Every decision we make, every encounter we have... we get a choice.
Are we opening doors or closing them?
It's so tempting to shut people down, to limit the upside, to ostracize, select and demonize. It makes things a lot simpler. Not seeing means you don't have to take action. Not opening means it's easier to announce that you're done. And not raising the bar means you're less likely to fail.
Just about all the things we treasure in our world were built by people who were intent on making things bigger, enabling things to be better, opening doors for us to achieve. The line between a realist and a optimist is hard to draw. And both might be self-fulfilling.
[Please don't confuse this with the issue of focus. Focus involves eliminating options until you have so few moving parts that work actually gets done. You can be focused but still think bigger.]
The Wall Street Journal reports 98 shaky TARP recipients are on the verge of failure as bad loans pile up. Please consider Bailed-Out Banks Slip Toward Failure
Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.
The troubled banks identified by the Journal all have either a Tier 1 capital ratio under the "well-capitalized" 6% level; both a total risk-based capital ratio of under the "well-capitalized" 10% threshold and nonperforming loans of over 10% of their portfolio; or a regulatory order requiring the bank to monitor or boost its capital.
A Federal Deposit Insurance Corp. spokesman declined to comment on the Journal's analysis, which also calculated that 814 of the nation's 7,760 banks and savings institutions are troubled according to these standards, up from 729 at the end of the second quarter. The FDIC's official list of problem banks, which uses different criteria from the Journal's analysis, includes 860 financial institutions. The banks aren't publicly identified.
One example of a TARP recipient in deep trouble: closely held Legacy Bank of Milwaukee. José Mantilla, Legacy's president and chief executive, said the bank lends to an underserved, lower-income customer base.
As Legacy Bank careens towards failure, it appears its customer base was not "underserved" but rather "overserved".
Most of these failures will be relatively small ones. The median TARP infusion for the 98 banks was $10 million. The grand total of the 98 banks was about $4.2 billion. In contrast the first 8 large recipients received a total of $125 billion, now repaid.
Commercial real estate loans gone sour are at the heart of many small bank failures. One consequence of these failures is the too big to fail banks keep getting bigger.
Citigroup remains too "interwoven" to fail even after the government has plowed billions into rescuing the banking titan and Congress has passed laws taking aim at financial behemoths, Citi Chairman Richard Parsons told CNBC.
"It's not a question of too big to fail," Parsons said in a live interview. "It's a question of too interwoven in the fabric of the global financial life to fail."
Parsons said allowing Citi to fail previously or in the future would be akin to having "the heart, the pump of the economic system fail because then everybody else dies."
"It's probably the most important private financial institution for maintaining our economic strength and presence around the world. You can't let an institution like that go down," he said.
Do these clowns even realize what they are saying? Parsons just gave a superb reason Citigroup needs to be broken up.
I suggest Citigroup should be forced to sell itself off piece by piece by piece, until it is not "too interwoven to fail". The same applies to Goldman Sachs and Bank of America.
Anything too big or too interwoven to fail, is simply too big.
In a free market with adequate fraud-prevention controls between various operations, these banks would likely not have gotten so big in the first place. They certainly would not have survived this global financial crisis if they did.
These gargantuan banks only exist intact because of Fed and taxpayer sponsored bailouts. Adding insult to injury, these banks pose the same systemic risk as before. Topping it off, Citigroup has the gall to brag about it.
It's widely known that retired military officers frequently move into private industry at the end of their military careers. However, few realize these "generals-for-rent" are often hired back as a pentagon consultants. The potential for fraud is massive. Direct industry representatives get inside information about military programs and budgets. Then in a massive conflict of interest scheme, former generals get paid by both the Pentagon and the defense contractor.
An hour after the official ceremony marking the end of his 35-year career in the Air Force, General Gregory "Speedy'' Martin returned to his quarters to swap his dress uniform for golf attire. He was ready for his first tee time as a retired four-star general.
But almost as soon as he closed the door that day in 2005 his phone rang. It was an executive at Northrop Grumman, asking if he was interested in working for the manufacturer of the B-2 stealth bomber as a paid consultant. A few weeks later, Martin received another call. This time it was the Pentagon, asking him to join a top-secret Air Force panel studying the future of stealth aircraft technology.
He said yes to both offers.
a Globe review has found, such apparent conflicts are a routine fact of life at the lucrative nexus between the defense procurement system, which spends hundreds of billions of dollars a year, and the industry that feasts on those riches. And almost nothing is ever done about it.
The Globe analyzed the career paths of 750 of the highest ranking generals and admirals who retired during the last two decades and found that, for most, moving into what many in Washington call the "rent-a-general'' business is all but irresistible.
In some years, the move from general staff to industry is a virtual clean sweep. Thirty-four out of 39 three- and four-star generals and admirals who retired in 2007 are now working in defense roles — nearly 90 percent.
Among the Globe findings:
Dozens of retired generals employed by defense firms maintain Pentagon advisory roles, giving them unparalleled levels of influence and access to inside information on Department of Defense procurement plans.
The generals are, in many cases, recruited for private sector roles well before they retire, raising questions about their independence and judgment while still in uniform. The Pentagon is aware and even supports this practice.
When a general-turned-businessman arrives at the Pentagon, he is often treated with extraordinary deference — as if still in uniform — which can greatly increase his effectiveness as a rainmaker for industry. The military even has name for it — the "bobblehead effect."
The generals who navigate these ethical minefields said they are capable of managing potential conflicts without oversight, because of their own integrity.
"You have to have a firewall in your head," said industry consultant and former Vice Admiral Justin D. McCarthy.
But a number of retired generals contacted by the Globe said they are uncomfortable with the laxity of the system and refuse to use their Pentagon contacts to win private clients.
Navy Admiral William J. Fallon said he turned down consulting offers after learning that defense industry clients were seeking "tactical" information from inside the Pentagon. Said Fallon: "I didn't want to be a walking Rolodex."
Retired Army General Wesley K. Clark, who now works as a lobbyist and investment banker for companies seeking alternative energy contracts, believes the growing hunger among private equity firms and Wall Street investors to enlist retired generals is a consequence of a broader phenomenon: the increasing importance of the military to America's industrial base.
"It is the militarization of the economy," Clark said in a recent interview.
Here is a video from the article.
Bender's article is an excellent eight-page read. Please give it a closer look.
President Obama could easily put a stop to this fraud if he wanted to. So could have President Bush before him. So could Congress.
A Somerset County town spent more than $17,000 defending a $5 fee it charged a resident for a compact disc of a council meeting.
Tom Coulter filed a complaint with the New Jersey Government Record Council in October 2008, saying he should pay the actual cost of the CD to get the recording.
The state council this year sided with Coulter and found he should have paid about 96 cents.
Bridgewater paid more than $14,000 in legal fees defending the case. It had to pay $3,500 to Coulter for his legal fees and give him a $4.04 refund.
Township Attorney Alan Grant tells The Courier News of Bridgewater the legal fees would have been substantially lower had Coulter settled, as the township had offered.
As the Decatur City Council prepares to convene Monday to discuss setting its portion of the local property tax levy, the largest burden on those revenues - funding the pensions of police, firefighters and city employees - remains a persistent and growing challenge.
City Manager Ryan McCrady and Finance Director Ron Neufeld highlighted some telling statistics in the city's attempts to maintain its pension funds over the last decade.
"We've been putting in what we're required to put in, but the unfunded liability keeps growing," McCrady said.
In 2001, about 30 percent of the city's property tax levy went into paying down the pensions of its retired police and firefighters. In 2011, 70 percent of it will go toward pensions, even as recent years have seen cuts to other services that draw their funds from the same source, including the Decatur Public Library.
The state legislature sets all of the rules for pension contributions, and over the years it has mandated that municipalities make ever increasing payments. The result, McCrady said, has been a higher and higher cost for the city.
Recent pension reforms that passed the General Assembly and await the Gov. Pat Quinn's signature could provide long-term relief, McCrady said, but in the short term, city staff and the council have to figure out how to meet their obligations in a fiscal climate that leaves little breathing room.
"It's to the point now where taxpayers can't sustain a property tax levy to the point where we can fund these out of the property taxes," McCrady said. "We're starting to draw from other operations to pay for these obligations."
Long-term fixes won't do Decatur much good now if it runs out of money a few years from now. Property tax hikes certainly are not the answer either. I suggest bankruptcy, followed by outsourcing the police and fire departments to the lowest qualified bidder.
Public pension costs in New York are mushrooming—just when taxpayers can least afford it. Over the next five years, tax-funded annual contributions to the New York State Teachers' Retirement System (NYSTRS) will more than quadruple, while contributions to the New York State and Local Retirement System (NYSLRS) will more than double, according to estimates presented in this report. New York City's budgeted pension costs, which already have increased tenfold in the past decade, will rise by at least 20 percent more in the next three years, according to the city's financial plan projections.
NYSTRS and NYSLRS are "fully funded" by government actuarial standards, but we estimate they have combined funding shortfalls of $120 billion when their liabilities are measured using private-sector accounting rules. Based on a similar alternative standard, New York City's pension funds had unfunded liabilities of $76 billion as of mid-2008—before their net asset values plunged in the wake of the financial crisis.
In November 2003, the Manhattan Institute for Policy Research issued a report de-scribing New York State's public pension system as "a ticking fiscal time bomb."
The bomb is now exploding—and New Yorkers will be coping with the fallout for years to come.
New York's state and local taxpayers support three public pension funds encom-passing eight different retirement systems—five covering different groups of New York City employees, and three covering employees of the state, local governments, school districts and public authorities outside the city. Between 2007 and 2009, these funds lost a collective total of more than $109 billion, or 29 percent of their combined assets. Two of the three funds ended their 2010 fiscal years with asset values below fiscal 2000 levels; the third has barely grown in the past decade.
Meanwhile, the number of pension fund retirees and other beneficiaries has risen 20 percent and total pension benefit payments have doubled in the past 10 years. Tax-payers will now have to make up for the resulting pension fund shortfalls.
Assuming the pension systems all hit their rate-of-return targets:
Taxpayer contributions to NYSTRS could more than quadruple, rising from about $900 million as of 2010-11 to about $4.5 billion by 2015-16. The projected increase is equivalent to 18 percent of current school property tax levies.
State and local employer contributions to NYSLRS will more than double over the next five years, adding nearly $4 billion to annual taxpayer costs even if most opt to convert a portion of their higher pension bills into IOUs that won't be paid off until the 2020s.
New York City's budgeted pension contributions, which already have in-creased by more than 500 percent ($5.8 billion) in the last decade, are projected to increase at least 20 percent more, or $1.4 billion, in the next three years.
Pension costs would be even higher if New York's state and local retirement funds were not calculating pension contributions based on permissive government ac-counting standards, which allow them to understate their true liabilities.
While New York's two state pension systems officially are deemed "fully funded," we estimate that NYSLRS is $71 billion short of what it will need to fund its pension obligations, and that NYSTRS has a funding shortfall of $49 billion, based on valua-tion standards applied to corporate pension funds.
New York City's pension systems are not as flush as NYSLRS and NYSTRS, which is the main reason why the city spends more for pension contributions than all of the state's other public employers combined. The official "funded ratios" for the five city retirement systems ranged from 56 percent to 80 percent as of June 30, 2008. This would indicate they were $42 billion below fully funded status before the financial market meltdown wiped out more than 20 percent of their net assets. However, the city actuary also has computed alternative measures of funded status based on the kind of more conservative assumptions used in the private sector. These measures show the city's pension system was underfunded by $76 billion in 2008.
The shortfalls in the city systems undoubtedly have grown much larger in the last two years, but the full dimensions of the problem won't be known until the pension plans issue their financial reports for fiscal 2010.
Note that those shortfalls assume New York meets its expected rates of return of 7.5-8.0% based on plan. The odds of that happening are slim. Please see the article for more facts, figures, and charts.
Instability in its three pension systems is the greatest threat to Houston's financial solvency, city officials and financial analysts say.
Within three years, according to an actuarial study commissioned by the city, the pension for firefighters will require the city to contribute 45 percent of its payroll costs for that retirement plan, a burden Mayor Annise Parker says is unsustainable.
The other two plans are in even worse shape. The police and municipal employee pensions are underfunded by $2.1 billion, roughly the equivalent of what the city spends annually for public safety and general operations.
"The bottom line is the whole system is completely unsustainable with current benefit levels and the city's financial position," said John Diamond, a Rice University public finance fellow and governmental tax consultant.
The opening salvo in what may be a long fight over city pensions is expected to take place in the upcoming state legislative session. The city is taking direct aim at the firefighters' pension, seeking help from state lawmakers to force pension officials to negotiate in hopes they can reduce benefits and lower annual contributions.
"Voters elected me to make tough choices, and voters elected me to get the city's budget in order," Parker said. "We are hemorrhaging right now … in some of our pension costs. … There's a difference between a fair pension and a gold-plated pension, and the citizens of Houston have to know that we can find a fair balance in there."
Christopher Gonzales, executive director of the firefighter pension, said the fund does not want to join the city in a "meet and confer" agreement, a sort of watered-down collective bargaining. Those negotiations with the two other employee pensions in recent years have only resulted in reduced benefits for the workers and annual contributions to the system that were not enough to ensure its financial security, he said.
The firefighters don't want "watered-down collective bargaining". Well, I don't want collective bargaining at all. Collective bargaining is one of the problems.
The mayor ought to grant Gonzales his watered-down wish and outsource police and fire to the lowest bidder. Then again, the City of Houston is Bankrupt (So are California, Oregon, and Pension Plans in General) so arguably the best thing for Houston to do is admit it and file for bankruptcy. The police and fire departments can then see what benefits they get in bankruptcy court.
Busy-ness might feel good (like checking your email on Christmas weekend) but business means producing things of actual value. Often, the two are completely unrelated.
What if you spent a day totally unbusy, and instead confronted the fear-filled tasks you've been putting off that will actually produce value once shipped?
Margin debt is one measure of the amount of optimism or pessimism in the stock market. Rising margin debt generally correlates to a rising stock market. Margin use has soared to the highest level since September 2008.
It is not just the stock market that is at the highest levels since Lehman. Probably just as importantly, NYSE margin debt has surged to $269 billion, an increase of $13 billion from the prior month, and the highest since September 2008 when it was at $299 billion.
We are confident that NYSE cash in November will be at the lowest level of the year, not to mention December, as hedge funds leveraged everything they could, in some cases hitting as much as 3-4x gross leverage, in pursuit of beta, now that unleveraged alpha strategies have ceased to work. Which means that with retail stubbornly missing from the picture, the only beneficiaries of the HFT and Fed facilitated melt up are the 1000 or so hedge funds, where average net worth is in the 6 digits, that will be profitable this year.
Moreover, mutual fund cash levels have been near record lows since September, and topping it off, a respected friend tells me NYSE cash levels are negative $35 billion.
Collectively, this sounds like "all in" to me, and then some. However, just as in 2007, no one knows for sure when excessive optimism gets punished, historically it always is.
President Obama and the First Lady wish families across the country a “Merry Christmas” and encourage everyone to support the troops and their families this holiday season. Visit www.serve.gov to find ideas for what you can do to help our servicemen and women and their families.
Holidays at the White House: The White House celebrates Simple Gifts this holiday season. You're invited to tour the Christmas decorations, watch behind-the-scenes videos, share a Season's Greetings message with the troops and more.
Tracking Santa: The Department of Energy's Los Alamos lab uses state of the art technology to track Santa Claus as he circles the globe.
West Wing Week Video: “AKA Santa Claus” -- walk step by step with the President as he signs the repeal of “Don’t Ask Don’t Tell,” reads to kids for the Holidays, and receives the Census report.
5 Achievements: As the President said, it’s been the most productive post-election period we’ve seen in decades. Here are five post-election achievements you should know about.
White House Staff: It Gets Better Video: Inspired by President Obama’s It Gets Better video, several LGBT White House staffers decided to add their voices to the project.
“'Out of Many, We Are One”: The President signs the repeal of “Don’t Ask Don’t Tell” -- the right thing to do for our military, and the right thing to do for our country.
The President’s Press Conference: As this session of Congress draws to a close, the President reflects on the flurry of productivity for the American people during the final stretch.
White House White Board Video: HHS Secretary Sebelius explains how a new rule helps states review and crack down on unjustified premium hikes and protect consumers.
My American Story: Americans step up to be a part of the solution – watch the video, then visit Serve.gov to find a volunteer opportunity that’s right for you.
CAPTA: President Obama signs the reauthorization of the Child Abuse Prevention and Treatment Act (CAPTA) – critical legislation to prevent child abuse and domestic violence.
Neither sound money nor the free market comes from printing money into existence. Arguably the only thing worse than the Fed printing money out of thin air is Congress printing money out of thin air for the purpose of full employment and/or any other absurd ideas Congress has.
The last thing we need, the very last thing we need is Congress lending money into existence to pay the bills or to do anything it wants for any reason.
Bill Is Unconstitutional
Several readers, James Turk among them pointed out Kucinich's bill is unconstitutional because the proposal amounts to issuing "bills of credit", an act is forbidden by the constitution.
Inquiring minds may wish to consider the following articles regarding constitutional money and bills of credit.
Those wishing to read the definitive comprehensive guide on American monetary law and history should consider "Pieces of Eight", and James Turk's effort to reprint that guide.
Kucinich's bill is "To create a full employment economy as a matter of national economic defense; to provide for public investment in capital infrastructure; to provide for reducing the cost of public investment; to retire public debt; to stabilize the Social Security retirement system; to restore the authority of Congress to create and regulate money, modernize and provide stability for the monetary system of the United States, retire public debt and reduce the cost of public investment, and for other public purposes."
You cannot "restore" what was never there in the first place.
Gnazzo, Brown, and Kamenetsky point out these constitutional facts.
Article I, Section 8, Clause 5 of the Constitution states that Congress shall have the power "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures."
Article I, Section 10, Clause 1 says "No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."
Reader Emails
Eugene Holloway writes ...
What could pose more potential financial calamity than putting a cartel of banks in charge of your country's currency, giving the fox the keys to the henhouse?
Answer: Putting the U.S. Congress in charge, locking a hungry fox in the henhouse with the chickens. There is no precedent in our country for giving the Congress the unfettered power to dictate how much money can be printed. None. None. It has never been done. Never.
If anyone -- libertarian, conservative, Republican or Tea Party person -- tries to tell you that this is a good concept, please help him understand the certain consequences that will follow such folly.
Hugo Salinas-Price writes ...
Hi Mish!
Having Congress create money - because "money is scarce" - was the idea picked up by firebrand revolutionaries in France in 1790.
Voices of reason tried to stop the idiots, but they would not listen.
The French economy was totally destroyed in the following inflation. The madness finally ended when the paper currency went to zero value against gold. Not one of the revolutionaries ever admitted that the cause of the whole catastrophe was caused by fiat money!
Good luck stopping the idiots this time. You have, of course, read "Fiat Money Inflation in France" (1896) by Andrew Dickson White.
It's deja vu all over again.
Best regards
Hugo
Click on the preceding link, added by me, for a synopsis of the book.
My friend "HB" writes ...
Fractional reserve banking must end as it violates property rights and is the driver for the boom-bust cycle. However, abolishing fractional reserve banking should be done in concert with establishing a free banking system without a central bank and with a complete denationalization of money.
It is not possible to rectify the situation by transforming Congress into the new 'money printing from thin air' authority.
Kucinich's proposal is hair-raising nonsense for numerous reasons.
As much as I oppose the Fed and the fractional reserves system, it is actually better than what Kucinich proposes. Direct political control over the printing press would be an unmitigated disaster.
From the standpoint of constitutional law, the constitution does not confer the right to 'create' money from thin air on Congress. Rather, the clear intent of the constitution is for Congress to regulate the weights and measures of gold and silver coins. Those coins the only lawful money mentioned in the constitution. Thus, the current fiat money system is unconstitutional, even if the Supreme Court has said otherwise.
His assertions regarding the health care system and 'solar panels' and other alternative energy schemes are the usual socialistic clap-trap and easily refuted because such projects cannot exist without government subsidies, which ipso facto proves that they are uneconomic and will make the energy related situation worse instead of better.
The alleged 'aversion to borrowing' clashes with the reality that the US government deficit is now one of the highest in history. An aversion to borrowing would be good, not bad.
There is also no 'aversion to hiring people', but rather an economic situation brought on by the government interventions of the past, which have been instrumental in creating a credit-financed boom that has turned to bust. The more additional interventions are undertaken, the worse the employment situation will become.
Finally, it is NOT the 'job of Congress' to get everyone a job or to invest in this or that. Government-directed investment schemes and 'make work' programs will only consume more scarce capital and further lower the standard of living for everyone except perhaps for the few recipients of make-shift work projects at the expense of everyone else.
No one in their right mind should support Kucinich's mad proposal, unless their intent is to purposely make matters far worse. Fortunately, that bill is going nowhere with Ron Paul as Chairman of the Monetary Policy Subcommittee. I fully expect Ron Paul to enter a valid proposal sometime in 2011.
Addendum:
Further clarification Email from Eugene Holloway:
Paper money is unconstitutional. Legal tender is unconstitutional. You and I know that as a historical fact. But the U.S. Supreme Court, exposing its nature as a political body, has ruled otherwise. All of this is explained in my essays at http://www.gold-eagle.com/research/hollowayndx.html.
In case someone disagrees with the assertion, the reason I insisted that giving the Congress the unfettered power to print money is unprecedented is that, when the Treasury (approved by Congress) was in charge of the currency, the currency was convertible to gold or competed with it -- the Congress was thus limited. Today there is neither a Constitutional (according to the high court) nor a golden limitation. So the comments of Justice Field apply more than ever. And even more so the comments of the dissenters in the 1935 case in which the Court upheld the law invalidating gold clauses in private contracts: "Loss of reputation for honorable dealing will bring us unending humiliation; the impending legal and moral chaos is appalling."
I am a lawyer. When people consult me about probable consequences of proposed actions, I advise based upon the prevailing precedents and opinions of judges, which are indicative of likely results.
So when I wrote those articles, I painstakingly walked the reader through the documents and history of how the Constitution has been turned on it's head -- because simply saying that paper money, etc., is unconstitutional is not especially credible when the common assumption is that the Supreme Court is a bulwark that protects us against the Constitutional excesses of the other two branches.
The point of my essays is to demonstrate how, slowly, over decades and centuries, the Supreme Court can establish that anything is Constitutional, even if the clear intent and words of the founders are otherwise.
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