AIG: SPILT MILK

We’ve all been taught that old adage about “crying over spilt milk”. Now when your kid spills milk on the carpet you really don’t have an option about whether you clean it up or not. You’ve got to! And you can’t spend three days deciding whether it’s better to mop up the mess with a paper towel or terrycloth bath towel. The important thing is to get that spill cleaned up as quickly as possible, by any means available before it does lasting damage. And no matter how great a job you do at cleanup, it’s going to leave stains and there’s going to be a sour milk smell for a long time to come. That’s what AIG really is… a great big, expensive mess of spilt milk!

There has been a lot of angry commentary on the bailout and bonuses of AIG. The general consensus is that Pitchforks and boiling oil are none too good for the executives receiving outrageous bonuses for losing company money! Congress is screaming for blood. But most legal experts agree: a poorly written contract that gives more to the employee than the employer is still a binding contract. Blame the idiots who wrote the contract for AIG a year and a half ago. (You might also have the Dept. of Justice check out whether any criminal actions of fraud were involved on the part of those same dumb AIG officials! Just in case.) But bottom line is that those contracts are legally binding no matter how much they smell. The real irony would be if we spent more on legal fees fighting the payment than the payment actually amounted to.

Many are advocating that we let AIG fail. But as we saw with Lehman Brothers, letting a major “too big to fail” company go under, sends massive shock waves through the financial community. And since AIG is THE largest insurer in the world, we would be looking at an unprecedented financial disaster. Why? Because AIG insures 81 million people with life insurance world wide for a grand total of over 1.9 trillion dollars. AIG also insures businesses against loss, movies against injuries to stars, gulf oil platforms against hurricane damage. If it becomes apparent that the parent company is going under, then a “run” on the policies could start. If all 81 million people decided to cash out their policies at once, it would get very expensive! Financial institutions all over the world would be scrambling to find the cash. This would necessitate selling off bonds which would then freeze up the bond markets. Credit markets would follow soon after. Think of it as Financial Armageddon on a global scale! We may not like this scenario, but since we as a nation decided in the 90’s that financial institutions could “self-regulate” and did nothing to stop the growth of AIG…we must live with the milk we spilt! At least until we have time to disassemble the AIG monster carefully without harming the markets.

So we have to clean up the mess. That requires that we understand exactly how we got into this mess to begin with. Many on the left will try to blame Bush for this, but the truth is that the real start of the problem traces back to Alan Greenspan and Bill Clinton in 2000.

That’s when President Clinton signed an Omnibus Spending Bill to keep the government running at the end of the fiscal year. That Bill contained the COMMODITIES FUTURES MODERNIZATION ACT OF 2000. This new law de-regulated trading of energy futures and insurance policies. (This same act was also responsible for the ENRON fiasco.)

What this Act did for AIG was to allow them to sell a type of insurance policy known as “credit default swaps”. Much like a fire insurance policy on your house, this let an investor purchase policies to insure bonds against loan defaults. Unlike your home policy, this type of bond insurance was left completely unregulated. Investors could purchase insurance on bonds they didn’t even own. This meant that companies like AIG would write credit insurance many times over on the same bond. Many of these bonds were tied to home mortgages. When the housing market went belly up, AIG was in the position of paying out on these bonds. ALL OF THEM! It’s a little like an insurance company having to pay me and ten other investors because YOUR home burned down. These multiple, unregulated transactions broke the financial back of AIG.

It should be noted that the sponsors for this legislation were: “Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) and never debated in the House.[2]

The companion bill (S.3283) was introduced in the Senate on December 15, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.” (You should note that this Act is an excellent example of the type of deregulatory advice advocated by John McCain’s chief economic advisor, former Sen. Phil Gramm.)

So now that we have the milk spilt all over the floor and are spending huge amounts of money to save AIG, we must determine how to keep this from happening again. The bonuses paid out are annoying, unpatriotic and detestable on many levels; but it’s still milk already spilt. Our focus must be on how to keep this from happening again.

Obviously, we must relearn the mantra of the past, “A business too big to fail is too big”! You really have no right to complain about the mess on the carpet if you give an unsupervised child a gallon of milk to drink from the bottle. You give the child a sippee cup and you watch him with it so he doesn’t destroy the carpet. In a similar manner, the government must be given and must use an oversight authority to keep corporations small enough not to create a systemic risk to our overall economy if they fail. That means Congress needs to start writing new regulations immediately.

This re-regulation has always been a campaign promise of President Obama but timing was not on his side. Two months into an administration is barely enough time to learn your way around the White House, to say nothing of fixing decades of de-regulation. Current proposals include increasing the Federal Reserve’s oversight to include commercial banks, security companies and insurance companies (which are generally regulated by the states). Hedge Funds and securities companies will face stricter disclosure requirements.

Recently, President Obama stated: ““

We now know from painful experience that we can no longer sustain 21st-century markets with 20th-century regulations….Strong financial markets require clear rules of the road, not to hinder financial institutions but to protect consumers and investors and, ultimately, to keep those financial institutions strong.”

Let us hope that our political leaders keep focused on the most important aspect of the AIG mess….fixing it so it never happens again!

SIN TAXES AND PROP BETS

"SIN TAXES" are in for legislators this year! In these times of ballooning deficits, lawmakers are looking at legalizing a variety of activities such as pot and Internet gambling for the expressed purpose of taxing the activities to increase revenue. It's an interesting idea. The truth is that these activities are easily found all over the country. Prohibition hasn't seemed to limit the availability of any of the them. Many people are upset that billions of dollars are spent on these items and none of it comes back to the government as tax revenue.

Recently this discussion came up at a poker table I was sitting at. The start of the conversation was not these specific activities but instead the age-old question of: Do taxes hurt business or do they actually help grow the economy?

The Right will tell you that tax increases diminish the desire of Americans to make a profit because it's "all going to the government." ANY new tax on business will hurt the economy in a recession and will probably drive the business into immediate failure!

The Left counters by pointing out that taxes were higher under Clinton and the economy prospered. Raising taxes lets the government build infrastructure and fund education, all of which increase the ability of the country to make money.

It's a hard argument to either prove of disprove. Finally it was suggested that perhaps we should try an experiment. What a poker player calls a "prop" bet. Prop bets are based on a particular proposition. "I'll bet you $5 that I can eat 25 hotdogs in 10 minutes" is an example of a prop bet. If I'm right and I can eat the hotdogs in the time limit, I win $5. If I'm wrong about my proposition, you win $5.

Prop bets could be applied to economic policy. The Right says taxes kill business and also disapprove of activities such as gambling, porn and drugs. Here's a somewhat tounge-in-cheek proposition that would allow Conservative America to put your money where your mouth is. Legalize these three activities as a test case, tax them heavily and if the Conservative Right is correct; the country should see a huge decline in porn traffic, marijuana usage and internet gambling.

Just think, you'll be able to go to church some Sunday morning and exclaim, "The strip club down the street is closing because of the new taxes!" "The McSmitty Brothers have stopped smoking pot because the sales tax is too high!" It could be a whole new world and you will have the added satisfaction of knowing that your ideas on the dangers of taxation were correct.

On the other hand, if (and I know this is a long shot) taxation doesn't hurt business, then we have a LOT of "Sin Tax" revenues coming in at a time we need to raise all the money we can!

We laughed at this (both conservative and liberal players) for the rest of the night. Then today just for grins I thought I would see if I could determine just how much money this could raise. (Asking people to guess the amount might make a great prop bet for the next game.)

The results were rather astounding.

If marijuana were legalized then it is estimated that $7.7 Billion dollars would be saved by eliminating enforcement, incarceration and prosecution of marijuana crimes. If you taxed the drug at the same rate as cigarettes & alcohol (other Sin Tax items) you would raise $6.2 Billion dollars in revenue for a combined total of revenue and savings of $13.9 Billion dollars

Estimates for the revenue from taxing on-line poker sites is $5.2 Billion dollars.

And an 18% tax on the porn industry would raise $2.4 Billion dollars.

So the final terms of this Economic "Prop Bet" between the Conservative Right and the Liberal Left would make it the largest prop bet of all time! Conservatives would be betting the demise of these unappealing industries against projected revenues of $21.5 Billion dollars in taxes to prove the point: Taxation kills business and hurts the economy.

Seems like this would be a win/win for the country. We're not taxing any business that the Right wouldn't like to see killed anyway. And it could save a lot of time in Congress. There's a lot of arguing over whether taxes help or hurt. This "bet" could end the partisan philisophical arguing and let them get on to something more important...like pragmatic governing!

PORK AND THE EYE OF THE BEHOLDER

There has been a lot of talk lately concerning "earmarks" and Congress. "Pork Barrel Spending" is what many Republicans refer to it as! Yet in conversation, most people really aren't very sure of the exact definition of the term "earmark".

For the record, "earmark" refers to money appropriated by a single member of Congress and directed to a specific destination by that member. Often it will benefit a contributor to that politician in some way. For years, the member of Congress did not even have to publicly acknowledge that he/she had requested the money. It was a very secretive process that was very useful in earning good will with high dollar contributors.

That secrecy is what led to our current distaste with the process. Because while the process HAS been abused (frequently by both sides of the political aisle) the truth is that many of those earmarks provide much needed help to state and local governments.

You see "pork" is often in the eye of the beholder. Let's look at a recent example raised by Louisiana Gov. Bobby Jindal. In his response to President Obama's recent speech, he labeled as wasteful, money "earmarked" for volcano monitoring.

"Instead of monitoring volcanoes, what Congress should be monitoring is the eruption of spending in Washington,"

Jindal said. It sounds kind of silly. VOLCANO MONITORING! Sort of a geophysical hall monitor funded by wasteful politicians.

But if you live in any of the states that currently have active volcanoes (Washington, Alaska, Hawaii, California and anyone close to Yellowstone National Park) you might think this extra $140 million dollars is money well spent....no matter how it got in the budget! Some have suggested that if the money to monitor volcanoes is cut that we should cut an equal amount from the National Weather Service's Hurricane Prediction budget.

Gov. Jindal didn't complain about one of the wasteful earmarks mentioned recently by Sen. John McCain. Sen. McCain wants to know why $6.6 million dollars has been appropriated for termite research in New Orleans! During these trying economic times, why spend that much money on studying bugs? Gov. Jindal's silence speaks volumes. You see, there are few termites in Arizona, but it is widely speculated that termites in New Orleans contributed to the failure of the levees. So Gov. Jindal for some odd reason doesn't see this as wasteful. Pork is always in the eye of the beholder.

The real problem with earmarks is not necessarily the money...it's the accountability. In the past, there was no way to track what had been added and who it had been added by. And that's all changed now. Democrats have instituted a rule that requires all appropriation earmarks to be made public. This doesn't mean that there will be no future abuse. It doesn't mean that the process does not still need more modification. But we need to remember that all earmarks are not bad. Getting rid of ALL earmarks is a little like throwing out the baby with the bathwater.

MONKEYS, WATERMELONS & FREEDOM OF SPEECH

A recent front page cartoon published by the New York Post has much of the liberal world screaming for blood! The cartoon in question showed two police officers who had just shot and killed a monkey. One officer says, "They'll have to get someone else to write the next stimulus bill".

Liberals immediately screamed "racism" and the Post insisted it had nothing to do with Obama. Protests began outside the offices of the Post, eventually they issued a rather wishy-washy apology which only increased the intensity of the protests. Finally a new apology came direct from the top.

In another case, the mayor of a small California town, sent an e-mail with a picture showing the White House lawn filled with watermelons. The caption read, "No Easter Egg Hunt this year". A very predictable uproar began and the mayor has promised to resign because he believes the act has "compromised" his ability to lead effectively.

In both cases, the Right has called the reaction to these images an infringement on Freedom of Speech. "This is America and as Americans we have the right to express ourselves without constraint."

Whether these images are intentionally racist is debateable. The fact that they are perceived as racist by a large segment of the population is not! It is generally considered impolite to intentionally offend people with your speech...but it is still your right to do so. Polite people also hope that if you unintentionally offend people, you can learn from your mistake and not make the same mistake again. But there will always be those people who just don't care.

Rupert Murdoch (Owner of both Fox News & the New York Post) wrote,

"As the Chairman of the New York Post, I am ultimately responsible for what is printed in its pages. The buck stops with me.

Last week, we made a mistake. We ran a cartoon that offended many people. Today I want to personally apologize to any reader who felt offended, and even insulted.

Over the past couple of days, I have spoken to a number of people and I now better understand the hurt this cartoon has caused. At the same time, I have had conversations with Post editors about the situation and I can assure you - without a doubt - that the only intent of that cartoon was to mock a badly written piece of legislation. It was not meant to be racist, but unfortunately, it was interpreted by many as such.

We all hold the readers of the New York Post in high regard and I promise you that we will seek to be more attuned to the sensitivities of our community."

The apology from the owner of the Post was unexpected. His analysis of problem was also extremely insightful. Even if you buy the fact that the slur was unintentional (which I don't), the images evoked for many an extremely upsetting storyline. It not only reminded us of the past when the monkey was a symbol for African Americans but it also seemed to suggest assasination of the President.

The cartoons, whether racist or not, are covered under Free Speech. But those on the right need to understand that Freedom of Speech is a two-edged sword. If Al Sharpton doesn't like what he reads in the Post, he too is free to exercise his option of speaking out against what he reads. If he wants to boycott the Post, he is free to do so and to convince as many people as he can to also exercise thier right to free speech.

That's what FREE SPEECH means! That's what makes America so great to live in!

FACES OF ENTITLEMENT

It is a sad reality that we rarely see the face of the average “entitlement” recipient. The media loves to show us the extreme example. After we become bored with the novelty of octuplets, media spends endless hours discussing the cost to the public of octuplets. Two million in medical costs, Mom takes out student loans to live on, food stamps and a home in foreclosure. Nadya Suleman: POSTER CHILD FOR THE EVILS OF ENTITLEMENT! These are your tax dollars at work. Redistribution of wealth at it’s finest.

Yesterday, I saw another side of “entitlements”. I stood in line at the grocery store muttering to myself about how slow the person ahead of me was. He had a case of soup-in-a-cup and the checker was ringing each cup up individually. It was taking forever and I was in a hurry! Then I listened to the conversation he was having with the checker and I realized why. It was the middle of the month and the man only had so much left in food stamps for the month. He worked nights and was raising his kids as a single parent. The soup was an easy and affordable meal that he didn’t need to be home to prepare. He bought as many as he could afford. The rest of his cart contained fresh vegetables, rice, milk and fruit rollups for the kids. No junk food, no soda, none of the items we are told by talk radio that welfare recipients waste OUR tax dollars on. Instead I saw a father working hard to make ends meet during bad economic times.

As a society, we don’t find any gratification in looking at the millions of Americans who survive because they accept food stamps, Medicare or Section 8 Housing. We show no interest in the numbers of people who have left the welfare system because the system worked for them. They accept help during a bad time and then use that help to get back on their feet. But they’re not interesting! Spend time talking about them and watch your news ratings drop.

There are a lot more people like that man on welfare today than there are Nadya Sulemans. They are good people with something to contribute to our society. Many of them will leave the rolls of welfare eventually. Some of these former entitlement recipients may be your friends. I know a woman who in the 70’s was an unmarried mother of two, who took food stamps, Section 8 housing and student loans. Thirty years later she has a degree and is part owner of a small business. Without government assistance she would never be where she is today. She (and all those like her) are the justification for why entitlements are necessary.

So the next time you want to complain about all those worthless people sucking up tax dollars, keep in mind that all you hear about are the losers. Often the system works and that too deserves recognition.

WE ARE THE ONES

Monday, January 19th is Martin Luther King Day. It was conceived as a day of public service to honor the memory of Dr. King. It is a day that we as Americans have been asked to find some way to contribute to our community. And all across the country people will take time out of their day to do "something". Hopefully you will be among them. It doesn't have to be much. Simply baking cookies for your local fire station or picking up other people's trash along the side of the road. Maybe you'll grab an extra bag of flour to drop off at a homeless shelter or church food pantry. But what ever you do, take time to reflect upon the possibilities of the future.

For years we have complained that the "younger generation" doesn't care. They are the product of broken homes, disfunctional schools and an economy that offers little hope of success to the graduate of a public school. We complain that pop culture belittles the importance of education. Video games and entertainment glorify crime and violence. We have called our children a "lost generation" with good reason. Because they were and still are.

Liberals say all we have to do is put money into education to fix the problem. Conservatives tell us that it's the fault of kids with no drive to succeed. And both sides are right. Without the support of families and a quality education, the chance of a child succeeding is slim. Without a drive to succeed and a belief that success is a possibility, the child has NO chance of succeeding. Government can fix the schools, provide housing, food and medical care for the child....but it cannot convince a child that success is more than just a dream. It takes people to do that.

But today we stand a chance to make a difference. All across this country there are children who have watched the election of Barack Obama and now BELIEVE that anything really is possible. You don't have to play ball like Micheal Jordan or play guitar like Slash to succeed. Dreams have grown into possibilities.

On election night, I watched the results at a party. One of the guests was a young man who is from a single parent home. He had worked for the Obama campaign after school. I watched the look in his eye when it was announced that Obama had won. And after Obama had spoke that evening, I caught him alone in another room standing in front of a mirror giving his own "acceptance speech". His view of the world and it's possibilities changed that night. You watch the news and see countless examples of children inspired by an Obama presidency. And this inspiration has given us as adults the chance to reclaim at least part of a lost generation.

But thier inspiration will be shortlived and of little use if we do not try to nurture it. Don't get me wrong. We won't save them all. But the ones we do are worth the effort. Much like fishermen, Americans tend to fall into two categories: Those that focus on the "many that got away" and those that focus on "the catch we landed". It's fun to complain about the ones that got away but practical people who focus on catching fish...get to eat.

And so this year on Martin Luther King Day, take time to reflect on what YOU can do throughout the year to change a generation ripe for that change. Join a mentoring program or Big Brothers/Big Sisters. Get involved in your church's youth group. Do something weird like joining the PTA. Because for the first time in years, our children are open to our help. Some of them believe in new possibilities for thier lives. We need to be there for them. It's not a question of liberal or conservative, Christian or Athiest, Black or white. It's about our future, their future and the future of our nation.

"We are the ones we've been waiting for. We are the change that we seek. We are the hope of those boys who have little; who've been told that they cannot have what they dream; that they cannot be what they imagine. Yes they can."

Barack Obama, Super Tuesday, February 5, 2008

THE IDEALOGUE VS. THE PRAGMATIC

As we come down to the final days of the 2008 election cycle, perhaps we should make a close examation of why we choose to vote the way we do. Our country has managed to divide itself fairly equally between two different and vastly opposing ideologies. And as tends to be the case with extreme idealogues...the more committed they are, the more vocal and uncompromising they are. And this is NOT a good thing. No ideology whether liberal or conservative fits all situations all of the time. The result is a blind committment to what may be a good idea in theory but simply doesn't work in a pragmatic way.

The idealogue will follow the party line all the way....regardless of where it leads. The gay rights idealogue will insist that gay marriage is a right...and nothing less than legal marriage is acceptable. He will continue to insist on his right, even turning down the compromise of "domestic partnership". That means that when his partner lies near death in a hospital, that partner can be kept from the hospital bed by the partner's parents. The pragmatist says, "what's in a name"? Domestic partnership would give you the rights you deserve without incurring the anger and conflict that the term marriage will bring to the discussion.

The idealogue will insist that "gun ownership" should have NO limitations and that any law curtailing your right to a weapon is unconstitutional and must be fought! The pragmatist asks, "what happens when a 14 year old boy walks into your daughter's middle school with an automatic weapon and an attitude?"

The idealogue believes in "my way or the highway" while the pragmatist looks for the compromise solution.

One of the greatest complaints I hear about our government is the assertion that they don't get anything done. But that's to be expected. We vote our ideology. And as a nation we are pretty evenly split down the middle between conservative and liberal. We have reached a national road block with neither conservatives or liberals being enough of a majority to make any progress on real solutions to real problems. And that is why I am supporting Sen. Obama for President.

Two years ago I read both of the Senator's books and was especially impressed with THE AUDACITY OF HOPE. In it he discusses his political philosophy which is very dependent upon the belief that policy only works with a majority concensus. He wrote of two incidents that stuck in my mind that illustrate how a President Obama would approach policy. Both anecdotes involved "hot button" issues designed to upset both the right & the left. But the Senator's take on the Death Penalty and Separation of Church & State was what first led me to think that a President Obama might be a good idea.

While an Illinois State Senator, Obama worked on a bill concerning the death penalty. On a personal level, Senator Obama is against the death penalty in most cases. A liberal group had brought up the issue of Chicago cops who would allegedly beat a confession from a suspect and then have him charged with a death penalty crime based on that coerced confession. The liberal idealogue would insist on trying to ban the death penalty. Obama instead stated the obvious, most Americans support to one degree or another the death penalty. He sat down with representatives of the police and with those advocating the end of the death penalty. He then passed legislation that limited death penalty convictions to cases where the confession is video taped. If a confession was given without the videotape, then the man would only be sentenced to life imprisonment. He found a solution based on the limited common ground of the two sides. Neither was completely happy with it but both sides agreed that it worked better than the status quo.

He also addressed the issue of separation of church & state. As he put it, you can't let the government endorse a particular religion or religious belief. But the flip side is that those who watch that "line in the sand" need to be aware that the world does not stop is someone mentions "God" in public. There needs to be a balance that reflects the differing opinions of the public.

One of Obama's favorite sayings is, "I know you want to go to the moon, but we only have enough gas to get this far". He is pragmatic about what can and cannot be done. I would be willing to bet that all of the screams of outrage against his candidacy from the right will be nothing compared to the screams from the left when they realize that he listens to both sides before acting.

I would prefer to vote for the candidate who is going to realize that America is made up of many differing opinions. I will vote for the candidate who considers the middle ground when enacting policy. To be honest, I think McCain has many pragmatic traits about him. It was one of the things that attracted me to his candidacy in 2000, but he is definitely an idealogue on foreign policy. More importantly, he is an old man and his number two is an unprepared idealogue. And that a recipe for disaster!