Thursday, December 24, 2009

CBO Says Senate ObamaCare Not Deficit Neutral

When Congress comes back from it’s Christmas break, they are going to have to deal with a serious funding problem with the new Healthcare bill. The original CBO estimate of the Senate version of ObamaCare showed it would save $130 billion over 10 years; this figure has been parroted by both Harry Reid and the President. The problem is just prior to the Senate vote, the CBO issued a letter saying they had errored in their estimate. The main funding for the November Senate ObamaCare over 10 years is as follows*:

$149 billion -Taxing “Cadillac” Health Plans

$190 billion -Reducing expansion of Medicare fee for service plans

$200 billion -Cuts to Medicare Advantage

$36 billion -Penalties

The main areas of cost for the Senate ObamaCare over 10 years is as follows*:

$ 447 billion -HealthCare Exchange

$ 374 billion -Cost to expand Medicare

$14 billion - Misc

*The figures used are similar to published funding and cost estimates, but are presented for demonstration purposes.

If you add up the totals, there doesn’t seem to be enough to pay for the plan, none the less have an extra $130 billion; that because there’s not. The plan is going to cost about $835 billion, while the funding is $575 billion. You know, I’m not an accountant, and I’m certainly not a member of the Congressional Budget Office, but I see a problem here; so did Senator Jeff Sessions (R-AL). He took a trip to the CBO to find out how one uses $575 billion to pay for an $835 billion plan, and come out with an extra $130 billion. Well CBO Director Doug Elmendorf explained the error. It seems the CBO pays Medicare from a trust fund. When figuring the cost of ObamaCare, they mistakenly paid the increases in Medicare ($374 billion) with the same money that was going to be cut from Medicare ($390 billion); in other words the Medicare money in the trust was used twice. If one factors in an additional $390 billion dollars for funding, to the original $575 billion funding ($965 billion); subtract the $835 cost of the health plan; hey!, you’ve got $130 billion dollars left over. Turns out the Health plan is actually $260 billion in the hole (Sessions cited a $300 billion deficit). Check out FOXNews GOP Senator Senate Health Care Increase Federal Deficit, which includes the letter from Doug Elmendorf.

If you take them at their word, the Democrats are in a world of hurt. Pres Obama has promised on numerous occasions not to sign off on a healthcare bill if it increases the deficit by “one thin dime”. Senator McCaskill from Montana said My statement all along is it has to slow down the increase of health care costs over time, and that is bending the cost curve, and secondly, that it has to be deficit neutral,” and she added “We have to be saving more money for our government than we’re spending. And if we’re not saving more money for our government than we’re spending, then not only will I not support it, the president said he won’t support it,” she added. So if the Democrats are to be believed, the HealthCare bill is dead without a huge increase in funding. The only Democratic response from Harry Reid’s spokesman, "The statements in CBO's December 19th letter about the federal budgetary commitment to health care remain correct," said spokesman Jim Manley. "After 2019, the effects of the proposal that would tend to decrease that commitment would grow faster than those that would increase it. As a result, the CBO expects that the proposal would generate a reduction in the federal budgetary commitment to health care during the decade following the 10-year budget window." In other words, ignore the problem; but that was to be expected. What was Harry Reid supposed to say? He just discovered all his bribery and posturing had may have just gone up in flames.

Wednesday, December 23, 2009

Can Harry Reid Save HealthCare From Repeal?

Can Sen Harry Reid's no repeal provision in the Healthcare bill be binding? Reed wrote into the bill, "it shall not be in order in the senate or the house of representatives to consider any bill, resolution, amendment, or conference report that would repeal or otherwise change this subsection". The term for this kind of action is called entrenchment. In a posting by Eric Posner; Entrenchment Provisions in the Health Care Bill, he asks and answers the question, Can Congress bind itself in this way? As it happens, I have written a paper on this topic (with Adrian Vermeule). The short answer is “no,” or at least, no one thinks that Congress can bind itself in this way. (For some Supreme Court dicta, see U.S. v. Winstar, 518 U.S. 839, 872 (1996).

In US vs Windstar, the Government referenced William Blackstone, an English judge who wrote a definitive work on Common Law. “In his Commentaries, Blackstone stated the centuries old concept that one legislature may not bind the legislative authority of its successors." and referenced a Supreme Court State Rights case, " Hence, although we have recognized that "a general law . . . may be repealed, amended or disregarded by the legislature which enacted it," and "is not binding upon any subsequent legislature", Manigault v. Springs.

US vs Windsor was a violation of contract case filed against the US Government. After the Savings and Loan scandal in early 1990's, the Government gave Windstar and other financial institutions, tax incentives to take over failing S and L’s. The Government then tried to renege on these incentives and Winstar sued. The government tried to use the argument against entrenchment to justify their actions.

In US vs Windsor, the government referenced a legal essay, Temporal Limits on the Legislative Mandate: Entrenchment and Retroactivity (1987); Julian N. Eule that is more on point. The following is an abstract from JSTOR on the Eule essay: “According to the general wisdom, legislatures lack both the power to "entrench" their enactments against alteration by their successors and the power to "retroactively" undo the efforts of their predecessors. The author argues that, rather than being in conflict, these principles share a common theme. Legislatures operate as agents of the people under constitutionally defined mandates that are limited in time as well as scope. Actions that transcend-either forward or backward in time-the temporal delegation of authority conferred by periodic elections do not bind the electorate. In the first half of the article the author suggests that an understanding of the rationale behind the entrenchment prohibition can help shed light on a diverse group of issues including congressional power to prescribe internal rules of operation, constitutional amendment procedures, and legislative impairment of contracts. In the second half of the article the author takes issue with the traditional objection to retroactivity grounded on vested rights and unfulfilled expectations. In its place he proposes a theory of retroactivity embodied in republican principles concerning the temporal relationship between the people and their legislative agents.”

The court dismissed the entrenchment defense, and found in favor of Windsor. The court took notice of the Eule Article, but said “Although Congress subsequently changed the relevant law, and thereby barred the Government from specifically honoring its agreements, we hold that the terms assigning the risk of regulatory change to the Government are enforceable, and that the Government is therefore liable in damages for breach.” In other words the government had the right to change the law, but all entrenchment arguments aside, the Government is responsible for the monetary consequences of that change.

Posner explained that everything from indebtedness to wars, are uncontroversial entrenchments. However, a Legislature could not entrench a future Legislature to a pre-determined course or strategy, once the next Legislature took control. A Congress at time 1 can pass all the entrenchment provisions it wants, but Congress at time 2 can repeal them by majority rule, rendering the entrenchment provision nugatory ex ante (having no future authority).

Tuesday, December 22, 2009

A Lesson for President Obama; You Can't Get Something For Nothing

It might be interesting to see how the Democrats new Health Care Plan will be funded. Now, there are differences between the Senate and House bills, but the majority of the funding remains the same. Keep in mind that the American people will be taxed for the first 4 years without any improvement in Health Care. It will only be after $400 billion or so has been raised, that there will be enough funding for the Health Care bill. The primary funding will come from $50 billion a year savings by reducing "fraud and waste" from Medicare. This may sound good, but it’s a little dishonest. The so-called waste in Medicare is the 12% cost over standard Medicare that goes to Medicare Advantage. In 1997 Congress introduced Part C (Medicare Advantage) to Medicare. The purpose of the plan was a government paid subsidy to the insurance companies so they can offer low premiums and still pay claims. The reasoning behind the Part C plan was skyrocketing cost of Medicare supplements (Medicare pays 80% and Medicare supplements pay the remaining 20%). Part C would fund Private Health care with Medicare funds to create health plans that combined Medicare and supplements into one plan. The majority of these plans are a HMO/PCP plan, as opposed to standard and more portable "Pay For Service" Medicare coverage. These Part C plans eventually cost 12% more than a standard Medicare coverage, partially due to paying doctors higher salaries, however it still gives a considerable savings to recipients over standard Medicare Supplement plans. Currently about 25% of Medicare recipients belong to a Part C plan. The additional cost of Medicare Part C is about $50 billion a year. In other words, the big savings from a reduction in fraud and waste is simply to de-fund Medicare Part C. It should be noted that Medicare Part C has significantly less fraud than standard Medicare, since most the fraud is a result of the low pay for service rates dictated by Medicare. In this case Democrats have been very disingenuous, as there is no plan for any legislation to prevent any fraud or waste in Medicare, beyond de-funding Medicare Part C.

Medicare has two main avenues for reducing costs. The first is mandating hospital and doctor compensations and the second is working with Part D (prescription) insurance companies to negotiate drug costs with drug producers (Big- Pharm). As I have already stated, poor compensation rates has already led to widespread fraud, so it is doubtful the Feds will lower these rates any more. In order for a standard Medicare doctor to make $200,000 in gross income, they would need to see approximately 35-40 patients a day. This compared to a Medicare Advantage doctor, that see on average about 16-20 patients a day, to make the same $200,000 income. This, according to the Democrats is the waste and fraud that needs to be removed from Medicare. On the subject of Big-Pharm, the option to negotiate lower drug prices will not exists, as Pres Obama made a deal with Big Pharm that removes any negotiations for Medicare drug prices, as long as they did not oppose ObamaCare and pay the Senate Finance Committee $80 billion over ten years. This is estimated to double the cost of prescription drugs for Medicare from $250 billion over 10 years to $500 billion (minus $80 billion of course). President Obama has promised that the Health Care bill will be “deficit neutral”, meaning it will be 100% paid for by cuts in Medicare and new taxes. President Obama (and the CBO) has further said the Health care bill will reduce the deficient $130 billion over the next 10 years. However, this savings will be offset by the $170 billion increase in drug expenditures from President Obama’s deal with Big-Pharm. This also allows President Obama to keep his deficit neutral promise on health care, by simply moving the cost back to Medicare.

There are also unfunded mandates in the Healthcare bill that would increase access to Medicaid. Medicaid is funded by federal and state coffers. This will probably result in an increase in state taxes to cover these mandates, but again these costs do not show-up as Health Care costs. Also, there were some sweetheart deals cut my Harry Reid to buy votes to pass the bill. Nebraska, Vermont and Massachusetts will receive matching funds for new Medicaid enrollment that could cost over $2 billion. Further Sen. Mary Landrieu (La) received $300 million for her vote and the biggest of all, Florida gets a pass on Medicare Advantage reductions to the tune of $25 billion a year. None of these payouts will show up as Health care costs and will simply be added to the deficit. Add it up and Harry Reid will increase the deficit $1 trillion dollars over the next 10 years with these payouts; that's more the total cost of the Healthcare plan!
The say you can’t cheat an honest man, because he knows he can’t get something for nothing. Unfortunately there is no clever saying dealing with deception my misdirection. Perhaps after the real cost of the health care bill is realized, there will be.

**added 04/10/2012: Turns out the CBO misstated the savings from ObamaCare by double counting cuts to Medicare . Medicare Trustees Obamacare Will Increase the Deficit by as Much as $527 billion Medicare trustee suggests that the law will actually increase deficits, over the next ten years, by between $346 and $527 billion In March of 2011, Health and Human Services Secretary Kathleen Sebelius admitted that the law double-counts its reductions in Medicare spending, by claiming that the law both reduces the deficit and extends Medicare’s solvency.

Chuck Blahous, who was appointed by President Obama to be a public trustee of the Social Security and Medicare programs...  estimates that at least “$470 billion of the Medicare savings under the ACA scored by CBO through 2021 substitutes for savings required under previous law.” Whether or not you accept his approach depends on whether or not you think that Medicare funds should be segregated from the rest of the budget. 

A CBO report in 2009 stated To describe the full amount of HI (Medicare Hospital Insurance) trust fund savings as both improving the governments ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the governments fiscal position.

The White House response is not that it isn't true; what they are saying is it's okay because it has been done before.   The White House cites a report from the left-leaning Center on Budget and Policy Priorities that says that Republican Congresses engaged in Medicare double-counting with the Balanced Budget Act of 1997 and the Deficit Reduction Act of 2005. And apparently that makes it okay.

Sunday, December 20, 2009

The Myth of Carbon Credits

I continue to believe there are well meaning folks that continue to believe in global warming, believe that fighting Man Made Climate Change, is about cleaning up the poisons and pollution we are putting into the air. If that were so, I would be in the front lines, fighting for clean air and water. But, that is simply not the case. The history of Man Made Climate Change and it's agenda can be partially traced back to the United Nations and the Intergovernmental Panel on Climate Change (IPCC) . In 1995, Ben Santer of the IPCC, deleted from the United Nations Working Group I Report, conclusions from IPCC scientists, which stated that humans were not responsible for climate change. This was followed by the Kyoto Global Climate Convention. In Kyoto, a world wide treaty was signed by world leaders including President Bill Clinton. The treaty was a thing of which conspiracy theory's are born. The basis of the treaty was carbon dioxide causes global warming, that industrial countries were responsible and they should pay for the damage they have done. This payment would be done by industrial countries paying for their carbon footprint, or the amount of carbon dioxide they produce. Although, these countries are mandated to lower their carbon footprint by a certain percentage, there is no need for them to actually do so; all they need do is pay more money. In Kyoto. the money was to go to non-industrial, low carbon producing countries, that would sell their so called carbon credits. In Copenhagen that was changed to the money going to the International Monetary Fund or IMF, that is controlled by the UN. Either way the result would be the same; a world regulatory agency, or world "government" in the words of Al Gore, echoing then French President Chirac at Kyoto. Obviously the treaty is a world wide re-distribution of wealth and would eventually cause industry to come to a grinding halt in industrialized countries. In 1997 the US Senate realized what this treaty was and voted it down 99 to 1.

Two of the nastiest air pollutants is S02 (sulphur dioxide) and N02 (nitrogen dioxide). These are the pollutants that sting your eyes, hurt your lungs, causes acid rain and is turning the oceans to acid as Al Gore likes to say. Other greenhouse gases are methane, carbon monoxide and some commonly referred to as soot. Wouldn't it be nice if Al Gore was trying to clean the atmosphere of known poisons such as these, instead of C02. If Al Gore and the Man Made Climate Change crowd gets it's way the US and other developed industrial countries will pay trillions of dollars on carbon credits, but be free to dump as much of this poison in the air as it wants. And as I've said before, it won't even lower the levels of C02. The framework the Man Made Climate Change advocates are putting into place will accomplish one thing, it will take money from industrialized countries and give it to non-industrialized using carbon credits. As long as the industry can pay the carbon credits and still make a profit, they will continue to do so, without reducing their carbon footprint. Further, if carbon credits become too expensive, were industry really starts cutting back on it's carbon footprint, that will mean less money to those selling the carbon credits. This means there will be no inducement to raise the cost of carbon credits to force any real reduction in C02, which supposedly is the point to carbon credits.

Hopefully, at least one person has read this and realized the Man Made Climate Change will not remove one ounce of pollution from the air, and is designed solely so UN bankers can get their cut of the carbon credits, as money is re-distributed through the planet; all the while, real pollution is being ignored. And who is on the forefront of cashing in on these Carbon Credits? Would it surprise you to learn that Al Gore is expected be the first Carbon Credit billionaire from his investments in carbon credit investments banks in Europe; once the US enters the picture that amount should double. Until that time Sec of State Hillary Clinton has pledged $100 billion a year.

But there is hope. In recent events it appears the CRU, for this first time in history, is starting to release it's raw data. The data they first released was collected from Russia. Turns out the CRU cherrypicked Russian climate data and ignored 75% of the data that conflicted with temperatures not raising. So I guess all the nay sayers about Climate-Gate were right, the emails didn't appear to show that the CRU scientists had actually falsified any figures in an attempt to strengthen the case for CO2-driven global warming, they simply ignored any data that was conflicting. And again, the CRU provides all the Global warming information used by the United Nations.

One more interesting fact about Climate Change. It seems all the scientists who have signed on to the Man Made Climate Change bandwagon, have ruled out the sun as having any affect on Global Warming. I know, I making this up; there is no way a scientist would ignore that huge thermo-nuclear ball in the sky that is responsible for +99.99 of the heat on the planet (there are also volcanoes, but lets not even start to discuss their carbon footprint). It seems they have decided that the sun is a constant and has no effect at all on global warming or cooling for that matter. Well, it seems there are some pesky climatologist that have figured out that when the sun has spots, Global temperatures go up and when the spots go away, Global temperatures go down. This might have something to do with the phenomena that global warming on Mars mirrors the global warming on earth. And even without instances of very generous interpretations of Man Made Climate Change, the sun spot theory corresponds with every known period of global cooling and warming, in which data exists. Hmmm, might be something more climatologists might want to look into.

C02 Is Not Pollution

The recent Climate-Gate scandal has not totally discredited science, but it does show that science and political expediency do not mix. One of my favorite definitions of science, is “the ongoing attempt to disprove a theory”; the science of Man Made Climate Change departed this from this almost from the beginning. Forget for a moment that the data for Made Made Climate Change has been corrupted to the point that the CRU says it will take 3 years to re-calculate it's findings. Lets look at Man Made Climate Change purely from a prospective of what would actually would be done by the United Nations and Al Gore if the world signed on to a carbon reduction, cap and trade treaty. The Kyoto and Copenhagen conferences presented a plan that the industrial developed world, primarily the United States and China would accept an arbitrary cap on their carbon emissions and would need to buy carbon credits for any carbon admissions over that amount. In other words, as long as the carbon credits cost less than their profit margins, these industrialized countries will simply pay to increase their carbon footprint; this is why it has been referred as “pay to pollute”. These carbon credits will come from non- industrialized countries, where the industrialized countries will trade carbon credits (much they way stocks are traded). In the Kyoto accords, the countries rich in carbon credits would have sold them directly to the countries in need of the credits. However, in Copenhagen, the UN inserted a middleman, the IMF (International Monetary Fund) to control the credits. When the carbon credit rich countries were informed of this, they revolted and the Copenhagen Accord collapsed.

So what does all this mean? First, it means that the science of Man Made Climate Change is being used purely for a re-distribution of wealth between the developed and non-developed industrial countries of the world. The made up value of the world wide carbon credits has been estimated at 23 trillion dollars. Those prone to make the most money are the investment bankers that will broker the carbon credits. Al Gore has invested heavily in these banks and it has been projected that he will become the first billionaire as the result of world wide carbon trading. If science eventually shows that atmospheric levels of C02 does not trap heat, and/or that man's contribution to the C02 levels does not cause Global Warming, then the United Nations and many countries in the world would lose their share of the $23 trillion pot. Since it is science that is being used to justify this re-distribution, there is a huge conflict of interest for scientist are only being given grants to prove the existence of Man Made Climate Change and, according to the CRU hacked emails, any scientists that are questioning Man Made Climate Change are being blocked form peer review and there has been such far reaching attempts to discredit them, that CRU scientists have discussed pressuring colleges to invalidate their credentials.

I am an optimistic person. History tells me that in the long run, science will win out. As I said in a past letter, “When science is used for political purposes, it can only be as corrupted as politicians”; it is the poison of government. It would seem that science is best when it is in conflict with the status quo. But take science out of it's element and it can be used to justify tyranny and fascism. F.A. Haytek described this process in his 1944 book, The Road to Serfdom. Once science has to serve, not the truth, but the interests of a class, a community, or a state, the sole task of the argument and discussion is to vindicate and to spread still further the beliefs by which the whole life of the community is directed. When science becomes political the result is Geocentric(s), Eugenics, and now Man Made Climate Change. Science is a process and at it's best is man's only real attempt at being objective. As long as scientist admit there is no scientific fact, and that all scientific theories will eventually be dis-proven, science will continue to search for understanding, regardless of where it leads.

Thursday, December 17, 2009

Al Gore and His Anecdotal Science

Okay, let's stop for a moment and look at what Man Made Global Warming is not. Man Made Global Warming is not about stopping the polluting of the earth. If you're like me, you are in favor of reducing pollution. But the proponents of Man Made Global Warming do not care about pollution as we know it, they are concerned that CO2, a colorless, tasteless and harmless gas, somehow raises temperatures when it's percentage increases in the atmosphere. Now Al Gore is famous for saying that increased CO2 results in increased temperatures is a scientific fact; well, not really. It's actually the opposite; science has long known that an increase in temperature results in an increase of C02, not the other way around. This is very important because there are two ways to prove scientific validity. The first is basic Newtonian physics; reduce a theory to it's basic components and try and reproduce your findings. In other words, create an experiment that proves your theory. The fact that increased heat results in increased levels of C02 can be proven by a very simple experiment. The C02 comes from the oceans heating up. As an example, all you need to do is put ocean water in a sealed tank and heat it up; with in a very short time the CO2 levels will increase.

So, if Al Gore is correct, you should be able to prove the opposite, right? Well no, there has never been an experiment that has shown that C02 traps heat. To say that C02 traps heat because Heat increase C02 is called reverse logic and is the worse form of science. It would be the same as saying because heat melts ice, then melting ice must cause heat. To try and prove his reverse logic, Al Gores uses a second and much harder to prove scientific method, called proxy. Proxy science requires you to first prove a phenomena exists and then try and prove what causes it. In other words, rather than observing a phenomena, you simply reason it exists; then you try and reason why it exists. The main problem with proxy science is, it's very difficult to know what other forces play a part in the phenomena your are dealing with. In the first part of this equation,
Al Gore and the scientists paid by the United Nations and the Carbon Credit traders for their analysis, have spent most of their time trying proving that Global Warming exists. Since Global Warming is not immediately observable, the scientist have to develop some method to show it does. This is primarily done through temperature probes (thermometers) placed all over the planet and monitoring Arctic and Antarctic ice flows; and while they say their data proves Global warming is occurring, the recent hacked-emails from the CRU say, it is a "travesty" they can't prove Global Warming. Then, without the distraction of proving the planet's temperature is actually raising, he determines the C02 emitted into the atmosphere by man, to the exclusion of the massive amounts of C02 that is naturally produced, all the other gases in the atmosphere and all natural phenomena (including the sun), is sufficient to cause Man Made Global Warming . Then Al Gore ignores that there is no science that proves C02 does anything other that feed trees; states that C02 traps heat, but refuses to discuss the basis of this reverse logic with anyone; the proxy science becomes anecdotal dogma.

So when you hear Al Gore mis-state science, do what I do and yell out, "Liar!" When Al Gore states that 40% of the Arctic Ice has melted, yell out "Liar"; the 25% of the ice that melted in 2007, has returned this year. And, when Al Gore says all the Polar Bears are dying, yell out, "Liar"; their population has stayed steady at about 20,000- 25,000 for the last 20 years and is believed to be an increase from 1950 population of 5,000. Oh, and by the way, Polar Bears are excellent swimmers and the male has a nasty habit of eating it's young unless stopped by the mother. When science is used for political purposes, it can only become as corrupted as politicians, lets hope Man Made Global Warming goes they way of the conventional wisdom that earth was the center of the universe.

This is in response to Michael Stobbe comment on my Global Warming article published in your paper Dec 20. First I want to compliment Mr Stobbe for responding in such a respectful way, although we may not agree (hard to tell, but I'll get to that in a moment) it is the intelligent exchange of ideas that is missing from the Man Made Climate Change discussion. What Mr Stobbe misunderstood was I was not trying to make a case for increased C02 levels coming primarily from the Ocean; actually I don't believe that at all. What I was saying is it doesn't matter were the C02 is coming from, because, beyond questionable anecdotal science, there is no evidence that C02 traps heat. My little experiments were simply (very simply) designed to demonstrate the difference between experimental and anecdotal science; and the anecdotal science of Man Made Climate Change is horribly flawed. I again state my argument. We know that heat causes atmospheric C02 levels to rise. The entire Man Made Climate Change argument rest on the fallacy that C02 traps heat and causes temperatures to rise. To use one to prove the other is like saying because heat melts ice, then melting ice causes heat. If you believe that than I've got some carbon credits for sale.

Wednesday, November 25, 2009

Climate Gate and Man Made Climate Change

In 1836 Charles Darwin was a 27 year old scientist of growing esteem. One of the burning geological question of the day involved a group of valleys in Scotland called Glen Roy. The location has a three shelves at different levels and the only theory at the time was they were roads built by giants. It was suspected they where actually beaches at three different levels, but the location was open at one end, so it did not lend itself to a theory that the location had contained a lake. Darwin theorized that the location was once under the ocean and was raised by three separate “crustal uplifts”. A short time later another scientist theorized the valleys had been damned by glaciers, which has been the accepted theory since. However, Darwin refused to admit his flawed theory and carried the foolishness to his grave.

The original concept of the planetary “Greenhouse Effect” was been accepted climate theory for over 50 years. However, that is quite different than the theory, once called Global Cooling, then Global Warming and now Man Made Climate Change. The Greenhouse Effect, simply put, is the atmosphere catches heat, reflected from the earth's surface and recycles it, giving earth relatively mild temperatures. The atmosphere also filters out much of the radiation emitted from the sun, that otherwise would make life on earth impossible. In the 70's, there was mounting scientific theory that we were heading toward another ice age and “Global Cooling” was termed; the result of this global cooling was to be extreme weather on the planet, leading to crop failures and millions of deaths from sickness and starvation. Then came the 80's, where there was mounting scientific theory that man was releasing atmosphere (or ozone) destroying gases (chlorofluorocarbons) into the air, which would soon deplete the atmosphere's ability to screen radiation. The evidence for this were termed “holes” in the ozone, which were later determined to be seasonal. Then in the 1990's we started hearing about Man Made Climate Change (MMCC). The mounting scientific theory was that man's presents on the planet was causing increases in the carbon dioxide levels in the atmosphere and the rising levels was resulting in rising temperatures, that would lead to extreme weather on the planet, crop failures and millions of deaths from sickness and starvation.

First, you need to understand what MMCC is not. MMCC is not about curbing pollution or cleaning up the environment. MMCC is not about rationing the earths resources for future generations. MMCC has nothing to to do creating new “clean” jobs or investing in new green technology. What MMCC is, is a sudo-science that has been driven by a political agenda. The science of MMCC has a very narrow focus and has three legs. The first leg is that rising carbon dioxide levels in the earth's atmosphere has resulted in raising global temperatures. The second is these resulting rising temperatures are melting the polar ice caps and causing increasingly violent weather that lead to mass deaths and destruction worldwide. The third leg is that the rising carbon dioxide levels are man made. Now one would think that if this were true, that there would be a plan to lower mankind's production of carbon dioxide. This however is not the case; the political side has instead called for a system of “Carbon Credits”. Under the Carbon Credit system, referred to in the US as “Cap and Trade”, a world governing body will determine an arbitrary level of carbon dioxide production. Each country will monitor the carbon dioxide production of it's citizens and penalize them if they exceed their “cap”. Countries that produce low levels of carbon dioxide will be awarded credits that they can sell on the world market to citizens of other countries who have exceeded their cap limits; hence Cap and Trade. So, as you can see, MMCC is designed as a world tax and a mechanism for the redistribution of wealth. The likes of Al Gore has already invested heavily in the institution of a World bank, that would profit as a middle man for buying and selling of Carbon Credits.

As I said before, the first leg of the MMCC theory, is that rising carbon dioxide causes temperatures to go up (it should be noted that carbon dioxide is released any time energy is produced). What is known, is the opposite, that rising temperatures result in higher carbon dioxide levels from the oceans evaporating. In the 1990's the MMCC theory took off with the stewardship of Al Gore, who almost immediately announced that MMCC was no longer a theory, but a scientific fact, and that anyone who purported to question the theory, was a hack and no doubt in the pocket of the oil industry. This was partly due to his continually mis-stating known science (that CO2 levels rise with higher temps) with his Global Warming theory (that temps rise with increased C02). During the 90's the weather cooperated with the MMCC theory, as temperature raised about .5 deg. The result was Al Gore and the United Nations starting to build the framework of the world currency of Carbon Credits designed to balance out the production of carbon dioxide (i.e. carbon footprint). However, the new millennium was not so kind to the MCCC theory. Temperatures leveled out and in some cases actually went down; this is were the MCCC science really started breaking down.

We now know, from emails hacked from Climatic Research Unit in England, that the world's top scientist in the field of MMCC, have been “helping the science” by fudging the data and sabotaging the peer review system. The later can not be emphasized enough. The way scientific theory is scrutinized and legitimized is through peer review. A scientist will write papers to explain his reasoning and views of theories and these papers are published. Other scientists will read the papers and comment on it's strengths and weakness. The emails captured from the CRU, show a cabal by the leading Climate Change scientists, to block the publication of any dissenting view of MMCC, a refusal to respond to any of dissenting papers if they were published, and finally to “change the definition of peer review" if necessary. You must remember here, that one of the most often cited issues with dissenting views of MMCC, is a lack of peer review! Now we know why. Even worse for the scientist, attempting to question the data and results (that we now know were fraudulent), resulted in these CRU connected scientist personally attacking the dissenting scientist, even to the point of pressuring academia to strip the scientist of their tenure and revoke their credentials.

As the realization that MMCC science is reluctantly accepted, there will be attempts by the powers that be to mitigate the level of fraud that was perpetrated on the citizens of the world, and try and save themselves from the fallout. They will no doubt fall back on all they were trying to do is save the world and the basic precept, that we need to take care of our planet and clean up the environment. But remember as I said before, that has never been the objective of the MMCC agenda. As a matter of fact, much of the money originally slated toward true clean technology, has been diverted to pay for Carbon Credits. There is also little doubt that these scientists didn't start out planning to destroy their careers for a few dollars or some fudged numbers. But, modern society has falsely looked upon science as the last bastion of incorruptibility. However, the history of science is rift with examples of egotistical scientists who refuse to admit fatal flaws when they surface in their theories. In the end, they were simply trying to cover up junk science and to try and save themselves from humiliation and loss of reputation and esteem. One can only hope that the scientific community will react to this crisis with transparency; unless your making an atomic bomb, science should not be a secretive process behind closed doors. Science is a process that is supposed to be democratic in nature, where the only objective is contextual knowledge. But, as Benjamin Franklin once wrote, “Democracy is two lions and goat talking about what's for dinner.” So, just as democracy needs a value system to survive, so does science; and when that value system breaks down you end up with a half eaten goat and a lot finger pointing.

Friday, November 6, 2009

Nomenclature of the Sub-prime Meltdown

Please don’t let your eyes glaze over when you read this. I am the type that needs to know what happened. At first I thought it was Congress and Fannie Mae; but it really wasn’t. It was Wall Street greed and it’s far from over.

Credit Default Swap (CDS)- A private unregulated insurance policy originally created to as a hedge bet on risky investment. Due to the fact that they are unregulated, there is no requirement that the seller have the funds on reserve to pay the CDS if the insured investment fails. Further, since you can purchase a CDS without actually investing, it is the functional equivalent of walking into a retirement center and buying life insurance policies on those you think will die the soonest.

Mortgage Backed Securities (MBS) – Using the worth of numerous Mortgages, bundled together as collateral for a loan.

Derivative- A financial contract whose value is derived from the value of something else than the asset or index on which it is based. For the purposes of this discussion, mortgages of various risk and value are combined using mathematical formulas that take into account past rates of default and interest rates and a guarantee that home values will always increase. The idea is to mitigate the risk of economic loss arising from changes in the value of individual mortgages, known in the Derivative world as the “underlying”. These investments are defined as a Derivative because it’s worth is not determined by the worth of the mortgages, but the result the formula used to derive it’s value.

Government Sponsored Enterprise (GSE) A financial corporation crated by Congress. The primary purpose here, is to buy up mortgages from banks so they will have the capital to continue to lend and create new mortgages. Prior to Glass Stegal Act mortgages were bought and made in to MBS by private investments banks. Since a lack of regulation with these securities were part of the 1929 economic collapse, Congress created GSEs (i.e. Frederal Home Loan Bank, Fannie Mae, Freddie Mac) to regulate the home securities market. After the Glass Stegal Act was repealed, private investments banks could once again issue unregulated MBS.

Leveraging- Borrowing money to make investments. The idea is to borrow money at a lower interest rate than the return of an investment.
1907 New York outlawed Bucket Shops, (Credit Default Swaps). In 1933 the Glass Stegal Act also separated Commercial banking from Investment banking so you couldn’t bundle mortgages into securities. In 1938, since the investment banks could no longer buy up mortgages, GSE's (ie Fannie Mae) were created as a secondary market to buy mortgages and free up money to banks, so they could make loans to allow more home sales. Fannie Mae borrowed money from the Treasury to buy mortgages, thus it's portfolio showed up as part of the National Debt. In 1968, Fannie was privatized, becoming a Government Sponsored Enterprise (GSE) or stockholder based company. GSE's were also authorized as the only exception to Glass Stegal, and were allowed to create Mortgage Back Securities (MBS), first to replace treasury loans and later after 1968 to regulate the Home Securities Market. In 1970 Freddie Mac was created as a competitor to Fannie Mae as a GSE. Also, in 1968 Ginnie Mae was created by the government, however it remains wholly Government owned. It only holds government backed mortgages (VA & FHA). Historically, you can say that Ginnie Mae is the original Fannie Mae, though it only hold government back mortgages and only issues government backed MBS. Fannie Mae became a new and different entity, taking with it non-government backed mortgages.
 A Basic Time Table
In 1999, the Glass Stegal Act was repealed under the Financial Modernization Act (FMA), passed by the 107th Congress on its way out the door. A portion of the Act removed the separation of Commercial and Investment banking and another specifically denied the right of the states to declare CDS illegal gambling. Many of the previsions of the FMA were added under the last conference version of an Omnibus Appropriations Bill, meaning they were never voted on (This would become a major bone of contention when it was discovered that the so called Enron loophole was one of these additions). The same year Fanny Mae under the control of CEO Franklin Rains  (previously the Chairman of the US Office of Management and Budget under President Clinton)  launches the American Dream Commitment (ADC) with a stated goal of pledging $2 trillion dollars to increase home ownership for 18 million American families. Alan Greenspan then lowers the Federal Interest rate to 1%, guaranteeing low interest on Treasury bonds, CDs and the like and leveraging becomes the path to great wealth; everyone is taking out low interest loans and buying higher yield investments. This creates an increased demand on high yield mortgage securities. In 2004 Rains was forced into "early" retirement from Fannie May due to what was called accounting irregularities.The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of instituting  widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses.

Just prior to Franklin Rains departure, the sub-prime mortgage crisis began. With continuing pressure from HUD (The Department of Housing and Urban Development) and the (ADC) Fannie Mae was making a killing in the MBS market, so investment banks tried their own hand at issuing MSG, refereed to as "private label." These investment banks were willing to use lower standards, which produces riskier loans. These riskier loans were bundled as Derivatives. Using mathematical formulas only a physicist can understand, these Derivatives ratings are bumped from BBB to AAA. Investment banks leverage themselves to buy and sell these Derivatives as AAA investments and further sell a CDS to protect the investment. The CDS market then explodes from $100 billion to $100 trillion (or more). The GSE's (ie Fannie Mae), in an attempt to increase it's dwinding market share, also started buying these sub-prime mortgages.  The regulators (FDIC) start warning of a banking crisis but this shrugged off by Alan Greespan. The CDS market becomes so hot due to the toxic level (doomed to fail) of these Derivatives. There is a shortage of Derivatives, so Investment banks use the money from the CDS on an existing Derivatives to pay the interest of the actual CDS and than create a non-existent mirror Derivative so they can sell CDS on theses imaginary Derivatives. The world financiers leveraged 100 of Trillions of dollars to gamble on CDS.

Finally the mortgage bubble bursts when home values level off; the leverages are called and the CDS need to be paid. Most the investment banks are leveraged some 50 times their worth. The Derivative “Securities” held by the Investment banks are now worthless. Congress offers $700 billion dollars to back these Derivatives and try and open up the credit lines again, but these packaged Derivatives were put together by computer formulas and nobody really understands. Further there are still tens of trillions of unpaid CDS out there that must be paid before any of these Investment banks can become liquid again and there is a glut of unsold homes and still millions of foreclosures coming in the future, leaving home values sl low that many home owners will be underwater for years. Further the home construction industry and businesses that also profit from home construction will be flat for years to come.

Thursday, October 29, 2009

The Fascism of Nancy Pelosi

Nancy Pelosi continues to show herself as one of the most condescending and hypocritical members of Congress to date. The current Speaker of the House and the first woman to hold this position has continued to show time after time, her belief that the American taxpayer is incapable of independent thought. Any disagreement by a group of Americans against the policies of Nancy Pelosi has been met with allegations that the unwashed masses don't know what's good for them and as Bill Maher once said about Single Payer Health Care; “You can't get Americans to agree on anything. Sixty-percent? Sixty-percent of people don't believe in evolution in this country. He just needs to drag them to it. Like I just said, they're stupid. Just drag them to this." When confronted with mounting resistance to ObamaCare, she referred to the protests at the Town Hall Meetings as Astroturf, meaning;

"those not interested in health insurance reform are disrupting public meetings and not allowing concerned constituents to ask questions and express their views. Many of these opponents who are shutting down civil discussion are organized by out-of-district, extremist political groups, and industry-supported lobbying firms." However in the same breath she says, “Successful, informative constituent meetings are being headlined by Democrats across the country.”

One is left with two possibilities; either she simply can not believe that anyone can see significant flaws in the workings of the Democrats in Congress, or she believes that any disagreements by her constituency is beneath her; the later would seem more likely. This of course is nothing new. Whenever Speaker Pelosi's rhetoric runs contrary to fact or reality, she simply states the absurd and presents it as fact. Such was her seemingly incompatible views on abortion rights and her professed Catholicism. Speaker Pelosi, in an interview with Tom Brokaw was asked “when” her faith believes life begins; her response was “I would say that as an ardent, practicing Catholic, this is an issue that I have studied for a long time. And what I know is, over the centuries, the doctors of the Church have not been able to make that definition.” When Brokaw brought to her attention that it is common knowledge that the Catholic church believes life starts at conception, she compounded her hypocrisy in the area, by saying, “I understand. And this is like maybe 50 years or something like that. So again, over the history of the Church, this is an issue of controversy.” The responses from Catholics reached Pope Benedict himself, who stated after a hearing with Ms Pelosi, that all Catholics—especially legislators, jurists and political leaders—should work to create "a just system of laws capable of protecting human life at all stages of its development." Pope Benedict has written at length that the greatest threat to Catholicism in the United States is “Relativism”, meaning Catholics who choose only that part of their faith that is convenient or fits their world view; apparently he was thinking of Speaker Pelosi at the time.

In her acceptance speech as speaker, Ms Pelosi stated, "In order to achieve a new America, we must return this House to the American people. So our first order of business is passing the toughest ethics reform in history. This new Congress doesn't have two years or 100 days to renew itself”. It is interesting to note after almost two years, and numerous ethics violation, not one member of the house has been disciplined. The glaring example is Rep Charles Rangel. Rep Rangel is Chairman of the House Ways and Means committee; the committee that writes the tax code. The New York Post reported that he had bought a Caribbean Villa with an interest free loan given to him by one of his political donors. He then failed to report the loan and income from renting the Villa ($75,000), not only on his congressional disclosure forms, but also on his state or federal income taxes. Interestingly enough, Rep Rangel called for his own investigation on this and other violations, but Speaker Pelosi has refused to have him step down from his post, nor has Rep Rangel been disciplined in any way.

Speaker Pelosi was also become a critic of the coercive interrogation techniques used on terrorists. Speaker Pelosi gives a Clintonize ( I did not have sexual relations with that woman) explanation on what when she wasn't briefed:

When my assistant told me that the committee had been briefed -- now, I'm not on that committee any more. I'm now out of it. We have a new -- that ranking member wrote the appropriate letter to protest that, but the committees can look into and see the timing of who knew what and when and what the nature of the briefing was. I have not been briefed as to what they were briefed on in February. I was just briefed that they were informed that some of the enhanced situations were used”.

So for political reasons, Speaker Pelosi is throwing the CIA members who protected us after 911 under the bus. Did they go too far? Probably. Should we have invaded Iraq? Probably not. Was Speaker (then Rep) Pelosi, as a high ranking member of the House Intelligent Committee September 2002), briefed in coercive interrogation techniques? Of course. Is Speaker Pelosi misleading Americans and then recklessly charging the CIA with deliberate misconduct to cover her tracks (as asks)? What do you think?

Speaker Pelosi was represented the Cap and Trade Bill as a jobs bill. Cap and Trade is a tax based on the belief the human produced carbon dioxide causes Global Warming (aka the Green House Effect). While there is no doubt of the existence of Green House Effect, the last decade has thrown a monkey wrench in the computer models that were meant to predict an expedited increase in the Green House Effect caused by rising C02 levels, refereed to as Global Warming. Twenty years ago, earth temperatures were indeed warming and there was increased pressure on Climatologist to prove the connection between C02 levels Global Warming. Unfortunately for the scientist, temperatures have actually decreased on the last 10 years, causing the political pundits to change the name, Global Warming to Climate Change. The current computer models have been able to show that any and all climate conditions are the negative results of rising C02 levels; this is the definition of dogma, not science.

Well what about the jobs? Ed Histrodt; from;

You may have seen Nancy Pelosi jumping up and down like a junior high-school cheerleader and shouting “Jobs, jobs, jobs!” when she promoted Cap and Trade on the House floor. Wasn’t the bill about saving the planet, not a jobs bill?

It’s more likely that “green jobs” refers to new jobs in the massive bureaucracies necessary to issue emission allocations and police the energy used by all American businesses, and, doubtlessly soon, American households. (The equipment is already in limited use in the U.K. to monitor household electrical usage.) The Energy Police would not only have to monitor use, but also ascertain that the credits being sold were from bona fide “renewable” sources or determine that the originator wasn’t really cheating on that end of the transaction — a daunting task even for a massive bureaucracy".

From an article by Speaker Pelosi, "I believe we have to [pass a cap-and-trade bill] because we see that as a source of revenue," she said, noting that “proposed cap-and-trade bills would raise billions of dollars by forcing major emitters to buy credits to release greenhouse gases”.

President Obama has said that Cap and Trade will necessarily make gasoline prices “skyrocket”. What Cap and Trade does is allow the government to tax anything that produces carbon dioxide, such a breathing. None of the green jobs promised exist or are even on the drawing board. The point of Cap and Trade, is to make our current use of resources so expensive, that it is expected that innovation will supply the option. No matter the endgame, is the government that will tax and control the means of production.

Dr Steve Runnings, is a co-author of the Nobel Prize winning Intergovernmental Panel on Climate Change, and founder of the Climate Change Studies program at the University of Montana. Dr Runnings has stated, “If the US passed a cap and trade and other countries did not, it wouldn’t work. It would ruin the US economy and it wouldn’t save the climate either. So this is a global issue, the global climate statistics are global in nature, global carbon emissions are global in nature, and we really have to have an international consensus of what to do. That is going to stretch our international diplomacy to its limit, there’s no doubt about that.” That's right Speaker Pelosi, it's all about, “Jobs, Jobs, Jobs”

If there is a final chapter in the emergence of fascism in American it would be the Democratic health care reform debate. The President was attacked every aspect of the current healthcare industry to try and convince the American people that the only solution is a government controlled Single Payer Plan; being presented now as a Public Option or ObamaCare. The President has said that doctors would rather cut off patients feet than treat Diabetes, that private health care 's mission is to take your money and deny services, and charged the big drug companies have successfully lobbied to eliminate drug price bargaining (Pres Obama has since made a deal with big pharmaceutical; they help fund OmabaCare with $80 billion and he will end Medicare (and Obamacare) drug bargaining. The plan on it's face makes no sense; it will still leave 30 million uninsured, with no contingent plan for 20 million illegal aliens; the first five years will be paid for by money saved over the previous 10 years; and 50% of the program will be funded by cutting $500 billion from Medicare, without cutting Medicare coverage (we already know drug prices are going to go up).

Speaker Pelosi has been front and center with her support for a public health plan and believes that if any American Tax payer does not share her support for the public option, they are weak minded and have been led astray by talk radio and FOX News. Speaker Pelois is so condescending that she believes all that is necessary is to change the name of the “Pubic Option” to the “Consumer Option”, than all the resistance to the Public Option would disappear. In the same speech, she said she wanted people to think about it as "their consumer option, because public is being misrepresented as being something that's paid for by taxpayer dollars, which it is not'' and that health reform would “actually improve Medicare coverage for seniors.” Apparently the Speaker has been on the public dole for so long, that she has forgotten that every cent that the government uses is paid for by taxpayers. Of course, a month ½ earlier she said, “Half the bill will be paid for by squeezing excesses out of the [Medicare and Medicaid] system, and there is $500 billion dollars to do that and we’re looking for more.” Only a politician with lifetime private health insurance paid by the government could make such claims. This of course comes after plans of taxing existing private health care plans and a value added tax (a federal income tax).

What is known is that most of the Public Health care promises are smoke and mirrors. From an article by Robert Samuelson; “Public Plan: Delusion in Health Care Debate”:

The public plan's low costs would be artificial. Its main advantage would be the congressionally mandated requirement that hospitals and doctors be reimbursed at rates at or near Medicare's. These are as much as 30 percent lower than rates paid by private insurers, says the health care consulting firm Lewin Group. With such savings, the public plan could charge much lower premiums and attract lots of customers. But health costs wouldn't subside; hospitals and doctors would offset the public plan's artificially low reimbursements by raising fees to private insurers, as already occurs with Medicare. Premiums would increase because private insurers must cover costs to survive.

As for administrative expenses, any advantage for the public plan is exaggerated, say critics. Part of the gap between private insurers and Medicare is statistical illusion: Because Medicare recipients have higher average health expenses ($10,003 in 2007) than the under-65 population ($3,946), its administrative costs are a smaller share of total spending. The public plan, with younger members, wouldn't enjoy this advantage.”

In other words the Medicare overhead advantage (3%) over private insurers (13%) is obtained by comparing apples to oranges; the public plan will likely have a similar overhead as the private insures of today. Finally:

The promise of the public plan is a mirage. Its political brilliance is to use free-market rhetoric (more "choice" and "competition") to expand government power. But why would a plan tied to Medicare control health spending, when Medicare hasn't? From 1970 to 2007, Medicare spending per beneficiary rose 9.2 percent annually compared to the 10.4 percent of private insurers - and the small difference partly reflects cost shifting. Congress periodically improves Medicare benefits, and there's a limit to how much squeezing reimbursement rates can check costs. Doctors and hospitals already complain that low payments limit services or discourage physicians from taking Medicare patients.

The only way we have to estimate the future cost of health care in the past; and the past shows the so called skyrocketing health care costs rose similarly with Medicare. Samuelson went on to say the reason Medicare can keep it's cost down, is they can mandate low reimbursement rates; without which, “the public plan would founder”. And an advantage not given to private insurers.

Perhaps the greatest indicator of fascism is the size of the lie. Speaker Pelosi and Pres Obama seem to have no respect for the American citizen. In their world view, individual freedom and liberty must make way for collectivism; that the needs of the many now supersede the needs of the individual. When faced with the moral values of her religion, she defers to as a need of the state. When faced with the needs of the free market, she points to nationalizing the means of production as a need of the state. When faced with capitalism and the free market, they point to re-distribution of wealth as a need of the state. This has all been tried before; it is the fascism playbook, word for word, and it has never been successful and always resulted in tyranny. But their unending narcissism makes them believe that this time they'll get it right. They praise the ideas of Marx, and Mao, and now Chavez and Castro. Hopefully the American people will not forget what it is that makes America great. It's not hard, because it is written in the Declaration of Independence and the US Constitution. Our founding fathers battled tyranny and created the greatest country that has ever been. Let's not return the country to tyranny, because, the day will come when we'll want liberty again, and history has shown that only through the loss of life and limb can liberty be gained. It would be tragedy of unimaginable sacrifice, the sacrifices of our forefathers, that will be needed again.

Monday, October 26, 2009

On the Road to Fascism

Capitalism is recognized as the most robust economic plan known to mankind. The concept of “supply and demand” tied to consumerism, has shown the greatest opportunity for economic growth the world has ever seen. But like all things, it's greatest strength is also it's greatest weakness. The driving force behind free market capitalism is supply and demand, but what keeps it healthy is competition. Competition creates innovation, keeps costs in check and greases the skids of capitalism. Unfortunately the history of capitalism is fraught with those who would continually manipulate the free market by trying to eliminate competition. John D Rockefeller is famous for saying, "Competition is a sin". Eliminate competition and you inhibit innovation, but you vastly increase profits. The counter to this are anti-trust laws, but they have often proven to be too little and too late. By the time the anti-trust laws have kicked in, the damage has usually been done.

The other weakness is a complete lack of accountability in the financial markets. As mentioned before, the stock market was meant to be a place were companies could fund themselves by selling a proportion of themselves and their profits. The weakness here is what is referred to as a bubble. A bubble is formed when there is too big a gap between what a stock is worth and the amount a company had previously sold it's stock; this is refereed to as the primary and secondary market. This occurred in the 90s with dot com or NASDAQ bubble. Here the perceived value of start-up Internet companies was so high, that when a correction occurred (the secondary market fell and the bubble burst), most investors lost most or all the money they invested.

Additionally, there is the futures market, which was designed as an insurance policy. If the truth be known, farmers rarely know what the value of their crops or livestock will be when they finally come to market. The idea of futures, was for the farmer to find a buyer for their product at a reasonable profit. Say you buy corn or pork bellies, at an agreed upon price; this is the price the farmer will sell their product. If by the time the corn or pork bellies are sold, and the value is greater than the agreed to price, then you make a profit; if it is lower you loose money, but more important the farmers always have enough money to stay in business.

Mix Investment Banking and Futures and you have derivatives. A derivative is a formula to determine the value of a stock or better what is referred to as a Financial Instrument. The most common derivative is an interest swap. An interest swap occurs when you, Startup Company “A” needs a loan to expand. Currently the interest rate is 5%. Since you are a Startup company, the bank will not give you a long term loan and you know if the interest rate rises over 10% you will not be able to make the payments. Enter Corp B. Corporation B has been around a long time and it looking to invest some profits. Here an investment bank will set up a swap guaranteeing Startup A a year long 8% loan. Startup A will negotiated it's 5% short term loan, and as long as the loan percentage is at 8% or less, Startup A will pay Corp B, the difference between 8% and the current interest. If the interest rate goes above 8% then Corp B will have to pay Startup A the difference. While this kind of derivative can be beneficial to both sides.

Unfortunately these unregulated derivatives can have drastic consequences for the country if they are abused; I am referring to what was known as the sub-prime mortgage meltdown. The idea was all someone had to do was buy or “get into a home”, and the increasing value would allow the owner, regardless of their current ability to pay, an investment that they could re-finance until they could afford the house. Congress pressured the banks to make these home loans and agreed to buy most of the mortgages, so the banks would continue to have money to make more loans. The government then sold these mortgages to Investment Bankers and they in turn created Mortgage Backed Derivatives as high yield investments. Unfortunately, the derivative formulas would not work if the housing market dipped or started to lose money. Once that happened, Mortgage Backed Derivatives could not be valued, the Investment banks could no longer buy mortgages from Fannie and Freddie and the Banks ran out of money; that popping sound was another bubble bursting.

The problem was no accountability. The driving force that started this economic catastrophe was congress and the American Dream Commitment Act. Even though there were many warnings and attempts to rein in the problem, neither the Republicans or the Democrats wanted to turn off the money spigot and tell poor people they could not buy a house. To make matters worse, the Investment Banks sold unregulated Insurances policies on the Mortgage Backed Derivatives, called Credit Default Swaps (yes they are also a form of derivative). Because the Mortgage Backed Derivatives lost value, Credit Default Swaps kicked in and most of largest Investment Banks would have gone bankrupt (and some did) had congress not bailed them out with hundreds of billions of dollars. Interestingly enough, the regulations and accountability to stop this from happening (The Glass Stegal Act) had been in place for over 90 years. Glass Stegal was repealed in 1999 and it took congress and Wall Street only 10 years to repeat most the mistakes that led up to the panic of 1907 and the crash of 1929. Now this is not to say these same mistakes absolutely would not have occurred under fascism. A fascist dictator would most likely encourage inward economic growth tied to home ownership. However, fascism has also showed itself to be highly suspicious of banking and there would be no allowance in fascism for individuals to profit more than the state. The amount of paranoia and accountability, along with a lack of a free market, would have made the sub-prime meltdown almost impossible in a fascist state. Further fascism would almost eliminate the secondary market, as it is not easily controlled, which would put an end to the investment bubbles that have been like a wrecking ball to your average investor.

Of course, all this assumes that the fascist leaders have the state's best interest at heart. As mentioned earlier fascism usually rears it's head during economic down times. However, there is very little evidence that fascism can sustained. Fascism relies much on nationalism. Alexander Tyler wrote that democracy goes through 8 stages;

From bondage to spiritual faith;
From spiritual faith to great courage;
From courage to liberty;
From liberty to abundance;
From abundance to complacency;
From complacency to apathy;
From apathy to dependence;
From dependence back into bondage.

If this is to be believed, fascism usually intervenes in the “bondage to spiritual faith” stage and sticks around through the turbulent “spiritual faith to great courage” nationalistic stage. However once liberty raises it's head, fascism begins to loose it allure; power corrupts and absolute power corrupts absolutely. Those who are in power are not likely to relinquish their power, just because the people now want more freedom. Usually what you will see are manufactured crisis. As White House Chief of Staff Rahm Emanuel, "You never want a serious crisis to go to waste." Manufactured crisis are designed to keep the citizenry off balance and in need of the government to protect them. Emanuel continued his crisis statement with, "what I mean by that is an opportunity to do things that you didn't think you could do before". Lets hope that one of these "things", do not have the unintended consequence of fascism.

Friday, October 23, 2009

You Fight Your War and I'll Fight Mine

Hidden away in Charles Krauthammer's recent commentary, “Fox Wars” (10.23.09) were two gems. This first was a glint of hope, that the Obama's attempt to control the media by silencing dissenting views and it's attempted boycott of Fox news may fail. Remember that the tyranny of fascism does not need to forcibly take over the news media. The same objective is accomplished when the press voluntarily censures itself. By the very nature of the Obama's Administration complaints that Fox news is not towing the line, when compared to the other TV and Cable media, we see the White House has a need to control and manipulate the press. As of now, the media (with the exception of Fox news) has voluntarily presented the Obama Administration in an uncritical light. However, when the Administration actually tried to exclude Fox news from a pool interview with Executive Pay Czar, the other networks suddenly recognized they were being asked to be complicit with censuring themselves. From Krauthammer's commentary;

At first there was little reaction from other media. Then on Thursday, the administration tried to make them complicit in an actual boycott of Fox. The Treasury Department made available Ken Feinberg, the executive pay czar, for the interviews with the White House “pool” news organizations- except Fox. The other networks admirably refused, saying they would not interview Feinberg unless Fox was permitted to as well. The Administration backed down".

The second gem discussed Anita Dunn and her now infamous speech in which she quoted Mao Tse- tung, “You fight your war and I'll fight mine”. The first shocker was her statement that Mao was, “one of two persons I turns to most”; the other was Mother Teresa??. In viewing this video, I thought to myself that it is not unusual to quote the major players in the history of the world, I myself like to quote Hitler and his concept of the “Big Lie”, but I would not say that Hitler is one of the persons I turn to most. But in a more succinct point, Krauthammer pointed out that the quote was presented as a challenge to the high schoolers to, not just follow the status quo, and make their own decisions. Again from Krauthammer's commentary:

She's (Anita Dunn) been attacked for extolling Mao's political philosophy in a speech at a high school graduation. But the critics miss the surpassing stupidity of her larger point: She was invoking Mao as support and authority for her impassioned plea for individuality and trusting one's own choices. Mao as champion of individuality? Mao, the greatest imposer of mass uniformity in modern history, creator of a slave society of a near-billion worker bees wearing Mao suits and waving the Little Red Book?”

The point is not that Anita Dunn quoted Mao. The point is the White House Communications Director is presenting a view, that those in power have the right to force tyranny on its people. She was telling the High Schoolers, not they they should hold true to their value system, but they should trust and hold true to the revolutionary point of view. Communism was originally presented as an evolutionary process. That at some point the workers of the world would revolt against their repressive masters. What Marx did not take into account was the emergence of the middle class and labor unions. Regardless, after the workers revolution, there was to be a temporary period where a dictator will take over and re-educate the masses, in the ways of a society, where everyone's contribution will be equal; each according to their ability, each according to their need. Unfortunately, communism has never emerged from this temporary dictatorship without collapsing under it's own weight; it may have something to do with the apparent need to annihilate large portions of the population who don't get it or are worthless eaters. This is the point of Anita Dunn's speech, that when the revolution comes, don't be left in the dust, or the grave to be more accurate.

Thursday, October 22, 2009

Part 2; Obama's America Becomes a Corporation

There is lot in the American free market system that has recently failed. In the first part of this series, I talked about the possible advantages of fascism, why some might except the trade offs of personal liberty for economic security, and how such a change might happen. Before we go any farther I want reiterate that I am no fan of fascism, but it is my fear that if one does not understand how benevolent fascism appears on the surface, it will not be recognized as it creeps into the American society. Under Presidents Bush (43) and Obama, we are already seeing the seeds of fascism being planted. After the sub-prime mortgage meltdown. Washington feared that credit that is the life blood of today's industry would dry up. There original plan for the $700 billion TARP fund (Troubled Asset Relief Program) was to buy up all the toxic assets that resulted from the sub-prime mortgage meltdown (hence the name), giving the banks back assets of known value and allowing them sufficient reserves to continue lending money. This was the same solution used during the Savings and Loan scandal of the 1980s. Interestingly enough, Washington actually made money when they later sold the these assets when a more favorable market returned. This plan however was shelved, apparently because Washington believed it did not give them enough control of the banking industry. As a result the banks were simply loaned the money, but the strings attached that has resulted in the Nationalization of the banks, and as the Banks started paying off the loans, Washington has refused to release their control. The Obama Administration followed this up by Nationalizing GM and Chrysler after their bankruptcy. In a twist right out of the fascism playbook, the Auto Worker Union, UAW was given majority ownership in Chrysler and 17.5% ownership in GM, therefore guaranteeing the UAW would not interfere with production. The next fight will be for Nationalized Health Care.

America as a corporation does not compete against itself. GM and Chrysler are no longer competitors, they are now different products made by the same company. As with most corporations, America will be highly compartmentalized. In Italian fascism these were referred to as Syndicates. One thing I have yet mention is Isolationism. A corporation can not control all facets of production if it has to constantly contend with outside influences. For that sake, America as a Corporation will close down it's borders and become less of an international player. On the other hand, the US would extend it's hegemony in a more direct fashion over those areas that contain the resources it needs. In these areas, the governments that control these resources will understand they control these resources in name only and if necessary, America as a Corporation will have no compunction to extend it's borders if necessary for it's security. Right now, illegal immigration is used as a form of slave labor for US industry and agriculture; that will have to stop. In it's place will be a change in the Criminal Justice system where prisons and jails will become Rehabilitation Institutions. It is estimated there are 11 million illegal aliens in the US; half are unemployed; this includes mothers, children and criminals. Of the 5.5 working illegal aliens, only about a third work in agriculture, the balance work in construction jobs such as roofing and insulation. There are also about 2.5 million incarcerated Americans with an additional 3.5 million on probation and parole. It would not take that much to assign parole and probationers one years of paid service in agriculture as a condition of their release. Further, low level prisoners could also be used as labor. In regards to the hard core criminals that remain, one could imagine a more Draconian solution in the vain of a hydraulic system. The state would determine it could incarcerate so many dangerous criminal. Once that number had been achieved, the criminals that have been in the system the longest, would be executed. With this system rehabilitation would take on a new sense of urgency.

The life of the average citizen would not change much with America as a corporation. As a matter of fact, the average Joe will see a steady paycheck, very affordable health care, 3 weeks paid vacations a week and 12 paid sick days a year. It will be management's job to keep production humming along; to reward hard work and give the slackers a kick in the pants when needed. Private ownership and even the control of small business is allowed under fascism. This of course will be in the good times. In fascism, the government is an objective determinate between workers and industry. However, since the governments decisions are always looking toward increased production, wages and benefits tend to be tied to the preceived health of industry. The free market as we know it would disappear. A small amount of competition is allowed to encourage innovation, but not to the point that it would effect the health and growth of the controlled economy. Unlike Communism, fascism usually does not take direct control of a company; Nationalization is accomplished by oversight and regulations. What this accomplishes is accountability to the state. What has come to the attention to the American people is a total lack of accountability by the corporations; especially in the Investment Bankers. The cause of the sub prime meltdown was not so much as a lack of regulations, but a total lack of accountability. CEO's of companies that have lost millions of it's investors money are still getting bonuses in the tens of millions of dollars. Now that the Obama Administration has bailed out these investment banks, they have started to pull the strings to cap salaries in these institutions. This is another page from the fascist playbook. You have a compartmentalized government pay Czar, that now has the power to determine how much the employee of a private company can make.

While there will be a stock market with America as a Corporation, it will look nothing like what it looks like today. It will a slimmed down version designed to invest in companies to help then grow. There will be no derivatives, commodities or unregulated markets, since these markets are impossible to control with little or no accountability. The Federal reserve will be abolished and the Dept of the treasury will have unfettered control of the money supply. Oh, and the trillions of dollars invested in America by countries like China and Saudi Arabia; sorry, in the name of National Security, there will be no foreign ownership of any US Property.

Fascism is also known as being non-intellectual. While this might sound counter to the Obama Administration, there is many areas where sudo-science is presented as fact. Nothing could be truer than climate change and the current Cap and Trade Bill. Without arguing the merits of want is now being called Climate Change, lets just look at what happened to the original studies done in the phenomena called “The Greenhouse Effect”. The term was actually coined in the late 1800's. It is the study of why the climate of earth is stable enough to sustain life. Without the Greenhouse Effect, our planet could not sustain life. Atmospheric scientist have studied the Greenhouse effect to explore what forces cause changes in climates on our planet. At the time forest fires and volcanoes were believed to have the greatest affect. In the 1960s , with the aid of increasingly more powerful computers, Meterologists began experimenting with computer models, in attempt to predict the weather. The result was a rift in scientific thought, that shook the world of Newtonian Physics. From "Chaos, Making A New Science" by James Gleck.

“Scientists marching under Newton's banner actually waved another flag that said something like this: Given an approximate knowledge of a system's initial conditions and an understanding of natural law, one can calculate approximate behaviour of the system.” In other words, when figuring the nature of systems, “Very small influences can be neglected”. Newton believed that if you you had enough information about the past, that information could be reduced to a mathematical equation and reproduced; and if you can reproduce the past you can forecast the future. Edward Lorenz was a weather scientist working with computers at MIT in the 1960's. “One day in the winter of 1961”, Lorenz was running a simple weather model through his computer; ”wanting to examine one sequence at greater length, Lorenz took a shortcut. Instead of starting the whole thing over, he started midway through. To give the machine it's initial conditions, he typed the numbers straight from the earlier printout. Then he walked down the hall to get away from the noise and get a cup of coffee. When he returned an hour later, he saw something unexpected, something that planted a seed for a new science.”

The new science Gleck was eluding to was Chaos Theory. What had happened was the computer model returned with a completely different forecast as before. It turns out the reason was Gleck had rounded off his numbers from six decimal places to three; .506127 had been typed in as .506; according to the current Newtonian thought, this small difference should have been inconsequential. Lorenz had discovered that small changes in initial conditions produced large changes in the long-term outcome. Gleck explained this by comparing predicting tides to predicting the weather. “The average person, seeing that we can predict tides pretty well a few months ahead would say, why can't we do the same thing with the atmosphere, it's just a fluid system , the laws are about as complicated. But I realized that any physical system that behave non-periodically would be unpredictable”. In other words the reason we can predict tides is because they are periodical; like a newspaper being delivered to your house every day. Even though we no nothing about the complicated life of the human being that delivers the paper, the fact that it shows up every morning between 5-6 AM, allows us to predict the same will happen tomorrow. However, if you subscribe to a “zine”, or internet blog that shows up only when the writer has something to say, there is no way to predict when you will see the next issue. This may sound like common sense, but before Chaos Theory scientist believed there was some inherent pattern to the world that would allow you to make such a prediction.

Okay, why have I spent all this time on Chaos Theory. The reason is simple. The study of understanding and predicting the weather is very difficult; so difficult in fact that it gave us a new understanding of the true complexity of the universe we live in. When Lorenz went searching for a way to predict the weather, he was as if in a boat made by Newton; much like Rory Shiver looking for the shark in Jaws. What he discovered, when he saw the scope of the problem, was he was going to need a bigger boat. Science is a process, it is not supposed to be a tool to control the citizenry of a country; but it is another page from the fascist playbook.

Wednesday, October 21, 2009

What Would Fascism Look Like in America?

What would fascism look like in the America? First, as an American citizen, you have to divorce yourself from the concept that American is defined by our Democratic Republic. Unlike most countries, the United States has always been defined by our form of Government. Ask an American what it means to be an American, and the most common answer is it means we are free. Ask someone from another country and they would say, it means they were born there. Also, must European countries have seen many different forms of government, represented by their associated political party; example are Socialists, Communists, Fascists, Social Democrats and Greens are typical parties that often reform a European government. Our founding fathers believed in and created a very restrained democracy in favor of personal liberty. Benjamin Franklin defined a democracy as, “Two lions and a goat discussing what's for dinner”. The Constitution set up the nuts and bolts of our form of government. Included and attached as a “Bill of Rights”, are enumerated individual rights, that take president over the majority rule of a Democracy. For fascism to work in America, we would have to give up on the idea of Individual liberty and embrace “Collectivism”. Stephen Grabill and Gregory M. A. Gronbacher define Collectivism as “ the theory and practice that makes some sort of group rather than the individual the fundamental unit of political, social, and economic concern. In theory, collectivists insist that the claims of groups, associations, or the state must normally supersede the claims of individuals”. In other words, you will no longer define yourself as an individual, but part of large collective. Your value will be defined by your contribution to the state.

Now I hear you thinking, “that doesn't sound like a good idea”. Well lets continue on and look at the positive side of fascism. In the Broadway musical 1776, John Dickinson from Pennsylvania remarks, “most men without property would rather protect the possibility of becoming rich, than face the reality of being poor”. What Dickinson was talking about is the middle class protecting the rights of the rich. But what would happen if the middle class finally figured out that they were never going to get rich. Fascism does not prohibit people from becoming rich, but it does control the level of wealth and weighs it against the health of the state. Fascism does not strictly control the means of production as communism does, as it realizes industry is usually run by people who know what they're doing. So rather than replace all the CEO's and mangers with fascist party members after a company is nationalized, quite often the same managers will be put back in control with fascist overseers. Also, fascism is not “each according to his ability, each according to his needs”. Fascism recognizes and rewards innovation and hard work. Would you be willing to give up personal liberty and free market capitalism for a state controlled job that offerers excellent benefits and rewards hard work? Fascism will not give you the same opportunities to become rich, but it will guarantee, that as long as you benefit the state, you will be taken care of. How would that sound with an unemployment rate of 15-25%.

With fascism you will no longer be a autonomous voting citizen, you will be part od a collective; there will no longer be a Congress, there would be a Board of Directors; there would no longer be a President, there is a CEO, and the CEO will be a very popular guy. He will be charismatic and appeal to your sense of responsibility and national pride.

In 1997 William Strauss and Neil Howe wrote a prophetic book on America called “The Fourth Turning”. The premise of the book is history is cyclical and repeats itself through 4 repeated “Turnings”, every 20-25 years. According to the writers, we are leaving a period of Unraveling and entering a period of Crisis where the rotting foundation of the American society will collapse and a new robust America will emerge. He likens this Crisis period to the America Revolution, the Civil War, and the Great Depression/WWII.

The writers say that sometime in the early 2000’s we will enter the “Millenial Crisis”. This period will be ushered in by what the writers referred to as “Crisis Catalyst”. This crisis, ala 911, will not worsen into a full-fledged catastrophe, “since the nation will find a way to avert the initial danger and stabilize the situation for a while.”…But as the Crisis mood congeals, people will come to the jarring realization, that they have grown helplessly dependent on a teetering edifice of anonymous transactions and paper guarantees. Many Americans won’t know where their savings are, who their employer is, what their pension is, or how their government works. The era will have left the financial world arbitraged and tenticaled: Debtors won’t know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities-and visa versa.

At some point, Americas short-term Crisis psychology will catch up to the long-term post-Unraveling fundamentals. This might result in a Great Devaluation, a severe drop in the market price of the most fundamental and real assets. This devaluation could be a short but horrific panic, a free-falling price in the market with no buyers.”…”As assets devalue further, trust will further degenerate, which will cause assets to devalue further, and so on.”

Within 10 years of the catalyst, “a national election will produce a sweeping political realignment, as one faction or coalition capitalizes on a new demand for decisive action.”…”The winners will now have the power to pursue the potent, less incrementalist agenda about which they have long dreamed and against which their adversaries had darkly warned”….”Regardless of it’s ideology, that new leadership will assert public authority and demand public sacrifice. Where leaders had once been inclined to alleviate societal pressures, they will now aggravate them to command the nation’s attention. The regeneracy will be solidly under way.”

In the end the crisis will end in a climax; “Decisive events will occur- events so vast, powerful and unique that they lay beyond today’s wildest hypotheses. These events will inspire great documents and speeches, visions of a new political order being framed. People will discover a hitherto unimagined capacity to fight and die, and to let their children fight and die, for a communal cause. The Spirit of America will return, because there will be no other choice.

I will leave you with another quote from Benjamin Franklin: Those who would trade in their freedom for their protection deserve neither'