28 posts tagged “economy”

As the editorial that follows emphasizes, nuclear energy is our smartest option on several different levels. The anti-nuke gang is clearly stuck in the past. History has passed them by and left their old reality in the rear view mirror. If the new Obama energy team does not get that message, their other alternative plans will only serve to delay the goals that all of us want to get to ASAP.

We have some nuclear power in America as we speak. It is safe, as is case in both Europe and Japan. Three Mile Island was an anomaly in what now seems like ancient history, where no one was hurt. Technology is so far advanced over that event that it is simply not comparable to the world today. Chernobyl was born of the hapless Soviet Union, now on the ash heap of history. There have been no significant safety threats from nuclear power plants in decades. Safety is no more of an issue with nuclear power now than with hydro power or coal generated power.

Want to get off foreign fossil fuel dependence? Ready to tell the Saudis et al to go pound sand? Nuclear power makes that possible, in the shorter term. Electric cars will require huge power resources. We cannot convert to that transportation option given our current electric power resources and grid. If Americans are going to be able to plug in millions of electric vehicles for the purposes of recharging batteries, a massive new source for electricity will be required. Nuclear power is the only way to make that happen without having to wait decades and spend billions annually via huge increases in utility bills.

Worried about the environmental damage done by our current increasing dependence on coal fired power plants? Nuclear power is the cleanest, most environmentally safe alternative power resource in existence anywhere on the planet. It is better than fossil fuels. It is better than wind. It is better than solar. In fact, it is at least as good a value, in terms of cost, as are any of the alternatives. The only other hope for coal is clean coal burning technology, currently in development. We are not there yet and when we are, it will still not be as environmentally sound as nukes.

Fallen for the nuclear waste storage canard? Not to worry, a lot of people have bitten on that one. Most of the nuclear materials used in modern power production are recyclable and reusable, drastically shrinking the amount of waste needing to be stored and in the process saving natural resources and reducing production costs. The amount of waste needing storage at the end of a nuclear power 'life' cycle is less than what is required to fit in a shoe box. Obviously that makes safe and secure storage infinitely easier than what has been the reality in past times. The Europeans and Japanese have no trouble dealing with this aspect of power production. Neither does our nuclear Navy.

It is fascinating that many of those who worry about terrorists accessing our high security spent fuel storage areas, so as to manufacture dirty bombs, are the same folks who have no issues with the Iranian or Korean nuclear programs that have or will have weapons grade nuke materials for sale. Given the choice of buying nuke materials from anti-American governments or trying to figure out how to possibly get to our well protected shoe boxes, it is obvious what path a terrorist would follow. Going the route of least resistance is always smartest.

Look, we need to pursue all the alternatives. Wind can help. Solar can help. Geothermal can help. Most notably, natural gas will make a huge contribution given the massive supplies we have here in this country. But if Obama and his energy team are as smart as advertised, they will pursue nuclear power as the highest priority in answering our energy needs. Between natural gas and nuclear power, we can get this nation off of our dependence on foreign fossil resources in the not too distant future. Wind, solar and geothermal will not get that job done. Not even in the very long term. They can help, but they cannot move the more than 300 million of us in a completely different direction.

Nuclear power and natural gas are dependable. Wind, solar and geothermal are not. Politicians need to set aside their agendas and borrow a clue.


Bailing Out Wind
By INVESTOR'S BUSINESS DAILY
Energy Policy: Obama announces his energy team without mentioning a green source of renewable energy that could create jobs, reduce carbon emissions and reinvigorate a vital manufacturing sector — nuclear power.

The domestic auto industry isn't the only uncompetitive industry that seems to require life-sustaining transfusions of government cash to stay in business. Alternative energy sources have relied on such subsidies, called "investments," for years.

Yet in President-elect Obama's announcement of his energy team, we were told "the foundations of our energy independence" lie in "the power of wind and solar." Except that for these alternative sources there's been a severe power shortage.

After decades of tax credits and subsidies, wind provides only about 1% of our electricity. By comparison, coal provides 49%, natural gas 22%, nuclear power 19% and hydroelectric 7%.

Wind power is currently uncompetitive. As the Atlanta Journal-Constitution reported recently: "In 1999, 2001 and 2003, when Congress temporarily killed the credits, the number of new turbines dropped dramatically." These subsidies will be renewed in the new administration, but to "invest" in wind and solar to replace fossil fuels will be expensive.

A just-published study by the Texas Public Policy Foundation, "Texas Wind Energy: Past, Present and Future," says that to achieve even modest amounts of wind energy in that state alone would cost rate- and taxpayers at least $60 billion through 2025. That includes transmission costs, production costs, subsidies, tax breaks, economic disruption costs and grid management costs.

Europe, held up as a model of eco-friendly policies, is finding alternative energy to be an expensive and uneconomical proposition. According to estimates by the Rhine-Westphalia Institute for Economic Research, green subsidies will cost German electricity consumers nearly 27 billion euros in the next two years. Each of the 35,000 solar jobs in Germany is subsidized to the tune of 130,000 euros.

Meanwhile, nuclear power is making a comeback despite regulatory and environmental roadblocks, and little federal help. It is spending its own money to invest in clean energy for the future.

The hysteria after Three Mile Island, where no one suffered any harm, shut down the American nuclear power industry and caused our nuclear manufacturing base to atrophy. The over hyped event at Chernobyl was more an indictment of Russian technology than of nuclear power. Yet the damage was done.

Until recently, there was no domestic capacity to manufacture the huge components needed to build nuclear reactors. Global nuclear giant Areva and Northrop Grumman Shipbuilding are partnering to start building heavy nuclear components. The U.S. had very little enrichment capacity. Now, two new facilities are under construction, with two more planned.

"While visions of 'green jobs' dance in the heads of Washington bureaucrats," notes Jack Spencer of the Heritage Foundation. "The nuclear industry is creating thousands of high-skill, high-paying jobs."

Westinghouse, for one example, has already created more than 3,000 jobs and expects to add 2,900 for a development in Louisiana that will be used to construct modules for new nuclear plants.

Each new reactor will employ 1,400 to 1,800 people during construction, rising to as high as 2,400 jobs as the facility is built. During operation, a nuclear plant typically has a skilled work force of between 400 and 700 employees.

On cloudy and windless days, solar and wind are useless and require conventional power sources as backup. Output is not steady and cannot be increased on demand. You can't make the sun shine brighter or the wind blow harder during peak periods.

The Europeans and the Japanese long ago solved the problem of nuclear waste, reprocessing most of it into new fuel and safely storing what it can't, making nuclear power a renewable resource. It also removes billions of tons of greenhouse gases, waste that also finds its way into our lungs.

Nuclear power means jobs, clean air, energy independence and keeping money here at home.

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Some auto worker union members remain caught in the dying cycle of UAW propaganda and, as a result, are manipulated by politicians and their union leadership bosses to continue to have faith in a cause with no future. The AP article attached documents that sad reality.

While the federal government, the big three auto makers, the UAW and a host of politicians wrestle around about bailouts-loans-converted tarp funds or whatever the moniker of the day might be, the underlying truth is simply that American car companies cannot effectively compete in the US market, which happens to be the largest motor vehicle market on the planet. Foreign headquartered car companies have consistently dominated Detroit with our own consumers because they provide a more desirable product at a price buyers are willing to pay.

The harsh reality is this: it is not possible to rescue manufacturers that produce a product that consumers do not want. GM, Ford and Chrysler make cars that have less appeal with car shoppers than does Toyota, Honda, Lexus and a host of other foreign companies. Apparently, that is a message that does not register with UAW members, politicians and big three executives.

Who or what is at fault for the collapse of the American big three would seem to be a somewhat esoteric consideration at this point in time. The fact is, they are failed operations. They cannot continue to do business as they have in the past. The future, whatever it turns out to be, will not even closely resemble the way things have been done. Future automobile manufacturing in this country will look very, very different from what it has ever been before. Yet that obvious message is lost on those companies on both management and labor levels.

Message to domestic automakers: it is time to get in the game with your competition, most of which are located right here at home, or you will become a footnote in history. Message to the UAW: the old days are gone. Adjust or be forgotten. Articles like the one that follows only serve to illustrate that auto industry unions and their political allies are playing a very old game in an entirely new world.

Although greatly diminished as a major component of the American economy, manufacturing continues to play an important role in the future of this nation. Certainly, a lot of what formerly was made here is now made elsewhere. But there is another important development in the world of American manufacturing: productivity. That has improved immensely in our domestic workplace, so much so that one worker now produces close to what four workers used to produce. Expect that trend to continue.

Should our automakers wish to be a part of the future of manufacturing here, management and labor will need to implement ways to diminish expenses, improve productivity, manufacture a product that meets market demands and, most importantly, abandon their old operational models. In other words, they need to remake their industry so that they can be competitive and profitable.

The pointing of the finger of blame and the tin cup in hand begging for taxpayer funded rescue packages is not only unseemly and pathetic, it is symptomatic of a failure to let go of a now dysfunctional past.

Change behavior or die: with or without bailouts.


Angry UAW members lash out at Southern senators
UAW lashes out at senators in Southern states with foreign car plants after auto aid bill dies
Tom Krisher and Kimberly S. Johnson, AP Auto Writers

DETROIT (AP) -- Festering animosity between the United Auto Workers and Southern senators who torpedoed the auto industry bailout bill erupted into full-fledged name calling Friday as union officials accused the lawmakers of trying to break the union on behalf of foreign automakers.

The vitriol had been near the surface for weeks as senators from states that house the transplant automakers' factories criticized the Detroit Three for management miscues and bloated UAW labor costs that lawmakers said make them uncompetitive.

But the UAW stopped biting its tongue after Republicans sank a House-passed bill Thursday night that would have loaned $14 billion to cash-poor General Motors Corp. and Chrysler LLC to keep them out of bankruptcy protection. The Bush administration later stepped in and said it was ready to make money available to the automakers, likely from the $700 billion Wall Street bailout program.

Still, autoworkers remain angry with the senators who tried to negotiate wage and benefit concessions from the union, then scuttled the House-passed bill that would have granted the loans and set up a "car czar" to oversee the nearly insolvent companies and get concessions from the union and creditors. Their top targets were Senate Minority Leader Mitch McConnell, R-Ky.; Sen. Bob Corker, R-Tenn., who led negotiations on a compromise; and Sen. Richard Shelby, R-Ala., who has been a vocal critic of the loans.

Kentucky, Tennessee and Alabama all house auto assembly plants from foreign automakers, and union officials contend the senators want to drive UAW wages down so there would be no reason for workers at the foreign plants to join the union.

"They thought perhaps they could have a twofer here maybe: Pierce the heart of organized labor while representing the foreign brands," UAW President Ron Gettelfinger said at a Friday morning news conference in Detroit.

Republicans in several Western states -- where unions are often shunned -- joined the Southerners in opposition.

But lawmakers and their spokesmen said the criticism is off base. Jonathan Graffeo, Shelby's spokesman on the Senate Banking Committee, said the senator has consistently opposed taxpayer-funded bailouts.

"He opposed the Chrysler bailout in 1979 when there were no foreign auto manufacturers in Alabama, and he opposed the recent $700 billion bailout of the banking industry," Graffeo said.

"Bailouts generally don't work, and this is a huge proposed bailout, and I fear it's just the down payment on more to come next year," Shelby said on the Senate floor Thursday night. "These companies are either already failed or failing, and that's a shame. These aren't the General Motors, Ford and Chrysler I knew."

Corker said the alternative he tried to develop would have provided federal money in exchange for restructuring the companies' debt and making the UAW more competitive in wages with workers at U.S. plants of Japanese competitors.
"Our members wanted to know that the UAW was willing to be competitive," Corker said.

"I basically pleaded with them to give me some language by some date certain that they were competitive with these other companies," Corker said. "That's where it broke down."

Hourly wages for UAW workers at GM factories already are about equal to those paid by Toyota Motor Corp. at its older U.S. factories, according to the companies. GM says the average UAW laborer makes $29.78 per hour, while Toyota -- generally viewed as the main competitor of the Detroit Three -- says it pays about $30 per hour. But the unionized factories have far higher benefit costs.

The union, GM and Chrysler have contended that the companies have restructured and the UAW has granted concessions that would make them competitive in 2010, but the economy went south this year and forced them into trouble. A third Detroit automaker, Ford Motor Co., asked for loans in case of emergency but says it has enough cash to make it through 2009.
Union officials also accused the senators of retaliating for the UAW's overwhelming support of Democratic candidates in federal races. The union gave $1.9 million to Democrats but only $11,500 to Republicans in the 2008 election cycle.

Many Democrats support the Employee Free Choice Act, which would take away employers' rights to demand a secret ballot on whether workers will join a union. Instead, workers could form unions by getting a majority of employees to sign a card in support of it.

"There's a lot at stake. If Republicans think now they can tarnish labor, it's going to be difficult to pass the Employee Free Choice Act," said Gary Chaison, professor of labor relations at Clark University in Worcester, Mass. "The unions are going to say that a strong labor movement is good for America. One of the things Republicans are trying to show now is that a strong labor movement isn't good for America."

Other union officials joined Gettelfinger to form a chorus of anger and frustration with the senators.

"What this is is the Southern conservative senators trying to destroy the United Auto Workers, trying to destroy unions," said Mike O'Rourke, president of a UAW local at a GM factory in Spring Hill, Tenn., Corker's home state. "It's a sad day in America when the senators turn their back on Main Street."

In an effort to help the auto companies get federal aid, the UAW last week offered to delay company payments into a union-run trust fund that will take over retiree health care costs starting in 2010. It also agreed to end the controversial "jobs bank" program in which laid-off workers get most of their pay and benefits after unemployment pay runs out.

Most Southern U.S. auto plants run by Toyota, Honda Motor Co., Nissan Motor Co., BMW AG, Daimler AG and other manufacturers are nonunion. The UAW has tried numerous times without success to organize workers at the foreign-owned factories.

Spokesmen for Toyota and Nissan declined comment, but Honda spokesman Ed Miller said in a statement the company did not lobby against the bill.

"Honda has been encouraging initiatives that would maintain the short- and long-term viability of the U.S. auto industry, including the hundreds of the shared supplier companies in the United States," he said.

As the Detroit Three have declined and ceded market share to the foreign nameplates, the UAW's membership has plummeted 69 percent, from a peak 1.5 million in 1979 to 465,000 at the end of 2007.

Associated Press Writer Ken Thomas in Washington and AP Business Writer Ellen Simon in New York contributed to this report.

Copyright © 2008 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten, or redistributed without the prior written authority of The Associated Press.
Copyright © 2008 Yahoo! Inc. All rights reserved.

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The socialists, if not the communists, amongst us are out in full force during this time of market meltdown and economic instability. If you listen to them, the end is near. Free markets don't work. Capitalism is an abject failure. Only government can make it all better.

It takes an Obamaniac, or to put it another way, a socialist in training, to believe such pap. It is a fact that to advocate the end of the American way is not unusual among Obama supporters. Unfortunately, far too many of them are blinded by the excitement and emotion, not to mention manipulation, of the Obama campaign and thus lack any real understanding of what they are supporting. Without realizing what they have wrought, they are cutting off their noses to spite their faces.

The following article is a statement on our current economic circumstances as well as a look at the future of capitalism. In spite of it's length, it is worth the read.

Voters may be angry at George W. Bush, some justifiably so. But if they cast their vote for Obama, they will end up being only angry with themselves.


Capitalism at bay
From The Economist print edition
What went wrong and, rather more importantly for the future, what did not

ONE hundred and sixty five years ago, a Scottish businessman set out his plans for a newspaper. James Wilson’s starting point was “a melancholy reflection”: “while wealth and capital have been rapidly increasing” and science and art “working the most surprising miracles”, all classes of people were marked “by characters of uncertainty and insecurity”. Wilson’s solution was freedom. He committed his venture to the struggle not just against the protectionist corn laws but against attempts to raise up “barriers to intercourse, jealousies, animosities and heartburnings between individuals and classes in this country, and again between this country and all others”. Ever since, The Economist has been on the side of economic liberty.

Now economic liberty is under attack and capitalism, the system which embodies it, is at bay. This week Britain, the birthplace of modern privatisation, nationalised much of its banking industry; meanwhile, amid talk of the end of the Thatcher-Reagan era, the American government has promised to put $250 billion into its banks. Other governments are re-regulating their financial systems. Asians point out that the West appears to be moving towards their more dirigiste model: “The teachers have some problems,” a Chinese leader recently said. Interventionists are in full cry: “Self-regulation is finished,” claims France’s Nicolas Sarkozy. “Laissez-faire is finished.” Not all criticisms are that unsubtle (the more pointed ones focus on increasing the state’s role only in finance), but all the signs are pointing in the same direction: a larger role for the state, and a smaller and more constrained private sector.

This newspaper hopes profoundly that this will not happen. Over the past century and a half capitalism has proved its worth for billions of people. The parts of the world where it has flourished have prospered; the parts where it has shrivelled have suffered. Capitalism has always engendered crises, and always will. The world should use the latest one, devastating though it is, to learn how to manage it better.

Extreme measures in the defence of liberty

In the short term defending capitalism means, paradoxically, state intervention. There is a justifiable sense of outrage among voters and business people (and indeed economic liberals) that $2.5 trillion of taxpayers' money now has to be spent on a highly rewarded industry. But the global bail-out is pragmatic, not ideological. When François Mitterrand nationalised France’s banks in 1981 he did so because he thought the state would run them better. This time governments are buying banks (or shares in them) because they believe, rightly, that public capital is needed to keep credit flowing.

Intervening to prevent banking crises from hurting the real economy has a strong pedigree. Wilson’s son-in-law, Walter Bagehot, recommended that the Bank of England lend generously (but at a penalty rate) to illiquid banks (but not to insolvent ones). In modern times governments of every political stripe have had to step in. Ronald Reagan and Margaret Thatcher oversaw the rescues of Continental Illinois and Johnson Matthey. In the 1990s the Finns and Swedes nationalised banks—and privatised them again later. This rescue is on a different scale. Yet the justification is the same: the costs of not intervening look larger. If confidence and credit continue to dry up, a near-certain recession will become a depression, a calamity for everybody.

Even if it staves off disaster, the bail-out will cause huge problems. It creates moral hazard: such a visible safety net encourages risky behaviour. It may also politicise lending.

Governments will need to minimise these risks. They should avoid rewarding the bosses and shareholders of the rescued banks. They must not steer loans to politically important sectors. And they should run the banks on a commercial basis with the explicit aim of getting out of the banking business as quickly as possible (and at a profit). From the taxpayer’s point of view, it might make sense to limit dividend payments to other shareholders until the government’s preference shares have been paid off. But governments need to avoid populist gestures. Banning bonuses, for instance, would drive good people out of companies that badly need them.

The politicians all claim they understand this. Of course, they have no intention of revisiting Mitterrand’s mistakes, of trying to run the banks themselves, or of taking stakes elsewhere. Yet already voices (including Lady Thatcher’s Tory heirs) are pushing to limit executive pay. It will be a brave president who goes to Detroit and explains why the 45,000 well-paid folk at Morgan Stanley should get $10 billion of taxpayers' money, but the 266,000 people at General Motors should not. Brave too would be any politician who proposed deregulation as a solution to a public-sector problem.

Smoot-Hawley in the rear mirror

Given this, it is inevitable that the line between governments and markets will in the short term move towards the former. The public sector and its debt will take up a bigger portion of the economy in many countries. But in the longer term a lot depends on how blame for this catastrophe is allocated. This is where an important intellectual battle could and should be won. Capitalism’s defenders need to deal with two sorts of criticism. One has much more substance than the other.

The weaker, populist argument is that Anglo-Saxon capitalism has failed.
Critics claim that the “Washington consensus” of deregulation and privatisation, preached condescendingly by America and Britain to benighted governments around the world, has actually brought the world economy to the brink of disaster. If this notion continues to gain ground, politicians from Beijing to Berlin will feel justified in resisting moves to free up the movement of goods and services within and between their economies. Arguments for market solutions in, for instance, health and education will be made with less conviction, and dismissed with a reference to Wall Street’s fate.

In fact, far from failing, the overall lowering of “barriers to intercourse” over the past 25 years has delivered wealth and freedom on a dramatic scale. Hundreds of millions of people have been dragged out of absolute poverty. Even allowing for the credit crunch, this decade may well see the fastest growth in global income per person in history. The free movement of non-financial goods and services should not be dragged into the argument—as they were, to disastrous effect, in the 1930s.

A second group of critics focuses on deregulation in finance, rather than the economy as a whole. This case has much more merit. Finance needs regulation.
It has always been prone to panics, crashes and bubbles (in Victorian times this newspaper was moaning about railway stocks, not house prices). Because the rest of the economy cannot work without it, governments have always been heavily involved.

Without doubt, modern finance has been found seriously wanting. Some banks seemed to assume that markets would be constantly liquid. Risky behaviour garnered huge rewards; caution was punished. Even the best bankers took crazy risks. For instance, by the end of last year Goldman Sachs, by no means the most daring, had $1 trillion of assets teetering atop $43 billion of equity. Lack of regulation encouraged this gambling (see article). Financial innovation in derivatives soared ahead of the rule-setters. Somehow the world ended up with $62 trillion-worth of credit-default swaps (CDSs), none of them traded on exchanges. Not even the most liberal libertarian could imagine that was sensible.

Yet the failures of modern finance cannot be blamed on deregulation alone.
After all, the American mortgage market is one of the most regulated parts of finance anywhere: dominated by two government sponsored agencies, Fannie Mae and Freddie Mac, and guided by congressional schemes to increase home-ownership. The macro economic condition that set up the crisis stemmed in part from policy choices: the Federal Reserve ignored the housing bubble and kept short-term interest rates too low for too long. The emerging world’s determination to accumulate reserves, especially China’s decision to hold down its exchange rate, sent a wash of capital into America. There was something of a perfect storm in which policy mistakes combined with Wall Street’s excesses.

Heavy regulation would not inoculate the world against future crises. Two of the worst in recent times, in Japan and South Korea, occurred in highly rule-bound systems. What’s needed is not more government but better government. In some areas, that means more rules. Capital requirements need to be revamped so that banks accumulate more reserves during the good times. More often it simply means different rules: central banks need to take asset prices more into account in their decisions. But there are plenty of examples where regulation could be counter-productive: a permanent ban on short-selling, for instance, would make markets more volatile.

Indeed, history suggests that a prejudice against more rules is a good idea. Too often they have unintended consequences, helping to create the next disaster.
And capitalism, eventually, corrects itself. After a crisis investors (and for that matter regulators) seldom make exactly the same mistake twice. There are, for instance, already plans for clearing houses for CDSs.

Turning back the incoming tide

Sadly another lesson of history is that in politics economic reason does not always prevail—especially when the best-case scenario for most countries is a short recession. “Barriers to intercourse, jealousies, animosities and heartburnings” loom.

But it need not be so. If the bail-outs are well handled, taxpayers could end up profiting from their reluctant investment in the banks. If regulators learn from this crisis, they could manage finance better in the future. If the worst is avoided, the healthy popular hostility to a strong state that normally pervades democracies should reassert itself. Capitalism is at bay, but those who believe in it must fight for it. For all its flaws, it is the best economic system man has invented yet.

Copyright © 2008 The Economist Newspaper and The Economist Group. All rights reserved.

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What seems to get lost in our current economic chaos are the important lessons of the past. Long ago while in the midst of a national economic based panic, President Franklin Roosevelt spoke those oft repeated and little attended to famous words, "We have nothing to fear but fear itself". It was true in his time, has been true throughout history and is just as true today. After all, the bottom line is that he was addressing human nature and that has not changed much since man came out of caves.

Leadership requires that the problem gets clearly identified so that everyone knows what we must deal with going forward. Effective leadership thereafter focuses the attention of all involved on identifying and implementing solutions, not focusing on the problem. Attention must be cast forward in order to seek out answers, not backward where the problem lies. The lead dog always looks ahead so that a workable path can be discovered.

So what does our current administration, Congress, Presidential candidates, big biased media, TV pundits and the usual crowd of naysayers do when an economic crisis hits? Not what quality leaders do by a long shot. Few among them clearly defined the problem but almost all of them focused on the problem. Consider how difficult it is to repair a problem when it is not clearly understood. Then note the wild scatter shot approach to finding answers. As government often does and as politicians always do, when there is a problem, just throw money at it and it will go away. In other words, throw everything within reach against the wall and hope something sticks. That's not leadership, that is guesswork at it's least effective.

That kind of leadership only feeds the fire of panic and fear which in turn only further exacerbates the problem. In other words, our "leaders" make the problem worse rather than better by not doing what is required of successful leaders. Instead of standing up, clearly defining the problem and thereafter reminding Americans across the board of our performance history when faced with overwhelming challenges, they simply run around in circles trying every idea that seems worthy, hoping all along that the latest effort will end the problem. When it doesn't, it leaves the public far less confident in their capabilities as it becomes more obvious that our "leaders" have no idea as to what they are doing. Instead of a reasoned, common sense approach to solutions based upon a real understanding of the problem, we have gotten noting more than a severe case of the blind leading the blind.

Making matters worse, we have "loose lips sink ships" politicians who are so drawn to cameras and microphones to service their massive egos and endless vanity that they speak without informing their words with any thought or foresight. So Senator Chuck Schumer flaps his always open mouth about Indy Mac Bank and drives a panic that puts that company out of business. Proving to be an even greater fool, Democrat Senate "leader" Harry Reid makes unnecessary and ill advised public remarks about a failing insurance company, causing investors to abandon that industry like a crowd trying to flee a fire inside a packed theatre. These are not leaders, these are losers. They are not public servants, they are public subversives. And they are not alone among their peers in Congress, the administration and elsewhere.

The bottom line: politics does not attract the best and the brightest. Instead it turns out most often to be a bunch of self-serving lawyers (sorry for the obvious repetition) who are educated in the law but have no clue how to lead.

Obviously, none are so valuable as to be held over in their positions to further destroy the public interest. We are a nation with pretenders, not leaders, in political office.


Government Fear Itself
Potential bank investors don't want to be 'AIG-ed.'

Amid economic fear and uncertainty, many Americans naturally look to government for reassurance. But with its vast power and potential to harm, government can itself become a source of panic. This has happened too often in recent days as Americans and the world have finally awakened to the scale of the losses in the banking system.

The Federal Reserve and Treasury have both taken extraordinary actions in the last year to prevent large-scale financial damage. Some of that we have supported, including the recent Treasury authority to spend as much as $700 billion to shore up financial institutions. But how these proposals are presented and executed also matters if they're going to reassure people and markets. This week's stock market carnage is evidence of the danger when they frighten instead.

One problem is reckless news leaks of potential policy actions, some of them far-reaching, without adequate thought or public explanation. Take Friday morning's reports, presumably leaked by Treasury, that the federal government might insure all bank deposits. This would be no small matter. Until recently the feds insured deposits only up to $100,000 per account, and last month it raised that to $250,000. Ensuring all deposits would add another $1.9 trillion in taxpayer guarantees.

It isn't clear, however, that insuring all deposits would do much more to reassure most retail savers, who have largely stayed calm. There have been runs on individual banks but so far not runs across the system. Yet leaking the possibility of such a policy change is the kind of thoughtless action that could well incite such a run.

There's also the problem of what such a policy could mean for deposits held outside the banking system. What about the danger of flight from General Electric's credit subsidiaries if money rushes to the relative safety of bank deposits? It might also cause problems for money-market funds, whose deposits are only insured if they were made before September 19. Treasury decided to insure money-market deposits precisely to prevent a run on those funds that in turn had caused damaging redemptions in the commercial paper market. Media trial balloons are a Washington pastime, but in a global financial panic they may only compound the fear.

Recapitalization Recap
The Public Deserves a Better Deal 09/26/2008 – By John Paulson
There's No Easy Way Out of the Bubble 10/09/2008 – By Vernon L. Smith
We Need to Recapitalize the Banks 10/01/2008 – By Edmund S. Phelps

A similar lack of transparency has marred the execution of the Troubled Asset Relief Program, or Tarp. Secretary Hank Paulson first sold the proposal as a way to buy troubled bank securities via an auction, though it quickly became clear that Treasury hadn't thought about it very deeply. We supported Tarp nonetheless as a fund that could be deployed in many ways to shore up the financial system, and sure enough this week Mr. Paulson floated the idea of injecting public capital directly into financial institutions.

In contrast to the British, however, Treasury couldn't explain how this would work, who would be eligible, or even when it would take place. Amid this policy vacuum, rumors quickly spread that Treasury might "nationalize" the banks.
This isn't what anyone we know in government has in mind, and it would be disastrous if it happened. But it's unsurprising if people believe it in a panic, especially absent any details and in the wake of the government's recent "bailout" of AIG.

In retrospect, the AIG seizure has also undermined confidence by looking both arbitrary and punitive. The loan terms were so onerous -- requiring the company to pay more than 10% interest even on money it doesn't borrow but might in the future -- that this week the New York Fed had to bail out the bailout. It extended another $38 billion on top of the original $85 billion, while AIG now must sell its healthy insurance assets at fire sale prices. No one wants to put private capital into a bank if it might be "AIG-ed."

Using the Tarp to help recapitalize the banks still has much to recommend it, and the idea has been endorsed in some form on these pages by financier John Paulson, Nobel economic laureates Vernon Smith and Edmund Phelps -- and by us. This has to be done carefully without savaging current (and especially) future shareholders. But doing this quickly in specific cases would have a salutary effect on confidence as it becomes clear that sound banks can't be run out of business merely by a stampede of fear.

Such a capital stand might be especially useful now as a way to shore up Morgan Stanley, which is under siege as investors worry over the fate of its planned $9 billion capital injection by Mitsubishi UFJ Financial Group. A successful stand would also go a long way to unlocking the interbank lending market.

Our point here isn't to play Saturday morning second-guesser. Mr. Paulson and the staff at Treasury and the Fed are working night and day, and they must make decisions in real time while dodging real bullets. But they also now have all of the tools they need to stabilize the banking system, if they use them well.
Most Americans have only recently discovered how serious this threat to the economy is. No wonder they're scared. Mr. Paulson or Fed Chairman Ben Bernanke need to explain what they are doing, and why it will lead to a better, more stable financial system.

Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved

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Americans were long ago tired of being held hostage at the pump by losers like those pictured above along with many of their OPEC buddies. Mother nature, American technology and an ever increasing demand for precious oil positioned these tyrants in circumstances that have over time accrued to their advantage. The good news however is that the handwriting is on the wall for these crooks and the clock is ticking.

The article that follows notes the slightly panicked need for the OPEC'ers to meet in the face of the rapidly declining price per barrel of oil. They have become fabulously rich of late due to an unprecedented transfer of wealth from the world in general and the west in particular to oil producing nations, most of which are run by dictators or tyrants. Even though the price per barrel continues to be way off the chart historically speaking, it is well below the recent highs and that has these gluttons concerned. After all, they love the money and they want our financial hemorrhaging to continue. But for them, there is a fundamental problem.

Demand in the world marketplace has dropped precipitously and it continues to decline. Why? Well, for one reason, Americans are driving less and driving far more efficiently. Guess what, we will continue to do so because energy simply costs us too great a percentage of our family budgets. We are done enriching dictators. Americans reached the famed tipping point and we are not going back to the days of a massive vulnerability to foreign produced oil.

This nation is exercising it's options. More offshore drilling for our own supply of petroleum. Increased use of clean coal technology. The safe and sane exploitation of nuclear power. The development and use of alternative energy sources, particularly locally, such as solar, wind and geothermal energy. The growth in the utilization of Compressed Natural Gas and battery generated electric motor vehicles. The list goes on and it will happen. Never underestimate the power of this nation to achieve what it focuses on when the majority of our people decide to get a job done. That is our record and our history. The days of OPEC dominance are numbered.

People across this country look forward to the days when our dependence upon foreign oil resources is so small as to be insignificant. Yes it will take time. But it will happen and in the process the jobs created and the revenue generated here at home, not to mention the spending savings, will reinvigorate our economy and project this nation well ahead of most of the rest of the world in terms of home based energy utilization as well as economic well being.

Along with a preponderance of my fellow Americans, I very much look forward to the day when we can tell OPEC to go pound sand. Most of them have plenty available and it will be all they have left to do!



Opec members seek emergency meeting
By Carola Hoyos in London

Members of the Opec oil cartel are considering an emergency meeting in Vienna next month as oil prices dropped to their lowest level in nearly a year.

Iran, Libya, Nigeria, Iraq, Venezuela and Ecuador, whose economies tend to be most dependent on high oil prices and whose ministers are among the most hawkish of the 13-member group, have all lobbied for the cartel to drop output in the past few days.

Their calls came as oil consuming nations moved to bolster their economies in a co-ordinated interest rate cut.

Oil prices on Wednesday resumed their slide towards $85 a barrel, a level last reached in December last year.

Nymex November West Texas Intermediate fell $3.06 to $87 a barrel, while ICE November Brent slid $2.96 to $81.

Opec’s next meeting was scheduled for December 17 in Algeria, but ministers are now saying they could meet on November 18 in Vienna, site of the group’s headquarters.

Opec controls nearly 40 per cent of the world’s oil supply, and at its meeting last month pledged to reduce its production by about 500,000 barrels a day in an attempt to boost prices. So far the group’s reduction has fallen far from that mark, but slowing production often takes more than a few weeks.

The world consumes about 87m barrels a day of oil.

Copyright The Financial Times Limited 2008

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Can voters handle the truth? Are people who are not wholly owned by a partisan agenda willing to examine the facts of the financial markets crisis in an effort to understand what has happened to their 401k and their stock portfolio not to mention their ability to borrow cash for important expenses?

If so read on and take the time to review all the links. Further, pass along this information in whatever way works for you. Information is power. With an election just around the corner, it is more important than ever to be an informed voter.

Our reps in Congress have been running around with their hair on fire over the chaos in our markets. What we discover via research is that it has often been those same pols who point fingers and lecture in the current environment who were at the center of the cause of our ever growing problems.

Some obvious points that our DC politicians would prefer we not consider include:

• Their carefully devised "bailout" bill that the "leaders" in Congress presented as the answer did not pass a vote of their peers. Aren't "leaders" capable of convincing their fellows that, although not perfect, their bill required the support of their teams? How effective and in fact capable are these "leaders"?
  
• The Democrat party controls the House. The Democrat party "leaders" wholly endorsed the bailout package. Those same Democrat party "leaders" have the power at hand to twist enough arms to get their favorite legislation passed. They never needed Republicans even though several voted for the bill. But 95 of their Dem teammates voted NO (by the way no arms were twisted). Are they not good at applying power? Did they decide at the last minute, under pressure from the anarchist far left (Michael Moore, Daily Kos, Soros, etc.), to sink the markets, the American economy and the welfare of American families in their never ending effort to win an election through panic and fear? Is this the final act in the Bush Derangement Syndrome political theatre? Are moderate Dems in Congress running scared of the voters back home relative to this giant tax payer giveaway? Regardless, here is the undeniable bottom line: if the Democrat party in the House wanted to pass the bailout bill, it would have passed. Although they got support from across the aisle, they did not NEED it.
  
• Americans need to stop and consider what is at the heart of this "rescue" legislation: at it's core it gives the people who got us into this mess even more power to play their self-serving political games at the expense of the taxpayers and the people of this country. As much of what follows will show, it is Congress that carries the greatest degree of responsibility for our current financial markets craziness. Giving them an even larger role to play, which the bailout package does, is wholly and completely counter intuitive. Not to mention ill informed, a very bad idea and just plain nuts.
  
• Ok, Ok, let's be honest. We the people put these "public servants" (NOT) in office. At the end of the day we are responsible (accountability: what a concept!). We keep reelecting these ne'r-do-wells. The time has come to put an end to such foolishness. In November, DO NOT vote for incumbents. Replace our Congressional clowns. Send new blood to Washington. Do away with professional, career politicians. We most certainly do not need these people. After all, they got us to our current state of affairs. A large group of common house pets could have done as well.
  
• Have you watched any of the ongoing pissing contest that has been taking place since the bill was voted down? "It's all you fault. No, it's all yours. Is not. Is so. My dog is bigger than your dog. Is not. Is so." Juvenile, childish, immature and totally lacking in adult content. These kids are supposed to be posing as our "leaders"? You are going to vote for these condescending losers in November? It is amazing the degree to which these silly boys and girls will soil themselves in public for all to see. You know, they really think the rest of us are buying all this garbage. We aren't.

IF YOU DO NOTHING ELSE, WATCH THIS VIDEO

 

 

This artiicle is a fine summary of what Congress has done to us rather than for us.

The Beltway Crash
Congress lives up to its 10% approval rating.

America has survived a feckless political class in the past, and it will again after this week. But Monday's crash and burn of the Paulson plan on Capitol Hill reveals a Washington elite that has earned every bit of the disdain that Americans have for it. This crowd can't even make sausage.

The 228-205 defeat reflects badly on all concerned, starting with the Democrats who run the House. The majority party is responsible for assembling a majority vote, and Speaker Nancy Pelosi failed in that fundamental task.

Her highly partisan speech on the floor -- blaming "right-wing ideology of anything goes, no supervision, no discipline, no regulation" for the financial distress -- is no excuse for Republicans to vote no. But it is indicative of the way she has governed for the past two years -- like Tom DeLay without the charm. The cynics are saying Ms. Pelosi deliberately tanked the bill by giving 95 Democrats a pass, knowing failure would hurt John McCain, and given her track record we can see why people would believe it.

House Republicans share the blame, and not only because they opposed the bill by about two-to-one, 133-65. Their immediate response was to say that many of their Members turned against the bill at the last minute because Ms. Pelosi gave her nasty speech. So they are saying that Republicans chose to oppose something they think is in the national interest merely because of a partisan slight. Thank heaven these guys weren't at Valley Forge.

Crash Course
A Main Street Rescue 09/29/08 -- Congress passed this 'bailout' a long time ago.
The Washington Panic 09/27/08 -- The Paulson plan is a tool to avoid a deeper downturn.
The Paulson Sale 09/24/08 -- Taxpayers are going to put up capital one way or another.
A Mortgage Fable 09/22/08 -- Beltway trilogy: the Fed, Fannie Mae, and Bear Stearns.
Stopping the Panic 09/20/08 – Now the task is to protect taxpayers and restore markets.
Be It Resolved 09/19/08 – Paulson and Bernanke ask Congress for a resolution agency.
The Fed and AIG 09/18/08 – Nationalizations aren't stopping the financial panic.
McCain and the Markets 09/17/08 – Denouncing 'greed' and Wall Street isn't a growth agenda.
The Fed's Epic Day 09/17/08 – It's only fair to praise the central bank when it does the right thing.
Surviving the Panic 09/16/08 – A resolution agency, steady monetary policy, and a big tax cut.
Wall Street Reckoning 09/15/08 – Treasury Secretary Hank Paulson's refusal to blink won't get any second guessing from us.

The vote is also a rebuke for Treasury Secretary Hank Paulson, who could barely explain how his securities auctions would work even as he showed disdain for House Republicans. President Bush did his best to provide cover for the Members, but he is a spent political force. One GOP Member who supported the bill told us that before Mr. Paulson spoke to House Republicans last week, the whip count in favor was about 70; afterwards, it was closer to 20. You can't ask Congress for $700 billion without more modesty and a better explanation for how it would be used.

Given this historic abdication, we're surprised financial markets didn't melt down more than they did yesterday. Equities nonetheless took the worst bath in percentage terms since the aftermath of 9/11, with the Nasdaq falling more than 9%. But that was a sideshow compared to the credit markets, which staged another flight from all risk. The three-month Treasury yield had sunk to 0.132% the last we checked, which means investors will accept essentially no return as long as they can avoid further financial losses.

Safe in their think-tanks, some of our friends have claimed that talk of a financial crash is merely a political invention. Perhaps we'll now test their theory. A financial panic isn't an academic seminar, and a flight from all risk isn't something any free-marketeer should want. A recession now seems certain, as falling commodity prices are telling us, but the point is to prevent systemic financial collapse. Maybe the Members who voted "no" figure at least they'd still have jobs.

What next? One option is that Democrats will tell Mr. Paulson that they can pass his plan with more liberal votes, but that their price has gone up. This would mean more of the tax, spend and regulate provisions that House GOP leaders stripped out before their rank-and-file headed for the exits. These would only raise the price for taxpayers of the Treasury rescue and, if the equity provisions were too onerous, make the Paulson plan far less workable.

If Mr. Paulson wants to be a statesman, he could offer a Plan B that avoids giving Treasury such a big blank check. Instead, he could propose more public capital for the Federal Deposit Insurance Corp., which would do more of the creative financial plumbing it has done over the last week. (See here.) This will have to happen next year anyway, and the FDIC has long experience protecting taxpayers for public capital injections through preferred stock and warrants.

At the same time, the Secretary could salvage his own proposal by promising that while Treasury would start the purchase of toxic securities from banks, he would quickly (within weeks) turn the process over to a new and separate resolution agency. Congress could make this part of the legislation. This would remove Mr. Paulson as the political lightning rod he has become, and also give the rescue process the political insulation it needs. Such an agency could also work closely with the FDIC to protect taxpayers.

Members may not believe Hank Paulson, but they ought to pay attention to markets. The financial system has a huge capital hole due to losses on mortgage securities and other assets, and private capital won't begin to fill it without the life preserver of public capital. Before it leaves town to campaign, Congress needs to act to defend and restabilize the financial system. After the last two weeks, and especially after yesterday, the Members also need to act to redeem their own reputations, to the extent they are still worth redeeming.

Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved

Finally there is the piece linked below by Victor Davis Hanson that addresses the politics of the current market hardships. As always, Hanson is well worth a read.

THE FINANCIAL CRISIS

At the end of the day, it is critical to be informed during turbulent times.

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It is time to cut to the chase. The root cause of the financial markets meltdown can be found in partisan political gamesmanship in the United States Congress, where virtually nothing is done that accrues to the benefit of the American people at large.

Most assuredly there are multiple factors that came into play to produce the circumstances that caused the massive chaos in world financial markets. The cure will require addressing a wide variety of issues to fix the problems effecting capital markets. But the root cause, as described in the accompanying article, comes out of the politics surrounding Fannie Mae and Freddie Mac. Congress fiddled, the economy burned.

What is particularly egregious is the number of members of Congress who individually benefited from sweetheart deals from those two giant lenders while pushing forward political and personal agendas that have served to rob hard working, honest, mortgage paying American families. The article mentions a few names. There are others. They benefit, we suffer.

This article provides the kind of information that the American people in general and voters in particular need to know. Our elected reprehensibles play self-benefiting games in the committee rooms of Congress at the expense of the people they are supposedly there to represent. They care not for their fellow Americans, they care first and foremost for themselves and their selfish partisan agenda. If that sounds a lot like a description of lawyers, do keep in mind that most members of Congress are lawyers by training or profession (NEVER vote for a lawyer).

They had the proper regulation in bill form, ready to present to the larger Congress, and they killed the legislation. In the process several of those back stabbers personally gained because of their vote. They were bought and sold and voted not for the welfare of the country but for personal greed and gain.

Admittedly, some may simply have been asleep at the switch and did not vote based upon personal or partisan reasons, but based on bad judgment or by only relying on the advice of others. For those we must ask ourselves: do we need them in Washington? They may be nice people (a rare quality among politicians) but they cannot see the obvious or do not work hard enough to understand it. They cost us and our succeeding generations plenty. They should be sent home to find real work as most certainly should those who are blatantly selfish partisans. None of them have earned or deserve our vote or our support. On the contrary, they deserve our disdain. We must turn our back on them as they have done to us.

This nonsense must stop. The 535 members of Congress must go. We the people do not need ANY of them one second longer.


How the Democrats Created the Financial Crisis
Commentary by Kevin Hassett

Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.
Turning Point

Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Mounds of Materials

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)

To contact the writer of this column: Kevin Hassett at khassett@aei.org

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Any crisis, wherever you find it, requires proactive leadership. It appears we are getting neither, from Congress nor the administration. Everything that seems to come from those two branches of government are reactive activities: tax rebates, rate adjustments, government takeovers of failing institutions and, the most useless of all, the threat of investigation as if that is going to help deal with the here and now. When leadership is absolutely required, our "leaders" cannot seem to get ahead of the curve. Americans, we are being ill served by our government.

The accompanying article is all about one proactive idea to help resolve the current crisis in our financial markets. It puts forth the suggestion that we follow established precedent that enjoyed some successful implementation during the former S&L crisis of some time ago. It outlines a path that can be followed in order to get a handle on the daily chaos in our markets.

On balance the Resources Trust Corporation (RTC) did yeoman's work during the S&L debacle in order to recoup most of the losses suffered by the FDIC and, through that organization, the losses suffered and financed by taxpayers. Many properties were inherited by the RTC from failed Savings and Loan companies because their depositors had been paid back for their losses by the FDIC. Like today, real estate values had plunged during that crisis so there were lots of great deals to be had, but given the market the RTC was able to sell tens of thousands of those assets so that billions of dollars were returned to the Treasury instead of just being written off as a loss.

We need that same kind of proactive solution now. As banks and other lending institutions fail, those that are taken over by the Feds or covered by the FDIC need to liquidate the inherited assets in the same fashion. Buyers benefit from once in a lifetime bargains and the taxpayer benefits from the return of capital back into government coffers. Although not perfect, it worked well before and deploying such a solution again should gain the benefits noted in the article along with other positive outcomes as well.

It is disappointing that our national "leaders" stand like collective deer in the headlights in the face of our challenging times. They are either frozen in time by the size of the challenge, only able to react to events after they have occurred. Or they are pursuing their partisan political agenda at the cost of working American families and the future health of our national economy, stuck in a win-at-all-costs mode of selfish operation. Either way, the public and the nation are the losers.

In America, we lack real leaders.


Resurrect the Resolution Trust Corp.
By NICHOLAS F. BRADY, EUGENE A. LUDWIG and PAUL A. VOLCKER

We are in the midst of the worst financial turmoil since the Great Depression. Absent bold action, matters could well get worse.

Neither the markets nor the ordinary diet of regulatory orders, bank examinations, rating downgrades and investigations can do the job. Extraordinary emergency actions by the Federal Reserve and the Treasury to date, while necessary, are also insufficient to resolve the crisis.

Fannie Mae and Freddie Mac, the giants in the mortgage market, are overextended and now under new government protection. They are not in sufficiently robust shape to meet all the market's needs.

The fact is that the financial system needs basic, long-term reform, but right now the system is clogged with enormous amounts of toxic real-estate paper that will not repay according to its terms. This paper, in turn, is unable to support huge quantities of structured financial instruments, levered as much as 30 times.

Until there is a new mechanism in place to remove this decaying tissue from the system, the infection will spread, confidence will deteriorate further, and we will have to live through the mother of all credit contractions. This contraction will undercut the financial system, and with it, the broader economy that so far has held up reasonably well.

There is something we can do to resolve the problem. We should move decisively to create a new, temporary resolution mechanism. There are precedents -- such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.

Such a stabilizing mechanism would accomplish four much-needed tasks:

- First, by buying paper that otherwise is effectively not trading, it would help restore liquidity to the marketplace and help markets to function more fluidly again.

- Second, by warehousing the troubled paper for a longer period than, for instance, the Fed's discount window typically should or could, it would allow for a more orderly liquidation of this paper, and the chance for much of it to recover a portion of its value.

- Third, by giving the agency the ability to manage mortgages with flexibility to keep people in their homes and businesses running, it should lessen the number of foreclosures. This, in turn, would help moderate the decline in real estate values and the deterioration of neighborhoods, thus supporting house prices that in fact lie at the heart of the crisis.

- Fourth, where necessary, like the RTC of the 1980s, this new mechanism can assist the Federal Deposit Insurance Corporation in resolving sick institutions that are so clogged with the troubled paper they cannot continue as independent entities. However, we would hope that purchasing the mortgage-related paper will minimize the need to provide emergency, short-term assistance to solvent banking institutions.

It is certainly the case that the new institution we are proposing will in the short run require serious money. That will involve a risk to the taxpayer; but the institution, administered by professionals, means that ultimate gains to the taxpayer are also possible.

Moreover, a failure to act boldly in the fashion we are suggesting would cost the taxpayer and the country far more. The pathology of this crisis is that unless you get ahead of it and deal with it from strength, it devours the weakest link in the chain and then moves on to devour the next weakest link. A deteriorating financial system, diminished economic activity, loss of jobs and loss of revenues to the government is enormously costly. And the cost to our citizens' well-being is incalculable.

Crisis times require stern measures. America has done well in the past to face up to economic turmoil, take strong measures, and put our problems behind us. RTC-like mechanisms have worked well in past crises. Now is the time to take a similarly forceful step.

The American economy still has enormous underlying strengths. What we need, and in part are proposing, is a road map to financial stability.

Mr. Brady was U.S. Treasury secretary from 1988-1993. Mr. Ludwig was U.S. comptroller of the currency from 1993 to 1998. Mr. Volcker was chairman of the Federal Reserve from 1979-1987.

Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved

Yes we are buried in the midst of the Presidential election season and cycle. By definition that means that one side must, MUST, reach out to the doom and gloom crowd and bad mouth the nation in an effort to get elected and thus supposedly to fix it all. It is, of course, pure politics and anyone out there who actually is influenced by such antics is simply a hopeless partisan or just plain brain dead. Whatever party has been in power are the bad guys and the party out of power are the good guys. It has been that way forever so it is truly a process to be barely tolerated. Thoughtful people ignore such pap and dig much deeper to discover what there is to vote for or, for that matter, vote against.

But following the Obama acceptance speech in a sports stadium filled to capacity, one must marvel at the 'America is in the worst shape it has been in history' remarks made by the candidate and a host of additional speakers. After listening to all the remarks it had to be tempting for listeners to slit their wrists and get it over with. Except for the brief glimpse of Hope represented by Obama's big government solutions he will bring to the table to save us from the verge of total collapse.

Let us count the ways that America is in failure according to the doom and gloomers.

1. The worst economy since the great depression teetering on the edge of a full blown depression that will be even worse than the one before.
TRUTH: Our very slow economy continues to chug along, as the story below (itself sporting a doom and gloom headline) testifies, not as yet even going into recession let alone depression. That is happening in the face of a subprime mortgage meltdown; $140 per barrel oil; home foreclosures at an all time high; unemployment up a tick, although still at relative lows compared to other economic slow downs; bankruptcy claims up; inflation up; interest rates up slightly. In the midst of it all, the strongest economy in the history of America has hung in there and NOT gone into the dumper. It might yet happen but the more time that passes the less likely that it will. Oh, and by the way, the value of the dollar is on the rebound having made a significant comeback this month. That is a strong sign of a solid economy.

2. Millions of Americans do not have health insurance which should be provided free by the federal government.
TRUTH: If you think health care is costly now, wait until it is free. Want to know what government run health care will look like? Just look at the long running and badly failing Medicare and VA health care systems to begin to get a sense of how well a massive federally run health care system will operate. Further, who are those millions without medical insurance? Many are illegal immigrants who, honestly, should not qualify for taxpayer provided services. Many others are young people who are healthy and choose not to pay for insurance. Many more need insurance and a well run, market based system could effectively serve them all and make sure all that want coverage are in fact covered. The fact is most Americans are insured but the system needs a massive overhaul. But if Dems think gloom and doom apply to health care now, just wait and see what happens if the feds are put in charge.

3. Our public education system has fallen behind the rest of the world in terms of keeping our young people competitive in the global job market and we must spend billions to fix it.
TRUTH: No doubt that K-12 public education has largely failed in spite of the fact that we have thrown zillions of dollars over the decades to make it better. It has not worked. Why? The failure is systemic, not financial. Throwing good money after bad, thus repeating a failed solution, is clearly not the answer. We need systemic change. A complete overhaul. Why hasn't that happened? The special interest group teacher's unions who choose to protect personal income over improving education for kids as their priority. Who do those unions support politically? The Democrat party which makes those pols reluctant to drive meaningful change. It is the gloom and doom crowd that perpetuates the problem. Finally, it is important to note that we still feature the best higher education system on the planet which currently has more students in the system than at any other time in history. Costly? It can be but it does not have to be. Government can play a helpful role here but free tuition is not the answer.

4. The Bush administration has shredded the Constitution, spies on everyday Americans, listens into our phone calls and ignores the law.
TRUTH: The Patriot Act was both initially approved and recently renewed by Congress. The courts have passed judgment on a variety of Bush administration initiatives, approving some and ending others. That is how our system works. The phone records scanning program applied to calls between known terrorists overseas and numbers within the United States does not listen in on calls but does investigate calls from said suspicious sources. There is no wire tapping involved. Finally, everyday Americans are not spied upon now any more than has been the case in the past one hundred years and certainly less so than during WW2 under FDR. And, as in the past, if the government abuses it's power in this arena the courts, not Dem politicians, will slap it down.

5. Corporations make obscene profits that benefit the rich and force the middle class to pay too much in taxes. The answer is to tax corporations at an even higher rate.
TRUTH: The fact is that Congress has been guilty of providing big business with tax payer funded subsidy programs for decades. The massive Agribusiness companies get subsidies to grow more corn for ethanol. They do not need the money. Big oil, now enjoying off the charts profits, are subsidized by the federal government. How does that make any sense? Democrat and Republican groveling politicians have been equally guilty of this scam so for Dems to paint this as part of their gloom and doom scenario is intellectually dishonest. Vote for subsidies, paint profits as the inherent evil. How bogus. In the end it is not about raising taxes since we know by experience that doing so drives down revenues to government. It is about eliminating subsidies.

6. American jobs have been exported overseas, leaving working Americans unemployed. Additionally, employers hire immigrant labor because they will work for lower wages. The working family is being driven into poverty by greed.
TRUTH: Once again the doom and gloom crowd has it backwards. In many cases, companies are being driven overseas by outrageous taxation and unnecessary regulation. It is often government that is the cause behind the loss of jobs. In other cases companies are following lower wages overseas in an effort to build their bottom line. The answer in cases like that is to retrain workers to domestic industries that are either new or going nowhere. Finally, illegal immigrants should not be allowed to work in this country unless it is in approved employment programs. Employers should be held responsible (in fact strongly punished), the border should be closed, illegals who have come into America in the past three years should be, for the most part, deported and illegal immigrants should be denied taxpayer paid services. The problem with all of that is that the same doom and gloom crowd are wholly opposed to shutting down illegal immigration even though it is those very people who take the jobs of deserving, hard working Americans. They cannot have it both ways.

7. The world hates America. We are held in the lowest esteem by the international community more now than at any other time in history.
TRUTH: The facts prove the reverse with most of the world given the exception of the far left both domestically and internationally who, quite frankly, dislike if not hate America. That reality has always been in place and always will be unless this country goes to the far left as well. We have not been as close to allies France, Italy and Germany in a very long time. We are loved and admired in Eastern Europe where the Soviet Union oppressed their peoples for decades. Our status in the Far East, including even China, has never been better. The Aussies like America. In most third world countries in Latin and South America as well as Africa, people would rather be here than there. We are close to India. Now, let's acknowledge that Club Gitmo was a black eye for America around the world, rightly or wrongly, but the fact is that as soon as the countries with nationals at Gitmo agree to take their people back, the place will close and fade into history. Finally, we even have good allies in the Middle East and the list is getting longer. Truthfully, America has rarely been as popular as we are now. Do we have enemies? Ask Iran or Russia. It is not a perfect world. Under their current governments we will be the adversary regardless of what government is in place here.

We can all admit that this is an imperfect nation, generally committed to improving and making the world a better place. Americans and America are better positioned now than at almost any other time in our history to continue to do just that. Has the Bush administration been what it should have been? Most think not. Will the next administration be better? We all hope so.

Should you and I be in the dumper because the nation has supposedly gone to heck in a hand basket? The nation has not, and we should not be either.


Spring's economic rebound unlikely to last
By Jeannine Aversa, AP Economics Writer
Spring's economic strength unlikely to last given slowdowns overseas, struggling consumers

WASHINGTON (AP) -- The economy pulled out of a dangerous rough patch in the spring, thanks largely to strong exports, but the rebound isn't expected to last. Economic slowdowns overseas could make exports tail off just as Americans are hunkering down after the bracing impact of rebate checks wanes, plunging the country into another rut later this year.

"There will be heavy sledding for the U.S. economy during the next couple of quarters," predicted Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.

Gross domestic product, or GDP, grew at a 3.3 percent annual rate in the April-June quarter, its fastest pace in nearly a year, the Commerce Department reported Thursday. The revised reading was much better than the government's initial estimate of a 1.9 percent pace and exceeded economists' expectations for a 2.7 percent growth rate.

The rebound followed two dismal quarters. The economy actually shrank in the final three months of 2007 and barely budged in the first quarter at a minuscule 0.9 percent pace. The 3.3 percent growth in the spring was the best performance since the third quarter of last year, when the economy was chugging along at a brisk 4.8 percent pace.

White House press secretary Dana Perino said the numbers demonstrated the economy's resilience in the face of many challenges. But she added: "No one is doing a victory dance."

Others agreed that the growth pickup wasn't a sign of better days ahead. Analysts predict the second quarter will represent the high point for economic activity this year.

It's "the last hurrah for this economic cycle," said Martin Regalia, chief economist for the U.S. Chamber of Commerce.

Federal Reserve Chairman Ben Bernanke has warned the economy will be weak through the rest of 2008. Economists believe growth will slow in the July-September quarter to a pace of around 1.5 percent, and will turn even weaker in the fourth quarter. Some, including Regalia, think the economy might jolt into reverse yet again.

GDP measures the value of all goods and services produced within the U.S. and is the best barometer of the country's economic health.

The economy is the top concern for Americans. Democratic presidential contender Barack Obama favors a second government stimulus package, while Republican rival John McCain supports free trade and other business measures to buttress the economy.

On Wall Street, the GDP report lifted stocks. The Dow Jones industrials jumped 212.67 points to close at 11,715.18.

For months, housing, credit and financial troubles have hammered the economy.

In turn, employers have clamped down on hiring, driving the nation's unemployment rate up to 5.7 percent in July, a four-year high. The Labor Department said Thursday the number of people signing up for jobless benefits declined last week for the third straight period, but remained above 400,000 -- an indicator of a slowing economy.

Health care products maker Abbott Laboratories, telecommunications provider Embarq Corp., and aluminum maker Alcoa Inc. are among the companies recently announcing layoffs.

Employers have cut jobs every month this year and wage growth is trailing inflation. That combination raises concerns about the future of consumer spending, one of the pillars underpinning the economy.

The biggest factor in the GDP's second-quarter rebound was robust sales of U.S. exports. The weaker value of the U.S. dollar has bolstered those sales, which accounted for half of the gain in GDP. Exports grew at a 13.2 percent pace in the spring, more than double the 5.1 percent growth rate logged in the first quarter.

Imports, meanwhile, fell at a 7.6 percent annualized pace in the spring, as economic troubles in the U.S. crimped demand for foreign-made goods. The improved trade picture added 3.1 percentage points to second-quarter GDP, the most since 1980.

Against that backdrop, Japan's Toyota Motor Corp. on Thursday lowered its global sales target for next year, proof that even one of the world's most durable automakers is being hurt by a slowing U.S. market.

"With the rest of the world now slowing and the dollar off its lows, the U.S. will be more reliant on domestic demand in coming quarters," said Nigel Gault, an economist at Global Insight. "Since consumer spending is slowing down and the credit crunch is tightening its grip, it is hard to foresee another quarter with such a robust GDP headline for some time."

U.S. consumers did boost their spending at a 1.7 percent pace in the second quarter, the best showing in nearly a year. Government stimulus checks of up to $600 a person helped energize shoppers. But many expect consumers to pull back in the months ahead as unemployment rises, paychecks shrink and their biggest asset -- their homes -- continue to sink in value.

The effects of the housing market's collapse were evident in the GDP report.
Builders cut back at an annual rate of 15.7 percent in the second quarter-- although that was a better showing than early this year and late last year.

Businesses trimmed spending on equipment and software in the spring. And, they reduced investment in inventories, but not as much as initially estimated by the government. That also contributed to the improved GDP reading.

One measure of corporate profits showed companies losing ground in the second quarter. After-tax profits fell 3.8 percent in the spring, compared with a 1.1 percent increase in the first quarter.

With the economy still coping with fallout from housing and credit problems, the Fed is expected to hold interest rates steady at its next meeting on Sept. 16, and probably through the rest of this year.

AP Writers Christopher S. Rugaber and Ben Feller contributed to this report.
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Change is all around us and, as is often stated, the only constant about change is that it is ever increasing. But the dirty little secret that neither McCain or Obama will admit is one of the great lessons of history: to wit, government cannot control change. What government can do and has done on innumerable occasions, is really screw up change in a foolish attempt to "fix" it.

Given that the main thrust of the Obama campaign is change, we can basically discount if not dismiss most of what it stands for and advocates. Politicians in general and Senators in particular like to believe that they can control change via government fiat. It is one of the primary reasons why electing a Senator as President of the United States is by and large a bad idea. It is why voting for a candidate who has executive experience is important. Unfortunately, in this Presidential cycle we, the people, are going to be stuck with a Senator. We can only hope whomever is elected can somehow figure out how wrong they are in their view of the role and power of government. Not likely to happen.

The article below addresses some of the history of the relationship between government and change. It paints a sordid picture that cannot be denied.

Change will continue to occur. Get used to it. The only remaining question is how much we will allow government to screw up the process along with our lives as well.


Change We Can Believe In Is All Around Us
By BRIAN WESBURY

Rarely do senators become president, but in less than five months either John McCain or Barack Obama will become the 44th president of the United States. That's change, and that's interesting.

It's also what everyone seems to want – change. Sen. Obama promises to provide "Change We Can Believe In." Sen. McCain suggests that "the choice is between the right change and the wrong change." If it's the war that is the focus of all this talk about change, well, that's understandable, and maybe people really do want change. But if it's the economy, it's hard to imagine that change could happen any faster.

In fact, the U.S. economy (really, the global economy) is transforming at an absolutely astounding rate. We're living in Internet Time, where policies and their consequences travel the world at the speed of light. The normal human reaction to such a rapid pace of change is to be overwhelmed, stressed out, anxious and fearful. As a result, it is probably true that when voters listen to talk about change, what they really hear are promises of "no change," which would be a huge difference from the status quo. They just want things "the way they were."

Look at the chart nearby. America's manufacturing output, as measured by the Federal Reserve, is up seven-fold since 1950, but manufacturing jobs as a share of all jobs have fallen to 10% from 30%. Your grandfather and father may have worked for General Motors (and joined the UAW), but it's likely that you don't and won't.

The problem, if it really is one, is not foreign competition or evil financiers. It is technology and productivity. In the 10 years ending in 2007, durable goods manufacturing productivity averaged an annual growth rate of 4.8%. In other words, if real growth is less than 4.8%, the sector needs fewer workers year after year.

For the economy as a whole, overall U.S. business productivity rose 2.7% at an average annual rate during the decade ending in 2007, 1.7% in the decade ending in 1997 and 1.4% in the 10 years through 1987. Change is everywhere, and it's accelerating.

This has happened before – in the Industrial Revolution – where the political environment bred America's first real populists, people like William Jennings Bryan and Theodore Roosevelt. Bryan was perhaps the best orator of American political history, and like Mr. Obama, he could affect people emotionally.
Roosevelt, like Mr. McCain today, was a true American hero and one tough guy. History may not be exactly repetitive, but it sure seems to move to similar rhythms.

Unfortunately for the American economy, the populist movement of the late 19th and early 20th centuries led to a rapid growth in government intrusion into business activity. The populists didn't like the gold standard and demanded more government regulation.

In 1913, the Federal Reserve System was created and the income tax was introduced to pay for a growing government. And then, during the Great Depression – which was caused by the new Fed, trade protectionism and tax rate increases – a massive expansion in government took place. Forty years later, in the malaise of the late 1970s and early 1980s, the U.S. finally figured out what it was doing wrong. By returning to hard money under Paul Volcker, and lower taxes and less regulation under Ronald Reagan, the high-tech leg of the Industrial Revolution began.

The fruits of this are plain to see. Rather than watching the sun set on the U.S., as many believed would happen in the early 1980s, the U.S. has experienced one of the greatest booms in wealth creation in world history. And the impact of our technological innovation has helped lift untold numbers out of poverty.

This technology has created massive amounts of change. Like the Industrial Revolution before it, the current transformation is anything but pain-free. It's what Joseph Schumpeter called creative destruction. Google, Craigslist and Microsoft have been prospering. General Motors, United Airlines and the New York Times have not. In the midst of layoffs in the newsroom, it's hard to see anything good happening in the rest of the economy.

Yes, there are serious problems in the housing market, and yes, oil prices are at all-time highs, even after adjusting for inflation. As a result, it feels like things are getting worse rapidly. But the subprime mess will end up costing much less in real terms than the savings-and-loan crisis. Americans are spending about 7% of their total budget on energy, roughly the same as in 1970 and well below the peak of 9% in 1981. Once the Fed starts to lift rates again, oil prices should drop.

Americans have had it so good, for so long, that they seem to have forgotten what government's heavy hand does to living standards and economic growth.
But the same technological innovation that is causing all this dislocation and anxiety has also created an information network that is as near to real-time as the world has ever experienced.

For example, President Bush put steel tariffs in place in March 2002. Less than two years later, in December 2003, he rescinded them. This is something most politicians don't do. But because the tariffs caused such a sharp rise in the price of steel, small and mid-size businesses complained loudly. The unintended consequences became visible to most Americans very quickly.

Decades ago the feedback mechanism was slow. The unintended consequences of the New Deal took too long to show up in the economy. As a result, by the time the pain was publicized, the connection to misguided government policy could not be made. Today, in the midst of Internet Time, this is no longer a problem. So, despite protestations from staff at the White House, most people understand that food riots in foreign lands and higher prices at U.S. grocery stores are linked to ethanol subsidies in the U.S., which have sent shock waves through the global system.

This is the good news. Policy mistakes will be ferreted out very quickly. As a result, any politician who attempts to change things will be blamed for the unintended consequences right away.

Both Mr. McCain and Mr. Obama view the world from a legislative perspective. Like the populists before them, they seem to believe that government can fix problems in the economy. They seem to believe that what the world needs is a change in the way government attacks problems and fixes the anxiety of voters. This command-and-control approach, however, forces a misallocation of resources. And in Internet Time this will become visible in almost real-time, creating real political pain for the new president.

In contrast to what some people seem to believe, having the government take over the health-care system is not change. It's just a culmination of previous moves by government. And the areas with the worst problems today are areas that have the most government interference – education, health care and energy.

The best course of action is to allow a free-market economy to reallocate resources to the place of highest returns. In the midst of all the natural change, the last thing the U.S. economy needs is more government involvement, whether it's called change or not.

Mr. Wesbury is chief economist for First Trust Portfolios, L.P.
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