Federal Government Services - Overpaying For Underperformance

Lets quickly review some points listed in yesterday's post:

• many of the Federal employees responsible for the overseeing and regulation of offshore oil drilling were busy accepting and taking free fishing and hunting trips from the very companies they were supposed to be overseeing, were actively inspecting those companies' operations at the same time they were negotiating their employment contracts with those same companies, and some were actively involved in downloading pornography onto their government issued computers. Result: by far the biggest ecological disaster ever as a result of a faulty oil platform malfunction.
• many of the Federal employees responsible for overseeing and controlling the goings on in the financial market at the Securities and Exchange Commission (SEC), including some earning over $200,000 a year in salary, have been identified as prolific Internet searchers of pornography and downloading that pornography onto their government issued computers and other media once they had filled their hard drives to capacity with smut. Result: the biggest financial collapse and economic disaster since the Great Depression which was totally unforeseen by the SEC, whose job is to foresee this kind of financial market trouble.
• although they opened more than one investigation into faulty Toyota products, the Federal safety agencies that were responsible for such safety never went deeply into the problem until it got out of hand years later. Result: latest reports indicate that 89 Americans have died in Toyota vehicles that no government agency found unsafe until recently although there were safety issue red flags many, many years ago.
• although responsible for safeguarding Americans from faulty products, Federal safety agencies failed to flag imported children's products containing dangerous levels of lead until the market was awash with such products. Result: those lead based products were eventually pulled form the market but the same safety agencies failed to detect the fact that foreign manufacturers had replaced the lead with equally bad cadmium, again endangering those that might ingest the latest heavy metal from the products.

Not a pretty picture, certainly one of under performance relative to expectations of the American taxpayer. And to add insult to injury, consider the following facts from a short article in the June issue of Reason magazine, written by Katherine Mangu-Ward, that reviewed a March report in USA Today:

• Accountants, nurses, chemists, surveyers, cooks, clerks and janitors that work for the Federal government get paid substantially more than those that do the same jobs in the private sector.
• On average, the Federal worker earns $7,600 a year more than the private sector worker doing the same function. This comes out to about $145 per week.
• As examples of some of the more outrageous discrepancies: Federal broadcast technicians earn about $90,000 while private sector broadcast technicians earn about $49,000, Federal graphic designers earn about $71,000 while private sector designers earn about $47,000, and Federal dry cleaning workers earn about $33,000 while private sector workers earn about $20,000.
• According to the article, the average Federal worker in 2008 also got almost $41,000 worth of benefits compared to the $10,000 or so value of benefits that the private sector worker received.

I do not want to disparage all Federal workers. I am sure that most of them, at least those not searching the web for pornography, are trying to put in an honest day's work. However, you can see the discrepancy outlined in the title of this post. We, the American taxpayer, which includes all Federal employees, pay a very large sum of money to the government and the political class that operates the government and get very little back in return. Ecological disasters, financial disasters, safety disasters, etc. seem to be the normal mode of operation of the political class. We are taxed more and more for less and less in terms of value for our dollar.

That is why dumping all incumbents in the November elections becomes critical. The current set of politicians in Washington are not going to improve this high cost, low performance equation anytime soon. Otherwise, they would have addressed the issue already. After we dump the incumbents in November, the next step has to be the implementation of Step 39 in "Love My Country, Loathe My Government" a priority and implement term limits so that those elected to office can spend their ENTIRE term looking to add value to our lives rather than spending the majority of their time making sure they get re-elected and not addressing the fundamental issue of high costs and low performance.

Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

More Reasons To Expect The Financial Reform Legislation To Fail

A few days ago we went into detail about how the new financial markets reform legislation that the Senate recently passed (their version must now by merged with the House of Representatives version) is likely to be ineffective for the simple reason that it did nothing to reform or keep in check two of the biggest causes of the economic meltdown: irrational and risky behavior by Fannie Mae and Freddie Mac. We calculated that these two Federal agencies were costing the American taxpayer about $7 billion a month to keep them solvent and that the proposed legislation did not nothing to get them in line from a lending, accounting, and solvency perspective.

If Fannie and Freddie were not enough to doom the effectiveness of the reform legislation, consider an Associated Press (AP) article by Daniel Wagner that appeared on May 24, 2010, titled, "New Financial Rules Might Not Prevent Next Crisis." Mr. Wagner takes a detailed look at the many components that the proposed law covers and provides some in-depth analysis of why the bill may fail in each area:

• Derivatives - many believe that these types of financial products not only helped to pump up the housing market but also magnified the chaos of the bursting housing bubble. Apparently, business lobbying groups got the new rules on visibility for derivative trading diluted so that only the big banks are affected. The old, dangerous ways of doing business for most companies will continue with no new visibility rules.
• Weak banking oversight - prior to the crash, many government oversight organizations failed to foresee the coming financial meltdown and the risky behavior that was causing the crisis and allowed some industry companies to avoid oversight altogether. While this legislation supposedly tightens regulation oversight, there are two problems. Banking lobbyists got serious concessions and a diluting of oversight regulation and many government agencies involved in oversight also lobbied the government (figure that one out, government agencies lobbying government politicians) to protect their turf, resulting in virtually no changes to the government's regulatory hierarchy, a hierarchy that failed miserably in foreseeing the latest recession clouds and storm.
• Too Big To Fail - according to Mr. Wagner, the bill does very little to prevent big banks from getting bigger, implying that taxpayers may still have to pay up for risky and ill timed behavior of the biggest banks in the future.
• Consumer Protection - a lot of the foreclosure and housing problems were caused when consumers took on mortgages and financing plans that they were not qualified for. This part of the bill is supposed to oversee banking products and financing plans and ban those products and offers that are thought to be too risky. However, the oversight in this bill would only extend to lending organizations with over $10 billion in assets. Smaller banks and more importantly, nonbanks, would not be be covered. Since many of the bad mortgages in the past were written by smaller mortgage brokers who sold the mortgages immediately after closing, regardless of how poor a credit risk the deal was, a root cause of the housing collapse, shady mortgage dealers, will not be addressed by this bill.
• Credit Rating Agencies - credit rating agencies such as Moody's and Standard and Poor's failed miserably to detect bad mortgage securities and wrongly gave many of them high credit worthiness ratings. Obviously, most of these high rated securities,s backed by poorly performing mortgages, were disasters so this part of the bill tries to end the practice of banks choosing the credit agencies that rate their investment offerings. An independent board would assign rating agencies. However, the banks still would have to pay the credit rating agencies that are chosen to rate their investments so the incentive to overrate is still present.

Many would say this is a nice try but that is about all it is, a nice try. Many of the problems have not been addressed or they have been addressed in a haphazard or diluted way. The further concern is the House and Senate bills still have to be merged, probably resulting in more compromises and a further weakening of the legislation's intentions. At some point you have to ask: when does so much dilution and compromising result in a toothless bill? The political class will no doubt congratulate itself when the final law is passed but banks will still be too big to fail, underhanded small mortgage brokers and smaller banks will still be pushing bad financing products (which eventually get dumped on the taxpayer via Fannie Mae and Freddie Mac), the regulation hierarchy that failed so miserably a few years ago will still be in place, unseen derivative trading may still stalk the underbelly of the economy, and rating agencies will still be rating, and being paid by banks, to rate a banks investment offerings with the incentive to give a higher rating, while somewhat muted, still present.

Why are we stuck with such ineffective legislation? Possibly two reasons. First, as we have mentioned many times, the political class as an entity is not very smart when it comes to solving large, complex problems. In fact, I cannot even remember the last time they solved a major problem or resolved a major issue. Second, they may not have had a chance in this area since, according to the article, the following organizations lined up for input to the writing of the bill: U.S. Chamber of Commerce, Business Roundtable, Independent Community Bankers, the American Bankers Association, Federal regulatory agencies such as the FDIC, Goldman Sachs and other large banks, the payday lending industry, and the National Automobile Dealers Association.

Mr. Wagner reports that the financial services industry has donated about $2.3 billion to political candidates for Federal public office in the past twenty years. It has also spent $3.8 billion in pure lobbying expense since 1998, more than any other sector. Thus, is it any wonder that possibly the political class is looking out for their own interests and the interests of their re-election funders than the American taxpayer?

This is just another example where Step 39, term limits, as outlined in "Love My Country, Loathe My Government" would be needed. Most people, especially politicians, cannot be expected to act rationally and in the best interests of average Americans and the country as a whole when the banking or other industry is throwing billions of dollars in campaign funding at them. The only real solution is to make sure that re-election is not an option. Then, and only then, can we begin to take money out of the equation and maybe put the country's welfare back into the equation. While we are at it, lets also impose Step 6 which only allow individual citizens to contribute to any campaign and thus, take corporate, union, and PAC money totally out of the election process.

In conclusion, please remember our advice from yesterday's post as this so-called reform legislation moves forward - focus on what the unintended consequences are of the final law, not the intended aims of the law. The intended goals are highly unlikely to be attained, based on the discussion above, while the unintended consequences of such a large piece of legislation could be extensive.

Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

The American Political Class: The Good, The Bad, and The Ugly, Part 2 Continued

The last two posts to this blog covered the recent Good and the recent Bad from the American political class. Today we will finsih up with The Ugly aspects of the political class. The Ugly aspects are much more sinsiter and dangerous than The Bad antics. The Bad Antics focused more on incompetence and waste from politcians. The Ugly is focused on more fundamentally dangerous trends and behavior that threaten freedom from different aspects.

The Ugly - Early, 2010

1) Writer David Freed put together an article for The Atlantic that was summarized in the April 30, 2010 edition of The Week magazine. It covered the trials and tribulations of Steven Hatfill who the FBI initially thought was behind the 2001 anthrax letters case. For seven years the FBI hounded him as their prime suspect in the attacks. They leaked his name to the press which caused most of his friends to turn away and resulted in his being blackballed for every job he applied for. The FBI never brought charges even though they constantly followed him in a vain attempt to force him to slip up. However, the FBI eventually turned their attention to another suspect who committed suicide before he could come to trial.

As a result of the harassment, Hatfill filed and won a settlement for the harassment for $5.8 million. Thus, not only did the FBI waste seven years of resources hounding the wrong suspect, they ended up paying almost six million taxpayer dollars to try and make it right. Even worse, were the ominous words from Mr. Hatfill: "Don't kid yourself. This is a police state. The government can pretty much do whatever they want...I was a guy who trusted the government. Now I don't trust a damn thing they do." Totally in line with the philosophy of "Love My Country, Loathe My Government." When those running the government can get away with acts of unlawfulness without any respect for due process, we are all in danger of losing our freedom.

2) While Mr. Hatfill is a sympathetic American citizen that was wrongly persecuted by the government, Anwar al-Awlaki is not a sympathetic American citizen. According to another article in the same edition of The Week, al-Awlaki is a radical Muslim cleric that was born in New Mexico and who lived for a long while in the United States before moving to Yemen. The U.S. government believes that he has been involved in many terror plots planned against the United States and has placed him on a list of terrorists authorized to be killed.

Now there is probably no doubt that this is a very bad dude. However, he is an American citizen and the Constitution says "that no American shall be deprived of life without due process of law." It appears that Mr. al-Awlaki has not yet received due process of law, just the National Security Council designation to be killed without a trial, legal council, etc. This sounds very Bush-like when we can kill someone on sight because the politicians in power want them dead. The really serious concern is once you kill one American without due process, it becomes easier to kill the next one and the next one, etc. All you need is someone in the position of power to override the Constitution in the name of "national security." Where does it stop and who makes it stop once the extermination of Americans with a different view becomes easier to do?

3) The Florida state legislature has just passed two bills, one of which would theoretically protect anyone in the state who does not want to purchase health care insurance as mandated by Obama Care and the second bill demands that the Federal government balance its budget. Arizona just enacted a law that would try to deal with the overwhelming illegal immigrant problem that has beset that state in defiance of the Federal government. Idaho and over thirty other states are working on or have already passed laws that resist the mandates of Obama Care. The Montana state government has passed a law that exempts in-state gun purchases made by in-state gun manufacturers from all Federal gun laws, claiming that the Feds have no jurisdiction over in-state activity. Several years ago when the Federal government demanded that all state issued identification documents conform to a national standard (the Real ID law), many states just ignored the law without repercussions. For several years it has been legal to possess and use marijuana for medical purposes in California which is in direct defiance of national drug laws.

What does all of this mean? Possibly nothing but possibly, just possibly, we are starting to see the onset of the country starting to fray apart. It may be that the center, i.e. the Federal government, will not hold, and we will end up with a conflicting set of laws that are at odds with each other at the state government vs. Federal government level. It could be that the political class in Washington is so out of touch with the needs, views, and feelings of the rest of America, that the chasm between what Washington does and what America wants and needs will become so great that the states will start to act on their own in compliance with what their citizens want and defiance of what Washington deigns. That will put us in uncharted waters from both a freedom perspective and a governance perspective. What happens if Washington passes a law and no one obeys it, both individual citizens and local state governments? Some would call it a revolution, some would call it anarchy, all would agree it is unprecedented and would get very ugly.

4) This past week an ex-executive of the defunct ACORN organization likened the Tea Party Movement to a nasty bodily function that I will not describe here. Again, what passes for intelligent political dialog in this country remains at the level of a first grader. We have become a nation of name callers rather than problem solvers. We sign up for Facebook groups and think we are making a difference. We encourage the name calling when it is directed at others who have a different viewpoint and get outraged when those same people react angrily when called a name. And as always, we get no leadership from our politicians. In fact, they are often the name callers when disparaging those Americans citizens that disagree with them:

• House Speaker Pelosi called those Americans that disagree with Obama Care as being unpatriotic for having a differing view.
• Senate Majority Leader Reid said American citizens visiting DC in the summer on vacation physically smell.
• An Obama czar called Republicans a%$holes.
• A Florida Democratic Congressman called Republicans knuckle dragging Neanderthals.
• A Texas Congresswoman likened those that have a legitimate concern about Obama Care to the racists that fought against the Civil Rights laws.
• A New York Congressman likened those that have a legitimate concern about Obama Care to the racists that fought against the Civil Rights laws.

In all cases, President Obama allowed the name calling of American citizens to go unpunished, in effect condoning it. This is what passes for leadership in this country today, first grade playground taunts. Its no wonder that no national issues ever, ever get resolved, Without leadership from the politicians running this government, the center will not hold and heaven help us. For we all know that The Good we are getting from the American political class is being overwhelmed by both The Bad and The Ugly.

P.S. I did not mention the precariously Ugly position the country is in financially and economically, that would be too much Ugly for one day. We will cover that in the next few posts, assuming that Greek, Portugal, Spain, Italy and the rest of the international financial system is still functioning.

Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Commitment Vs. Involvement: In A Ham And Egg Sandwich, The Chicken Is Involved But The Pig Is Committed

A recent article in the St. Petersburg Times by Robert Trigaux reminded me of this grand old saying. The article was published on Sunday, April 11, 2010 and it went through the cast of characters that were somehow involved with the market crash and recession starting in late 2007. The majority of the article was based on the testimony a lot of these people recently gave in front of the Congressional committee that was investigating the causes of the economic crash.

A few things struck me as I read the article and looked at the pictures of those listed as involved in the crash. The first thing I noticed, and the most obvious, was that all of these people mentioned in the article were involved in the crisis but none of them want to stand up and commit that their actions or inactions were contributing factors to the disaster:

• Alan Greenspan, former head of the Federal Reserve Board, did not take responsibility for the crash even though many people think that under his leadership, the Fed kept interest rates way too low for way too long. During the hearings, Greenspan stated that he was right 70% of the time in his Fed decisions. While 70% might be good for an NFL quarterback for a pass completion record, 70% is not good enough when the economic well being of the nation's citizens are on the line.
• George W. Bush has not taken responsibility for the crash even the seeds of destruction were sowed and allowed to grow during his administration.
• Barney Frank has not taken responsibility for the crash even though he was the House committee chairman that oversaw the housing market, he did not see the biggest economic crash coming since the Great Depression until it hit him in the face.
• Chris Dodd has not taken responsibility for the crash even though he was the Senate committee chairman that oversaw the housing market, he did not see the biggest economic crash coming since the Great Depression until it hit him in the face.
• Henry Paulson has not taken responsibility for the crash even though as Treasury secretary he also did not see the biggest economic crash coming since the Great Depression and when it did hit, he reacted slowly with no apparent strategy for determining which Wall Street firms were to live and which were to die.
• Bill Clinton has not taken responsibility for the crash even though as President he signed laws that separated commercial banking from investment banking, creating the behavior that led to the crash along with legislation that exempted the dangerous derivative financial products from regulation.
• Christopher Cox has not taken responsibility for the crash even though as former head of the Securities and Exchange Commission his organization watched on the sidelines as the banking system almost collapsed completely due to shady and risky financial dealings.
• Richard Fuld has not taken responsibility for the crash even though as CEO of defunct Lehman Brothers Fuld allowed his company get so deeply into risky subprime instruments that its demise was the biggest bankruptcy in U.S. history.
• Raymond McDaniel has not taken responsibility for the crash even though his company, Moody's, incorrectly or falsely rated the subprime financial instruments as financially sound.
• Angelo Mozilo has not taken responsibility for the crash even though as CEO of Countrywide Mortgage his company apparently never met a mortgage customer, no matter how uncreditworthy, that his company would not accept.
• Franklin Raines has not taken responsibility for the crash even though as head of Fannie Mae his big investments in subprime mortgage securities led to a massive taxpayer bailout.
• David Lereah has not taken responsibility for the crash even though as a former economist of the National Association of Realtors, he never saw the housing collapse coming and his book, "Why The Real Estate Boom Will Not Bust" was published just as the real estate boom went bust.
• Robert Rubin has not taken responsibility for the crash even though as Citigroup Chairman he claimed he was ignorant of the risks that nearly destroyed one of the biggest banks in the world, indicating he was either a very lousy executive by not knowing how much at risk his company was at or a very lazy executive who never took the time to understand how much at risk his company was at.
• Charles Prince has not taken responsibility for the crash even though as Citigroup CEO he was just as lousy or lazy as Rubin.
• The Democrats in Congress have not taken responsibility for the crash even though they ran all of the Congressional committees responsible for the overseeing the housing and banking sectors of the economy and consistently rejected dozens of calls by the Bush administration to put stronger oversight onto Fannie Mae and Freddie Mac. They also rejected a request from John McCain in 2005 to rein in the dangerous lending and security practices of Fannie and Freddie. One reason for this resistance was that these two quasi-government organizations were large campaign contributors to Democratic Senators Dodd, Obama, and Kerry.

So all of these important people were involved (the chickens) in the financial disaster but none of them have committed (the pig) to taking responsibility for the results, it wasn't their fault. If it was not their fault, then whose fault was it? This was obviously a big deal since the stock markets suffered extensive setbacks, unemployment is nowhere close to recovering, the Federal deficit has skyrocketed in part due to the large bank bailouts, and the housing market is still in the dump. But no one is responsible. In the above list, no one went to jail, no one paid a large fine, no one went bankrupt, many did not lose their jobs, and no one has an answer of why it went so wrong and why no one in a position to acted to avert or at least mitigate the outcome.

Thus, the first conclusion I draw is that this is just another instance of where the government and the people that are currently running it are not effective and the programs they are responsible for do not work. As stated in "Love My Country, Loathe My Government," we need to do a ground up housecleaning of the people/politicians and the processes that are no longer effective in running this country.

The second conclusion I draw from he article is a little more subtle. As I look at the politicians running the hearings looking into the the causes for the economic crisis and include the list of people from above, I see that almost all of them are older white males. There are no females involved, very few younger people involved, and Franklin Raines is the only African-American who is prominent in the discussion of fault.

Could it be that this group of politicians and business leaders are not diverse enough to see a crisis developing or are too cozy with each other to want to do anything to avert these kinds of disasters? This brings us to Step 45 in "Love My Country, Loathe My Government," a step we have not talked about often in this blog. This step would require the political class to obey and heed all laws in effect that work to guarantee equal opportunity relative to race and sex. Maybe if we had a little more diversity, fresh blood, and fresh ideas involved in the process of running the country we might get some better results. Heaven knows that the current club of people running the country, both in and out of government, may be stuck in a group think mode, making them incapable of foreseeing the future disasters. Said another way, we need more committed pigs and less involved chickens running the country.



Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble.