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Wednesday, June 30, 2010

Fix Congress First

I first met Larry Lessing (professionally, not personally), over a decade ago. We traded emails about his and my ideas about copyrights and the internet. Over the years, I have made a few bucks writing copyrighted books so I had a large interest in the topic.

I found Larry to have an enormous intellect and a great sense of humor. In short, I have a great deal of admiration for him.

At the time, he was in the law school at Berkeley. He has now moved to Harvard and runs an organization devoted to his favorite subject, corruption in the government.

The link below will take you to a presentation he recently made in North Carolina. I promise you that you will find it utterly fascinating!! And you will learn a lot.

Also notice that in the upper right hand corner, there is box that is labeled Episode Archives. Be sure to spend some time there since he explores more examples of corruption in the government.

Here is an example of what I mean. Everybody understands that we have a very serious problem with over weight children. (If you don't know about it, his statistics will scare the crap out of you.) The "Behavoral Economists" in the government want to pass legislation that will label fast foods as one, two or three stars. Three being best for you, one least good and two in the middle.

Larry Lessig will show you that the real problem is that we have extremely high tariffs on sugar, which were brought about by lobbyists. Because sugar is so expensive, most food manufacturers have substituted high fructose corn syrup as the sweetener. And corn syrup is cheap because we subsidize corn production, again through lobbyists.

At one place, he raises the question, "Well, how about the people who did nothing".
Take a look at his presentations, and then do something.

Monday, June 28, 2010

Nothing Much Seems To Change

I just found this mia culpa I wrote late last year. It is just as appropriate today.

Over the last two years, I have learned five lessons that you may, or may not, find interesting. Here they are;

1) There is a huge amount of ignorance, anger and fear in the U.S. The "birthers" continual insistence that Obama was born in Kenya, in spite of all the real evidence he was born in Hawaii, is just amazing. There is a woman here in Orange County who keeps bringing law suits to remove him from office. It is stunning how many people support this bit of ignorance. There is also a huge amount of anger in the country. Obama gets 400% more death threats than George Bush did. In one email that was distributed widely, I relayed a story from the NY Times about a thirteen year old girl who was denied a kidney transplant twice, but was granted one on the third application. The problem was she died before the third application was approved. One guy called me a Communist bastard for telling the story. He wasn't complaining about the facts, he was complaining about me telling the story! How can anyone be afraid of a dead thirteen year old.

In you want to experience a condensed immersion in ignorance, anger and fear, listen to Rush Limbaugh for an hour or so. Count the number of times he tells lies or distortions, how many times he tries to get you angry, and how many times he tries to leave you frightened. To put the size of this "ignorant, angry, frightened" segment of our population in some proportion, understand that roughly one and a half million people listen to him regularly. It seems to me that I was naive about how many of these folks exist.

2) Almost all economic theory is useless crap. I understood this intellectually by the time I had completed all of the required economics courses at the Graduate School of Management at USC thirty some years ago. But I didn't understand it viscerally until the fall of 2008 when all I could do was watch the Secretary of the Treasury and all his henchmen utterly fail to find some guiding theory to deal with the Wall Street Bank Problem. The ONLY reaction they could come up with was to shovel billions of dollars to Goldman Sachs, et al. And that absolute lack of any useful economic theory is being played out right now by the new gang in Washington. They are holding a group session to figure out how to deal with the fact that some fifteen million people are unemployed, and more than one-third of them have been unemployed for over six months. Another fifteen million are working shorter hours, or have simply given up looking. None of Obama's economic wizards seem to understand that our infrastructure is falling apart. If they simply took the returned TARP funds and created a pool for infrastructure repair, and distributed it directly to the mayors of the countries' cities, millions of jobs would be created immediately; the numbers of jobs created would be reported accurately.

The problem is that some economist thinks he/she has found some way to describe a certain kind of behavior, either with words or math, and they announce they have discovered a new "theory". But every time, it turns out that the "theory" only applies under certain conditions and nobody can specify what the conditions are and when they apply. Here is an example; I have always been fond of the Tragedy of the Commons economic theory. It postulates that when there is some "common" resource that nobody specifically owns, the resource will be destroyed by over use since it is in everyone's best interest to make the biggest possible use of the resource. That certainly describes most of the international fisheries today. Now comes along Elinor Ostrum (who is not even an economist) to prove that there are lots of situations when the Tragedy of the Commons does not apply at all (for which she won a Nobel Prize).

So what happens is that when hot shot economists like Larry Summers are confronted with real life problems, they have no idea whatsoever which of their fantasies, or theories, applies, and they end up tied in knots of inaction.

But here is the real bad news. Except for the plucky Elinor, there are no economists who can say The Emperor Has No Clothes because that would be a career ending activity. Basically, we are screwed!! We will have to live with these pompous fools forever.

3) Goldman Sachs runs the U.S. Treasury Department. This came as a major surprise to me, but as I did more research, it turns out lots of other people know this fact. It seems to have begun when Clinton appointed Robert Rubin, then the chairman of Goldman Sachs, as Treasury Secretary (but it might have been earlier). Anyway, Rubin filled the Treasury and the Council of Economic Advisors with Goldman people. Today, every person in an important job in the Treasury or the various economic councils, is a Goldman alumnus (with the single exception of Christine Romer, but since I don't have access to her personal finances I can't say for sure). Once you understand, and accept, this fact, everything the Treasury has done in the past eighteen months makes perfect sense (of a sort).

4) Nobody cares! When the confusion and panic seemed to set in with George Bush's Treasury Department (run by Goldman former Chairman, Henry Paulson), I started to write a simple explanation of what was going on in the economy, and what is likely to happen in the future. Along the way, I strong armed David Zetland into helping with the project. It took just under a hundred pages to explain Business Cycles and what you should do about these conditions. Existing publishers said that wasn't long enough to be taken seriously. What they really meant is that they would not be able to charge enough to make a big profit. And that was O.K., since it takes 12-18 months for mainstream publishers to get a book into stores and our economic problems were too immediate to wait that long. Accordingly, we decided to publish it online with a new electronic publisher called Scribd. David argued strongly for pricing the book at $4.95 to make sure we didn't lose any readers because the price was too high. So The Great Recession Conspiracy was published at and as a Kindle Book at Amazon.

I announced the book to everyone in my email address list. I had some little book cards printed that explained how to access the book online and we sent them to everyone we knew for which we did not have an email address. That would have been a total of 90 to 100 people. Exactly eleven people bought the book at Scribd. Three more have bought it on Kindle. Now it is quite possible that everyone who knows me think I am too dumb to understand economics, politics, or anything else for that matter. And there would be an argument to be made there.

But there is hard evidence on this question. As of today, 3,075 people have looked at The Great Recession Conspiracy at Scribd. They have read the TOC, the rationale and samples of chapters. Exactly 1 out of 3,075 people who reviewed the materials on Scribd bought the book. (Incidentally, the woman who bought the book loved it. You can read her review on Scribd.) You got the idea? Nobody cares and it has nothing to do with David or me.

In addition, I wrote a blog almost daily (at for months, a total of 77 entries. I announced the blog on every website I could find that had anything to do with the recession. As far as I can tell, I am the only person in the world who has ever read any of the material on the blog.

I sent copies of the book to all the major newspapers, and the Economist and Business Week. No response.

I wrote Op-Ed pieces for the NY Times and the Washington Post. No response.

I sent copies of the book to Barack, Joe Biden, and assorted senators and representatives. I got a form letter from Barack. It said thanks for your material (whatever it was),

I can't come to any other conclusion. The country is going bankrupt while Wall Street Bankers get incredibly rich, and NOBODY cares!

Economic Theory is mostly useless

At least some people are beginning to understand that economic theory has no basis in reality. What has happened over the years, is that some economist observes some sequence of events and then develops a mathematical formula to describe what seems to have happened. Then another economist observes a completely different sequence of events and develops a mathematical formula to describe what he/she saw. The problem is that both theories are completely contradictory and demand completely different government policy. But the real problem is that both may be right, depending on the circumstances, but neither can specify what those circumstances are in the real world.

Robert Samuelson is beginning to understand the disconnect between economic theory and the real world. Here is what he had to say today.

Economics: The shaky science

By Robert J. Samuelson
Monday, June 28, 2010

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. . . . Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."

-- English economist John Maynard Keynes (1883-1946)

Almost everyone wants the world's governments to do more to revive ailing economies. No one wants a "double dip" recession. The Group of 20 Summit in Toronto was determined to avoid one. In major advanced countries -- the 31 members of the Organization for Economic Cooperation and Development -- unemployment stands at 46.5 million people, up about 50 percent since 2007. It's not just that people lack work. Lengthy unemployment may erode skills, leading to downward mobility or permanent joblessness. But what more can governments do? It's unclear.

We may be reaching the limits of economics. As Keynes noted, political leaders are hostage to the ideas of economists -- living and dead -- and economists increasingly disagree about what to do. Granted, the initial response to the crisis (sharp cuts in interest rates, bank bailouts, stimulus spending) probably averted a depression. But the crisis has also battered the logic of all major theories: Keynesianism, monetarism and "rational expectations." Economics has become the shaky science; its intellectual chaos provides context for today's policy disputes at home and abroad.

Consider the matter of budgets. Would bigger deficits stimulate the economy and create jobs, as standard Keynesianism suggests? Or do exploding government debts threaten another financial crisis?

The Keynesian logic seems airtight. If consumer and business spending is weak, government raises demand through tax cuts or spending increases. But in practice, governments' high debts impose financial and psychological limits. The ratio of government debt to the economy (gross domestic product) is 92 percent for France, 82 percent for Germany and 83 percent for Britain, reports the Bank for International Settlements in Switzerland.
Click here!

This means that the benefits of higher deficits can be lost in many ways: through higher interest rates if greater debt frightens investors; through declines in private spending if consumers and businesses lose confidence in governments' ability to control budgets; and through a banking crisis if bank capital -- which consists heavily of government bonds -- declines in value. There's a tug of war between the stimulus of bigger deficits and the fears inspired by bigger deficits.

Based on favorable assumptions, the Obama administration says its $787 billion "stimulus" program created or saved up to 2.8 million jobs. This might be. Lenders haven't lost confidence in U.S. Treasury bonds. Interest rates on 10-year Treasurys are just over 3 percent. But in Europe, financial limits have bitten. Greece's huge debt (debt-to-GDP ratio: 123 percent) resulted in a steep rise of interest rates. Germany and Britain are debating plans to cut their deficits to avoid Greece's fate.

That's lunacy, writes Martin Wolf, chief economic commentator for the Financial Times. Concerted austerity may destroy the recovery. Exactly, echoes Nobel Prize-winning economist and New York Times columnist Paul Krugman, who argues that the U.S. economy needs more stimulus and bigger deficits. "Penny-pinching at a time like this . . .," he writes, "endangers the nation's future."

Not so, counters Harvard economist Ken Rogoff. President Obama's stimulus package may have "helped calm the panic" in 2009, but boosting spending now -- with federal deficits exceeding $1 trillion -- raises "the risk of having a debt crisis down the road." Deficits should be gradually trimmed, he argues.

Indeed, some economists believe that budget cutbacks can stimulate economic growth under some circumstances. A study by economists Alberto Alesina and Silvia Ardagna found that budget cutbacks in wealthy countries often had an expansionary effect when spending reductions, not tax increases, were emphasized. Presumably, these budget plans favorably influenced interest rates and confidence without weakening the incentives to work and invest.

Like textbook Keynesianism, "monetarism" has also suffered in its explanatory power. This theory holds that big injections of money ("reserves") into the banking system by the Federal Reserve should lead to higher lending, higher spending and -- if large enough -- inflation. Well, since the summer of 2008, the Fed has provided about $1 trillion of reserves to banks, and none of these things has happened. Inflation remains tame, and outstanding bank loans have dropped more than $200 billion in the past year. Banks are sitting on massive excess reserves.

There's a great deal economists don't understand. Not surprisingly, the adherents of "rational expectations" -- a theory that people generally figure out how best to respond to economic events -- didn't anticipate financial panic and economic collapse. The disconnect between theory and reality seems ominous. The response to the initial crisis was to throw money at it -- to lower interest rates and expand budget deficits. But with interest rates now low and deficits high, what happens if there's another crisis?

Saturday, June 26, 2010

Larry Summers, the Most Dangerous Man in the World?

*15 Million Americans are unemployed.
*15 Million Americans are underemployed or have stopped looking for work.
*11 Million jobs have disappeared since The Great Recession started.
*1 Million unemployed Americans will lose all unemployment benefits in the next few weeks.
*Congress and the Administration refused to extend unemployment benefits this week.
*The Administration expects the jobless rate to fall when the unemployment benefits end because then people will go out and get jobs.
*Larry Summers, Obama's main economic guru, believes that anybody who is unemployed is simply lazy. A claim he has repeated in scholarly papers.
*Small businesses create about 70% of all new jobs and have done so for decades.
*Small businesses are going out of business at record rates because their sales failed to cover their costs.
*The Administration's only effort to help small businesses is to give them a tax credit for each new employee they hire between now and the end of the year.
*No small business has ever hired a single new employee to get a tax break.
*And to get the tax break, the small business has to prove the new employee had been unemployed for over six months, and paper work is the single thing small businesses hate the most.
*The Great Recession will not end until 15 million Americans are back at work, and another 15 million Americans are not afraid of losing their jobs.
*When that happens, confident Americans will do two things; 1)Continue to pay down the debts they accumulated during the last expansion of the Business Cycle (a good thing), and 2)They will begin spending their incomes (a VERY good thing)and the economy will start to grow again, and The Great Recession will come to a close.
*The government needs to create jobs to get money flowing into the economy again and end the incredibly stupid Larry Summer's tax breaks.
*There are 47,000 miles of the Interstate Highway system that are now over fifty years old and much of it is desperately in need of repair. One of America's crown jewels is falling apart. Try driving the Interstate in Arkansas if you want proof.
*We have 150,000 bridges that are either obsolete and badly in need of repair. Ask anybody who lives in Minneapolis about that one.
*The list of our failing infrastructure goes on.
*This is work that will have to done someday and it will have to be paid for someday. So if not now, then when?
*This work should not be confused with the make work WPA (mostly) projects of the 1930's. This is all work that is needed, and needed now, that will provide the jobs that are needed now.
*You can find complete details on how to put people to work at It is also available as a Kindle book and as a Google book.
*Until that happens, Larry Summers will continue his one man rampage to destroy the country with his cockamaimee economic theories.
*Until then, be afraid, very afraid. And living in South Africa or New Zealand will not protect you. When the U.S. falls, it takes the world with it.

Thursday, June 24, 2010

The canary in the mine shaft!

This is something you should pay very careful attention to because it is a sign of a huge, mostly out of sight problem. Let's start with an article in the Los Angeles Times on Monday, 6/21/10.

"It's a good thing that the Burrises came when they did. A week later, the McCloud library closed for good, a casualty of the Siskiyou County's $3.7 million deficit. The rosiest scenario for the struggling library system here is an 83% budget cut, which would force the immediate closure of seven of the 11 1/2 libraries, but leave enough money to operate the rest --through December 2010." That is the canary.

Here is the mine shaft! Every state except New Hampshire is required by law to have a balanced budget every year. But almost every state has a current budget deficit. California, New York, Illinois and Illinois have huge deficits to fill. The first thing the states do to balance their budgets is do reduce payroll expenses. The second thing they do is halt payments to local counties and cities and pass the deficit down to the local level.

States, counties and cities cannot declare bankruptcy, nor can they issue their own currencies. They have just three options, fire people, raise taxes and borrow money from the bond market. If the State of New York had to shut down, 200,000 people would instantly become jobless. California's credit rating is so bad it is one step above Junk status so borrowing costs are huge.

The National government has a huge deficit and high unemployment, but local government entities have huge problems of their own, and no way to deal with them. So if you are a reader, you should start looking for alternatives to the local library. If you have kids in school, you should start looking into home schooling. But if you are a habitual speeder on the highway, this will be good news because there will be fewer highway patrolmen to penalize your behavior.

Saturday, June 19, 2010

Robert Nardelli Speaks

I am no fan of Robert Nardelli. The only person in the world who made out well after Bob Nardelli's stint at Home Depot was Bob Nardelli. But he has an interesting point in this week's Business Week. Here it is.

"The 10 percent unemployment rate is misleading. The real figure is closer to 18 percent. Unless this country creates 150,000 new jobs EVERY month for the next four years, we won't get back to where we were in 2007. We need specific programs built to create new jobs--real jobs, not census jobs, not seasonal jobs."

Couldn't agree more!!

California job growth disappoints

Today's Los Angeles Times headline sums up the results of the stimulus bill. The sub head says, "Employers add 28,300 positions in May, but many are part time or temporary".

Unemployment in California is at 12.4% and remember that if California were a separate country is would be the seventh largest economy in the world.

Is there anything more to say?

Friday, June 18, 2010

Jobs! Jobs! It is all about JOBS!

There is an old saying that "Figures don't lie, but liars can figure". It sure looks like that is where we are now. The administration says its recovery bill has created, or saved, 2.5 million jobs. So a reasonable question is "Where are those jobs?"

There are still 15 million Americans without jobs. The recent decline in national joblessness from 9.9% to 9.7% was caused solely by people giving up looking for work, hence not being counted as unemployed.

It is only fair to give credit where it is due, and the government has produced an excellent online source for tracking the stimulus bill. Take a look at

You will find some very interesting ways in which your money is being spent. Take a look at the list of all projects in declining order of claimed jobs created. Then find Booz Allen Hamilton's project. Please let me know if you can figure out what we are paying them $59,944,116 to accomplish. I can't. But what I find interesting is that the top five officers at Booz Allen will receive salaries and bonuses of $2.5 million to $3 million. Good grief!! What can they be doing that is worth that much of our money. Almost 1/4 of the entire budget goes to pay those five people.

Or look at Farmland Foods and discover that we bought 2,663,800 lbs. of ham. Makes you wonder where they are going to store all of it, and when we are going to get our share of the ham.

And yes, you can find an asphalt resurfacing project on some road in Cleveland which almost certainly did create some jobs.

When you look at where the money went by department, you will find the largest part went to the Department of Education, so most likely the majority went to save teacher's jobs. Not a bad thing, but should they be counted as new jobs?

You will find spending some time at the site will be enlightening and confusing at the same time. Please let me know if you can find the 2.5 million jobs that Obama is in Ohio today touting. I can't.

Thursday, June 17, 2010

It Looks Like This Is What We Need To Do!!

Larry Lessig is one smart guy (not to be confused with Larry Summers who is one dumb guy)and it looks like he is pointing out the only way to save this country. Read on... and his website is

James --

After Citizens United, I hoped Congress and the President might make good on their promises to change the way Washington works.

How naïve.

Their solution, the DISCLOSE Act, is a huge disappointment. While it might make some small improvements if it survives Congress and a hostile Supreme Court review, this is nowhere near the kind of comprehensive reform our democracy needs.

And now House Democrats have agreed to an exemption to the Act's transparency requirements for groups meeting certain criteria. The main organization that will take advantage of this exemption? The NRA.

This is not reform -- this is politics as usual called reform. And we have to make sure the American people don't get taken in by this pathetic and puny bill.

I've written a new piece on the Huffington Post outlining my opposition to the DISCLOSE Act. It's pasted below, or you can read it here:

And please help spread the word by forwarding this along or sharing it on Twitter.

With your help, we won't let Congress squander this opportunity for reform.

-- Lawrence Lessig

Adding Pathetic to Puny: On Why We're Joining Others to Oppose the DISCLOSE Act

By Lawrence Lessig

The vast majority of Americans -- both Democrats and Republicans -- considered the Supreme Court's decision in Citizens United to be a colossal blunder. Whether or not the First Amendment compelled it (and IMHO, it didn't), as Justice Stevens rightly said in dissent, Americans don't believe that our politics needs more corporate influence. To the contrary, most believe it needs less. As we learn more about the blunders in mis-regulation bought by Wall Street billionaires, and as we watch black clouds of oil billowing from an offshore oil rig, never adequately inspected or monitored because regulators were "persuaded" by well (as in oil-well) funded lawmakers to turn a regulatory blind eye, who could think that this system needs more of the same? Who could believe that this system was working?

So some of us -- call us the perpetually näive -- hoped that Citizens United might actually inspire the Democrats and this President to return to the promises that Barack "change the way Washington works" Obama made two years ago -- "to challenge the broken system in Washington, and stop letting lobbyists use their clout to get their way." "For far too long," Obama told us, "through both Democratic and Republican administrations, Washington has allowed Wall Street to use lobbyists and campaign contributions to rig the system and get its way, no matter what it costs ordinary Americans." "And if we're not willing to take up that fight," i.e., the fight to change the way Washington works, "then real change -- change that will make a lasting difference in the lives of ordinary Americans -- will keep getting blocked by the defenders of the status quo." "The reason I am running," Obama told us, to convince us there was a reason why he, as opposed to the status-quo-focused Clinton, should be our nominee, "is to challenge that system."

But the perpetually näive were then deeply disappointed by the puny response to Citizens United that the House Democrats and the Administration came up with. The DISCLOSE Act no doubt has good ideas in it. No doubt, things would be better -- a little, on the margin -- if it passed, and if it survived hostile Supreme Court review. But the idea that this is the response to perhaps the most significant change in the economy of campaign influence in a century just hurt. Here was a chance for the Democrats to rally a nation to real reform. Here was a chance, squandered.

But now comes the "pathetic" that gets added to this "puny." The House Democrats have now agreed to a critical exemption from the reach of the DISCLOSE Act. Any 501(c)(4) group which has been around for more than 10 years, and which has more than 1,000,000 dues paying members, some in each state, and derives no more than 15% of its budget from corporate or union funding, is to be exempted from the transparency requirements of the Disclose Act. (UPDATE: The minimum number of dues-paying members needed for exemption from transparency requirements in this Act has been reduced from 1,000,000 to 500,000.)

Which groups will get the benefit of this carve out? Only one of prominence that would actually need or use the exemption: the NRA.

This is a compromise too far for us at Change Congress. So today we have joined scores of other groups to oppose this puny bill. This is not reform. It is politics as usual called reform. And reformers who believed in the candidate who promised to "change the way Washington works" are not going to sign up merely because the President would sign the bill.

Thirty years ago, a Republican taught the world that it was big, not puny, ideas that changed things. Two years ago, many of us thought that at least some Democrats had finally learned Reagan's lesson. Obama and Edwards both were talking about a fundamental change in the way Washington worked. Their ideas excited a new generation to the party.

But apparently small ideas are back in style -- incremental change only, especially in the context of electoral reform. And why is that? Has the history of tinkering that defines the campaign reform movement actually gotten us anything of value? Will the DISCLOSE Act, with its NRA carve-out, really rally the base to this "party of reform"?

Pathetic and puny victories are defeats, not victories. And they are certainly not the sort of resolve that will convince anyone that "change" has come to Washington. Not even those who thought they were already convinced.

Wednesday, June 16, 2010

Have You Ever Heard of "Build America Bonds"?

Neither have I. It turns out that somewhere in one of the stimulus programs was an idea to help states and cities get cash to build roads, schools, bridges, and to repair other infrastructure. (We wanted to use TARP funds to accomplish exactly this goal and described why in our book, The Great Recession Conspiracy. And we would not lend the money since the repairs have to be paid for by the government sooner or later).

The idea behind Building America Bonds was that states and cities would sell these bonds and the U.S. government would pay one-third of the interest (1/3). This weak effort is completely effete, but I suppose it is better than nothing. Like starving and then ordering a steak dinner, and getting only a little serving of mashed potatoes, with no gravy.

You will love this. Wall Street banks have already collected over $700 Million selling these bonds. This is a minimum figure since many fees are not reported.

And here is the best part. Citibank is already advising its clients to sell these bonds short since they are a really bad deal. The State of Florida has already bailed out of the program.

If you want to understand just how badly our economic policies are organized, just say the words, "Larry Summers". And then say them over and over again until he disappears.

Monday, June 14, 2010

For Profit Schools Re-Visited

A couple of days ago, comments about For Profit Schools by Steve Eisman were included in a post. You can find the entire article, "Subprime goes to college" at the New York Post website, dated June 6, 2010, and you will find it fascinating reading.

Here are a couple of the highlights. First of all, the whole thing is about Federal Government loans and grants.

From 1987 through 2000, the total amount that went to for profit schools varied from $2 to $4 billion annually. When Bush was elected, the flood gates opened and now the for profit schools receive over $21 billion.

How did this happen? Try this on for size. In 2001-2002, Sally Stroup was the head lobbyist for the Apollo Group (University of Phoenix). From 2002 to 2006, she was the assistant secretary of post-secondary education for the Dept. of Education under Bush. Put the dots together. It is not hard.

The for profit schools have operating margins of about 40%. Most other businesses have operating margins of 7%-12%. And out of those incredible margins, they pay just 9 Cents out of every dollar received from the Federal Government on actual education. Huge amounts go to executive salaries.

At for profit colleges, 96% of the bachelor's degree holders had student loans and they averaged $33,050. At other colleges, 65% of those getting BAs had loans and they averaged $22,750.

And here is one you have to like. Corinthian Colleges charge $16,000 for an eight month course in medical assisting. Physician Assistant is a VERY good job. But the credits from Corinthian cannot be transferred to any other school, and the degree is not recognized by the American Association for Medical Assistants. And to top that, hospitals won't even interview Corinthian graduates.

The real point Steve Eisman is making is truly chilling. In the sub prime mortgage debacle, loan orginators went to the poorest, least credit worthy, people and loaded them up with mortgages they could not afford. Recruiters from for profit school focus on poor neighborhoods to find prospective students. They have even been know to troll homeless people looking for loan prospects.

Right now, for profit students account for 44% of all college loan defaults and Eisman forecasts that over the next ten years, for profit student loan defaults will reach $330 Billion!!

Eisman is absolutely correct. The factors driving for profit education are exactly the same ones that drove the sub prime market, e.g. scumbags without principles taking advantage of poorer people solely to get huge paydays for themselves.

Something to Think About

George Bush and the Republicans (one of which I used to be) have proposed abolishing Social Security and letting individuals invest their own money in most any way the chose.

A lot of British retirees invested heavily in British Petroleum (BP). That seemed to make good sense. BP is one of the largest oil companies in the world and has a long record of profitability.

Now, it looks like the dividends will be suspended and BP may even go bankrupt. So that really good decision doesn't look so good now. How could that have happened?

Nassim Taleb calls such events "Black Swans". By that he means events that are so unlikely as to practically not exist, but if the event does occur, the effects are devastating. Social Security's major function is to protect all of us mere mortals from Black Swans. That is critically important since Republicans don't appear to believe in the existence of Black Swans.

If you want to read more, Nassim Nicholas Taleb's book is titled, The Black Swan - The Impact of the Highly Improbable", and is a Random House book.

And if you want to know how to solve the Social Security problem simply and forever, read our book, "The Great Recession Conspiracy". It is available at for $4.95. It is also available as a Kindle book and a Google book.

The Great Recession Continues

For the first time ever, 40 MILLION Americans are receiving food stamps. That is 21% more than last year.

Sunday, June 13, 2010

Another Look At The Disaster Just Ahead

If you are having trouble understanding the incredible disaster that the U.S. will be facing in the near (three to five years), here are excerpts from Michael Tanner's column in this week's New York Post.

"This week, the federal debt officially passed the $13 Trillion mark...if you earned a $1 a second, it would take you 416,000 YEARS of pay it off....and that doesn't include the $15.8 trillion in unfunded liabilities for Social Security and at least a $50 trillion short fall for Medicare."

In addition, he points out that it would take a 88% tax on the rich and a 63% tax on the middle class just to keep up. No economy can stand those tax rates.

If you would like to see a picture of One Trillion $100 bills, see Section One of "The Great Recession Conspiracy". If you would like to find a workable solution to the Social Security and Medicare problems, see Section Four., and it is available as a Kindle book and a Google book.

Saturday, June 12, 2010

The Puzzle Goes On!!

Here are monthly retail sales compared to the month before;
January, 2010 +0.3%
February, 2010 +0.6%
March, 2010 +2.1%
April, 2010 +0.6%
May, 2010 -1.2%

If you can find good news in those numbers, please explain it to me.

However, the Obama administration seems to think they are pretty good news. But they still want to create new jobs, and they do recognize that small businesses are the engine that drives new jobs in the U.S.

So how are they going to encourage small businesses to create new jobs? According to today's Los Angeles Times, "President Obama urged passage of his proposals to stimulate hiring by small businesses through tax credits and lending incentives, arguing that similar measures are partly responsible for the economic recovery over the past few months."

What economic recovery? Fifteen million Americans still do not have jobs of any kind. Another fifteen million are working short hours or have temp jobs.

O.K., I can understand trying to put a good face on this dismal economy, but to try to give credit to small business tax credits is so absurd that it defies comprehension!!!

This government seems completely unable to learn from its past mistakes. See earlier posts for more examples.

It is obvious that Obama knows absolutely nothing about how real world business works so he must be relying on the world's (perhaps) worst economist, Larry Summers.

There will be no upturn until you read that theoretical Larry has left the White House. And that is one fact you can take to the bank.

What should be happening is that the returned TARP money should be made available to the 25,000+ mayors of cities around the U.S. and to the State Highway Departments on a first come first serve basis. They know how to put the money to work creating new jobs now and all across the country.

Friday, June 11, 2010

A Great Puzzle

One of the most puzzling things about Washington is that nobody seems to ever learn anything from real life.

Bush handed out rebates to everyone with the idea everyone would rush out and spend the money to boost the economy. Instead, 3/4 of the checks went into savings or to pay down debts.

Then Obama handed out checks to everybody to boost the economy and exactly the same thing happened.

Obama's first attempt to help small businesses (the source of most new jobs) was to give them a tax credit for hiring new people. No small business ever hired a new employee to get a tax break. (In addition, to get the tax break, the employer had to prove that the new hire had been unemployed for more than six months, e.g., more paper work, the single thing most small businesses hate the most.)

Now he wants to help small businesses by helping them get credit. Every survey of small businesses says their No. 1 problem is not lack of credit, it is lack of customers. Declining retail sales across the country demonstrate that problem.

It increasingly looks as if Washington people have decided that ordinary Americans are too stupid to know what is in their own best interest.

Some Interesting Numbers

In 2010, there are 105,480,101 households in the United States and they had a median income of $52,029.

In 2010, there are 4,700,000 households with a net worth of $1,000,000, or more, up from 3,800,000 in 2004. Those 3.6% of all U.S. households have 53% of all the wealth in the U.S.

Income distribution in the United States becomes more unequal daily.

The U.S. government has taken a census every decade since 1790. Every census from 1790 until 1960 showed income in the U.S. being increasingly widely distributed. That century long trend came to an abrupt halt, and since then income has become ever more unevenly distributed.

What do you think happened between 1950 and 1960 to cause this hugely significant shift in income distribution?

Thursday, June 10, 2010

A Rock and a Hard Place: A Definition

The economy created just 41,000 new jobs in May, one-fifth the number in April, and about half of the new jobs needed to keep up with population growth.

Fifteen million Americans are without jobs of any kind, and a substantial number will be out of unemployment benefits in the next few weeks. That means no income at all.

All of the stimulus money has now been spent on Larry Summer's cock-a-mamie, pie in the sky, high tech, maybe some day, white collar jobs. There is no more money so we will have to borrow more money from the Chinese to create the jobs.

But that will increase the deficit, and even the Republicans are started to get worried.

Here is Politico's take on Uncle Ben's take on the problem.

Federal Reserve Chairman Ben Bernanke said on Wednesday that Congress needs to develop a plan to manage the nation’s burgeoning debt, because the federal budget “appears to be on an unsustainable path.”

Testifying before the House Budget Committee on the state of the economy, Bernanke urged lawmakers to take decisive action to show investors that the country can get back on the right financial path. But he did not offer any specific remedies.

As Congress prepares to take up emergency spending legislation in the next few weeks, the deficit has created a “structural budget gap that is both large relative to the size of the economy and increasing over time,” Bernanke said.

"We need to convince markets in the medium and longer term that we have a sustainable fiscal path for balancing our budget or at least bringing our deficits down," he said, later adding "medium-term" means three to five years down the road.

“If confidence is lost in our long-term fiscal stability, we will see our interest rates go up quite a bit and that would affect the consumer's ability to buy houses,” he said. “It would slow our economy, and it would put pressure on the balance sheets of financial institutions.”

Bernanke said the Fed has a long-term plan for managing monetary policy, and Congress should have a similar plan for managing the fiscal side.

“Right now, there’s not anything on the table,” he said.

As he warned lawmakers they need a plan to manage growing deficits, Bernanke also defended the decisions that contributed to those deficits in the first place, like the Troubled Asset Relief Program and stimulus funding, saying the government had to spend money to prevent America’s economy from completely collapsing last year.

The Fed chairman also responded to lawmakers’ concerns about the European debt crisis, saying leaders are “aggressively” handling their financial crisis, which he believes will only have a “modest” impact on economic growth in the United States.

And there you have it. A Rock and a Hard Place. What do you think should happen next?

Tuesday, June 8, 2010

You may find this interesting

One of the hero's of Michael Lewis's book, The Big Short, (see earlier posts) was a stock picker named Steve Eisman. This week's Business Week includes this comment by Steve.

"I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task."

Hear! Hear! See earlier posts for a brief summary of my experience with the for-profit educations industry.

Sunday, June 6, 2010

Some Interesting Information

In March, 2010, the Pew Research Center (a really good outfit) asked 2505 Americans whether each of the following institutions positively affect society.

71% said Small Business positively affect society
63% said Church or Synagogue
45% said the Obama administration
33% said Hollywood
31% said mainstream media
25% said corporations
24% said congress
22% said banks

That pretty much sums it up.

And Now Some More Bad News

The other day we found some good news about The Great Recession. The rate of violent crime has actually fallen, not increased as you might expect from wide spread financial stress caused by the Contraction.

Now the Center for Disease Control and Prevention reports that the suicide rate among people 45 to 54 is at an all time time, and has surpassed the usual group with the highest suicide rate, those 80 and over.

Men in the 45 to 54 age group are three times more likely than women to commit suicide.

Indeed, these are difficult, trying times.

Saturday, June 5, 2010

41,000 New Jobs in May

The Obama administration is singing the praises of their economic recovery plan, and that is all crap! There are now approximately 30 Million Americans unemployed, under-employed, or have given up looking for work today, and they want you to think that creating 41,000 new jobs in May is a great accomplishment??

Here is what should have happened over a year ago. The American Association of State Highway and Transportation point out that the 47,000 miles of the Interstate Highway system are all over fifty years old and are badly deteriorated in many places. Interstate highways in Arkansas belong in a third world country. In addition, there are 150,000 bridges classified as structurally deficient or obsolete. Every state highway department knows exactly where that work is needed.

There are just over 25,000 cities and towns in the U.S. and every mayor and/or city manager knows exactly what work is needed in his/her town, and exactly how to get it done.

So why has not the returned TARP funds been applied to this problem? Well, it seems there are two problems. One is that the administration wants to control all projects from Washington so that projects need months and months, and now years to get approved. All that was needed was to announce a number of available dollars and award contracts on a first come, first serve basis until the money is gone. The Association of Mayors offered to do this job 18 months ago and were turned down flat.

The work would have provided real paychecks to real people to spend to get the economy growing again. (See The Saving Paradox posted ealier.) It would have spread the work, and the money, all across the U.S. It would have reduced the unemployment benefits we are paying out. And best of all, it is work that will HAVE to be done sooner or later, and paid for sooner or later.

The second problem is that Obama's wealthy economic guru dismisses this kind of work as simply "manual labor".

An earlier post claimed we have a dysfunctional government. That is not quite right. What we have is a dysfunctional economist who is controlling our economic policy with some nonsensical economic theories and a complete lack of understanding of the lives and woes of most Americans.

You will know the depression is over and the recovery has begun when you read that Larry Summers has left the White House. Until then we are completely screwed and you should be paying off debs (if you can) and stock piling cash.

Friday, June 4, 2010

We have the best government money can buy. See below:

By Dan Eggen
Friday, June 4, 2010

Even for Washington, the revolving door between government and Wall Street spins at a dizzying pace. More than 1,400 former members of Congress, Capitol Hill staffers or federal employees registered as lobbyists on behalf of the financial services sector since the start of 2009, according to an exhaustive new study issued Thursday.

The analysis by two nonpartisan groups, Public Citizen and the Center for Responsive Politics, found that the "small army" of financial lobbyists included at least 73 former lawmakers and 148 ex-staffers connected to the House or Senate banking committees. More than 40 former Treasury Department employees also ply their trade as lobbyists for Wall Street firms, the study found.

Some of the biggest names highlighted in the study include former Senate majority leaders Robert J. Dole (R-Kan.) and Trent Lott (R-Miss.); former House majority leaders Richard K. Armey (R-Texas) and Richard A. Gephardt (D-Mo.); and former House speaker J. Dennis Hastert (R-Ill.). Ex-Rep. Vin Weber (R-Minn.) has the largest number of financial-services clients of any former lawmaker, representing 13 companies and groups, including Deloitte, Ernst & Young and the Real Estate Roundtable, the report shows. The revolving door is evident in almost every major issue that comes before Congress, from regulation of the coal industry to the auto industry to the health-care sector. But the sheer scale of the overlap within the financial sector is remarkable: For every sitting member of Congress, the study shows, there are three former colleagues or government staffers lobbying for banks.

David Arkush, director of Public Citizen's Congress Watch division, said "Wall Street hires former members of Congress and their staff for a reason," especially at a time when lawmakers are debating a historic overhaul of the way Wall Street does business. "These people are influential because they have personal relationships with current members and staff," Arkush said. "It's hard to say no to your friends, but that's what Congress needs to do."

"Companies pay a premium for lobbyists who've spun through the revolving door because it can be a small price to pay relative to the huge payoff if they can shape legislation," said Sheila Krumholz, executive director of the Center for Responsive Politics. "These lobbyists tap insider knowledge and personal relationships, knowing that their old friends and former co-workers won't want to let them down."

Wednesday, June 2, 2010

I Am Happy To Say I Was Wrong!

In most Contractions of the Business Cycle, crime increases as desperate people reach the end of their ropes. We detailed this stressed out behavior in The Great Recession Conspiracy. I am happy to say that has not happened this time. From 2008 o 2009, violent crime is down 5.5% nationally and 7% in big cities.

So whatever the reason, there is some really good news in this otherwise bleak economic landscape. I'll take anything I can get.

Tuesday, June 1, 2010

The Big Short

If you only read one book this year, make sure to read Michael Lewis's book, The Big Short. Here are some of the people who are also reading it and recommending it. Let's hope some of them get the crap scared out of them. (Thanks to Politico)

In the midst of a floor speech on regulatory reform, Senate Majority Whip Dick Durbin (D-Ill.) interrupted himself for a sort of commercial announcement.

“I’m going to plug a book: Michael Lewis’s ‘The Big Short.’”

While debating changes to Fannie Mae and Freddie Mac, Senate Banking Committee Chairman Chris Dodd (D-Conn.) told his colleagues: “Read this new book, ‘The Big Short.’”

Senate Majority Leader Harry Reid (D-Nev.) was decrying Republican obstructionism on the floor when he said, “I recommend everyone within the sound of my voice to read the book.”

Politicians have been known to latch onto books — Amity Shlaes’s “The Forgotten Man” was a must-read among Republicans last year during the bailouts — but few works have shaped a legislative debate quite like Lewis’s story about investors who made a killing by betting on the housing crash.

For a lot of Democrats — and even some Republicans — the book has created a kind of defining counternarrative of the economic collapse.

And it’s given Lewis rock star status among some on Capitol Hill.

In the fall, Lewis met with House Republicans to discuss the financial crisis.

Rep. Jackie Speier (D-Calif.) invited Lewis to speak to the House Democratic Caucus in May. Afterward, a brigade of senator fans, including Democrats Carl Levin of Michigan and Kay Hagan of North Carolina, approached him to say they liked the book.

“I was just in shock,” Lewis said. “They came up to say ‘Hi,’ and they read the book and liked it and mentioned it on the floor, that kind of thing.”

Back home in Berkeley, Calif., Lewis started getting calls from Hill staffers who wanted his insights on the financial meltdown and the best way to prevent another one.

“I tell them all the same thing: ‘I’m not Jesus, I’m Brian’” — a reference to the Monty Python character who repeatedly finds himself mistaken for the son of God.

Lewis may not be the Messiah, but lawmakers are treating his book as though it were the Bible.

“The Big Short” tells the story of the economic meltdown through the eyes of a handful of investors who were smart enough to see the subprime mortgage crisis coming — and greedy enough to cash in on it.

As lawmakers navigate the mind-numbing terrain of credit default swaps and interest-only, negative-amortizing, adjustable subprime mortgages, Lewis’s book gives them a straightforward way to think and talk about it all.

“The Big Short” has been mentioned at least 15 times on the Senate floor and in press conferences and committee hearings. At a hearing of the Senate Subcommittee on Financial Services and General Government in April, Durbin told Securities and Exchange Commission Chairwoman Mary Schapiro, “I’ve joined a lot of other people in just finishing Michael Lewis’s book, ‘The Big Short,’ and it’s really an eye-opener of what was going on at the time that this real estate bubble was created.”

Republican Sens. John Ensign of Nevada and Kit Bond of Missouri have name-dropped the book. And Sen. Ted Kaufman (D-Del.) is fond of dropping catchphrases from it — such as “thin files” and “barbelling” — during committee hearings.

Read more:

O.K., Here is the other side of the story

Despite U.S. deficit concerns, investors still pour money into Treasury bonds

By Neil Irwin
Washington Post Staff Writer
Tuesday, June 1, 2010; A01

The U.S. government debt is rising inexorably, according to the conventional wisdom in Washington, and the political system is too paralyzed to take unpopular actions to rein it in. Privately, many policymakers take it as a given that the situation will change only when the nation faces a Greek-style fiscal crisis.

But apparently nobody told the people who lend the U.S. government money. On Friday, they were willing to hand over their cash to the Treasury for 10 years for 3.3 percent interest, a level so low it implies they consider the United States among the safest investments in the world. Collectively, those investors -- think mutual funds, pension funds and foreign central banks -- could lose hundreds of billions of dollars if they're mistaken and the United States has a debt crisis.

It is the Beltway vs. the bond market, and they can't both be right.

Perceptions inside the Beltway rest on this idea: Although the current large budget deficit is caused mainly by the weak economy and a short-term economic stimulus that will soon expire, in the longer run the government faces a vast unfunded burden, particularly tied to Medicare and Medicaid.

The mix of spending cuts and tax increases that could close the gap are wildly unpopular. With the threat of a filibuster in the Senate hanging over anything remotely controversial, a bipartisan budget accord seems unlikely. And many Republicans have declared they will not vote for a package that includes a tax increase under any circumstance.

This situation led Moody's, the debt-rating firm, to state in March that the U.S. government is nearer to being at risk of losing its Aaa credit rating and that maintaining the rating might require adjustments to tax and spending policy "of a magnitude that, in some cases, will test social cohesion."

Given those realities, the widespread view in Washington is that serious efforts at reducing the deficit will come only when a crisis moment, such as steeply higher borrowing rates, forces the issue.

"You can talk about the deficit until you're blue in the face, but we'll only get political traction on meaningful deficit reduction when there is economic pain being caused by the deficit in the form of inflation or high interest rates or both," said Bruce Bartlett, a Treasury Department official in the George H.W. Bush administration who recently wrote an article predicting that the U.S. government will be downgraded in less than a decade.

In effect, lending money to the U.S. government is like lending to a couple that is spending way beyond its means, and in which the wife refuses to take a second job to increase income and the husband refuses to spend less. No responsible banker in the world would make that loan, but banks and other global investors feel rather differently about U.S. Treasury bonds.

Among economic commentators, there have been rumblings that the debt crisis that started in Greece and increasingly affects such other Western European countries as Spain and Ireland could eventually spread into a crisis of confidence in United States government debt.

So far, the opposite has happened.

The financial crisis and recession drove Treasury borrowing rates to all-time lows -- and in recent weeks, the European debt crisis, rather than make investors fear for the safety of their Treasury bonds, has instead led to an influx of money into the United States, driving rates down further.

On Wednesday, for example, the government borrowed $42 billion in five-year debt for 2.13 percent. During the 1990s, that rate averaged 6.3 percent.

So what are bond market investors thinking? They are looking around the world in search of a safe place to park cash, and the United States seems like the safest -- or perhaps the least unsafe.

Western Europe has weaker economies than the United States, more lavish social welfare benefits, a fragmented political system and a currency union that might not make it out of the current crisis intact. Japan has an older and slower-growing population, and its economy has been stagnant for most of the past two decades. (It also has very low borrowing rates, reflecting in part high rates of savings among its citizens.) Beacons of stability such as Australia, Canada and Switzerland are too small to handle the trillions of dollars in global savings that investors are looking to park.

In the United States, meanwhile, the economy is beginning to grow. There are few signs of inflation, and the Federal Reserve is likely to keep the short-term rates it targets very low for some time.

While long-term interest rates are low by historical standards, they are much higher than short-term borrowing rates, which are essentially zero, a phenomenon known as a steep yield curve. That means that investors feel well-compensated for tying their money up for years.

Moreover, the dollar and Treasury bonds have a status as the safe port in the storm whenever the global economy or financial system looks shaky. Bond investors assume that relationship continues. And many global investors' returns are measured in dollars, so they have extra incentive to have exposures to U.S.-based debt.

And fundamentally, bond buyers discount the risk of a catastrophic fiscal calamity in the United States, noting that the U.S. government has proved able to make hard-but-necessary decisions when it must, such as the passage of the $700 billion bank bailout in 2008 and a deficit-reduction package in 1990.

"It may take longer than anyone likes, but we have a history of getting the message," said Dan Shackelford, who manages the New Income Fund, a bond mutual fund, at T. Rowe Price. "We have come close to hitting the crisis point before, but somehow the government has been able to respond."

In other words, we might not know how, or when, but eventually the U.S. political system is sufficiently strong to make the hard, necessary choices.

But market sentiment can turn on a dime, as the Greek government and former Lehman Brothers executives can attest, so the big question remains whether major action on the budget deficit will come before Treasury bond rates rise significantly.

"There is a tendency for markets to ignore certain things for long periods of time, then suddenly notice them all of a sudden," Bartlett said.

Obama administration officials are aware of the risk of an abrupt change in perception among bond investors. A spike in Treasury borrowing rates could slow or stop the economic recovery and make the deficit problem even worse by increasing the government's costs to roll over its debt.

Thus, the administration has attempted to signal to the bond market that it is attuned to reining in the budget deficit in the years ahead, even as it argues for higher spending in the near term to support the economy. The president's proposal this year to freeze non-defense discretionary spending for three years is one such signal.

And it is uncertain exactly how growing concern about U.S. government debt would be reflected in financial markets. Before the impact of high budget deficits shows up in interest rates on Treasury bonds, it might show up in the form of a lower stock market and higher borrowing costs for private enterprises.

"Markets never price big surprises," said Robert H. Dugger, managing partner of Hanover Investment Group in Alexandria. "That's why they're big surprises."