Monday, March 23, 2009

The US Mafia

The US Congress is a bunch of overachievers. Just when you think they have done something so base, so despicable, that no future behavior could be worse, they meet the challenge and reset all standards of decency, finding new lows that were seemingly unimaginable. They are a dishonest Mafia. The Mafia at least admits to their criminality, suffering no illusions as to their good intentions. Congress however, acts like thugs, but maintains that they are cloaked in virtue.

The last time congress acted like the unruly mob they are was when they had the oil CEOs up to the hill for hearings. Remember $150 oil? Our exalted represenatives insulted and demeaned some of the finest, brightest, most accomplished men America has to offer. The reason? The oil companies were making money. Socialists don't understand that corporate profits are simply votes endorsing the products and services a company provides. Congress accused them of greed, price fixing, and speculative excess. Corporations make money because they give us what we want better than anyone else. They are not evil. They may be greedy, but capitalism channels that greed (albeit in an imperfect way) to the benefit of us all.

If there is one group to blame for the high price of oil, it is the congress itself. Their ban on offshore drilling, ban on drilling in Anwar and other federal lands, and the obstacles they put up preventing nuclear power plants from being built, all push the price of oil up. On the other hand, the oil companies efficient and cost effective exploration, joint ventures with foreign countries, and prudent long term planning, none of which can occur without profits, all push the price of oil down.

The faux outrage over the AIG bonuses is the latest example of congressional malfeasance. Bonuses were an integral part of the pay plan at AIG. The company agreed to pay bonuses to several employees in order to keep them there during a year when everyone knew that would be no profits, and thus no opportunity to earn more than a salary. They needed these people to unwind the disastrous positions in credit insurance which were on the books. Done properly, the losses could be minimized, but absent these promises of bonuses, many key employees would have left. Subsequently, when the company was teetering on the edge of bankruptcy, and the government decided to save it by injecting TARP funds (they said it was too big to fail, a debatable conclusion), the bonus issue was examined and found to be reasonable by some, but more important, legally binding by all.

Fast forward a couple of months and the public hears that bonuses were paid out of TARP money (taxpayer money) to the people who caused the mess to begin with. There may be some truth to that, but only some. The vast majority of money was paid to people who had no role in the decision to write credit insurance, the decision that sunk the company.

Credit insurance was a guarantee that many banks bought from AIG (Goldman, Merrill, Morgan Stanley etc.) so that they could be sure that the counter parties those banks were doing business with would not default on monies owed to them. The problem arose because AIG was able to classify the guarantee they issued as something other than insurance. If it were deemed insurance, they would have been overseen by insurance commissions, and forced to post reserves to guarantee they could and would pay their losses. This requirement would have limited the amount of insurance they could write. However, having circumvented the insurance classification, they could write unlimited amounts..and they did exactly that, exposing the company to catastrophic losses. Many banks that bought this insurance would likely have gone bankrupt if AIG were unable to pay, which certainly they couldn't have paid, absent the bailout. Were they too big to fail as Paulson and Bernake contended? Perhaps..but maybe not.

It is noteworthy that congress has not yet examined the internal failure at AIG that caused their collapse. The reason is that their Democratic ally Elliot Spitzer, and by implication the party itself, is complicit in it. Hank Greenberg is an exceptional man and a great American, who took a small insurance company 30 years ago and built it into the premier insurance company in the world. Greenberg was involved with all facets of the company. His reputation in both the insurance industry and business in general was that of an honest, no nonsense, hands on, rational, hard working, hard driving manager. He met every month with each division CFO and examined their investments, what they were underwriting, and most importantly the risks they incurred. For 30 years, his oversight kept the company growing and healthy.

About 4 years ago Elliot Spitzer was the ambitious Attorney General of New York. He thought nothing of abusing his power in order to help pave the road for himself to the Governor's mansion. His modus operandi was to find a petty crime in one division of a large company, and threaten the entire company with criminal charges (which would be a death knell even if the company were innocent), and thereby extort an admission of guilt and large financial settlement, getting even larger headlines for himself. He found a transaction between AIG and one of Berkshire Hathaway's insurance companies that he deemed to have no economic motive, claiming it was a sham, designed to give the appearance of enhanced creditworthiness for AIG, and thus allowing them to borrow at a cheaper rate. Spitzer went after the company with a vengeance. Warren Buffet was on the other side of the transaction (which was trivial in size anyway) but he was given a clean bill of health. Warren knows it pays to support Democrats, and as a result they support him. Greenberg however was forced out, banished from the company. Spitzer said he was going to pursue civil and criminal charges against Greenberg personally. Of course no criminal charges were ever filed, and the civil action was dismissed. The question is, would AIG have gone down the road to ruin if Greenberg hadn't been forced out? His replacement said he never knew what the division that caused the catastrophe was doing. It is hard to believe Greenberg wouldn't have know, and impossible to believe if he did know he wouldn't have stopped it. But Congress will never tell you that.

Now we have congress demonizing every employee who took a bonus, threatening to publicly disclose the names of anyone not giving the money back (if this isn't extortion what is?), passing new punitive taxes on all of them and in the process dragging under every other employee of a bank that took TARP money with the same tax (a clear constitutional violation), just so they can appeal to what they believe are the most base of voter sentiments.

Listening to the discussions by academics and business people about these bonuses is almost as frightening as congress. They say, "we need a better way of compensating employees. There is a disconnect between compensation and performance." No kidding. These talking heads just discovered 2 plus 2 is 4. For all time there has been a problem incentivising employees in a manner where their interests are aligned with the company/ shareholders interest. Managers have wrestled with this problem forever. A variety of ideas have been tried with varying degrees of success...none perfect, all with faults and often yielding undesired results, but managers do the best they can.

The US government is the largest employer in the US, and the least efficient. There are advantages to size, but efficiency is not one of them. Let's look at a sole proprietorship. The owner acts in his self interest of course. Does the person below him? Well, maybe. He certainly does more often than the person third down on the chain. He gets paid more, and is more under the direct eye of the owner. What happens is that as you get lower on the chain, and farther from the top, people are less caring, thoughtful, and skilled. Time does not allow me to go into the various theories here of how to get the best performance from people, but the problem is age old, and not likely to be solved any time soon. More to the point, congress is the last group in the world we want determining how to deal with this, or how to compensate people, but that seems exactly what they are hell bent on doing. God help us all.

Friday, March 13, 2009

A Rose by Any Other Name

Most debates on broad topics are unprovable. General assertions provide both sides with enough anecdotal evidence to make a case. That doesn't mean that one position is not correct, only that it can't be proved, and even if it can be, counterarguments can be forceful enough that a listener who does not make a career out of investigating the topic will never know for sure which side is right. Therefore the methods used to sway opinion rely on other techniques such as repetition (get your argument and conclusion presented more often than the oppositions) and demonization (attack your opponents motives).

The lefts attempt to mislead and to stifle debate routinely employ these and more. Today I will deal with one of their favorites, the "Everyone knows" fallacy, or the "Settled science" fallacy. What it attempts to do is convince you that anyone with a brain knows whatever the speaker is advocating is self evident, and anyone doubting it is an idiot. They claim their conclusions are based on incontrovertible facts, every thoughtful person agrees, and only a moron, an ideologue (ideologues are OK with me, but that is for another time), or a liar would claim otherwise. In reality their "facts" range from opinions to fictions, and their "consensus" lives only in their imagination.

Global warming is the best known of these fictions. The claim that the entire scientific community is in complete agreement that climate change is man made is simply a bald faced lie. They have even developed a term for "hard right ideologues" like myself who disagree. We are "deniers," invoking the flavor of a Holocaust denier, few in number, absurd in their assertions, and evil in intent. Of course the fact that vast numbers in the scientific community disagree is something they choose to either ignore, or marginalize by falsely claiming they are few in number and on the fringe.

They also would rather not mention that the same crowd advocating global warming, warned us of imminent disaster from nuclear winter (the earth cooling) just a couple of decades ago. Before that the "population bomb" (overpopulation) was the tragedy du jour, and before that we were going to run out of all commodities and carbon fuels by the year 2000. Between the time of that forecast and the year 2000 proven reserves of commodities went up and prices went down.

"The Great Global Warming Swindle," is a film that examines the history of climate change theory, the theory itself, its record making predictions (the best measure of any theory), and alternative theories. The producers (deniers) offered to show it to the audiences (particularly school children) who were seeing "An Inconvenient Truth." Doing so would let viewers decide which argument was more honest and more scientific. The left knows if they agreed their scam would be exposed. So instead they choose to deny any thoughtful opposition exists, invoking the "Everyone knows" fallacy.

Many people and myself have called Obama a socialist. The left and their front line troops, the media, respond by saying that no one believes he is a socialist, it is divisive, and such talk only comes from right wing ideologues. They are helped when Obama refers to the magic of capitalism or the importance of the free market. This is becoming his trademark. He calls something that is unpopular, like socialism, by a name that is that is well supported, like free markets. This makes it appear he is moderate, sharing support for something his actual proposals indicate he abhors. His tax cuts for 95 percent of Americans would be more accurately described as welfare payments. His stimulus package is really a socialist wish list. His "Employee Free Choice Act" does the opposite of what the name implies. It takes away employee choice.. It should should be called the "Abolition of the Secret Ballot Act."

In reality he simply is a socialist. The evidence is compelling. His personal and professional history are perfectly consistent with this. As President, every proposal he has made has the socialist imprint. He has repeatedly said that the free market system has failed. What should we take away from that? Is the redistribution of wealth via the tax system capitalist or socialist? Is the government taking over the health care system capitalist? Is the proposed cap and trade (aka energy tax) and the consequent government control of the energy sector a free market reform? Is submitting our foreign policy to the will of a corrupt United Nation capitalist? His card check proposal, aka "Employee Free Choice Act," a law that will take away the secret ballot for union voting and allow union goons to intimidate workers into supporting the formation of a union, is socialism in its purest form.

Religion and charities are under attack with the Obama plan. This creates a greater dependence on government- aka- socialism. Charitable deductions are reduced, and education money appropriated in the so called stimulus bill. have disqualifiers that will eliminate faith based organizations from sharing any of it. The only appropriate term for all this is socialism. David Brooks, George Will, David Gergan, David Frum and other RINO's can criticize the language all they want. It is no less true.

Putin is warning the United States against travelling down the road of socialism, and even the European Union, France and Germany in particular, are warning us of the same thing. If they understand what we are doing, why can't the MSM understand? Why be embarrassed to clearly state it? Conservatives must speak out about this. Call him a socialist, and when his supporters scoff say it again.

When Ronald Reagan referred to the Soviet Union as the evil empire, the left was outraged, but they were also forced to defend themselves. The public became better educated to the horrors of socialism/ communism. Every time a liberal snickers at someone calling Obama and his programs socialistic, ask what better term there is to describe it. Ask if these type programs are the things that made America the greatest nation in the history of mankind, or if capitalist principles did. Ask if our spectacular economic well being, the freedoms we enjoy, our unqualified support of human rights, or our unparalleled generosity, ever existed in any nation on earth prior to this great nation.

After writing this, a saw a report in the Patriot Post.

Climate change this week: No debate

Al Gore was scheduled to appear at The Wall Street Journal's ECO:nomics conference in California this week along with Czech President Vaclav Klaus, a global warming skeptic. But Gore chickened out, changing his scheduled appearance to the previous day so as to avoid debate. Apparently, Gore knows when he's outmatched. During a question and answer session, Gore also evaded debate on the subject, telling Danish eco-critic Bjorn Lomborg, who asked for a debate, "The scientific community has gone through this chapter and verse," he lectured. "We have long since passed the time when we should pretend this is a 'on the one hand, on the other hand' issue. It's not a matter of theory or conjecture, for goodness sake." Indeed, it's a matter of Gore making a whole lot of money roaming the globe and stoking fear about climate change. He wouldn't want a debate to interrupt the cash flow. Or perhaps he knows he would blow off more than his allotment of hot air in a cap-and-trade steam.

Tuesday, March 10, 2009

Obama's Healthcare Proposal- A Disaster

This article was published in the NY Post a couple of weeks ago. It only scraches the surface of why government healthcare is a disasterous idea, but for those people who don't know a great deal about it, it serves as a cogent, informative argument.

PRESIDENT Obama's new budget dedicates $634 bil lion> over the next 10 years to what he calls health reform. He> promises - or perhaps threatens - that this vast sum will be> a down payment for universal coverage, which could require> more than $1 trillion. > Unfortunately, the president intends to spend all this> money on the basis of several pernicious myths common in the> health-care debate. As a result, his reforms would> ultimately hand the health-care system over to the> government and lead to rationing. > The president's budget repeats the popular claim that> 45.7 million Americans are uninsured. The figure is taken as> proof positive that the current system is failing - and that> the government must step in to provide a remedy. > But that misleading number includes millions we can hardly> call uninsured. About 18 million of the uninsured make more> $50,000 a year - and almost 10 million have yearly incomes> over $75,000. More than 10 million aren't US citizens.> And as many as 14 million are already eligible for> government programs like Medicare, Medicaid and SCHIP - but> haven't signed up. > For most folks, health insurance is simply too expensive.> And ramping up funding for government health programs, as> Obama proposes, won't make insurance cheaper. In fact,> it could cause private insurance to become more expensive. > After all, the feds reimburse hospitals and doctors at> below-market rates for Medicare and Medicaid patients. So> those of us with private health plans have to pay more to> fill the gap - and that hidden tax is about 10 percent. In> California, for example, private payers paid an extra $45> billion to compensate for unpaid Medicare costs in 2004. > Obama's budget also takes aim at prescription-drug> costs by forcing manufacturers to give Medicaid a bigger> discount, probably 20 percent, on brand-name drug purchases> (it already gets a 15 percent break). That might help curb> Medi caid's expenses, but it will raise drug prices for> everyone else, who will have to make up the difference. > Taken as a whole, Obama's health plan is predicated> upon the misguided notion that government can deliver care> more efficiently than the private sector. There's ample> evidence to the contrary> CONTINUED> Just look at the failure of existing government health> programs - both here and abroad. Many Medicaid patients have> a difficult time finding a doctor. According to a 2003 study> by the Medicare Payment Advisory Commission, doctors are> five times more likely to turn away Medicaid patients than> those with private insurance. > The situation is even worse in countries like Canada and> Great Britain - whose government-run systems Obama's> health braintrust has cited approvingly. > More than 725,000 Canadians languish on months-long waiting> lists for surgery and other necessary treatments. Doctors> are in short supply - thanks largely to the government> takeover of the health sector. In the early 1970s, when> Canada launched its "universal coverage" system,> the country ranked second among 28 developed countries in> doctors per thousand people. Today, it's 24th. > Further, Canadians often lack access to the advanced> medical technology that Americans take for granted. Canada> ranks 19th among 26 reporting OECD nations in access to CT> scanners and 14th out of 25 reporting OECD countries in> access to MRI machines. > In the UK, the government-run health system explicitly> rations medical treatments through the publicly chartered> National Institute for Health and Clinical Excellence. NICE> evaluates data from clinical drug trials to decide if newer> medical treatments are more effective than older, cheaper> alternatives. It then makes recommendations to Britain's> state-run National Health Service about which treatments are> worth paying for. > Last summer, British patients with kidney cancer were> denied access to four lifesaving drugs. NICE's clinical> and public health director said of the drugs at the time,> "Although these treatments are clinically effective,> regrettably the cost to the NHS is such that they are not a> cost-effective use of NHS resources." > In other words, the British government admitted that> patients would likely die without these treatments - but> refused to pay for them anyway. > This could happen here. Obama's stimulus package> includes $1.1 billion for NICE-style> comparative-effectiveness studies. > As the costs for his health reforms mount, Obama will be> forced to employ the same strategies that Canada and Britain> have to cut spending. That means the rationing of care (and> significantly higher taxes). > Obama's budget represents a major effort to transform> the US health-care system. Patients should ask themselves> whether they're ready for his medicine. > Sally Pipes is president & CEO of the Pacific Research> Institute. Her latest book is "The Top Ten Myths of> American Health Care."

Thursday, March 5, 2009

A Frightening Beginning

People are just now learning the details of the stimilus bill (aka socialist wish list). Actually, no one had had time to read any of the details when the bill was passed, but then again, it was only 800 billion dollars (unless the Heritage Foundation is correct that the 10 year cost is over 3 trillion). Details have emerged, and as expected, the closer you look the scarier it gets.

Keynesian economics says that massive government spending on infrastructure etc. can prime the pump of an economy. Never mind the fact that it has been tried all over the world and never worked. In reality, this disproved theory has become an excuse for politicians to do what they do best, spend money. Keynes claimed that for every dollar the government spent, there was a "multiplier effect," meaning that each dollar spent produces an increase in national income. If this were true, all we would need is continually increase government spending and thereby create wealth like the world has never known. Actually, a few communist countries did try it. You be the judge of their success.

Even if it did work, only 10% of the stimulus money is being spent on projects Keynes would call stimulative. The other 90% is being spent on social programs and other projects (aka earmarks- but not called that for proganda purposes) which would do nothing for the economy even if the theory they subscribe to were sound. Obama claims it has tax cuts. The biggest reciepients of these imaginary "tax cuts" (aka welfare payments) are people who pay no taxes.

Obama says he will save trillions in government spending. First he plans the largest downsizing of the military since Jimmy- Israel is a terrorist state- Carter. Then he gets creative. He says that his "honest" budget will include the cost of the war, unlike Bush's which did not. He starts off assuming we will spend 180 billion per year for 10 years in Iraq. He further assumes we will leave Iraq in 18 months..Voila..He just saved 1.53 trillion dollars (180 billion per year X 8 1/2 years), and he faced up to the "tough choices." The balance of Obama's "savings," are tax increases. You heard me. In the same way welfare payments are "tax cuts," a social spending bill is a "stimulus" bill," tax increases are now "savings."

Obama says we will halve the defecit by 2013. Of course to do this, he also assumes that the economy will grow 1% this year, 3% next year, and 4% the following 3 years. This is not optimism, it is delusional. It would be hard to achieve in good times, but with the world banking and financial systems in a free fall, anyone believing that type of growth will occur should be instutionalized. We are facing the greatest financial crisis in 70 years, possible including the Depression. The President said we had to pass the stimulus package in a matter of days or make the "crisis into a catastrophe." Yet somehow, miraculously, we will come out of it in a few months and transform into an economy on steroids.

Much of the stimulus money going to the states comes with strings attached. Unemployment extension money is one example. Any state accepting the money is required to make the extension permanent, meaning in a couple of years when the federal money runs out, they will have to fund the program themselves. A few Republican governors said they would consider turning down this part of the money for that reason. Why should they take two years of money when they will be obligated to pay forever? The first liberal reaction was to accuse them of racism, under the theory that many blacks will be affected. That is until some Democratic governers started coming out and saying they would probably do the same thing.

Obama set aside over 600 billion dollars to begin nationalizing healthcare. I can't even imagine how he will try to sell it to us. After all, his creativity with words thus far is beyond my imagination. The insanity of nationalization will be discussed in a future blog, but for now, just remember that he is selling a program that has never worked in any western nation in the world. Every one where the government took over health care had costs go up and quality and service go down.

Another "project" Obama is working is cap and trade. It is a system of taxes on industries that produce carbon dioxide, the major one being energy. In reality it is a simple energy tax, and it will clearly bankrupt the coal industry (he said he intended to do exactly that during the campaign.) The President claims thousands of new green jobs will be created (aka new government workers and academic research grants producing nothing of value but plenty of Democratic voters), energy costs will go down, and all will be at peace in the world. Such a fantasy would make Walt Disney proud. Early estimates indicate it will cost an average family of four about $1,400 per year, but of course we know the total costs will go way beyond that.

Do any of you out there who voted for Obama have buyers remorse yet? You shouldn't be surprised at what he has done. Our President is the child of two communists (his mother being a registered member of the communist party, and his father promoting communist ideology in his home country of Keyna), his most important mentor (Sol Olinsky) was head of the Communist Party in America, his spiritual mentor (Reverend Jeramiah Wright) is a radical, America hating racist, and his political mentor (William Ayers) is an America hating terrorist.

Monday, March 2, 2009

Ayn Rand

"One of the methods used by statists to destroy capitalism consists in establishing controls that tie a given industry hand and foot, making it unable to solve its problems, then declaring that freedom has failed and stronger controls are necessary." --Ayn Rand

Umm..Ring any bells?