Do Something About This Economy….

Reading a recent critique of the debates, it focused on a fact. Millions of Americans are not enjoying the benefits of this economy. Romney had the lucky position to point out all that was wrong, without the responsibility of finding any solution to fix it.

His line, “bring down the rates, broaden the base.” simply has not worked. It didn’t work in Reagan’s time. It didn’t work for Bush HW. It didn’t work for Bush W. It is called: “trickle down”.

Clinton, who practiced kavipsian Economics, raised the rates, causing profits to revert back into the economy stimulating even more growth; that growth grew people’s incomes. That is the key. People will take lower wages if they know they will grow out of them. But ever since Republican Tax Rates went into effect, wage growth immediately stopped. 99% of Americans are earning exactly what they did in 2000. It’s been twelve years since wages for the 99%, increased. Higher taxes takes away all incentive for any employer to pay his people more.

Here is the funny part. To actually do something about the economy, President Obama has to eradicate the Republicans. Get rid of them. Make them a non player. Republicans and republicans alone, are the reason the economy is in such a slump.

Let’s review.

Republicans fought the stimulus.
Republicans fought the car buying incentive.
Republicans fought infrastructure development.
Republicans fought giving Veterans jobs upon returning to USA after fighting for years.
Republicans fought lowering insurance rates.
Republicans fought lowering gas price legislation.
Republicans fought regulating big banks from literally stealing your money.
Republicans fought against balancing the budget.
Republicans fought against payroll increases for all Americans.
Republicans fought against lowering medical costs.
Republicans fought against a better economy.
Republicans fought against hiring more policemen.
Republicans fought against hiring more fireman.
Republicans fought against hiring more school teachers.
Republicans fought against building roads and bridges that were sorely needed.
Republicans fought against not defaulting on the US Dollar.
Republicans fought against strengthening America Abroad.
Republicans fought against stopping corporate corruption.
Republicans fought against fighting wealthy tax cheats.
Republicans fought against closing the loopholes Romney used to get rich.
Republicans fought against raising wages for all Americans.
Republicans fought against legislation that allowed workers to ask for more money without being fired.

yeah. There is a reason the economy is bad. It is called the Republican Party.

Having “No Republicans” equals massive investment back into our economy. The formula for a successful America is…..

NO REPUBLICANS EVER ELECTED AGAIN = MASSIVE AMERICA ECONOMIC GROWTH

So Obama, you are at fault according to Mitt Romney and the Conservative Cheer-leading squad… Because you didn’t get rid of Republicans… Shame on you!!!!

I guess it is up to us, to do so if we EVER want our economy back.

If not… I guess every vote for a Republican is a vote in support of Communist China…..

Republicans Just Cost Me $1000 A Year!

They cost you too…

The drop in payroll tax from 6.2% to 4.2% results in a savings of about $1000 a year to every wage earner.

(If truth were widely known, that tax cut is actually a bad idea. It hemorrhages a dying social security fund, requiring the eventual death of the program or an expensive emergency last ditch surgery in the future.)

But it is hard not to give a $1000 present to every voter. Even if it only comes out as $19 dollars and change each week… But, still again, if your electric bill is $198 and you only have $189 in your account, that additional amount is, well, a lifesaver…..

But, Republicans in the House, even after Republicans in the Senate voted passage, overwhelmingly voted….. not to vote on the measure…

They didn’t vote against it… THEY VOTED NOT TO VOTE ON IT……
(speculation is that they lacked the votes to keep it from passing)..

So, how does that relate to you?

House Republicans (read Tea Party) just voted NOT TO VOTE on whether or not you will be losing an extra $20 a month out of your next paycheck.

Imagine what this is doing to payroll clerks around the country?
Imagine what this is doing to family budgets around the country?
Imagine what this is doing to businesses who rely on consumer spending around the country?
Imagine what this is doing to businesses heavily involved in the financial sector, around this country?

So what would normally happen?

Normally a group that can’t find agreement, acknowledges the sad fact, and long before the deadline, announces that they failed to reach agreement and that things would continue as they were on a temporary basis, to unfortunately allow for more time to solve differences.

But NOOOOOOOOOOOO, …. WE ARE STUCK WITH A TEA PARTY THAT FUCKS THINGS UP.

Instead, we have a vote not-to-vote, then get all sorts of very lame excuses from those who are delaying, none of which apply to the real problem that Social Security is doomed unless drastic action gets taken (higher rates, not lower), and we get nothing….

The tax cut will expire…

It is like sequestering a jury in a room, where everyone after much fact-covering argument has agreed to a judgment, except for one person who’s been bought off. And nothing, nothing, logic, emotional appeal, bullying, snuggling up to, befriending, produces any change. And you go years, every working day, to the same court house, the same jury room, they same chair at the same table, hear the same arguments, hoping against all odds, that today, he will see the light and switch. You go the next day.

That is today’s Congress. Held hostage by Tea Party Republicans who live in a dream world untouched by the reality of living under $185,000 a year. Like that bought-out juror, every day, they hold up progress with the unjustified belief that, if they wait long enough, the other 11 jurors will give up and sway over to the sole juror’s way….

Two things can happen… 1) return to the public and announce a hung jury, and do a complete retrial.. or 2) sneak up to that one juror, put a gun to his head, say nothing, pull the trigger, clean up the mess, dispose of the body, then go out to the public and announce what the 11 of you have decided…..

One is the nice way, sanctioned to due process of law. The other is the American Way.

It’s time to initiate the kavipsian policy of expression or what is otherwise known as “Show Us How You Really Feel”… Who knows? It could become the next great movement? The next time someone you know (or don’t), says anything about how millionaires should keep their tax cuts and the poor should pay, nod your head in agreement, smile a little bit, then hit them as hard as you can in their mouth, I mean as hard as you can! Put them flat on the ground holding their jaw… Then loudly say, “Don’t every talk that stupid way to me again!” Who knows, if 99% or all 303,930,000 would respond that way to our fellow congressional delegates, and the other 3.9 million of their like who advocate such madness, we might actually get the very progress we need, not because of intimidation, but because such policy is right….

For those who argue expression of violence is un-American, I’ll remind them that tonight, is John Wayne Night on AMC: view it!… I argue that such action is VERY American and perhaps it has been the lack of such spontaneous expressions of frustration from working American people, that has caused the logjam where nothing gets done because of one holdout, who thinks he can sway the world to his opinion and face no consequences… ….

Practice now, by punching brick walls.

Labor Unions

The underlying philosophy supporting the concept of establishing labor unions, was that having a union, worked well for both sides.

The company benefits from stabilizing it’s personnel costs, and the workers, in return for working for an agreed wage that was profitable for the company, received security that the job would be there for them, and support them after they retired through their pension.

Security and stability, for lower working wages.

The system is broken. We have unions attempting to provide higher wages, and…. companies negating on their promise of security.

Without either consistency or security, long term planning is just a guess. What will wages be 5 years from now? What will my pension be when I finally retire? No one knows.

If no one knows, .. no wonder so many things are up in the air…

We need to revisit unions. Currently they are a joke. As we re-evaluate what a working wage is in America, unions need to be willing to negotiate with both corporate accounts and governments, and work again to establish the security that made America the strongest economic power of the 20th Century… We were the strongest economic power for one reason. Members of our population could buy things….

Until we regain that capacity, we will not have any growth out of our stale economic glump…. (gloom + slump)

Bonini-conomics

It’s clear as day.

When you have no engine in your car, you have to put one in… When banks aren’t lending, when the private sector is incapable of spending, the government has to..

It is called deficit spending. It’s been done before. Whereas we suffered a horrible Great Depression, Sweden emerged from theirs in 1934 by using just such a Keynesian approach towards deficit spending. While America suffered through dust bowls, “Grapes of Wrath”, Hoovervilles, soup kitchens, and one out of every four workers unemployed, Sweden was thriving and its citizens were living quite comfortably.

America finally… five years later, had no choice but to follow suit after the Japanese bombed Pearl Harbor. We too spent money we didn’t have and guess what? From 1939 to 1941, U.S. manufacturing shot up a phenomenal 50 percent!

So what happens to those people who have no choice but to work, when the government gives them a job? They spend…. soon,… more people have to work… who spend… so even more people have to work,… who spend … so even more people than the more people spending money previously, have to work. … and they spend.

Republicans clamor we need more jobs… Mike Castle even hands out a giant check he voted against! LOL.. But they are all lined up against the very engine that brought us out of The Great Depression… How silly is that?

They say… we’ll owe sooooooooooooooo much money… Hello…Excuse me? Uhhh, have you ever bought a … house? Don’t you personally owe soooooooooooooooo much money? A $200,000 dollar house cost over $455,000 by the time the last payment is made. But…… how long would it take you, forced to spend more than you currently make just to live, to save $200,000 cash just to buy that house outright?

Right…. you couldn’t…

The same principal applies to economics. If you need to spend money for jobs right now…. and don’t have it… when and where will those jobs come from?

They won’t. Duh.

Therefore when Bonini says “Delaware spends more per person than any other state, excluding Alaska and Hawaii…” and that “the No. 1 employer in Delaware is the state itself, and the number of people employed by the state has doubled in the past 12 years” … right now we should be grateful… not troubled. Because we too are making some of that money those people are spending.

When he says…. “Tough economic times have prompted people to get involved in the political process,” it’s hilarious…. Especially when you look at this… on the Republican side… THEY ARE ALMOST ALL MILLIONAIRES…. (C’mon… It’s Delaware… Even if you’re Republican you gotta laugh)…

But, when he says … “The fact that people are making tough economic decisions in their personal family lives is bringing attention to the fact that the government is not,” it shows he doesn’t understand government’s role in the economy. It unfortunately shows us all that he doesn’t either read, or understand, American history.

And… that is what makes him a dangerous person to put in as our State Treasurer. He’s a great guy, and I certainly wish him well, but now is just not right time for someone who does not understand deficit spending to be running our state’s Treasury. Thirty years from now… based on my best estimates…that will be his time.

A Meeting On The Green

Across from the governor’s office in Legislative Hall, a tent was set up, wires and microphone brought in, and lots of AFSCME green shirts were handed out…

All were there to protest the 8% wage cut. Approximately 400-500 people showed up at the rally to support state labor and to question the necessity of cutting back pay for state workers by 8%,,,

Some of the legislators who crossed the street to show their support, were Debbie Hudson, John Kowalko, J. J. Johnaon, Dori Conner, as well as Mister Pro Union Republican Dick Cathcart.. Others arriving late because of caucuses, were Bethany Hall-Long, Pete Schwartzkoph, Bruce Ennis, and Bob Gilligan, … who missing podium time, mingled with the crowd outside.

The News Journal was there. Their reporter got out of her car, wandered around briefly, talked to two people, got back in their car, and drove off.. I saw her. Great reporting from a great paper.

It was cold, but not too cold. The Big Top tent was supported by to massive poles, but still not enough room underneath was present for the crowd that came… Many buses were on standby, having brought state employees from as far away as a little office outside of New Castle airport on Rt. 57 Churchman’s Road…. The atmosphere was apolitical in nature, but it’s tone was more direct, as is usually the case when one’s incomes are directly on the line…

Obvious attempts at cheerleading were promulgated by Green Shirted AFSCME speakers, with the popular phrase being “No Pay Cuts” erupting around the Green. It was their day in the sun, although perhaps prognostic for state employees, there was no sun shining… If that’s the official celestially-sent omen, then…..tighten the belts, boys and girls….

Despite the darkening skies, warm comaraderie and sense of purpose buoyed kindred spirits…

For despite how we see things in our impersonal bureaucratic kind of way… the bottom line is these people showing up, cannot survive on what they earn now, and are at wits end as to how they can remain solvent after taking an 8% cut….

This is real folks. It’s a real issue focused on survival… It is not about losing a little money here or there…

And that is what the demonstration finally drove home… As a government for the people, of the people, by the people, we must ask ourselves….do we want to put ourselves in the business of hurting people? One state worker from the Emergency Center outside Smyrna, said he wished his co- workers could also be there, but unfortunately they had to go to their second job: you know, the job that is required to keep ahead of today’s expenses… Now this worker had been employed over a decade… Over the period of that length, their income had increased a whopping 4%… Yes, 4%… Why cut back 8% they asked, to a rate less than when they joined? I gave the answer that the 8% was determined by taking the dollar amount needing cut, and dividing it by the number of people working across the state, 8% is what it came to mathmatically. (My realism was not appreciated in the emotionality of this environment).

Even I had to question returning this person’s wage level back to the times of George Herbert Walker Bush… Yes, we all know it was the party of his son who physically ruined everything for us… But still, jumping back twenty years?

Today, getting another source of income does not seem likely. Jobs are hard to find right now… And for those couples who have both partners working for the state, and are now approaching the “medical” years, the benefits for which they left the private sector and join the government and be willing to accept a measly 4% pay increase over the expanse of ten years, simply because of the strength of their benefit package,… are now losing those very benefits when they need them the most…

But then, I said, “everyone is suffering. Private sector employees have been making those sacrifices over the entire span of the Bush years as American jobs got shifted offshore solely because of the Republican tax breaks, and every domestic employer had to trim back his offered benefit package just to stay competitive…..”

“But, they were not working for the people”.. I was then told. “They were working for a business. We, gave our lives to help people, and now, we lose 8%? Is there any other option?””

Just then John Kowalko (D Newark) stood up with a plan to raise additional revenues from fees and corporate taxes, so that no employee would have to take a cut in pay. As expected those words went over well with this crowd… The prime argument being made by John, was that with state employees are taking an 8% pay cut, and they being the largest employee-base in this state, their damping of the state economy, would kill any chance of recovery before it had the opportunity to begin… People losing 8% do not spend. Businesses catering to people losing 8% do not earn revenue. Enamored with his response, Kowalko led a new cheer for “no pay cuts”. We could hear our echo bounce back to us off the windows of the Governor’s office….

Then Dori Conner stepped right up to the microphone….
Her twelth anniversary had just gone alright..
Between her and her great husband Bob,
Thirty seven years, …had gone by.
In their care the teachers, had done all right…..
They were the Sultans…

Next pro union pumped up Dick Cathcart got up to speak.. (he’s a Republican you know)… He laid into the racino industry who just last night in the House, threw enough money at enough Republicans to stymie a bill to raise $55 Million for the state through sports betting.. “Do you know why they wanted the bill dead?” “NO” yelled the crowd back to them. Louder he yelled, “Do YOU know why they wanted the bill dead?” “NO” roared the crowd back.. In his loudest voice cracking under the strain, “DO YOU KNOW WHY THEY WANTED THE BILL DEAD?” The crowd in one voice blasted back: NO!

“THEY WEREN’T HAPPY WITH THE HUNDREDS OF MILLIONS THEY’D BE MAKING OFF THE EXISTING DEAL… THEY WANTED MORE….AND MORE…. AND MORE…”

(Now if ever there was a good reason for gun control, then this just brought it up… For in the heat of that moment, as the collective mindset of all those present slowly grasped the gravity of the insolence that had occurred the night before, had everyone there had access to a firearm, the possibility exists that there would be no Republican left standing by this time tomorrow.)

Next “JJ” Johnson reminded the audience of the march on Washington… Reciting the directives of 1963, he encourage that group to stay organized and work together… “United we stand, Divided we fall”. he led the crowd… Although his analogy was outdated and a little off mark, (the march on Washington which culminated in the ” I Have A Dream” speech was to dramitize the plight of African Americans, not labor ), his enthusiasm was contagious towards fueling the protest of the moment, as many there envisioned the power trip that they would elicit from being part of something as grand as that march on Washington…….

Finally AFSCME spokesman led the final cheers of “No Pay Cuts” and had us direct them toward Markell’s office, and the party slowly matriculated outside. Symbolism not being lost on this observor, it is hereby dutifully noted, that throughout the demonstration, the podium had been facing South: the direction Republican leadership had led our State House and our country over these past 8 years….

Final points occurred on the sidewalk as Legislators who had been tied up in caucus, came over to “pay their dues” or to “show their support…” Bob Gilligan, Bethany Hall-Long, Bruce Ennis, and the newly fired Pete Schwartzkoph, joined John Kowalko on the sidewalk. The official AFSCME sign carriers, proceeded to march across the street and parade up and down past Markell’s window.. I couldn’t help make the casual observation, based on what I was currently seeing, that carrying signs in today’s electonic age, was silly and made one look quite foolish and outdated… What’s the point, anyway, when you can reach thousands with a radio ad? Why look like you belong in the 1890’s parading around Matewan?

Bet you can’t guess who out of these legislators, was the most engaged?

Pete.

The least? Bethany Hall- Long, I think… who walked ten feet in each direction blankly saying “thanks for your support”… and then returned to huddle with Gilligan, and several staffers…

And, I should say.. Bruce Ennis impressed me…

And as is tradition, I’ll close with a vignette:

Bob Gilligan, when he heard about Pete’s firing, came up and offered this observation…

“Look Pete, not only is what they did, stupid…. but it was “fucking” stupid….”

Damn! I love Democrats… Gone now are those Copelandish aphorisms of ominously finding ourselves “stepping into a big pile of doo doo”.. At least we’re hearing real truth for a change… Even if it gets interpreted by Pete’s darling grandson as being “truckin’ stupid….”

(inside joke)

Chapter 5: Open Access To Short Term Credit

The easiest way to become rich, is to take other people’s money and give none of it back… — kavips

Leap back two years ago. In a speech given before the New York Bankers Association (NYBA), OTS (Office of Thrift Supervision) Director John Reich expressed concerns about weakening credit quality at some financial institutions. Specifically, he identified inadequate loan documentation, misaligned loan pricing relative to credit risks, declining underwriting standards, liberalization of loan terms and an increasing reliance on wholesale funding as areas of concern to OTS. (Article from Mortgage Banking: May 1, 2006.)

It appears that banks have (two years too late) finally taken up his advice. Now that our economy is collapsing and the Federal Reserve is trying every trick it can think up to loosen credit, the amount of loans going out into the commercial market, can be best described in three words: shrink, shrank, shrunk.

As the new owner of $172.5 billion of preferred shares and warrants in 208 U.S. financial institutions, the Treasury Department hasn’t succeeded in thawing frozen credit markets, leaving taxpayers propping up an industry that won’t lend to them.

More than 8.5 trillion has been pledged by the Federal Reserve and U. S. Treasury to back up financial institutions. Instead of making it easier to obtain a loan, getting approval has become more difficult. Fed reported that about 85 percent of U.S. banks said they had tightened standards on commercial and industrial loans to companies with more than $50 million in annual sales, up from 60 percent in July. Ninety-five percent said they increased the cost of those loans. About 70 percent said they made it more difficult to obtain prime mortgages, and almost 65 percent said they did the same for consumer loans.

Not the best statistics to get the economy going again..

While mortgage rates have declined, they haven’t fallen as fast as bank borrowing rates, meaning financial institutions are demanding more profit for every dollar they lend.

Average rates on 30-year residential mortgages fell to 5.14 percent last month, according to data compiled by McLean, Virginia-based Freddie Mac. That’s down from 6.67 percent in June 2007, before the worst turmoil in the housing market. At the same time, the spread of mortgage rates over the 10-year Treasury bond yield rose to 2.958 percentage points from 1.567 or soared inexplicably 88.7%!

With the exception of GMAC, which immediately began offering loans to GM customers with lower credit scores in order to halt the decline in auto sales, most financial institutions that received TARP funds have been reluctant to lend.

If they can’t make loans, many banks may hold on to the government capital until stability returns — or use the money to finance takeovers of weaker rivals. Pittsburgh-based PNC Financial Services Group Inc. did that last month when it acquired Cleveland-based National City Corp. — hours after receiving approval for $7.7 billion from the government.

But had they opened the gates holding back credit, last week’s evidence shows what might have been the economic outcome of doing so…..

Mid-Michigan General Motors dealers say the loosening of credit requirements by GMAC Financial Services has prompted an increase in traffic to their showrooms. CNN reports that some dealers reported that 40% of their sales for the month came in the last two days. It was on Dec. 29, that the U.S. Treasury Department gave GMAC $5 billion from its $700 billion Troubled Asset Relief Program, and agreed to lend GM up to $1 billion to support GMAC.

“I’ve got a showroom full of people,” Jim Messick, general manager of Graff Chevrolet of Mt. Pleasant, Michigan, said earlier this week. “It’s really helped.”

“It’s beyond hopeful. We have already seen an increase in sales by 20 percent. It’s almost equal to what we were down,” Machunsky said of his sales in New Hampshire.

With the economy slowing, banks are seeing a big decline in the number of people seeking loans because nervous consumers and small businesses are scaling back their borrowing.

In fiscal 2008, the number of small business loans issued by banks plunged 30 percent compared with the previous year, according to the U.S. Small Business Administration. Over the same period, the dollar value of those loans fell from $20.6 billion to $17.96 billion, a 13 percent drop.

The pullback is partly a result of tighter credit availability among lenders and declining creditworthiness among borrowers. But it also reflects a big drop in consumer spending that is forcing small businesses across the country to put off expansion plans and cancel orders for new equipment.

The reluctance to take on loans boils down to fear.

The Treasury’s goal is to revive lending — and thereby stem the credit crisis — by freeing up potentially massive amounts of loans. For every dollar a bank keeps as capital, it can lend out as much as $10, which means the $250 billion injection could in theory result in $2.5 trillion in available loans.

But banking experts say lending such a vast amount would be almost impossible given the economic downturn.

If small businesses see that the bailout is starting to take hold and confidence is returning, they will be more likely to seek loans, helping kick-start the economy’s recovery, according to experts.

One example of a business owner looking for signs that it’s safe to borrow again is James Duran, CEO of a Silicon Valley staffing company that does business with big tech companies like Google Inc. and Yahoo! Inc.

Last year, he had as many as 200 employees. Today, he’s got just 15 — cutbacks that mirror job losses across his industry.

He said he has a $1 million line of credit to help build back his company but that he would be “crazy to use it now.”

“Once I see this cloud of uncertainty lift and companies go back into hiring mode, I’ll start using that money,” he said. “But we’re not even close to that.”

What we are seeing is a circle of borrowers and lenders each depending upon the other to make the first move.. Banks are depending upon the economy to signal it’s safe to lend again, and customers who seek those loans, are depending upon the economy to signal that it is safe to again apply for a loan. Neither one is moving until they see a change in the economy.

It’s the economy… stupid… all over again. And it goes further back than that: FDR said in speaking of the 1933 crises…. we have nothing to fear, but fear itself.

Since the practice of calling in loans greatly precipitated the Great Depression, a review of 1930’s history is appropriate today in anticipation of what can again become our fate if we make the same mistakes, and follow the same choices.

When the stock market fell in 1929, brokers called in their loans, leveraged 10 to 1, which of course could not be paid back. Banks began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en masse, triggering multiple bank runs. Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or simply not used. Bank failures led to the loss of billions of dollars in assets. Outstanding debts became heavier to bear, because prices and incomes fell by 20–50% while the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday.

Bank failures snowballed as “desperate” bankers called in loans which the borrowers did not have time or money to repay. With future profits looking dismally poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. Banks built up their capital reserves by making fewer loans, which exponentially intensified deflationary pressures. A vicious cycle developed; the downward spiral accelerated.

The liquidation of debt could not keep up with the fall of prices which it caused. The mass effect of the stampede to liquidate, increased the value of each dollar owed relative to the value of declining asset holdings. The very effort of individuals to lessen their burden of their percentage of debt, effectively increased it. Paradoxically, the more the debtors paid, the more they owed. This self-aggravating process turned a 1930 recession into a 1933 great depression.

Today, in order to open access to short term credit, our real focus must be focused on the psychology of how to alleviate that fear of losing one’s money… Something that is simply said……but is hard to do.

Conclusion:

The economy must be fixed, or more appropriately..must be perceived to be fixed, before the buyout strategy to loosen credit within the markets can begin to take effect. As we saw with GMAC’s bold move, loosening credit coupled with great deals, does move out old inventory. But as we still see today, the problem is in getting banks to do what GMAC just did. After all, it goes directly against the advice given to them two years ago…..

Chapter 10: The Silver Bullet: “A 3 Month Mortgage Holiday”

All that I am giving you…. is the gift of time…. — kavips

What is a silver bullet? According to folklore it is the only thing that brings down a werewolf. Other bullets, indiscriminate of what weaponry they’re fired from, are ineffective against that monster who possesses an aura of impenetrable magic. Our collective wisdom of doing what we always done, of trying what has always worked before, bounces off the charging entity… As our ineffectiveness becomes apparent in face of our own annihilation, we find ourselves wishing for any magic item that could neutralize the evil about to devour us; something that could slip past, disable and kill it… To everyone’s surprise some unknown face steps out from the soon-to-be-annihilated crowd and fires one single silver bullet into the beast… The day is saved.

Today our global economy needs that silver bullet.

Appropriate measures must be taken to match the challenges set against us.

When one visits a physician to request his help against fighting a severe infection such as strep, staph, or even meningitis, one does not expect their doctor to limit the medicine’s dosage to a level that just barely keeps one from dying; one goes to get cured…

Here is an example of a conversation that one hopes never to hear in a hospital room:

Physician: “Your tests show us that your infection has now reached 99% of the lethal level… Untreated you cross the hundredth percentile in three days and die… We have determined that all you need is 2 micrograms of this antibiotic, which should just kill off 1% of the infection and keep it from growing any further.. As it grows a little, we will kill off a little, and thereby keep your total rate of infection from growing further and holding your lethal level at the mark of 99%. We are worried that if your body gets too much of this antibiotic, some of it may be wasted and pass through your system, and entering into your urine stream without being used effectively. Your insurance company, who I remind you is paying for your medicine, insists that we follow this procedure so they do not flush any of their future profits down your plumbing, if I may put it delicately.

Patient: “Nice meeting you. I’ll find a new doctor now.”

For those not clued in, the Physician represents those Republicans and conservative democrats more focused on waste than on survival. The patient is the global economy.

Survival makes mincemeat out of old priorities. Any paramedic who has pulled out a human being from a burning car, knows full well that there is a time and place to worry about a potential back injury. Burning the victim alive for fear one might damage his spinal cord, is a misappropriation of priorities. Any top gun pilot knows that when entering a dogfight with two boogies on one’s tail, it is not the appropriate time to worry about the taxpayer’s investment lying in each missile underneath his plane’s wings. Exiting the dogfight in order to save millions of dollars is a misappropriation of priorities. Every citizen should know a little about the Heimlich maneuver. When a guest sitting next to you is obviously chocking, and because of your indecision has begun to turn blue,… to not attempt to save him because your inexperienced pressure might break one of his ribs… is a misappropriation of priorities.

The global economy is in a desperate situation.. To not do what is necessary to fix it, because it may cause taxes to rise in our future, is likewise a misappropriation of priorities….

Here is a quick review of those points previously mentioned. 1) We need to appreciate the scale of our sickness: our economy from top to bottom is about stop working. 2) We need to understand that we, the American people as well as those scattered across the planet looking towards us for leadership, don’t care how; we just want the infection to go away… 3) If we don’t die, once healed we can deal with the costs down the road….

Just heal us.

It is no secret that our crises was aggregated by mortgages. Nor is it a secret that the American large banks are the ones responsible for leveraging-out our global economy on the junk of unpaid mortgages. The collapsing housing market itself is a small bump in the road. But basing our entire economic structure upon the marketability of those collapsed mortgages, with the premise that their value would always rise, is the real scam perpetuated by our domestic securities brokers.

What our securities industry did, today defies belief, logic, and common sense. What they did was market unpayable mortgages as being worth lots of money. Despite it’s insanity, those unpayable mortgages were further leveraged at rates 40 to 1 in some cases. As the “one” collapsed; so did the “40” loans which were collateralized with it…

Today people are out of work, because of the securities executive’s lapse of judgment. Today our automobile industry is expiring because of what these people did. Today most of Europe’s banks have been nationalized, because of what these people did… Tomorrow, our taxes are going to be out the roof…. because of what these people did…

As one looks at the facts of how we got here, one gets angry. As one gets angry one looks towards quick justice to punish those responsible. As one looks towards quick justice, lynchings of greedy financiers begin to look rather promising…. Make them pay with blood….

It wouldn’t be the first time. Heaven knows they deserve it.

But we can learn something from those societies who repaid years of poverty with the actual blood of those who financially raped them… Long after the bloodletting was accomplished, they were still in poverty… In fact, leaving no one left who was competent enough to run the finances of their nation, their poverty extended down to absolutely every one living within those borders, for generations after generations…

Recent memory of the Soviet and Chinese blood lettings are examples how such unfettered justice can bring any nation to its economic knees, forcing it into some form of totalitarianism just to maintain any sense of order. North Korea is another example of what happens when a nation is run on anger; as a result, living conditions there are deplorable.

Perhaps a better tack would be to take a conquered population, and use them to help ourselves from out from our quagmire.. To do so would require forgiveness, a trait often associated with America by others living on this planet…. Proof of the effectiveness of forgiveness can today be seen in the rebuilt economies of both Germany and Japan, and to some extent… South Korea. As we saw from our earlier chapter, helping these nations achieve and regain their former prosperity, was one of the best investments and execution of policy ever made by this nation.

Today, we now apply that same tact and wisdom to our own financial internal problem.. It is to our mortgage brokers who we must now turn to bail out our nation; forget our congressional delegations.

It starts with this simple question. What would it take to cause a household to spend again?

Basically it would take a breather… a collective sigh of relief by everyone out there who is behind on their payments. What if ….. they were allowed to skip maybe a payment or two? Just to get some utility bills paid down, some credit card debt back under their cut-off lines, perhaps pay off the new heater, or new stove they were forced to buy. What if….. they were given 3 months with no mortgage payment and could then use that amount to catch up on their personal finances?

Then after three months, with their entire debt portfolio restructured, they could begin resuming payments and finally with sufficient money at their disposal, continue to pay off the entire loan including the added interest which accrued over those three months perhaps tacked on to one last payment at the loan’s end….

There is a surreal beauty in this arrangement. The homeowner who has fallen behind three months, can now catch up.. The homeowner who is out of work, can survive hand to mouth for at least three months without worrying about his mortgage. The homeowner who is still current on his payments, can take care of other financial matters, and pay off his unsecured (credit card) debt currently robbing him blind with its high interest rates. Those doing rather well, suddenly have an opportunity equivalent to a tax refund they weren’t expecting.. They can spend it pumping much needed money into the economy. Those investors (banks or mortgage brokers) who put up the money, actually turn out to make more off of the original loan than was ever anticipated due to the compounding of the three month’s interest,… giving them a much higher margin on their return… The economy of the United States of America, after 90 days, has completely emerged out of its recession.

More details…. please.

The idea was simple. Instead of solving the economic crises by looking at the macro scale, we went to the other end and asked this simple question to a number of families… What do you need to get back on track? Our moment of truth came when one family head said: ” Really, as long as my job holds out, all I need is to skip a couple of mortgage payments… After two months, I’ll be caught up” Naturally everyone in the room looked at each other and thought, “Damn, that would work for me too.” The more we thought about it and explored it from different angles, the better it looked from every perspective.

1) It frees up a large chunk of monthly family income.

2) It does not add to the national deficit.

3) It does not require any new investment.

4) It actually makes more money for those holding on to the titles.

5) It increases spending where we need it… on the household level

6) That spending can begin immediately, in most cases on the first day of each month.

7) It rewards those who have kept up on their payments; and brings back to neutral those who are behind; and freezes foreclosures.

8 ) Once put in place, it immediately reinstates confidence in America’s banking system.

This is almost too good to be true. In fact it took a lot of probing to find any negatives that might arise from this action.. The only negative impact which we could discover was that some small mortgage companies rely on monthly payments to meet their payroll.. If that action was counteracted by part of the $900 billion dollar stimulus package, there would be …. no negatives.

So we began to estimate the impact… to see whether its glowing results would hold up….

We should remind ourselves just how important the US economy is to the economic function of the global economy. To put it into perspective, the Federal government guarantees roughly half of the $12 trillion dollar US mortgage market through Fannie and Freddy: roughly $6 trillion. For comparison purposes only, the entire 27 member states of the European Union in 2006 had an annual GDP of slightly more than $12 trillion, so the $6 trillion already guaranteed by the Fed, would be half the GDP of the combined European Union economies, and almost three times the GDP of the Federal Republic of Germany.

So if our nation’s total mortgage amount is $12 trillion, the Federal Reserve reports roughly $500 billion per month is listed in this nation as a receivable from real estate…. Percentage wise, that is only 1/4th the consumer debt of this country which is almost $2 trillion dollars per month…

So let’s play: “what if” just as an intellectual exercise and see how a one month mortgage holiday pans out….

As of last summer, 11.46% percent of our personal income was tied up feeding our mortgages. If we were to establish a mortgage holiday, what we are discussing is the release of ten percent of our personal income, or roughly half a trillion dollars into the economy each month. There is no way the US Government with its annual intake of $2 trillion, could finance something so massive. But, just by extending everyone’s mortgage for just one month, presto, we suddenly have it in our financial system. Since the monthly GDP jumps between four and five trillion, we are speaking of a substantial jolt to our economy, sort of like an economic Heimlich maneuver with no serious side effects. And if we do this three month in a row, …. 1, 2, 3,…. the recession is gone.

How does this affect the mortgage industry? For one, they lose $500 billion each month for three, for a dip of 1.5 trillion… But, under this plan, all we did was just postpone the payments, not…eliminate them… That same 1.5 trillion WILL BE PAID at the end of the loan as well as the interest that accrued upon it.. Which means that an extra payment will probably be added… Instead of catching up on three payments, we will at the end of our loan’s original expiration date , probably pay four.. an affordable sacrifice to be sure… At a .5% monthly rate (6% annually), the interest on that 1.5 trillion amounts to $7.5 billion a month.

How does this impact financial brokers?

As we saw above each month the mortgage payments make up one fourth of financial brokers income.. The other three fourths are represented by loans to consumers and business. Therefore this action will put them 25% down for just three months… Too high of a cost, perhaps?

Perhaps not. All across this country most businesses are down between 25% and 40% percent as a result of the derivative scam perpetuated by these financial institutions. And now that we have an option to pull ourselves out of the recession in as little as three months, with a $1.5 trillion boost to our economy that affects no one really and actually makes money over the long term of those loans still outstanding, and we fail to exercise that option because the whiners who brought us here, don’t want to suffer their share of the 25% of pain felt across this country?

Well? No pity from this quarter.

Today we are misguided in how we are dealing with the toxic mortgage crises… The U.S. Census chart 1152 shows us the problem, its cause and its solution.

Courtesy of US Dept of Census pub.1152 (Right click for full image)

Notice only a $2 billion dollar difference in the household sector between 1990 and 2007….Next look at commercial banks and the jump in their mortgage income from 2002 to 2007.. Notice how the heavily regulated savings institution sector was much more conservative. Next notice the GSE’s ( Fannie and Freddie) jumped 186% in one year between 02 and 03 and since have been cutting back.. Notice how the private pools and security issuers have swelled the market.. All the while the household sector remained constant.

This chart shows that the debt held by these pools is not real debt but was arbitrarily bid up by financial institutions over the past four years… In other words if I have $10 dollars of bad debt that I’m stuck with, that at maturation might be worth $20 someday, and I sell it to you for $15 dollars, after which you then bundle ten separate $20 dollars bundles of debt together that will be worth $200 dollars someday, and sell them for $175 to someone who buys ten $200 bundles and conglomerates them into a bundle worth $2000 but sells them for $1850….. well, you get the idea… and the product being sold is worthless by itself. We discover that fact rapidly when we finally reach the point where no one wants it…

So we are now at the point of discussing whether to bail out banks that bought much more then $1850 of that bad debt…and now that they know it is worthless, they want to sell it to the government (future taxpayers) at their costs….$1850…. Originally the number of $10 debts we used should have fetched $1000, but the bidding war has them now priced at $1850… Which means that: the $850 has already been pocketed as profit by those along the process.. So in the large perspective of things financial, all that this bank bailout amounts to is: …. taxpayers borrowing money at interest, to pay for the previous profits made by financiers…

Bottom line… since we need those financiers, we may have no choice… The alternative scenario, that of “The Great(est) Depression”, scares us even more….. For when 57.6% percent of home mortgages suddenly go into default, that creates a massive shock for our economic system to handle… No civilization ever studied, has remained intact after suffering an aftershock of that magnitude….

The problem and causes of this crises are now hardwired into those financial institutions. But embedded in this chart is not only the magnitude of the problem…. but a clue towards its solution as well. As one sees in this chart, the outstanding debt up to now has climbed… But getting an extension-of-three-months does nothing to alleviate or increase that amount of outstanding debt… For if no payments are forthcoming, and no additional loans are written across that time frame, the aggregate amount remains constant over the entire span of the three month holiday. The level of outstanding debt is not impacted by the policy of “not-paying-of-one’s-mortgage”, except of course by the interest that accrues over that additional amount of time… If you owe me $500 dollars and don’t make a scheduled payment, you still owe me $500 dollars, plus the interest. At the loan’s end, after all the principal is paid off and the additional interest is pocketed by the lender….. There is no overall negative impact.

So let’s review. If we give ourselves a mortgage holiday for three months, we put a stimulus amounting to $500 billion dollars per month into the hands of households. In three months, $1.5 trillion will have flowed though the consumer side of our economy. Jobs will need to be quickly added to accommodate that large influx of money into our system… Those earning money with these new jobs will of course be able to buy more, and the economy begins growing… This stimulus begins instantly on the first day of the month.. Everyone’s checking account is not deducted by their usual mortgage amount, and that money is instantly available to be spent towards other things.

Why three months? If two are necessary?

Again based on interviews with families, the data was presented in this fashion. During the first month, the most pressing bills, including utilities and collection agencies’ unpaid medical and credit card bills would be paid. As per the Bush tax stimulus check, the first month would show little spending. The second month would allow further catching up of other bills, and provide a little excess left over which could then be spent…. The third month, that entire extra amount would be available for spending… By the end of that third month, the economy would be roaring again…

I’m curious as to whether or not you the reader feel the same… In our interviews we came across no one who was not excited by this prospect… Further controlled studies can be done by others who want to compare the enthusiasm between receiving a stimulus check for $500 to that of not paying one’s mortgage for three months. Our results showed skepticism towards the tax check, and popular enthusiasm towards skipping one’s mortgage….

Would not paying your mortgage for three months get you back on your feet? And would you mind tacking on one more month’s payment at the end of your loan, for the privilege of getting your head above the financial flood swirling around us all?

As we looked at all the data and perused all of the options we could anticipate, this model became the closest thing in recent memory to that metaphor commonly used by today’s politicians: a win, win, win situation… And it pulls the economy out of its doldrums without that tremendous amount of government borrowing that percentage-wise, rivals our nation’s indebtedness during and after WWII…..

The concept is new when used on this scale, but it is really based on ancient tried and true principals found at the heart of our financial markets. It’s simple.. If one is bankrupt, it is better to get a little breather, than lose everything… Our global economy is bankrupt. Getting a loan extension on the U. S. Home Mortgage debt for everyone at the same time is unheard of, but can, if chosen, be accomplished rather easily. Extensions are processed daily for individual loans around the country. Even Donald Trump’s empire would not be here if this type of extension had been forbidden during the late 80’s. We are just extending the loan for three months, and making every financial institution more money by doing so…

So who is out there who might oppose this?

Our best guess? Moralists, idiots, and bigots. The rest will see this opportunity as being beneficial to themselves, to their unemployed neighbors, to the stability of our financial institutions, to the country of the United States of America and eventually to the global economy as this nation pulls its head out from under the cloud of recession far faster than anyone ever imagined was possible…

All by just postponing three months of everyone’s mortgage.

How do we do this then?

We came up with three ways, each dominated by a branch of the Federal Government.

Congress could briefly debate and vote overwhelmingly to postpone all single family mortgages for three months. But there may be some bogging down on some of the details.

Or the President could sign an Executive order and issue a directive that his Justice Department would not pursue and would overturn any lower court case punishing non payment of mortgages that occurred during the three month holiday… Effectively no one could collect from an unpaid mortgage, because under US Commerce laws any state ruling contrary against the three month mortgage holiday, could be overturned by Federal Court…

Finally the courts themselves could take it upon themselves, case by case, through either a judge’s or juries’ decision, that not paying one’s mortgage payment during the declared mortgage holiday was not only legal, but one’s patriotic duty.

In any of the three scenarios anyone attempting to collect upon a holiday mortgage payment, would be guaranteed to ultimately wind up paying all court costs, making the attempt to collect, pragmatically fruitless.

Secondly, there is precedent for closing financial down financial institutions and stock markets, whenever the market is spiraling out of control… Upon his inauguration, FDR promptly closed all banks until further notice. Surprisingly none of those closed banks lost money while they were closed… Only open banks facing runs, lost money.. Likewise, we remember the closing for several days of the New York Stock Exchange after 9/11…. While the market was closed, no stocks lost value… The same principal holds forth in putting mortgage lenders on holiday… Ultimately, as it did with banks and the markets, it restores confidence in the entire financial sector.

The moratorium placed on three months of home mortgage payments will get the attention of every financial markets. Coupled with other parts of the stimulus package, and with forecasts that in three months the entire American economy will be back to normal, as well as knowledge that financial institutions stand to make an additional month’s income on all outstanding mortgages, our lending institutions will appear well positioned to reap any future profits… People will certainly be less skittish about dealing with commercial banks, as the money begins to cycle around and around… once again…. If you had the choice of investing either in the US or China, after that $1.5 trillion began flowing….. the United States, would certainly appear the safer bet…..

One additional benefit from arising from a three month mortgage holiday, is that it forces banks into more lending to both businesses and automobile purchases… If no income is incoming from mortgage payments for three months, then all new loans default to becoming the primary method of generating income. Every bank would be forced to scramble in order to find those new customers who were trustworthy, willing and able to borrow its money…. Those who simply sat on their assets for three months while doing nothing, would fail.

So even though the description itself has become a cliche, if there ever was a “silver bullet” developed that would kill a recession dead, it would be this one… : a three month holiday on paying one’s mortgage….. Just try thinking of what you could do if you didn’t have three months of mortgage, and you can plainly see… it would boot up the economy without swamping our children with governmental debt.

Delaware Congressmen Mike Castle’ Legacy

Courtesy of DelawareLiberal.net

Breaking: Today’s Committee Hearing May Silence Future Arguments To Privatize Social Security..

Today in a conference room off the first floor of the Senate building, a small discussion about large things will take place……very large things. The GAO will present their findings surrounding their investigation of the PBGC fund. What will be said about this small fund, should stab a stiletto into the heart of any future discussion about privatizing Social Security. Sure, if one is young, with no assets, and just beginning to invest, privatized Social Security initially sounds like a “grand” idea. Everyone assumes: “Wow, will I be rich when I retire!.”

 

But theory and practicality often diverge. When investing they rarely tred the same path. The prime reason is of course human. Humans in charge of lots, and I mean we are talking about tremendous sums of money here, tend to make dumb decisions. At least they look dumb to us as we see the liabilities of our plans rise far above our assets. But to those benefiting from commissions assessed to these large sums, they of course still look as brilliant as the day they were conceived..

 

Although the hearing (at this writing) has not yet occurred, one can expect to see what happens then a federally guaranteed pension fund becomes mismanaged (by good, well intentioned people of course). No one has a crystal ball. But to give one an idea of the types of choices that need to be made often on a daily basis: is it better to invest in stable income at 3% or play the foreign markets where risks are high, and occasionally, so are the payouts?

With assets at 55 billion, a quick calculation reveals that when volume of this type is turned over to private companies, commissions of 1% to 2% range amount to between 550 million to 1.1 Billion dollars. After grasping this fact, one slowly begins to understand why the financial sector is pushing hard to privatize Social Security, which as all of us know, is a “slightly” bigger fund.. Face it. If any of us were grossing half a billion a year, would we truly care too much if, with no penalty to ourselves, several million $300 checks were returned for insufficient funds?

 

So what happened with the PBGC?

 

First some background: (courtesy of Wikapedia)

 

The Pension Benefit Guaranty Corporation (or PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage both the continuation and maintenance of voluntary private defined benefit pension plans, as well as to provide timely and uninterrupted payments of pension benefits, and at the same time, keep pension insurance premiums at the lowest level necessary to carry out its operations.

 

One reason Congress enacted ERISA was “to prevent the ‘great personal tragedy’ suffered by employees whose vested benefits are not paid when pension plans are terminated.” When a defined benefit plan is properly funded by its sponsor, its assets should be approximately equal to its liability, and any shortfall (including benefit improvements) should be amortized in a relatively short period of time.

 

The key words throughout this diary are that in a properly funded pension plan, the assets should be approximately equal to its liabilities. Apparently this is not so, As anyone who has closely studied this administration might guess……the liabilities are indeed, greater than its assets. Just how much? That is the bombshell to be dropped in the Senate committee room today.

 

“The PBGC is responsible for the pensions of 1.3 million Americans, but we don’t currently have the resources to keep all of our future commitments,” the newly appointed PBGC Director Charles E.F. Millard announced on February 18, 2008. (The PBGC had an accumulated deficit of $14 billion as of year-end FY 2007. )

 

Several large airlines have filed for bankruptcy reorganization in an attempt to renegotiate terms of their pension liabilities. These debtors have asked the bankruptcy court to approve the termination of their old defined benefit plans insured by the PBGC.

On September 14, Delta Airlines and Northwest Airlines filed for bankruptcy the day before they would have had to contribute about $200 million, in total, to their pension plans. Both airlines’ pension plans are severely underfunded, Delta’s by about $10.6 billion and Northwest’s by about $5.6 billion. If these plans are taken over by the federal Pension Benefit Guaranty Corporation (PBGC), the agency’s deficit would rise over a third from its current $23.3 billion.

As far back as 1984, in National Labor Relations Bd. v. Bildisco, 465 U.S. 513 (1984), the U.S. Supreme Court ruled that Bankruptcy Code section 365(a) “includes within it collective-bargaining agreements subject to the National Labor Relations Act, and that the Bankruptcy Court may approve rejection of such contracts by the debtor-in-possession upon an appropriate showing.” The ruling came in spite of arguments that the employer should not use bankruptcy to breach contractual promises to make pension payments resulting from collective bargaining.

 

If a creditor is unsecured and there is not enough money,….. they usually are not paid. So as a matter of practical economics, if the downturn in a company’s fortunes which resulted in bankruptcy makes the performance of an executory contract less valuable than its breach, a rational company would breach!

 

As we look forward to the now flagrant warning signs of possible economic collapse, a total breakdown of our underfunded private pension system may make a difference in the number of homeless retirees wandering our streets after such a cataclysmic market event happens. After tomorrows’ hearing it will be obvious to most, that based on the performance of the Pension Benefits Guaranty Corporation’s own assets over the past seven years of Republican administration, that at least when Social Security is handled by a government of the people,… and not by a corporation dedicated to it’s own profit,…. we have a slightly better chance of having actual citizens receive actual benefits.

 

For the bottom line is this. When handled privately…………….bankruptcy, reorganization, and non payment, is always cheaper than fulfilling one’s obligations.