Advocatus Diaboli

I spent the fall 1992 semester in studying in Prague. (Yes, I was actually out of the country for the 1992 Presidential Election. I voted via absentee ballot). Back then, Prague was the capital of Czechoslovakia. I was actually in the press seating of the Parliament when the country voted to dissolve itself. But that is a story for another time. It was a lot of fun. The country was three years removed from the Velvet Revolution and was still being run (for the most part) by the intelligentsia (as opposed to the bureaucrats). What prompts this journey down memory lane? Thanksgiving. And a toast given at the end of the meal by one of the guests.

I think Thanksgiving, as it is celebrated in this country, maybe the most unique Holiday celebrated anywhere. The 4^th of July is a close second. But other countries have celebrations of patriotism. Thanksgiving has always been a holiday for friends and family to come together for a day and eat and enjoy one another’s company. There is no holiday where folks travel home, attend a local sporting event to see old friends, and then dine with family and friends, and then fall asleep watching football on tv.

For an American traveling abroad, the chance to celebrate this most American of holidays with fellow Americans has an added significance. It is not as important whether you are from a Red State or a Blue State. It is more important that you are an American.

On that Thanksgiving Day, 1992, the students of American University prepared the Thanksgiving feast. Our advisor Joseph “Pepe” Lustig, asked his father, Arňost, who was traveling from the US to join us for Thanksgiving, to pick up the turkey whilst in Germany. The guest list included all of the students on the program (about 20), Pepe and his Dad. In addition we invited a group European students we had met that were studying film in Prague. Also, the professors who were instructing us were invited. Pepe is a documentarian and his dad, who is something of a literary god in the Czech Republic, invited some of their friends, including some government officials, and two gentlemen who had won academy awards for short films documentaries. (As one of my friends remarked, “What, you don’t normally invite Academy Award winners to your Thanksgiving dinners?”)

The dinner was memorable for a number of reasons: First, we were using a private dining room of a local hotel. The room had low ceilings and no windows. It felt like being in a well furnished bunker. (It also allowed for a number of World War II jokes about the final days in Berlin). We cooked the meal ourselves and didn’t get food poisoning! We also had to convince the local MacDonalds that, yes, we were trying to buy 30, and not 3, apple pies. And to complete the ritual of Thanksgiving, the guys played flag football in a small park much to the bemusement of the locals.

What stands out for me the most about that Thanksgiving was a toast given by one of our professors, Jan Wiener. He was a Czech national who has had an interesting life. He was our history professor which was good because he lived through a lot of history. Through various twists and turns, he became a US citizen. I have always regretted not remembering exactly what Mr. Wiener said in his toast. The gist of the toast was that those of us who are Americans by birth do not fully understand what it means to be an American. People like him (who survived World War II and time in a communist prison camp) and Arňost (who survived the Holocaust and became an American) truly appreciate what it means to be an American because they have experienced life as being something other than an American.

It was a very beautiful speech and it moved me. (This is why I think I can’t remember exactly what he said.) When he finished the speech, he raised his glass and toasted, “God Bless America.”

I think that says it all.

Happy Thanksgiving.

God Bless America

As some of you might know, I have moved from Boston to New York (the city of White Plains to be exact). I'm still adjusting to all the little different things. One thing I have noticed is this: New Yorkers are friendlier than Bostonians. Seriously. Even when one would not expect them to be so. I give you as an example, this true story vignette  from earlier this evening outside our apartment:

My wife and I are walking down the street towards our apartment. In front of the building is a guy in a wife beater and Yankee's cap screaming at someone in a car. Absolutely hollering and talking about how he should just smack them, etc. The guy looks up, sees us and says, "Hey, how you doing?"

We say fine, and keep walking. It gets quiet. About five seconds after we turn towards our building, the guy starts up where he left off in his rant. As if this was the most common thing in the world.

Such is life in New York.

(A brief interlude whilst I deal with the myriad of life changing events about to occur in my life)

 

When I was in law school, I took a course on Wills and Trusts. We were studying a case about the validity of will that had been changed by request of the client, but not signed at the time of death. After we finished discussing the legal matters, our professor told us the background of the case:

 

A woman wanted to change her will. She contacted her lawyer at the end of June and told him what she wanted. He agreed to make the changes, but didn’t get around to calling her, as the lawyer was, as they say, rather fond of the drink. Thus, the will had been changed, but not signed before the woman died on the 4^th of July. The moral of the story, the professor said was this:

 

Never celebrate the Fourth with a Fifth on the Third.

 

Have a Safe and Happy Fourth of July!

I haven't had a chance to read the full decision yet (it's a 185 pages of legal reasoning). The court has given something to both sides, but will probably make no one happy. The Court upheld the constitutionality of Proposition 8. However, it has also ruled that all same sex marriages occurring before November 5, 2008 are still valid.

Once I read and digest, I will give my opinion.

The President is expected to announce shortly that he is nominating Federal Appeals Court Judge Sonia Sotomayor to the Supreme Court. Judge Sotomayor would be the first Hispanic Supreme Court justice. I don't know much about Sotomayor, so I will reserve judgment for now.

But....

Today the California Supreme Court will announce its decision in Strauss v. Horton, Tyler v. State of California,and City and County of San Francisco v. Horton. These are the cases regarding Proposition 8, effectively outlawing same-sex marriages. (I discussed the whole bro-haha here and here). The California Supreme Court's decision will be one of the biggest stories of the day. So why would the President announce his choice today when he is going to share the news cycle with California? Why not make the announcement tomorrow? As the cliche says, You only get one chance to make a first impression. And this is not the way to make sure everyone gets to know the Judge as the President wants the judge to be known.

Quite Curious.

I realize the economy is still in the toilet and unemployment is nearing double digits. But, let's all calm down, people. This weekend brought news of a new strain of the flu. And yet, if you look at the news, whether it is a newspaper, television, or internet site, everyone is hyperventilating about the Swine Flu. You would think this was something absolutely earth-shattering.

It’s not. 

It’s happened before.

It will happen again.

The media hype is pathetic. Instead of just reporting the news (There’s a new strain of the flu, be careful), the mainstream media is trying to scare us to death. You know we have officially reached the tipping point into lunacy when the government starts talking about giving the swine flu a new name because calling it the swine flu might hurt the pork producing industry. You can’t make this stuff up.

This is simply a new strain of flu. Most influenza viruses that infect humans have jumped species from both pigs and birds. The only difference is this: there is no vaccine.

Now yes, there seems to be a lot of cases being detected. But remember, the last time a swine flu occurred was 1976. Medical testing capabilities have vastly improved in the last third of a century. Back then, not everyone who had the swine flu was diagnosed as such. But today, better testing means more positive results. It doesn’t mean this is a more dangerous virus. It is just easier to find.

What does this mean? If you are susceptible to the flu, take the normal precautions. If you have the flu, stay home! To prevent catching or giving the flu, use common sense: cover your mouth when you cough, wash your hands after using the restroom. (And, by the way, don’t bother getting those mouth masks from the hardware store. Those masks are designed to prevent dust from getting in your lungs. The filter is too large to block a microscopic virus).

So, let’s all get a grip.  Here are things far more worrying than the flu:
 

1.       Can the Bruins win the Stanley Cup this year?

2.       What is the fascination the Red Sox have with J.D. Drew?

3.       Will the new Star Trek movie satisfy both hard core and casual fans?

4.       How, exactly, did the White House think flying a 747 (with an F-16 chasing it) low over Lower Manhattan, without alerting the public, was a good idea?

Or as the late, great Douglas Adams might say, “Don’t Panic.”

There's the cliche that says "Life is what happens while you're making plans."

The problem with cliches is sometime, the darn thing is true.

So, while I had planned on finishing my Roland Burris blog and comment on all sorts of things going on since February, life has been intruding. I have moved both my residence and my job as well as been focusing on my forthcoming wedding. And this has taken up more time than I have realized. So, if things settle down a bit, I plan on commenting on current events as well as the following:

1. The Curious Case of Roland Burris, part duex.

2. Vermont does gay marriage right.

3. The US v. Pirates, or why we have a navy.

I originally drafted this blog entry in the beginning of January. Event caused it to be put on the back burner. By the time I got back to it and polished it up a bit, it seemed a little dated. At that point, I had plans to use it for filler. But, being this is a tale of an Illinois politician, Chicago rules apply and a new scandal makes this story relevant all over again. And what story would this be. It would be the Curious Case of Roland Burris, Junior Senator from Illinois. 

Barack H. Obama, had been the Junior Senator until he was elected President of the United States. Shortly after the election, then Senator Obama resigned his Senate Seat. Under Illinois law, the governor of the state has the duty to appoint a Senator to fill the seat until the next scheduled  election is held. 

As we all know, the governor of Illinois at the time was one Rod Blagojevich. In December of 2008, his honor was indicted by the US Attorney’s Office in Chicago for, among other crimes, attempting to sell the Senate seat formerly held by President Obama. (for more on this, see my blog entry). Instantly, Democrats began to distance themselves from “Blago”. On the national level, the Senior Senator from Illinois, Richard Durbin, demanded Blagojevich resign. Durbin also opined that the Illinois Legislature should strip the governor of the power to appoint. Instead, the seat filled by a special election. The Senate Majority Leader, Harry Reid, said under no circumstances would a Blagojevich appointee be admitted into the Senate. The Senate had the power to decide who was and wasn’t a Senator and that power would be used to block a Blago appointment from being seated. On the state level, the Illinois Secretary of State, Jesse White, said he would not sign any document appointing anyone to any position so long as Blagojevich was Governor. And because his signature was needed, White would block the appointment from going forward. The general consensus from the Democratic Powers that Be was, “Thanks Blago. Time to go. Don’t let the door hit you on the way out. And oh, don’t be an idiot and appoint someone.” 

The problem is, Blagojevich isn’t stupid. Venal, petty, arrogant? Oh yes, he is all that and more. But not stupid. The Democratic Powers that Be? Well, not so bright. Shortly after the calls for the governor’s appointment power be stripped, Democratic Leaders in Illinois (and in Washington, DC) started to realize the Blagojevich scandal was so upsetting to the people of Illinois (possibly because the whole holding up a Children’s Hospital for campaign donations) that there was actually the possibility of the people of Illinois doing something foolish and electing a Republican.  And so the party who, a mere eight years ago, cried , “Count every vote” decided there should be no vote where the outcome was not preordained. There was no need to have a special election, the Democrats said as they waved their hands like Jedi Knights attempting mind control. To have an election cost too much money. And then there would be the need for the voters to have to think and choose. And that really wasn’t necessary, especially if that choice would result in a Republican being elected. No, what was better was for the governor to resign. It was probably around this time that someone reminded the Democratic Powers that Be that Blagojevich would not leave voluntarily unless he got a little somethin’ somethin’ for his troubles. And since that was not possible, given that was what got the governor indicted, it was said he would have to be impeached. 

Once impeached, the Lt. Governor could make the appointment of a strong politician who would be able to hold onto the seat in the 2010 election. And that was what the party decided. Blagojevich would be impeached, the new guy would pick the Senator and all would be right with the world. And for good measure, the Democratic Powers that Be reiterated their views that Blagojevich had no chance of having his appointee admitted into the Senate. Nothing was heard from the Blagojevich camp. This was taken as a sign of the acquiescence from the governor. (Apparently none of them had listened to the FBI tapes of Blago). Committees were duly formed to take care of this matter quickly. Of course, quick is a relative term. In this case, the impeachment committee moved at a pace that makes a glacier look like Parnelli Jones at the Indy 500. 

The Illinois Governor made it clear he was going nowhere. The Illinois Legislature started to look into how they should impeach the governor. Christmas came and went and not much happened. The committee formed to determine whether or not the governor should be impeached moved at glacial speed. Harry Reid kept wagging his finger and warning Blagojevich not to appoint anyone. 

And then came December 30, 2008. On that chilly Tuesday, Governor Blagojevich called a press conference. Soon, it was leaked that he was going to name Roland Burris, one time Illinois Comptroller and Attorney General, to fill Obama’s seat. The Democratic Powers that Be went into full panic mode. They were stunned that Blagojevich didn’t do what they wanted him to do. Never, cried Harry Reid, would Burris sit as a Senator. The Majority Leader called on Blagojevich to reconsider or else (though it was never clear what the “or else” was). Reid did everything short of stomping his feet and threatening to hold his breath. Illinois Secretary of State White repeated he would not sign the necessary documents and thus prevent the appointment from becoming official. 

Despite the howls, or perhaps in spite of, at 2pm, Chicago time, Governor Blagojevich stepped before an assembled crowd of journalists and announced his selection of Roland Burris. Blagojevich implored the media not to judge the appointee by the acts of the appointer. The governor then listed Burris qualifications, including Burris’ time as comptroller, attorney general, his fashion sense, etc. Oh all that, plus Roland Burris’s race. 

You see, Roland Burris is African American. Blagojevich alluded to the fact that Burris was the same race as then President-elect Obama. 

Burris then stepped before the microphone and made a rambling speech and took a few questions. He then stepped aside to let someone else speak to the media. The someone else was Bobby Rush, Congressman for Illinois’ First Congressional District, including most of the South Side of Chicago. Bobby Rush was also a founding member of the Black Panther Party.

Congressman Rush said Burris was a good appointment because he was African-American. And, because Obama was leaving the Senate, there were no more African Americans in the Senate. And, if anyone opposed Burris’s appointment as Senator, that person was a racist. The statement Rush gave was slightly more windy, but the sentiments were the same: Roland Burris deserved to be a Senator on sole account of his race. The news conference ended with a stunned silence as the mainstream talking heads try to figure out what had just happened. 

There was a slight pause in the condemnation of Blagojevich’s actions as the Democratic Powers that Be recovered from being accused of potential, pre-emptive racism. Secretary White, also African-American repeated he would nothing to help Burris become a Senator. The So did the politicos in DC. Harry Reid said the appointment was DOA. But the Democrats also quickly pointed out they were not racist. In fact, some of their best friends were African Americans. Why, in November, they had voted for an African American to be president. So, no racism here. No sir. But the beads of sweat were forming. The cracks in party unity were beginning to show. It was all well and good to scream racism at Republicans, it was something completely different to have it screamed at Democrats. The Congressional Black Congress, happy not have to deal with Charlie Rangel’s tax problems leapt to the defense of Burris.   

As 2009 dawned, the mantra of the Democratic Powers that Be was, it’s not Burris, it’s Blagojevich. But the party members weren’t all singing the same tune. Many thought it was perfectly acceptable to have someone appointed to the Senate to fulfill an invisible quota. The tune was then changed to musing about how much better it would be if Roland Burris turn down the appointment. There was an unspoken implication that if Burris turned it down, he might, possibly, could be appointed after Blagojevich was drummed out of the party. 

Burris, who has built himself a mausoleum, already had the Senate appointment chiseled into his list of accomplishments. He was not going to turn down the job, especially without an iron clad guarantee he would be reappointed. And then the lawyers pulled Reid aside and said the Constitutional provisions allowing the Senate to determine who was a Senator couldn’t be used in this case. The Senate could only deny someone a seat if they failed to meet the qualifications set forth in the Constitution. More sweat began to pour as the Democrats realized they were running out of options. Reid began hemming and hawing when confronted with the question, mumbling about how it was never about Roland Burris. Rather, things seem to have been misunderstood and there was room for compromise. It wasn’t clear what compromise there could be. Either you are a Senator or you are not. But, Reid said with a shake of the head, even if he wanted to admit Burris into the Senate, he couldn’t because the appointment wasn’t valid because the Illinois Secretary of State hadn’t signed the necessary documents. Without the proper signatures, the Senate couldn’t consider the appointment. 

Secretary White was having none of this. He was being made the scapegoat, he bleated. His signature wasn’t really need, he admitted. It was more of a ceremonial duty and that once Blagojevich made the appointment, there was nothing the Secretary of State could do. It was at this point White began to resemble the “Leave Britney Alone” internet guy. After a court order was duly obtained (CYA Insurance), it came to pass that Roland Burris, a political appoint of Rod Blagojevich became the newest Senator from the State of Illinois on January 15, 2009. 

Blagojevich, who may be a few ants shy of picnic, is a political genius. Roland Burris is a Senator today not because of anything he has accomplished but rather because Blagojevich knew where to apply maximum pressure to the most vulnerable place. He exploited the Democratic Party’s basic political philosophy against the party leadership. The governor knew the party didn’t want to risk losing the Senate Seat to a Republican. The party of “Let Every Vote Count” became the party of “For God’s Sake, Don’t Let the People Decide.” Democracy is fine in theory, but not when it interferes with power. And more importantly, Blago was being held to a double standard. The professions by the party of being shocked of pay to play when it comes to appointments had to be galling to Blago. It happens all the time and they wouldn’t admit. Revenge is a powerful fuel. 

The Democrats also thought Blagojevich would simply sit in his office and do nothing, be impeached and let the Lt. Governor make the appointment. Apparently the Democrats hadn’t read any of the press coverage about a man willing to use dying children to raise campaign funds. Though, it does seem like Blagojevich did wait for a while. Perhaps he would not have made the appointment of Burris if the state legislature had passed the bill stripping the power of the governor to make political appointments. 

Ultimately though, Blagojevich used his party’s most devastating weapon against the Democrats. Blagojevich used the race card. For a party that believes in quotas and racial preferences, the Democrats were simply incapable of standing firm when the question of race was used against them. The minute Bobby Rush appeared at the first press conference, it was game, set, match for Blagojevich.   

And that is why Roland Burris is a United States Senator.

 

Next: Why Burris will stay a United States Senator

There seems to be a disturbing trend in Secretaries of the Treasury forming. People tend to sell their stocks when a Treasury Secretary explains how the government is going to save the day.

Recall the economic events of last fall. Banks were imploding, the country was losing jobs at an alarming pace and the stock market was free falling like a parachute-less skydiver. To combat these disturbing trends, President Bush’s Treasury Secretary, Henry “Hank” Paulson would give a speech on how the government was dealing with the crisis. Every time Hank opened his mouth to explain how the latest plan (be it TARP, reformed TARP, sacrificing chickens, etc.) would save the economy, the markets would drop. As to why this was happening, according to the media, was Paulson was inarticulate in explaining the finer points of the plans. This was proof of Bush’s incompetence. He, and the Republicans, didn’t understand the problem. This was a central plan to candidate Obama’s election campaign. Obama promised to deal with the issues of reviving the economy and get the credit system working again immediately after taking office. To show how serious he was, President Obama nominated someone whose mere presence in the government would inspire trust and confidence on Wall Street. And thus Timothy Geithner was duly nominated as Secretary of the Treasury. 

Geithner, at the time of his appointment, was the Federal Reserve Chairman for New York. He was widely seen, in both Democratic and Republican circles, as very influential with Wall Street. The public was assured Geithner was some form of über-genius of economics, and would know how to stabilize the financial sector of the economy. We needed, the media told us, Tim Geithner to save us. President Obama called Tim Geithner “the chief economic spokesman for my administration.” This was why the matter of Geithner’s tax delinquencies was waved off by the press and political classes. It didn’t matter the man failed to pay taxes, he was the Man with the Plan. 

Geithner was approved by the Senate and promptly went to work on crafting the Financial Stability Act. This, we have been breathlessly told over the past few weeks, would lay out exactly how the government planned to rescue the financial sector of the economy. At the end of last week, white smoke was seen from the roof of the Treasury Department, indicating the plan had been crafted. All would be made right with the financial world. Originally set to debut on Monday, it was pushed back until Tuesday so it would not have to compete for press coverage with the stimulus debate in the Senate. 

The public (i.e. Wall Street) was told this was going to be a comprehensive plan. This wouldn’t be a TARP plan roll out by the tongue-tied Paulson. No sir-ree, Bob. This would clearly set out what was needed and how. Even Obama helped hype the Tuesday event. During the President’s Monday night press conference, the Obama refused to answer any questions regarding the stabilization plan or how his administration would save the financial industry. Geithner would explain all come Tuesday. At one point, the President added, “I’m going to make sure that Tim gets his moment in the sun.” 

On Tuesday, Tim Geithner had his moment in the sun as he unveiled his plan to rescue the financial industry. Speaking in nervous tones and in small sentences, the Secretary unveiled his plan. And when he was finished, the Dow Jones Industrial Average dropped 382 points, over 4% of its value. The Standard and Poors 500 Index dropped 4.6%. That’s right: The chief economic spokesman for the Obama administration opened his mouth and stock holders stampeded to the exits. This is the great economic hope? Exactly how is Geithner different from Paulson? It’s like a bad parody of the old E.F. Hutton commercials, When Treasury Secretaries speak, money flees. 

"We understood that some might be disappointed that we didn't announce a large bailout program," said a Treasury spokeswoman, Stephanie Cutter.  Disappointment? It wasn’t a disappointment. Disappointment? Disappointment would have been if it was announced the government was going to buy the bad assets with jars of salmonella tainted peanut butter. No, this wasn’t disappointment. Geithner’s “plan” was met with stunned, slack-jawed silence as investors realized the “plan” outlined was the best the government could come up with and it was nothing more than vague statements. Cutter tried to spin this saying, “But our focus is on what will be the best comprehensive plan to protect taxpayer dollars, jump-start lending and bring forth a long-term financial recovery, not the hour-by-hour movement of the markets or a particular company's stock on any given day," The announcement for Geithner’s speech suggested this was to the unveiling of the comprehensive plan, not a status update that the Government was still trying to figure out what it needed to do. 

At least Paulson had concrete plans to discuss, even if he was really bad at doing so. Geithner’s plan had nothing. Bumpkis. It was not a plan, at least not by the definition of a plan in the dictionary. The Financial Stability Plan is nothing more than a combination of information the public already knew and vague statement of what the government is thinking about doing based on the information it had. Consider this portion of Geithner’s description of how the bad assets will be handled: 

We will establish a Public-Private Investment Fund. This program will provide government capital and government financing to help leverage private capital to help get private markets working again. This fund will be targeted to the legacy loans and assets that are now burdening many financial institutions. 

We will establish? Why haven’t you already established it? Isn’t that what you were brought in to do? 

We are exploring a range of different structures for this program, and will seek input from market participants and the public as we design it. 

This is the Treasury Secretary of the United States, introducing the plan to save the financial industry and he has no idea how this thing is going to work? He is still looking for help? Shouldn’t he have done this before he went public? Would it have been that difficult to use a cocktail napkin to sketch out what the Fund will look like and how it will work? 

And lest you think I’m picking on just one part of the Geithner’s statement, I’m not. Every part of the “plan” introduced had the same caveats. We are going to do something, just as soon as we figure out how. The government, we were told yesterday, is concerned about the number of Americans losing their home. Because of that, the government will commit $50 billion to stem the tide of foreclosure. Great. How will it work? Um, we’re not sure. The Treasury is still trying to figure that out. We’ll get back to shortly. 

Investors took one look at this “plan” and realized Geithner has no idea what to do. Geithner went from being the Great Economic Savior to the titular Wizard from the Wizard of Oz. Confidence inspiring this is not. 

Most people understand the problem: The banks of the US have trillions of dollars in toxic assets sitting on their books. The valuation the banks give to their individual worth is…well, worthless. The banks don’t believe each other because the bankers know the true value of the assets are actually worth less than what they appear, even with the mark to market rules. This is why credit had dried up. If Bank A knows its worth is 50% less than the paper value, it is going to assume Bank B is as bad or worse. Bank A won’t lend money to Bank B, because there is a good a chance that Bank B will be declared insolvent by the government because of the toxicity of Bank B’s assets. At that point, the money Bank A gave to Bank B is lost forever as a bad loan, further weakening the solvency of Bank A, increasing its chances of being seized by Uncle Sam. Better to do nothing and hoard the money until things improve. Multiply that by a 1000 and you understand what is going on in the credit market. When Banks don’t lend to one another, they don’t lend to businesses. 

One possibility has always been to simply let the market take of things and let the banks collapse. The FDIC would step in and take control of the failed banks. The assets of the banks would be stripped out and sold as market conditions dictated to other banks. The problem would be a repeat of Bearn Stearns and Lehman Bros. crises of last year. The markets would continue to fall, credit would seize up even more and the economy would take another body blow. It might not prolong the Recession, but it could deepen it. 

Nobody wants such a massive bank failure on his watch. The solution is as obvious: someone has to buy up the toxic assets and when the markets stabilize, the value of the assets would improve. The government has experience in this arena. In the late 190s, with the collapse of the Savings and Loans industry, the government created the Resolution Trust Corporation (RTC). RTC was chartered to take in all of the assets of the failed S&Ls, good and bad, and sell them on the free market. By the mid 1990’s, RTC was dissolved as it the entity had fulfilled its mandate. It sold all of the bad assets, and had managed to turn a small profit in doing so. 

This is what TARP was supposed to do. It failed because Paulson realized $700 billion was not enough money to pull it off successfully. That is why TARP money went to investing in banks. It was a short term plan to keep the banks liquid until Obama’s Economic Dream Team could take over and formulate the plan necessary to save the financial industry.  And Geithner was the one who was supposed to figure out what would be the means to save the day. 

Based on the statement Geithner gave yesterday, the Public-Private Fund is vehicle for taking the toxic assets. But no one knows how it will work and/or if it will need more money from Congress. (Going out on a limb, but I’d say the answer to that question will be yes). It appears that the Fund, as public/private entity will need the government and the holders of these toxic assets to cooperate on finding the true value of the assets before they are taken off the books. This has been the problem since the original TARP program was introduced last October. The government has every incentive to drive the price down, minimizing public investment in bad assets. The companies have every incentive to drive up the announced price to reduce the hit on their books. Everyone is real fuzzy on how the value is supposed to be determined. And Geithner knew, or reasonably should have known all of this because the New York Federal Reserve was one of the major players in getting the original TARP passed by Congress. The only thing that has changed since October is the party in charge of it all. 

Geithner was appointed Treasury Secretary to formulate the plan to would do what TARP was supposed to and get the books of the financial industry cleaned up. So it was not an unreasonable assumption that Team Obama would actually have a plan in place before having a press event on the topic.  Instead of a plan, we got pabulum. There is no plan. Geithner’s moment in the sun left him, and the economy, badly burned.

As early as tomorrow, the United States Senate is poised to pass a spending bill worth $827 billion dollars. Once passed, the bill will have to reconcile with the $819 billion spending package passed by the House of Representatives at the end of January. These spending bills have been touted by the President of the United States, the Democratic leaders, the ever-compliant media, and some Moderate Republicans as a means of stimulating the economy. The theory behind the stimulus package is thus: the government pumps a whole bunch of money into circulation by paying for various projects. This economic theory is attributed largely to the work of British Economist John Maynard Keynes. Keynesian Economics was in disfavor until the beginning of the recent economic troubles (Pick whichever term you prefer Recession, Depression, Repression). Keynesian theory holds the Government can get the economy back on track by spending large amounts of money on projects. These government projects are mainly in construction. Construction requires new workers and large amounts of supplies.  The government hires companies to build the projects. The recipients of the governmental largesse go out and hire workers and buy supplies. The suppliers then take the money and purchase the materials needed to make the supplies. And so on down the chain. In addition, all of the workers use the money they are making and buy basic goods and services and that money works its way through the economic system. 

(Now, to me, this sounds like trickledown economics, but all of the smart people in power deny this and claim trickledown economics is where money is taken away from the government, given to be companies who then use the money to lavish on their owners, who in turn, use this money to buy new houses or redecorate old ones, requiring the use of laborers and suppliers. The suppliers then take the money and purchase the materials needed to make the supplies. And so on down the chain. In addition, all of the workers then use the money they are making and buy basic goods and services and that money works its way through the economic system. So, as you can clearly see, the concepts are completely different. But I digress.). 

The most famous Keynesian experiment was the New Deal. The effectiveness of it is in question. There are those who believe it worked. Others claim the New Deal didn’t help and in fact prolonged the depression. A third school says the New Deal didn’t go far enough. 

The stimulus package, as it is currently constituted is Keynesian. It is spending money for the sake of spending money to restart the economy. The government is saying this money has to be spent right away to prevent a complete meltdown of the US economy. Of course, that was what was said back in October to justify passage of the TARP. (And we all know how effective that was) Congressional Democrats have seized upon the Stimulus package to insert all sorts of spending for their favorite special interests. The bill has more pork that a ham-stuffed loin wrapped in bacon.  Among the items in the current stimuli bills are the following: 

·         $88 million to study if the Coast Guard needs another ice-breaker.  

·         $400 million for the prevention of STDs.

·         $50 million for the National Endowment for the Arts.

·         $15 billion for boosting Pell Grant college scholarships.

·         $1 billion for community-development block grants.

·         $4.2 billion for “neighborhood stabilization activities”

·         $650 million for digital-TV coupons (for the people living under rocks who have yet to realize they need to buy one of the boxes to make sure they can keep watching Dr. Phil after the transition to digital broadcasting despite the thousands of ads broadcast over the past year).

These are just some examples. And some of these programs might be worthy concepts, such as increasing Pell Grants, or the community development grants.  But, $400 million for the prevention of STDs?  Not going to stimulate the economy. (And instead of $400 million, get people jobs, that’ll decrease that time folks have to <bleep>-around and catch STDs in the first place). And I’m sure the guy who just lost his job from the Caterpillar Plant really thinks giving $50 million to the NEA for a new crop of Robert Maplethorpes is the best way for blue collar workers get back to work. These programs will not do what the American people have been told this bill is all about. It will not jumpstart the economy or create new jobs.

According the Congressional Budget Office (CBO), which is nominally non-partisan, but overseen by the Democrats running the House and Senate, the stimulus package is, in the long run, more harmful than if we doing nothing. The bill is not using the money to improve the economy and will actually hut it. But this is a crisis and politicians must be seen as doing something, even if that something is counterproductive. And the only thing the folks running DC seem to know what to do is to spend taxpayer money. 

In addition, reports, including those by the government suggest the stimulus package will take a while before it has any impact on the economy. And a lot of the money may not be spent until after the Recession/Depression/Repression ends. (Current economic forecasts suggest this recession will end in 2011). Journalists have, with a few exceptions, been falling over each other trying to explain this away. The theme of their “reporting” has been: it doesn’t matter if the money is spent or what it is spent on, just as long as the money is spent. And let’s be clear, the Democrats aren’t denying this is spending bill for the sake of spending. Some, including the Chairman of the House Ways and Means Committee, David Obey (D, 7^th WI) don’t care. “So what?” he said when asked. “This is an emergency. We’ve got to simply find a way to get this done as fast as possible and that’s what we’re doing.” The key phrase is “So what.” Obey doesn’t care where the money goes so long as he gets to spend the money. And being a Democrat, Obey won’t take any responsibility is the money is wasted. “The person who spends the money will be responsible…And guess what? Regardless of what we do, there will be some stupid decisions made.” Of course the first stupid decision is letting people like David Obey near the stimulus package. 

While some Democratic Officials, including Obey, claim there will be massive oversight of the spending, it’s simply not true. Money will be given to state and local officials with no rules on how it is to be spent. And the speed with which the government is moving means no one will know what was done with the money until it is too late. And if history is a guide, the most will be squandered and no lasting effect on the economy. 

If there is going to be massive government spending, it should be spent on those matters which can do the most good, in the shortest period of time. Two years ago, on August 1, 2007, the I-35 Bridge collapses in Minneapolis, Minnesota, killing 14 and injuring 145. The bridge had not been properly maintained or inspected. The Department of Transportation identified over 300 bridges that were in critical need of repair. These are shovel ready projects. We know they have to be fixed; we know how much it would cost. All that is missing is the funds to make it happen. The sewer system in many Northeast Cities is in need of massive overhaul. These systems are over 100 years old, and leak badly. It will take billions to repair the system in and around Boston alone. This would be a twofer: shovel ready projects to repair the infrastructure and a chance to cut down of wasting water, thus helping the environment. This is what we should be spending money on. But, Washington would rather spend our money on the pet projects of special interests. 

So, instead of special interests dictating the terms, allow me to make my modest proposal as to how to quickly inject a massive amount of money into the economy to jump start things. And for the sake of this proposal, we shall stipulate to the following: 

1.      Keynes was correct and government spending can end a recession.

2.      It doesn’t matter where the money is spent, so long as the money is spent.

 

Here’s the solution: let the American people spend the money. Directly. Give every adult, able-body or not, a chunk of money and make the spend it. Let’s break it down: 

The US population is approximately 300,000,000. 75% of the population is over the age of 18 (i.e. is an adult). That means 225,000,000 adults live in the US. If every adult is given $4,000, it works out to 900 billion dollars that would be dropped into the US economy when spent. And, it would be spent because Americans would have to spend it or lose it. This is where the prior stimulus check schemes failed. Taxpayers were given a check to cash. Many Americans, being sensible, either used the money to pay down debt already incurred or put the money into the bank to save. (It is interesting that current stimulus package would give states money to pay off their old debt and that is considered stimulating even though it doesn’t create a single job). To prevent Americans to be sensible, the money will be issued in the form of a check card, like the ones you receive nowadays for rebates. The check cards will expire one year from date of issue. 

$900 Billion injected into the economy in one year. And that would be spent in all economic sectors: travel and leisure, food, clothes, electronics, etc. Even the financial sectors will be pumped. After all, the money will have to be deposited into bank accounts. Until the money is spent, it is an asset on the banks’ ledgers. That money can be loaned to other banks, greasing the lending levers. And let’s not forget, money will be made by the companies who make the check cards, from the plastic manufacturers to the encoding companies. 

And in case you think this is a flight of fancy too far, this is being done, in a slight smaller fashion by Taiwan. 

Is this a dumb way to spend money? Probably. But if someone is going to spend my money foolishly (and the only money the government can spend is our money received in taxes), I want to be that fool. Can the American People waste $900 Billion as well as our politicians?

 

YES WE CAN!