May, 2015, Part 1, By The Numbers: Tax Numbers Stink, Economic Numbers Stink, Welfare Cheat Numbers Stink

On a semi-regular basis we revisit the theme "by the numbers" just to check in on the state of the country and political class using actual realities and their underlying numbers, not the spin or lies from our politicians. You see, politicians usually have nothing to gain by looking at reality and the numbers since they are more than likely to have screwed up reality and our lives in the first place.

That is why they would rather lie and deceive than tell the truth. But that approach can be destroyed by looking at the hard numbers behind the mess they have created. I once worked for a boss whose favorite saying was: "There is nothing more devastating to an opinion than the right number.” And that is what we try to do with this theme, devastate politicians’ opinions by looking at the right numbers.

So let’s take a look at the numbers that have recently cropped up and again prove that the political class in America continues to be one of the worst set of people to ever hold office, given the state of the country, the many ways they screw up our wealth and government functions, and their inability or non-desire to step up and tell the truth.

1) We have often talked about how insane the nation’s tax code is. Physically it runs about 70,000 pages. We once cited the example that the GE annual Federal tax return would have been 56,000 pages long if it had been printed out. American households spend billions of dollars a year preparing their taxes since it is such a complicated exercise, billions that would have been better spent growing the economy.

But nowhere is the tax code idiocy more on display when it comes to major corporations and their overseas operations. Since the U.S. has the second highest top business tax rate, 35%, in the world, it makes better financial sense for corporations to keep their profits offshore rather than bringing them back to this country where they might actually help grow the economy and improve the employment opportunities of all Americans.

Think about it: why bring billions of dollars back to the U.S. just to pay a whopping 35% income tax on those profits when they can be kept far away and invested in other countries at a much lower tax rate? 

How bad is the problem? Consider an analysis that was recently published in Businessweek that showed how much the Federal government would reap in taxes if those large corporations actually brought their profits home and what entities of the Federal government could be funded with those taxes:

• Microsoft has $92.9 billion of profits sitting offshore, which results in $29.6 billion in lost taxes which could be used to annually fund the Department of Justice and half of the Commerce Department.
• Apple has $69.7 billion of profits sitting offshore, which results in $23.3 billion in lost taxes which could be used to annually fund all but $500 million of the Department of Agriculture’s discretionary budget.
• Oracle has $39.3 billion of profits sitting offshore, which results in $12.2 billion in lost taxes which could be used to annually fund the Treasury Department.
• Citigroup has $43.8 billion of profits sitting offshore, which results in $11.6 billion in lost taxes which could be used to annually the National Nuclear Security Administration.

The list goes on and on but you get the idea: tens of billions of dollars in lost tax dollars due to the second highest business tax rate in the world. What if the corporate tax rate was 10%? The Federal government would then get $9.29 billion in taxes if that rate was low enough to get Microsoft to bring those profits back to the U.S. vs. getting $0 at 35%? And how much more research jobs, sales jobs, and programming jobs would be created in the U.S. if Microsoft did bring that $92.9 billion back to the U.S.?

The numbers are a no brainer: drop the tax rate, the Feds get billions of dollars vs. nothing today, the economy gets a big boost by the infusion of billions and billions of dollars, and companies can focus on growing their business rather than sheltering profits. Everybody wins this numbers game….which means it will never happen if the current set of politicians stay in control.

2) The government released the first quarter GDP growth estimate and it was an anemic .2%. That is right, not 2%, .2%, two one tenths of a percent. A very bad number.

Even worse, the population was up .8% so the GDP per person was actually negative in the first quarter, not a very inspiring number. But less than inspiring economic numbers is to be expected from this administration and this set of Washington politicians. According to a recent comparison of economic recoveries between the Obama administration and the Reagan administration done by the Heritage Foundation:

• 23 quarters after the last recession ended, the annualized GDP growth rate under the Obama administration is a meager 2.24%.
• This places the Obama recovery dead last compared to the six other post recession recoveries since 1960.
• Those recoveries averaged 3.97% after 23 quarters. 
• This difference between the Obama recovery and the average of the other six recoveries translates into nearly $1.7 trillion (in constant 2009 dollars) in missing economic growth.
• But Reagan’s economic recovery’s was a whopping 4.8% annualized growth through 23 quarters.
• That was more than double the Obama economic recovery. 
• If Obama’s recovery had been as robust as Reagan’s the country’s annual GDP number would be $2.48 trillion larger than it is today.

A $2.48 trillion larger economy would have provided a lot of job opportunities for Americans that are finding it difficult to find jobs. But the reasons for the anemic economic numbers is not to hard to discern:

• The Obama administration has added, on average, nine new Federal regulations every day, burdening businesses and business growth with unnecessary government interference.
• The higher taxes on the wealthy has restricted discretionary spending and economic development by the very people that actually have discretionary income.
• The out of control EPA has shut down in the energy industry in this country with no coherent reasons for such overpowering interference and regulation of that industry.
• Obama Care has added taxes and bureaucracies to the whole economy, reducing economic growth and employment opportunities.
• If a no brainer like building the Keystone pipeline and the creation of the thousands of jobs associated with that effort was blocked by this President,chances for other economic opportunities are gong to be far and few between.

The numbers stink, the reasons they stink are obvious, and that is why politicians should never play with economics.

3) Michele Hickford, writing on April 28, 2015 for the Allen West website, put together some very interesting numbers. She showed how easy it was to earn almost $70,000 a year by milking the Federal government’s welfare processes and doing no work and not being employed in the process. 

Her analysis has some validity. According to recent Bureau Of Labor Statistics in 2014 19.9% of American families had no one in the household that had a job. Amazing number, one out of every five households had no one earning wages or a salary last year. Which says either the economy is in terrible shape with unemployment around 20% or many Americans are ripping off the welfare system.

Given that the unemployment rate, no matter how you measure it, is nowhere close to 20%, the following numbers show that there is a good case to be made that ripping off the Federal taxpayer is now a full time job for many Americans. According to Ms. Hickford, this is the easy way to earn almost $70,000 a year:

1. If you’re a man, don’t get married
2. Have a couple kids
3. Use your mom’s address for your mail
4. Buy a house
5. Rent your house to your girlfriend and your two kids
6. Section 8 will pay $900 a month for the rent on the 3 bedroom home
7. Have your girlfriend sign up for Obamacare
8. Your girlfriend gets to go to college free as a single mother
9. She also gets $400 a month form food stamps. 
10. She gets a free cell phone. 
11. She also gets a cash grant to help pay for heating costs
12. Move into your house with her, but keep your mom’s address for your mail
13. Each of you can claim one child on your taxes so now you both get to claim head of household credit ($1295)
14. Have your girlfriend get a permanent disability for “marked difficulties maintaining concentration” or having a “back pain.”

This is all perfectly legal, and is likely being done by millions of people. Adding all the numbers up:

$22,800 disability + $10,800 housing benefit +$4,800 food stamps + $3,300 Obamacare subsidy + $900 utilities grant + $5,645 Pell Grant  + $12,000 annual college tuition grant + $8,000 single mother tax benefit  + $1,295 head of household credit…- Almost $70,000

Okay, the economic numbers stink, the welfare abuse numbers stink, and the tax numbers stink, regardless of Washington’s politicians tell us. Remember, there is nothing more devastating to an opinion than the right numbers and we will devastate more tomorrow.

Our 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.

Please visit the following sites for freedom:

Term Limits Now: http://www.howmuchworsecoulditget.com
http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w

Federal Reserve - Was Woodrow Wilson Right?

Woodrow Wilson has been credited with the following insightful quote: "The government, which was designed for the people, has got into the hands of the bosses and their employees. An invisible empire has been set up above the forms of democracy."

This quote came to mind when reading a recent extensive investigative report from Bloomberg, "Wall Street Aristocracy Got $1.2 TRILLION In Secret Loans." The report looked into the secret relationships that the Federal Reserve Board has been having with the major banks of the world over the past few years. According to the article of the investigation, the Fed did not easily and voluntarily give up the information and the descriptions of their behavior.

I am, by far, not an expert on the workings of the Federal Reserve System, banking systems, high finance, and monetary system. However, I am a somewhat educated person who thinks that some of the findings of the Bloomberg analysis are distressing, scary, and a danger to democracy in America:

• In 2006, the 10 largest U.S.banks and brokerage firms had their best year ever, earning $104 billion in profits.
• Within two years, the Federal Reserve  had lent these same banks $669 billion, in addition to the $160 billion these banks had received from the Treasury Department.
• Thus, in 2008, the U.S. government had endangered  $829 billion worth of the nation's wealth to save these ten large financial services firms, or about $7,200 per U.S. household.
• The extent of this Federal Reserve activity had been kept secret until now.
• In total, the Fed gave out $1.2 TRILLION worth of public money to keep banks afloat and out of bankruptcy.
• Turns out that the Fed took taxpayer money and also gave it to many foreign financial services  firms including Royal Bank Of Scotland ($84.5 billion), Zurich-based UBS ($77.2 billion), and Germany's Hypo Real Estate ($28.7 BILLION).  This last loan calculated out to about $21 million for each of Hypo's 1,366 employees. Banks in Belgium and France also received loans from America's central bank.
• The peak of the lending was $1.2 TRILLION which occurred in December, 2008. This amount was about three times the size of the Federal government that year and more than the cumulative earnings of ALL Federally insured banks for the past ten years.
• This total was 25 times larger than the actions the Fed took after the 9-11 attacks shook the U.S. economy.
• The Fed contends that it had no losses from this outrageous spending and loan spree and actually netted $13 billion in interest and loan fees. This comes out to a return on investment of 1.1% when calculated against the $1.2 TRILLION amount.
• The reason for extremely low returns could be the fact that the Fed made these loans to the biggest banks at less than one third of the current interbank rates at the time of these loans, obviously a great deal for the banks.
• Two weeks after Lehman Brothers folded in September, 2008, Morgan Stanley proclaimed that it had "strong capital and liquidity positions." They forget to mention that same day that the Fed loan's of $107.3 billion was almost all of Morgan Stanley's available cash. Thus, investors could have believed that Morgan Stanley was in good financial shape when in fact it was being kept alive by over $100 billion of Fed credit loans, distorting investors' investment decisions.
• While the Fed insisted on collateral to protect their loans, what started out as accepting only high quality collateral of the banks such as Treasuries, corporate bonds, and mortgage bonds, but as the program wore on, the Fed started to accept junk bonds, those that were rate below investment grade, endangering the taxpayer wealth on the line for these loans.
• Citigroup was the most chronic borrower among the largest U.S. banks, so much so that Richard herring, a finance professor at the University of Pennsylvania is quoted in the article stating that "Citibank basically was sustained by the Fed for a very long time." In other words, the U.S. taxpayer kept Citigroup from going bankrupt, all for about a 1% risky return on the taxpayer investment.

And the Fed and the banks wanted to keep all of these transactions secret. My conclusions about this dangerous use of taxpayer wealth:

• Keeping this all secret in a democracy is the biggest problem, it reinforces Wilson's observation that there is collusion above the current forms of democracy between the highest levels of government and the banking industry.
• By being kept secret, investment decisions of Americans were distorted since the banks were in far worse condition than the public information on their financial condition would show.
• Why the American taxpayer had to lend money to foreign banks is still unexplained. Shouldn't Americans be involved in any decisions like that which involves untold billions of dollars being loaned out at very favorable rates to foreign banks?
• Richard Herring, who is quoted above, stated that some banks may have used the lending program to "maximize profits by borrowing form the cheapest source, because this was supposed to be secret and never revealed." Thus, the professor has raised the obvious issue that American taxpayers may have subsidized the profitability, and payouts to high ranking banking executives, without their knowledge.
• Furthermore, the professor feels that the loans from the Fed "amounts to a free insurance policy for banks guaranteeing the arrival of funds in a disaster." In other words, the Fed's secret loan programs may have rescued bad bankers from their own bad practices which may lead these same bankers to assume that the Fed, using taxpayer wealth, will always rescue them from themselves.
• The IMF supports Herring's conclusions, stating in an IMF report that the banks should be charged a fee for accessing Fed funds to discourage using Fed loans as a source of profitability.
• Despite all of this risk, the latest issue of Business Week magazine indicates that many of these rescued banks are now in the financial doldrums. Bank of America's stock price is down 53% this year. The stock of JP Morgan is down 18%. The stock market index tracking financial stocks is down 21%. The revenues of the top ten investment banks are down 10% this year.
• Thus, the Fed may have risked over a TRILLION dollars on the bankers and the banks they operate, bankers who deserved to fail at their jobs, and despite such high levels of Fed/government support, the same executives continue to struggle to run a successive financial firm.

Wow, I think Woodrow Wilson was right. We have people in the Federal government (the Federal Reserve Board) who get little oversight from Congress, who prefer to keep their dealings secret, are not accountable to the American voter, and who may have been just plain lucky not to have lost up to over a TRILLION of taxpayer wealth.

How bad and out of sync have our government's priorities become to support this "invisible empire"? Consider the frustration of Congressman Walter Jones of North Carolina: "Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic? They get help when the average businessperson down in eastern North Carolina, and probably across America, they can't even go to a bank they've been banking with for 15 or 20 years and get a loan?"

Great question, Congressman. Democracy and freedom cannot survive when government operations are so secret and risky. It is time for the Obama administration to step up to its transparency vow and work with Congress to make the the operations of the Fed as transparent as possible. It is the only way to defeat the "invisible empire" and break the too cozy relationship between private market bankers and Federal government banking enablers.









Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available, at http://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.
Please visit the following sites for freedom:
http://www.loathemygovernment.com/
http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com
http://www.reason.com/
http://www.repealamendment.com/

Shaky Economic Times Ahead, Lessons Learned From the Past

A bunch of economic news has occurred recently so I thought it might be a good idea to take a look ahead into 2011 and try to predict how well the year might shape up from an economic perspective. You might question my ability to do that since I have very little economic training. However, given that the best economic and political minds in the world did not foresee the coming of the Great Recession, the biggest economic downturn in about eighty years, I would humbly state that I cannot do any worse then the experts in predicting what will happen in 2011.

At the same time, we will try and take away some lessons from what is happening in the economy in order to not repeat the major missteps that the political class has done over the past few years. A person should always look at their own errors in order to not repeat those errors in the future, a life lesson that always seems to get lost on our politicians.

The basic prediction I would make for 2011 is that it is going to be a very rocky and difficult year for American households in 2011, worse than in 2010. Yes, the stock market has improved considerably over the past year or so. Yes, holiday spending was up considerably on a year over year basis. Ford said it would hire up to 7,000 more workers. Many in the political class are already trumpeting the coming good times. I would say not so fast, considering:

- Yesterday's unemployment report on initial unemployment claims was not good, rising 35,000 to 445,000 people compared to the previous week. Thus, for a very long time, we have seen almost half a million Americans a week file for first time unemployment benefits. The job market cannot be strong if that many Americans continue to seek relief from the loss of their jobs.

And although the unemployment rate recently dropped to 9.4%, that was due to the many Americans in despair who have actively stopped looking for work rather than growth in the available number of jobs. With many Americans losing their jobs every week and many others stopping their job searches out of frustration, tight consumer spending will result in low economic growth and continue to depress sales tax and income tax revenue streams for government operations, resulting in even more government budget tightening.

- The Associated Press reported on January 13, 2011 that 2011 will be the peak in home foreclosures for American families struggling with unemployment and plummeting housing prices coupled with weak housing demand. The foreclosure tracker Realty Trac Inc. predicts that 1.2 million American homes will be repossessed in 2011, up from one million homes in 2010. One out of every 45 homes in the country, more than 2%, received a foreclosure notice just in 2010. Thus, one of the previous drivers of economic growth, the housing industry, is unlikely to help the economy or homeowners that owe more to the bank than what their home is worth.

- An Associated Press article from January 14, 2011 reported that consumer prices rose in December by the largest amount since June, 2009. The primary cause for the jump was the continuing rise in gasoline prices. For some perverted twist of logic, many economists think this is a good thing since there was only one driver of the higher prices, gasoline. What I never understood is who cares what drove the higher prices, everyone needs to drive, that is the basis for much of our economy and country, so excluding the price of gasoline from the inflation measure and being happy never made any sense. In the real world, we cannot take gasoline out of the equation and look at "core inflation," we still have to drive and driving got more expensive.

- Unhappy about rising gas prices? Well, get ready for rising food prices also. According to a Wall Street Journal report from January 13, 2011, prices of all types of food are likely to continue going higher in 2011. After jumps in farm staple products this week, corn future contracts are up 94% from June, soybeans are up 51%, and wheat is up 80%. Three factors are driving the rising prices, according to the United States Agriculture Department:

1. Dry weather and floods in various countries around the world have suppressed world wide crop production.
2. There is basic rising demand for food around the world.
3. Corn and other crops are being diverted for ethanol production.

The situation has gotten so bad that many are starting to worry that food supplies might be a source of "social and political instability, geopolitical conflict and irreparable environment damage," according to the World Economic Forum.

 On expert cited in the article expects commodity food prices to rise between 3.5% and 4.5% in the United States this year compared to only 1.5% in 2010. Even worse, the same expert said that beef and pork could rise as much as 10% in 2011. All good news for America's farmers as China and other emerging markets buy up American farm output, bad news for American consumers who, in addition to higher gas prices, are likely to be paying more for higher food prices.

- More proof that the economy is in for a rough ride in 2011? The Associated Press reported yesterday that the price of gold surged above $1,400 an ounce this past Tuesday as a result of a weaker dollar. In times of economic stability, the price of gold usually goes down significantly as other investment options provide a better potential for investment returns. As long as gold stays high I always assume that some very smart people are out there with serious and probably accurate doubts about whether the world's economies are really that strong and growing.



The panel also concluded that while the company is on the path to stability, its future plans "raise concerns" due to a lackluster product array, a faltering restructuring in Europe and increased competition around the world. Looks like $53 a share is not going to arrive anytime soon.

- Remember all those dire bank failure stories and hysteria from just a couple of years ago? How the American taxpayer had to step in and prevent all of these banks from collapsing and taking the entire world economy with them? Well, according to an Associated Press report this week, it does not look like that fate awaits JP Morgan. They announced this week that their fourth quarter profit jumped a whopping 47% over the same quarter the year before. The bank earned $4.83 billion in one quarter.

So while many Americans struggle with long hours, no jobs, higher gas prices, and potentially higher food prices, JP Morgan, and I would bet most other banks, are getting along quite comfortably, in part due to the bank bailout debacle that cost the American taxpayer billions and billions of dollars for no reason whatsoever.

- Staying in the bank bailout arena, a report issued this week by the office of Neil Barofsky,who is the special inspector general for the entire bank bailout TARP fund, found that the decisions to save Citi Bank "wasn't made coherently, and seemed to be based on "gut instinct" and "fear of the unknown" rather than objective criteria.  In other realms of life, this kind of decision making is called Amateur Hour. How can a politician or government official give out tens of billions of taxpayer dollars based on nothing but gut and fear?

The fact that the Treasury Department claims to have made money on the Citi Bank bailout does not erase the fact that they got lucky. You cannot expect to do much in life as clueless as Mr. Barofsky claims the Treasury department and the government was and always be so plain lucky. Especially when billions and billions of dollars in taxpayer money are involved.

And the worst part of the whole deal, worse than the basic roulette bet that was made with billions of dollars? The article raises new concerns that despite all of the posturing of the political class, many U.S. banks are bigger than the were just a few years ago, making them still "too big to fail." Barofsky claims Treasury secretary Geithner stated that "while the government now has better tools to cope with future financial crises, in the future, we may have to do exceptional things again." This is basically code words for some of these banks, like Citi, are still too big to fail and we will have to bet huge amounts of taxpayer money again to save them from themselves. Thus, we have risked hundreds of billions of dollars of taxpayer money, for no reason, under no logical processes and we are likely right back where we started prior to the Great Recession.

Thus, from all of this current and somewhat pessimistic news what should we have learned:

• We should have learned that government does not create jobs, the private sector creates jobs. After hundreds of billions of dollars wasted in so-called stimulus programs, unemployment is still very strong and very vibrant, not a good thing. All of the failed government-centric economic policies, Cash For Clunkers, Cash For Appliances, etc. have been utter failures except for their success in spending taxpayer dollars. In the future, find ways to let the market cure itself, not the government and the political class. These last two entities have proven beyond a doubt that they are useless in this area.
• We should have learned that the economy is always stronger than any government incentive program, it has to work its way back to health, the best thing that the government can do is let nature take its course and get out of the way. All of the government programs to help the housing market, foreclosure relief, first time home buyer rebate program, low interest rates, etc., have been total failures and have just wasted more taxpayer dollars while delaying the eventual cleansing of the market of excess inventory and bad credit risks.
• We should have learned, something our politicians never learn, that just about everything in the world is connected to everything else. Thus, by trying to fix the energy problem with a poorly thought out and failing corn ethanol program we not only fail to fix that energy program but we also cause economic troubles in food market. To solve any problem in life, one must understand the root causes and the interconnections within each problem. Our politicians have a very difficult time with that concept.
• We should have learned that it is never a good idea to step into the private sector to protect stupid executives and failing companies from themselves. General Motors never should have received any bailout money. They could have gone through bankruptcy proceedings like most other companies without government help, they would have emerged from bankruptcy and still have been a viable business without taxpayer help. Now, the American taxpayer will never see a positive return on that money, the Chinese government now owns more than 10% of the company as a result of how well the American taxpayer backed the company, and the company itself is on the verge of making more cars outside of the United States than within the country so we do not even get the benefit of more U.S. jobs for out taxpayer dollars. No company should ever be too big to fail. Let them fail, its called the free enterprise system.
• We should have learned, based on the GM example and the bank bailouts, that government should end all corporate welfare practices. GM's focus will not be on the American taxpayer in the future, it will be on the Chinese consumer. The major banks focus will not be on customer service and making loans to grow the economy, it will be on how to leverage interest rates and other exotic financial arrangements to make profits. American farms are swimming in profit potential, given tight world food supplies, wouldn't this be a good time to cut government farm subsidies to the large farm conglomerates in the country? Cut the corporate welfare practice, it perverts the true marketplace while it perverts the election process via campaign fund donations from corporate welfare recipients.

Some steps from "Love My Country, Loathe My Government" would help to implement these lessons:

• Step 6 would allow only individual citizens to contribute to election campaigns, eliminating the incentive for corporate welfare since the ability to reward welfare with campaign donations goes away.
• Step 23 provides a process to finally solve our energy crisis without screwing up the environment or food prices in the process.
• Step 34 provides a process to replace members of Congressional committees when the fail to perform to satisfactory levels, hopefully replacing them with people that can solve the problems facing the committees.
• Step 36 would require all elected officials to take and pass a course on basic economic theory so that they can understand how to solve some basic economic problems without making them worse, hopefully preventing us from reliving the nightmares of Cash For Clunkers, First Time Home Buyer Rebates, etc. in the future.
• Step 47 would eliminate farm subsidies, just one form of corporate welfare.

In summary, I predict we will pay more for gas in 2011 (given current gas rends), we will pay more for food in 2011 (given the three factors listed above), we will not see much price appreciation of our homes in 2011 (with all of these foreclosed coming on the market, the glut will suppress prices), we will not see a burst of job growth (not at the current high level of initial unemployment claims every week), we will not see any more tax breaks in 2011 (given the poor financial conditions of the Federal government and the states), we will not see any reduction in our national debt in 2011 (given that Pelosi, Reid, and Obama have already torpedoed the Deficit Reduction Commission without debate), we will not see GM repay its debt to the American taxpayer while it focuses overseas, and the banks are still too big to fail, probably taking too many risks but confident their friends in Washington will bail them out. Have a nice day! 



Our 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.


Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com
http://realpolichick.blogspot.com
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment

Why TARP Was A Taxpayer Failure But A Political Class Success

Almost two years ago, the political class was in a tizzy, claiming that if the Congress and the President did not immediately pass the massive TARP program to bailout out the country's financial institutions, the entire world banking and economic system would collapse. And when I say immediately, I do not mean in a few months. I still recall the politicians of the time frantically claiming that the bill had to be passed in a few days, weeks at most, to avoid financial catastrophy.

At the time, I recall I was also in a tizzy for two reasons. First, if this disaster was so large and so imminent, how could the political class have been so blind and ignornant not to see it coming?
Second, even when the political class has years to study a problem, they rarely get the solutions right so the odds were definitely stacked at them getting TARP right, both from a waste and fraud persepctive.

Now that we are almost two years removed from the TARP implementation, I thought it might be a good time to see if the program actually did any good and whether or not the hundreds of billions of dollars involved were well spent. Now, I am not an expert on sophisticated financial and government Treasury concepts, I am ignorant of what the warrants were that the Treasury Department purchased, and other high finance tools. However, I do understand the following facts:

• According to Wikipedia, the TARP legislation was signed on October 3, 2008.
• Fortune magazine reported on October 29, 2008, that the biggest financial institutions received their first TARP payments.
• On June 17, 2009, a New York Times article reported that JP Morgan and nine other banks had already repaid their TARP money.
• In that article, JP Morgan chief executive, Jamie Dimon, said that his bank never needed the money in the first place.
• A similar article on CNNMoney.com reported that Chicago based bank, Northern Trust, also confirmed it was going to pay back the Treasury Department the $10 billion TARP payment it received. However, contrast this action with a recent article in the August 16, 2010 issue of Fortune Magazine which stated that Northern Trust has had twenty two consecutive years of profits (including the years of "The Great Recession"), it's savings deposits were up 50% in 2009 vs. 2008, and during the financial crisis, Northern Trust customers waited in long lines to deposit about $90 million a day that those customers were bringing in from other financial institutions.
• This CNNMoney.com article also reported that the larger lenders had been working hard to get out from under the TARP requirements and restrictions for several months and that many had raised billions of dollars in fresh capital ands had issued debt without government backing.
• Several months prior to the onset of the TARP payments, the Associated Press reported that many of the big financial institutions that received government bailout money had made big contributions to each political party's Presidential convention. Four of these companies alone , AIG, Citigroup, Goldman Sachs, and Freddie Mac donated a combined $3.1 million. Note that three of these four, the exception being Goldman Sachs, turned out to be in the most dire financial straits when the the bailout money became available.
• The Center For Responsive Politics posted an interesting article on its website on February 4, 2009 which listed out how much money each financial institution received from the TARP fund and how much money those companies had spent in lobbyist expenses and campaign contributions, contributions that were made to the very same people in Congress who would decide how much taxpayer bailout money those companies would receive. According to the website, "members of Congress were able to specify to some extent where the money should go, and they have lobbied regulators to urge them to inject funds into specific banks and financial institutions including those in their own districts." In other words, taxpayer money was not distributed on need and merits but on political considerations.
• The article goes on to say that some of the top recipients of campaign donations from those companies were the people in the most powerful positions in Congress to decide where TARP money went.
• The articles' analysis shows that, with some exceptions, those companies with the highest amount of money spent on campaign donations and lobbying received the most TARP money.
• We have already reported on this blog that at least two members of Congress, a Hawaiian and a California Congresswoman, allegedly and personally lobbied the Treasury Department to save local banks in which these two members of Congress held considerable personal financial stakes.
• A Huffington Post article from November, 2009 reported that the TARP Inspector general was actively investigating 65 cases of fraud regarding TARP payments.
• And finally, an article in the August 16, 2010 issue of Fortune magazine wrote about how "upstart investment banks are taking business and bankers from battered larger competitors." In other words, new financial institutions have sprung up to fill the void left by the demise of failed financial institutions. It's called the free market.

What do I conclude from these know facts? With all due respect to those that think TARP saved the world, I would conclude that TARP was an unnecessary waste of taxpayer money. Consider my following conclusions:

1. Within three or four months of receiving the billions of dollars from the government, most financial institutions were already working on ways to give it back, mostly succeeding for by June, 2009, barely seven months after the program began. If these financial institutions were in such bad shape, how were they able to pay back the money so quickly? I think the Jamie Dimon quote above says it all, many of the financial institutions really did not need the money. I believe they thought they were getting a free lunch and belatedly found out how many restrictions came with the bailout, including the all important executive compensations limits, and quickly decided that this was not a free lunch after all. This conclusion is confirmed by Northern Trust's performance through the past few years, they continued to thrive despite the recession, maintaining their two decade run of profitability. They also could not wait to return the unnecessary money.
2. The cynic in me concludes that the political class saw an opportunity in two areas. First, they could use taxpayer money to both pay back those banks that had helped them celebrate and party at their Presidential conventions and and also provide themselves a new source of slush fund campaign donations, directing TARP money to those companies that donated the most to their re-election campaigns. Second, some politicians saw an opportunity to bailout local banks to the politicians' personal benefit. Neither of these factors were to save the world's financial markets, it was to benefit the political class.
3. The free market advocate in me steps back from the tizzies and realizes that there were just a few financial institutions that actually were in deep, deep trouble. Nowhere above to you see where Bank of America and Citigroup were first in line to pay back their TARP money. These two banks probably were in serious danger of bankruptcy but their horrendous business performance was saved by the American taxpayer, i.e. they and their shareholders were rewarded for the incompetence of their management. If you believe my first conclusion above, most banks did not need the bailout, then we should have allowed Citi and Bank of America to crumble and fail, it's a natural process in the free market. Or, they could have taken drastic steps that other companies take when in financial straits (e.g. lay off employees, cut dividends, sell more stock, sell off assets, etc.) in order to raise money to get out of debt. At least them the shareholders would have suffered the pain, not the taxpayer. They made bad business decisions they should have went out of business, and allowing for more efficient and smarter competitors to take over their business or for new competitors, as listed in the Fortune article mentioned above, to arise from the ashes to start doing business. There would have been plenty of healthy financial institutions, new and old, to take up the slack if Citi or Bank of America failed.
4. Given that there are dozens of cases of fraud being investigated, it is also probably a safe bet that many of the smaller TARP recipients did not need the bailout money from a bank operations perspective but the owners of those smaller banks so the opportunity to defraud the government and its taxpayers.

Fraud, lack of respect for the free market to take care of the strong businesses and punish the weak ones, a new source of campaign funding for politicians, and a potential source of free money, courtesy of the American taxpayer, were the reasons for TARP's existence, not the saving of the world's banking system. A lot of this waste from TARP is driven by insipid relationship between campaign donations, politicians, and companies.

That is why Step 6 from "Love My Country, Loathe My Government" is so important. It would not allow any entity except a private American citizen to donate to campaign re-election campaigns. In doing so, it would remove the incentive for politicians to use taxpayer money to fund their re-election campaigns, at the detriment of the American taxpayer. Of course, if Step 39 was also instituted, term limits, there would be no need for companies, unions, PACs, and lobbyists to contribute to re-election campaigns since they would become a thing of the past.

TARP: just another example where Americans lose and politicians profit.



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.

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I Am Not Conflicted So You Should Not Be Either

Conflict of interest (courtesy of The 'Lectric Law Library Lexicon)= Refers to a situation when someone, such as a lawyer or public official, has competing professional or personal obligations or personal or financial interests that would make it difficult to fulfill his duties fairly.

Note that the definition does not mean that something unethical or illegal actually happened, just that a person's interests would make it difficult. Sometimes it seems that the political class does not even know the definition of conflict of interest or chooses to ignore the part that says you do not have to have something illegal or unethical happen for a conflict to exist. In either case, consider the following short list of examples that fall under this definition and continue to undermine our belief that politicians do put themselves before their constituents and the country:

• According to an article in the St. Petersburg Times on June 30, 2009, Congresswoman Ginny Brown-Waite was very interested, both professionally and personally, in the massive taxpayer bailout of the banking industry. Not only did she sit on the House committee that oversaw the banking industry, she also personally invested in specific banks she was supposed to be regulating. The day before the bailout of Citigroup, she bought the company's stock. Eleven days later she bought stock in Bank Of America just as the administration announced another massive dose of taxpayer money going to banks like Bank Of America. The Congresswoman denied that there was any conflict of interest. Huh? You are sitting on a BANKING committee and have access to tons of information about specific banks, the industry as a whole, possible government actions, etc. and you are actively trading banking stocks. In the real world, if we did something like that we would probably by liable for insider trading violations. But as long you are a member of the political class, it seems as long as you vow no conflict of interest occurred, none did.
• On January 4, 2009, the St. Petersburg Times reported that Senator Hillary Clinton was able to get a New York developer special tax treatment and government road funding for his mall development project around the same time that the developer contributed $100,000 to husband Bill Clinton's foundation. When you are an elected official and your husband is getting money and your actions result in good things happening for that donor, it is a conflict of interest even if nothing illegal or unethical happened.
• The next example is Senator Dodd of Connecticut who, of course, has denied there was any conflict of interest in his dealing with Countrywide Financial. This past week the Senate Ethics Committee, consisting of members of the political class, cleared Dodd of any ethics violations. However, is this not a case of the foxes guarding the hen house? The pessimist in me says that if they had found Dodd violated ethics rules, they themselves might be cut off from similar deals in the future. Just my cynicism shining through I guess. Thus, I will leave it to you to decide if he had any conflicts of interest even if nothing illegal happened (source: Wikipedia):

1. Dodd is currently the chairman of the Senate Banking committee and thus, has tremendous influence and power in the entire housing and banking industry
2. In 2003, Dodd received favorable mortgage loans from Countrywide Financial on two properties
3. In 2008, Dodd proposed a program that would greatly benefit subprime lenders such as Countrywide Financial, the company that gave him the good mortgage deals
4. Countrywide Financial was bought by Bank Of America
5. Bank Of America also contributed $70,000 to Dodd's election committee
6. Dodd also received over $130,000 in campaign donations from Freddie Mac and Fannie Mae even though they are Federal housing programs, i.e. you paid taxes to the government, some of which found its way to these two government housing industry entities that turned around and took some of those dollars and gave it to a member of the political class. Thus, in essence, all of us subsided Dodd's reelection campaign.

• And one last example from the St. Petersburg Times on December 11, 2008. In mid-2008, many banks gave millions of dollars to both parties of the political class for the expense of their conventions. Several months later, the same political class throws untold billions of taxpayer dollars at this same banks . Coincidence? I do not think so. Just another example where competing obligations arose and the political class chose themselves over the interests of their districts, their states and the country.

These kinds of actions make it very difficult to believe anyone from the political class when they say they are supporting something or doing something for our own good, these examples and many other instances would indicate we are not at the top of their priority list. It undermines the very foundation of this country that the government is looking out for our individual self interests.

There is a very simple solution that would clear all of this up: during you tenure in office and for several years after your tenure ends, you are not allowed to personally deal with that industry or section of the economy that you are involved in through committee work. Sit on the Banking Committee, then you cannot invest or receive campaign donations from the banking industry. Sit on a Congressional energy committee, then you are not allowed to invest in or receive campaign donations form oil companies, electric companies etc. The fact that this simple yet bold rule is not part of our government processes indicates that the political class really does not care about conflicts of interest since it conflicts with their self interest.