CIT – No Bailout for You

Reuters reports CIT talks fall apart, bankruptcy looms:

CIT Group Inc, a lender to hundreds of thousands of small and mid-sized U.S. businesses, said on Wednesday that bailout talks with the government had ended, a development that could ultimately drive the company into bankruptcy.

The announcement followed last-ditch talks in which Treasury officials had expressed concern about a worsening liquidity crunch at the 101-year old lender and indications that government aid would not put it on a path to recovery.

It also showed the possible limits of Washington’s ability and willingness to rescue companies, after multiple bailouts engineered by Treasury, the Federal Reserve and the Federal Deposit Insurance Corp for larger companies such as American International Group Inc and Citigroup Inc.

Lesson learned: If you don’t screw up royally, then no bailout for you from Uncle Sam.

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CIT Group – Trading Halted

The AP reports Trading halted in CIT shares:

Trading in the shares of crippled commercial lender CIT Group Inc. was halted on the New York Stock Exchange late Wednesday afternoon.

A trading halt often occurs when news about a company is about to be released.

Regulators have been poring over the books at New York-based CIT trying to determine which of its assets remain strong enough to secure emergency financing.

The company has been teetering on the brink of a bankruptcy filing as its assets decline in value and a large debt payment looms.

Industry and government officials say representatives from the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. have been meeting to discuss plans for a possible rescue of CIT.

Time for more corporate bailouts. Yipeee!

On a side note: Just as an example, please consider the phoney argument of an “independent” Federal Reserve Bank raised against auditing it in light of what I highlighted above.

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US Government Spends More on Health Than Any Other Industrialized Nation

Catherine Rampell explains how U.S. Health Spending Breaks From the Pack:

Despite the fact that the United States is the only industrialized nation that does not ensure that all its citizens have health care coverage, the United States spends a (much) higher percentage of its gross domestic product on health care than its peers. It also spends (much) more per person on health care than its peers.

But that hasn’t always been the case.

percent of G.D.P. spent on health care, OECD countriesSource: Organization for Economic Cooperation and Development

The Organization for Economic Cooperation and Development recently released updated historical statistics on health care, showing that health expenditures have risen drastically across the industrialized world.

As demonstrated by the mass of squiggles in the chart above, the United States has generally been at the high end of health care spending. But once upon a time, it was more or less on par with its peers, and at various points even spent less of its G.D.P. on health care than some other countries (namely, Canada, Sweden, Denmark and Germany).

There were also a few years when it wasn’t the biggest spender per capita on health care, in purchasing power parity terms.

health spending per capita in US 2000 PPP dollars, OECD countriesSource: Organization for Economic Cooperation and Development Data shown are in United States 2000 purchasing power parity dollars.

Although you could quibble about the exact trajectories, it seems to have been in the late 1970s or early 1980s that America’s health care spending really broke from the pack.

Since 1980, the portion of G.D.P. that America spends on health care has risen by about 7 percentage points, whereas the average for other Organization for Economic Cooperation and Development countries has risen by 2.3 percentage points. Health expenditures per capita in the United States have likewise more than tripled since 1980, adjusting for inflation. The average for the rest of the member countries, where data are available, has more than doubled.

It is important to point out that the problem is not the fact that not everybody is ensured. The root of the problem is that health care is simply too expensive. I already explained this in Fixing Health Care in the US:

Any proposal that suggests even more government involvement, decrees, and spending than we already have, needs to be rejected unconditionally.

If you want to look for true solutions, listen to those people who recommend the opposite of what we have been doing for the past decades, and in particular the past 8 years, during which President Bush presided over an increase of public health care expenses on the federal level of no less than 100%.

Listen to the people who recommend to get the government out of health care, to spend less on Medicare and Medicaid, and to get rid of government decrees and rules that aim at regulating the market for health products and services.

Only then will the dream of affordable health care for every single American become reality.

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Not Feelin’ The Stimulus …

CNNMoney.com writes Stimulus spending short sighted – watchdog:

Fiscally-stressed states are using their stimulus dollars to satisfy immediate needs rather than undertake longer-term reforms, according to a government report released Wednesday.

For example, states are spending education funds to prevent layoffs and maintain programs, a Government Accountability Office report found.

Trying to survive one of the worst economic downturns since the Great Depression, state and school district officials say they don’t have the money to undertake projects such as building new schools and expanding early-childhood education.

Similarly, states are using nearly half their infrastructure funds for pavement improvements, which can be implemented quickly and don’t require environmental clearances and in-depth design work.

The $787 billion recovery act walks a fine line between trying to get funds out quickly to stimulate the economy and spurring longer-term initiatives.

In Flint, Mich., for instance, no new school buildings have been constructed in more than 30 years. While the district would love to use stimulus funds to renovate its facilities, the cash-strapped city must use the money to maintain current programs.

Near 2,000 teachers will retain their jobs in Florida’s Miami-Dade district because of stimulus funds. Officials in half the states surveyed said recovery act money will prevent layoffs.

The recovery act’s architects had hoped districts would use the funds to put in place longer-lasting educational reforms that improved student achievement. In order the receive the funds, schools must assure they will increase teacher effectiveness, provide support to turn around troubled schools and advance in creating college-ready and career-ready standards.

The budget crisis, however, is putting those efforts on the back burner.

“Many school district officials also reported that using [stimulus] funds for education reforms was challenging given other more pressing fiscal needs,” according to the report.
GAO finds flaws

The GAO is charged with tracking stimulus spending in 16 states and the District of Columbia that combined will receive two-thirds of the funds. Wednesday’s 161-page report is the second it has released.

The federal government is pushing out stimulus funds slightly faster than expected. As of June 19, $29 billion was given to states and localities — 90% of which has gone toward Medicaid and education.

The money is helping states deal with their budget crunches, Acting Comptroller General Gene Dodaro told a congressional committee Wednesday.

Still, the agency found that some states have been giving short-shrift to a recovery act requirement that infrastructure projects be located in economically distressed areas. Officials in many states told the GAO that they had picked the projects based on other priorities and only later gave consideration to ones in economically troubled areas.

And some stimulus money is going untouched, in part because state agencies are still waiting for federal guidance or approval or are still soliciting bids. For instance, public housing agencies have only spent 1.1% of the federal money made available for rehabilitating apartments.

States are also cutting back on staffing, leading to concerns about how well they will be able to report their use of stimulus dollars. Officials are finding it tough to create initiatives — such as a summer youth employment program — in the tight timeframes required by the act.

“Once the recovery act was passed, states and local areas had only about 4 months to get their new summer youth employment activities up and running — a process that officials told us would normally begin many months earlier,” according to the report.

The GAO report recommended the White House improve reporting requirements and ensure more direct communication with state officials. It also raised red flags about the reliability of the data on the government’s site, www.USAspending.gov, and the level of accountability for monitoring the funds’ use.
What about the jobs?

Lawmakers, however, were more interested in grilling Robert Nabors, deputy director of the White House budget office, about the number of jobs the stimulus funds have created or saved.

The administration has said stimulus funds have already created or saved 150,000 jobs, and should create another 600,000 by summer’s end. The figures are based on estimates that each $92,000 in stimulus money spent creates one job.

Nabors said that while America is still losing jobs, it is doing so at a slower pace because of stimulus money. The number of positions that disappeared in June, 467,000, was fewer than the monthly job-loss pace of 691,000 in the first quarter.

“We are making progress, but we have a long way to go,” Nabors said.

Republican lawmakers lashed into Nabors, questioning his figures and saying that the recovery act hasn’t lived up to President Obama’s promises.

“How can you justify that?” said Rep. Jason Chaffetz, R-Utah, of the estimate.

What a bunch of nonsense. Created or saved 150,000 jobs? What is that even supposed to mean? It is based on the assumption that taking $92,000 from a taxpayer and spending it on fixing potholes will create new jobs. What they are forgetting is that when the money is taken from somewhere else it will be missing somewhere else, curb consumption there and cost jobs there. It substitutes bureaucratic jobs for productive jobs. It is sad to hear these mindless statements made with impunity again and again. It is annoying to see people act surprised about 100% predictable outcomes.

As I said before, this stimulus bill won’t fix a darn thing …

The $800 billion spending bill that is currently being discussed will not fix the US economy. Just as too much government intervention caused (not fixed) the Great Depression in 1929 and the following years, just as the Bush administration’s spending spree which turned surpluses into deficits, just as the rise of government expenses over the past 100 years, more government spending will not solve a darn thing. Quite the opposite. It will dig us a deeper hole. There is no way around this truth. There is no point ignoring or denying The Trouble with Bureaucracy.

There is no “Change” in having the government  spend more money. If government spending was good for the economy, the United States should by now have the best economy in the universe. Spending more money is in fact precisely the opposite of change. It is more of the same.

In fact, the administration itself realizes that the “stimulus” is obviously not working. What solution do they have on the table now? Of course, a second stimulus:

The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small,” said Laura Tyson, an outside adviser to President Barack Obama.

Insanity? Why, yes that’s exactly what this is. And guess what: If there were to be a second stimulus it won’t work either. And what will be the proposed solution after that? You know it.

Which brings us back to the likely outlook for the US over the next years:

Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.

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Farm Subsidies & Tariffs – How US Consumers Foot the Bill

Subsidies

A subsidy is when the government takes money from a certain group of individuals via taxation and gives it to certain entrepreneurs. It enables the recipients to sell goods at a price below market price when they compete with other entrepreneurs. It makes consumers who might not even buy the goods in question foot the bill for other consumers. It also limits the sales by those entrepreneurs whose goods would have been purchased by the taxed consumers. Its ultimate damage is that it allocates goods amongst individuals against their voluntary value preferences, due to compulsive government intervention.

Tariffs

A tariff is when the government of a certain territory orders entrepreneurs from different territories to pay taxes when selling goods in its territory. This results in higher prices for the goods sold by entrepreneurs from other territories. It enables the entrepreneurs selling the same goods within said government’s territory to demand higher prices from the consumers. It transfers wealth from consumers to the government and to the aforementioned local entrepreneurs. It hurts the majority of consumers and of producers whose goods the domestic consumers and foreign entrepreneurs would have purchased with the money they would have at their disposal, had the government not intervened. Its ultimate damage is that it allocates goods amongst individuals against their voluntary value preferences, due to compulsive government intervention.

Thus The Atlantic urges the government to Tell Americans What They’re Really Paying for Their Food:

Before you start spooning up your next bowl of Frosted Flakes, ponder this: driven partly by the demand for ethanol, the price of the corn in your flakes is about 40 percent higher than it was a few years ago; the sugar easily cost you more than double the world price; and your milk is at least 15 percent more expensive than it would be in many other countries.

Americans pay much more than they should for their food. Thanks to a thicket of subsidies and tariffs that support American farmers and tilt the growing field against cheaper foreign producers, we get ripped off twice: first as taxpayers who ante up for roughly $25 billion in agricultural subsidies each year ($4 billion for milk alone in 2006); then as consumers who pay higher prices at the checkout counter because we can’t take advantage of low-price imports.

Subsidies and tariffs were originally intended to help protect small farmers–a purpose they’ve largely outlived. They keep rolling on, though, because the only people who focus on them tend to be their direct beneficiaries. Spread over tens of millions of consumers, the costs seem small: the average American taxpayer, for example, pays only $322 each year to fund subsidies. But for some of the thousands of farmers who get such payments, the benefits are huge: from 1995 to 2005, roughly 75 percent of subsidy payments went to just 10 percent of the subsidy recipients, who took in an average of $91,000 a year; and 55 farmers received more than $1 million each. Talk about a green thumb.

Given the megadeficit now darkening our fruited plain, $25 billion each year is real money; so is the roughly $2 billion in economic benefits that the U.S. International Trade Commission estimates we would get each year if we lifted all tariffs on food and agriculture items. We’d bring in more than $800 million by lifting tariffs on sugar alone. What’s more, by ending this kind of subsidy profiteering and opening our markets, we would not only save money but enable some of the world’s poorest agricultural producers to make a buck in the bargain.

So, how can we get more Americans to look up from their feedbags and demand that Congress restore some sense to the marketplace? I recommend a little truth-in-packaging. Just as food manufacturers now list their products’ ingredients and nutritional value, they should also disclose their “free-market” value.

To wit, every product whose ingredients benefit from a subsidy should include the following language on the label:

“This product has been subsidized by the U.S. government at taxpayer expense. For more information, please visit usda.gov.”

And every product that benefits from tariff protection should have the following language on the label:

“This product is protected from foreign competition by U.S. import tariffs. Its price is higher as a result. For more information, please visit usitc.gov.”

Ideally, the Web sites of the U.S. Department of Agriculture and International Trade Commission would provide not just specific information on subsidies and tariffs, but contact information for the relevant congressional committees that oversee them–hmmmm, perhaps even their chairs’ home phone numbers.

Let the angry 2 a.m. phone calls begin!

During the illusory days of inflation and consumer credit expansion individuals didn’t care a whole lot about a few extra dollars. Now, that deflation is a day to day reality, cash hungry consumers will be more receptive to the damages caused by subsidies and tariffs.

I have a simple proposal for President Obama and Congress if they were at all serious about helping US consumers: Get rid of every single subsidy and tariff imposed by the federal government.

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