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Uh-oh … Burn rate on Social Security and Medicare Programs accelerates.

May 13, 2009

Ken’s Take: It was widely report yesterday that updated projections show that the Social Security Trust Fund will run out by 2037, and that the Medicare Trust Fund will be insolvent by 2017.

Note that the emphasis is on the recession’s lost jobs (fewer workers chipping in payroll taxes) and the need for heathcare reform (which I thought was going to increase the budget).

Also note that Bush tried to address these entitlements and was repulsed by Congress — which doesn’t want to tackle this “3rd rail” issue … and Obama’s “Make Work Pay” refundable tax credit is justified as a credit against payroll taxes which fund SS and Medicare. Let’s see, if you’ve got a shortfall and you pay less in, wouldn’t you expect the shortfall to get bigger ?

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From ABC News:

The forecasts for Social Security and Medicare trust funds have worsened this past year under the weight of the recession … the Social Security trust fund will run out by 2037, four years earlier than last year’s report had predicted, while the Medicare hospital trust fund will be insolvent by 2017, two years earlier than projected last year.

Both entitlement programs are suffering due to rising unemployment,… beginning in 2011, a “demographic tsunami”of nearly 80 million retiring baby boomers only exacerbates the problems.

Social Security Commissioner Michael Astrue … said now was not time to panic, describing the reports as “some disappointing but not unexpected news.”

“We should be neither casual nor hysterical about the revised insolvency dates,” Astrue said. “The Social Security system is sound and will weather this recession.”

Ken says: Sounds like DIck Fuld right before the Lehman collapse, doesn’t it?.

http://abcnews.go.com/Business/Politics/story?id=7571108&page=1

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WH says "no new jobs this year" … how un-stimulating !

May 12, 2009

Extracted from IBD, “What About Jobs?”, May 11, 2009

One of President Obama’s campaign pledges was to “create or save” more than three million jobs in his first two years in office — not all that ambitious considering the economy has created 1.5 million jobs annually since 1980.

K-Note: That claim morphed to “save or create 3.5 million jobs” via the $750 billion stimulus.

As of May 1, just $29 billion in stimulus spending, or about 3.7% of the total, had gone out. In a $14 trillion economy, that’s nothing.

The new White House economic forecast contains more than one stunning revelation. Tops on our list is that no net new jobs are expected this year, even as the economy recovers.

Now, Christina Romer, chairwoman of the White House Council of Economic Advisors, says don’t expect any new jobs this year — and that unemployment could reach 9.5%, up from the current 8.9%, even though she expects the economy to grow 3.5% in the fourth quarter.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=326933960257860

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If so many people want hybrid cars … how come ?

May 12, 2009

Ken’s Take: Both GM and Chrysler will be pushed by Team Obama to make the itsy-bitsy hybrids that “everybody wants.”

According to the WSJ: hybrids still aren’t getting any traction in the market and, now, Toyota is beefing up the Prius with more size and more power.

Hmmmm.

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Excerpted from WSJ: “Hybrids Battle for Green”, May 11, 2009

With sales of hybrid vehicles sinking, … Toyota,is rolling out a major U.S. ad push for its 2010 Prius, the third generation of the world’s top-selling hybrid vehicle.

Toyota’s new ad for its third-generation Prius shows a planet in harmony, with humanized clouds, fields and flowers bursting into song.

Some experts believe that price should be a big factor in the campaigns; hybrids typically cost thousands of dollars more than comparable gas-burning models. “They need to emphasize not only the social benefits of hybrids but also the economics … one of the big hang-ups with these cars is that they cost more.”

The allure of hybrids has waned with the decline in oil prices. Prius sales have fallen about 50% from Jan. 1 to April 30. F or all their earth-friendly cachet, hybrid cars represent only 2% of the light-vehicle market.

“It’s stunning … despite all the successes of the Prius and the emphasis on global warming, we can’t get significant hybrid penetration.”

“The big barrier for mass consumers is they worried that the Prius was underpowered and small … the newly remodeled Prius is slightly bigger, with more horsepower.

The initial Prius advertising largely targeted the early adopter and the tree-hugging crowd, while the second generation of the vehicle was seen as the family’s second or commuter car. This campaign is about the “mainstreaming of the product.”

Full article:
http://online.wsj.com/article/SB124199018707904593.html

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Does anybody really think that Chrysler will survive?

May 6, 2009

Ken’s Take: Let’s see …. a union controlled company, run by Italian automakers, cranking out inherently unprofitable clown cars. Does that sound like a formula for success to you? Call me cynical, but I’m betting under on this one.

Great editorial in WSJ today titled “Return of Le Car”. Worth reading. Hear are a few of the highlights.

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Last week Pres. Obama said that he hoped you would buy an “American car” — though apparently not one built in a red state in a plant owned by Japanese or German investors. He meant a car built by a company headquartered in Detroit, even if the car itself is assembled in Mexico or Canada. How confusing.

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Chrysler would be in deep yogurt in any case amid the market collapse, but its other problem is a decent franchise in Jeeps, muscle cars, minivans and pickups — and nothing to meet Congress’s stiff new “corporate average” fuel economy rules, and nobody to supply the billions to develop such vehicles and (inevitably) bribe customers to drive them off the lots.

Daimler, its previous parent, certainly had no desire to fund such profitless extravagance. The Germans took a lot of guff but they’re the ones laughing now. They sold their majority stake in Chrysler just months after Democrats took over Congress, and just weeks after President Bush began blathering about “oil addiction” and echoing Democratic demands for stringent new fuel-mileage rules (after opposing them for years).

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Not since Renault teamed up with AMC to bring you Le Car has an odder pairing been seen — or a less promising one.

Credulous media accounts insist the only challenge now is whether Chrysler can hang on for two years until Fiat begins churning out U.S. versions of its popular European models in U.S. factories. Goodness. Unless gasoline prices go to $5 a gallon,no one can be so foolish as to believe making and selling teensy eurocars in the U.S. is anybody’s route to salvation. Even in Europe… a move to bigger, more powerful cars is underway. Motorists are getting fatter and older — and unwilling to contort themselves to get in and out of a car … which ought to caution against any hope that the pixie car will sell particularly well in the U.S.

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Trying to beat Toyota at its own game is a nonstarter. Toyota sets a standard of quality and technology that all must meet — that’s the price of admission. But “what we have that Toyota does not have ?”

Some [Obama auto] task force members acknowledge that the drive for profitability is likely to collide with Mr. Obama’s fuel-efficiency and low-emission goals.”

When will Team Obama explain exactly how Chrysler is supposed to make money building the “green cars” Mr. Obama wants it to build. You already know the answer: You, the taxpayer, have not finished chipping in to keep Fiat-Chrysler alive.

Full article:
http://online.wsj.com/article/SB124157578117190427.html

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School choice: kids or unions … don’t bet on the kids

May 5, 2009

I’m a big fan of charter schools and vouchers … the latter giving motivated families to send their children to provably better schools.

Congress — with Obama approval — is about to kill the demonstrably successful DC voucher program. Why? Because kids don’t vote but union members do. Pretty sad.

There are a sprinkling of articles today on the hypocrisy of government reps on the subject. They boil down to this fundamental argument:

“Some hypocrisies are apparently more equal than others. If, for example, you are a politician who preaches “traditional values” and you get caught in a hotel with a woman who is not your wife, the press is going to have a field day with your tartuffery.

If, however, you are a pol who piously tells inner-city families that public schools are the answer — and you do this while safely ensconcing your own kids in some private haven — the press corps mostly winks.

As strong as the outright opposition may be, perhaps the biggest problem faced by these parents is the Beltway’s complicity in a smarmy double standard. Two weeks ago, the Heritage Foundation highlighted this double standard with the release of a new study showing that members of Congress are sending or have sent their children to private schools … at a rate that’s more than three times the rate for rest of America.

For Democrats especially, their choice of a private school for their own families tends to make them opponents of choice for others. The bargain the teachers unions offer is this: We won’t fuss about private or parochial schools for your children, provided you don’t help any other kid get the same chance.”

From the Wall Street Journal
http://online.wsj.com/article/SB124147923132785121.html

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Goldman to Repay TARP Funds…but Feds May Not Let Them!

May 5, 2009

The TARP saga continues …

Excerpted from New York Times, “Goldman Using Share Sale to Return Bailout Funds”, by Louise Story, April 15, 2009

Six months after accepting a financial lifeline from Washington, a newly profitable Goldman Sachs is pushing to return the billions of taxpayer dollars that it received in an effort to extricate itself from heightened government control.

If successful, Goldman would become the first major bank to return funds received under the Troubled Asset Relief Program, or TARP. Such a step would probably enable Goldman — long one of the most lucrative places to work on Wall Street — to free itself from government-imposed restrictions on compensation.

It is unclear how quickly Goldman might be allowed to return the $10 billion it accepted last October. Goldman is not allowed to return the money without the approval of the Treasury and the Federal Reserve, which both declined to comment on Monday.

One analyst comments, “Goldman can walk the halls of Congress waving a check, but is it in the best interest of the marketplace for them to pay it back?”

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Goldman said on Monday that it would seek to raise $5 billion by selling new common stock and use the proceeds, along with other funds, to repay the government.

“We just think that operating our business without the government capital would be an easier thing to do. We’d be under less scrutiny, and under less pressure.”

Edit by DAF

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Full article:
http://www.nytimes.com/2009/04/15/business/15goldman.html?ref=business&pagewanted=print

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Call it a push after 100 Days … the stock market, that is.

May 4, 2009

OK, so where do we stand in the market after 100 days of change & hope.

The bad news: right where we started .

The good news: right where we started.

Obama inherited a Dow that was hovering around 8,500 … higher around election time … lower after th election … then hanging in a narrow range.

After a sell-off to under 7,000 – the market has fought it’s way back into the range between 8,000 and 8,500.

So, I’ve got to stop saying that Obam killed the market (he did, but I don’t have the proof yet) … and other folks have to quit talking about an Obama rally.

Fair enough ?

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"If Japanese automakers can make a profitable hybid, why can't American automakers?"

May 1, 2009

That’s the question that President Obama posed in his 100 day press conference.

The answer: According to the Washington Post, they (the Japanese) can’t make a profitable hybrid — even the Prius loses money! So, add on a few UAW work rules and legacy costs and you get a mega loss generator … probably supported by extensive government subsidies.

P.S. to President Obama — we didn’t invent the auto — the Germans did (ever hear of Mercedes Benz ?)

P.P.S. to Pres. Obama — hire a fact-checker

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Excerpted from Washington Post, “The Car of the Future — but at What Cost?”, Steven Mufson, November 25, 2008

Hybrid Vehicles Are Popular, but Making Them Profitable Is a Challenge

Sen. Charles E. Schumer said last week. “We need a business model based on cars of the future, and we already know what that future is: the plug-in hybrid electric car. ”But the car company Schumer and other lawmakers envision for the future could turn out to be a money-losing operation, not part of a “sustainable U.S. auto industry.”

That’s because car manufacturers still haven’t figured out how to produce hybrid and plug-in vehicles cheaply enough to make money on them.

After a decade of relative success with its hybrid Prius, Toyota has sold about a million of the cars and is still widely believed by analysts to be losing money on each one sold.

U.S. lawmakers want the companies to produce automobiles of the future, using advanced technologies and featuring hybrid or plug-in vehicles. But there’s no guarantee that the new business model would be any more viable than the current one.

Automobile experts estimate that the battery in a plug-in vehicle could add at least $8,000 to the cost of a car, maybe considerably more. Most Americans will be unwilling to pay the extra price, especially if gasoline prices languish around $2 a gallon.

GM will have to stake its future on Malibus, the Chevy Cruze, and much more conventional technologies.

“Do you bet on lighter, smaller, more fuel efficient but ultimately less profitable cars or do you hold back a little on technology development and look at new versions of existing cars.

”Many experts say that gas guzzlers will not fade away as long as Congress fails to impose higher taxes on gasoline to steer people toward fuel-efficient cars.

GM and other car companies, while preparing plug-in vehicles, are more likely to live or die based on the sales of conventional cars that get better fuel efficiency through improved transmissions, reduced weight or hybrid technology.

”There’s fluff and there’s reality … The fluff is the Chevy Volt . . . That’s not going to save GM in the next five years. What will save GM is more small sedans and more crossovers. That’s what people are going to be buying.”

Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/24/AR2008112403211.html?wpisrc=newsletter

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One for the good guys who pay their mortgages … Senate blocks mortgage "cramdowns"

May 1, 2009

As loyal readers know, I’ve been opposed to mortgage cramdowns from the get-go.

In essence, cramdowns reduce the principal owed on a mortgage based on a borrower’s ability to pay. That is, if a guy took on a mortgage that he couldn’t afford and stops paying, then the lender would have to reduce the amount owed to fit the deadbeat’s budget. A fundamentally wacky idea for lots or reasons. Most notably, if lenders had to absorb principal risk on all mortgages, they would naturally just up the interest rates on all mortgages in order to cover the added risk. In other words, good borrowers would end up subsidizing the deadbeats.

Team Obama was pushing aggressively for cramdowns — to slow foreclosures and spread the wealth (by having good borrowers subsidize bad borrowers).

According to the WSJ:

“Senate Republicans defeated the budget bankruptcy “cramdown” bill …that had easily passed the House and was one of President Obama’s housing priorities.

The cramdown would have allowed bankruptcy judges to rewrite contracts to reduce the amount that people owe on their mortgages. But a bipartisan majority understood that relief for today’s troubled borrowers would be paid with higher rates on the next generation of homeowners, as lenders priced the added risk into mortgage contracts.

Speaking for millions of renters and nondelinquent borrowers, Mr. McConnell said that the vote “ensures that homeowners who pay their bills and follow the rules won’t see an interest-rate hike at the whim of a bankruptcy judge.”

Full article:
http://online.wsj.com/article/SB124113493922575179.html

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Would you rather buy a car from a bankrupt automaker, or from ….

April 30, 2009

An automaker majority owned by the UAW, or …

The United Auto Workers union would eventually own 55% of the stock in a restructured Chrysler LLC under the deal reached by the union and the automaker.

Fiat SpA “eventually” will own 35%, and the U.S. government and Chrysler’s secured lenders together will end up owning 10% of the company once it is reorganized.
http://online.wsj.com/article/SB124087751929461535.html

An automaker majority owned by the Federal government, with the UAW owning most of the rest, or …

General Motors outlined a new turnaround plan that would leave the U.S. government controlling the auto maker.

Under the plan, GM is asking for an additional $11.6 billion in government loans, on top of the $15.4 billion it has already received. It envisions giving the government at least half ownership of the company as payment for half of the loans.

At the same time, GM said it would use stock instead of cash to pay off half the $20.4 billion it owes a United Auto Workers fund to cover retiree health care. That stock would leave the union owning about 39% of GM.
http://online.wsj.com/article/SB124083476254259049.htmlhttp://online.wsj.com/article/SB124083476254259049.html

Buy a Lexus, BMW, Mercedes, or …

Hmmmm … let me think about that one for a moment

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Easy come, easy go … about that buck-a-day "Making Work Pay" program.

April 29, 2009

Obama’s signature tax cut to “95% of families” was supposed to be a $500 refundable credit (per worker) and $1,000 per household (with more than 1 worker).

Congress pared the plan to $400 per worker — a whopping buck-a-day — and stuck it in the stimulus package.

As recently as yesterday, Obama economist Austan Goolsbee was touting it as “a generous tax break for 95% of workers”.

Uh-oh.

As part of the budget blueprint that will be passed this week (on a party line vote, for sure), Congress will let Obama’s “Making Work Pay” tax credit expire at the end of next year — along with the evil Bush tax breaks for the wealthiest Americans.

Let’s see: a couple of weeks ago, a buck-a-day was a generous tax break that would stimulate the economy; now, according to some Dems, it’s a pittance that will barely be missed. Which is it ?

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Reported on many sources, including:
http://www.foxnews.com/politics/first100days/2009/03/24/senate-democrats-let-obamas-tax-credit-expire-budget-blueprint/

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A Milli Vanilli moment …

April 28, 2009

You’ve probably asked yourself: “What if the teleprompter goes awry?”

Here’s a recap from Politico, and a link to the video:

“President Obama’s speech at the National Academy of Sciences Monday morning hit a brief snag when Obama got ahead of his script.

Laying his plan for a President’s Council of Advisors on Science and Technology, Obama began to name the members of PCAST listed in his prepared remarks – before realizing he’d already introduced them, earlier in his speech.

“In addition to John – sorry, the – I just noticed I jumped the gun here,” Obama said, pausing for several seconds as he looked at the prompter. “Go ahead. Move it up. I had already introduced all you guys.”

The audience, which gave the president a warm reception, responded with a quiet laugh.”

Video:
http://www.politico.com/politico44/perm/0409/obama_gets_ahead_of_prompter_3813cbcb-1e4a-44c6-b1e7-26017e7b70c2.html

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School reform means doing what’s best for kids … unless the unions object, that is.

April 27, 2009

Ken’s Take: I haven’t bought into the line that Pres Obama surrounds himself with good people. Consider Biden, Geithner, Napolitano for starters. But, I was enthusiatic re: Arnie Duncan — Obama’s pick for Sec. of Education. That is, enthusiastic until his first official action: bowing to the teacher’s union and killing the Washington DC school voucher program. Read on …

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Arnie Duncan, U.S. secretary of education, in a WSJ op-ed:

“When parents recognize which schools are failing to educate their children, they will demand more effective options for their kids.

The only open question is whether or not we have the collective political will to face the hard facts about American education. We must close the achievement gap by pursuing what works best for kids, regardless of ideology. In the path to a better education system, that’s the only test that really matters.”
http://online.wsj.com/article/SB124035679795740971.html

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From the Heritage Foundation Daily Wire:

Earlier this month, Duncan sent letters to 200 District of Columbia low-income families informing them that he was taking back the $7,500 in scholarship vouchers that the D.C. Opportunity Scholarship program had previously awarded them.

The evidence is in. The D.C. Opportunity Scholarship program works.

A Department of Education study showed the students in the scholarship program the longest performed at reading level approximately 1.5 to 2 full school years ahead of students who applied but were not lucky enough to be admitted to the program. But instead of “pursuing what works best for kids, regardless of ideology” Duncan did the exact opposite. He moved to kill the program by sending the rescission letters mentioned above.

The Washington Post explained why:

“It’s clear, though, from how the destruction of the program is being orchestrated, that issues such as parents’ needs, student performance and program effectiveness don’t matter next to the political demands of teachers’ unions.”

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High-speed trains: Faster than a car … and just about as profitable.

April 27, 2009

Business Week says:

“By committing $13 billion to high-speed train travel, the Obama Administration is giving long-dormant projects a boost

A priority is a line that would whiz passengers 520 miles from Anaheim to San Francisco in less than three hours and upgrades of Amtrak service in New England and the Midwest to reach speeds of up to 150 mph.”

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The article also notes:

(1) U.S. government analysts concede that it’s impossible to run these hugely expensive networks profitably.

(2) Among the interested investors: Japan Railway, Bombardier, Kawasaki, and Siemens. (Notice anything “interesting” about the list?)

The article glosses over our national success running Amtrak.

That sucking sound you hear is more of money leaving your wallet (assuming that you’re in the half of Americans who pay income taxes)

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Full article: Business Week, “U.S. High-Speed Train Projects Get a Push”, April 23, 2009
http://www.businessweek.com/print/magazine/content/09_18/b4129029604145.htm

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Piling on … more quips on Obama’s $100 million cost-cutting directive.

April 22, 2009

Extracted from IBD, “Fiscal Nanosurgery”, April 21, 2009

When President Obama directed his Cabinet to cut $100 million out of the budget … he talked about earning the public’s trust on spending. Apparently, he thinks people put a low value on trust.

Perhaps the president is counting on taxpayers not being able to tell the difference between millions, billions and trillions. They all seem like such big numbers.

So to get a real sense of just how little is being asked of his Cabinet, consider:

• If Obama were your dietician, you’d only have to give up an apple a year to abide by his diet plan.

• If he wanted you to cut your gasoline consumption, you’d have to drive just one-third of a mile less in a year.

• And if he wanted you to waste less water, you’d only have to reduce the time you spend in the shower on one day of the year by 30 seconds.

http://www.ibdeditorials.com/IBDArticles.aspx?id=325206654263630

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Piling on … more quips on Obama's $100 million cost-cutting directive.

April 22, 2009

Extracted from IBD, “Fiscal Nanosurgery”, April 21, 2009

When President Obama directed his Cabinet to cut $100 million out of the budget … he talked about earning the public’s trust on spending. Apparently, he thinks people put a low value on trust.

Perhaps the president is counting on taxpayers not being able to tell the difference between millions, billions and trillions. They all seem like such big numbers.

So to get a real sense of just how little is being asked of his Cabinet, consider:

• If Obama were your dietician, you’d only have to give up an apple a year to abide by his diet plan.

• If he wanted you to cut your gasoline consumption, you’d have to drive just one-third of a mile less in a year.

• And if he wanted you to waste less water, you’d only have to reduce the time you spend in the shower on one day of the year by 30 seconds.

http://www.ibdeditorials.com/IBDArticles.aspx?id=325206654263630

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"Puny","Trivial", "Insulting" … Remember when $100 million was a lot of money?

April 21, 2009

President Obama announced plans to cut $100 million from the federal budget, and department heads will have to make the cuts within 90 days. For example, Homeland Security is going to start buying office supplies in bulk instead one at a time. That’s some out of the box thinking for you …

While the initiative was treated by most media as a big deal. A few observers — left & right — have tried to put the $100 million in perspective. Here are a couple of my favorites:

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From Tom Bemis at Marketwatch:

“To get a handle on how insultingly trivial the announcement is, one need only compare the targeted cuts to the administration’s spending plan for 2010.
With cuts in federal spending by $100 million, the government will save roughly 1/36,000 of the $3.6 trillion it expects to spend next year.

Put another way, if the budget were a yardstick, the administration would be proposing to shorten it by about half the width of a human hair.
http://www.marketwatch.com/news/story/Obama-makes-puny-effort-budget/story.aspx?guid={AF7E28F0-CEBA-426D-AC0A-448537C5A627}&dist=hplatest

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From Paul Krugman of the NY Times:

” Let’s say the administration finds $100 million in efficiencies every working day for the rest of the Obama administration’s first term. That’s still around $80 billion, or around 2% of one year’s federal spending.

OK, politics is theater. But you could argue that the president shouldn’t feed the bogus claim that we can close fiscal gaps by eliminating a bit of waste.
http://krugman.blogs.nytimes.com/

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From economics guru Greg Minkow’s blog:

Just to be clear: $100 million represents .003 percent of $3.5 trillion.

To put those numbers in perspective, imagine that the head of a household … called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had be cut?

By $3 over the course of the year–approximately the cost of one latte at Starbucks.

The other $33,997? We can put that on the family credit card and worry about it next year.
http://gregmankiw.blogspot.com/

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Thanks to Tags for the heads-up

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Glimmers of Nope ….

April 20, 2009

Consider the following:

(1) Last week, it was broadly reported that foreclosures have continued at a brisk and increasing rate since Team Obama’s mortgage rescue plan was announced.

According to USA Today: “Foreclosure filings in February jumped nearly 6% from January, despite foreclosure moratoriums and prevention programs … Foreclosure filings were up almost 30% from February 2008, … one in every 440 U.S. homes received a foreclosure filing in February.”
http://www.usatoday.com/money/economy/housing/2009-03-11-higher-housing-foreclosures_N.htm

(2) The WSJ reports that lending has been declining at banks that have received TARP funds

“Lending at the biggest U.S. banks has fallen sharply … despite government efforts to pump billions of dollars into the financial sector.

The biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February … than in October, the month the Treasury kicked off the Troubled Asset Relief Program.

The total dollar amount of new loans declined in three of the last four months … All but three of the 19 largest TARP recipients … originated fewer loans in February than they did at the time they received federal infusions.” http://online.wsj.com/article/SB124019360346233883.html#mod=testMod

(3 Most banks have been reporting better than expected Q1 earnings making rosy projections, and moving to pay back TARP funds.

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Ken’s Take:

Sure, Wall Streeters and the banks blundered big time in the mortgage mess. Still, they are a shrewd bunch. Obama’s Team of career government bureaucrats and academics are no match for the big league finance sharks. The Administration’s haphazard programs are easily exploited. The banks can take the near-free money and generous processing cost subsidies and simply drop them down to their bottom lines without doing much differently that they otherwise would. For the bank’s, it’s like taking candy from a baby …

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Caution: 535 backseat drivers onboard … (all unlicensed)

April 17, 2009

Ken’s Take:

Many banks were forced to take TARP funds even though they didn’t need or want them. Why? So that banks that did need the money wouldn’t be stigmatized and to get more money into the economy.

Now, “industry officials have been expressing growing concern about Washington changing TARP terms, as Congress did last month on rules for executive compensation … That creates uncertainty and disincentives for companies in TARP. You have 535 backseat drivers in Congress. ”

“Think about it: If Rick Wagoner can be fired and compact cars can be mandated, why can’t a bank with a vault full of TARP money be told where to lend? And since politics drives this administration, why can’t special loans and terms be offered to favored constituents, favored industries, or even favored regions? Our prosperity has never been based on the political allocation of credit — until now. ”

Unfortunately (for TARP holders), Team Obama is rejecting attempts to repay the loans … and dodge encumbering Congressional control.

I guess backseat driving is way too much fun … especially when it comes with no accountability.

Source article:
http://foxbusiness.proteus.com/content.html?contentId=29318

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My #1 tax beef: Under the Team Obama tax plan, a majority of voters will be paying zero income taxes (or less)

April 16, 2009

Note: This analysis was originally posted on July 31, 2008 during the run-up to the election. It proves the point (ahead of its time) that less than half of all voters pay any income taxes now that “Make Work Pay” has been enacted (as part of the stimulus program). Think about it: the majority gets to demand more government programs that they don’t pay a cent towards. I think that’s scary. Very scary..

It’s the post that continues to get the most hits, and the topic is ‘hot’ this week because of the tea party rallies. So, here’s a flashback .
..

* * * * *

Despite the drumbeat of warnings from various sources, the prospects that a minority of voting age Americans will be paying Federal income taxes under the Obama tax plan doesn’t seem to arouse much visible public anxiety.

Why?

First, for those in the emerging majority that won’t pay any income taxes – or may even be getting government checks for tax credits due – the deal is almost too good to be true. To them, Obama’s plan must make perfect sense. So, why rock the boat?

Second, some people argue that low-earning people who don’t pay income taxes shoulder a regressive payroll tax burden to cover Medicare and Social Security. Yeah, but these programs – which are most akin to insurance or forced savings plans — offer specific individual benefits that are directly linked to each wage earner’s contributions.and the benefits phase down quickly as qualifying income increases. That is, they’re not as regressive as many people argue.

Third, most of the energetic criticism of Obama’s plan has centered on its redistribution intent — taking over $130 billion of “excess” income from undeserving rich people, and giving it directly to those who earn less and need it more.

Fourth, most folks just don’t believe that the numbers will really shift enough to create a voting majority of citizens who don’t pay income taxes. They’re wrong. Very wrong.

Here are the numbers … and why they should bother you.

* * * * *

Today, 41% of voting age adults don’t pay Federal income taxes

Based on the most recent IRS data, slightly more than 200 million out of 225 million voting age Americans filed tax returns. That means that 25 million adults – presumably low income ones – didn’t file returns and, of course, didn’t pay any income taxes. See notes [1] to [4] below

Of the 200 million voting age filers, approximately 68 million (33% of total filers) owed zero income taxes or qualified for refundable tax credits (i.e. paid negative income taxes). [5]

Add those 68 million to the 25 million non-filers, and non-payers already total 93 million – 41% of voting age adults.

* * * * *

Obama’s Estimates – Make that 49%
Not Paying Federal Income Taxes

Obama says (on his web site) that he will give tax credits up of $1,000 per family ($500 per individual) that will “completely eliminate income taxes for 10 million Americans”. And, he says that he will “eliminate income taxes for 7 million seniors making less than $50,000 per year.” [6]

Taking Obama’s estimates at face value, the incremental 17 million that he intends to take off the income tax rolls will push the percentage of non-payers close to 49% of voting age Americans — within rounding distance to a majority. [7]

* * * * *

And, Obama’s estimates are probably low,
so make the number 55% (or higher)

Since Obama’s basic proposal is for tax credits ($500 per person or $1,000 per family) – not simply deductions from Adjusted Gross Income (AGI) — they will have a multiplier impact on the amount of AGI that tax filers can report and still owe no taxes.

For example, a childless married couple that files a joint return can currently report about $17,500 in Adjusted Gross Income (AGI) and owe no income taxes. [8]

Under the Obama Plan, that couple’s zero-tax AGI is bumped up to $27,500 since their new $1,000 tax credit covers the 10% tax liability on an additional $10,000 of AGI. And, married couples filing jointly can keep adding about $10,000 to their zero-tax AGI for each qualifying dependent child that they claim. [9]

click table to make it bigger

Based on the 2006 IRS data, approximately 25 million tax returns were filed that reported AGI less than $27,500 (the post-Obama zero-tax AGI) and required that some income taxes be paid. [10]

Assuming that 45% of those were for couples filing jointly, they represent over 22 million adults. For sure, these 22 million will come off the tax rolls — and they alone will be enough to create a non-taxpayer majority (51% of voting age adults),

click to make table bigger

And, there are more folks being pushed off the tax rolls. About 4.7 million childless individuals earn less than $13,750 (the post-Obama zero-tax AGI for childless individuals), and currently pay some Federal income taxes. This group will shift to non-payer status.

So would several million joint filers who can take advantage of the Child Tax Credit to report more than $27,500 and not pay Federal income taxes.

And, some portion of the 7 million Seniors that Obama says will have their taxes eliminated — that is the Seniors couples earning more than $27,500 (but less than $50,000) — and Senior individuals earning more than $13,750 (but less than $50,000).

So, post-Obama, the percentage of non-taxpayers will easily exceed 55% of voting age adults — a solid majority. It won’t even be close.

* * * * *

The Bottom Line – Why You Should Worry

An income tax paying minority of voting age adults isn’t just a possibility. Under Obama’s plan, it’s a virtual certainty. Based on the hard numbers, Obama’s plan will create a new majority — a powerful voting block: non-tax payers. UH-OH.

Again, for those in the emerging majority that won’t pay any income taxes – or may even be getting government checks for tax credits due – the deal is almost too good to be true. To them, Obama’s plan must make perfect sense. Count on their perpetual support for the plan.

But for those in the new minority, watch out if the new majority decides that more government services are needed, or that $131 billion in income redistribution isn’t enough to balance the scales.

The Tax Foundation — a nonpartisan tax research group – has repeatedly warned that “While some may applaud the fact that millions of low- and middle-income families pay no income taxes, there is a threat to the fabric of our democracy when so many Americans are not only disconnected from the costs of government but are net consumers of government benefits. The conditions are ripe for social conflict if these voters begin to demand more government benefits because they know others will bear the costs.” http://www.taxfoundation.org/research/show/1111.html

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Sources & Notes

[1] The Census Bureau reported 217.8 million people age 18 and over; as of July 1, 2003.
http://www.census.gov/Press-Release/www/releases/archives/population/001703.html
http://www.census.gov/popest/national/files/NST-EST2007-alldata.csv

[2] The IRS reported 138.4 million personal tax returns filed in 2006.
http://www.irs.gov/pub/irs-soi/06in11si.xls

[3] The IRS reported that in 2006, approximately 45% of filed returns were by married couples filing jointly (i.e. 2 adults per return); 55% for individual filers (including ‘married filing separately’ and ‘head of household’). http://www.irs.gov/pub/irs-soi/06in36tr.xls

[4] Calculation: 138.4 million returns times 1.45 (adults per return) equals 200.7 million adults represented on filed returns

[5] http://www.irs.gov/pub/irs-soi/06in01fg.xls http://ftp.irs.gov/pub/irs-soi/06inplim.pdf

[6] http://www.barackobama.com/issues/economy/#tax-relief

[7] Analytical note: 93 million plus 17 million equals 110 million divided by 225 million equals 49%.

[8] Analytical note: $17,500 less a $10,700 standard deduction, less 2 exemptions at $3,400 each, equals taxable income of zero – so no federal income taxes are due.

[9] Analytical note: $27,500 less a $10,700 standard deduction, less 2 exemptions at $3,400 each, equals taxable income of $10,000, which at a 10% rate is a $1,000 tax liability that gets offset by the $1,000 Obama credit, reducing the tax liability to zero.

[10] http://www.irs.gov/pub/irs-soi/06in11si.xls

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Simple math … the seeds of a tax revolt

April 16, 2009

Counterattacking the Tea Parties yesterday, Team Obama was out in force declaring: (1) 95% of workers are getting a tax break (2) over 60% of Americans support the President’s spending plans.

Let’s see …

Regarding the tax break: keep in mind that it’s a whopping buck-a-day for the average worker. Better than nothing, but not by much. If that buys financial stability and happiness, I say ‘go for it’.

Regarding the support for the spending plan: keep in mind that about half of voters don’t pay any income taxes — or get a refundable credit check. They have no skin in the game — why wouldn’t they support a boatload of new benefits — after all, they’re FREE.

Assuming all 50 on non-tax payers support the programs, getting to 60% support means that 20% of tax payers support the spending plan … or, said differently, 80% don’t.

Think about it: using Team Obama’s own numbers, 80% of the folks who have to pay for the spending spree oppose it … but politically, the payers are dwarfed by the freeloaders.

It’s simple arithmetic.

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Finally, a windfall profits tax that I can support …

April 16, 2009

According to the WSJ, Team Obama (Barack & Michelle) reported $6.8 million income in 2007 ($4.1) and 2008 ($2.7) … “mainly from book sales”.

I think it’s fair to say that if Obama had not been selected to give a speech at the 2004 Democratic National Convention, his book sales would have been statistically insignificant.

In other words, his book earnings are, by definition, a windfall.

Why not tax them at windfall profits rates — say 90%, Barney Frank’s favorite number?

Obama has an grand opportunity to lead by example.

Makes sense to me

Source article:
http://online.wsj.com/article/SB123983002234522435.html

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High taxes, out-of-control gov’t spending, ballooning national debt … let’s have a tea party.

April 15, 2009

Just in case you haven’t heard (since NBC, NY Times, etc. have been ignoring the story or playing it down) …

According to the WSJ: Today, American taxpayers in more than 300 locations in all 50 states will hold rallies — dubbed “tea parties” — to protest higher taxes and out-of-control government spending. Below is a map of planned rallies and a link to an interactive map with specific locations and times.

Why you should care

If you’re reading this, your tax burden is considerable — probably way more than you think. Consider a reasonably typical “professional” couple earning about $125,000 (maybe with both husband and wife working). Subtracting $10,900 for the standard deduction and $13,600 in personal exemptions (assume a husband, wife, and 2 kids @ $3,400 each) leaves $100,000 in taxable earnings. The Federal income taxes would be about about $15,000 … not bad, if that’s all there were. But they’re not.

Add to that total payroll taxes, which are payroll deducted at a rate of 7.65% based on gross earnings (called FICA earnings) not taxable income … that’s another $9,500. The couple is up to 24.5%.

Then, there are state income taxes. On average, state income taxes run about 5.5% of taxable income. That gets the couple up to 30%. Note: for specific state rates, see
http://www.taxfoundation.org/taxdata/show/228.html

Then there are sales taxes. The couple is left with $70,000 after income taxes. Assume that they spend about 75% of it on taxable goods and services at an average state sales tax rate of a little more than 5%. That’s another $3,000. They’re up to 1/3 of their taxable income going to taxes.

Finally, let’s assume that they own a modest house and pay $5,000 in local property taxes. Now, they’re approaching 40% … and that doesn’t include gas taxes, cell phone taxes, etc. … which gets the number into the 40s for sure, and maybe up to 1/2 of taxable income … for a couple that probably doesn’t consider themselves to be rich.

Think about it : half of what you make going to support about $4 trillion in annual government spending … much of it wasted. For details, see the just released “Pig Book” — the annual summary of government spending published by the Citizens Against Government Waste
http://www.cagw.org/site/DocServer/CAGW-Pig_Book_08.pdf?docID=3001

That’s why there are tea parties today …

Interactive map:
http://www.freedomworks.org/groups/19186

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Treasury Directs GM to Prepare for Bankruptcy Filing … surprise, surprise, surprise

April 15, 2009

Source: CNBC.com

The NY Times reports that The Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by a June 1 deadline, despite public contention that it could still reorganize outside court, people with knowledge of the plans said during the weekend.

The goal is to prepare for a fast “surgical” bankruptcy … creating a new company that would buy the “good” assets of GM almost immediately after the carmaker files for bankruptcy … Less desirable assets, including unwanted brands, factories and health care obligations, would be left in the old company, which could be liquidated over several years.

* * * * *

But what about the UAW? Not to worry …

President Obama, who was elected with strong backing from labor, remained concerned about potential risk to GM’s pension plan and wants to avoid harming workers, these people said.

So, GM may require as much as $70 billion in government financing, and possibly more to resolve the health care obligations and the liquidation of the factories, according to legal experts and federal officials.

* * * * *

Preserving GM’s stellar reputation. Huh ? …

a quick restructuring is necessary so its image and sales are not damaged permanently.

The government has said it will guarantee GM’s vehicle warranties.

GM has started an aggressive advertising campaign stressing that car buyers should have confidence in the company, and offering to make nine months of payments, up to $500 each, for owners who lose their jobs.

* * * *

Promise: a transparent administration. Yeah, right …

None of these people agreed to be identified because they were not authorized to discuss the process. GM declined to comment and the Treasury Department did not comment.

* * * *
Full article:
http://www.cnbc.com/id/30184869

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In pursuit of mediocrity … Congress moves to squash pay for performance.

April 14, 2009

Ken’s Take: (1) Expect this to spread to private industry as Congress grabs more and more power to control managers’ compensation (2) And folks wonder why government bureaucracies are so inefficient.

* * * * *

Excerpted from WSJ, “Forget About Merit”, April11, 2009

Last month the Pentagon announced it would “review” a pay-for-performance system that now covers some 200,000 of its civilian employees. In short, merit pay for work well done.

House Democrats are now pushing to freeze pay for performance across the entire federal government. They say, “A well-designed performance management system can recognize and reward high performance without a linkage to compensation.”

As the biggest merit plan in the government, the National Security Personnel System has been a prime target of federal employee unions … Unions prefer a return to a universal General Schedule system, which compensates employees based on time served … keeping workers out of a system where their own efforts can affect their compensation and advancement … makes them more dependent on the union to negotiate for them.

During the campaign, Obama said he would consider an overhaul or “complete repeal” of the merit pay system.

Full article:
http://online.wsj.com/article/SB123940322061309643.html

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Uh Oh … Obama’s PAI Drops to +2 … negative by the end of the week ?

April 13, 2009

Sunday’s Rasmussen Report pegged President Obama’s Approval Index (the difference between “top box” Strong Approvers a,d “Bottom box” Strong Disapprovers) at +2 … the lowest during the Obama presidency — down from +30 just after the inauguration.

Obama’s Total Approval (Strong Approvers plus Somewhat Approvers) has been relatively stable at 55% … down from about 65% right after the inauguration. (Note: Total Approval is what most news organizations report)

Obama’s Strong Approval has fallen from about 45% to 34% … while his Strong Disapproval has increased from 15% to 32% … netting out at the current PAI of +2

Possible explanations for the declining PAI:

(1) liberals disappointment with the pace of he Iraq withdrawal and the intensification of Afghanistan

(2) moderates concerns that Obama does not intend to “move to the middle”

(3) Catholics’ “wake up call” regarding abortion rights — fueled in part by the Notre Dame controversy

(4) broadscale concern regarding the current spending spree and concentrated concern re: cap & trade in coal mining states

(5) mixed reviews re: the European trip — with liberals coining it a “refreshing reset” and conservatives tagging it a “mea culpa tour”

(6) the declaration — during the Easter week run-up — that the U.S. is not a Christian nation.

Ken’s Take: this Wednesday’s Taxpayer Tea Parties — hyped by conservative media and totally ignored by liberal media — will cause a visible stir … and Obama’s PAI will go negative at the end of the week.

http://www.rasmussenreports.com/public_content/politics/obama_administration/obama_approval_index_history

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A small victory for opponents of the death tax …

April 13, 2009

Excerpted from WSJ, “Death Blow”, April 9, 2009

The Bush tax plan intended to eliminate the death tax in 2010. President Obama wants to reinstate 45% rate with a $3.5 million per person exemption.

Barely noticed, last week the U.S. Senate voted 51-48 to cut permanently the death tax rate to 35% and exempt all estates of less than $10 million per couple ($5 million for a single taxpayer) from any tax.

Every Republican voted for the lower rate, and so did 10 Democrats. This is the closest thing to bipartisanship we’ve seen so far this year on Capitol Hill, but naturally the White House and most of the media are appalled. Their idea of bipartisanship is when three Republicans cross party lines to pass $780 billion in “stimulus” spending.

Full article:
http://online.wsj.com/article/SB123923589432903367.html#printMode

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It’s simple arithmetic … your taxes going up

April 9, 2009

Excerpted from WSJ, “Obama Plans Sound Fiscally Responsible But Don’t Add Up”, April 9, 2009

For years, the American people have been told they could have it all: costly wars, expansion of Medicare to cover drugs, health insurance for those without, more money for schools — and tax cuts for practically everybody. They deserve to be told that they can’t have it all in the future.

In the 1930s and the 1960s, the government began popular programs to support the sick and the elderly. The cost of treating the sick is rising, and the number of old people climbing. Since 1970, the government has paid for that by cutting defense spending. But going forward, defense spending will not fall as much as it has, even if the Iraq war ends and the Pentagon is forced to be more efficient.

Pres. Obama envisions a federal government that taxes the American economy somewhat more than the historical average and spends significantly more. The president’s own projections show a deficit equal to 3% of gross domestic product well into the next decade, and that assumes all goes well.

The bottom line: either taxes as a share of GDP rise or spending on those popular benefit programs (or everything else) is throttled back.

It’s simple arithmetic.

Full article:
http://online.wsj.com/article/SB123921904349802157.html?mod=djemalert

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Chrysler intros a new SUV … these guys have stones!

April 8, 2009

Ken’s Take:

(1) Team Obama says folks want Segway crossover hybreds (see yesterday’s post); but the folks say they want pick-ups and SUVs. Apparently the folks are too dumb to know what they want … but, they’re allowed to vote. Go figure.

(2) How dumb is Chrysler making cars that make money instead of ones that lose money … apparently the path to profitability is paved with unprofitable mini-cars. Go figure that one, too.

* * * * *

According to CNBC:

Just a week after the White House scolded Chrysler for relying too much on gas guzzlers, the company is unveiling a new SUV.

Chrysler insists the Jeep Grand Cherokee is a crowd favorite: “Customers have told us they want this vehicle and that it’s the right size.”

The White House slammed Chrysler for having a product lineup so heavily weighted with trucks and SUVs. It added that the automaker does not have enough products in the pipeline to meet an expected increase in demand for small cars.

But Chrysler is standing by the Grand Cherokee. It’s profitable, recognizable and the No. 2-selling vehicle in the Jeep lineup. Grand Cherokee

One analyst said: “I think it’s going to be written up as being out of touch, but from a business standpoint, I think it’s the right thing to be doing,”

“It may be hard for Chrysler to please both the government, which is demanding greater fuel efficiency from the Big Three, and its customers, many of whom still demand big cars. It would be far more foolish for Chrysler to abandon its core competencies in the Jeep brand lineup than it is to come out with a new” Grand Cherokee”

“To some extent, it’s refreshing to me to see them not kowtowing to the government.”

Full article:
http://www.cnbc.com/id/30103625

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Turning around the economy on a dollar-a-day …

April 7, 2009

Well, the “middle class tax cut for 95% of workers” has officially started hitting paychecks.

So, if you work but earn less than a couple of hundred grand per year, your paycheck is now about a buck-a-day higher — the $400 tax rebate spread across 365 days.

For perspective, the total stimulus bill was about $800 billion. The Congressional Budget office estimates that about 1/4 of it (~ $200 billion) will hit in the first year. The $400 program is about 1/2 of the $200 billion.

In other words, about half of this year’s stimulus is in place. Yipes.

I hope you’re feeling better about this plan than I am.

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Finally GM "gets it" … an Obamamobile !

April 7, 2009

Part of GM’s viability plan, I guess …

Hitting the news today, GM is joint venturing with Segway to develop a clean, all electric urban vehicle. Reportedly, it can go 35 miles on each charge.

At last, a vehicle less safe than a Smart car.

Question: how long do you think it takes for a person to get feeling back in his / her butt after traveling a few miles in this joke machine ?

Just shoot me, please.

http://online.wsj.com/article/SB123906731177395605.html#mod=testMod

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What’s up with the President’s approval ratings ?

April 6, 2009

Excerpted from Rasmussen Reports, Friday, April 03, 2009

Most media reports say that the President has sky high approval rating. But …

According to the Rasmussen Daily Presidential Tracking Poll, 35% of the nation’s voters now Strongly Approve of the way that Barack Obama is performing his role as President … 32% Strongly Disapprove … That gives Obama a Presidential Approval Index rating of +3, his lowest rating to date

While the President is maintaining his rockhard support among African Americans, more non-African Americans Strongly Disapprove (35%) of the way he is performing as President than Strongly Approve (28%) … giving him a negative PAI (-7) with that group.

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Mail your warranty card to 1600 Pennsylvania Avenue … Attn: Mr. Obama

March 31, 2009

To me, the most stunning aspect of yesterday’s announcements re: GM and Chrysler wasn’t Rick Waggoner getting canned, or Chrysler being shotgun wed to Fiat (anybody out there own a Fiat ?) … it was Team O’s announcement that the Federal government would now be standing behind the car companies’ warranties.

First, I didn’t know that the Constitution gave a president the unilateral right to declare that my tax dollars will go to keeping somebody else’s shoddy car running for 5 or 10 years.

More interesting: how exactly is the Federal government going to fulfill the warranty pledge?

Let’s pretend that both Chrysler & GM are headed to the junk heap. Following them will be their dealers — the guys who currently provide warranty service. Will they just put a couple of repair bays outside the White House?

More likely, it’ll just be an insurance program that reimburses independent garages who will be licensed to make repairs. The process for handling the claims ? The reimbursement rates ? The fraud protection ?

And, many warranty repairs require parts. Where will the parts come from? Answer: probably from China since domestic suppliers will crater soon after GM.

Does anybody in the administration give even a moment’s thought to implementation details?

I guess this program will be good practice for nationalized healthcare. If they can do it for cars, they should be able to do it for human lives, right?

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This is tough love ?

March 31, 2009

Left leaning pundits were crowing yesterday about President Obama’s “ultimatum to the car companies” and his “tough love approach to the problem”.

Ken’s Take: “If your pulse isn’t revived, I’m going to declare you legally dead” isn’t tough love … it’s just politicizing the obvious.

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Sticking it to the "fly over" states … well, maybe not this year.

March 31, 2009

Excerpted from IBD, “Potholes Ahead En Route To Welfare State”, Barone, March 27, 2009

Pres. Obama continues to insist that America cannot enjoy real prosperity again without higher taxes on high earners, a government health insurance program, a cap-and-trade program that amounts to a tax on energy and the effective abolition of secret ballots in unionization elections.

Even though there are large Democratic majorities in both houses of Congress, roadblocks have started to appear.

One has been set up by the Senate Budget Committee. Chairman Kent Conrad of North Dakota, who … has apparently decided that cap-and-trade is off the table for this year.

Cap-and-trade would impose higher costs on coal-fired electric power plants. In states where most electricity is produced from coal, this would mean higher utility bills for consumers and industrial users.

So, Democrats from coal states like North Dakota see energy issues differently from Democrats from coal-free states like California.

There are 25 Democratic senators from states that get 60% or more of their electricity from coal (in North Dakota, the figure is 93%). To get 50 Senate votes on a budget with cap and trade, 17 of those Senators have to discard their regional interests and vote for cap and trade..

So you can see why he was ready to ditch cap-and-trade, which, in any case, addresses a problem — climate change — whose purported evil effects are decades away.

Ditching cap-and-trade, however, may set up another roadblock, since the money the government was going to take out of the private-sector economy was slated for Obama’s middle-class tax cut.

This could get interesting.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=323047032396219* * * * *
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Sticking it to the “fly over” states … well, maybe not this year.

March 31, 2009

Excerpted from IBD, “Potholes Ahead En Route To Welfare State”, Barone, March 27, 2009

Even though there are large Democratic majorities in both houses of Congress, roadblocks have started to appear.

One has been set up by the Senate Budget Committee. Chairman Kent Conrad of North Dakota, who … has apparently decided that cap-and-trade is off the table for this year.

So, Democrats from coal states like North Dakota see energy issues differently from Democrats from coal-free states like California.

So you can see why he was ready to ditch cap-and-trade, which, in any case, addresses a problem — climate change — whose purported evil effects are decades away.

Ditching cap-and-trade, however, may set up another roadblock, since the money the government was going to take out of the private-sector economy was slated for Obama’s middle-class tax cut.

This could get interesting.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=323047032396219* * * * *
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“I’ll cut the deficit in half !” … depends where you measure from, I guess.

March 30, 2009

President Obama keeps saying that his 10-year budget will cut the federal deficit in half.

Since that’s counter-intuitive — given the amount of new spending he has planned, I got curious …

Here are they key numbers:

From 1969 to 2008, the Federal deficit was about 3% of GDP. That’s about $350 billion per year.

The deficit ballooned during the recent spending and bailout spree to about 12% of GDP. That’s about $1.9 trillion.

The CBO projects that the Obama budget — as proposed — would have a 10 year out deficit (in 2119) that’s roughly $1.2 trillion — 6% of GDP. Team O claims that the out year deficit will be “only” $750 billion — about 5.5% of GDP.

Bottom line: Big O is technically correct if he measures from the 2008-2009 multi-billion dollar spending extravaganza and heavy rounds the numbers. The deficit goes from $1.9 trillion in 2009 to $1.2 trillion (or $750 billion if you buy Team O’s numbers) — as a percentage of GDP, it goes from 12% to 6%. That’s about halving the deficit between 2009 and 2019.

More important, but omitted in the President’s remarks: Team O’s out year deficit will be roughly twice the 1969-2008 percentage of GDP and his out year deficit will be roughly 3 times the recent average deficit (in dollars)

Maybe not a lie … but very misleading … don’t you think?

Spend, spend, spend …

* * * * *

http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/

CBO Budget Analysis:
http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf

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Dear AIG, I quit !

March 26, 2009

The NY Times reprinted the following letter — sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward Liddy, the chief executive of A.I.G.

Won’t change many people’s minds re: the bonuses. but certainly paints another side to the picture …

* * * * *
Excerpted from NY Times, “Dear AIG, I Quit”, March 25, 2009

Dear Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P.

Most of those responsible have left the company and have conspicuously escaped the public outrage.

Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. A.I.G. management assured us on three occasions that the company would “live up to its commitment” to honor the contract guarantees.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

I can no longer justify spending 10, 12, 14 hours a day away from my family.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn.

This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget.

Sincerely,Jake DeSantis

For the full text of the letter:
http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=2&ref=opinion&pagewanted=all

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What ? No teleprompter ?

March 25, 2009

At his press conference last night, President Obama appeared to deliver his introductory remarks without a teleprompter.

True, his trademark twin-barreled, remote controlled teleprompter was MIA, but … in the back of the room were 2 gigantic big screen TVs that scrolled the speech. Same process, different media.

Call me cruel, but I’m still waiting for somebody to kick out a plug and give us a Milli Vanilli moment ….

* * * * *

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‘Oppressive, unjust and tyrannical’ … but retribution is so, so sweet

March 23, 2009

Ken’s Take: Over the weekend, engaged in a family debate. Everybody agreed that the AIG FP hedgers were scum. Rest of family thought the bonuses should be reclaimed by whatever means it takes. Period. I argued that once contracts are broken to allow retroactive, punitive taxation is ok’d for one group of folks, there’s no room for complaint when the guns get pointed at you. We’ll see …

* * * * * *

Excerpted from WSJ, “A Smoot-Hawley Moment?”, March 23, 2009

Bottom line: The Congressional action on AIG and banks is oppressive, unjust and tyrannical.

When does a single policy blunder herald much larger economic damage?

Sometimes it’s hard to know ahead of time. Few in Congress thought the Smoot-Hawley tariff was a disaster in 1930, but it led to retaliation and a collapse of world trade.

The question amid Washington’s AIG bonus panic is whether Congress’s war on private contracts and the financial system is a similarly destructive moment.

It is certainly one of the more amazing and senseless acts of political retribution in American history.With such a sweeping assault on contracts and punitive taxation,

Congress is introducing an element of political risk to economic decisions that is typical of Argentina or Russia. The sanctity of U.S. contracts has long been one of America’s competitive advantages in luring capital, a counterpoint to our lottery tort system and costly regulation.

Meanwhile, the 90% tax rate marks a return to the pre-Reagan era when Congress and the political class behaved as if taxes didn’t matter to growth or incentives. It is a revival of the philosophy of redistributionist “justice” in the 1930s, when capital went on strike for an entire decade.

Full editorial:
http://online.wsj.com/article/SB123776465612908965.html

* * * * *

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A new market force: Government induced ‘systemic risk’

March 23, 2009

Ken’s Take:

The Congressional act placing a retroactive confiscatory income tax on the understandably unpopular AIG FP bonuses is already beginning to have an impact — an impact that will certainly slow the untangling of the financial mess, and may even thwart it entirely.

All the Friday Wall Street chatter was about how the government can — on a whim — change the rules of the game in midstream, ditching contracts and agreements when it (the government) wakes up and realizes that its programs are ill-onceived and under-analyzed (i.e. unread) before enactment.

So, word has it that the government was soliciting 200 hedge funds to buy toxic securities as part of a public-private partnership. Reportedly, only 3 have signed up — and it’s my bet that they did so before Thursday’s Congressional action and head for the exits. (It’s ok for them to back out since deals aren’t deals any more).

Similarly, reasonably sound companies that took TARP funds because they were coaxed to do so by the government (think Northern Trust) are scrambling to find ways to pay back the money and walk away from TARP. Reportedly, companies targeted with the TALC program (think student and consumer loans) are doubting whether government assistance is worth the pain.

Bottom line: in one svelte blame-dodging move Congress managed to put the recovery effort back to about square one.

Way to go Nancy & Barney.

* * * * *

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Why does he always have to use that “trope” ?

March 23, 2009

“Trope”: a common or overused theme or device.

* * * * *
Excerpted from WSJ, “The unbearable lightness of Obama’s administration”, Peggy Noonan, March 20, 2009

There is something insubstantial and weightless in the administration’s economic pronouncements and policies.

The president seems everywhere and nowhere, not fully focused on the matters at hand. He’s trying to keep up with the news cycle with less and less to say.

The administration seems buffeted, ad hoc. Policy seems makeshift, provisional. “The administration has an economic program. But there is, so far, no clear statement of the thinking behind the program.”

This in part is why the teleprompter trope is taking off.

Mr. Obama uses it more than previous presidents. No one would care about this or much notice it as long as he showed competence, and the promise of success.

But the teleprompter trope has taken off: Why does he always have to depend on that thing?

The fact is that Mr. Obama only has two jobs, but they’re huge. The first is to pull us out of an economic death spiral—to save the banks, get them lending, fix the mortgage mess, address unemployment, forestall inflation. TARP, TALF, financial oversight and regulation of Wall Street—all of this is enormously complex, involving questions of scale, emphasis and direction. All else—windmills, green technology, remaking health care—is secondary. The economy is the domestic issue now, and for the next three years at least.

Mr. Obama’s second job is America’s safety at home and in the world.

These are the two great issues, the economic crisis and our safety. In the face of them, what strikes one is the weightlessness of the Obama administration, the jumping from issue to issue and venue to venue from day to day.

Isaiah Berlin famously suggested a leader is a fox or a hedgehog. The fox knows many things but the hedgehog knows one big thing. In political leadership the hedgehog has certain significant advantages, focus and clarity of vision among them. Most presidents are one or the other. So far Mr. Obama seems neither.

Leadership is needed here. Not talkership, leadership.

Full commentary:
http://online.wsj.com/article/SB123750000839989123.html

* * * * *
There is a new Web site where the President’s teleprompter shares its thoughts in a breathless White House diary. It’s bummed that it has to work a news conference next week instead of watching “American Idol,” it resents being dragged to L.A. in Air Force One’s cargo hold “with the more common electronic equipment.” It also Twitters: “We are in California! One of the interns gave my panels a quick scrub and I’m ready to prompt for the day.” And: “Waiting for my boss’s jokes to get loaded for Leno!”

Teleprompter blog:
http://baracksteleprompter.blogspot.com

* * * * *

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Banks Turning Away from TARP

March 23, 2009

Ken’s Take: The retroactive conficatory tax on bonuses will insure a rush to TARP doors … shooting the program smack dab in the foot …

* * * * *

Excerpted from CNNMoney.com, “Banks: Take My TARP. Please!”, by David Ellis, March 12, 2009

Just weeks after Congress removed a key hurdle that prevented banks from paying back funds from the Troubled Asset Relief Program, or TARP, some banks are already queuing up with checks in hand.

So far, three banks have formally declared their intentions to pay back the government, and the list doesn’t include the dozens of institutions that were approved for government aid, but subsequently decided to turn down the money.

But even more banks are poised to return TARP money, including some of the nation’s largest.

PNC and US Bancorp, as well as JPMorgan Chase and Goldman Sachs, have been stating they hope to return the funds as quickly as possible. A repayment by those four alone would return an estimated $49.2 billion to government coffers.

* * * * *

Some institutions have argued that it is too costly to keep government capital on their books at a time when banks in general have been resistant to make new loans as the economy sours and more Americans lose their jobs.

Other banks have suggested that the recently passed stimulus package, which included a measure aimed at reining in bonuses for senior executives and top earners at banks that got TARP funds, would harm their firms even further.

Others worry that regulators or lawmakers could change the accompanying terms of the government’s capital purchase program as they see fit in the future.

For example, some fear that banks which have received TARP funds could be pushed to make certain types of loans or fulfill some sort of loan quota, following the ongoing public outcry that banks are not lending.

Edit by DAF

* * * * *

Full article:
http://finance.yahoo.com/banking-budgeting/article/106724/Banks-Take-My-TARP-Please!

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* * * * *

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Why did Nero fiddle when Rome was burning ?

March 20, 2009

Some questions to ponder over the weekend …

* * * * *

Why did Nero fiddle when Rome was burning ?

Obvious answer: Because there was no TV in 64 A.D., so appearing on the Tonight Show wasn’t an option.

Call me ‘old school’, but I would have rather seen the President huddled all day with his economic advisers …

* * * * *

Do people who don’t pay takes have a right to be outraged ?

I cringe when I hear “everybody has a right to be outraged … those are your tax dollars going to the AIG execs”.

Now (post-stimulus), less than half of voting age Americans pay income taxes. In other words, less than half have any skin in the game.

I guess those folks (who don’t pay income taxes) are outraged because taxpayer money going to AIG bonuses potentially drains the pool of freebies that they’re lining up to get.

Geez

* * * * *

Why doesn’t Ed Liddy resign ?

This guy was pulled from retirement by the Treasury Dept to step in to the AIG CEO slot. His comp package: a whopping buck a year. Then, he has moron Congressmen denigrate him in public.

If I were he, I’d tell them to stuff it … let Barney Frank run the place if he’s so smart

* * * * *

What about Wells Fargo, Northern Trust, and JP Morgan Chase execs ?

Press reports say that those banks took TARP money only because the Treasury Dept pressured them to do so — so that badly run banks wouldn’t suffer the indignity of being so easy to pinpoint.

OK, so those execs are running good businesses and, in reasonable people’s opinions, deserve performance bonuses. Now, they get the bonuses taxed at 90%

And, TARP says they can’t just repay the TARP funds out of earnings, they have to replace it with fresh capital.

Prediction: you’ll hear a lot about this over the weekend.

* * * * *

Who’s next ?

As I pointed out yesterday, once a precedent is set to impose retroactive confiscatory taxes on people just because they are politically toxic … there’ll be no stopping the train.

Imagine a $2 per gallon Federal tax on gasoline retroactive to January 1 … why not?

And, some folks got rattled by the Patriot Act. This is one to worry about.

* * * * *

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We don't like you … so give us all of your money

March 19, 2009

Ken’s Take: Sure, the AIG FP execs are scum, but abrogation of contracts and retroactive confiscatory taxation can’t possibly be a good idea. Once the precedent is set, there’s no way to stop them from doing it to me or you … just because they don’t like us.

(OK, you run less risk because you’re probably more likeable than me.)

* * * **

Excerpted from Wsj,”Obama’s AIG Pani”, March 19, 2009

Congress looking to string up AIG bonus recipients and, more generally, bankers in whatever bunker they can be found.

Senators Grassley and Baucus want to double the current income tax on bonuses, to 70% from 35% …Congresswoman Carolyn Maloney, wants to tax it all — at 100%.

This is all too much even for Rep. Charlie Rangel, the House’s chief tax writer, who says the tax code shouldn’t be deployed as a “political weapon.”

He’s right. AIG’s managers may be this week’s political target of choice, but the message to every banker in America, indeed every business and individual in America, is that you could be next.

At least we haven’t yet seen the resolution that was proposed in the English parliament, in 1720 in the aftermath of the South Sea bubble, that bankers be tied in sacks filled with snakes and tipped into the Thames.

But this fracas is still in its early days.

Full editorial:
http://online.wsj.com/article/SB123742023932678335.html

* * * * *

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We don’t like you … so give us all of your money

March 19, 2009

(OK, you run less risk because you’re probably more likeable than me.)

* * * **

Excerpted from Wsj,”Obama’s AIG Pani”, March 19, 2009

Congress looking to string up AIG bonus recipients and, more generally, bankers in whatever bunker they can be found.

Senators Grassley and Baucus want to double the current income tax on bonuses, to 70% from 35% …Congresswoman Carolyn Maloney, wants to tax it all — at 100%.

This is all too much even for Rep. Charlie Rangel, the House’s chief tax writer, who says the tax code shouldn’t be deployed as a “political weapon.”

But this fracas is still in its early days.

Full editorial:
http://online.wsj.com/article/SB123742023932678335.html

* * * * *

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Quick takes …

March 18, 2009

In 2008, 75% of AIG’s Congressional political contributions went to Dems …

… about half of that went to Dodd and Obama (and that doesn’t count $$$ to the DNC)

The Stimulus Bill contained an amendment called the “Dodd Amendment”, which says:

“Bonuses can only be paid in the form of long-term restricted stock, equal to no greater than 1/3 of total annual compensation, and will vest only when taxpayer funds are repaid. There is an exception for contractually obligated bonuses agreed on before Feb. 11, 2009.”

Sen. Dodd says the exception to his amendment was slipped in without his knowledge. Hmmm.

If an amendment had your name on it, wouldn’t you read it before signing it ?

http://www.foxbusiness.com/story/markets/industries/finance/dodd-cracks-aig—time/

* * * * *

What ever happened to Roland Burris?

A couple of weeks ago, Obama, Reid, Durbin, the new governor of Illinois, and most pundits were calling on him to resign after acknowledging that he “forgot” that he raised money for ousted governor Blago.

Seems that the old coot survived the firestorm …

* * * * *

New bumper sticker popping up …

http://www.worldnetdaily.com/?pageId=89958

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PAI … gap closes to 4 points … believe it ?

March 17, 2009

According to Rasmussen it’s true … Top box approvers are fairly constant … bottom box disapprovers appear to be growing … hmmmm

Source article:
http://www.rasmussenreports.com/public_content/politics/obama_administration/daily_presidential_tracking_poll

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Some simple tax math …

March 17, 2009

Adopting a European welfare-based economic model requires taxing about 50% of labor costs.

Question: if the bottom 50% pay no income taxes, then how much does the top 50% have to pay?

Do the math … you can take 50% from 100% of the citizens … or 100% from 50% of the citizens.

Technical note: the top 50% of the citizens is a broader group than the targeted top 2%

[Labor's European Model]

http://online.wsj.com/article/SB123716333620835923.html

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Who’ll pay the climate tax ? … Oops, I meant “Cap and Trade” ?

March 17, 2009

Hint: They were promised a tax cut during the Obama campaign.

* * * * *

Excerpted from WSJ, “Who Pays for Cap and Trade?”, March 9,2009

Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions.

Perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups.

Politicians love cap and trade because they can claim to be taxing “polluters,” not workers. Hardly. the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag — now Mr. Obama’s budget director — told Congress last year that “Those price increases are essential to the success of a cap-and-trade program.”

The Congressional Budget Office — Mr. Orszag’s former roost — estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That’s about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating.

Hit hardest would be the “95% of working families” Mr. Obama keeps mentioning, usually omitting that his no-new-taxes pledge comes with the caveat “unless you use energy.”

* * * *

But the greatest inequities are geographic and would be imposed on the parts of the U.S. that rely most on manufacturing or fossil fuels — particularly coal, which generates most power in the Midwest, Southern and Plains states. It’s no coincidence that the liberals most invested in cap and trade — Barbara Boxer, Henry Waxman, Ed Markey — come from California or the Northeast.

Coal provides more than half of U.S. electricity, and 25 states get more than 50% of their electricity from conventional coal-fired generation.

In Ohio, it totals 86%, according to the Energy Information Administration. Ratepayers in Indiana (94%), Missouri (85%), New Mexico (80%), Pennsylvania (56%), West Virginia (98%) and Wyoming (95%) are going to get soaked.

Cap and trade, in other words, is a scheme to redistribute income and wealth — but in a very curious way. It takes from the working class and gives to the affluent; takes from Miami, Ohio, and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street “green tech” investors who know how to leverage the political class.

Full article:
http://online.wsj.com/article/SB123655590609066021.html

* * * * *

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Today, 41% of voting age adults don’t pay Federal income taxes

Obama’s Estimates – Make that 49% Not Paying Federal Income Taxes

And, Obama’s estimates are probably low, so make the number 55% (or higher)

The Bottom Line – Why You Should Worry

Sources & Notes

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Obama’s Estimates – Make that 49%
Not Paying Federal Income Taxes

And, Obama’s estimates are probably low,
so make the number 55% (or higher)