moral enthusiast for markets. "What made America great?" he asked. "Free markets, free enterprise, manufacturing, job creation. That's how we're gonna do it, not by enlarging government." His cultural pitch for free enterprise hit just the right chord, even in liberal Massachusetts. It struck at the heart of the 30 percent coalition's agenda for America.

Brown's victory -- and Rand Paul's triumph in Kentucky's Republican Senate primary last week, for that matter -- are but warning shots in the burgeoning culture war. The most intense battles are still ahead.

To win, the 70 percent majority must come together around core principles: that the purpose of free enterprise is human flourishing, not materialism; that we stand for equality of opportunity, not equality of income; that we seek to stimulate true prosperity rather than simply treat poverty; and that we believe in principle over power.

This final idea is particularly challenging. In Washington, a lot of people think they know how to win. They say what is needed are telegenic candidates, dirty tricks and lots of campaign money. To them, thinking long-term means thinking all the way to 2012. In other words, they talk only of tactics, parties and power.

They are wrong. What matters most to Americans is the commitment to principle, not the exercise of power. The electorate did not repudiate free enterprise in 2008; it simply punished an unprincipled Republican Party.

But political turmoil can lead to renewal, and the challenges of this new culture war can help us mobilize and reassert our principles. The 2008 election was perhaps exactly what America needed. Today there is a very real threat that the 30 percent coalition may transform our great nation forever. I hope this threat will clear our thinking enough to bring forth leaders -- regardless of political party -- with our principles at heart and the ideas to match. If free enterprise triumphs over the quest for political power, America will be the stronger for it.

Arthur C. Brooks is the president of the American Enterprise Institute and the author of "The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America's Future." He will be online on Monday, May 24, at 11:00 a.m. EST to chat. Submit your questions before or during the discussion.

Harold Meyerson Gets It Half Right

Deficit hawks ignore the R-word

By Harold Meyerson
Wednesday, May 26, 2010; A17

Of all the gaps between elite and mass opinion in America today, perhaps the greatest is this: The elites don't really believe we're still in recession. Or maybe, they just don't care.

How else to explain the continual harping on the deficit by editorialists, centrist think tanks and the like when the nation is still enmeshed in the most serious economic downturn since the 1930s? How else to understand the growing opposition to the jobs bills Congress is set to vote on this week, particularly when nobody has identified any future engine of American economic growth save countercyclical public investment?

It's not that the American people aren't concerned about the deficit. But in poll after poll, they make clear that their No. 1 concern is jobs. Forty-seven percent of respondents to a Fox News poll this month, for instance, said they were concerned with the economy and jobs, while just 15 percent acknowledged concern over the deficit and spending. Eighty-one percent of respondents to a Pew Research Center poll from this month thought it "very important" for Congress to address the jobs situation -- more than for any other topic. "There is no significant difference across party lines," Pew reported.

Beneath these numbers lies broad public anxiety over job loss and downward mobility. A Gallup survey from April showed that 21 percent of Americans feared they would lose their jobs or be laid off in the next 12 months, and that the percentage of respondents who believed they would find a job as good as the one they would lose if laid off had declined from 70 percent in 2001 to 64 percent in 2007 to just 42 percent last month.

This anxiety accurately reflects both the long- and short-term downward trajectory of work in America. As the U.S. economy has moved from a substantially unionized manufacturing base to a non-union service-sector workforce, working-class incomes have stagnated or declined. In the current downturn, those new college graduates able to find jobs often fail to find ones commensurate with their education. Northeastern University economist Andrew Sum calculates that only 51 percent of college graduates under 25 work in jobs that require a college degree, the New York Times reported on Tuesday.

Of course, no one at any point on the political spectrum has a complete prescription for what ails the American economy. But we do know how to preserve and create enough jobs to keep a recession from becoming a depression and, more particularly, how to keep still-reeling state and local governments from deepening the downturn by laying off thousands more workers. We did just that last year: The Obama stimulus Congress passed last winter saved or created what most economists estimate to be roughly 2 million jobs. For that matter, every major nation enacted a Keynesian stimulus last year, preventing a return to the agony of the 1930s.

These are achievements that the more nuanced deficit hawks acknowledge. But consider what happens when the question is whether the medicine that worked in 2009 should be taken again, in the smaller doses, in 2010, as the legislation before Congress this week would have it. The official unemployment rate is 9.9 percent; there are still more than five unemployed job seekers for every opening; and a record percentage of the unemployed have been jobless for more than six months.

Yet the deficit hawks' rejoinder is essentially: So what? Government spending is out of control. We need to cut back now.

The problem with this ostensible solution is twofold. First, it conflates short-term deficits needed to stanch the recession with long-term issues of fiscal sustainability. Such thinking risks turning a short-term recession into long-term stagnation, much as Japan did in the 1990s by failing to stimulate its economy sufficiently. Second, it calculates the dollar cost of the stimulus but neglects to factor in the dollar benefit from, for instance, keeping hundreds of thousands of teachers, police and firefighters on the job and paying taxes rather than collecting unemployment insurance. Once such particulars are accounted for, a new study from the liberal Economic Policy Institute argues, the cost of the jobs created in the bill coming before the House this week is more than halved, from $75 billion to $35 billion.

Those who oppose the jobs bills in the House and Senate this week should be compelled to answer some questions, starting with: Absent more stimulus, what do they see as the plausible engine of economic recovery? What effect will laying off as many as 300,000 teachers have on the education of American children? And, more elementally, don't they know there's a recession on?

Tuesday, May 25, 2010

Katrina gets it right again!

A flawed strategy and a failed war in Afghanistan

By Katrina vanden Heuvel
Wednesday, May 26, 2010;

Speaking to graduating cadets at West Point on Saturday, President Obama noted the "ultimate sacrifice" of 78 of their predecessors who gave up their lives in Afghanistan and Iraq. But he did not mention that just days before, five U.S. soldiers were killed in Kabul, bringing the toll of American dead in Afghanistan to over 1,000.

As we pass this grim marker, the Obama administration's strategy in Afghanistan is foundering because it is fundamentally flawed. It lacks a clear, achievable mission, isn't in our national security interest and costs too much in treasure and lives.

The counterinsurgency strategy to win the hearts and minds of Afghans is failing -- a Pentagon report last month revealed that only 29 of 121 critical Afghan districts could be classified as "sympathetic to the government," compared with 48 "supportive of or sympathetic to" the Taliban. The number of Afghans who rated U.S. and NATO troops "good" or "very good" dropped from 38 percent in December to 29 percent in March -- perhaps as a result of the civilian casualties that are on the rise.

There is a sense of Taliban momentum -- even Gen. Stanley McChrystal recently declared, "Nobody is winning," and military officials are now minimizing expectations for the upcoming Kandahar offensive. The highly touted operation in Marja that began three months ago has failed to dislodge the Taliban.

The continued occupation of a fiercely independent and tribal Afghanistan -- as well as the death of tens of thousands of civilians -- engenders anti-Americanism and fuels terrorist recruitment. Military operations have also pushed violent jihadists across the border and further destabilized a nuclear-armed Pakistan -- a far greater threat to our national security than any tenuous al-Qaeda "safe haven" in Afghanistan.

Finally, focusing so many resources on Afghanistan -- where al-Qaeda is now minimally present -- diverts vital resources from other urgent security needs, including economic recovery at home. For the first time, the monthly cost of the war in Afghanistan exceeds what we spend in Iraq -- $6.7 billion per month, compared with $5.5 billion in Iraq. At the end of May, appropriations for both wars will reach over $1 trillion -- mostly borrowed money that we're not investing at home. Upcoming congressional hearings on veterans care will demonstrate the human costs. No wonder a majority of Americans -- 52 percent -- believe the war "is not worth its costs," according to a recent Washington Post poll.

A long-overdue alternative strategy begins with a responsible withdrawal of U.S. troops and support for a regional diplomatic solution, including talks with the Taliban, which Afghan President Hamid Karzai wants to pursue and America should support unconditionally. It also includes common-sense counterterrorism measures, intelligence sharing and targeted development and reconstruction assistance.

The president is instead asking for another $32 billion for the Afghanistan surge in a supplemental appropriation that is expected to be voted on in the Senate this week, with a House vote to follow.

But there are signs of a growing opposition. Reps. Jim McGovern (D-Mass.) and Walter Jones (R-N.C.) and Sen. Russ Feingold (D-Wis.) have introduced legislation demanding an exit strategy and a timetable for withdrawal, and Feingold announced that he will introduce an amendment to the supplemental based on that legislation.

The House bill has 91 co-sponsors. A strong showing in the House -- where the amendment would probably receive more than 130 votes -- will demonstrate to the president that there is increasing concern in Congress and throughout the country about the danger of an open-ended commitment in Afghanistan. Even though Obama said he will begin withdrawing troops in July 2011, that is a tentative date at best -- and perhaps just the beginning of the kind of very slow withdrawal we see now in Iraq.

Vietnam and Iraq both demonstrated how easy it is to get into war and how difficult it is to get out. We now see that dilemma in Afghanistan. Withdrawal will demand a huge political lift and may well lead to the question, "What were the last eight years of lost blood and treasure about?"

Confronting that question honestly is far less costly than continuing a flawed strategy and a failed war.

Katrina vanden Heuvel is editor and publisher of The Nation and writes a weekly column for The Post.

Can You Connect The Dots Here?

1) 40 Million Americans are now living on Food Stamps.

2) Almost 7 million Americans have been unemployed 27 weeks or longer.

3) 10.73% of all Prime, Fixed Rate Mortgages are now in default or foreclosure.

Here Is Why Our Economic Policy Is Garbage!

Summers needs to take Explaining Econ 101

By Dana Milbank
Tuesday, May 25, 2010; A02

Millions of Americans are out of work, the budget deficit is in the trillions and Europe is flirting with economic collapse.

Fear not, says Larry Summers, the chief economic adviser to President Obama. It is merely a "fluctuation."

Summers delivered this dismissive judgment during a speech Monday morning to the Johns Hopkins School of Advanced International Studies. In a Q&A session afterward, a man in the audience asked about the debt crisis in Europe -- and the former Treasury secretary and Harvard president answered in a most curious way.

"[M]y guess is that most of you, unless prompted, would not mention the move from a G-7 towards the G-20 as one of the most important things that happened last year," Summers said. "But I suspect that when historians look back at this time, after the precise details of this economic fluctuation have been forgotten, the establishment of a global forum that really does embody all the major economies in the world will be remembered as an important aspect of this moment."

It was vintage Summers: smart, esoteric -- and utterly unhelpful. Maybe he's correct, in an academic sense, that this era will come to be known not as a period of economic misery and human suffering but as the time when the Group of 20 large economies came to replace the Group of Seven (G-8, actually). Still, is that the message the White House wants to be putting out now?

The Summers speech, SAIS Dean Jessica Einhorn told the students in her introduction, was arranged on "short notice" and would be "a most timely presentation." This hinted at big news.

What he delivered instead was a lot of econo-speak that could only baffle Americans worried about finding or keeping a job. He spoke of "the multiplier process" and "a range of catalyzing investments." He invoked the "liquidity trap" and "tail risks." He alluded to the "width of the confidence interval" and the need to "achieve the sustainability criterion."

It was the language of the PhD thesis: "Conditions for fiscal policy to have an expansionary impact are especially likely to obtain . . . considerations militating in favor of sustainable budgets . . . the ultimate consequences of stimulus for indebtedness depend critically on the macroeconomic conditions."

Obama has a problem. There's building evidence that he's pursuing the right economic policy, but his administration isn't very good at explaining it. He needs urgently to convince Americans that recovery is at hand, but that message is losing to those on the other side who are screaming about socialism.

In part this is because Obama lacks a credible economic spokesman to deliver the message. Treasury Secretary Tim Geithner lacks gravitas in public appearances. Paul Volcker is 82 and only a part-time adviser. Christina Romer, head of the Council of Economic Advisers, is perceived to lack clout. CEA member Austan Goolsbee is a gifted spokesman but doesn't have one of the top jobs. Then there's Summers. He's radioactive because of his tenure at Harvard, where he clashed with women on the faculty. The clashes have continued at the White House, according to Jonathan Alter's new book, "The Promise." When Romer protested that Summers tried to cut her out of important meetings because of her sex, Summers reportedly yelled at her: "Don't you threaten me!"

"Don't you bully me!" Romer replied.

At SAIS, Summers took the stage 10 minutes late and slumped in a chair, his still-buttoned jacket bunching around his midriff, as the dean introduced him. He ventured seven minutes and 20 seconds into his speech before uttering the phrase, "I want to begin . . . " He evidently was trying to avoid being provocative, because he stuck to his bland text and was cautious handling several of the questions.

An economic bubble in China? "I'm going to be uncharacteristically reticent and not comment." Paying for future wars? "I'm going to leave national security policy to the president."

His speech showed signs that it was heavily vetted. It had so much on-the-one-hand/on-the-other-hand content that Summers even began with a mention of Harry Truman's desire for "a one-handed economist."

On the one hand, "I cannot agree with those who suggest that it somehow threatens the future to provide truly temporary, high-bang-for-the-buck jobs and growth measures," Summers said. "On the other hand, those who recognize the fiscal and growth benefits of strong expansionary policies must also recognize that it is simultaneously desirable to provide confidence that deficits will come down to sustainable levels."

On the one hand, "whenever global risk aversion has increased . . . we're seen as a source of strength," he said. "On the other hand, if there were ever a moment when that turned out not to be the case, that would probably be a moment when we had taken things much too far."

On the one hand, Summers is a brilliant economist. On the other hand, Obama clearly needs somebody else to sell his economic message.

Monday, May 24, 2010

You Think The Great Recession Is Over, Think Again

In April, 2010, banks seized 92,000 homes (an all time record), and another 7.4 Million borrowers have missed one, or more, payments, or are already in foreclosure.

And remember all that money we gave Wall Street banks to ease foreclosures? We gave JPMorganChase $25 billion to be exact.

Well, here is how it is being used at JPMorgan Chase. On April 1, 2010, they held 431,000 delinquent loans. But they have offered loan modifications to exactly 31,460.

You can't make up stuff like this.

Like Casey Stengel said, "It ain't over until it is over!" And The Great Recession ain't over, and don't let anyone tell you otherwise.

You Cannot Make This Stuff Up!!

We gave General Motors billions of dollars to keep them from closing plants and laying off workers. (Never mind that it was an incredibly stupid idea, we did it.)

In the first quarter of 2010, GM recorded $865 Million in profits.

How did they do it you ask?

They did it by closing plants and laying off workers!

You just can't make up stuff like this!!

Sunday, May 23, 2010

The AP Seems To Agree

New financial rules might not prevent next crisis

By DANIEL WAGNER and STEVENSON JACOBS, AP Business Writers Daniel Wagner And Stevenson Jacobs, Ap Business Writers – Sun May 23, 2:13 pm ET

WASHINGTON – The most sweeping changes to financial rules since the Great Depression might not prevent another crisis.

Experts say the financial regulatory bill approved by the Senate last week, and a similar bill that passed the House, include loopholes and gaps that weaken their impact. Many provisions depend on the effectiveness of regulatory agencies — the same agencies that failed to foresee the last crisis.

A big reason for the bill's limitations is that banks and industry groups lobbied against rules they felt would reduce their profit-making ability.

The financial sector's influence in Washington reflects its enormous donations and lobbying. Over the past two decades, it's given $2.3 billion to federal candidates. It's outdone every other industry in lobbying since 1998, having spent $3.8 billion.

Here's how the bills, which must be reconciled and approved by the full Congress, might address some causes of the financial crisis, and some of the bill's perceived weaknesses:

• Derivatives:

The problem:

Banks used these investments to make speculative bets that helped inflate the housing market. Once home values crashed, these derivatives — and related side bets — magnified the financial crisis.

The value of a derivative depends on the price of an underlying investment. Examples include corn futures, stock options and mortgages.

The solution: The legislation would, among other things, require that many derivatives be traded on exchanges, as stocks are, so they are visible to regulators.

Why it might not work:

Business groups led by the U.S. Chamber of Commerce and the Business Roundtable lobbied successfully to dilute the rules. They argued that exchange-trading would make it too costly for companies other than banks to use derivatives.

The bill exempts companies that use derivatives to reduce the risk of fluctuations in interest rates and commodity prices. Experts say this exception could be exploited. Companies could, for example, find ways to combine traditional business activities with purely financial investment through the use of derivatives.

• Weak regulation of banks and other financial firms:

The problem:

Before the crisis, some regulators failed to recognize risks taken by banks they were supposed to oversee. Some companies sidestepped oversight entirely.

The solution: The legislation would eliminate one regulator, the Office of Thrift Supervision, criticized for lax oversight. And it would tighten oversight of large financial institutions that could threaten the system.

Why it might not work:

Smaller banks could still choose their own regulator. These banks would likely seek out the most lenient oversight.

Key advocates for that loophole were the Independent Community Bankers of America and the American Bankers Association.

The Senate voted against capping how much banks can bet relative to their reserves. It left that up to the same regulators who failed to properly monitor banks' risk-taking before the crisis.

One reason the system of regulators escaped more drastic changes, lawmakers say, was that regulators lobbied to protect their agencies' authorities. For example, Federal Deposit Insurance Corp. Chairman Sheila Bair fought changes that could limit the FDIC's authority.

• Too-big-to-fail institutions:

The problem:

After bad bets on housing and other risky investments caused the collapse of Lehman Brothers, the government pumped billions into the largest banks to keep the system afloat.

The solution: The overhaul would let regulators close banks whose collapse could threaten the system.

Why it might not work:

The Senate bill lets regulators decide whether to protect the creditors of failed banks. Creditors might take a too-rosy view of a banks' finances if they feel they have nothing to lose in a failure. They might still lend to weak banks and raise the cost of eventually closing them down.

The bill does little to prevent big banks from getting bigger, meaning taxpayers might have to intervene again. A Democratic amendment to limit the size of banks was rejected amid opposition from banks such as Goldman Sachs.

• Consumer protection

The problem:

Risky lending to homeowners who couldn't pay helped inflate the housing bubble. Some of the worst offenders were nonbank lenders.

The solution: A new consumer protection watchdog would police banking products and ban those deemed too risky — no matter who offers them.

Why it might not work:

The consumer watchdog's authority would be confined to firms with at least $10 billion in assets. Thousands of community banks wouldn't be supervised by the agency. Nor would many nonbanks.

The Chamber of Commerce has led the push to limit the reach of the consumer agency. The payday lending industry and the National Automobile Dealers Association have joined the effort.

• Credit rating agencies

The problem:

Credit rating agencies gave safe ratings to high-risk mortgage investments that later imploded.

The solution: The Senate bill would end banks' ability to choose the agencies that rate their investments. An independent board, appointed by regulators, would choose the rating firms.

Why it might not work:

The big firms — Standard & Poor's, Moody's Corp. and Fitch Ratings — would still be paid by the banks whose products they rate. That means the ratings could be influenced by those banks.

Others have questioned whether regulators should choose which agencies rate which financial products. Regulators themselves missed warning signs leading to the crisis.


Jacobs reported from New York. Associated Press Writer Jim Drinkard contributed to this report.

We have the best Congress money can buy!

2.3 BILLION since 1998 the amount of money spent on candidates in election campaigns.

Money talks B.S. walks. Money has no bias it just goes to those who help the flow.

Saturday, May 22, 2010

Is There an Economist Anywhere Who Understands The Real World?

The May 15th issue of The Economist, on page 38, carries this story, "The Perils of Being Small". The gist of the story is that the Labor Department has just now discovered that small businesses are more likely to lay off employees than are medium sized or large businesses.

To explain that fact, the Treasury Department has an economist named Alan Krueger who has come up with, not one, but two explanations, one sillier than the other. One is that larger firms have higher fixed costs invested in training and the other is that larger firms can borrow money easier than small firms.

Neither one of those cockamamie theories have anything to do with running a small business and I have run a couple so I speak with some experience (in any case, a hellovalot more than Alan).

First of all, a small business is a very fragile thing to run. Your margin for error in almost every decision is about zero.

So here we have this small business with, say, ten employees. Sales drop and cash coming in drops. There is not a lot of cash in the bank so I have to do something pretty soon, or my expenses will exceed my income, otherwise known as bankruptcy.
So I can increase sales, but how do I do that? My customers are all hurting too.

Or I can reduce my expenses. Nothing I can do about rent most likely, or about taxes either. We have already reduced our cost of materials as much as we can without sacrificing quality. The one thing I can do is reduce payroll expenses. Note: The One Thing I Can Do. It has absolutely nothing to do with training expense as in Alan's theory. In fact, the one employee I will lose first is the one with LEAST training because he/she is the least valuable. And go to the bank and borrow money so I can keep him/her on the payroll in case things get better some day?
That is the last thing I will do! That idea is just plain nuts!!!

Here is a word of advice. Don't let Alan anywhere near your small business because he doesn't know Jack about reality.

And that summarizes the problem the U.S. faces today, none of the economists on the President's team knows Jack about the real world so they produce silly theories for the basis of government action. Did you notice that this whole problem started with my sales are down? If the government understood the real world they would be working on getting those sales to increase instead of producing crappy new income tax rules that simply create more paper work, the last thing in the world I need.

Here We Go Again!!

Sometime ago, this blog pointed out that the financial reform bill to come out of Congress would the the most important piece of legislation for the next fifty years. Well, it is now here and the outlook is not good at all. Here are the highlights.

Consumer Protection: There will be a new consumer protection agency created. First thing, it will not cover payday lenders with their outrageous interest rates. There are two important questions to be resolved. 1) Will it be independent or part of the Federal Reserve Bank. Given how diligent the Fed was in protecting us from the gamblers on Wall Street, putting the agency there is not a good idea. 2) Will automobile dealers be covered by the agency. Beginning by excluding special interests, e.g., payday lenders, is not a good idea. On the other hand, there doesn't seem to be any evidence that auto dealers are gouging customers. Since every member of Congress has car dealers in their constituency, maybe this is a good "trade-able" item.

Derivatives: Most of these instruments would be required to be traded on public exchanges. In addition, anyone using them would have to put up collateral to cover their bets. The problem here is that the term derivatives cover everything from Conagra buying soybean futures to Southwest Airlines buying jet fuel futures to the absurd Wall Street "innovations" like synthetic bonds. The questions unresolved here are 1)How widely would public trading be required, and 2)Who could sell derivatives? The appropriate answers are that coverage should be spread as widely as possible and nobody who sells them should be insured by the U.S. government.

To Big To Fail: This is the crucial heart of all financial reform, and results here are not clear. The bill seems to give the government the power to seize and dismantle large firms on the brink of bankruptcy. The FTC has been doing that job very effectively for over fifty years, but the Gramm et al, bill allowed investment banks to become commercial banks, which were covered by the FTC, but FTC action didn't happen. Instead, Hank Paulson put up a huge amount of your money to save Goldman Sachs. The only reasonable conclusion here is that Congress has completely ducked the Too Big To Fail problem, and that is NOT a good thing.

Financial Industry Oversight: This would create yet another government agency that is supposed to monitor the financial industry for levels of risk. This sounds like another government agency with no powers and no clearly defined agenda. Bad news here.

Executive Compensation: Stockholders would now have a non-binding say on executive compensation. Note "Non Binding" which translates into "useless". This is just junk law. If Congress simply reduced the ability of Wall Street banks to take huge gambles with your money so they can get huge bonuses, this would become a non-issue. Sorry to say, that is not happening here.

Now for the two HUGE problems the Congress refused to address. 1)Nothing deals with the rating agencies that rated garbage mortgages as AAA bonds. That was the problem that Hank Paulson encountered immediately when he tried to spend the TARP money. So the basic problem is that as long as the score keeper in this game can still be bribed or threatened, the game will always be crooked. 2)Paul Volker, the only wise man in Obama's economic advisors, wants to prohibit Wall Street banks from betting their own money, as opposed to their customer's money. Such betting is the primary source of those enormous profits, and bonuses, discussed above. Take away the game board and the bonus problem resolves itself.

It is a hackneyed example, but it fits perfectly here. What Congress has done is to re-arrange the deck chairs on a sinking ship. And the ship will sink sooner or later because all of the fundamental problems are still in place.

Friday, May 21, 2010

Here Is Your Chance To Be A Member Of Congress

Yesterday, I suggested that one solution to the deficit problem was to have members of Congress grow spines and deal with the problem. Here is the situation they would be facing. Congress can either raise taxes, cut expenditures, or some combination of both. This is your chance to confront the situation and devise a solution. Remember that last year, for every dollar that the government took in, it spent $1.67. You will have to reduce that deficit by about 40%.

Here is where the money comes from;
$$1.061 trillion-Individual income taxes
$940 billion-Social Security and other payroll taxes
$222 billion-Corporation income taxes
$77 billion-Excise taxes
$23 billion-Customs duties
$20 billion-Estate and gift taxes
$22 billion-Deposits of earnings
$16 billion-The well known "All other"

And here is where the money goes;
First there is money that cannot be avoided.
$164 billion-Interest on the national debt.

And then there is money that would require major legislation to change;
$695 billion-Social Security
$495 billion-Medicare
$290 billion-Medicad
$582 billion-Other mandatory programs.

And here is the money you could affect immediately;
$663.7 billion-Department of Defence
$78.7 billion-Department of Health and Human Services
$72.5 billion-Department of Transportation
$52.5 billion-Department of Veterans Affairs
$51.7 billion-Department of State
$47.5 billion-Department of Housing and Urban Development
$46.7 billion-Department of Education
$42.7 billion-Department of Homeland Security
$26.3 billion-Department of Energy
$26.0 billion-Department of Agricultural
$23.9 billion-Department of Justice
$18.7 billion-NASA
$13.8 billion-Department of Commerce
$13.3 billion-Department of Labor
$13.3 billion-Department of Treasury
$12.0 billion-Department of the Interior
$10.5 billion-EPA
$9.7 billion-Social Security Administration
$7.0 billion-NSF
$5.1 billion-Corps of Engineers
$5.0 billion-National Infrastructure Bank (what ever that is?)
$1.1 billion-Corporation for National and Community Service
$0.7 billion-SBA
$0.6 billion-GSA
$19.8 billion-Other agencies
$105 billion-The famous "all other"

There you have it. All you have to do is find $1.42 trillion to balance the budget, never mind trying to reduce deficit.

And consider one more thing; government spending amounts to about 20% of the GNP and Business spending equals about 10%, while consumer spending equals about 70%. What effects would your cutback/taxing plan have on the overall economy?

If you can work out a solution to this problem, you might want to consider running for Congress.

Wednesday, May 19, 2010

Here are the numbers and Here is the Problem

In FY 2009, for every one dollar ($1)the U.S. Government took in in taxes, it spent $1.67. This over spending our income has been going on for a decade now. As a result, China now holds trillions of dollars of our various paper.

The Health care bill has exactly zero (0) provisions to begin to reduce the cost of health care, and health care is one of the fastest growing budget items.

At some point, China is going to stop lending us money to cover our debts, or they will demand such a high interest rate, that borrowing from them is no longer feasible.
(Our annual interest expense is already enormous!)

At that time, one of four things will happen, if 500 years of history is any guide, and they are not mutually exclusive.

1) There is a military take-over of the government. See Chile, Argentina, and a bunch of African countries for recent examples.
2) The government prints money to inflate away the debt. See Argentina and a bunch of African countries.
3) The government will simply abrogate the debt, e.g., refuse to pay it. See Argentina and a bunch of African countries.
4) The legislature will get some back bone and sharply reduce expenditures and increase taxes. See any fairy tale you like.

My money is on #2. What do you think?

Just the Facts, Please!

We have long pointed out that Elizabeth Warren is about the only person in Washington that you can count on to tell the truth. Her commission's current report is available at

The report demonstrates a fact that we have being trying to make here for a long time,e.g., small businesses generate the majority of new jobs. So to end this recession we need to get small businesses growing again, instead of going out of business.

The Administration's propeller heads have decided that small businesses need credit so they can hire new employees. Accordingly, they have devised a bunch of new programs to accomplish that goal. First, these programs are inutterably stupid because small businesses need customers, and if they have customers they can get credit.

Now the Warren Commission Report demonstrates that the Government's programs can't even accomplish the goals of the Government programs (as misguided as they are).

Read the report and weep. It is your money.

Tuesday, May 18, 2010

AFL-CIO Jobs Plan

You can find the AFL-CIO jobs plan at

Take a look and compare it with our recommendations a year ago.

WOW! What a World!

Normally, I think Katrina vanden Heuval is a world class twit, but this time she is spot on!! Be sure to look at the AFL-CIO jobs program. It is virtually identical to the one we proposed last year in The Great Recession Conspiracy.

You have to wonder? question? be frightened ? be amazed when I can fully agree with the AFL-CIO.

So here is Katrina at her best.

Where's the will to get Americans back to work?

Why isn't our government doing more to put people back to work?

Mass unemployment is a human and national calamity. It destroys families, crushes hopes. The longer it lasts, the more it cripples economic recovery and undermines democracy. Nearly 27 million Americans are unemployed or can't find more than part-time work. Yet legislators are reacting to this reality somewhat like the proverbial deer in the headlights, frozen, hoping not to get run over.

Maybe there's a sense that they've already taken care of the problem. Indeed, in a speech in economically beleaguered Buffalo last week, President Obama came close to declaring victory. Beyond giving a perfunctory nod to Americans who are still hurting ("I won't stand here and pretend that we've climbed all the way out of the hole") and talking a bit about small business loans, Obama wanted to celebrate: "We can say beyond a shadow of a doubt, today we are headed in the right direction. . . . All those tough steps we took, they're working. Despite all the naysayers who were predicting failure a year ago, our economy is growing again. Last month we had the strongest job growth that we'd seen in years. . . . Next month is going to be stronger than this month. And next year is going to be better than this year."

It's true that the president's recovery plan successfully stopped the economic free fall he inherited. The economy has started to grow again, and that growth is beginning to produce some jobs, with more added last month than expected.

But the hole is deep. At the current rate, it would take five years to return to pre-recession rates of employment. And there's real doubt as to whether the current growth will continue. The Recovery Act and the extraordinary intervention of the Federal Reserve have given the economy its greatest lift. Yet Recovery Act spending peaks this fall, and brutal cuts at the state and local levels are already negating its effects. Meanwhile, the Fed is slowly beginning to unravel its emergency subsidies, but zombie banks still aren't doing much lending. And, of course, no one knows how far the economic turmoil in Europe will spread.

It would seem that new action by Congress to create jobs is more than justified. Yet there wasn't much in the president's Buffalo speech that would make a compelling argument for acting now on jobs.

Also standing in the way of government action is the increasingly loud conversation about the coming debt crisis. The president's bipartisan deficit commission, stacked with deficit hawks, has prematurely launched a debate about U.S. austerity.

It doesn't help that some voters, especially independents, are starting to tell pollsters that they're concerned about deficits and suspicious of spending.

But deficits, for all the scare stories, are not an immediate emergency. We still need to put people to work. And we should be prepared to see deficits increase in the short term in the interest of creating jobs that will sustain the economy in the long term.

Yet without a strong argument from the White House, and with a consensus building around the idea that deficit and spending cuts should be the priority, too little is happening on jobs. Last December, the House passed a $150 billion jobs bill. It can't get a hearing in the Senate. This year, Rep. George Miller (D-Calif.) introduced a $100 billion bill for state, local and public service hiring. It hasn't gotten a vote in the House. Even an extension of unemployment insurance and health-care protection through the end of the year faces conservative obstruction. Republicans tend to line up against any new jobs agenda. And when Blue Dog Democrats, worried about deficits, join them, there's not much hope. In fact, what is needed is something far bolder. The AFL-CIO has detailed a $400 billion plan that would put people to work. This would have a negligible effect on long-term debt projections, which primarily reflect soaring health-care costs. And a jobs agenda could be paid for once the economy got going. The AFL-CIO suggests passing a financial-speculation tax and a tax on banks that kicks in a couple years from now. That at least would send the bill for the crisis to those who caused it.

Compare Obama's words with the straight talk of Rich Trumka, the new president of the AFL-CIO: "When it comes to creating jobs, some in Washington say: 'Go slow, take half steps, don't spend real money.' Those voices are harming millions of unemployed Americans and their families -- and they are jeopardizing our economic recovery. It is responsible to have a plan for paying for job creation over time. But it is bad economics and suicidal politics not to aggressively address the job crisis at a time of stubbornly high unemployment."

Bad economics and suicidal politics. He got that right. Unemployed workers can't help the economy grow. And while economists may chatter about recovery, voters won't believe the economy is on the mend until people are back at work, and the outcome of the November elections will hinge on that perception. It would be smart economics and smart politics to summon the will to take action on jobs. A nation that ignores the calamity of joblessness is a nation at risk.

Katrina vanden Heuvel is editor and publisher of The Nation and writes a weekly column for The Post.

Hang On A Minute Here!!

Today's Los Angeles Times reports "GM posts first profit in 3 years". And how did they do it? They closed plants and laid of employees. But the rationale for investing billions of our dollars in GM was to save jobs!!

What a load of crap.

We have an excellent auto industry that pays good wages, provides health care benefits, makes cars Americans want to buy, and those jobs aren't going anywhere.

The U.S. auto industry just isn't in Michigan anymore. If you want to find out exactly where the thriving U.S. auto industry is located, you can find the answer in our book, "The Great Recession Conspiracy", and you can find it at for the bargain price of $4.95. It is also a Kindle book.

But here is the good news. Nowhere is Goldman Sachs mentioned in this piece.

Monday, May 17, 2010

The Economy IS NOT improving

The Administration is announcing the end of the recession because of an uptick in consumer spending. The problem with that idea is the sources of that spending. It turns out that a significant amount of the new spending is being done by that 10% of the population that get over 20% of the total income, e.g. the richie rich, and they are spending it on luxuries. The other source of new spending is coming from families who have simply stopped paying on their mortgages even though they have the income to make the payments. They simply stop paying because their homes are so far underwater. HUD estimates that 10% of delinquent home owners have stopped making payments. That means there are hundreds of thousands of families with extra income about $1,500 a month, and that is a large amount of money to support the uptick, but it is not sustainable.

And finally, consumer confidence is at an all time low.

As Yogi Berra said, "It ain't over until it is over">

An Insight into the Problem in Europe

The bond markets, and the German government, are demanding that Greece reduce government spending as a condition of receiving a huge bailout from the EU and the IMF. They cite government spending to support retiring at forty-five, fifty at full pay for many government employees. The government's ability to accomplish such cut backs, and raise taxes, is critically important to economic stability in the EU and then the U.S. The media are creating some minor hysteria that Portugal and Spain may be next.

I don't know anyone in Greece or Portugal any more, so I asked my long time pal, Jose Luis Santos Arrebola, who is a Department Chair at the Universidad de Malaga, a couple of questions. Here are my questions and his answers.

Dear Jim:
Nice to hear from you.I hope you and your wife are goog.

Good question!.
One full professor to be retired have to be working until 70 years old to have the half of salaries when he/she is retired.All workers in Spain the age of retired is 65 y.o. and have the same situation of the salaries, but we when to work until the 70 y.o. to have the total amount

The salaries ,when you are retired, is the same for all the hight professions, 2400€.This amount is net ,but you know the personal tax after one year will deducted other amount.

The salaries ,when you are active person ,for a year ,is around 55.000 € net,but after the personal tax of the year will be 52.000€ depend of the circumstances like you know.
It´s popular now to have a private pension insurance to complete the public pension.

And now the Government,for deficit problems like you know, decide to reduce the salaries all civic servant between 5 to 15% .Perhaps for us It will be 12% less.

Kind regards


Jose Luis
> I have been following the problems in Greece, and maybe Portugal and
> Spain.
> I was wondering how much a full professor at the Universidad de Malaga
> earns in a year and what retirement benefits he/she might expect.

First thing, 52,000 EUs equals about US$63,000. A similar position at UCLA or USC would pay about $145,000, so it doesn't seem that Spain, at least, is lavishing money on its faculty. It is our recollection that prices in Spain, when we lived there, weren't all that much different from California. However, that was twenty year ago.

The Economist magazine produces a "Quality of Life" index and the 2010 rankings show the U.S. at 15th place with an index of 95.0. Spain is 16th with a score of 94.9 so the two countries aren't all that far apart in living conditions.

I don't know of anyone in the U.S. who has to work until seventy to retire.

So it doesn't look like there is a lot of room for cut backs in Spain. That may be good news or may be bad news. Anyway, it is one small set of facts devoid of hysteria.

More on why Greece matters

What is happening to the economy of the EU generally and Greece in particular is an early look at what is happening to the U.S. economy. Robert Samuelson, in today's Washington Post, does a good job of summarizing what Congress and the Administration is really doing to deal with the single, most serious problem facing us. Also, note the amount of interest we are paying on the debt because we have borrowed so much money, and think about all the schools that money could build and renovate.

Wake up, America

By Robert J. Samuelson
Monday, May 17, 2010; A13

You might think that Europe's economic turmoil would inject a note of urgency into America's budget debate. After all, high government deficits and debt are the roots of Europe's problems, and these same problems afflict the United States. But no. Most Americans, starting with the nation's political leaders, dismiss what's happening in Europe as a continental drama with little relevance to them.

What Americans resolutely avoid is a realistic debate about the desirable role of government. How big should it be? Should it favor the old or the young? Will social spending crowd out defense spending? Will larger government dampen economic growth through higher deficits or taxes? No one engages this debate, because if rigorously conducted, it would disappoint both liberals and conservatives.

Confronted with huge spending increases -- reflecting an aging population and soaring health costs -- liberals would have to concede that benefits and spending ought to be reduced. Seeing that total government spending would rise even after these cuts (more people would receive benefits, even if benefit levels fell), conservatives would have to concede the need for higher taxes. On both left and right, true believers would howl.

The lack of seriousness is defined by three missing words: "balance the budget." These words are taboo. In February, President Obama created a National Commission on Fiscal Responsibility and Reform (call it the Deficit Commission). Its charge is to propose measures that would reduce the deficit to the level of "interest payments on the debt" by 2015 so as "to stabilize the debt-to-GDP ratio at an acceptable level."

Understand? No? Well, you're not supposed to. All the mumbo jumbo about stabilizing "debt to GDP" and according special treatment to interest payments are examples of budget-speak. It's the language of "experts," employed to deaden debate and convince people that "something is being done" when little, or nothing, is being done. For example, Obama's target for 2015 would involve a deficit of about $500 billion, despite an assumed full economic recovery (unemployment: 5.1 percent). The commission is also supposed to "propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending," a mushy mandate. But balance the budget? There's no mention.

In a classroom, limiting government debt in relation to GDP can be defended. The idea is to reassure investors (a.k.a. "financial markets") that the debt burden isn't becoming heavier so they will continue lending at low interest rates. But in real life, the logic doesn't work. Governments inevitably face deep recessions, wars or other emergencies that require heavy borrowing. To stabilize debt to GDP, you have to aim much lower than the target in good times, meaning that you should balance the budget (or run modest surpluses) after the economy has recovered from recessions.

Interestingly, Europe's experience discredits debt-to-GDP targets. The 16 countries using the euro were supposed to adhere to a debt target of 60 percent of GDP. Before the financial crisis, the target was widely breached. From 2003 to 2007, Germany's debt averaged 66 percent of GDP, France's 64 percent and Italy's 105 percent of GDP. Once the crisis hit, debt-to-GDP ratios jumped; by 2009, they were 73 percent for Germany, 78 percent for France and 116 percent for Italy.

The virtue of balancing the budget is that it forces people to weigh the benefits of government against the costs. It's a common-sense standard that people intuitively grasp. If the Deficit Commission is serious, it will set a balanced budget in 2020 as a goal, allowing time to phase in benefit cuts and tax increases. It will then invite think tanks (from the Heritage Foundation on the right to the Center on Budget and Policy Priorities on the left) and interest groups (from the Chamber of Commerce to AARP) to present plans to reach that goal. Their competing visions could jump-start a long-overdue debate on government's role.

The odds seem against this. The Deficit Commission may embrace debt-to-GDP targets and aim for a "primary balance" (excluding interest payments) because it's easier politically. Consider: In 2020 the deficit will be $1.254 trillion on spending of $5.67 trillion, projects the Congressional Budget Office. Closing that gap would require steep tax increases or deep spending cuts. But $916 billion of the projected deficit represents interest payments. Ignoring them instantly "solves" three-quarters of the problem.

The message from Europe is that this approach ultimately fails. Intellectually elegant evasions are still evasions. Though financial markets may condone lax government borrowing for years, confidence can shatter unexpectedly. Lenders retreat or insist on punishing interest rates. Market pressures then impel harsh austerity -- benefit cuts or tax increases -- far more brutal than anything governments would have needed to do on their own. We are, by inaction and self-deception, tempting that fate.

Sunday, May 16, 2010

Here Is A Story You Will Love

You will especially love this story if you have any Citibank stock (and of course, we all have a lot of Citibank stock. We own the company, but Timmy says we are going to sell off our stock very soon).

The story going around New York goes like this. Vikram Pandit, the Chairman of Citibank, had lunch at one of the most expensive restaurants in New York last month. It seems he couldn't find a wine by the glass that he liked so he ordered a $350 bottle of wine and drank exactly one glass, and left the rest.

If you still thought that those Wall Street assholes were out of touch with reality, this story should take care of that delusion.

Saturday, May 15, 2010

Another point of view

I received this in the mail today. It makes a lot of sense. What do you think?

Artificial Earnings Growth - How Long Before Investors Catch On?
By Simon Maierhofer, Co-Founder
“The whole damn industry lost its moral moorings,” was Charlie Munger’s - Warren Buffett’s business
partner - response when asked about Goldman Sachs’ “socially undesirable” business dealings. He added:
“They were very competitive in maximizing profits in a competitive industry that was permitted to operate
like a gambling casino.”
Munger’s assessment echoes what Timothy Geithner said when interviewed by the Today Show in March:
“What happened in our country should never happen again...people were paid for taking enormous risks. It
was a crazy way to run a financial system.”
Blackmailing America
Jim Reid, a Deutsche Bank AG strategist in London, noted, “it seems incredible that financials are now
scaling their 2006-07 heights again. The dramatic imbalances that fueled the credit crisis are re-occurring.”
The question back to Mr. Geithner should have been: “If it was so crazy, why do you allow it to happen
again, even though you said it shouldn't?” Simon Johnson, professor of MIT’s Sloan School of Business
and author of 13 Bankers, claims that bankers even leverage their position to blackmail the nation. Any
time there is mention of a banking or financial reform, you’ll hear the banks respond, “oh my goodness,
there maybe a double-dip recession.”
Obstructing the truth
But we know that banks don’t just indirectly blackmail the nation, they actively work on obstructing the truth,
and as allegations against Goldman Sachs show, do whatever it takes to get ahead. On March 19, 2010,
the U.S. Court of Appeals in Manhattan ruled that the central bank must release documents
June 2010 ETF Profit Strategies - 11
Artificial Earnings Growth (Continued from previous page)
pertaining to the central bank’s $2 trillion emergency lending extended to financial institutions in 2008.
Paul Saltzman, the banking group's general counsel, said they would repeal the decision. If the ruling is
again unfavorable, the bank group will petition the Supreme Court. Why all this resistance? Saltzman says:
“Our member banks are very concerned about real-time disclosure of information that could cause a run on
the banks.” Wow! That’s a heavy-duty statement. By the way, member banks include Bank of America,
Citigroup, BNY Mellon, Deutsche Bank, HSBC, JPMorgan, PNC, UBS, U.S. Bancorp, Wells Fargo, etc.
Buffett on ethics
Another red flag is Warren Buffett’s resistance against legislation that would force companies to put up
collateral for existing derivatives positions. Berkshire Hathaway owns a $63 billion derivatives portfolio and
Buffett himself has warned of the dangers of derivatives, famously branding them “financial weapons of
mass destruction.” It is understandable that Buffett, a shrewd businessman, wants to avoid setting aside
cash and doesn’t want the rules to be changed after the game started. However, the fact that Nebraska
Senator Ben Nelson proposed the exemption is suspect. Ben Nelson owns an estimated $6 million worth of
Berkshire stock. Additionally, Berkshire is Nelson’s largest campaign contributor.
At Berkshire’s annual shareholder meeting, Buffett took a lot of his most faithful fans aback as he gave a
full-throated defense of Goldman Sachs. Whether or not Goldman committed outright fraud, Goldman’s
me-first attitude and conflict of interest are beneath Buffett’s ethical standard, you’d think. Munger
assessed Goldman’s activities politically correct as “socially undesirable.” Our March 2010 newsletter
stated the following regarding Goldman Sachs: “By the time this recession is over, GS will have morphed
from powerhouse into scapegoat.” The Wall Street Journal explains why all the rage against Goldman:
“The development comes amid public calls for more Wall Street accountability for the industry's role in the
financial crisis.” Such public calls are one facet of crowd behavior set in motion by a larger bear market.
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The fact that such calls persist despite a 75% rally in equities is testament that the bear market is not yet
Focus on earnings
Despite turmoil in the financial industry, earnings have been nothing short of outstanding. Profits from the
financial sector soared 300%+ year-over-year while total U.S. corporate profits are up 50%+ year-over-
year. Financial sector profits account for roughly 80% of the overall increase in corporate earnings. Without
financials, the rebound in corporate profits would be minimal. With financial profits being the big story, it
makes sense to read between the lines and see if those profits are real. Not all that shines is gold.
Repo 105 – How Lehman almost got away
The bank-appointed examiner’s report on Lehman Brothers released in mid-March 2010 revealed some
startling accounting maneuvers. Lehman took advantage of Repo 105, an accounting trick that hid its
leverage. In a nutshell, here’s what happened: The Repo market is a way for banks to borrow money
against collateral, i.e. a bond. If the borrower goes bankrupt, the lender gets to keep the bond. If the
borrower repays the loan as planned, the lender gets to keep a fee and interest. In reality, the bank isn’t
really selling a bond, its simply borrowing money. But Lehman wanted to hide how much money it was
borrowing. To do just that, Lehman would sell a bond that was worth $105 on the repo market for $100
(Lehman put up collateral equal to 105% of the cash it received. Hence the nickname Repo 105). For
accounting purposes, Lehman got the cash infusion, which was used to pay off debt. Then, after it had
issued its quarterly report, Lehman would borrow more money to repurchase the bond.
As per Lehman’s bankruptcy examiner’s report, it did not disclose its use of Repo 105 to the government,
to its rating agencies, to its investors, or to its own Board.” In fact, according to MarketWatch, Lehman
couldn’t get a single U.S. firm to sign off on the practice, so it went to a U.K. law firm to OK the move.
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MarketWatch also reports “there are plenty of ways financial firms can massage the numbers to make them
look more profitable, stable and solvent than they really are.” Let’s take a look at another loophole.
Rule 157 – License to survive
Imagine you bought a house for $500,000 that is now worth $300,000. Rule 157 for banks is similar to you
being able to sell your house for $500,000. reports that the change to rule 157 allows banks with impaired financial securities to move
billions of dollars in losses off of their income statements, which will benefit their regulatory capital
calculations and artificially increase profits.
The rule revision approved on April 2, 2000, addresses how companies account for assets whose market
value has fallen below the reported balance-sheet value. Although companies will still record the paper
loss, it will no longer affect their bottom line. As always with accounting, you can make things more
complicated. For those who want to understand the implications more fully, we’ll do our best to decipher
the CPA lingo.
Credit loss vs noncredit loss
Before we get into this, it is probably best to define credit loss and noncredit loss. In an oversimplified
example, bank A holds a securitized pool of mortgage-backed assets originally valued at $100. After
modeling the future cash flow of the pool, the bank determines it will ultimately collect $95. The credit loss
is $5. However, due to economic factors, the MBA pool is currently worth only $40, a $60 loss. The
difference between the two calculations ($60 - $5) is the noncredit loss - $55. As a result of the revised rule
157, banks can grab all their noncredit losses and dump them into a balance-sheet bucket called other
comprehensive income (OCI). OCI is comprised of income and expenses (realized and non-realized) that
are not recognized in the income statement. The noncredit losses that wind up in the OCI appear on the
balance sheet but are not run through the income statement. (The balance sheet details an entity’s
financial condition and lists assets and liabilities. The income statement provides the current years
revenue/expense and profit information.) That means that noncredit losses never hit earnings. Reported
earnings therefore do not include much of the noncredit, real estate related losses.
How big is the noncredit loss problem?
How high are such noncredit losses? Nobody knows for sure but a look at the FDIC’s list of failed banks
provides a scary glimpse of what might be ahead. Frontier Bank was closed by the Washington
Department of Financial Institutions on April 30, 2010. According to the FDIC’s website, Frontier Bank had
approximately $3.5 billion in totals assets and $3.13 billion in total deposits. Subtracting the liabilities from
the assets, the bank’s book of business should be worth around $370 million. The FDIC’s website states
the following: “The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.37 billion.”
Where does the $1.74 billion difference come from? Apparently the bank’s actual assets where less than
reported, 50.3% less.
Another example is Champion Bank, which was closed by the Missouri Division of Finance on April 30,
2010. According to the FDIC’s website, Champion Bank’s had approximately $187.3 million in total assets
and $153.8 million in total deposits. The bank’s book of business should be worth around $33.5 million.
Yet, the FDIC had to cough up $52.7 million, apparently because Champion Bank overstated their actual
assets by around 28%. There are plenty more examples available on the FDIC’s website, in plain sight of
investors. As a point of reference, Bank of America, Citibank, JPMorgan and Wells Fargo have about $7.5
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trillion in combined assets. Assuming those banks are overvaluing their assets by just 25%, about $1.8
trillion of unrealized losses could yet be waiting to hit the fan.
Fool me once, shame on you. Fool me twice …
Guess who gets swindled and doesn’t even know it? It’s the American taxpayer. But it doesn’t stop there.
Darrell Issa, the ranking member of the House Oversight and Government Reform Committee, said in a
letter addressed to GM Chairman and CEO Edward Whitacre (obtained by the Detroit News), that the
company “has come dangerously close to committing fraud and that you might have colluded with the U.S.
Treasury to deceive the American public.” GM ads featured the GM CEO touting that “GM repaid our $6.7
billion government loan in full, with interest, five years ahead of the original schedule.” In reality, GM
received $50 billion in U.S. government bailout funds. About $43 billion of the funds were swapped by the
government in exchange for a 61% stake in GM (GM now nicknamed Government Motors). Senator
Charles Grassley wrote in a column that “it is far from clear how GM and the Obama
administration could honestly say, much less trumpet in prime time television ads, that GM repaid its TARP
loans in any meaningful way.”
Grassley said lawmakers are being told government losses on GM are expected to exceed $30 billion. The
TARP inspector general, Neil Barofsky, bluntly told the Senate Finance Committee that the repayment “is
just other TARP money” and lawmakers should not exaggerate the feat. Senator Tom Carper hits the nail
on the head with his astute observation that “it sounds like they’re kind of taking money out of one pocket
and putting it in the other.” The last I checked, the Senate is still waiting for a response from Timothy
Geithner about why GM was allowed to run this ad.
On April 26, 2010, Bloomberg reported that “Bankers said anything to get a high rating.” It seems like
corporations and the government will do anything to give the economic recovery an heir of legitimacy.
Ripple effects of the new healthcare bill
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Carl Denninger wrote an interesting post about the ramifications of the healthcare bill. The promise was
that there would be no “material” healthcare related impact to finances until 2010.
Caterpillar, John Deere and AT&T already announced non-cash charges of $100 million, $150 million and
$1 billion for 2010 (AT&T’s filing with the SEC): . This is based on the impact this bill has on forward retiree
health care costs. Again, it pays to put things into perspective. Caterpillar reported profits of $895 million,
John Deere’s profit was $912.80 million and AT&T’s profit was $12.54 billion. The unexpected healthcare
charges make up 11%, 16% and 8% of profits. These expenses should eventually hit the earnings per
share (EPS) and by extension the P/E ratio. Based on the above three examples, stocks could be
overvalued by 8% - 16%. The above-mentioned charges were for retired employees only. Current
employee healthcare costs were not considered yet.
When reading between the lines, two themes become obvious: 1) Corporate earnings, especially from the
financial sector, seem to be overstated, and 2) You cannot believe everything you see or hear. We started
out with one of Charlie Munger’s tasty quotes, thus it seems fitting to conclude with more of his words of
wisdom: “If you give human beings flexibility to do anything they damn well please, they will go plum crazy.”
Thus far, rising stocks have kept a lid on investors’ disappointment with the government and corporate
America. Once the market begins to fall, the combination of falling prices and negative news will bring more
“oddities” to the fore and create a negative feedback loop a la 2008. Bear markets are always the best
Did we forget to mention that the respective trading desks at Bank of America, Citigroup, Goldman Sachs
and JPMorgan Chase recorded a "perfect quarter?" According to regulatory filings, all four banks had zero
days of trading losses in Q1 2010.

My Personal Hail Mary Pass

I read that President Obama reads ten letters from citizens every day. These letters are selected by readers who screen his mail. So on the first of every month, I send him this letter.

President Barack Obama
The White House
1600 Pennsylvania Avenue 20500
Washington DC 20500

Dear President Obama

I note the Washington Post story about your reading habits, and I understand that the odds of your reading this letter are roughly the same as my winning the lottery. Nevertheless, I have to try because the future of the country depends on your getting a better understanding of how the economy actually works.

But first, it is important to explain that I am heavily invested in your success as president. Here are two points to consider to that end.

One; I have been an ardent Obama supporter since the day you stood on the court house steps and declared your candidacy. I attended meetings, held up a sign (and met you in San Diego), telephoned voters in Texas, South Dakota, California, contributed almost every month, and spent election day driving little old ladies to vote. You can see I have a large interest in having you succeed.

Two; you have made some brilliant appointments that are producing great results. Hilary Clinton, George Mitchell and Richard Holbrooke have changed the way the world looks at us. Robert Gates is showing a real determination to get Defense expenditures under control. Janet Napolitano was a perfect choice for that monstrosity, Home Land Defense. Kathleen Sebelius, Ray LaHood and Eric Shinseki are all inspired appointments who seem to be doing a great job.

My personal favorite is Arne Duncan, the first human being to stick a finger in the eye of the teacher’s union, and the NCAA!

And your efforts to rein in nuclear material are splendid.

Now to my point to you; I have heard you say again and again that we have to end this Bubble and Bust economy.

And that is a profoundly erroneous idea. In five hundred years of experience with every developed economy in the world, no one has ever found that “magical” point of equilibrium where everyone lives happily ever after. It simply does not exist in the real world. Every economy is always in one of two states; the economy is either expanding or contracting.

Now here is the absolutely crucial point; the Business Cycle is driven by psychology, not finance. For awhile, the economy expands and most everybody thinks things will be great forever. Consider “irrational exuberance”. Then somebody thinks things are going to get bad and everyone piles on. Consider Henry Paulson and “the world’s economy will collapse if we don’t rescue Goldman Sachs”.

David Zetland (PhD, University of California) and I (DBA, University of Southern California) have written a short book that explains the Business Cycle in more detail and offers policy recommendations that are founded on an understanding of the reality of the Business Cycle. I read somewhere that you prefer evidence based policies. Here is a perfect example of five hundred years of experience. Not a single economic theory in sight.

I would be delighted to send you a digital copy of our book, The Great Recession Conspiracy, if you provide an email address. The hundred pages are easy to read and they will change the way you look at economic policy forever.

Now I am going to check my lottery ticket.

Very truly yours

Friday, May 14, 2010

This is TOO GOOD!

Richard Parsons used to be CEO at Time Warner, and he is on the board at CitiGroup. This is the first paragraph in an interview that appears in Business Week this week.

Note that all the players in Washington were "Bob Rubin acolytes". When Richard Parsons says Bob Rubin owns Washington, you better pay attention!! We said it in "The Great Recession Conspiracy".

"There had to be a chairman at Citigroup. (C) My hope was that Bob Rubin would step forward because he knew the business and he knew all the relevant players. The new government was pretty much in place—and they were all Bob Rubin acolytes. Bob just didn't want to go there, though."

Do you know Stephan Hawking?

Stephan Hawking maybe the most brilliant man alive. He is a theoretical physicist living and working in the U.K. In one of nature's nastier tricks, he also has ALS and it has progressed to the point where he is completely paralyzed and can only speak through an artificial voice machine.

I once read one of his books, "A Brief History of Time". I understood almost 20% of it.

The reason that you should know Stephan Hawking is this. He is arguing that we should stop exploring outer space for other forms of intelligent life. His point is that any civilization that can now travel over light years of time will be so much more advanced than we are, that (in his words), "it will be like the white men discovering the Indians, and you know how well that turned out for the Indians".

Point taken.

NASA'S 2010 budget is $18.69 BILLION and the President wants to send men to Mars (and bring them back).

Would you say this was an example of someone shooting themselves in the foot, or just an incredibly stupid waste of money?

Be Afraid, Really Afraid!

GOP's Utah and Maine conventions show a party coming unglued

By Dana Milbank
Sunday, May 16, 2010

Future historians tracing the crackup of the Republican Party may well look to May 8, 2010, as an inflection point.

That was the day, as is now well known, that Sen. Robert Bennett, who took the conservative position 84 percent of the time over his career, was deemed not conservative enough by fellow Utah Republicans and booted out of the primary.

Less well known, but equally ominous, is what happened that same day, 2,500 miles east in Maine. There, the state Republican Party chucked its platform -- a sensible New England mix of free-market economics and conservation -- and adopted a manifesto of insanity: abolishing the Federal Reserve, calling global warming a "myth," sealing the border, and, as a final plank, fighting "efforts to create a one world government."

One world government? Do our friends Down East fear an invasion from the Canadian maritime provinces? A Viking flotilla coming from Iceland under cover of volcanic ash?

I was pondering this mystery while on the elliptical machine this week and watching Glenn Beck (I find he increases my heart rate), when I heard him inform his viewers that "they" -- President Obama and friends -- "are creating a global governance structure."

"Social and ecological justice and all of this bullcrap," Beck told his viewers, "is man's work for a global government." Beck -- who is second in popularity only to Sarah Palin among the type of Tea Party activists who hijacked the Maine GOP -- tossed out phrases such as "global standards" and "global bank tax" -- all part of a conspiracy by the "global government people." He further provided the news that "Jesus doesn't want a cap-and-trade system."

Not once did Beck refer to the big news events of the day, such as Afghan President Hamid Karzai's visit to the White House or the Gulf of Mexico oil spill. It was as if he had created a parallel universe for his 2-million-plus viewers. Similarly, on Monday, when Obama nominated Elena Kagan to the Supreme Court, Beck omitted that news in favor of a fanciful administration attempt to restore the broadcast Fairness Doctrine. On Tuesday, USA Today had the headline "Tax bills in 2009 at lowest level since 1950" (the nonpartisan Tax Foundation put it at 1959); Beck skipped that, instead saying he doesn't want changes to the Internet "at least until people aren't worshipping Satan, you know, in office." (Beck maintained later that he really wasn't "saying that Obama was a Satan worshipper.")

Beck justifiably credited his viewers for "what happened to Bob Bennett in Utah." He warned: "People in Washington, you should be terrified."

We should be terrified -- particularly the Republicans, whose party is turning into this One-World-Government, Obama-worships-Satan, Jesus-opposes-climate-bill mélange. And Beck is only part of the trouble. Consider these GOP milestones of recent days:

In the Alabama gubernatorial race, a conservative attack ad charged that a Republican gubernatorial candidate "recently said the Bible is only partially true." The outraged candidate reaffirmed his "belief that this world and everything in it is a masterpiece created by the hands of God."

In Utah, just a couple of days after Bennett's fall, conservative Rep. Jason Chaffetz talked about trying to topple none other than Sen. Orrin Hatch (89 percent lifetime conservative rating) in 2012.

In Arizona, Sen. John McCain, who once said a fence is the "least effective" way to secure the border, continued his fight against a conservative primary challenge by releasing an ad demanding, "Complete the danged fence."

Democrats are having purity putsches, too, in Arkansas, Pennsylvania and Colorado. But these are mild compared with the sort of uprising Republicans are experiencing in places such as Maine, tranquil land of Henry Wadsworth Longfellow.

The Maine Republicans a week ago rejected a platform proclaiming that "we believe that the proper role of government is to help provide for those who can not help themselves"; that "we believe in ensuring that our children have access to the best educational opportunities"; and that "every person's dignity, freedom, liberty, ability and responsibility must be honored."

In its place, they approved a document invoking the Tea Party movement and Ron Paul and insisting that "health care is not a right." The new platform demands: "Eliminate motor voter"; "Reject the UN Treaty on Rights of the Child"; "Eliminate the Department of Education"; "Arrest and detain . . . anyone here illegally, and then deport, period."

It was a swap they will come to rue -- assuming they survive the Viking invasion.