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Ms Parker, Mc Cain, Party and Honor

by Divorced one like Bush

Before we get to excited about Ms. Parker’s recent calling out, consider her 9/5 opinion in What Sarah Palin brings to the Republican Party:

And relief that the first Republican woman on a presidential ticket wasn’t going to let them down. No one was going to be embarrassed by John McCain’s maverick pick.

Referring to Palin’s convention speech:

Palin delivered…What she showed was strength, conviction, determination, confidence, a willingness to rumble and fearlessness. No caribou caught in the headlights, she.

I guess Ms. Parker is referring to herself here:

Whatever conclusions the punditry might draw from Palin’s remarks, we can be fairly certain that Middle America felt nothing but redemption and salvation.

Ms. Parker note’s Palin was the savior to the point of being Democratic like:

Behind closed doors around the Twin Cities, talk focused on the need for new templates, new models. Republicans have to communicate that they, too, care about the issues Democrats have claimed as their own — education, health and the environment. They need new ideas and new — younger — faces to deliver the message.

Voila. Enter Palin.

She has animated voters who had little enthusiasm for the race. She has given them the very thing Democrats have been enjoying the past several months: hope and change.

In the end, did Ms. Parker know she was so prophetic?

That’s potent medicine. It also should come with a warning label: “May cause delusions and a false sense of power.”

Ironic no? Of course, maybe Ms. Parker really knew what was real and was hedging her bets. But that would mean all the good stuff written on 9/5/08 was just BS? Well by 9/22 she was coming out of the delusion and sense of power.

The 9/5/08 opinion and her now calling for Mrs. Palin to step down pretty much confirms that McCain et al’s campaign has been and is nothing more than one man’s quest for a trophy to the exclusion of the calling he so desires. Palin stepping down vs McCain firing her will not change the fact that she was chosen as a coach picks a play and a player. It’s all about the trophy. It’s just a game, about the win of the contest. Not about the win of the ideology of governance as Ms. Parker would have us believe.

Face it Ms. Parker, the only way for Mc Cain et al to save face and affirm that his campaign is about the country is to keep Palin. It is the only way to show conviction of his professed American ideals. If he looses the election on his ideals, he has no shame. If Palin goes, he perjures his entire campaign.

I hear Mc Cain is an honorable man. Is he? It is his honor, Ms Parker, that you are holding in your hands with this call.

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Mirror, Mirror on the Wall

Kathleen Parker, conservative columnist, is asking Palin to step aside:

As we’ve seen and heard more from John McCain’s running mate, it is increasingly clear that Palin is a problem. Quick study or not, she doesn’t know enough about economics and foreign policy to make Americans comfortable with a President Palin should conditions warrant her promotion.

If BS were currency, Palin could bail out Wall Street herself.

If Palin were a man, we’d all be guffawing, just as we do every time Joe Biden tickles the back of his throat with his toes.

Only Palin can save McCain, her party and the country she loves. She can bow out for personal reasons, perhaps because she wants to spend more time with her newborn. No one would criticize a mother who puts her family first.

Do it for your country.

The bit about Biden escapes me…. Boy, I hope he doesn’t do it in the debates!

About Kathleen’s plea, I don’t know whether to laugh or cry or cheer. Sarah is amusing, but it is sad that image has replaced qualifications in American politics.

Frankly, I agree with Kathleen. We need the best qualified people from both parties. Cheers, Kathleen.

Which raises another issue. All of the third party candidates should be included in the debates. At the very least, we should give them a hearing.

Serious times demand serious ideas from every quarter.

I would be more than happy to help a commentator put up positions of any of the third party candidates.

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Social Security Actuaries score the Warshawsky Plan

By Bruce

Andrew Biggs directs our attention to a new detailed PRA plan by Mark Warshawsky, a member of the Social Security Advisory Board: Notes on SS Reform: Actuaries Score New Reform Proposal The post does not link to the plan itself but instead to a detailed scoring of it by the Office of the Chief Actuary in a memo to be found here (PDF) Estimated Financial Effects of “A Reform Proposal to Make Social Security Financially Sound, Fairer, and More Progressive” by Mark Warshawsky

I just came across this and haven’t studied it in detail (and boy is there a bunch of detail) but like any plan it raises some standard questions.

1) Is the rate of return assumed on the PRAs actually reasonable under Intermediate Cost assumptions? (The No Economist Left Behind Challenge).

2) The plan assumes a direct transfer from the General Fund to supplement the PRAs starting in 2012 equivalent to .5% of payroll. Given that one current definition of ‘crisis’ is ‘General Fund transfers starting in 2017 to pay partial interest’, adding an additional transfer amount starting even sooner seems to undercut the overall message. How do advocates of the plan address this?

3) The Warshawsky Plan assumes a whole range of cuts and adjustments to retirement age, tax on benefits, and to the benefit formula generally. Each is scored individually as seen in Table A (which follows the actual memo page 14). Any combination of those scored cuts and adjustments that add up to 1.7% of payroll would put current Social Security in Long Range Actuarial Balance. What happens if we just take this cafeteria style?

Provision 3 would modestly raise the cap for a net addition of .15% of payroll. Provision 4 would gradually expose all SS benefits to taxation for an additional .24% of payroll. Provision 6 would bring in all new State and Local government employess for a net addition of .22% of payroll. Provision 7 would increase early and full retirement ages for an addition of .56% of payroll. Provision 8 is a little obscure but it would seem to just reduce lifetime benefits for disabled workers for a net addition of .35% of payroll. For a total combination of 1.52%. I don’t really get provision 5 but it would give you an additional .65% of payroll for a new total of guaranteeed tax increases and benefit cuts of 2.17 of payroll. Which is to say .47% more than would be needed to simply fix the program as is.

Now Warshawsky sweetens the plan by reducing payroll tax by 1.0% (presumedly translating to a increase in worker pay of .5%) but offsets that with a new transfer from the General Fund of .5%. Now given the different incidence of Income tax and FICA this means a lower income worker would benefit more by the reduction of FICA by .5% from his first dollar than he would from some theoretical increase in income tax to fund that transfer from the GF. But enough to offset the guaranteed increases proposed?

No one really doubts that you could close the proposed 1.7% gap by some combination of tax increases and benefit cuts and Warshawsky’s plan does that up front. But in this scheme where do PRAs come in?

Answer under the fold.

This is where the water gets deep. The proposed FICA tax cuts in provisions 1 & 2 total 1.26% of payroll. Hurrah for workers! But the guaranteed cuts in benefits in provisions 3 to 8 equate to 2.17% of payroll. Which means workers are .91% behind right from the get go. Plus you add in whatever their share of that additional .5% of GF transfer. Then you get the whopper, Warshawsky proposes to change the benefits for everyone by an ADDITIONAL 1.46% of payroll under provision 9, meaning the worker is guaranteed a combination of 2.37% plus of average cuts in the face of a gap now scored at 1.7%. But wait, some of that money was steered into private accounts, surely most people will make up the gap from the equity premium. Won’t they?

Well maybe. If the economy grows at a rate that allows for assumed returns and if you are willing to take higher levels of risk some people after 2029 or so get a better deal overall. But not everybody and not anything is guaranteed. The actuaries put it this way

The personal account annuity replaces the smallest portion of the reduction in the scheduled benefit for the married couple with only one earner. The annuity would fall somewhat short of covering the PIA reduction for one-earner couples retiring at 65 in about 2030 or earlier. For single workers and two-earner couples retiring after 2039 with low career earnings, however, this approach would generally be expected to provide an overall increase in retirement income.

Translation: Boomers and most Gen-Xers get less net than they would be leaving the system alone.

This is by no means a complete analysis of the plan, more like a skim, and for those with the chops I encourage you to dig in. But I just don’t see how the average worker really benefits under this plan given the risk involved. The benefit cuts are guaranteed, the gains from the PRAs are contingent. Plus we haven’t even examined the NELB component, can they really get these projected PRA yields at Intermediate Cost assumptions?

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Barney Frank…give us more explanation

by Rdan

Calculated Risk and many others note that a tentative agreement might be done, details to follow to day perhaps, ‘before the opening of the Asian markets’. Barney Frank, a hometown citizen wants a clearer explanation than it is a compromise on a compromise agreement needing to be passed by tomorrow. Please convince me with more information or risk losing my vote of confidence in you all these years. Why will the economy collapse tomorrow rather than Tuesday? E-mail Mr. Frank to ask: Barney Frank House office.

Update: reader ken says:

This has to occur before the end of the quarter otherwise it will do the bank’s balance sheets no good.

This is obvious. If banks have to report these assets at the marked down prices instead of the more reasonable hold-to-maturity value more banks will fail. By next Friday we will have a dozen bank failures if this is not passed before the markets open.
ken | | Email | 09.28.08 – 11:48 am | #

Rdan here….If this is the only reason, book keeping, is there another way to handle books for one extra quarter, given the seriousness of the situation? Bookkeeping? Or am I misinterpreting the comment?

Update 2: Beyond our congress critters, you can also send comments to the Fed and Treasury at (hat tip reader Caitlin ):

Federal Reserve feedback


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Auto loans to the Big Three

Sept. 27 (Bloomberg) —

The U.S. Congress gave final approval to legislation providing the auto industry with $25 billion in loans, lifting an offshore oil-drilling ban and funding the government until the next president takes office.
The legislation, approved by the Senate 78-12, spends $602 billion for the departments of defense, homeland security and veterans affairs. It also funds most of the rest of the government at current levels until March 6. More than $6 billion will be spent on about 2,000 pet projects known as earmarks, according to the Washington-based Taxpayers for Common Sense.

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Five firms pay $3 billion to top execs over last 5 years

Bloomberg carries this bit of news for us to chew on:

Wall Street’s five biggest firms paid more than $3 billion in the last five years to their top executives, while they presided over the packaging and sale of loans that helped bring down the investment-banking system.

Merrill Lynch & Co. paid its chief executives the most, with Stanley O’Neal taking in $172 million from 2003 to 2007 and John Thain getting $86 million, including a signing bonus, after beginning work in December. The company agreed to be acquired by Bank of America Corp. for about $50 billion on Sept. 15. Bear Stearns Cos.’s James “Jimmy” Cayne made $161 million before the company collapsed and was sold to JPMorgan Chase & Co. in June.

Democrats and Republicans in Congress are demanding that limits be placed on executive pay as part of the $700 billion financial rescue plan proposed by U.S. Treasury Secretary Henry Paulson. The former Goldman Sachs Group Inc. CEO, who received about $111 million between 2003 and 2006, said in testimony to Congress on Sept. 24 that he would accept such limits as part of the plan, after initially opposing them.

Update: reader Jack links to a NYT story that is required reading, and it looks like the series will be quite revealing…

.I.G.F.P. It was run with almost complete autonomy, and with an iron hand, by Joseph J. Cassano, according to current and former A.I.G. employees.

A onetime executive with Drexel Burnham Lambert — the investment bank made famous in the 1980s by the junk bond king Michael R. Milken, who later pleaded guilty to six felony charges — Mr. Cassano helped start the London unit in 1987.

The unit became profitable enough that analysts considered Mr. Cassano a dark horse candidate to succeed Maurice R. Greenberg, the longtime chief executive who shaped A.I.G. in his own image until he was ousted amid an accounting scandal three years ago.

But last February, Mr. Cassano resigned after the London unit began bleeding money and auditors raised questions about how the unit valued its holdings. By Sept. 15, the unit’s troubles forced a major downgrade in A.I.G.’s debt rating, requiring the company to post roughly $15 billion in additional collateral — which then prompted the federal rescue.

Rdan here: Less the housing crisis, more former rascals of the Savings and Loan major collapse and bailout….heading up what units? Probably worth a post or two as we follow the story.

Update 3: Yves Smith at Naked Capitalism has a thought on the NYT series:

If you believe that, I imagine you believe in the tooth fairy too. Goldman had $45 billion of equity as of its last balance sheet date. A loss, if it approached $20 billion, in this general environment of worries about financial firms, would have sent Goldman shares into a tailspin, and the rating agencies have started taking a dim view of overlevered financial firms that appear unable to raise equity on reasonable terms. This certainly would have lead to a downgrade, and that has put other firms on a slippery downward slope.

Note the article contains a recitation of denials later in the piece that the damage would have been as large as $20 billion or that Goldman’s exclusive role in the talks was self-interested.

The rest of the story focuses on how the credit default swaps operation, a small unit at AIG, was allowed to take on risks that brought a sizable and otherwise highly successful firm to its knees. It is a riveting read.

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Wall Street, Meet Main Street

by Stormy

For the man on the street, the proposed bailout seems like nothing more than handouts to the rich. To him, the fortunes of Wall Street are distinguishable and separate from his fortunes. “Let the suckers sink.”

While I deeply sympathize with this view, we all must see how what is happening on Wall Street affects everything, from house mortgages, to car and student loans, to credit cards, and more.

Quite simply, credit is drying up.

If credit disappears, then everyone–rich or poor–is affected. The farmer needs a sizable loan to carry him through the rough times. The poor student needs a loan so that he can position himself better in marketplace. The small town may to float a bond to cover a much-needed fire engine. Already, student loans are becoming increasingly difficult to obtain. Car loans and mortgages are becoming more and more problematical.

To tell Wall Street to take a hike makes for a good sound bite, but it may not be really wise. What happens on Wall Street governs the level of credit, the grease that makes loans and bonds possible.

The problem is: How to fashion a comprehensive plan that addresses everyone’s needs. Our country is mired in debt. Only the very well off can stand alone, fretting foolishly over a million lost here or there. The rest of us, even if all our bills are paid, stand to suffer as the economy crashes around us. Jobs will be lost; incomes will dwindle.

To understand the depth of our dilemma, I would like to go through Nouriel Roubini’s rescue plan. In his solution, he does hit most (not all by a long shot) of the buttons. I do this summary as much for myself as for others.

Take note: We are faced not with a mere recession, but a real depression. It is no accident that parts of the Roubini plan harken back to the Great Depression.

Roubinis plan, which is far more intelligent that what so far has appeared in the public media, only begins to touch on our real difficulties. After outlining his plan, I will touch on some of these difficulties.

The outrage on the street is, in the final analysis, soundly based.

Roubini’s plan centers around three different kinds of proposed agencies: A Resolution Trust Corporation (RTC), a Home Owners Loan Corporation (HOLC), and a Reconstruction Finance Corporation (RFC).

Each of these agencies would be modeled on similar ones in the past. (The HOLC and RFC functioned during the Great Depression; the RTC, during the savings and loan crisis in the 1989.) Each addresses a different segment of the problem. Each will require real thought and planning.

There is no easy fix here. Unfortunately, our leaders have diddle away precious time, acting with little foresight. That Wall Street was making a bundle seemed to impress everyone. Little heed was paid to the dangerous currents into which we are now helplessly drifting.

The RTC and Wall Street

Right now, the central problem being addressed is Wall Street. If it goes. credit goes. And if credit goes, the economy freezes. Like small fish, you and I are caught in the ice. Following is Nouriel’s proposal for the new RTC:

in exchange for the purchase of illiquid asset (at whatever price it is agreed) the government gets preferred shares in the financial institutions that [are]senior to existing common and preferred shares and that are convertible into common shares to allow government to participate into any future upside

In short, you and I, as citizens, now have a stake in those firms. Because we are now “entrepreneurs” and now are taking the risks, why should we not get a piece of the action?

the banks will need more capital if they are undercapitalized and they have not fully reserved/provisioned for the losses coming from writing down the asset being sold to the government. So you will need to inject further actual public capital in the form of preferred shares in the financial institutions

And for those already investing in these firms, they, the existing shareholders have to take a nice haircut:

the existing shareholders of the banks need to take a first-tier loss to minimize the risks for the government share. How to do that? First, you need to suspend dividend payments on common share and possibly even existing preferred shared; you also need to force to partially match the public capital injection with new Tier 1 capital

In short, any losses hit them first before it hits you and me. And all those handsome dividends they paid are suspended. Nice.

Even after we generously remove their bad debts, they may still need working capital to make loans to you and me.

you will need to inject further actual public capital in the form of preferred shares in the financial institutions

And what is the complaint of all this from those who profit from and love free markets?

Government interference!

To which I say, the government, like any good investor, is protecting its interests. And its primary interest is to see that this economy functions; it’s secondary interest–and just as important–is to see that it profits from it. You who love unregulated, freewheeling markets are threatening the well-being of all us. Sorry, guys. Take a hike and a haircut. Go suck a thumb in your gated McMansions.

To put it another way, the majority want this economy to function. The majority wants the government to make money so that it can have better schools and better health care. You are outvoted.


public and private recapitalization of financial institutions unfairly benefits unsecured creditors (all creditors but insured depositors) of such institutions. So, you also need to convert some of this unsecured debt (the sub debt and other debt unsecured debt) into equity (a debt for equity swap). Such swap further reduce the leverage of the financial system (leading to a lower debt to equity ratio for financial institutions)

The RFC and banks
Curiously, here is where Nouriel is weakest. During the Great Depression, the RFC made loans to more than just banks. Aid was dispensed to state and local communities, to businesses, and railroads. For Nouriel

the banks will need more capital if they are undercapitalized and they have not fully reserved/provisioned for the losses coming from writing down the asset being sold to the government. So you will need to inject further actual public capital in the form of preferred shares in the financial institutions ( this is what the RFC did during the Great Depression).

The HOLC and the Homeowner

Nouriel’s details here are sketchy, but clearly we have to address the massive private debt under which many households struggle.

During the Great Depression the Home Owners’ Loan Corporation was create to buy mortgages from bank at a discount price, reduce further the face value of such mortgages and refinance distressed homeowners into new mortgages with lower face value and lower fixed rate mortgage rates.

Allowing distressed homeowners to remain in their homes does help. Granted, their homes will now be worth less, but their mortgage load will be reduced accordingly. With reduced value will come reduced taxation. Communities that depended on property taxes will be hit. There is no escape. Schools that depend on property taxes will be hard hit. Health care costs that now are spiraling out of control will be even more deadly. The burgeoning industry in health care will take a serious hit, soon to be affordable only by the very wealthy.

For those who do not own homes and for those who are going from paycheck to paycheck, robbing Peter to pay Paul, what do we do? This issue needs to be addressed. “How” is the question. As the economy shrinks–and it will–the poorest will be hit the hardest.

Regulatory Reform

In another piece, Nouriel addresses the issue of regulatory reform. For the purposes of this piece, suffice it to say that the U.S. missed that boat a long time ago.

What’s Ahead

What concerns me is the engine that will drive America away from the pit of depression and back into the light. We are in for hard times. Right now, as we can see from how Nouriel’s plan is weighted–he gives more detail to Wall Street than Main Street. He does not address what I consider to be the central issue of our economy: How it should create wealth.

That issue is central to any recovery. Otherwise, we are in not only for extended stagflation but also for a spiraling down of our standard of living with little hope for the future.

Our credit crisis has gone hand in hand with our growing trade deficit. For some not to see the connection, I find disturbing. The strength of a country lies in what it has to sell to others. Sound trade policy is essential to our recovery.

Do we need to direct our resources more pointedly? Do we need government to strengthen those industries that will be the engines of the future? Nouriel does not say.

How do we staunch the job bloodletting as more and more of our companies find cheaper jobs and services overseas? Nouriel does not say. In fact, I rarely hear these issues mentioned among professional economists. We are wedded ideologically to a free and open global market place, a marketplace that has been badly structured in terms of the everyday American worker.

We have allowed and encouraged a massive influx of cheap illegal South American labor, which benefits the well-to-do but not our workers. No one speaks for workers here.

According to a recent study, the U.S. is now behind China in terms of technological competitiveness and that China will soon surpass the U.S.

in the critical ability to develop basic science and technology, turn those developments into products and services – and then market them to the world.

Who gave the world the Internet? Who seeded the world with computer technology? We did. And where did the producers of that technology go for production? One guess. My brother who has patents in VOIP told me in no uncertain terms: “We get the ideas going; then the company sends them abroad for further research and development.” Cheaper. Look again and you will see the research going abroad.

Unless our noses are plunged into its stench, we look the other way as foreign sweatshops make billions for American and other Western companies–and the stock market cheers. All we can then express is moral outrage. Take a walk on the poor side of some of our communities if you want outrage. Now consider the consequences of a society bred to spend but not to produce.

We now have a society bred to be almost purely financial, a society of moneylenders that use money just to make more money–arbitrage here, leverage there. Everywhere the moneylenders have their hands out, always figuring new ways gouge their customers, always figuring a new gimmick.

We have forgotten what real credit means. We have forgotten its real purpose. We have forgotten how to produce real wealth, how to compete as a country not as an individual firm.

If our firms go abroad for cheaper labor or cheaper taxation or to take advantage of currency dislocations, we should assess them a price for doing so.

If you really listen to the outrage about the bailout on the street, it is there in the lost jobs, in the day-to-day struggle to survive, in the impossible health care costs, in the equally impossible cost of education.

We have a lot of serious thinking to do.

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Time For Unity

Subject: time for unity

There are about 2 months until the election, an election that will decide

the next President of the United States. The person elected will be the

president of all Americans, not just the Democrats or the Republicans.

To show our solidarity as Americans, let’s all get together and show each

other our support for the candidate of our choice.

It’s time that we all came together, Democrats and Republicans alike. If

you support the policies and character of Barack Obama, please drive with

your headlights on during the day. If you support John McCain, please drive

with your headlights off at night.

Thank you for your participation in this patriotic endeavor.

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Inflation rate for the future might be….

Current Inflation Rate
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave
2008 4.28% 4.03% 3.98% 3.94% 4.18% 5.02% 5.60% 5.37% NA NA NA NA NA
2007 2.08% 2.42% 2.78% 2.57% 2.69% 2.69% 2.36% 1.97% 2.76% 3.54% 4.31% 4.08% 2.85%
2006 3.99% 3.60% 3.36% 3.55% 4.17% 4.32% 4.15% 3.82% 2.06% 1.31% 1.97% 2.54% 3.24%
2005 2.97% 3.01% 3.15% 3.51% 2.80% 2.53% 3.17% 3.64% 4.69% 4.35% 3.46% 3.42% 3.39%
2004 1.93% 1.69% 1.74% 2.29% 3.05% 3.27% 2.99% 2.65% 2.54% 3.19% 3.52% 3.26% 2.68%
2003 2.60% 2.98% 3.02% 2.22% 2.06% 2.11% 2.11% 2.16% 2.32% 2.04% 1.77% 1.88% 2.27%
2002 1.14% 1.14% 1.48% 1.64% 1.18% 1.07% 1.46% 1.80% 1.51% 2.03% 2.20% 2.38% 1.59%
2001 3.73% 3.53% 2.92% 3.27% 3.62% 3.25% 2.72% 2.72% 2.65% 2.13% 1.90% 1.55% 2.83%
2000 2.74% 3.22% 3.76% 3.07% 3.19% 3.73% 3.66% 3.41% 3.45% 3.45% 3.45% 3.39% 3.38%
Get more Historical Data from

How much faster will the rate rise? Technically relatively budget neutral bailout loans in the short run is true, but the government can set value by simply paying for “assets”. What then? And does it involve printing more money? And what is a predictable result to inflation if big “losses” to US taxpayers are the result?

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