Lending money to nearly anyone who asked for it

WaMu Built Empire on Shaky Loans


... one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.

Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

On one loan application in 2005, a borrower identified himself as a gardener and listed his monthly income at $12,000, Ms. Zaback recalled. She could not verify his business license, so she took the file to her boss, Mr. Parsons.

He used the mariachi singer as inspiration: a photo of the borrower’s truck emblazoned with the name of his landscaping business went into the file. Approved.


For WaMu, variable-rate loans — option ARMs, in particular — were especially attractive because they carried higher fees than other loans, and allowed WaMu to book profits on interest payments that borrowers deferred. Because WaMu was selling many of its loans to investors, it did not worry about defaults: by the time loans went bad, they were often in other hands.


By 2005, the word was out that WaMu would accept applications with a mere statement of the borrower’s income and assets — often with no documentation required — so long as credit scores were adequate, according to Ms. Zaback and other underwriters.

“We had a flier that said, ‘A thin file is a good file,’ ” recalled Michele Culbertson, a wholesale sales agent with WaMu.

Martine Lado, an agent in the Irvine, Calif., office, said she coached brokers to leave parts of applications blank to avoid prompting verification if the borrower’s job or income was sketchy.

Comment: WaMu is now owned by JPMorgan Chase.


Money "worthless beyond its shores"

The Isle That Rattled the World


.... housands of Icelanders were protesting one of the strangest economic failures of the global financial crisis. This past fall, every bank that matters in this tiny nation -- that is, all three of them -- failed. Iceland's currency, the krona, became worthless beyond its shores. The country's financial system stopped working.


Iceland is an extreme casualty of an era in which it became extraordinarily easy to borrow money. But it was more than that: An examination of the nation's banking system, which collapsed over about 10 days this autumn, reveals the degree to which Iceland was one of the international financial bubble's most enthusiastic players. Home to fewer people than Wichita, Kan., Iceland became so leveraged and so deeply intertwined with the global financial infrastructure that its collapse has rattled the world from Tokyo to California to the Middle East.

Like Americans who rode a housing bubble thanks to the U.S. Federal Reserve's maintaining low interest rates for years, Icelanders had found a cheap source of borrowing to finance their consumption.

As long as foreign money kept flowing into Iceland, everything remained fine. But an outflow would dangerously reverse the equation, and set the stage for calamity.

Iceland isn't the only small country to be whipsawed by foreign money flooding in, then gushing out. Hungary and Latvia were similarly hit.

What makes Iceland different: It tried to build a global banking center on top of a tiny currency. So when foreign investors tried to pull out -- converting kronur back into dollars or euros en masse -- its currency fell like a rock, spurring more withdrawals.

Amid Iceland's euphoria, there were warnings. In 2006, analysts at Danske Bank wrote a paper titled "Geyser Crisis" saying that Iceland's banks had grown too much, and the country was dangerously reliant on the willingness of foreigners to keep sending money.

Comment: Americans (US citizens) should carefully consider the fate of the Krona and the Zimbabwean dollar. Their fate could be ours!


"the poor country lending to the rich.”

Dollar Shift: Chinese Pockets Filled as Americans’ Emptied


The problem, he said, was not that Americans spend too much, but that foreigners save too much. The Chinese have piled up so much excess savings that they lend money to the United States at low rates, underwriting American consumption.

This colossal credit cycle could not last forever, he said. But in a global economy, the transfer of Chinese money to America was a market phenomenon that would take years, even a decade, to work itself out. For now, he said, “we probably have little choice except to be patient.”

Today, the dependence of the United States on Chinese money looks less benign. And the economist who proposed the theory, Ben S. Bernanke, is dealing with the consequences, having been promoted to chairman of the Fed in 2006, as these cross-border money flows were reaching stratospheric levels.

In the past decade, China has invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. That has lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.

China, some economists say, lulled American consumers, and their leaders, into complacency about their spendthrift ways.

Comment: This can't last forever!

God's Christmas Card

On a day some 2000 years ago, God entered time and space.

"Behold, a virgin shall conceive and bear a son, and shall call His name Immanuel" Isaiah 7:14

"For unto us a child is born, unto us a son is given, and the government shall be upon His shoulder; and His name shall be called Wonderful, Counselor, the mighty God, everlasting Father, the Prince of Peace" Isaiah 9: 6

"In the beginning was the Word, and the Word was with God and the Word was God...And the Word became flesh and dwelt among us, and we beheld His glory, glory as of the only begotten of the Father, full of grace and truth" John 1:1, 14

The following from a Christmas card expounds on John 3:16:

For God (the greatest Person)
So loved (the greatest degree)
The world (the greatest company)

That He gave (the greatest act)
His only begotten Son (the greatest gift)
That whosoever (the greatest opportunity)
Believeth (the greatest simplicity)
in Him (the greatest attraction)

Should not perish (the greatest promise)
But have (the greatest difference)
Everlasting life (the greatest possession)

JP: Image from an antique Christmas card in my Sister-in-law's collection.

It is a cold (minus 4) white Christmas in Minnesota. We are awaiting (expected at 9) the arrival of our children.


"For unto you is born this day in the city of David a Savior, which is Christ the Lord." (Luke 2:11)

A quote that captures the importance of this truth.

  • If our greatest need had been information, God would have sent us an educator;
  • If our greatest need had been technology, God would have sent us a scientist;
  • If our greatest need had been money, God would have sent us an economist;
  • If our greatest need had been pleasure, God would have sent us an entertainer;
  • But our greatest need was forgiveness, so God sent us a Savior.

HT: Frank Sansone

The Father of "Pick-A-Pay"

Once Trusted Mortgage Pioneers, Now Pariahs


Known as an option ARM — and named “Pick-A-Pay” by World Savings — it is now seen by an array of housing analysts and regulators as the Typhoid Mary of the mortgage industry.

Pick-A-Pay allowed homeowners to make monthly mortgage payments that were so small they did not cover their interest charges. That meant the total principal owed would actually grow over time, not shrink as is normally the case.

Now held by an estimated two million homeowners, the option adjustable rate mortgage will be at the forefront of a further wave of homeowner distress that could greatly delay or even derail an economic recovery, mortgage industry analysts say.

The Wachovia Corporation, which bought the Sandlers’ bank two years ago, was so battered by the souring portfolio of World Savings that it began writing off losses now projected at tens of billions of dollars and eventually stopped offering option ARMs.

Through it all, the Sandlers have maintained they did nothing wrong beyond misjudging the real estate bubble.

“I didn’t mislead anybody, and to the best of my knowledge, our company didn’t, though there may have been an isolated case here and there,” Mr. Sandler said. “If home prices hadn’t declined by 50 percent, nobody would be raising these questions.”

Mr. Sandler also finds it incredible that borrowers feel victimized by Pick-A-Pay. “All of a sudden their home is worth half of what it was, and they say they didn’t know.”

Yet the Sandlers embraced practices like the use of independent brokers who used questionable methods to reel in borrowers. These and other practices, critics contend, undermined the conservative lending practices that the Sandlers built their reputations upon.

“This product is the most destructive financial weapon ever deployed against the American middle class,” said William J. Purdy III, a housing lawyer in California who is representing elderly World Savings customers struggling to repay their loans. “People who have this loan are now trapped, and they can’t get another loan.”

Comment: Sounded like a good idea at the time


Wachovia "what ifs"

Wachovia shareholders OK Wells deal


Wachovia Corp.’s shareholders approved the company’s merger with Wells Fargo & Co. at a relatively sedate shareholder meeting Tuesday morning, clearing the way for the deal to close next week.

The proposal passed overwhelmingly, with 76 percent of the votes cast in favor of the deal. That included preferred stock that Wachovia issued to Wells as part of the deal, giving the San Francisco company 39.9 percent of Wachovia’s voting power.

Security was tight at the meeting, held in a packed ballroom at the Hilton hotel next door to Wachovia’s Charlotte headquarters. Most of the company’s board of directors was absent, however, and Chief Executive Bob Steel told the audience that the day was one of a “variety of emotions,” including disappointment that Wachovia (NYSE:WB) won’t survive as an independent company. He expressed some excitement about the combination, along with some relief that employees could move forward and focus on their jobs “without the overhanging pressure of balance-sheet challenges.”

What ifs: Could sale have been avoided?


Golden West Financial: Wachovia bought this nontraditional California lender in 2006 at the top of the housing boom. The deal exposed the bank to the faltering housing market and caused investors to worry about mounting losses. Wells now estimates losses of $36 billion, or 29 percent, on Golden West's $122 billion option adjustable rate mortgage portfolio.

Comment: The biggest misstep was Golden West Financial.


While Wachovia Chairman and CEO G. Kennedy "Ken" Thompson had described Golden West as a "crown jewel", investors did not react positively to the deal at the time. Analysts have since said that Wachovia purchased Golden West at the peak of the US housing boom, and its mortage-related problems would in turn bring down Wachovia


The Biggest Ponzi Scheme Ever?

Social Security: The Biggest Ponzi Scheme Ever?


Jim Cramer of CNBC points out that Social Security is really nothing but a big Ponzi scheme.

Comment: HT Darrell Dow

Will the economy suddenly "go poof"?

Wells Fargo so confident recession will end in '09


The second half of '09 is going to be "better than expected," said Jim Paulsen, chief investment strategist for Wells Fargo Capital Management:

"It's like you're at a cookout and you're trying and trying to get your charcoal going and you keep squirting lighter fluid and all of a sudden it goes 'poof!' "

Comment: Quote from the 2008 Economics Conference.

Al Sicherman's NASTY index

How cold is it? It's so cold…


So here is the New Al Sicherman Temperature Yardstick (NASTY).

NASTY Level 0: "Brisk," 32 to 20 degrees: Barely visible layer of ice forms overnight; you almost slip getting into car. You regret not wearing gloves.

NASTY Level 1: "Uncomfortable," 20 to 10 degrees: Frost on windshield too firm to come off just by running wipers; requires scraping (if you can find scraper). You really regret not wearing gloves. And hat.

NASTY Level 2: "Frosty," 10 to 0 degrees: After briefly removing glove while walking dog, to put newspaper bag to its highest use, your hand remains ice-cold inside glove all the way home.

NASTY Level 3: "Frigid," 0 to -10 degrees: Sound of car starter changes from rettita-rettita-VROOM to wuoh-wuoh-wuoh-wuoh-VROOM.

NASTY Level 4: "Awful," -10 to -15 degrees: Remote door-unlock button produces only strangled hum.

NASTY Level 5: "Terrible," -15 to -20 degrees: Inside of windshield frosts over from your breath; protruding lower lip, to force breath up instead of out, causes your glasses to frost over.

NASTY Level 6: "Dreadful," -20 to -25 degrees: Sound of car starter changes from wuoh-wuoh-wuoh-wuoh-VROOM to wuoh wuoh wuoh wuoh wuh.

NASTY Level 7: "Horrible," -25 to -30 degrees: Pressing button to turn on car radio causes crack to open across entire dashboard. (Radio doesn't come on.)

NASTY Level 8: "Unspeakable," -30 to -35 degrees: After leaving car all evening in unheated ramp, car window has frozen up and can't be lowered to pay the attendant; you have to open the door, but there's no room because you're right next to attendant's booth, and you can't pull forward because attendant has crossing arm down (and through closed window you can't make him understand you need to pull forward so you can open door to pay him) and you can't back up because there's somebody behind you.

NASTY Level 9: "Ghastly," -35 to -40 degrees: When you try to open car door, handle breaks off.

NASTY Level 10: "Evil," colder than -40 degrees: When you try to open car door, hand breaks off.

Comment: Nasty level 3 today (-6). We took the car through the car wash which is very interesting (car wash foggy) at this temp!

Stocking stuffer - a life's lesson

Comment: I am giving each of my kids 100 Billion (Zimbabwean) dollars. Found on Ebay. When released on July 1st, 2008, a $ 100 Billion would by 3 eggs!

Liberals are cheapskates!

Bleeding Heart Tightwads


Liberals show tremendous compassion in pushing for generous government spending to help the neediest people at home and abroad. Yet when it comes to individual contributions to charitable causes, liberals are cheapskates.

Arthur Brooks, the author of a book on donors to charity, “Who Really Cares,” cites data that households headed by conservatives give 30 percent more to charity than households headed by liberals. A study by Google found an even greater disproportion: average annual contributions reported by conservatives were almost double those of liberals.

Other research has reached similar conclusions. The “generosity index” from the Catalogue for Philanthropy typically finds that red states are the most likely to give to nonprofits, while Northeastern states are least likely to do so.

The upshot is that Democrats, who speak passionately about the hungry and homeless, personally fork over less money to charity than Republicans — the ones who try to cut health insurance for children.


Americans give sums to charity equivalent to 1.67 percent of G.N.P., according to a terrific new book, “Philanthrocapitalism,” by Matthew Bishop and Michael Green. The British are second, with 0.73 percent, while the stingiest people on the list are the French, at 0.14 percent.


Conservatives also appear to be more generous than liberals in nonfinancial ways. People in red states are considerably more likely to volunteer for good causes, and conservatives give blood more often. If liberals and moderates gave blood as often as conservatives, Mr. Brooks said, the American blood supply would increase by 45 percent.

Comment: Interesting.


Teamwork in Russia

Comment: Sent to me by my brother

Have we started down "the Zimbabwean path"?

Is the Medicine Worse Than the Illness?


... Federal Reserve's announcement last Tuesday that it intends to debase its own paper money. The year just ending has been a time of confusion as much as it has been of loss. But here, at least, was the bright beam of clarity. Specifically, the Fed pledged to print dollars in unlimited volume and to trim its funds rate, if necessary, all the way to zero. Nor would it rest on its laurels even at an interest rate low enough to drive the creditor class back to work. It would, on the contrary, "continue to consider ways of using its balance sheet to further support credit markets and economic activity."


One market, only, registered a protest. The Fed's declaration of inflationary intent knocked the dollar for a loop against gold and foreign currencies. In many different languages and from many time zones came the question, "Tell me, again, now that the dollar yields so little, why do we own it?"


If the Fed is going to create boatloads of depreciating, non-yielding dollar bills, who will absorb them? Who will finance the Obama administration's looming titanic fiscal deficits? Who will finance America's annual surplus of consumption over production (after 25 more or less continuous years, almost a national trait)? Inflation is a kind of governmentally sanctioned white-collar crime.


In ages past, it was so simple. A central banker had one job only, and that was to assure that the currency under his care was exchangeable into gold at the lawfully stipulated rate. It was his office to make the public indifferent between currency or gold. In a crisis, the banker's job description expanded to permit emergency lending against good collateral at a high rate of interest. But no self-respecting central banker did much more. Certainly, none arrogated to himself the job of steering the economy by fixing an interest rate. None, I believe, had an economist on the payroll. None facilitated deficit spending by buying up his government's bonds. None cared about the average level of prices, which rose in wartime and sank in peacetime. It sank in peacetime because technological progress and the opening of new regions to agricultural production made merchandise and commodities cheaper and more abundant.


Gold is a hard master, and a capricious one, too, insofar as growth in the world's monetary base depends on the enterprise of mining engineers. But, as we have seen lately, there is no caprice like the caprice of sleep-deprived Mandarins improvising a monetary solution to a credit crisis (or, for that matter, of fully rested Mandarins setting interest rates by the lights of their econometric models).

The times were hard in the 1870s and, for that matter, again in the 1890s, but Americans repeatedly spurned the Populist cries for a dollar you didn't have to dig out of the ground but could rather print up by the job lot. "If the Government can create money," as a hard-money propagandist put it in an 1892 broadside entitled "Cheap Money," "why should not it create all that everybody wants? Why should anybody work for a living?" And -- in a most prescient rhetorical question -- he went on to ask, "Why should we have any limit put to the volume of our currency?"


starting in 1971, there would be nothing behind it more than the good intentions of the U.S. government and (somewhat more substantively) the demonstrated strength of the U.S. economy. Still less could he have guessed that the world would nonetheless fall in love with that uncollateralized piece of paper or -- even more astoundingly -- that the United States would enjoy so great a reservoir of good will that it would be allowed to borrow its way to a net international investment position of minus $2.44 trillion ($17.64 trillion of foreign assets held by Americans vs. $20.08 trillion of American assets held by foreigners). "It goes up and up," Mr. Root said of the inflationary cycle, but just how high he could not have dreamt.

Knowledge of the precepts of classical central banking prepared no one to understand, much less to anticipate, the Fed's conduct in this credit crackup. The central bank is lending freely, all right, but not at the stipulated "high" interest rate. As a matter of fact, it is starting to lend at a rate below which there is no positive rate. The gold standard was objective. Modern monetary management is subjective (under Alan Greenspan, it was intuitive). The gold standard was rules-based. The 21st century Fed goes with what works -- or seems to work. What it hopes is going to work for the fellow who fell off the stepladder is more debt and more dollars. Just how much of each can be found every Thursday evening on the Fed's own Web site. Open up form H4.1 and prepare to be amazed. Since Labor Day, the Fed's assets have zoomed to $2.31 trillion from $905.7 billion. And what is the significance of this stunning rate of asset growth? Simply this: The Fed pays for its assets with freshly made dollars. It conjures them into existence on a computer; "printing" is a figure of speech.


Thatcher Wouldn't Have Gone Wobbly on Detroit - Keynsianism is proof you shouldn't 'leave economics to economists.'Thatcherite principles remain as valid as ever. The freedom of the marketplace is still the only effective mechanism for eliminating poor business practices, identifying productive investment, and providing long-term growth.


President-elect Barack Obama has said that he expects things to get worse before they get better. If the experience of the first Thatcher administration is anything to go by, that will certainly be the case. For one thing, some "hidden unemployment," as Mrs. Thatcher called it, will be flushed out into the open. This will be the case with the expected closure of the Big Three's "job banks," which pay almost full wages and benefits to several thousand auto workers for doing nothing.

Comments: Easy money created our credit crisis and yet we continue to make it EZ'r. Buy yourselves some real money: http://www.apmex.com/


After Lifeline, Big 3 Are Still in Deep


... the auto companies’ challenges came down to four C’s: cash, cost reduction, cars and culture.

The cash and cost reduction will come through the federal aid and the revamping plans they submitted in return for the help. “But they quite obviously need to get a different management culture ...


Detroit still depends heavily on pickups, and S.U.V.’s, as well as crossover vehicles, which are sport utilities built on car underpinnings.

Through November, light trucks made up 58 percent of G.M.’s sales; they account for 63.5 percent of Ford’s sales and 72.2 percent for Chrysler.

In fact, Toyota has sold more Camry models alone this year than Chrysler has sold of all its cars, according to Motorintelligence.com, a firm that follows industry statistics.


Comment: It's like they are primarily TRUCK companies! I doubt Chrysler will make it - my Dad is "rolling in his grave"! Chrysler's best option is merger with someone - Nissan? GM? But perhaps no one wants them.


New Zimbabwean $ 10 Billion note introduced

New Zimbabwe $10B note buys bread


Zimbabwe's central bank introduced a $10 billion note worth less than 20 U.S. dollars, as the once-prosperous southern African nation battles against spiraling hyperinflation.

The new note, expected to buy just 20 loaves of bread, comes just a week after Zimbabwe issued a $500 million note to ease a cash shortage.

Reserve Bank of Zimbabwe Governor Gideon Gono said the $10 billion note was being introduced for the "convenience of the public ahead of the festive season."

On Thursday, the U.S. dollar traded for about 600 million Zimbabwe dollars, and the hyperinflation was expected to continue.

People slept overnight at the bank doors, hoping to get money for the next day.

Comment: Search Ebay for Zimbabwe notes. Above is a $ 50 Billion note

That's what they all say!

Obama says he'll address growing deficit _ later


But he says it'll be easier to tackle that deficit when the economy is up and running.

Obama told reporters in Chicago on Friday that every economist he's spoken to has told him that the most important thing to do—even for the deficit—is to fix the economy. Otherwise, he says, the government will have to spend more on services for out-of-work Americans, and the deficit will grow even faster.

He says the deficit is not a problem that he's simply going to leave for a future president.

As for the infrastructure projects that will be part of his plan to reinvigorate the economy, Obama says none of them will represent wasteful spending.


Re: "the deficit is not a problem that he's simply going to leave for a future president". Don't take this one to the bank!

Re: "the infrastructure projects ... [will not] will represent wasteful spending" - doubt it!

Far from the “holy huddle”

For Evangelical College, Home Is Where the Sin Is


The King’s College was founded in the seaside town of Belmar, N.J., 70 years ago, before moving to Briarcliff Manor, N.Y., in 1955. The college closed after going bankrupt in 1994, and reopened five years later with 17 students after its backers raised enough funds.

Its setting, college leaders say, was a deliberate move. They wanted students to be exposed to new ideas and hone their intellectual chops far from the “holy huddle,” places that are religiously and ideologically sealed off from the rest of the world.

Comment: Better to have a Christian College in an urban center rather than deep in the woods!

The Book of Human Troubles

Psychiatrists Revise the Book of Human Troubles


“This is not cardiology or nephrology, where the basic diseases are well known,” said Edward Shorter, a leading historian of psychiatry whose latest book, “Before Prozac,” is critical of the manual. “In psychiatry no one knows the causes of anything, so classification can be driven by all sorts of factors” — political, social and financial.

“What you have in the end,” Mr. Shorter said, “is this process of sorting the deck of symptoms into syndromes, and the outcome all depends on how the cards fall.”

Psychiatrists involved in preparing the new manual contend that it is too early to say for sure which cards will be added and which dropped.

The current edition of the manual, which was published in 2000, describes 283 disorders — about triple the number in the first edition, published in 1952.

Comment: I predict that the number of "disorders" will again trible (job security). Want to read the real book of human troubles ... read the book of Job!

Wells Fargo economics conference

Wells Fargo Economists Predict Worst Recession Since 1930s


What is shaping up as the deepest and longest recession since the 1930s will end in the second half of 2009, Wells Fargo’s senior economists predicted during the company’s annual economic forecast teleconference yesterday.

The ongoing impact of $2 trillion in government stimulus, with other factors such as pent-up consumer demand and returning consumer confidence, will finally lead to a turnaround, and the third quarter of next year will be "better than expected” by many, said Dr. Jim Paulsen, chief investment strategist of Wells Capital Management. "It’s like you’re at a cookout and you’re trying and trying to get your charcoal going and you keep squirting on lighter fluid and all of a sudden it goes ‘poof!’” Paulsen said.


Reporters can hear a recording of the December 18th teleconference until January 17, 2009, by dialing 1-866-837-8032(domestic) or 1-703-925-2474. The conference ID is 1303927.

Comment: More from conference I attended yesterday

Kathee's a Calvinist

Comment: I know because I did not choose her, she chose me!

Will Harry Reid override Minnesota voters?

Paul Weyrich: Uncertainty in Minnesota’s U.S. Senate Race


... if Mr. Franken can’t prevail in federal court, he may turn to Senate Majority Leader Harry Reid, D-Nev. Sen. Reid could have the U.S. Senate wade into the disputed ballots, as Democrats did in a disputed election for a House seat some years ago.

More likely, however, Sen. Reid would have the seat declared vacant, forcing candidates Sen. Coleman and Mr. Franken into another election.

Democrats naturally hope to achieve a 60-40 filibuster-proof majority in the U.S. Senate, so it would not be surprising to see them concentrate their resources in Minnesota and deliver the state for Mr. Franken.

As the former Director of the Senate Republican Conference said to me the other day, “Nothing could demean the Senate as an institution more than to have Franken as a member.” Perhaps, but that will be up to the citizens of Minnesota to decide.

Comment: One of Paul Weyrich's last columns - he died Thursday: Architect of Religious Right Dies. Latest looks like Franken will win: Franken pushes his lead over Coleman past 250

How many handshakes?

One hundred guests attended the Mathematical Institute Christmas party ...


One hundred guests attended the Mathematical Institute Christmas party. How many handshakes must take place for all 100 guests to shake hands with each other?

Comment: I'm not very good at these ... click link for more

When you cannot flush your money

When Money Goes Down the Toilet


At around 231 million percent, Zimbabwe’s hyperinflation rate (which we’ve written about before) is currently the highest in the world.

Blog reader Ben Saltsman sent us this photo of a restroom sign in South Africa, which hints at one use for Zimbabwe’s severely devalued currency:

Comment: For a picture of Zimbabwean toilet paper click here


Coleman: +5

Good news / bad news on Credit Cards

Fed OKs credit card crackdown - Regulators approve a number of key protections for credit card customers


The Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration approved the regulation, which prohibits banks from certain practices like applying interest payments in ways that maximize penalties, and forces lenders to be more transparent about their billing practices.

"These protections will allow consumers to access credit on terms that are fair and more easily understood," Federal Reserve Chairman Ben Bernanke said in a statement.

The regulations mark an end to double-cycle billing, which averages out the balance from two previous bills. That means that consumers who carry a balance will no longer get hit with retroactive interest on their previous month's bill. And credit card companies will no longer be able to raise the interest rates on pre-existing credit card balances unless a payment is over 30 days late.

Consumers will also be given a reasonable amount of time to make payments, and payments will be applied to higher-rate balances first, to reduce interest penalties and fees.

Credit card statements will clearly list the time of day that a payment is due, and any changes to accounts will be in bold or listed separately.

And, finally, no more universal defaults - a policy that allowed credit card issuers to increase the interest rate on one card if a customer missed a payment on another card.

The Fed's Price Controls - Raising the cost of credit cards.


That might sound good if you're those borrowers, but for everyone else it will mean higher rates even if you treat credit responsibly. If the banks can't raise prices on the riskiest borrowers, they will either limit to whom they lend or raise rates on everyone -- or both.

The new rules will also appeal to those who think Americans spend too much, and save too little, and blame credit cards for encouraging the trend.

But now seems like a particularly inopportune moment to tell banks that they should do less to manage their exposure to credit risk. Banks are already pulling back on consumer credit as the economy worsens and the credit crisis drags on, with lower credit limits and higher rates. If the Fed votes in favor of its new rules Thursday, expect that trend to accelerate.

Comment: The law of unintended consequences! How bad is it? (first article)

In the midst of a credit crunch, Americans have about $976.3 billion in revolving credit and 4.9% of all credit cards were delinquent in the third quarter, according to the latest data from the Federal Reserve.

More on cities' infrastructure requests

Mayors' infrastructure request full of pork


The U.S. Conference of Mayors went to Capitol Hill earlier this month with a report listing 11,391 infrastructure projects proposed by 427 cities. The mayors claimed the proposal would create 847,641 jobs in 2009 and 2010.

The more than 800-page document is titled "Main Street Economic Recovery: 'Ready To Go' Jobs and Infrastructure Projects."

"Our plan calls for investments that will stimulate our economy by quickly creating jobs, fixing our aging and crumbling infrastructure, increasing our global competitiveness, and further reducing our carbon footprint," Miami, Florida, Mayor Manny Diaz said at a news conference last week. Accompanied by other big-city mayors, he held up a copy of the hefty report to stress its importance.

"To reverse the current economic crisis, we must invest wisely. We must invest where we get the greatest return. We must invest in Main Street," said Diaz, who is the president of the mayors' group.

But a close examination of the projects by CNN shows proposals that go far beyond basic infrastructure plans for roads, bridges and other traditional public works projects.

David Copperfield: Messing with your mind

Comment: Send to me by my Sister-in-Law. Sorry that the images are kind of small. Click on an image to enlarge. Bet you can figure out how this is done. Leave a comment

2008 Economic Outlook Conference

Comment: I am on a teleconference hosted by Wells Fargo economists. Brief comments (not quotes)

  • Worst post-war (WW II) recession
  • Household debt too high
  • Expect end to recession in June 2009 (19 months from commencement in Dec '07)
  • 3.7 M job loss in '09
  • Unemployment expected to be 8.8% in the 4th Qtr '09
  • 5.5 M job loss total
  • Deflation in '09: Oil prices and commodity prices in decline
  • Inflation expected in '10
  • Stimulus package size 750B ---> 1T
  • Fiscal deficit: $ 1.9 T in '09; $ 1 T in '10
  • Total debt will be 9% of GDP (high and risk) - risk of currency collapse

I missed the last 20 m of the meeting (unfortunately).

The Lizard People ballot

'Lizard People' Ballot Ruled An Overvote


The infamous "Lizard People" ballot from Bemidji, Minn. was declared an overvote. The Norm Coleman campaign's challenge on the ballot was allowed, though not before some discussion among the board.

Secretary of State Mark Ritchie's original motion was to reject the challenge and allow the vote for Al Franken, whose circle was filled above the write-in vote for "Lizard People."

But in deliberation, it was brought up that there is no way to determine that there is not a legitimate person named "Lizard People" and, thus, the ballot would have to be considered as carrying two votes for the U.S. Senate race.

Comment: Full PDF of the 'Lizard People' ballot available here. Fascinating to follow this! MRP coverage with full PDF's of ballots: here


Ponzi schemes: No exit strategy

Hey Ponzi: What’s Your Exit Strategy, Exactly?


I have never understood why someone would ever start a Ponzi scheme when, by definition, there’s no way to end it.

The scam works by bringing in new unwitting investors to pay off the old unwitting ones. Since there’s no actual investment involved — just a transfer of money backward, with some portion presumably pocketed by the Ponzi schemer — keeping the scheme going requires an endless supply of new investors. The schemer’s liabilities only get bigger as time goes on, and there’s no way to end the ploy. Other than jail, that is. Or death. Or perhaps faking one’s own death.


I recently asked a few experts what such Ponzi perpetrators might envision their “exit strategies” to be.:

  1. Cut and run.
  2. Turn (or return) the business into something legitimate. Unlike the schemers in #1, these Ponzi architects likely started out with some hope for legitimacy. They wanted seed money to kick off some brilliant investment idea.
  3. No exit. These schemers, usually from relatively humble backgrounds, are deeply insecure. They have felt like impostors their whole lives, whether in the country club or on the trading floor. They expect to be exposed for something, sometime, somewhere, which allows them to rationalize fraudulent behavior. They focus on denying and delaying the inevitable for as long as they can — and living well until they get caught.

Comment: There's a fourth strategy as well - read the article. Famous Ponzi schemers: Bernard Madoff, Tom Petters, Gerald Payne of Greater Ministries International, Bill Crotts of the Baptist Foundation of Arizona, and the Father of them: Charles Ponzi. On the other end of a Ponzi scheme is a greedy sucker.

Retail wasteland

The dead mall problem


"Our country has six times more retail space per capita than any other county," said Ellen Dunham-Jones, director of the architecture program at Georgia Institute of Technology.

"We're just cannibalizing our existing stores by building more stores even when sales aren't increasing," she said. "We were long due for a retail correction and we're going through it now."

Dunham-Jones said big-box enclosed malls have become a dying breed as more shoppers prefer going to shop at strip malls or "lifestyle" open-air malls.

Brookdale: A ghost of its former self


Built in the 1960s as one of the four Dales, Brookdale has had a variety of problems in the past several years, including the loss of major tenants and owners that fell behind on property taxes.

But not all the problems have been self-made. Brookdale has faced increased competition from a boom in retail development in nearby Maple Grove. Demographic changes have led to a decline in per capita income in its trade area.

A new set of owners, Brooks Mall Properties, took over about three years ago and settled the tax bill. But the Coral Gables, Fla.-based company stumbled in efforts to redevelop the mall, and recently called off a project that would have filled the former Mervyn's store space with a Wal-Mart Supercenter, according to Gary Eitel, Brooklyn Center community development director.

Comment: Too many stores! Too many restaurants (consider the strip of restaurants along I-94 in Maple Grove).

Planned obsolescence - a global shell game

Time to Buy a New Stove. Again.


Planned obsolescence, a diabolical manufacturing strategy that took root with the rise of mass production in the 1920s and ’30s, has now escalated from disposable lighters to major appliances. Its evil genius is this: make the cost of repairs close to the item’s replacement price and entice us to buy new. Again. “A repair of $700 is more than the stove cost,” I whined. The repairman shrugged and counseled me that I could get the same thing for about $1,200 now.

“This one’s headed for scrap,” he said. He predicted it would end up on a fast boat to China, where apparently they can’t get enough of the stuff.

Planned obsolescence is now a global shell game; someday our atomized stove might come back at us in the form of a fireplace screen, an air-conditioner, a gas grill! I vowed to hold out as long as I could. With the flinty resolve of my favorite Beverly Hillbilly, Granny Clampett, I cooked on the remaining three burners — until the thing tried to gas us.

Comment: How about P.C.'s ... wasted in 3 years! Cell phones - worn out in 2.

A vote for Mickey Mouse

In Minnesota Recount, Scribbles, Mice and Other Ballot Puzzles


At another point, Judge Kathleen Gearin expressed puzzlement over a voter whose only selection was a write-in — for Mickey Mouse.

“Why would they go in just to vote for Mickey Mouse?,” Judge Gearin asked.

Chief Justice Magnuson responded, “This is not a voter that cared a lot.”

Comment: It's a vote for Al Franken!

Modern cave living in China

Energy efficient home, easy to maintain — and no mortgage


About 20 million Chinese still reside in caves and dirt-covered dwellings on the Loess Plateau that straddles the middle and upper reaches of the Yellow River in China's northwest.

Some of the caves have been passed down for generations, with hard-packed earthen walls, electrical wiring, piped-in plumbing and other modern conveniences, including cable television.

Longtime cave dwellers are often passionate about their way of life, saying they are shielded from the elements in a practical and efficient fashion, dwelling along hillsides and leaving valuable arable land in valleys for growing crops.

Researchers say economic necessity isn't the only reason so many Chinese continue to reside in caves.

"People from abroad think people who live in caves are very poor. But our research shows that is not always the case," said Wang Jun, a researcher on caves at the Xian University of Architecture and Technology.

Many simply have grown accustomed to a lifestyle that dates back more than a millennium. Caves also have a revolutionary luster. Mao Zedong, the revolutionary founder of modern China, lived in caves that still honeycomb this region after the Long March, plotting the drive to take over the country that succeeded in 1949.

Caves are easily excavated from the silty soil here, requiring only picks and other digging implements. The earth is so hard-packed that caves don't need additional support to prevent collapse. Most have a stone facade, with large lattice windows framing a door and allowing light to pour in during the day.

Generally, the caves are shaped like loaves of bread, 10-to-13 feet wide and anywhere from 20-to-25 feet deep, with arched ceilings. Several caves dug next to each other can have connecting doors, providing for a larger overall dwelling, with flues allowing for ventilation from indoor cooking fires.

Comment: Click link for one picture.


Government can always find new ways to spend our money

Santa Claus government


he U.S. Conference of Mayors sent its list of wishes to the political equivalent of Santa Claus: Congress. The mayors apparently figure with all the talk from President-elect Obama about infrastructure repair and job creation, they might as well try to pile onto Santa's lap, too.

The mayors claim the economy will be stimulated if their wishes are granted. What do they want? The National Taxpayers Union (NTU) has analyzed the 72-page list. Here are some of the lowlights.

  • $1.102 billion in projects involving sidewalks; — $1 million for annual sewer rehabilitation in Casper, Wyo. (emphasis mine);
  • $6.1 million for corporate hangars, parking lots, and a business apron at the Fayetteville, Ark., airport.
  • 15 projects with the term "stadium" in them, including a $150 million Metromover extension to the Florida Marlins' baseball stadium; and
  • 81 projects mentioning "landscaping" and/or beautification efforts.
  • $1,500,000 for an initiative in Dayton, Ohio for the "Reduce Prostitution-Off the Streets Program." The proposed spending would "connect individuals involved in prostitution with resources to leave a life of prostitution." I guess Ronald Reagan was right when he observed, "It has been said that politics is the second-oldest profession. I have learned that it bears a striking resemblance to the first."
  • "$6,000,000: Ventura, Calif., Water Surfers Point Improvements." "This project is to protect the beach with natural buried cobble stone, create sand dunes over the buried cobble, relocate, and rebuild the State Owned Omer Rains beach front bike path, and construct parking lot and drainage."

Kristina Rasmussen, NTU's director of government affairs, offers more analysis of the mayors' report on NTU's blog: "Total cost of the wish list is $73,163,299,303. They claim this will create an estimated 847,641 jobs in 2009 and 2010. Divide that out, and you get a cost to taxpayers of $86,314 per job. Not exactly a great deal."

Comment: Keep your eye out for these government scams!

The end of "the daily"

Detroit papers drop home delivery to 3 days a week


Fighting to stay in business, Detroit's two daily newspapers will radically change their relationship with readers by slashing home delivery to three days a week, printing small editions on other days and encouraging people to get information online.

Comment: Believe it or not, when I was a kid in Cincinnati, we received 2 papers a day. The Cincinnati Enquirer in the morning and the Cincinnati Post in the afternoon.

In college, I worked Saturday nights at the Enquirer loading papers onto trucks. I think it was from 6:00 p.m. until 2:30 a.m.

We also had thrice weekly milk delivery. How times have changed!

Islam According to the Reformers

Islam According to the Reformers

Comment: Interesting read


Nuts: "a gross overreaction to the magnitude of the threat"

Are Nut Bans Promoting Hysteria?


In the column, Dr. Christakis points out that about 3.3 million Americans are allergic to nuts, and even more — 6.9 million — are allergic to seafood. But of 30 million hospitalizations each year, just 2,000 are due to food allergies, and about 150 people die annually from serious allergic food reactions. That’s the same number of people killed by bee stings and lightning strikes combined. About 10,000 children are hospitalized annually with traumatic brain injuries from sports, 2,000 children drown each year, and about 1,300 die in gun accidents, he writes.

Dr. Christakis notes that there is no scientific evidence that nut bans are particularly effective at protecting children. But more important, he argues, is that limiting widespread exposure to nuts can make things worse. The “policy of avoidance” means that fewer children are being exposed to nuts, likely increasing their risk for developing an allergy. A 2008 study in The Journal of Allergy and Clinical Immunology of 10,000 British children found that early exposure to peanuts lowers risk of allergy, rather than increasing it.

Comment: Link to full article is in the last sentence of the link above. In that article is this precious quotation:

At this time of year many municipal elementary schools in the United States, including the one attended by my children, raise money by selling wrapping paper and candy. This year parents in our school were told that they could no longer pick up their purchases from their children’s classrooms. Instead they had to pick up their orders from a loading dock at specified times, to avoid a danger to the children. The danger? Some of the orders contained sealed tins of festive nuts.

Out of an overabundance of caution the school decided not to allow any of the items on the premises. This decision came on the heels of another recent event: a peanut was spotted on the floor of a school bus, whereupon the bus was evacuated and cleaned (I am tempted to say decontaminated), even though it was full of 10 year olds who, unlike 2 year olds, could actually be told not to eat food off the floor.

Autos: Government report on consumer preferences


As a US Government report into the motor industry has stated: “The shift in consumer preferences towards smaller, more fuel-efficient passenger cars appears to be permanent.”

Comment: HT: The buyer's-market car


(The report said this in 1980, a year after giving Chrysler $1 billion of bail-out money to arrest its spiral towards the plughole. Truly, there is nothing new under the sun.)

Welcomed w flowers ... farewell by a shoe

Iraqis Pick Up Their Shoes: Reaction From Around the Country

Comment: Reactions to yesterday's shoe throwing incident from around Iraq. No excerpts. Worth a read.


Senate Republicans: Refusing UAW and Big 3 a taxpayer E-Z pass

Mitch McConnell's Finest Hour


... Led by Tennessee Senator Bob Corker, they asked the auto workers to show they were serious about making Detroit competitive again. In exchange for a lifeline from Washington, Mr. Corker wanted the union to set a "date certain" in 2009 for lowering the Detroit Three's hourly labor costs to the average of foreign-owned auto makers in the U.S. He also wanted creditors to bring down Detroit's total debt by two-thirds through an equity swap, making sure debtholders share the cost of restructuring.

The union's counteroffer was that it would bring down labor costs in 2011, when its current contracts run out. Maybe we missed something, but we thought GM and Chrysler were facing bankruptcy now, not in three years. As Minority Leader Mitch McConnell said on the Senate floor, that sounds like "taxpayer money today for reforms that may or may not come tomorrow."

Thursday's showdown marked an important political moment for the Republican Party. By refusing to write a blank check to Detroit, Senate Republicans have started to reclaim some credibility on fiscal policy and the role of government in the economy. They did so standing up to a Republican President who doesn't want any more bad headlines, as well as to Democrats who will blame the GOP if the auto makers collapse.

They also stood up for the right reasons. No bailout will ever restore the car companies to profitability without a restructuring. Yet an explicit UAW goal is to use the bailout to avoid any such thing. The union and their Democratic protectors want to avoid the discipline that a bankruptcy could impose under Chapter 11. A government-directed salvation would also give environmentalists huge leverage over the cars Detroit builds, a power they and Democrats have wanted for decades.

Comment: Republican backbone! We need this kind of leadership!

Bush ... quick reactions.

Comment: Still has a sense of humor too! Iraqi journalist hurls shoes at 'dog' Bush

A trillion here ... a trillion there ....

Obama stimulus could reach $1 trillion: report


President-elect Barack Obama's team is considering a plan to boost the recession-hit U.S. economy that could be far larger than previous estimates and might reach $1 trillion over two years, the Wall Street Journal reported on Saturday.

Obama aides, who were considering a half-trillion dollar package two weeks ago, now consider $600 billion over two years "a very low-end estimate," the newspaper said, citing an unidentified person familiar with the matter.

The final size of the stimulus was expected to be significantly higher, possibly between $700 billion and $1 trillion over that period, it said, given the deteriorating state of the U.S. economy.

How to spend the stimulus


If I had my druthers, the word ’stimulus’ would be expunged from public discussion, along with ‘bailout’ and ‘rescue.’ These words convey the idea that, because we have so mismanaged our economic and financial affairs, we are somehow able or entitled to conjure up additional funds out of thin air to fix our problems.

Comment: Consider What's a Billion?. Soon there will be no more trillions to throw at the nation's problems. What then?


Chuck Colson: I know how Rod Blagojevich feels!

Chuck Colson: I know how Rod Blagojevich feels!


In the wake of Blagojevich’s arrest, many Americans are left wondering once again how intelligent people can do such stupid things — especially when they’ve achieved the pinnacle of power.

The answer comes down to pride.

At the height of Watergate, a dear friend of mine, Tom Phillips, then CEO of Raytheon, invited me to his home. As we sat in his kitchen, Tom read to me a chapter on pride from a little book by C.S. Lewis titled “Mere Christianity.”

Lewis wrote, “There is one vice of which no man in the world is free. … The vice I am talking about is Pride or Self-conceit. …. Pride leads to every other vice. … A proud man is always looking down on things and people: and, of course, as long as you are looking down, you cannot see something that is above you. … Pride is a spiritual cancer: it eats up the very possibility of love, or contentment, or even common sense.”

Tom — who told me about Jesus Christ that night — didn’t know I was in utter despair over Watergate, watching the president I’d worked for flounder in office. I’d learned I might become a target of the investigation. In short, my world was collapsing.

That night I sat in a darkened driveway and in a flood of tears called out to God. I didn’t know what to say; I just knew I needed Christ. At that moment God took the White House “hatchet man” and turned me into a new creation.

Comment: From my other blog: http://www.4bya.info/

There is a U.S. auto industry that works

There is a U.S. auto industry that works


there are 12 international car companies that have manufacturing operations in the United States. Collectively, they employ 113,000 Americans directly -- even though that is less than the 239,000 at Ford, GM and Chrysler. However, those international car companies sell more cars than the Big Three and their customers love their products. They have millions of American shareholders. They do sophisticated work like research, design and marketing in the United States. All in all, they add jobs and high value to the United States.

Comment: I have a Buick and I love it. But I am still against the Dem sponsored bailout.

KFC chicks bathe in sink

Kentucky Fried Chicken trio photographed turning sink into hot tub

Comment: From the look of them, they've been eating it too!

Tim Pawlenty: "We cannot be free if we are a debtor nation"

Tim Pawlenty: A Modern, Not a Moderate, Party


... when we talk about the national debt, it is not freedom and we are not protecting and advancing freedom when we handcuff our children and our grandchildren to wagon loads full of debt - $35,000 for every man, woman, and child in the United States of America. We are choking in debt. We are swimming in debt. That's $10 trillion in debt, not including the entitlement programs. We cannot be free if we are a debtor nation. We cannot be free if our federal officials are worried about what the Chinese might do in terms of withholding and enabling our debt, if we don't bail out the banks.

And that's part of what's going on. Part of the reason that the federal government is so scared about the financial systems collapsing is because they're worried that the Chinese and others are going to stop investing and buying our debt, and if they do that, things will collapse. How did we get to this point in this country where we have the Chinese financial investments dictating or influencing our federal policy? That is not freedom. We are not free if we are in debt. The average American is $20,000 in debt in credit cards. We are not free if people who are disadvantaged cannot grab the keys to opportunity, because their school system is so bad that they don't graduate from high school, and even if they do they need remedial education and they don't have the education or the skills to access the economy of today and tomorrow, and they get marginalized into society as a ward of the state.

That is not freedom for them, and it's awful for us. It's bad economically. It's bad morally. It's bad socially. Freedom is about school choice. Freedom is about improving performance pay in schools. Freedom is about having the school system look more like an iPod than a 1940s industrial one-size-fits-all assembly line. Freedom isn't having the government take over the healthcare system, so your decisions are made by bureaucrats instead of between patients and doctors; freedom isn't having lunatics threaten the state of Israel and say they're going to wipe it out and tolerate that as some sort of a need to accommodate lunatics in foreign policy. We have lost our way.

Freedom starts with ending the culture of debt. This has been erased from our memory, but I think one of the things we should do is demand a constitutional requirement to balance the federal budget.

Comment: HT: Pawlenty Speech at Horowitz Freedom Center. A stand on fiscal responsibility is essential to the future of conservatism.

Did Obama Ever Meet With Blagojevich?

Did Obama Ever Meet With Blagojevich?


[Did] this meeting ever took place (from KHQA on Nov 5):

Ill. governor meeting with Obama today

CHICAGO, ILL. — Now that Barack Obama will be moving to the White House, his seat in the U.S. Senate representing Illinois will have to be filled.

That’s one of Obama’s first priorities today. He’s meeting with Governor Rod Blagojevich this afternoon in Chicago to discuss it.

Comment: It would be nice for the media to get to the bottom of this!

2006 a 'lifetime' peak in home prices?

Why home values may take decades to recover


The boom in home prices — fueled by heavily leveraged loans built on low or even no down payments — made it easy to forget that housing values had been remarkably stable for a half-century after World War II, rising at roughly the same pace as income and inflation. Prices soared in most of the country — especially in Arizona, California, Florida and Nevada and metro areas of Washington, D.C., and New York — during a brief period of easy lending, especially from 2002 to 2006. That era's over.

So far, home values nationally have tumbled an average of 19% from their peak. As bad as that is, prices would need to fall as least 17% more to reach their traditional relationship to household income, according to a USA TODAY analysis of home prices since 1950. In that scenario, a $300,000 house in 2006 could be worth about $200,000 when real estate prices hit bottom.

The price plunge has wiped out trillions of dollars in home equity and caused the worst financial crisis since the Great Depression. Susan Wachter, professor of real estate at the University of Pennsylvania, fears that foreclosures and tight credit could send home prices falling to the point that millions of families and thousands of banks are thrust into insolvency.

Comment: Longer article that is a worthwhile read. Explains how this housing crisis is different than previous.

My suggestion: "The Great Reset"

No Question We’re in a Financial Pickle. What Do We Call It?


The economy is formally in a recession, as the National Bureau of Economic Research and President Bush said last week. But the current crisis lacks a capital-letter name.

Then again, the Great Depression did not become “great” immediately, and World War I wasn’t known as No. 1 at the time. While the “economic crisis” — a term often used by journalists — has also been called the “credit crunch” and the “Wall Street crisis,” it remains the rare major news event without a defining logo, one that crystallizes attention and acts as shorthand for reporters.

Comment: I consider it "the great reset" after "the great excess".

UAW won't budge ... next up Chapter 11?

Union balks and $14B auto bailout dies in Senate


Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit's beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.

The breakdown left the fate of the auto industry - and the 3 million jobs it touches - in limbo at a time of growing economic turmoil. General Motors Corp. (GM) and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. (F) says it does not need federal help now, but its survival is far from certain.

Comment: GM and Chrysler will be in chapter 11 (where this belongs) in the 1st QTR '09. More from the NYTimes:

Senate Abandons Automaker Bailout Bid

The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which say they may not be able to survive through this month.


The failure in Congress to provide a financial lifeline for G.M. and Chrysler was a bruising defeat for President Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier on Thursday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy.

More from the Star Tribune: Domino effect of bankruptcy could begin quickly

GM and Chrysler are unlikely to be able to hold out until Obama takes office and that could affect their suppliers, many of which are barely holding on themselves.

With Congress unable to agree on a bailout for Detroit, the odds that General Motors and Chrysler will be insolvent by year's end are growing rapidly.

The companies have been warning that they would run out of money for some time, but crushing bills from their suppliers are coming due. It appeared unlikely that they could hold on until President-elect Barack Obama takes office next month, when he and a new Congress might be able to provide a lifeline.


Self-defense with .... "fox urine"

Man Sprays 'Toilet-Papering' Teens With Fox Urine


A 50-year-old man who told authorities he was fed up with teens toilet-papering his house decided to defend his property -- with a squirt gun filled with fox urine. Now, Scott Wagar is in trouble with the law.

Wagar pleaded not guilty on Wednesday in Kandiyohi County District Court to misdemeanor assault and other charges. He was released on personal recognizance.

According to police, Wagar was on his property Sept. 16 when he used night vision goggles to see 15-20 people running toward his place. He told police that he told them to leave, swore at them and sprayed them with the fox urine. He also allegedly struggled with one of the teens.

Comment: So .... what's wrong with that? Local reporting: West Central Tribune

Freakonomics: "When will they ever learn?”

What’s the Point of Bailing Out the Auto Industry?


Where does the auto bailout fit in?

It certainly doesn’t make markets more competitive; instead it subsidizes American oligopolists. It certainly doesn’t spur innovation; while the provisions may talk about this, bailouts have proven to be a poor way of getting firms to innovate.

It doesn’t reduce transactions costs; Chapter 11 bankruptcy procedures exist for that purpose, and they do well at it. The only possible economic argument might be fear that a bankruptcy by G.M. might spook many other markets. What about a bankruptcy by Wal-Mart? It’s much bigger than G.M., so wouldn’t the spooking effect be bigger?

Let’s face it — the bailout is purely political, pushed by troglodyte companies and their unions of high-paid workers, and helped by their agents — elected representatives from the many states in which auto production occurs. Once again, as was true with the Chrysler bailout of the late 1970’s, the taxpayer will take a beating. To quote the old protest song, “When will they ever learn?”

Comment: The Senate Republicans (bless their hearts) are playing tough on this: Republicans Float Auto Bailout Alternative

That proposal would impose even tougher requirements on the automakers than the bill approved by the House, and it would mandate the “auto czar” overseeing the rescue plan for the federal government to force the companies into bankruptcy should they fail to meet the requirements.

Under his plan, which was the subject of intense negotiations with Democrats, the automakers would be required by March 31 to cut their debt obligations by two-thirds — an enormous sum given that G.M. alone has more than $60 billion in debt.

The automakers would also be required to cut wages and benefits to match the average hourly wage and benefits of Nissan, Toyota and Honda employees based in the United States, and the companies would have to impose equivalent work rules. The plan would bar any pay for idled workers other than “customary severance pay.”

Democratic Congressional aides said that the United Auto Workers union did not support the proposal, but was willing to negotiate.

Is NASA out of control?

NASA has become a transition problem for Obama


NASA administrator Mike Griffin is not cooperating with President-elect Barack Obama’s transition team, is obstructing its efforts to get information and has told its leader that she is “not qualified” to judge his rocket program, the Orlando Sentinel has learned.

In a heated 40-minute conversation last week with Lori Garver, a former NASA associate administrator who heads the space transition team, a red-faced Griffin demanded to speak directly to Obama, according to witnesses.

In addition, Griffin is scripting NASA employees and civilian contractors on what they can tell the transition team and has warned aerospace executives not to criticize the agency’s moon program, sources said.

Griffin’s resistance is part of a no-holds-barred effort to preserve the Constellation program, the delayed and over-budget moon rocket that is his signature project.

Comment: The Constellation program would put US astronauts on the moon in 2019.



Comment: Another URL shortening service. Like Tinyurl.com but looks like you can create an account and save shortened URLs.

# 5 offered up to $ 1M for Senate seat

Emissaries for Senate Candidate 5 offered Blagojevich up to $1m for the Senate seat


According to the FBI affidavit in the case, emissaries for Senate Candidate 5 offered Blagojevich up to $1m for the Senate seat.

Describing the offer in an October 31 conversation recorded by the FBI, Blagojevich said: "We were approached 'pay to play'. That you know, he'd raise me 500 grand. An emissary came. Then the other guy would raise a million, if I made him [Senate Candidate 5] a senator."

Comment: Of course ... innocent until proven guilty! Who is # 5? See yesterday's post.

Blagojevich's schemes

The Plans to Sell a Senate Seat


The United States Attorney’s office in Chicago charged in a 76-page complaint that Gov. Rod R. Blagojevich of having numerous schemes for profiting from his office, including several related to gaining jobs or contributions in exchange for making a particular appointment to Barack Obama’s vacated seat in the Senate.

Comment: graphic from the NYTimes.



Comments: I've been concerned about this issue for 30+ years. It will not go away.

Get informed and involved: Peter G. Peterson Foundation and The Concord Coalition

How wage and price controls fostered health insurance

Why Tie Health Insurance to a Job? One thing we can all agree on is that portable coverage is more secure.


Employers didn't start offering health benefits roughly 60 years ago because they were experts in medical decisions. It was a way of circumventing the World War II wage and price controls. Barred from offering higher salaries to attract workers, employers offered health insurance instead. Aided by an IRS ruling that said workers who received health benefits did not have to pay income taxes on them, and by the fact that employers could write off the cost of the health benefits as a business related expense, this accidental arrangement became the primary way most Americans access health care.

The system worked at first, but a lot has changed in 60 years. Back then, the average soldier returning from World War II took a job with a local company where he would work for decades until he got a gold watch at a big retirement party. Today, lifetime employment is dead. By 42, the average American will change jobs 11 times.

Sixty years ago, most American companies competed only against neighboring companies for lucrative contracts. Today, most businesses are up against foreign companies that don't foot the bill for their employees' health-care costs.

Comment: Interesting about how health care benefits were a way to circumvent wage and price controls. Can any of my readers verify that this is fact?

On Autos - will Obama be "Chance the Gardener or Abraham Lincoln"

The Bailout That Won't


Understand something: Ford and GM in Europe successfully sell cars that are small but not cheap. Europeans are willing to pay top dollar for a refined small car that gets excellent mileage, because they face gasoline prices as high as $9. Americans are not Europeans. In the U.S., except during bouts of high gas prices or in the grip of a Prius fad, the small cars that American consumers buy aren't bought for high mileage, but for low sticker prices. And the Big Three, with their high labor costs, cannot deliver as much value in a cheap car as the transplants can.

Under a law of politics, such truths were unmentionable in last week's televised circus because legislators are unwilling to do anything about them. They won't repeal CAFE because they fear the greens. They won't repeal CAFE's "two fleets" rule (which effectively requires the Big Three to make small cars in domestic factories) because they fear the UAW. They won't hike gas prices because they fear voters.

And make no mistake: An even more massive auto wreck lies ahead when a soon-to-be taxpayer-financed and taxpayer-owned auto industry confronts a California rulemaking that, in a silly gesture against global warming, would render most of its auto designs, profit centers and tooling unsalvageable.

We hate to admit it, but the only good idea from the bailout debate is the proposal for a new "auto czar." Along with disposing of Chrysler and downsizing Ford and GM, his job should be to confront Congress with its own policy cowardice and failure. If saving gasoline and Detroit are both worthy goals, let's ditch CAFE and institute a gasoline tax to make consumers value the cars government is forcing auto makers to build. If Congress doesn't have the tummy for that, at least ditch the "two fleets" rule so Detroit can import small cars to meet the mandate.

Alas, Barack Obama's vaunted "change" apparently doesn't include spending the political capital to make Congress acknowledge the failure of CAFE. If he can't do better than throw taxpayer money at a dismal policy disaster like our fuel-economy regulations (and so far he seems to be joining Congress in pretending it's all Detroit's fault), we might as well give up on his presidency along with any hope of progress on the nation's other unresolved dilemmas.

His campaign never really answered the question of whether he was Chance the Gardener or Abraham Lincoln. We might as well find out now.

Comments: Chance the Gardener: Being There. Another opportunity for Republicans to stand together and vote no! Some Chance quotes:

President "Bobby": Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?
[Long pause]
Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.
President "Bobby": In the garden.
Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.
President "Bobby": Spring and summer.
Chance the Gardener: Yes.
President "Bobby": Then fall and winter.
Chance the Gardener: Yes.
Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we're upset by the seasons of our economy.
Chance the Gardener: Yes! There will be growth in the spring!
Benjamin Rand: Hmm!
Chance the Gardener: Hmm!
President "Bobby": Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I've heard in a very, very long time.
[Benjamin Rand applauds]
President "Bobby": I admire your good, solid sense. That's precisely what we lack on Capitol Hill.

Stimulus package: A revealing wish list

Stimulus Shouldn't Be an Excuse for Pork


On Monday, the U.S. Conference of Mayors went to Capitol Hill to ask for a handout, or as they put it: "We are reporting that in 427 cities of all sizes in all regions of the country, a total of 11,391 infrastructure projects are 'ready to go.' These projects represent an infrastructure investment of $73,163,299,303 that would be capable of producing an estimated 847,641 jobs in 2009 and 2010."

A wish list that is 11,391 projects strong! What vital infrastructure projects would cash-strapped taxpayers get for their $73 billion? Here's a sampling:

  • Hercules, Calif., wants $2.5 million in hard-earned taxpayer money for a "Waterfront Duck Pond Park," and another $200,000 for a dog park.
  • Euless, Texas, wants $15 million for the Midway Park Family Life Center, which, you'll be glad to note, includes both a senior center and aquatic facility.
  • Natchez, Miss., "needs" a new $9.5 million sports complex "which would allow our city to host major regional and national sports tournaments."
  • Henderson, Nev., is asking for $20 million to help "develop a 60 acre multi-use sports field complex."
  • Brigham City, Utah, wants $15 million for a sports park.
  • Arlington, Texas, needs $4 million to expand its tennis center.
  • Miami, Fla., needs $15 million for a "Moore Park Community Center, Tennis Center and Day Care" facility. The city is also desperate for $3.6 million to build a covered basketball court and a new tennis court at Robert King High Park. Then there's the $94 million Orange Bowl parking garage you are being asked to pay for.
  • La Porte, Texas, wants $7.6 million for a "Life Style Center." And Oakland, Calif., needs $1 million for Fruitvale Latino Cultural and Performing Arts Center.

And you thought infrastructure investment meant roads, bridges and schools. It is clear that any infrastructure stimulus money given to the country's mayors will lead to thousands of tennis centers to nowhere. News alert for mayors: We are officially in a recession. American families have to get by with less, and so do American cities.

Comment: My grandchildren shouldn't have to pay for these tennis courts, water parks, and duck ponds! Republicans - this is your golden opportunity to be fiscally responsible and vote AGAINST this wasteful folderol!

The Chicago political culture: "where money and government power seem especially fungible"

The Chicago Way, on Tape: This wiretap was golden


The Governor's comments were taped in court-approved wiretaps and include such self-incriminating classics as: "I've got this thing [the power to appoint Barack Obama's Senate replacement] and it's [expletive] golden, and, uh, uh, I'm just not giving it up for [expletive] nothing. I'm not gonna do it. And, and I can always use it. I can parachute me there." We recommend the entire 76-page FBI affidavit for every high school civics course as proof of the need for political checks and balances.

Comment: 76-page FBI affidavit & Dept of Justice press release. If you have Acrobat Reader - search for "Candidate 5" in the 76-page FBI affidavit. Think "son of shakedown". More from the Wall Street Journal editorial:

If convicted, Mr. Blagojevich would be the second consecutive Illinois Governor to be found guilty of a felony, and the fourth in 35 years. We'd ask if it's something in the water, but that would be unfair to the Chicago River. It is certainly something in the Chicago political culture, where money and government power seem especially fungible.


Now would be a good time for the President-elect to say that Mr. Blagojevich and his cronies should have nothing to do with naming Mr. Obama's successor. And that, given the taint of corruption that now hangs over any choice, the state should hold a special Senate election.