Go see ’The Big Short’ now

There is a good argument against democracy- that people aren’t smart enough to select their leaders.

The fact that Bernie Sanders has an editorial in the N.Y. Times today talking about how to reel in the Fed- while other candidates are talking about the terrorist threat, should be a clear message to the voting public that one of the candidates knows what your greatest danger is- and it’s not a jihadist.

The reason most of us make less, work harder, and had our net worth knocked to the ground was because government failed to stop a threat to the global financial markets- and let a bunch of jerks manufacture play money- and put a lot of it in their pockets. Our answer- to make more play money- and pay off their mess- all the while stealing it from you. I know- you don’t believe me. I’m just a perennial candidate who loses elections and writes a blog.

So- let me make it easy for you. Go see “The Big Short” in the movie houses right now. The book of the same name was written by Michael Lewis who also wrote “Moneyball” and “The Blind Side” -so he must know just a little bit about telling a story. In the movie- they’ll explain the house of cards the Wizards of Wall Street built- and blew up- in a way anyone can understand.

This movie should be required watching for every person in America- so you can start to understand who the real threat to National Security and Global Stability is- and it ain’t an Arab with an assault rifle or even a dirty bomb.

But- after posting the Bernie story on Facebook- one of those overly bright U.S. Voters said the following (I’m leaving his name out to protect the stupid):

It was a horrible idea to start bailing out private industry. Just leave them alone. Don’t regulate them and don’t bail them out. Someone else will take over the market.

“Not regulating them is what caused the problem, genius,” was my response- to which he said-

People choose to get into the stock market and to invest in business and the like. No one forces them into it and no regulations are needed. Buyer beware. The only thing that needs regulated by government is unwanted force upon those who don’t want it. And that mess you talk about made many people rich so it wasn’t a mess to them. Now the folks who had their money forcibly taken from them and given to others as a bailout were horribly screwed. And in addition I don’t trust the government with the ability to regulate very much. They are generally fools just looking for a paycheck.
This is the ignorance of how Wall Street is tied to Main Street. And while the movie doesn’t make the ties clear- it does explain pretty clearly how much of a fantasy the market is- with its imaginary valuations and total disregard for the mechanics of a functional economy.
Here is the part that most don’t get.
Most people do not invest in the stock market- they don’t have the money to spare. They don’t think the market is connected to their well being- but, in fact, this small subset of our economy is tied to everything. You buy insurance- that money is “invested” in the market by the insurance companies- who then “manage risk” and “protect” you from financial ruin in a catastrophe. The movie talks about how buying insurance against the market misbehaving was monetized- and a few people made a boatload of money betting against the people of the United States.
Those very same people, who paid to fix the mess.
But, insurance is only one part of it. The markets also control your credit scores, your interest rates, your credit worthiness- and also those of your employer. Your pension, if you are lucky enough to have one, is also “in the market.” And while the media and discussion focus on the big businesses, who get access to the best rates- no matter what- the majority of us, work for small business- which has the deck stacked against it a million different ways.
As to the government- we used to protect the people from being preyed upon by the FIRE (finance, insurance and real estate companies), in fact, the guaranteeing of home mortgages was a response to the last financial debacle when banking was allowed to self-regulate.
Go watch the movie. You’ll better understand what happened- even as you watch more people get insanely rich off the most rigged casino on the planet.
And here I’m going to defer to a friend, Daniel Greene- who added the following to the conversation- because some people actually do learn from history.
“If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.”

– James Madison, Federalist Paper #51

Those who advocate getting rid of government regulation are asking to return to an economic Darwinian state of nature where only the strong, super-rich survive, and everyone else gets thrown out on the street.

And, if you need evidence of what getting thrown out on the street looks like- go take a drive through some of Dayton’s neighborhoods- and look at all the vacant homes.
What’s worse- Madison wrote that statement in 1778, and men still aren’t angels.
But, we still believe that our government has been protecting us- despite it being bought and sold like a commodity. Go watch the movie and report back here in comments.

 

How to stimulate the right part of the economy by saving the government money

With all the fuss about the Fed raising interest rates- which is going to go straight to the banks’ bottom line, it’s time to take a look at a commonsense approach to handing some money back to the people at the bottom of the economic ladder- and save the government money at the same time:

A new report shows the cost to produce a penny was 1.7 cents in the 2014 fiscal year. That’s down from 2.4 cents in 2011 but still more than face value.

And that won’t change.

“There are no alternative metal compositions that reduce the manufacturing unit cost of the penny below its face value,” the biennial report to Congress said.

The nickel, too, is dead weight for taxpayers. Production costs stood at 8 cents last year, down from 11 cents. The lower cost per coin is largely a result of rising production and reduced metal costs.

Other coins turn a profit. A dime costs 3.9 cents to make, and a quarter 9 cents. All together, the Mint made $289.1 million on seigniorage–the difference between the value of the coin and the cost to make it–despite a $90.5 million drag from the penny and nickel.

Congress in 2010 told the Mint to examine ways to save money on coin production, a mandate that so far has led to detailed testing of alternative metals and production methods, including the use of a laser to produce coin blanks.

The Mint estimates that switching up the metallic content of coins could save taxpayers $5 million to $57 million a year, though vending, amusement, laundry and other groups with coin-operated machines warn that it could cost them billions to reconfigure machinery and make other adjustments needed to accept altered specie, the Mint said.

Source: Just How Much Does It Cost to Make a Penny?

So, how do we do this? You know that pile of pennies you have, sitting around the house? In kids piggy banks, and on top of the washing machine? Buy them back at more than a penny.

Have a day set where you can bring in 100 pennies and get a dollar bill and a dime back. Making the effective cost of putting a penny back into the Fed’s coffers .0011 cent. You could even spiff people who brought in 1,000 pennies and give them back $11.25 etc.

If the cost to make the nickel is that high and the Mint needs more- simple, buy them back too.

Since the super rich probably won’t waste the time running their spare change to the banks for the buyback- this will put a bunch of extra dollars into the hands of those who’ve been penny pinchers for a good reason. Pay the banks a small premium for handling the cash, but stop the stupidity of minting new coins that cost so much. Economic stimulus made easy.

Dr. Yellen are you listening?

Thoughts?

 

Stop subsidizing the super rich: alternatives to the Fed rate hike

Today is the day when the mystical magic of economics is played with by people in an echo chamber.

And while the actions of Dr. Janet Yellen and the Fed are being anxiously awaited by the Wall Street Wizards, the pawns of the economy are hoping that the price of gas doesn’t jump up 20 cents.

No matter what economists and financial wizards think- Wall Street is so disconnected from Main Street (and reality for that matter) that the amount of attention paid to their fortunes is as disproportionate as the media coverage between Donald Trump and Bernie Sanders in the presidential race- despite one having substantially more donors, followers and potential votes.

Part of today’s action is boosting the interest paid on deposits big banks hold with the fed. This is supposed to “tighten” money up a wee bit- making lending slow down. This is giving more money to the people who crashed our entire economy- does that sound like rewarding bad behavior to me? Sure does.

So here are some alternatives – some of which could be enacted by Congress- which would do the same thing, and actually impact Main Street more positively than Wall Street:

  • Cap credit card interest rates at 20%. Any interest rates approaching 25% have been proven to be loans that are inescapable. In Ohio we saw toothless laws against payday lenders try to reel in these sharks, while the big banks are back to their old tricks- with bundling and reselling this high yield debt.
  • The 2009 bailout is still sending shock waves through the real estate market. We allowed millions of people to lose their homes, and even when we stepped in to “help” homeowners- the only people who benefited were the banks who all were made whole- even if the valuations were all wonky to begin with. There are still many people who asked for assistance- or even received it- that are still paying interest rates on home loans several points over what a loan is now. Offering 100% tax credits on any interest paid  last year over 5% on homes owned before 2009- would put money back in the hands of the people who have managed to struggle through the storm- while making sure not to hurt the precious bankers bottom line.
  • Enact caps on pay for companies that subsist on the public dollar. There is no reason to keep feeding campaign coffers with federal money. Here’s what I mean: hospital revenues can be divided by federal funded and insurance company funded. With the new mandate that everyone has health insurance- this basically comes down to health care is funded 100% with money from tax dollars. Yet, while the President of the United States makes a mere $400,000 a year- the average hospital CEO makes at least 3 times that. Defense contractors- make even more. Either cap salaries- or have special tax rates approaching 90% on all revenue above $400,000 a year for federally funded work- and, btw, ban them from donating to political campaigns and hiring lobbyists. No need for that circular flow of money to be subsidized.
  • And last but not least- companies that have more than 100 employees that have people on the payroll who are getting public assistance- be it section 8 housing, medicare, food stamps- etc- that money needs to be charged back to the employer. Call this the WalMart rule, call it being fair to families, but there is no reason to continue this subsidy of the rich at the expense of the poor.

Changing the federal funds rate is easy. Making real substantive changes to the real economy outside the Wall Street bubble is hard.

And one last thing- if we really were talking about stabilizing the economy, there should be a 24 hour moratorium on Wall Street trading starting an hour before the announcement. Of course, if we really wanted to start making economic policy that made sense, we’d eliminate flash trading, require stock purchases to be held a reasonable amount of time to be considered a true investment other than a day at a casino… but, that’s really wishful thinking.

Banking inequity

I have a contract sitting around somewhere for a home equity loan with Gem Savings from around 1990. It was one page, letter sized, in large type- and was all I needed to sign to get an equity loan on my house.

Now that document would run 8 pages of micro-type and include things like an arbitration clause, denying me the right to use the justice system to settle any grievances.

Later I signed one of those really long contracts to refinance my house with a bank. They changed the terms at the last minute, after jerking me around for weeks. Then, promptly sold the loan off to some mortgage servicing company, and then it’s been transferred time and time again- all without proper recording of title and lien transfer at the County Building.

If you or I sold a property and didn’t record the transaction, it wouldn’t be considered valid.

My small business, a sole proprietorship, recently teamed with another small business to do a large deal- $130,000, with a very small margin. When I went to deposit $90K, they wanted to hold my money for a week- despite being told well in advance this deal was coming. The banker even tried to warn me that this could be fraud. I had promised the vendor I’d pay by wire transfer- and was told by the bank it’d be $25 to wire money out. They didn’t tell me there was a $13 fee to have it wired into my account.

I’ve even had them putting holds on rent checks that are certified. Apparently, “Certified checks are easy to forge” which is why the hold according to my bank. WTF good is a certified check then? I do work for a credit union- which pays with certified checks- even those get a hold.

It’s getting harder and harder to run a small business, and banks behaving badly is just one more obstacle for small business to overcome. When I was a youngster in business school, you were advised to have counsel of a lawyer, accountant and a banker. Since the deregulation/consolidation of banking in this country, I’d say you’d be hard pressed to find any banker with actual lending authority anymore.

The last one I encountered was at Eaton National Bank- which once it got absorbed by LCNB ceased to be what it was. I’m experimenting with Wright Patt Credit Union now- which is one of the few credit unions that can do business lending. It’s becoming apparent that small business really is better off with a credit union instead of a bank, but I’m not sure if this applies to start-ups (I’ve been in business for 25 years).

One of the problems is that small business can’t buy the politicians’ ears the way big business can. When was the last time you heard of a tax break for small businesses? A program to help small businesses grow- that wasn’t driven by big business financial tricks (like quick write-offs of capital expenses)?

What could change if small businesses were given tax credits rewarding them for each full-time employee, length of employment, and growth in payroll that were redeemable for low-interest loans and access to working capital? What incentives could we offer to encourage the big banks to take small business seriously?

Small business powers most of our job growth, but, there are no small banks left to work with them. It’s time to solve this problem.

Grandstanding congressmen and CEO pay

Chafetz vs Planned Parenthood

Obviously, bombs are a cost no object endeavor- while birth control. needs tight oversight.

Reading an editorial about the Planned Parenthood inquisition, I saw a mention that a member of Congress had questioned the pay of Planned Parenthood president Cecile Richards- a whopping $520,000.

I thought to myself of the companies that have federal contracts, GSA schedules- who promise to do work for the people of the United States at the lowest cost possible. Companies like General Dynamics- who are so far over budget on the F35 program– and yet, keep getting funded. The CEO of General Dynamics, Phebe N. Novakovic, who also happens to be a woman- made $19 million last year. No inquisition there.

From the only news source that carried this in depth- Al Jazeera, read the exchange:

“Your compensation in 2009 was $353,000. Is that correct?” House Oversight Committee Chairman Jason Chaffetz, R-Utah, began. “Congratulations, it was,” Chaffetz continued when Richards said she didn’t have the exact figures. He went on to note that Richards’ salary had risen to $520,000 since then…

“I would like to register my opposition and objection to the chairman beating up on a woman, on our witness today for making a good salary,” said Carolyn Maloney, D-N.Y. “In the entire time I’ve been in Congress, I’ve never seen a witness beaten up and questioned about their salary… I find it discriminatory and inappropriate.”…

Rep. Elijah Cummings, D-Md., ranking member of the committee, said in a fiery rebuttal that it was particularly hypocritical for Republicans to place Planned Parenthood under a microscope and take Richards to task over her salary when they had never taken an interest in the hefty compensations of executives at big banks, drug companies and defense contractors, who had all engaged in law-breaking.

“Last month, Lockheed Martin was fined millions of dollars for using taxpayer funds to lobby Congress to maintain its hold on a multi-billion dollar Pentagon contract. Lockheed’s CEO received a stunning $33 million last year,” Cummings railed.  “Ms. Richards, do you know if there has been any investigation or any effort  — any — to eliminate Lockheed’s federal funding?”

“It sounds like there hasn’t been,” Richards answered.

“You got it, of course there wasn’t!” Cummings said. “These are huge companies that are actually guilty of breaking the law and their CEOs make millions of dollars — Republicans never criticize the salaries of their CEOs or they never try to strip their federal funding, their government subsidies or their tax breaks.”

Source: House GOP ‘beats up’ on Planned Parenthood president — and her salary

The Wall Street bankers made millions, while being bailed out. The program to save the homes of Americans from foreclosure- actually put more money in the hands of bankers than in the hands of the people being bailed out.

If Congress really cared about reeling in government spending- why not put a simple cap on executive salary for any company that receives significant income from the government. Any medical organization accepting funding for medicare/medicaid, a cap. Any defense contractor- a cap. Any bank that is guaranteed by the federal reserve- and has the ability to create money- a cap. Any company where employees depend on federal programs to make ends meet- a cap.

What the cap should be isn’t something random- set by the boards of directors- but based on a ratio of the total payroll of U.S. employees. You want to make more- don’t do business with the people of the United States- or accept our assistance.

Obviously, if the pay of the CEO of Planned Parenthood is relevant to the cost to our country of a government shutdown- this is important stuff.