AIG – A Ponzi Scheme, Endorsed and Bailed Out by Uncle Sam
AIG, of which, since the “rescue”, 80% is now owned by the Federal Reserve Bank, is a bloated, confusing, procrastinating, monstrous, liabilities-shifting, allegations-denying, catchphrase-uttering apparatus whose cracks are leaking left and right:
The dozens of insurance companies that make up the American International Group show signs of considerable weakness even after their corporate parent got the biggest bailout in history, a review of state regulatory filings shows.
Over time, the weaknesses could mean trouble for A.I.G.’s policyholders, and they raise difficult questions for regulators, who normally step in when an insurer gets into trouble. State commissioners are supposed to keep insurers from writing new policies if there is any doubt that they can cover their claims. But in A.I.G.’s case, regulators are eager for the insurers to keep writing new business, because they see it as the best hope of paying back taxpayers.
In the months since A.I.G. received its $182 billion rescue from the Treasury and the Federal Reserve, state insurance regulators have said repeatedly that its core insurance operations were sound — that the financial disaster was caused primarily by a small unit that dealt in exotic derivatives.
My comment: This sounds a lot like the early assurances that “sub-prime” was a well contained issue that will have no spill over effects to other sectors, right Mr. Bernanke? It was obviously clear to everyone that these statements from the insurance regulators were complete and utter nonsense, right?
But state regulatory filings offer a different picture. They show that A.I.G.’s individual insurance companies have been doing an unusual volume of business with each other for many years — investing in each other’s stocks; borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect.
More ominously, many of A.I.G.’s insurance companies have reduced their own exposure by sending their risks to other companies, often under the same A.I.G. umbrella.
Echoing state regulators’ statements, the company said the interdependency of its businesses posed no problem and strongly disputed that any units had obligations they could not pay.
“There is absolutely no concern about the capital in these companies,” said Rob Schimek, the chief financial officer of A.I.G.’s property and casualty insurance business. The company authorized him to speak about these issues.
My comment: If there was absolutely no concern, then why does Mr. Schimek have to assure us so vehemently? What he really means is of course “There are serious, really serious, concerns about the capital in these companies but I am hoping we can hide it for as long as I am still in charge”.
Nothing is wrong with spreading risks to other companies, a practice known as reinsurance, when it is carried out with unrelated, solvent companies. It can also be acceptable in small amounts between related companies. But A.I.G.’s companies have reinsured each other to such a large extent, experts say, that now billions of dollars worth of risks may have ended up at related companies that lack the means to cover them.
“An organization like this one relies on constant, ever-growing premium volume, so it can cover and pay for the deficits,” said W. O. Myrick, a retired chief insurance examiner for Louisiana. If A.I.G.’s incoming premiums shrink, he warned, “the whole thing’s going to collapse in on itself.”
My comment: … also known as a “Ponzi scheme”.
Mr. Myrick has not fully examined all the A.I.G. subsidiaries but said his own recent review of many state filings raised serious concerns, particularly about the use of reinsurance to “bounce things around inside the holding company group.”
“That is a method used by holding companies to falsify the liabilities,” he said.
A.I.G.’s premiums have, in fact, been declining in important lines. Its ratings have fallen, and customers tend to steer clear of lower-rated insurers. To woo them back, A.I.G. has in some cases lowered its prices, competitors say. A.I.G. executives insist they would rather lose a customer than drive down prices dangerously.
A.I.G. has also pledged a share of its life insurance premiums to the Fed, to pay back about $8 billion. Details have not been provided, but consumer advocates say it is not clear how the life companies will pay future claims if their premiums are diverted.
“Eventually, there’s going to be a battle between the policyholders and the feds,” said Thomas D. Gober, a former insurance examiner who now has his own forensic accounting firm that specializes in insurance fraud. “The Fed is going to say, ‘We want our money back,’ but the law says, ‘Policyholders come first.’ It’s going to be ugly.”
Mr. Gober is a consultant for a lawsuit on behalf of A.I.G. policyholders, filed in California Superior Court in Los Angeles. The lawsuit seeks a court order requiring all A.I.G. subsidiaries doing business in California to put enough money to cover their obligations into a secure account controlled by the state treasurer.
The goal is to keep money from being moved out of California or used to finance A.I.G.’s other activities, said Maria C. Severson, a lawyer for the plaintiffs. The lawsuit also seeks to bar A.I.G. companies from soliciting new business without full disclosure of their financial condition.
The condition of A.I.G.’s individual companies is hard to see in the parent company’s filings with the Securities and Exchange Commission. Those filings simply tally all the individual subsidiaries’ financial information.
The companies’ weaknesses emerge in their filings with state insurance regulators — particularly when several are reviewed together. But that appears not to happen often, because there are so many. A.I.G. has more than 4,000 units in more than 100 countries.
Responsibility for A.I.G.’s 71 American insurance companies is spread among 19 state insurance commissions, which do not conduct examinations simultaneously.
As a result, Mr. Myrick said, a conglomerate like A.I.G. “can keep moving assets around to clean up one company” at a time, when examiners were looking. He said that it would take a coordinated, multistate examination of all the insurance companies to catch this.
Mr. Schimek, speaking for the insurance companies, said that in 2005, a team of examiners had at least considered A.I.G.’s property and casualty businesses as a group.
“It was a thorough examination,” he said. “I have absolutely no concern about the integrity of the financial information that’s been filed under my watch.”
My comment: Translation: “I am absolutely and 100% concerned about the integrity of the financial information filed under my watch.”
State regulators confirmed that they believed the A.I.G. subsidiaries under their authority were solvent. Mike Moriarty, deputy insurance superintendent for New York State, said that while A.I.G. subsidiaries did not report all their reinsured obligations on their balances sheets, state regulators could “follow the trail of liabilities” and make sure they did not get lost in the holding company.
Obligations “can’t be hidden from state insurance regulators,” Mr. Moriarty said.
One A.I.G. subsidiary, the National Union Fire Insurance Company of Pittsburgh, shows what can happen by heavily relying on affiliates. Its most recent regulatory filing in Pennsylvania said it had more than enough money to pay its obligations.
But at the end of 2008, more than a third of National Union’s portfolio was invested in the stock of other A.I.G. companies, which are not publicly traded. National Union might not be able to sell all of these shares, and it is not clear what it could get for them. Many states bar insurers from investing that heavily in related companies.
Meanwhile, National Union has $42.1 billion in obligations looming off its balance sheet. These have been transferred to 56 other A.I.G. companies, through reinsurance. National Union will have to pay any of these claims and then collect from its relatives.
But it is not clear that the affiliates could pay promptly. National Union’s biggest reinsurance partner is American Home Assurance, an A.I.G. subsidiary that has taken $23.1 billion of obligations off National Union’s hands. In a New York filing, American Home reports total assets of $26.3 billion, but part of that consists of assets that cannot be used to pay claims, like furniture. It too includes a number of investments in other A.I.G. companies.
My comment: This is, by and large, one of those cascading dependencies that I was talking about in Inflation & Deflation Revisited:
The US economy has been at the center of a worldwide network of such cascading credit relationships. Central banks loaned fiat money to fractional reserve banks, those would pass it on to financial institutions which would make it available as wholesale mortgages, individual mortgage banks would take those on and make loans to homebuyers. Insurance companies would insure one or the other loan in the chain and again consider the insurance policy as good as money, using it as collateral to obtain … more credit.
Everyone insures everyone and everyone thinks everything is fine. In the meantime the money has been squandered and it will come back to haunt everyone once everyone wants to see real cash.
In addition, American Home has “unconditionally” guaranteed the obligations of 16 other A.I.G. subsidiaries, bringing the total it might have to pay to $140.6 billion.
Normally, when an insurance company weakens, regulators in its home state will first measure its capital. They may demand a weak company rebuild its capital, and if it fails, eventually bar it from selling new policies.
Like New York regulators, Pennsylvania regulators say they do not see a problem. “The insurance companies remain strong and are probably the most valuable assets within the A.I.G. structure,” said Joel Ario, Pennsylvania’s insurance commissioner. “To the best we know it, we think the companies are sound.”
My comment: Haha, well put, commissioner! Such a statement requires no further comment.
But policyholder advocates said they feared state regulators were deferring to the wishes of the Fed and Treasury, to use the insurance operations to pay back the taxpayers.
“The insurance commissioners, for whatever reason, are letting them do this,” Mr. Myrick said. “I’d be jumping out of my shoes.”
Taxpayers won’t see their money back. Why would they?? The very purpose of corporate bailouts is to rip him off! It is what we already realized months ago: Sinking Money Down a Hole.
The government should have let AIG go bankrupt right then and there. Now the Fed is stuck with a huge non-performing asset that will be worth a tiny fraction of what they paid. Who knows, most likely the obligations to policy holders will be worth much more than what was acquired, in which case the value of assets held is less than zero. The oh so “independent” Fed just needs to assure us one thing: Don’t you dare come to the taxpayer and have the Treasury reimburse you for the losses you will suffer and probably have already suffered from this hideous acquisition of AIG!
Ron Paul on Audit the Fed – What Are They So Afraid Of?
Well overdue: Ron Paul takes 5 minutes to completely crush every single one of Bernanke’s and his supporters’ rubbish arguments against auditing the Fed.
I say Ron Paul should offer Ben Bernanke one last chance: a public debate. He can take it and convince us how right he is, or decline and shut up once and for all.
New Bank Bonus Releases – Heads: Bankers Win, Tails : Taxpayers Lose
And more unsurprising news on the TARP front. Cuomo releases ugly details on bank bonuses:
NY Attorney General Andrew Cuomo released his report on bonuses at the TARP Top 9. At these firms alone, over 800 people made north of $3 million in 2008. That’s a lot of scharole. See Appendix B for the bonus breakdown at each bank.
The key info is in one particular table, however:
(Click to enlarge in new window)
The columns to the right list the number of employees that received bonuses in excess of $3 mil/$2 mil/ $1 mil.
Banks that are still sitting on their TARP money (Citi, BofA, Wells among them) have no business paying out big bonuses before paying back the government. For that matter, neither do the others, who all continue to benefit from FDIC guarantees on debt and Fed lending facilities through which they’ve traded toxic loans in exchange for perfectly liquid Treasuries. They can use the Treasuries for repo collateral, get cash and then put that on deposit at the Fed where they now get paid interest on their excess reserves. It’s a great scam. One that feeds lots of cash into the 2009 bonus pool.
And GazetteOnline writes:
Citigroup Inc., one of the biggest recipients of government bailout money, gave employees $5.33 billion in bonuses for 2008, New York’s attorney general said Thursday in a report detailing the payouts by nine big banks.
The report from Attorney General Andrew Cuomo’s office focused on 2008 bonuses paid to the initial nine banks that received loans under the government’s Troubled Asset Relief Program last fall. Cuomo has joined other government officials in criticizing the banks for paying out big bonuses while accepting taxpayer money.
Comparisons to historical payouts weren’t available, as the banks are not required to disclose the information publicly. They provided 2008 details to Cuomo’s office under subpoena.
Cuomo’s office found that the companies, which also included Bank of America Corp., Merrill Lynch & Co., JPMorgan Chase & Co. and Goldman Sachs Group Inc., awarded nearly 4,800 million-dollar-plus bonuses, with much of the money going to Wall Street investment bankers.
Citigroup, which is now one-third owned by the government as a result of the bailout, gave 738 of its employees bonuses of at least $1 million, even after it lost $18.7 billion during the year, Cuomo’s office said. The bank’s top four recipients received a combined $43.7 million.
The New York-based bank received $45 billion in government money and guarantees to protect it against hundreds of billions of dollars on potential losses from risky investments.
“There is no clear rhyme or reason to the way banks compensate and reward their employees,” Cuomo said in the report, noting banks have not in recent years actually tied pay to performance as they claim when describing their compensation programs. Cuomo added that when banks’ performance deteriorated significantly, “they were bailed out by taxpayers and their employees were still paid well.”
Bank of America, which also received $45 billion in TARP money, paid $3.3 billion in bonuses, with 172 employees receiving at least $1 million and the top four recipients receiving a combined $64 million. Merrill Lynch, which Charlotte, N.C.-based Bank of America acquired during the credit crisis, paid out $3.6 billion, including a combined $121 million to four top employees.
Bank of America earned $2.56 billion in 2008, while Merrill lost $30.48 billion. Cuomo’s office said Merrill Lynch doled out 696 bonuses of at least $1 million for 2008.
Bank of America has been sharply criticized for its acquisition of Merrill Lynch because of mounting losses at the Wall Street bank and the size of bonuses Merrill paid its employees. Of the $45 billion in bailout funds Bank of America received, $20 billion was to support the acquisition of Merrill. Neither Bank of America nor Citigroup have repaid their TARP loans.
A Bank of America spokesman declined to comment on the report. A spokesman for Citigroup did not return repeated calls for comment.
The truth is: The public has no business discussing and quarreling about how much banks decide to pay their employees in bonuses. Legislators had the choice to unconditionally reject the TARP bailout ripoff. Many tried to talks sense into people. They didn’t listen. They rewarded companies whose financial irresponsibility led them to collapse, so they could continue their adventures in screw-up land. What did they expect to see happen? Now these clowns are running around, trying to find scapegoats for their own incompetence and cluelessness. What a circus!
Paola Sapienza and Luigi Zingales appropriately call for the government to Stop Subsidizing the Street:
The word for “crisis” in Chinese, weiji, is written with two characters: one (wei) means danger; the other, ji, means opportunity. That’s because every crisis challenges the status quo and in so doing creates the opportunity for something new to emerge. “This process of Creative Destruction,” wrote economist Joseph Schumpeter, “is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.”
We have experienced the destruction wrought by the financial crisis. Now it’s time to focus on the opportunities it brings. The first place to look is the site of the greatest destruction: the banking sector. While finance will remain a pillar of a well-functioning economy, it’s unlikely that banking will survive for long in its current form. The current banking model is broken. Citigroup has been on the verge of failing in three of the last four downturns: This is hardly a viable business model.
Even more important is that Americans are rapidly losing trust in their banks. A survey we conducted at the end of March showed that only 29% of Americans trusted banks, down from 34% three months earlier and 42% a year ago. Twenty percent of respondents felt that a bank had cheated or misled them in the previous 12 months, while 10% had withdrawn their FDIC-insured deposits and squirreled away the cash. The word “credit,” speaking of telling etymologies, comes from the Latin credere, which means “to trust.” Trust is essential in banking, and it’s unlikely that banks can restore it. It’s always difficult to regain trust; it’s easier to start anew.
Luckily, starting anew is exactly what’s happening in the banking sector, with the launch of several start-ups with innovative ideas. They range from new ways to insure mortgages to new models of lending to reliable consumers by bypassing the current banking system. Many others, such as Lending Club and Prosper, are popping up on the Internet, letting investors, rather than credit officers, decide who is creditworthy. It’s too early to tell if these attempts will succeed, but it’s vital that they occur. Through trial and error, a new world of banking will rise from the ashes of the old one.
Should the government subsidize these efforts? In a New York Times column this spring, Tom Friedman said yes, suggesting that it should dedicate a fraction of the Troubled Asset Relief Program (TARP) money to promote innovation. Fortunately, several venture capitalists have rejected the idea online, and with good reason: The government’s record as a venture capitalist is rather poor.
Nevertheless, the government can foster the new and innovative in a crucial way: by ceasing to subsidize the banking dinosaurs. The evidence shows that subsidies to failing companies not only waste resources in keeping obsolete and inefficient firms alive, but also delay the entry of new and more efficient organizational models.
TARP was sold as a way to keep credit flowing, but it could wind up delaying the success of new ventures that could help revive credit in the economy. For finance to begin allocating resources efficiently again, the government must stop propping up Wall Street.
Audit the Fed – 75% in Favor – Time to Push Senate Bill
According to a recent Rasmussen poll, 75% support efforts to Audit the Fed:
So much for the ongoing secrecy of the nation’s independent central banking system. A new Rasmussen Reports national telephone survey finds that 75% of Americans favor auditing the Federal Reserve and making the results available to the public.
Just nine percent (9%) of adults think that’s a bad idea and oppose it. Fifteen percent (15%) aren’t sure.
Over half the members of the House now support a bill giving the Government Accounting Office, Congress’ investigative agency, the authorization to audit the books of the Federal Reserve Board.
This is great momentum. People aren’t buying Bernanke’s nonsense. But then, why should they? He has been consistently wrong on everything he said:
The new, opposite video is a compilation of the 2005–2007 prognostications of Federal Reserve Chairman Ben Bernanke. In it, Bernanke is shown to have been just as embarrassingly wrong as Schiff was uncannily right.
Could their differences in economic understanding have anything to do with this remarkable dichotomy? I have transcribed most of the video, and offer my own comments interspersed with it.
July 2005
INTERVIEWER: Ben, there’s been a lot of talk about a housing bubble, particularly, you know [inaudible] from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?
BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it’s important to note that fundamentals are also very strong. We’ve got a growing economy, jobs, incomes. We’ve got very low mortgage rates. We’ve got demographics supporting housing growth. We’ve got restricted supply in some places. So it’s certainly understandable that prices would go up some. I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.
This is not only wrong in hindsight; it’s a complete misunderstanding of the issue. Bernanke said that the housing boom was fine because it was supported by, among other things, growth in jobs, incomes, and in the economy in general. But that very growth itself was supported by the housing boom! For example, most of the job growth was in the housing sector. Witness Bernanke’s amazing levitating economy: its housing sector is held up by economic growth, which is held up by its housing sector. And it’s just as ridiculous that he denied the existence of a housing bubble by pointing to low mortgage rates. The low rates were a chief cause of the housing bubble, and were a direct result of his actions as Federal Reserve chairman.
July 2005
INTERVIEWER: Tell me, what is the worst-case scenario? Sir, we have so many economists coming on our air and saying, “Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.” Some say it could even cause a recession at some point. What is the worst-case scenario, if in fact we were to see prices come down substantially across the country?
BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don’t think it’s going to drive the economy too far from its full employment path, though.
As Peter Schiff pointed out in his speech “Why the Meltdown Should Have Surprised No One,” while it is true that up until the housing crash, house prices hadn’t gone down on a nationwide basis, it’s also true that they had never risen so precipitously before either. Bernanke’s argument is akin to getting someone drunk for the first time, putting them in a car, and then saying, “He’ll be fine; he’s never been in a car accident before.”
That interview continued:
INTERVIEWER: So would you agree with Alan Greenspan’s comments recently that we’ve got some areas of that country that are seeing froth, not necessarily a national situation, but certainly froth in some areas?
BERNANKE: You can see some types of speculation: investors turning over condos quickly. Those sorts of things you see in some local areas. I’m hopeful — I’m confident, in fact, that the bank regulators will pay close attention to the kinds of loans that are being made, and make sure that underwriting is done right. But I do think this is mostly a localized problem, and not something that’s going to affect the national economy.
Bernanke’s Fed itself created the false signals that led to vast disruptions in the housing market. Speculators try to see through those disruptions and anticipate how prices will change as valuation mistakes are corrected in order to profit from them. In fact, their speculation is part of the correction process. If their speculation is on the mark, it speeds up the price-correction process. If it’s wrong, then the consequences are on their heads. Speculation is nothing but high-uncertainty entrepreneurship; and entrepreneurship is how optimal prices are found and markets clear. It was the Fed under Bernanke himself, and his predecessor Alan Greenspan, that created the price disruption and high uncertainty that made speculation profitable in the first place.
November 2006
BERNANKE: This scenario envisions that consumer spending, supported by rising incomes and the recent decline in energy prices, will continue to grow near its trend rate and that the drag on the economy from the [inaudible] housing sector will gradually diminish. The motor vehicles sector may already be showing signs of strengthening. After having cut production significantly in recent months, in response to the rise in inventory of unsold vehicles, automakers appear to have boosted the assembly rate a bit in November, and they have scheduled further increases for December. The effects of the housing correction on real economic activity are likely to persist into next year, as I’ve already noted. But the rate of decline in home construction should slow as the inventory of unsold new homes is gradually worked down.
Here we have the Keynesian fallacy (which I have written about here) that consumer spending, in and of itself, creates general increases in wealth. And note the irony in Bernanke applauding the boost in automotive production: the products accumulated during that boost turned out just to be more malinvestment to be liquidated or bailed out when Chrysler and GM collapsed.
February 2007
BERNANKE: We expect moderate growth going forward. We believe that if the housing sector begins to stabilize, and if some of the inventory corrections still going on in manufacturing begin to be completed, that there’s a reasonable possibility that we’ll see some strengthening in the economy sometime during the middle of the new year.
Our assessment is that there’s not much indication at this point that subprime mortgage issues have spread into the broader mortgage market, which still seems to be healthy. And the lending side of that still seems to be healthy.
For Bernanke, healthy lending is the same thing as “a lot of lending.” This dovetails with his statement in the first interview, hailing low mortgage rates as a self-evidently good thing. He has no conception of an equilibrium interest rate determined by society’s average time preference, so bubbles will always surprise him. For more on this calamitous gap in Bernanke’s understanding, see “Manipulating the Interest Rate: a Recipe for Disaster” by Thorsten Polleit.
July 2007
BERNANKE: The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards, and the recent increase in mortgage interest rates. Sales should ultimately be supported by growth in income and employment, as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms. However, even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further, as builders work down the stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth in coming quarters, although the magnitude of the drag on growth should diminish over time. The global economy continues to be strong, supported by solid economic growth abroad. U.S. exports should expand further in coming quarters. Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.
Strengthening in 2008? Perhaps the biggest confirmation ever of Rockwell’s Law: always believe the opposite of what government officials tell you.
Bernanke’s own words, in light of how the crisis developed, are a testament to much more than his own personal failings as a forecaster and policy maker. They demonstrate the complete inadequacy of mainstream macroeconomics in its present state, devoid as it is of the essential insights of the Austrian School. They also reveal the folly of the very idea of giving a single man and his institution the power to centrally plan the most important price in the economy: the rate of interest. Make no mistake: the present economic crisis was brought on by central planning. It is unsettling to think that the fellow in the new video who so badly misread an economy on the brink is arguably the most powerful central planner in the world.
But even the most powerful and sequestered bureaucrat is not completely invulnerable. The Federal Reserve Transparency Act and the End the Fed movement have ruffled the Fed’s feathers enough that Bernanke actually felt the need to address the public in a “townhall forum” to be broadcast on the News Hour. According to NPR,
after the forum was over, a Fed employee passed out souvenirs, an unintended metaphor perhaps for what some fear Bernanke’s aggressive policies may eventually do to the currency: shredded cash.
The Fed employee, who apparently suffers from a defective sense of irony, was even recorded saying, “Here, you want money?” and, “Here’s some free shred folks, thanks for coming by, we appreciate it,”
No, no, thank you and your boss, Mr. Fed employee. Within the space of days, we’ve been provided, courtesy of the Fed itself, with footage that perfectly distills the complete failure of Fed forecasting and planning, and audio that encapsulates splendidly the only thing that the Fed actually accomplishes: the destruction of money.
Everyone can do their part to put an end to this shenanigans: Support the Audit the Fed Bill in the House of Reperesentatives.
But now it’s also time to Push the corresponding Senate bill, S604. Without it, all efforts in the House are futile. Momentum is building, the Senators will listen if their offices are flooded with faxes and calls:
Start your phone tree to call the committee to support the bill.
http://banking.senate.gov…?
Link to bill info:
http://thomas.loc.gov/cgi…# Denotes on Banking Committee!
~ Denotes up for reelection!Graph of S604 by 95687-for-rp:
http://spreadsheets.googl…SPONSOR: SANDERS, BERNARD (I – VT) 202 224 – 5141
CO-SPONSORS
Sen DeMint, Jim [SC] – 6/11/2009
Sen Vitter, David [LA] – 6/16/2009
Sen Crapo, Mike [ID] – 6/25/2009
Sen Isakson, Johnny [GA] – 7/8/2009
Sen Chambliss, Saxby [GA] – 7/8/2009
Sen Brownback, Sam [KS] – 7/8/2009
Sen Inhofe, James M. [OK] – 7/9/2009
Sen Burr, Richard [NC] – 7/9/2009
Sen Feingold, Russell D. [WI] – 7/15/2009
Sen Lincoln, Blanche L. [AR] – 7/15/2009
Sen McCain, John [AZ] – 7/15/2009
Sen Bennett, Robert F. [UT] – 7/15/2009
Sen Barrasso, John [WY] – 7/15/2009
Sen Harkin, Tom [IA] – 7/20/2009
Sen Hutchison, Kay Bailey [TX] – 7/20/2009
Sen Cornyn, John [TX] – 7/20/2009
Sen Coburn, Tom [OK] – 7/20/2009
Sen Hatch, Orrin G. [UT] – 7/24/2009
Sen Graham, Lindsey [SC] – 7/24/2009
Sen Cardin, Benjamin L. [MD] – 7/28/2009SENATOR – position on S604
#Akaka, Daniel K (D-HI)202-224-6361fax:202-224-2126 – neutral
Alexander, Lamar (R – TN) 202 224-4944 – neutral
Baucus, Max (D – MT) 202 224-2651 – neutral
~#Bayh, Evan (D – IN) 202 224-5623 fax: 202-228-1377
Begich, Mark (D – AK) 202 224-3004 – unknown
~#Bennet,Michael (D – CO)202-224-5852fax:202-228-5036
Bingaman, Jeff (D – M) 202 224-5521- neutral
~Bond, Christopher S.(R – MO) 202 224-5721-neutral
~Boxer, Barbara (D – CA) 202-224-3553
#Brown, Sherrod (D-OH)202-224-2315fax:202-228-6321 – neutral
~#Bunning, Jim(R-KY)202-224-4343fax:202-228-1373 – supportive
~Burris, Roland W (D – IL) 202 224-2854 – neutral
Byrd, Robert C.(D – WV) 202 224-3954 – neutral
Cantwell, Maria (D – WA) 202 224-3441 – neutral
Carper, Thomas R (D – DE) 202 224-2441 – unknown
Casey, Robert P. Jr (D – PA) 202 224-6324 – neutral
Cochran, Thad(R – MS) 202 224-5054 – unknown
Collins, Susan M.(R – ME) 202 224-2523 – neutral
Conrad, Kent (D – ND) 202 224-2043 – unknown
#Corker, Bob (R-TN)202-224-3344 fax: 202-228-0566 – neutral
~#Dodd, Chris J(D-CT)Chairman202-224-2823f:202-224-1083
~Dorgan, Byron L (D – ND) 202 224-2551
Durbin, Richard J (D – IL) 202 224-2152
Ensign, John (R – NV) 202 224-6244
Enzi, Michael B (R – WY) 202 224-3424
Feinstein, Dianne (D – CA) 202 224-3841
Franken, Al (D-MN) 202-224-5641
Gillibrand, Kirsten E (D – NY) 202 224-4451
~Grassley, Chuck (R – IA) 202 224-3744
~Gregg, Judd (R – NH) 202 224-3324
Hagan, Kay R (D – NC) 202 224-6342
~Inouye, Daniel K (D – HI) 202 224-3934
#Johanns, Mike (R – NE) 202 224-4224 fax: 202-228-0436
#Johnson, Tim (D-SD) 202 224-5842 fax: 202-228-5765
Kaufman, Edward E (D-DE) 202 224-5042
Kennedy, Edward M (D-MA) 202 224-4543
Kerry, John F (D-MA) 202 224-2742
Klobuchar, Amy (D-MN) 202 224-3244
#Kohl,Herb (D-WI) 202 224-5653 fax: 202-224-9787
Kyl, Jon (R – AZ) 202 224-4521
Landrieu, Mary L 202 224-5824
Lautenberg, Frank R (D – NJ) 202 224-3224
~Leahy, Patrick J (D – VT) 202 224-4242
Levin, Carl (D – MI) 202 224-6221
Lieberman, Joseph I (ID – CT) 202 224-4041
~Lincoln, Blanche L (D – AR) 202 224-4843
Lugar, Richard G (R – IN) 202 224-4814
~#Martinez, Mel (R-FL) 202224-3041 f:202-228-5171
~McCain, John (R – AZ) 202 224-2235
McCaskill, Claire (D – MO) 202 224-6154
McConnell, Mitch (R – KY) 202 224-2541
#Menendez, Robert (D-NJ) 202-224-4744 fax: 202-228-2197
#Merkley, Jeff (D – OR) 202 224-3753 fax: 202-228-3997
~Mikulski, Barbara A (D – MD) 202 224-4654
~Murkowski, Lisa (R – AK) 202 224-6665
~Murray, Patty (D – WA) 202 224-2621
Nelson, Ben (D – NE) 202 224-6551
Nelson, Bill (D – FL) 202 224-5274
Pryor, Mark L (D – AR) 202 224-2353
#Reed, Jack (D – RI) 202 224-4642 fax: 202-224-4680
~Reid, Harry (D – NV) 202 224-3542
Risch, James E. (R – ID) 202 224-2752
Roberts, Pat (R – KS) 202 224-4774
Rockefeller, John D IV (D – WV) 202 224-6472
~#Schumer, Charles E (D-NY) 202 224-6542 fax: 202-228-3027
Sessions, Jeff (R – AL) 202 224-4124
Shaheen, Jeanne (D – NH) 202 224-2841
~#Shelby, Richard C(R-AL)Ranking Member202 224-5744fax: 202-224-3416
Snowe, Olympia J (R – ME) 202 224-5344
~Specter, Arlen (D – PA) 202 224-4254
Stabenow, Debbie (D – MI) 202 224-4822
#Tester, Jon (D-MT) 202 224-2644 fax: 202-224-8594 t
~Thune, John (R – SD) 202 224-2321
Udall, Mark (D – CO) 202 224-5941
Udall, Tom (D – NM) 202 224-6621
~Voinovich, George V (R – OH) 202 224-3353
#Warner, Mark R (D – VA) 202 224-2023 fax: 202-224-6295
Webb, Jim (D – VA) 202 224-4024
Whitehouse, Sheldon (D – RI) 202 224-2921
Wicker, Roger F (R – MS) 202 224-6253
~Wyden, Ron (D – OR) 202 224-5244{My script was as follows:
Hi, How are you. My name is: … from city, state. I’m calling Senator … to urge him/her to support S 604 Federal Reserve Sunshine Act of 2009.
Remember to stay polite above all else. You’ll get more bees with honey than vinegar. Plus, a friendly face to face meeting goes a long ways. Act just like a professional lobbyist would. Our mission is to sell S604.}Post from Liberty_Mike with complete addresses
http://www.dailypaul.com/…Updated with the fax numbers thanks to Qwerk
Updated with election cycle thanks to cactus1010
Deflation Continues in Germany
Deflation is and has been a global phenomenon for a while now. Germany, too, is not exempt from it:
Consumer prices in Germany, Europe’s biggest economy, posted their first annual decline in 22 years this month largely as a result of lower oil prices, preliminary government data showed Wednesday.
Prices were down 0.6 percent on the year in July — the first fall since March 1987, when they declined by 0.3 percent, the Federal Statistical Office said.
It said the decline was fueled by sharp year-on-year declines in energy and fuel prices, which peaked in July 2008.
Germany’s inflation rate hit zero in May and edged up to 0.1 percent last month. Several other European Union nations have reported a fall in prices this year.
Contrary to what the article goes on to assert, deflation is of course a desirable phenomenon that restores balance and sanity.
As I explained recently, regarding deflation in Japan:
Two fallacies in common reports in the media:
1. That there is a possibility of an impending deflation. – The truth is: Deflation is here and now, has been for a while, and will be for a while.
2. That we have to “fear” deflation. – The truth is: Deflation is a good thing, as I pointed out a couple of times:
Deflation is in essence a correction of the previous misallocations created by inflation.
What turns deflation into a bad thing? When the government tries to stave it off by spending billions and trillions of dollars, thus prolongs the correction, continues the misallocations, and increases the debt burden on the taxpayers. If you want to get an idea of the long term outlook for the US economy, look at Japan. The credit and stock bubble there burst in 1989, and has been deflating on and off since then.
California Budget – Schwarzenegger Cuts Another $500 Million
Governor Schwarzenegger used the line item veto to slash the bloated California budget by another $500 million:
Gov. Arnold Schwarzenegger on Tuesday signed a budget plan sent to him by lawmakers to close the state’s monumental deficit, using his veto pen to impose nearly $500 million in additional cuts.
The new reductions will affect child welfare and children’s healthcare, the elderly, state parks and AIDS treatment and prevention, going beyond the dramatic cuts that were part of the deal Schwarzenegger negotiated with legislative leaders.
Democratic leaders in the Assembly and Senate reacted angrily to his use of the line-item veto, disputing the Republican governor’s authority to wield that power in this situation and portraying him as callous.
Schwarzenegger’s aides said the cuts were proper, and the governor said they were necessary.
“This has been a very tough budget, probably the toughest since I have been in office here in Sacramento,” Schwarzenegger said. “This budget is kind of like the good, the bad and the ugly.”
The good, the governor said, is that the plan does not raise taxes and includes changes he says will make government more efficient, such as reorganizing and abolishing some boards and commissions.
The bad are the deep cuts to state programs that will touch millions of Californians, particularly its most vulnerable citizens, he said.
The ugly, Schwarzenegger added, are the new reductions he made because lawmakers left town after failing to fully close the state’s deficit.
The Assembly on Friday capped a 20-hour session by rejecting provisions worth $1.1 billion that had been agreed to by the governor and legislative leaders.
The extra cuts the governor made Tuesday — $489 million — took nearly $80 million that pays for workers who help abused and neglected children; $50 million from Healthy Families, which provides healthcare to children in low-income families; $50 million from services for developmentally delayed children under age 3; $16 million from domestic-violence programs; and $6.3 million from services for the elderly. Among other reductions was $6.2 million more from parks, which could result in the closure of 100, rather than 50, of California’s 279 state parks.
In addition, Schwarzenegger effectively gutted a program that provides local governments with funding to encourage property owners to preserve open space and to use land for agriculture.
Ted Lempert, president of Children Now, an advocacy group, called the cut to Healthy Families “particularly galling.” He said a coalition, including his group, is spearheading a campaign to put a universal children’s healthcare measure on the fall 2010 ballot.
“A struggling family puts their kids first,” Lempert said. “What the governor and what the state has done is the opposite.”
Assembly Speaker Karen Bass (D-Los Angeles) and Senate leader Darrell Steinberg (D-Sacramento), in questioning the legality of Schwarzenegger’s moves, suggested that the governor’s veto power can be used only on original appropriations. The new spending plan is a revision of a budget Schwarzenegger and lawmakers ratified in February.
Both leaders said they would attempt to restore the cuts when they return from recess, in mid-August, and Bass said she would seek an opinion from the Legislature’s legal office.
In a long and harsh statement to the media, Bass called the governor “so eager to tear down the safety net that he appears willing to break the law to do it.” She faulted Schwarzenegger for rejecting taxes that Democrats proposed on “big oil and big tobacco” and instead attacking “the sick, the young, the elderly and battered women.”
In response, Schwarzenegger’s aides said Bass and the Assembly had forced his hand.
“The governor understands how difficult these cuts are,” said his spokesman, Aaron McLear. “But because the speaker sent him an unbalanced budget, he had no choice but to make these cuts.”
Assembly lawmakers turned down a plan to seize $1 billion in gas tax money that belongs to local governments and rejected a new offshore oil drilling project that could have produced $100 million in royalties.
The Senate approved the entire budget deal, including those measures, early Friday morning.
By killing the two proposals, lawmakers wiped out a reserve fund the governor has insisted upon to cushion future shortfalls. His aides said the cuts announced Tuesday would allow the state to put aside $500 million.
Even as he signed the plan, Schwarzenegger warned that the state’s troubles were not over. Finance officials are already predicting future deficits, and the governor said he was ready, “if our revenues drop further, to make the necessary cuts and live within our means.”
Overall, the new budget is expected to fundamentally alter life for many Californians, with reductions to K-12 education, state colleges and universities, healthcare and public assistance for the elderly and the poor.
It appropriates billions of dollars from local governments, which could force cities and counties to further reduce their own spending on roads, law enforcement and other services.
The package was approved to address a deficit that administration officials previously projected at $26.3 billion. Schwarzenegger’s aides now say that, although the budget plan contains $24 billion in solutions, it will close the entire shortfall because of changing revenue forecasts, a recalibration of education funding formulas and a decision to reduce the reserve fund.
The plan’s cuts, accounting maneuvers and other measures should soon enable California to resume paying all of its bills again. From July 2 until the end of the day Monday, the state had issued 209,219 IOUs worth $1.09 billion, according to Garin Casaleggio of the state controller’s office.
The state’s credit rating has declined to nearly junk status after two months during which elected officials could not agree on how to resolve the crisis.
I agree that the budget is a lot like the good, the bad, and the ugly. But in a different way:
The good: No more taxes for now.
The bad: No tax cuts.
The ugly: The tax hikes that will follow sooner or later if the budget is not slashed further.
The US Health Care Myth
A refreshing piece by Shikha Dalmia that echoes exactly what I keep on saying, The Myth Of Free Market Health Care In America:
ObamaCare is in retreat. That much was clear the moment the president started springing B-grade Hollywood references to “blue pills and red pills” in its defense during his news conference last week. But before ObamaCare can be beaten back decisively, its critics need to answer this question: How did his plan for a government takeover of roughly a fifth of the U.S. economy get this far in the first place?
The answer is not that Democrats have a lock on Washington right now–although they do. Nor that Republicans are intellectually bereft–although they are. The answer is that both ObamaCare’s supporters and opponents believe that–unlike Europe–America has something called a free market health care system. So long as this myth holds sway, it will be exceedingly difficult to prescribe free market fixes to America’s health care woes–or, conversely, end the lure of big government remedies.
The fact of the matter is that America’s health care system is like a free market in the same way that Madonna is like a virgin–i.e. in fiction only. If anything, the U.S. system has many more similarities than differences with France and Germany. The only big outlier among European nations is England, which, even in a post-communist world, has managed the impressive feat of hanging on to a socialized, single-payer model. This means that the U.K. government doesn’t just pay for medical services but actually owns and operates the hospitals that provide them. English doctors are government employees!
But apart from England, most European countries have a public-private blend, not unlike what we have in the U.S.
The major difference between America and Europe of course is that America does not guarantee universal health insurance whereas Europe does. But this is not as big a deal as it might seem. Uncle Sam, along with state governments, still picks up nearly half of the country’s $2.5 trillion annual health care tab.
More importantly, contrary to popular mythology, America does offer public care of sorts. It directly covers about a third of all Americans through Medicare (the public program for the elderly) and Medicaid (the public program for the poor). But it also indirectly covers the uninsured by–at least in part–paying for their emergency care. In effect, anyone in America who does not have private insurance is on the government dole in one way or another.
This is not radically different from France, where the government offers everyone basic public coverage, of course–but a whopping 90% of the French also buy supplemental private insurance to help pay for the 20% to 40% of their tab that the public plan doesn’t cover.
Meanwhile, in Germany, about 12.5% of Germans who are civil employees or above a certain income opt out of the public system altogether and rely solely on private coverage–even though they know it is well nigh impossible to return to the public system once they switch. And more Germans likely would go private if they were not legally banned from doing so.
The most striking similarity between America, France and Germany, however, is the model of “insurance” upon which their health care systems are based. In other insurance markets, the more coverage you want, the more you have to pay for it. Consider auto insurance, for instance. If you want everything–from oil changes to collision protection–you’d have to pay more than someone who wants just basic collision protection. That’s not how it works in health care.
For the same flat fee–regardless of whether it is paid for primarily through taxes as in France in Germany or through lost wages as in America–patients in all three countries effectively get an ATM card on which they can expense everything (barring co-pays) regardless of what the final tab adds up to. (Catastrophic coverage plans are available in America, but the market is extremely limited for a number of reasons, including the fact that most states have issued Patients Bill of Rights mandating all kinds of fancy benefits even in basic plans.)
Thus, in neither country do patients have much incentive to restrain consumption or shop for cheaper providers. In America and Germany, patients don’t even know how much most medical services cost. In France, patients know the prices because they have to pay up front and get reimbursed by their insurer later–a lame attempt to ensure some price consciousness. But since there is no cap on the reimbursed amount, the French sometimes shop for doctors based on such things as office decor rather than prices, according to a study by David Green and Benedict Irvine, researchers at Civitas, a London-based think tank. (Green and Irvine reported this as a good thing.)
So what are the consequences of this “insurance” model and how are the three countries coping with it?
America, as Obama continuously reminds us, spends 16% of its gross domestic product on health care–the highest percentage in the world. If current trends persist, in 75 years health care will consume about 50% of the GDP–and all of the federal budget. But France is not doing a whole lot better. Its health care system is the third most expensive in the world with over 11% of its GDP going toward health care–nearly three times more than the amount in 1960. The French fork over more than 20% of their income in taxes for public coverage (and another 2.5% to purchase supplemental private coverage)–yet their public program suffers from chronic deficits. Germany, similarly, spends about 11% of its GDP on health care with Germans contributing more than 15% of their income toward buying health care.
If France and Germany are not spending even more on health care, one big reason is rationing. Universal health care advocates pretend that there is no rationing in France and Germany because these countries don’t have long waiting lines for MRIs, surgical procedures and other medical services as in England and Canada. And patients have more or less unrestricted access to specialists.
But it is unclear how long this will last. Struggling with exploding costs, the French government has tried several times–only to back off in the face of a public outcry–to prod doctors into using only standardized treatments. In 1994, it started imposing fines of up to roughly $4,000 on doctors who deviated from “mandatory practice guidelines.” It switched from this “sticks” to a “carrots” approach four years later, and tried handing bonuses to doctors who adhered to the guidelines.
Meanwhile, in Germany, “sickness funds”–the equivalent of insurance companies–have imposed strict budgets on doctors for prescription drugs. Doctors who exceed their cap are simply denied reimbursement, something that forces them to prescribe less effective invasive procedures for problems that would have been better treated with drugs. But the most potent form of rationing in France and Germany–and indeed much of Europe–is not overt, but covert: delayed access to cutting-edge drugs and therapies that become available to American patients years in advance.
The point is that there is no health care model, whether privately or publicly financed, that can offer unlimited access to medical services while containing costs. Ultimately, such a model arrives at a cross roads where it has to either limit access in an arbitrary way, or face uncontrolled cost increases. France and Germany, which are mostly publicly funded, are increasingly marching down the first road. America, which is half publicly and half privately funded, has so far taken the second path. Should America offer even more people such unlimited access through universal coverage, it too will end up rationing care or facing national bankruptcy.
The only sustainable system that avoids this Hobson’s choice is one that is based on a genuine free market in which there is some connection between what patients pay for coverage and the services they receive. That is emphatically not what America or any Western country has today. Looking to these countries for solutions as Obama and other advocates of universal health coverage are doing will lead to false diagnoses and false cures.
Home Prices – May 2009 – Beginning to Bottom Out?
Click image to enlarge.
On an annualized basis, overall home prices are down 16.83%. But compared to April they actually went up in May, by 0.44%. This is the first time since June 2006 that composite home prices have not posted a monthly drop.
Cities which still posted monthly declines were Phoenix, Los Angeles, Miami, Las Vegas, and Seattle. In all other major cities prices actually jumped up:
Top 3 monthly jumps:
1. Cleveland, OH: 4.12%
2. Dallas, TX: 1.88%
3. Boston, MA: 1.58%
Where prices still declined, the top 3 declines were as follows:
1. Las Vegas, NV: -2.58%
2. Phoenix, AZ: -0.85%
3. Miami, FL: -0.81%
Top 3 annual declines:
1. Phoenix, AZ: -34.17%
2. Las Vegas, NV: -32.01%
3. San Francisco: -26.15%
After 3 years, this is the first sign that home prices may be beginning to bottom out. It shall be pointed out that residential homes were the first asset class to fall, way ahead of everything else hit by the financial crisis. Thus it is just as likely that they will be among the first assets to bottom out while others continue to decline.
What remains to be seen is how the wave of foreclosures that has been paused via moratoria, will play out once it comes full circle.
The Effects of Different Minimum Wages in Different States
The latest minimum wage map from the DOL website shows us the following:
Minimum Wage Laws in the States – July 24, 2009
Note: Where Federal and state law have different minimum wage rates, the higher standard applies.
States with minimum wage rates higher than the Federal States with no minimum wage law States with minimum wage rates the same as the Federal States with minimum wage rates lower than the Federal American Samoa has special minimum wage rates
As I outlined recently, minimum wage laws create unemployment if the wage is fixed above the market wage.
Expect those states with minimum wages above the federal level (green) to experience problems with their minimum wage legislation sooner or later. That portion of unemployment which is to be imputed upon minimum wage laws will be significantly higher there. Thus overall unemployment is likely to be sustained at much higher levels there. We may see a noticeable exodus of workers from those green states to some of the red, blue, or yellow states over time.
SEC Ban on Naked Short Selling Now Permanent
Federal regulators are making permanent an emergency rule aimed at reducing abusive short-selling, put in at the height of last fall’s market turmoil.
The Securities and Exchange Commission announced Monday that it took the action on the rule targeting so-called “naked” short-selling, which was due to expire Friday.
Short-sellers bet against a stock. They generally borrow a company’s shares, sell them, and then buy them when the stock falls and return them to the lender — pocketing the difference in price.
“Naked” short-selling occurs when sellers don’t even borrow the shares before selling them, and then look to cover positions sometime after the sale.
The SEC rule includes a requirement that brokers must promptly buy or borrow securities to deliver on a short sale.
Peter Schiff said a little while ago that the ban on short selling will potentially send stocks much lower than if it was in place, due weaker bear market rallys which result from people covering their shorts. He may have a point.
Community Activity- Roberto Lloyd wrote a new blog post: Earth, Wind & Fire The Speed of Love tekst September 9, 2010
- Cecil Moore became a registered member September 9, 2010
- Felix Cole wrote a new blog post: News from the Yoga mat September 9, 2010
- Milton Johns became a registered member September 9, 2010
- Vincent Sharpe wrote a new blog post: Accutane Lawsuit Lawyer Information September 9, 2010
Recommended Books
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