Ditching the Car Czar

I'd like to see some inside reporting on what was behind Obama's decision to ditch the Car Czar concept and, to instead, put Tim Geithner and Larry Summers in charge of auto industry monkey business. From a distance it looks like it is simply a consolidation of a bit more power in the hands of the Geithner-Summers wing of the White House.

Obama seems to be buying whatever those two are whispering.

Obama Comes Out Against Nationalizing Banks

The more I listen to President Obama, the more I think the way to understand his thinking is that he is knee jerk left wing, but as president he assembles facts and then makes decisions.

Now what facts are put in front of him and how he interprets them is a complex matter, but I don't think he will always grab the extreme left wing solution. Here's Obama during his interview with Terry Moran on why he thinks bank nationalization won't work in the U.S.:

TERRY MORAN: There are a lot of economists who look at these banks and they say all that garbage that's in them renders them essentially insolvent. Why not just nationalize the banks?

PRESIDENT OBAMA:Well, you know, it's interesting. There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what's called "The Lost Decade." They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn't see any growth whatsoever.

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem; Sweden had like five banks. [LAUGHS] We've got thousands of banks. You know, the scale of the U.S.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America's different. And we want to retain a strong sense of that private capital fulfilling the core -- core investment needs of this country.

And so, what we've tried to do is to apply some of the tough love that's going to be necessary, but do it in a way that's also recognizing we've got big private capital markets and ultimately that's going to be the key to getting credit flowing again.

Who is Timothy Geithner?

Morgan Reynolds, who served as chief economist for the US Department of Labor during 2001–2, George W. Bush's first term, has done a little fact checking on the new Treasury Secretary:

Who is Geithner? He is a creature of the eastern banking establishment and ruling class through and through. His résumé nicely matches his actions in handing out government money and guarantees to the "right people." Geithner’s father Peter is director of the Asia program at the Ford Foundation, a New World Order operation. Peter Geithner oversaw the "microfinance" programs developed in Indonesia by Ann Dunham-Soetoro, Barack Obama’s mother. Geithner’s maternal grandfather, Charles F. Moore, was an adviser to President Eisenhower and vice president of Ford Motor Company, according to Wikipedia. Geithner’s wife Carole Marie, like Geithner a 1983 graduate of Dartmouth College (Ivy League), is daughter of Mr. and Mrs. Albert Sonnenfeld of Princeton, N.J., a professor of French and comparative literature at Princeton University (Ivy League) for 27 years.

After Timothy Geithner graduated from Dartmouth he picked up an M.A. at Johns Hopkins in something called "international economics" and East Asian studies. That is the extent of Geithner’s formal training in economics, as far as I can tell. Then he worked for Kissinger and Associates for three years, a Rockefeller satrapy, before a series of government appointments, mostly at Treasury where he was Under Secretary for International Affairs under Robert Rubin of Goldman Sachs and Rockefeller’s notorious Council on Foreign Relations (CFR) and then Lawrence Summers of Harvard University (Ivy League), World Bank and CFR. Summers, of course, is currently Obama’s head of the National Economic Council. Want a solution for the financial and economic woes? Why, hire the same experts who caused the problem(s).

Geithner departed Treasury to join the International Monetary Fund and CFR in 2001–2. In October 2003 he was appointed president of the New York Fed where he subsequently arranged rescues of Bear Stearns, AIG and other well-connected,world-class losers, all in the best interest of the American people, of course.

Did you catch this:"Peter Geithner [Timothy's father] oversaw the 'microfinance' programs developed in Indonesia by Ann Dunham-Soetoro, Barack Obama’s mother" ?

Earlier, I reported that NYT identifies Peter Geithner, in Timothy's wedding announcement, as the "program officer in charge of developing countries for the Ford Foundation." This just smells to me like a spook cover. I said so back then, before I knew about the connection between Obama's mother and Geithner's father:

One side note. Geithner graduated from the International School of Bangkok, Thailand. His father appears to be a possible CIA agent...

It makes you wonder how long "they" have been grooming Obama as the "agent of Change" president.

Putting the Pieces of the Puzzle Together: Obama as Fabian Socialist?

Fabian socialists as detailed in Keynes at Harvard do not believe in violent overthrow of government. They believe in infiltration of current power structures and in hiding their true agenda.

Jerry Bowyer believes Barack Obama is a Fabian socialist. He wrote for Forbes magazine back in November 2008:

Barack Obama is a Fabian socialist. I should know; I was raised by one. My Grandfather...

Fabians believed in gradual nationalization of the economy through manipulation of the democratic process. Breaking away from the violent revolutionary socialists of their day, they thought that the only real way to effect "fundamental change" and "social justice" was through a mass movement of the working classes presided over by intellectual and cultural elites...

Arnold taught me to question everyone--my president, my priest and my parents. Well, almost everyone. I wasn't supposed to question the Fabian intellectuals themselves. That's the Fabian MO, relentless cultural and journalistic attacks on everything that is, and then a hard pitch for the hope of what might be...

So here is the playbook: The left will identify, freeze, personalize and polarize an industry, probably health care. It will attempt to nationalize one-fifth of the U.S. economy through legislative action. They will focus, as Lenin did, on the commanding heights" of the economy, not the little guy.

That's Obama's world.

So how does Bowyer's forecast of what Obama will do compare against Obama early on in his presidency?

Obama continues to move the banking sector towards more control, that started under the Bush Administration. There will be bank "stress tests". Tell me what you want to accomplish and I will tell you how to structure the "stress test".

New capital will come to banks "with conditions."

As for healthcare, Obama has done the big sneak of putting healthcare control into the "stimulus" package.

So do we have a Fabian socialist in the White House? This is a serious charge, and I am not prepared to make it at this point. However, there is nothing in his actions to date that can rule out that he is a Fabian.

Time will tell, whether he is a misguided do gooder or a calculating Fabian. There is some hope for change from a do gooder, there is little with a calculating Fabian.

Fascist Medical Plan Hidden in Stimulus Package

President Obama has been caught trying to sneak, in an ugly fashion, into the stimulus package, a fascist like health plan that will track and have a chilling effect on the type of health care every American will receive.

As part of the "stimulus" package, the National Coordinator of Health Information Technology will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective, according to Betsy McCaughey, former lieutenant governor of New York and an adjunct senior fellow at the Hudson Institute.

The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Tom Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”

Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary .

So medical decisions will be taken out of your hands and put into the hands of tax cheat, multi-millionaire lobbyist scumbag Tom Daschle? Helluva a plan. The plan is bad enough, for Obama to try and sneak this in through the stimulus package without open debate is outrageous. This makes Obama look more evil than innocent. He may not understand basic economics, but it can be viewed that he is simply unaware, sneaking a major program like this into the stimulus package is none of that, it is sinister.

Creating a power center around which the likes of Daschle can lobby with regard to your health care will do more to lower the standard of living for the average American than any other legislation currently circulating in Congress. This is bad, real bad. Medical care based on who Tom Daschle can shakedown.

As Obama Hustles the "Stimulus" Package, It's Time to Keep the Armey Curve in Mind

Dick Armey explains:

...despite Mr. Obama's campaign promises to adhere to "Pay As You Go" budgeting, no one seems terribly worried about paying for what will likely be a trillion-dollar stimulus package. What everyone should agree on is that the money has to come from somewhere, either through higher taxes, borrowing or printing.

If the government borrows the money for the stimulus, then it will either have to print money later or raise taxes to pay it back. If the government raises taxes to pay for the stimulus, it will, in effect, be robbing Peter to pay Paul. If the government prints the money, it will increase inflation, which will decrease the value of the dollar. That would, in effect, rob Paul to pay Paul back with devalued currency.

Taking money out of the private economy -- either through taxes or inflation -- and spending it in a way that doesn't offset the loss of money with real economic gains is worse than doing nothing.

Years ago I developed the "Armey Curve" to explain the negative burden government has on prosperity. The idea, borrowing liberally from Arthur Laffer's curve (which demonstrates that tax revenues fall when the tax burden gets so high that it no longer pays to work), is that at some point the burden of government spending exceeds the private economy's ability to carry it. "Stimulus" spending often does more harm than good, because it takes more money out of the system than it creates and thereby destroys jobs and leads to stagnation and diminished prosperity for all.

The above appeared last week as an Armey Op-Ed piece in WSJ. The full piece is worth reading as the emphasis is heavy on Keynes versus Hayek analysis.

Presidential Logic

At tonight's press conference, President Barack Obama correctly said:

You know, if all we're doing is spending and we're not making things, then over time other countries are going to get tired of lending us money and eventually the party is going to be over. Well, in fact, the party now is over.

He immediately followed this up with:

Our immediate job is to stop the downward spiral, and that means putting money into consumers' pockets, it means loosening up credit...

Alert: President Obama News Conference Monday

President Obama will hold a prime time news conference Monday.

Mocking the Prez?

A few days ago President Obama, without mentioning names, shouted out against Wall Street bonuses and million dollar redesigns of executive offices, in these "difficult economic times". Aside from the fact that as a Keynesian, Obama should be hailing aggressive spending, as opposed to speaking out against it, Obama didn't have to mention a name when it came to the million dollar office redo. Everyone knew he was talking about former Merrill Lynch CEO John Thain.

Thain sounds like he is having some fun with the President's jab. NyPo's Page Six reports that Thain (who his worth hundreds of millions)...

was having dinner at San Pietro last week with BlackRock Chairman Larry Fink. He loudly told the waiter, for all to hear, "under the circumstances with this tough economy, I think I'll have tap water."

Mock surrender of personal sacrifce for the "greater good", I like the plan. Please pass the tap water.

Quick, Mail the Fire Department!

There is a lot wrong with the Obama "Stimulus" Package, mostly because it is simply a transfer of funds from one group to another. And, not much of anything else. But even based on the Keynesian principles upon which the package was designed, it is a bit short in the logic department. Thomas Sowell explains the problem from this angle, based on the CBO's analysis showing only $26bn of Obama's $355bn public works package will be spent this year:

Using long, drawn-out processes to put money into circulation to meet an emergency is like mailing a letter to the fire department to tell them that your house is on fire.

There is a lot of smoke and mirrors to this program, which is not necessarily a bad thing, since it is a bad program, smoke and mirrors, rather than creating actual distortions in the economy is a good thing.

Are Politically Correct Bank Loans Coming?

Will the fact that you are a tree hugging, Spanish-speaking, Afro-Asian, lesbian midget, be more important when you apply for a bank loan, than your income and credit score? That day may be coming. The government is now just trying out its big stick on the banks it provided TARP money to.

President Obama is taking the first micro-management, politically correct swing at the recipients of government money. The first swing is at an easy target, Wall Street bonuses. Says Obama:

We're going to be having conversations as this process moves forward directly with these folks on Wall Street to underscore that they have to start acting in a more responsible fashion if we are to, together, get this economy rolling again.

There will be time for them to make profits, and there will be time for them to get bonuses. Now is not that time.

They always start off with the easy targets. This isn't about micro-managing, this is about outrageous bonuses, they say.

But once you start down that slippery slope of telling banks how to operate, how do you stop, when the next politically correct proposal from a powerful, politically correct, lobby is made?

The head of JPMorgan’s asset management and private banking operations, Jes Staley, understands the danger. During a seminar at the World Economic Forum in Davos, Switzerland, Staley said that bail-outs of Citigroup and Bank of America could distort the market if the US lenders succumb to political pressure when making lending decisions.

He said political interference in the management of those lenders that have turned to the US government for large-scale support was the “biggest risk” facing his bank.

Get that? The economy is a mess, there are bad loans everywhere, and political interference is the biggest risk.

“If the big banks start to be geared for public policy as opposed to economics we may end up competing against institutions that are being run for non-economic purposes,” Mr Staley said . “That is the biggest risk we see out there.”

Public policy loans could ultimately be the death of banking as we know it.

The big money players already know this.

Henry Kravis, founder of Kohlberg Kravis Roberts, said in Davos, according to FT, that private equity groups were already looking for ways to bypass banks when raising capital.

Kravis said those moves could accelerate in the coming year, given the scale of capital that needs to be raised and the difficulties that banks face in using their own balance sheets.

“We have set up a broker-dealer so we can go directly to people who provide capital, people like Fidelity, Templeton, insurance companies, pension funds and sovereign wealth funds,” he said.

And so politically regulated loans will do what regulations always do, work against the entrepreneur and small businessman to the benefit of the power elite who have the money and connections to figure out how to work around the new regulations.

The oligarchy lives.

Dissing the Dollar in Davos, Russian Style

The Russian's want to ditch the dollar as the world's reserve. On Wednesday in Davos, Prime Minister Vladimir Putin, during a speech, called for efforts to "facilitate the emergence of several reserve currencies."

Given current Fed money printing and the likely collapse of the dollar as a result, Putin's proposal may eventually gain traction internationally. There's already a good bit of de facto movement away from the dollar already.

And, note, while this is all brewing, Obama/Geithner seem to want to hasten the collapse of the dollar by calling on China to stop supporting the dollar! Madness. .

Putin wasn't the only Russian dissing the dollar in Davos. On Thursday German Gref, a former Russian Economics Minister, who is now CEO of Russia's largest bank--state-owned-- Sberbank, proposed during a panel discussion, something of a thigh slapper. In the absence of any serious competitors to the dollar, he advocated international control of U.S. monetary policy.

Since the U.S. seems to want to bring democracy to the world, why shouldn't the international community attempt to bring responsible money management to the Federal Reserve? There's kind of an international poetic justice to this Gref proposal, however, I am not planning on staying up late at night waiting for this to happen.

Barack Obama's First Blunder

Well that didn't take long.

On his first full day in office, President Barack Obama created an order that has unknown long-term consequences. Obama pledged to freeze the salaries of about 120 staffers in the White House, those that make more than $100,000 per year.

I am certainly not one to object to reductions in government spending, especially when it comes to the salaries of top dogs in the White House, but as a move by President Obama this move has to be classified as a blunder.

It strikes of naivete or, possibly, a freakish demonstration of power. As for the order having any impact on the economy, puhleeze. WaPo cranked out the numbers on this one:

Based on a 2.8 percent annual cost-of-living and merit increase (the average by the White House over the past five years, according to Froomkin's numbers), staffers making $172,200 will miss out on a raise of about $4,822 next year. Those earning $102,000 will miss out on about $2,856 extra.

The total reduction in pay out is, according to WaPo, roughly $443,000. That's minuscule in the whole scheme of things. Making the order even more bizarre is the fact that Obama appears to be a Keynesian when it comes to economics. Keyensians believe that you try to get more money into people's hands to stimulate the economy, not less, during a recession. The freeze does the opposite. Further, most price freezes occur when inflation is heating up, not during a deflation! A price freeze is bad economics during an inflationary period, but during a recession, for a Keynesian, it is worse. It is shutting off the heat in the middle of winter. Thus, from the way Obama views the economy, a price freeze is about as dumb an economic move as you can get.

With the US headed for a $900 billion budget deficit, 443k doesn't even amount to a rounding error. But, to a specific wage earner, who was scheduled to receive an additional $2,000 to $4,000 a year, and who may have been counting on it to help send a child to college, it is not happy news.

It probably can be argued that it was a message to set some kind of tone, but what kind of message, if Obama really wants people to spend? And, there are plenty of other ways to send a message rather than freeze the salaries of those close to you.

It will impact 120 people. Is that a large enough group that it will change 1 or 2 from friend to foe? I think so. You can mess with a lot of things, but not with people's paychecks. The media is all over the White House like a pack of crazed sex starved dogs. They are looking for leaks any way they can find them. This past week I had a conversation with one of President Obama's Kenyan relatives. She told me the media was breaking into her email account.

The media is super-aggressive, if there is a disgruntled White House worker, the media will eventually figure out who it is. Here's the list of those with frozen paychecks. (The one's on the list with a salary of $100,000 and up are the ones whose salaries Obama has frozen.). Did Obama create a disgruntled employee from this group that will leak some negative news at just the wrong time? My bet is yes.

This, of course, raises the question, is Obama naive, or even scarier, some kind of oddball power freak just letting the staff know who is in charge?

Either way, it's an Obama blunder, with no upside for him.

The 2009 Budget Deficit Mess and China

The Council on Foreign Relations house economist, Brad Setser, has crunched the numbers on China's purchases of Treasury securities and has come up with this data:

1) China has bought — according to the US TIC data — about $150 billion of Treasuries over the last three months of data. Annualized that is $600 billion, a huge sum. That data only runs through November. However, ongoing growth in the Fed’s custodial accounts implies that this basic pattern continued in December (data/ graphs can be found here)

2) The surge in China’s Treasury purchases has come even as China’s reserve growth has slowed. It consequently reflects a reallocation of China’s portfolio towards the safety of the Treasury market more than a surge in Chinese demand for dollars — and it may also reflect a decision by China’s reserve managers to shift funds out of the hands of private fund managers after Lehman (a decision that has had the effect of increasing reported Chinese purchases of US assets).

3) Once the shift in China’s portfolio toward safety ends, the pace of China’s purchases of Treasuries is likely to fall. It is hard to sustain a $600b annual increase in your holdings of Treasuries if your reserves aren’t growing. Hot money outflows will bring China’s savings into the global market, but in a less direct and harder to track way.

4) The Treasury has increased its issuance even faster than China has increased its purchases. The US is consequently selling more Treasuries to everyone, not just to China. The increase in China’s holdings of Treasuries consequently accounts for a significantly smaller share of the net increase in the supply of marketable Treasuries than in the past (Data here)

He also warns about the 2009 deficit:

One thing though is quite clear but strikes many as counter-intuitive: the large US fiscal deficit in 2009 will need to be financed primarily from domestic sources not from China. Let me put it this way. China currently has — in my judgment — about $900 billion of Treasuries. That is a truly staggering sum. But China also didn’t buy them all in a year. The US will need to sell more than $900 billion of Treasuries to cover its 2009 budget deficit. And China isn’t going to double its Treasury holdings in 2009 …

Thus, a number of conclusions can be made from this data. First, given the HUGE deficit financing that the US will conduct in 2009, it is truly bizarre that the Obama Administration wants to pressure China into providing less support for the dollar, i.e., They want China to buy less Treasury securities than they would without the pressure.

Second, much of the Treasury securities that have been absorbed in the second half of 2008, have been the result of a flight to safety. Once the markets calm down, the flight to safety will be reversed. Thus, not only will the Treasury market have to deal with newly issued Treasury securities as a result of a $900 billion deficit, but with the liquidation into the market of hundreds of billions of Treasury securities purchased in the second half of 2008.Can you say higher interest rates and inflation in the same sentence?

There is no way that so many Treasury securities will be able to be absorbed into the market at anywhere near current rates. Thus, we are likely to see a combination of rising interest rates and huge Federal Reserve purchases of Treasury securities. It will all be very inflationary.

The only sane option is for the United States government to declare bankruptcy. Super-inflation or bankruptcy, those are the only options folks. The empire is crashing. Talk of larger "stimulus" packages, and "we will worry about the deficit later", is insanity. The deficit is not going to wait. Be ready.

Wall Street Rapes America, Edition 9

Wall Street is a very tough place, if you don't know what is going on, your money will be taken from you. I can't think of a more outrageous rape of the taxpayer, ever, than the TARP program run by GW Treasury Secretary Henry Paulson. It should be noted that Paulson's lieutenant in the rape of the taxpayer was Timothy Geithenr, who came up short paying his own personal taxes, but managed to help dole out $350 billion in taxpayer money through TARP and is likely to be confirmed by the Senate today as the new Treasury Secretary.

If you get the sense today that someone is laughing at you behind your back, you'll be right. It's Geithner.

Oh yeah, here's the latest outrage.

Merrill Lynch lost $15 billion in the fourth quarter of 2008 and more than $27 billion for the year. In October, Merrill received $10 billion in bailout money. But the problems were so deep that Merrill CEO John Thain(surprise a former Goldman man) sold the company to Bank of America. The actual sale to B of A was a shrewd move by Thain. It does, however make B of A look like it is run by a bunch of country bumpkins,taken advantage of by a New York slickster. We indicated as much at the time, when we wrote:

Has Bank of America Chairman Ken Lewis come to his senses? Has the ether Merrill Chairman John Thain slipped Lewis during his sales pitch to get Lewis to buy Merrill, at a premium to the market price in the middle of a crisis, worn off?

Closing date on the B of A takeover: January 1, 2009.

Employee bonuses at Merrill are normally paid out in January. Since Merrill had lost $27 billion in 2008, it is likely that Bank of America would have looked good and hard before passing out those bonuses. Thain found away around the bonus payout problem, he paid out the bonuses in December, when he was still in full control of the company. Reports indicate the bonuses amounted to between $3 billion and $4 billion.

To recap:

Merrill loses $27 billion.

Treasury gives Merrill $10 billion in bailout money.

Merrill uses the money to payout $3 to $4 billion in bonuses.

Oh yeah, Thain also spends $1.2 million refurbishing his office.

Bottom line: Wall Street has always run circles around the American taxpayer, but the Paulson-Geithner era has brought in such disrespect for the taxpayer that not even Shakespeare would have thought of penning such an open and brazen tragedy.

Middle America better wake up, and with Obama bringing "change" like Geithner into the Treasury, Barack ain't the directon from where they should be looking for change. America is burning.

Obama Believes China is Manipulating Its Currency

Here's a headliner that should have been played up from the Timothy Geithner hearings.

According to WSJ, Geithner told the Senate Finance committee during his hearings that President Obama “believes that China is manipulating its currency” and plans to seek changes to its practices, but “the question is how and when to broach the subject in order to do more good than harm.”

Given the collapse the dollar is likely to experience, talk like this is the equivalent of the captain of the Titanic bitching about a paint job he once saw on a fishing trawler in the South Pacific.

Obama to Get Daily Economic Briefing

President Barack Obama has asked his top advisers to brief him every morning on the condition of the economy, the White House reports.

The president receives a similar daily intelligence briefing.

The bad news: Keynesian Larry Summers will walk him through the day’s economic news each morning.

At the first briefing, in addition to Summers, in attendance was Vice President Joe Biden, White House Chief of Staff Rahm Emanuel, Budget Director Peter Orszag, Domestic Policy Director Melody Barnes and Biden’s economic adviser Jared Bernstein.

No Hayek, Mises or Murphy in this group.

Did Obama Dis Paul Krugman?

Rich Karlgaard of Forbes has a fascinating theory that Barack Obama recently dissed Paul Krugman. Karlgaard wrote:

While waiting in the Forbes on Fox studios this morning, I caught a video of Barack Obama talking up his stimulus plan. Did you watch it? Obama said he'd use the best recovery ideas from any source, Democratic or Republican. “If Paul Krugman has a good idea, we’ll use it.” Obama mispronounced Krugman’s name as "Kruggman" instead of "Kroogman"--with an emphasis on the “ugg.”

In other words, I thought I heard Obama dissing Paul Krugman. How wonderful is that?

Does Karlgaard have something here?

Krugman's name is an easy name to mispronounce, on the other hand, Obama has a track record of subtle disses in public. Diss or mispronunciation, it appears that Obama is not close to Krugman, not a bad thing, given Krugman's command and control recommendations for the economy.

How Obama Could Shovel Billions to the Carlyle Group...

...ahem, to "save the economy"

The PEU Report has assembled some interesting data, from different sources, on the key elements surrounding the likely infrastructure portion of Obama's coming stimulus package (that Paul Volcker is now suggesting will be in the trillions). Let's put the data together to get a rough idea of how private equity, e.g. the Carlyle Group, may cash in on Obama's plan to save the economy.

1. According to WSJ, a report due out today, by a group including Morgan Stanley, Credit Suisse and the Carlyle Group says $180 billion of private capital is available for investment in highways, airports and other transportation infrastructure.

2. Such deals offer the prospect of steady, predictable profits for investors.

3. PEU says, Carlyle Group co-founder David Rubenstein bragged of their historical 30% annual return. Carlyle indicated a willingness to take less, but how much?

4. Which means, Carlyle is not going to take much less than 30%, if they can earn that on their funds elsewhere.

5.Business lobbyists also note that Obama supports the creation of a National Infrastructure Bank, which could leverage federal funds by pairing them with private investments.

So let's assume to make things simple that private equity only has $1 billion to invest and that they are willing to take a haircut on their normal returns--and put money into Obama's plan for only 25%.

Given that Obama wants to start a National Infrastructure Bank, the play could go down something like this. Private equity puts $1 billion into infrastructure, with loans (from Obama's new infrastructure bank)of $4 billion on top of this. (Though, no one really knows exactly,at this point, what the insiders are thinking in terms of leverage.) Lets say every dollar put into the project earns 5 cents on the dollar, with 4 to 1 leverage a billion earns $250 million annually--25%.

Now, keep in mind the real money available from private equity is reported to be $180 billion, add leverage at 4 to 1, and you have total money going into infrastructure stimulus alone of $900 billion. With possible annual earnings to private equity of $45 billion. No wonder Volcker is starting to talk trillions. Talk about crowding out the private sector---unless you work for private equity or get your rocks off smelling newly poured asphalt, your standard of living is going to take a dive.

Again, please note, these are just guesstimates, but the play is likely to come down in some manner of what has been outlined here.

As PEU says:

Greed and leverage imploded Wall Street. The big money boys haven't changed. They're looking for new suckers. The taxpayer is it. How bad can and will it get? A clue may come when the President's transparent government makes projected infrastructure profits public.

Dogs Barked along with the New President.

A last minute surveillance of the perimeter of the area surrounding the Capitol, on the night before the inauguration, convinced me that the only way to assure a good vantage point of Barack Obama taking the oath of office would be to head out at perhaps 3:00 AM and stand in the cold for 8 hours.

Since I do not view Obama as someone I think I would really want to spend more than 20 minutes waiting for in the comfort of an office reception area, waiting with thousands upon thousands of others, for hours, in freezing temperatures in an era when Al Gore tells us the earth is overflowing with heat, was not an option. Since I hadn't had dinner, my fall back position was to grab some soup and a cranberry muffin at the nearby Au Bon Pain at Union Station and then head home.

At Au Bon Pain, I met Tanya, orignally from Minnesota and Gero, originally from Germany. They now live in North Carolina. One thing lead to another, and soon I gave them a complete lecture on the business cycle, Austrian economics, the failure of mainstream economics, FA Hayek's views on the proper methodology of science as he expounded in his great book, The Counter Revolution of Science. At some point, someone had decided to look at a watch, two hours had passed, and they both remarked that the time had flown by. I took that as a compliment.

It was 1:45AM and they were about to head out to find a spot on the mall from which to watch the inauguration. Since they didn't have VIP passes, they had mapped out a well thought out plan. I headed home. Early the next morning, I racked my brain to think of a warm and cozy spot from which to watch the inauguration, a spot with some of the atmosphere of the goings on. Then it hit me, The Mayflower Hotel ---a cozy lobby with televisions and about the only spot from where a Democrat made news during the Bush years. The Mayflower was, of course, where the the one time Democratic Governor of New York, Eliot Spitzer, screwed a hooker.

And so, with the knowledge that my viewing location was a spot that brought short-term pleasure and long-term disaster to at least one politician, I watched the inauguration in the luxury, splendor, warmth and table service of the Mayflower.

Gregg Levine was not as fortunate. He actually had tickets to the inauguration and thought the power elite were actually out to make things comfortable for him. Hee, hee.

Levine writes on what really happened:

So, I don't even know how to write about this without it sounding like bitter grousing, and frankly, I'm a little embarrassed to have to report that after five hours of standing in the bitter cold, getting pushed and shoved to the point where you start to feel for your safety, and being herded to and fro, the most I can report about the inauguration is that the 21-gun salute is really loud.

So loud, in fact, you can feel it outside the security perimeter. That's right, despite having in hand magic purple tickets, and lining up hours before the gates opened, I saw nothing. I heard, beyond the guns, nothing.

I followed all the signs, I went to the appointed spot. . . and what? There was almost no one who had a clue of what was to happen next...The lines for the Purple Tickets and the lines for the Yellow Tickets crisscrossed at numerous points causing every bit of the road-blocking mayhem you would imagine.

Over the next 90 minutes, I traced a circle with a diameter of no more than 20 feet. We then came to a stop just outside a fence within within full view of the metal detectors and the uniforms that were staffing them.

And, there I stood. I stood next to women from Florida who had saved for months to make this trip. I stood next to a woman separated by the crowd from her husband. I stood next to people who had been standing in that same spot since 5am. . . since, in one case, 3am...

People chanted, "Let us in." People chanted, "We have tickets." People chanted "we are purple," waving their precious 4x6 inch tickets in the air.

And then they just started begging and shouting. Let us in. We have tickets. We've been here for hours. Let us in. And then it was noon. And everything stopped...then I overhear a conversation between people waiting on my side of the fence with a well-insulated security officer on the other side. Those with me were begging to be let in for the speech. The officer said, "I can't tell you anything that will make you feel
better."...

And then a wild quiet fell over everyone. It was actually quite amazing to behold then I distanced myself from my disappointment. Small groups gathered around people's phones and radios to listen to the inaugural address. And there they stood and strained. I tried to listen, but I couldn't really hear, so I decided to just keep walking. . . and as I walked, I kept walking by these groups of people listening to the speech. I have a picture of some folks gathered around a police canine car that had its windows open and the radio turned up. Dogs barked along with the new president.

I wonder if the dogs were barking, "You fools!"? There's a lesson to learn here. Don't count on what the power elite promise, whether it's inside access to the inside show, or retirement money for when the gray really starts to grow. You see they have chains and fences and games for you too. They will tell you to go this way then that, stop and go.

Tis' much better finding your own way each and every day. It's the only smart move, you know .

Boring Speech

Terribly uninsightful.

Something to Think About While You Listen to Barrack Obama's Speech Tomorrow

Michael S. Rozeff's important perspective.

Tyler Cowen Not Excited About Obama's Dining Choice

I passed by Washington DC's Equinox Restaurant last night. It's roughly two blocks from the White House . In the frigid cold, just outside the restaraunt, stood about eight black SUV's, most with Secret Service agents inside, an ambulance and a van full of reporters. Turns out that President-elect Barack Obama was dining inside.

Economist Tyler Cowen who is never at a loss for an opinion, pontificates with extra intensity on dining out, and has written a book on the subject, Tyler Cowen's Ethnic Dining Guide: All food is ethnic food. (Not available at Amazon.)

Not surprisingly, Cowen, who has found Austrian Business Cycle Theory wanting, is not exctited about Obama's dining choice, either. Writes Cowen:

One of the better upscale places, but not good enough to excite me.

Surviving the Change of the Supreme Leader: Day 1

I just received this email from the Washington Post (my emphasis):

from: washingtonpost.com
to: rw@economicpolicyjournal.com
date: Thu, Jan 15, 2009 at 1:05 PM
subject: Get Inauguration Survival Alerts

Dear rw@economicpolicyjournal.com,

washingtonpost.com will be offering special 1-day inauguration email alerts that will provide you with all the information you need to survive the biggest event to hit the nation's capital in decades. If you would like to sign up for this alert, please enter your email address here.

Our alerts will provide you with information on traffic delays; closures of roads, bridges, subways and bus routes; tips to help avoid congestion and navigate crowds. We will also offer other forms of alerts that will keep you up-to-date:

Text alert - Sign up for mobile alerts by texting "INAUG" to
WPOST (97678). (Users will receive up to 30 messages a day.)

Twitter - Register on Twitter for follow "Dr.Gridlock." Post Transportation Reporter Robert Thompson provides personal transit updates, plus links to important news articles: www.twitter.com/drgridlock

Mobile Site - Go to Inauguration Central on washingtonpost.com's mobile site: www.twp.com/inauguration

For all your inauguration survival information, please visit www.washingtonpost.com/inauguration.

David Heyman
Director, Customer Relationships
washingtonpost.com

No word, though, on who will provide emails, text messages and twitter survival tips on any future increases in taxes, economic controls, inflation and regulations, during the rest of the Obama regime.

Insider Says Major Regulatory Changes Coming to Financial Sector

The minutia in government regulatory changes generally helps out favored operators, i.e., the politically connected.

At The Deal's M&A Outlook 2009 conference, David Marchick, managing director of global government and regulatory affairs at the Carlyle Group, spoke about how President-elect Barack Obama's administration will "modernize" the regulatory structure.



With major changes coming, the connected, like Carlyle Group, will have a field day massaging the new regs to their advantage--and, thus, building new inefficiencies into the market.

The Robert Rubin Wing of Goldman Sachs is Doing Well Under President-elect Obama

The Robert Rubin Wing of Goldman Sachs (Citigroup) did very well for itself under GW and Treasury Secretary Paulson.

It appears that the trend will continue under Obama. Dean Baker spots a very interesting tax break as part of Obama's "stimulus" package (my emphasis):

The media seem to have largely overlooked the Citigroup tax credit in their discussion of the latest items in President Obama's stimulus proposal. According to theWashington Post, the proposal will allow companies to write off current losses against taxes paid over the last 4-5 years, not just 2 years,as in current law.

There are relatively few companies that could benefit from this tax break since most companies will not have losses so large that they would need more than two years of tax payments to balance them against. But, really big losers, like Robert Rubin's Citigroup, and other badly failing financial institutions, are losing much more money in 2008 and 2009 than they earned in 2006 and 2007.

Baker then asks the big question:

Did the political connections of Robert Rubin and others in the financial industry have anything to do with the decision of Obama's economic team to be so generous to them? I don't have an answer to that question, but the media should be asking it.

How tight are Obama and Rubin? Very tight.

Tax Cut Obama

President-elect Barack Obama has come through with his first positive surprise.

Approximately 40% of the "stimulus" package will come in the form of tax cuts. Tax cuts are always a good thing. Here's WSJ reporting the news:

President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs.

The size of the proposed tax cuts -- which would account for about 40% of a stimulus package that could reach $775 billion over two years -- is greater than many on both sides of the aisle in Congress had anticipated...

The Obama tax-cut proposals, if enacted, could pack more punch in two years than either of President George W. Bush's tax cuts did in their first two years. Mr. Bush's 10-year, $1.35 trillion tax cut of 2001, considered the largest in history, contained $174 billion of cuts during its first two full years, according to Congress's Joint Committee on Taxation. The second-largest tax cut -- the 10-year, $350 billion package engineered by Mr. Bush in 2003 -- contained $231 billion in 2004 and 2005.

This is Obama, of course, so there is a bit of a redistributionist element to the tax cut. WSJ again:

The largest piece of tax relief in the new plan would involve cuts for people who pay income taxes or who claim the earned-income credit, a refund designed to lessen the impact of payroll taxes on low- and moderate-income workers. This component would serve as a down payment on the "Making Work Pay" proposal Mr. Obama outlined during his election campaign, giving a credit of $500 per individual or $1,000 per family.

I have to think Obama's, pro-tax cut, choice to head the CEA, Chrstina Roemer, had significant influence in Obama going in this direction.

I should note, spending cuts should accompany the tax cuts to keep the plan from becoming inflationary, however, I see no chance of that occurring at this time. So we really have only one-half of a decent equation based on this news, but a tax cut is much, much better than this "stimulus" ending up as government spending.

How Do You Increase Unemployment During a Recession?

It looks like Barrack Obama is going to show us how.

Pay people not to work, they may not work. Pay their health insurance while they are not working and it will provide more incentive not to work. Pay part-timers not to work, and they won't work.

Welcome to the world of Obama Economics. NYT with the details:

President-elect Barack Obama and Congressional Democrats are considering major expansions of government-assisted health care insurance and unemployment compensation as they begin intensive work this week on a two-year economic recovery package.

One proposal, as described by Democratic advisers, would extend unemployment compensation to part-time workers...

Other policy changes would subsidize employers’ expenses for temporarily continuing health insurance coverage to laid-off and retired workers and their dependents, as mandated under a 22-year-old federal law known as Cobra, and allow workers who lose jobs that did not come with insurance benefits to be eligible, for the first time, to apply for Medicaid coverage

.

From Ponzi in 2008 to Pozzo in 2009

The closing weeks of 2008 resulted in the public exposure of a spectacular Ponzi scheme run by Bernard Madoff. Losses, still not exactly known, are estimated, by the schemer himself, to be around $50 billion. The size of the scam has caught the attention of the world, and yet, it pales in comparison to the Pozzo scam headed directly our way.

International diplomat and manipulator Carlo Andrea Pozzo di Borgo of Corsica was a childhood friend of Napoleon who eventually turned against Napoleon. He also turned against his political sponsor, Paoli, to more quickly advance his own career. It is with this background, that while studying at Cambridge University, John Maynard Keynes was tagged by fellow students with the nickname, Pozzo. The nickname lasted for the remainder of his life.

It is the economic beliefs of John "Pozzo" Keynes, centering on spending money as a method to boost an economy, that will impact modern day America. The incoming Obama Administration has already announced a $700 billion spending program. There is even more likely to come. This, we hasten to add, is on top of the "rescue" programs of the Bush Administration.

The economic justification for such spending programs exists in the writings of Pozzo Keynes. But the tremendous spending results in few considering the "take away" that accompanies every Pozzo penny spent. The take away is the source from where Pozzo money must come from. If $700 billion is spent, $700 billion must be taken from somewhere to fuel the spending. Like the crazy aunt in the attic, the "take away" is rarely spoken about. But it is most important to understand it.

The take away can only occur in three ways from taxation, borrowing or money printing. Each has a vicious negative impact on the economy. It's as though the crazy aunt has been put in charge of driving the family to church in the family car.

Taxation, of course, cuts into the saving and spending ability of those taxed. The Obama insiders have leaked to the press that the "take away" will not come via taxation. This leaves borrowing and money printing. Borrowing crowds out the borrowing of the business man, so less is produced. During a downturn, the last thing you want is less production. The money printing option fuels the inflation machine.

Thus, the Pozzo Plan is one of less production or more inflation. It succeeds in capturing the imagination of the shallow thinking public in much the way the razzle dazzle that accompanies a Ponzi scheme catches their eye. They see what is going on directly in front of them, but nothing is said about the source of the money. This is the 2009 we face.

If the choice is between a Ponzi scheme and a Pozzo scam, a Ponzi scheme is always preferable, since it is voluntary and thus can be avoided and, secondly, it never grows to the size of a Pozzo, and is thus much less damaging to the overall economy. But, the big Ponzi scheme of 2008 is yesterday's news. The news for 2009 is all about John "Pozzo" Keynes and the wonders of Pozzo spending. It is going to choke, hurt and do nothing but mess up the economy, and you are going to have to be very quick, sharp and lucky to keep away from its clutches. Happy New Year.

A New Low for Bush-Paulson: Kiting Checks

The Treasury has already allocated all the $350 billion that Congress authorized for the first half of its bailout program, NYT reports. They have no money left. So how exactly is the Treasury going to fund its latest bailout, $ 6 billion to GMAC?

NYT again:

...even though the Treasury Department has not yet requested the second half of the money, officials said they could provide the financing to GMAC because they have not actually used all of the money allocated for recapitalizing banks.

As Henry Blodgett points out :

This sounds equivalent to writing $1,100 of checks on a checking account with $1,000 in it because only $900 of the checks have already been cashed. In the real world, this is called "check kiting," and it's illegal.

And, keep in mind, as Robert Reich detailed, this is all for Bush to save face and keep the Big Three from failing on his watch, so that the problem is passed on to Obama.

Check kiting to save face, this will really help GW with historians.

Fear Mongers at Work

The United States economy is going through a readjustment period as a result of past Federal Reserve money printing that distorted the structure of the economy.

Left alone, the readjustment period would likely resolve itself within six months. The Fed, however, is currently flooding the economy with more money, which will result in a return to some form of the old distorted structure (With destruction of the dollar as a byproduct). Under both of these scenarios, though, there is no need for an economic "stimulus" package, which is nothing more than taking money from the politically weak and transferring it to the politically powerful.

The incoming president-elect and vice-president-elect are prepping the politically weak for the upcoming transfer of another near-trillion dollars to the politically powerful. Talk about the economy being in recession for years, or that the economy is "near tanking" is nonsense. The only thing that will prolong the readjustment period is Fed money printing or government intervention in the economy. The transfer of wealth has nothing to do with with the readjustment process. If anything, it will slow the economy as it will take money from the productive elements of society, and thus lower incentives.

When Barack Obama warned today that economic recovery will not be swift that "It will take longer than any of us would like — years, not months," and that a huge stimulus package will be required, it is fear mongering not based on sound economic analysis.

When Joe Biden says that the U.S. economy is in danger of "absolutely tanking" and will need a second stimulus package in the $600-billion to $700-billion range, it is more of the same, fear mongering not based on sound economic analysis.

Wealth transfers never help an economy, indeed, a near-trillion in transfers is going to negatively impact a lot of people, whether it is from higher taxes or inflationary deficit spending.

Obama Announces Tarullo to Fill Empty Fed Slot

President-elect Barack Obama will name Daniel Tarullo, a Georgetown University law professor, to take an open seat on the Federal Reserve Board.

Tarullo has no special understanding, if any, of the business cycle, monetary theory or inflation. Do not expect him to have much impact on the Fed Board. He's filler, who won't make waves and will back the inflation regime.

The ultimate insider, Tarullo held several senior positions in the Clinton administration, ultimately as Assistant to the President for International Economic Policy.

Prior to his appointment to that position, he had been Deputy Assistant to the President for Economic Policy, with special responsibility for regulatory and international issues. He was also a principal on both the National Economic Council and the National Security Council.

Before joining the administration,Tarullo practiced law in Washington. He spent a year as a senior fellow at the Council on Foreign Relations. He is currently a non-resident senior fellow at American Progress.Healso was Chief Counsel for Employment Policy on the staff of Senator Edward M. Kennedy.

From Clueless Cox to Something Else Schapiro: Meet the Future SEC Chairman

Christopher Cox may in retrospect look like an Aristotelian fountain of wisdom, compared to Obama's choice of Mary Schapiro as the new SEC chairman. Word is out that President-elect Obama will name her tomorrow as his choice to become the next SEC chairman.

Schapiro serves as CEO of the Financial Industry Regulatory Authority, created in 2007 through the consolidation of the National Association of Securities Dealers ("NASD") and the member regulation, enforcement and arbitration functions of the NYSE. She previously served as Chairman and CEO of the NASD, as Chairman of the Commodity Futures Trading Commission and as a Commissioner on the Securities and Exchange Commission. She is currently a director of Kraft Foods Inc.

Her stint at the CFTC during the Clinton administration began while the glaring lights were still on Hillary Clinton over her amazing first time futures trading success of turning $1,000 into $100,000.

Schapiro's philosophy on regulation appears to be that the big boys have different rules that they must play by then up and comers. In a speech in October 2007 while CEO of FINRA, she said:

FINRA regulates Goldman Sachs, which had revenues last year of $29 billion, right along side the over 2,400 firms that brought in less than a million dollars...We simply can't ignore the diverse nature of these firms.

It's important that, without compromising investor protection, FINRA distinguish between the different capacities and capabilities of these firms through its rulemaking and examination processes.

Hmmm. I wonder if that is why FINRA didn't catch Bernie Madoff either, since FINRA was also a watchdog of Madoff operations? He must have come under the diverse examination process.

But, things get more amazing. She posed for the cover of Equities magazine. To say Equities reports on some of the edgier parts of Wall Street is to put things mildly. There can not be a better example of clueless, than to pose and be interviewed by Equities, when you are a regulator. I'll let Gary Weiss take it from here since he wrote up this numskull event as it occurred last year:

I practically fainted when I opened up my mail today. No, not a bill or a threatening letter, but a copy of something called "Equities" magazine with the smiling face on the cover of Mary Schapiro, head of the Financial Industry Regulatory Authority (the merged regulatory branches of NASD and the New York Stock Exchange).

What amazed me was not just that Schapiro would give credence to a magazine with a history of featuring shameless penny stock hucksters, but that she gave a ringing endorsement to the magazine.

A lengthy Q&A with Schapiro begins as follows:

Equities: Mary, thank you for taking the time to speak to the readers of EQUITIES. Do you read the magazine?

Schapiro: Absolutely. It's fantastic! You can quote me.

I wonder what Schapiro finds so fantastic about the magazine. It regularly pushes some of the cruddiest stocks known the mankind, and is noted for giving publicity to stock promoters like Ray Dirks.

In fact, right next to Mary Schapiro on the cover is a promo of a softball article on Dian Griesel of Investor Relations Group, which specializes in promoting OTC Bulletin Board and other flyspeck companies. In Wall Street Versus America I describe how Griesel issued a press release proclaiming a lawsuit against citizen activist Floyd Schneider, without actually filing the suit.

Perhaps Schapiro thought the article on Griesel was "fantastic"? Or the microcap promotion articles peppered through the rest of the magazine?

I'd say that Mary Schapiro needs to think a bit more carefully before she gives a ringing endorsement to an investment tome.

Somewhere in Manhattan, the insiders are celebrating tonight.

Blago, Rezko, Obama

Here is another piece to a very big puzzle.

The very curious land parcel purchase by Barack and Michelle Obama from convicted fundraiser Tony Rezko resulted in Rod Blagojevich's wife, Patty, collecting "a huge commission on that Obama real estate deal when she was not the broker selling the property," according to Paul Huebl.

Inside the Blago Tapes: Who Is Senate Candidate 5?

Gov. Blagojevich's own words make it clear that he did not believe that Barack Obama wanted a person called "Senate Candidate 5" to be appointed to the Senate. So who is Senate Candidate 5 that Balgo thinks Obama wouldn't want as his senate successor? Marc Ambinder speculates it is Jesse Jackson Jr.

From the context of the taped phone conversations, it's probably either Jesse Jackson. Jr. or Emil Jones, Jr.

Ambinder then notes that Blago in one conversation says that he is going to meet with Senate Candidate 5. Ambinder then writes, "The only candidate with whom Blagojevich met within that period was Jesse Jackson, Jr."

Juicy Cameo Roles for Warren Buffett and Blago's Wife in Criminal Complaint Against Blago

Gawker finds this in the criminal complaint:

ROD BLAGOJEVICH said that the consultants (Advisor B and another consultant are believed to be on the call at that time) are telling him that he has to "suck it up" for two years and do nothing and give this "motherfucker [i.e., Obama] his senator. Fuck him. For nothing? Fuck him." ROD BLAGOJEVICH says. He[ states that he will put "[Senate Candidate 4]" in the Senate "before just give fucking [Senate Candidate 1] a fucking Senate seat and I don't get anything."

According to the affidavit, he "suggested [that Obama's people start] a 501(c)(4) organization (a non-profit organization that may engage in political activity and lobbying) and getting 'his (believed to be the President-elect's) friend Warren Buffett or some of those guys to help us on something like that.'

The Business Sheet found this:

In another call between ROD BLAGOJEVICH and Deputy Governor A that occurred a short time later on November 3, 2008, ROD BLAGOJEVICH and Deputy Governor A discussed an editorial from the Chicago Tribune regarding the endorsement of
Michael Madigan and calling for a committee to consider impeaching ROD BLAGOJEVICH.

During the call, ROD BLAGOJEVICH's wife can be heard in the
background telling ROD BLAGOJEVICH to tell Deputy Governor A 'to hold up that
fucking Cubs shit. . . fuck them.' [Note: The Tribune owns the Cubs and was looking for public money] ROD BLAGOJEVICH asked Deputy Governor A what
he thinks of his wife's idea.

Deputy Governor A stated that there is a part of what ROD BLAGOJEVICH's wife said that he 'agree[s] with.' Deputy Governor A told ROD BLAGOJEVICH that Tribune Owner will say that he does not have anything to do with the editorials, 'but I would tell him, look, if you want to get your Cubs thing done get rid of this Tribune.' Later, ROD BLAGOJEVICH's wife got on the phone and, during the continuing discussion of the critical Tribune editorials, stated that Tribune Owner can 'just fire' the writers because Tribune Owner owns the Tribune. ROD BLAGOJEVICH's wife stated that if Tribune Owner's papers were hurting his business, Tribune Owner would do something about the editorial board.

Gawker also reports:

Obama's team knew all along that Blagojevich was under federal investigation, and so therefore they were wary of actually giving him anything. They couldn't know the arrest would come before inauguration, but everyone knew it had to come eventually (unless Obama fired Patrick Fitzgerald as soon as he took office, which would've been a public relations nightmare). So while Rod still controlled (and still does control!) who gets the seat, there was a limit to what Obama's team would do to get their person appointed.

Illinois Governor Arrested on Federal Charges of Being a Crooked Politician

What Illinois Gov. Rod R. Blagojevich (D) did is what I believe most politiics in the United States is about. Yet it is rarely caught on tape, and it is even more rare that it is made this public.

Blagojevich wanted to sell the naming of the succesor to Barack Obama's senate seat. What he says over an open phone line is astonishing. Still, Blagojevich is ruffling somebody's feathers in power for this bust to go down.

In a conversation with his Chief of Staff John Harris (also arrested) on November 11, the charges state, Blagojevich said he knew that the President-elect wanted Senate Candidate 1 for the open seat but "they're not willing to give me anything except appreciation. [Expletive] them."

"I've got this thing and it's [expletive] golden, and, uh, uh, I'm just not giving it up for [expletive] nothing. I'm not gonna do it."

At another point the FBI affidavit says Blagojevich had been told by an adviser "the President-elect can get Rod Bblagojevich's's wife on paid corporate boards in exchange for naming the President-elect's pick to the Senate."

At various times, in exchange for the Senate appointment, Blagojevich discussed obtaining:

A substantial salary for himself at a either a non-profit foundation or an organization affiliated with labor unions;

Placing his wife on paid corporate boards where he speculated she might garner as much as $150,000 a year;

Promises of campaign funds – including cash up front; and

A cabinet post or ambassadorship for himself.

Also, according to the affidavit, intercepted phone calls revealed that the Tribune Company, which owns the Chicago Tribune and the Chicago Cubs, has explored the possibility of obtaining assistance from the Illinois Finance Authority (IFA) relating to the Tribune Company's efforts to sell the Cubs and the financing or sale of Wrigley Field. In a November 6 phone call, Harris explained to Blagojevich that the deal the Tribune Company was trying to get through the IFA was basically a tax mitigation scheme in which the IFA would own title to Wrigley Field and the Tribune would not have to pay capital gains tax, which Harris estimated would save the company approximately $100 million.

Intercepted calls allegedly show that Blagojevich directed Harris to inform Tribune Owner and an associate, identified as Tribune Financial Advisor, that state financial assistance would be withheld unless members of the Chicago Tribune's editorial board were fired, primarily because Blagojevich viewed them as driving discussion of his possible impeachment. In a November 4 phone call, Blagojevich allegedly told Harris that he should say to Tribune Financial Advisor, Cubs Chairman and Tribune Owner, "our recommendation is fire all those [expletive] people, get 'em the [expletive] out of there and get us some editorial support."

The Obama Mantra: "Things Are Going To Get Worse"

The influence of Rockefeller operative Paul Volcker on President-elect Barack Obama is coming through loud and clear.

Twice during the opening moments of his interview Sunday on NBC's "Meet the Press." Barack Obama said the economic situation "is going to get worse before it gets better."

"It's going to be a tough period," Volcker said in a speech at the Urban Land Institute in late October. And Obama just named him to head his an economc advisory team.

What will it mean if Volcker has Obama's ear?

It likely will mean that Ben Bernanke will not be renamed Fed chairman when his term runs out in 2010, if he lasts that long. Volcker has been a long-time behind the scenes critic of Bernanke.

It will also mean more regulation of the financial industry, including hedge funds. Look for more power to shift to money center banks. Any changes will benefit Citi, Goldman Sachs, JPMorgan Chase and the like. Volcker has this absurd notion that the mortgage crisis was caused because there wasn't enough regulation. Here's the LA Times on his views:

Volcker feels that tremendous changes in the financial system have eclipsed government regulators, allowing excesses to go unchecked and subjecting the economy to ever greater shocks. Over time, the U.S. has moved from a system of highly regulated banks that funded the economy to a system of highly engineered financial markets that operated outside the scope of regulators.

For the true facts of the Housing Crisis be sure to read Larry White's column, which I first linked to below.

Volcker is correct in that financial engineering also played a role in the crisis, but as I argue here, it is absurd to think that government has the all knowing crystal ball that will direct the economy in the right direction.

Volcker and Obama, though, are going to use the mantra, "Things are going to get worse," to add more regulation and, thus, in a sense they are correct. Things are going to get worse by the new burdens that more financial regulation will create.

It will be crony capitalism at its worst, championed as though it was designed by wise men of high integrity. Volcker's integrity is probably self-delusional, Obama is just slick. What a team.

Some People Will Be Glad When Obama Finally Leaves Chicago

Friends tell me that many business owners are not too happy with the security implemented for President-elect Obama, since he won the election.

Not only are streets blocked off in the Hyde Park area around his home, but also around the Federal Building in Chicago's business district, "The Loop", where Obama has an office. Supposedly, another Loop location around Hilton's The Palmer House Hotel is also blocked off as Obama is holding meetings at the hotel.

Store owners are facing major declines in business at all three locations.

An Attack from a Soldier in the "Save the Water" Army and An Economist Responds

I'm in San Francisco and I'm staying at the downtown Hilton.

Immediately after posting my story discussing the speculation about a gold shortage, I decided to head down to the Hilton gym. It's a pretty decent workout facility and also has a good steam room. I took my razor with me because I like to shave right after coming out of the steam room.

After a quick workout and steam, I headed to the sink area in the men's locker room to shave. The faucets were those complicated types where it is difficult to tell hot from cold, and full power from low power. So I lather up, start shaving, and I keep the water running. After a couple of strokes, I would put the razor under the water to wash it off.

A couple sinks down from me is a short guy, who says to me in a mousy voice, "Excuse me, are you going to keep that water running."

I am not Italian, but I can pass. Friends tell me I have a "Are you talkn' to me" look that could have gotten me a roll on the Sopranos, when when someone is not minding his own business and irritating me. I may have had that look on when I responded to him, "What?" My New York accent probably filled more of the picture for him.

The mousy voice replied, "You are wasting a lot of water."

My reply, "I am not wasting water. I am using it. If there was a shortage of water, the Hilton would start charging for it. I would be more than happy to discuss this in detail with you."

Now at this point I'm thinking of where I can get a pen and paper to draw some supply and demand curves. The guy meanwhile quickly heads back to his locker, gets dressed and bolts.

While all this was going on, I spied a well groomed man, good hair cut etc., taking all this in from the locker area. He's chuckling to himself. I figure him for an investment banker, maybe even Goldman Sachs. I know he gets what I'm talking about. Hell, if he's from Goldman, he more than gets it. Their philosophy is something like, if it's not nailed down it is yours.

But, is this what it is going to be like during the Obama Era? Little pip squeaks are going to be emboldened to harass those that aren't politically correct and actually understand basic economics? I can handle these Obama punks, but I pray for those of you who don't look like you could get a roll as a made man in one of the Godfather films.

Is Mankiw Throwing Keynes Overboard?

I am totally stunned.

Just over a week ago, Harvard Professor Gregory Mankiw wrote this as his lead sentence for a column which appeared in the NYT:

If you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes.

He then provided a classic overview of Keynesian thought, especially as it relates to an economic downturn.

He concluded this way:

It is hard to say how successful monetary and fiscal policy will be in avoiding a deep downturn. But as events unfold, you can be sure that policymakers in the Fed and Treasury will be looking at them through a Keynesian lens.

In 1936, Keynes wrote, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.” In 2008, no defunct economist is more prominent than Keynes himself.

Remarkably, a few days later, on his blog, he begins to diss Keynes (my bold):

The Keynesian model has some clear, practical insights about how to think about fiscal policy during economic downturns. But are those insights true?

One approach to answering this question is to examine the data using the techniques of time-series econometrics without imposing much a priori theory. For monetary policy, there is a large literature that does this; for fiscal policy, the literature is smaller but growing. The results from this exercise, however, do not always confirm the predictions from textbook Keynesian models...

For example, here is the conclusion of Andrew Mountford and Harald Uhlig (a prominent econometrician now at the University of Chicago) in an empirical study called "What are the Effects of Fiscal Policy Shocks?":

Our main results are that a surprise deficit-financed tax cut is the best fiscal policy to stimulate the economy

a deficit[-financed government] spending shock weakly stimulates the economy.

government spending shocks crowd out both residential and non-residential investment without causing interest rates to rise.

These finding are not consistent with standard Keynesian theory, according to which government spending multipliers are larger than tax multipliers and crowding out occurs through increases in interest rates.

An earlier, related paper by Olivier Blanchard and Roberto Perotti called "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output" reported similar anomalous results...Blanchard, incidentally, is now the chief economist at the IMF...

He continued with the Keynesian diss on CNBC (video here). He pointed out again that tax cuts may better for an economy than government spending during a recession, and also said that monetary policy will be the key to the direction of the economy from here, not fiscal policy.

What's going on? Why the sudden change?

My guess, it has to do with Obama's choice of Christina Romer to head the CEA. She is a former student of Mankiw's (He was also best man at her wedding--her husband is also an economist.) and he has to know she is sharp.

As I wrote on the day Obama named her:

Christina D. Romer, Director of the Council of Economic Advisors

A Keynesian, but actually appears to pay some attention to the money supply as an influence on the business cycle. See here....Best hope for economic sanity out of this group is from Romer.

What about Mankiw's new view on tax cuts as the best method for dealing with a recession?

Here's NYT in its profile of her:

...she has also found that tax increases cause the economy to contract. And her dissertation showed, to the great delight of free-marketers, that the federal government has not gotten much better at stabilizing the economy since the Great Depression.

Romer may already be having have an impact. What else can explain Mankiw's conventional recitation of Keynesian economics in NYT on November 28 and his abrupt change? [Note: Obama named Romer on Nov. 25, Mankiw put an NYT link to his conventional Keynes story on his blog on Nov. 27, so for all practical purposes, it must have been at NYT on Nov. 26 and thus the latest he could have written that column was simultaneous with the naming of Romer.] Read that NYT article closely, there is no talk of any failures in Keynesianism, no talk of tax cuts versus tax spending, in fact he says in the column:

That leaves the government as the demander of last resort. Calls for increased infrastructure spending fit well with Keynesian theory. In principle, every dollar spent by the government could cause national income to increase by more than a dollar if it leads to a more vibrant economy and stimulates spending by consumers and companies. By all reports, that is precisely the plan that the incoming Obama administration has in mind.

His back away from this stance starts after Romer is named.

But, as I also pointed out on my initial snapshot of Romer:

...when you are reaching into Berkeley, of all places, for economic hope, you are obviously not talking about a Milton Friedman protege.

I didn't even want to stretch it and say an Austrian protege. And in the NYT profile of her, they report:

...she has described herself as having “liberal Obama-heavy political views,”

But, it appears that we may have an honest economic broker on our hands, who will clearly state what she sees from the data, Keynes be damned. And Mankiw doesn't seem to want to butt heads with her. Impressive. Keep an eye on this lady.

The Ghost of Keynes Rears Its Ugly Head via Obama

Obama's plan to spend "your precious tax dollars" has been revealed by him today. He did not specify spending amounts that will be directed at given target areas:

—ENERGY: “[W]e will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won’t just save you, the American taxpayer, billions of dollars each year. It will put people back to work.”

—ROADS AND BRIDGES: “[W]e will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We’ll invest your precious tax dollars in new and smarter ways, and we’ll set a simple rule – use it or lose it. If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.”

—SCHOOLS: “[M]y economic recovery plan will launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen. We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools.”

—BROADBAND: “As we renew our schools and highways, we’ll also renew our information superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the Internet, every child should have the chance to get online, and they’ll get that chance when I’m president – because that’s how we’ll strengthen America’s competitiveness in the world.”

—ELECTRONIC MEDICAL RECORDS: “In addition to connecting our libraries and schools to the Internet, we must also ensure that our hospitals are connected to each other through the Internet. That is why the economic recovery plan I’m proposing will help modernize our health care system – and that won’t just save jobs, it will save lives. We will make sure that every doctor’s office and hospital in this country is using cutting edge technology and electronic medical records so that we can cut red tape, prevent medical mistakes, and help save billions of dollars each year.”

An Open Letter to Austan Goolsbee

From: Robert Wenzel
To:goolsbee@gsb.uchicago.edu

Dear Dr. Goolsbee,

Congratulations on being named to the President's Economic Recovery Advisory Board.

I note that in this video you hail President-elect Obama for his willingness to put differing views before him:

http://www.youtube.com/watch?v=ecW6YLGnuIs

Your exact words are "It's very Obama in that he doesn't try to shunt out other views...he wants to bring people with different views to the table."

This struck me, since I have also noted that President-elect Obama has not put anyone on his many economic advisory groups, the CEA, the NEC, and the group that you will be a member of, the President's Economic Recovery Advisory Board, that represents the thinking of the Austrian School of economics.

I find this curious since as President-elect Obama has said, we are in a severe downturn in the economy. As you know, one of the areas of study for which the Austrian School is known is their business cycle theory. And their views do seem to differ from the views of members he has appointed to his advisory groups.

And, as you know, the late Austrian economist Friedrich Hayek won the Nobel Prize for his thought in Business Cycle Theory. Indeed, I was pleased to note on a visit to the University of Chicago, where you are the Robert P. Gwinn Professor of Economics at the University of Chicago Booth School of Business, that at the University's Gleacher Center, Professor Hayek is honored with the display of his photograph as a Nobel Prize winner and his affiliation with the University of Chicago is noted.

Perhaps there is something I am missing as to why not even one Austrian has been named to the Obama team, if so I would greatly appreciate if you could enlighten me as to what I am missing.

Or perhaps, President-elect Obama is simply not familiar with the Austrian School, and if that is the case, I wonder if it would be possible for you to bring to his attention the fact that as you say, "he wants to bring people with different views to the table" and that he may have missed bringing to the discussion economists from the respected Austrian School, who have unique insights in many areas of economics, but especially in business cycle theory.

Sincerely,

Robert Wenzel
Editor & Publisher
EconomicPolicyJournal.com

Obama Ditches Oil Company Tax

President-elect Barack Obama is not planning to implement a windfall profit tax on oil companies because prices have dropped below $80 a barrel.

"President-elect Obama announced the policy during the campaign because oil prices were above $80 per barrel," an aide on Obama's transition team said according to Reuters. "They are currently below that now and expected to stay below that."

The big question now is what other taxes will Obama raise to replace the revenue not generated from the windfall tax? Don't think for a minute this is an overall tax cut.

Thomas Sowell on "Community Service"

Keep in mind that Barack Obama is mumbling about "National Service" on a "volunteer" basis for all youth in America. Here's Sowell:

Most people on the left are not opposed to freedom. They are just in favor of all sorts of things that are incompatible with freedom.

Freedom ultimately means the right of other people to do things that you do not approve of. Nazis were free to be Nazis under Hitler. It is only when you are able to do things that other people don't approve that you are free.

One of the most innocent-sounding examples of the left's many impositions of its vision on others is the widespread requirement by schools and by college admissions committees that students do "community service."

There are high schools across the country from which you cannot graduate, and colleges where your application for admission will not be accepted, unless you have engaged in activities arbitrarily defined as "community service."

The arrogance of commandeering young people's time, instead of leaving them and
their parents free to decide for themselves how to use that time, is exceeded only by the arrogance of imposing your own notions as to what is or is not a service to the community.

The most fundamental question is: What in the world qualifies teachers and members of college admissions committees to define what is good for society as a whole, or even for the students on whom they impose their arbitrary notions?

What expertise do they have that justifies overriding other people's freedom? What do their arbitrary impositions show, except that fools rush in where angels fear to tread?

What lessons do students get from this, except submission to arbitrary power? Supposedly students are to get a sense of compassion from serving others. But this all depends on who defines compassion. In practice, it means forcing students to undergo a propaganda experience to make them receptive to the left's vision of the world.

Stephan Kinsella versus Barack Obama On Copyright Protection

The anti-copyright crusader Stephan Kinsella, who curiously has this notice on his site (My emphasis):

Terms of Use

Permission is hereby granted to copy, download, display, post or transmit the documents, articles, and other information on this web site authored by Stephan Kinsella, for personal, informational, non-commercial use only, provided that: (1) you do not modify the materials; (2) you retain all copyright and other proprietary notices contained in the materials; and (3) you include a proper citation to the material (where available) and, where feasible, reference the URL for this site, www.StephanKinsella.com. Notwithstanding the foregoing, unpublished or draft articles or material (i.e., those appearing without publication information or otherwise designated as being in draft or unpublished form) may not be published in any publication without obtaining my written consent (email me (Stephan -at- KinsellaLaw.com) for any such requests).

has been one upped by a true "yours is mine" commie, Barack Obama (My emphasis):

President-elect Obama has championed the creation of a more open, transparent, and participatory government. To that end, Change.gov adopted a new copyright policy this weekend. In an effort to create a vibrant and open public conversation about the Obama-Biden Transition Project, all website content now falls under the Creative Commons Attribution 3.0 License:

“Except where otherwise noted, content on this site is licensed under a Creative Commons Attribution 3.0 License. Content includes all materials posted by the Obama-Biden Transition project. Visitors to this website agree to grant a non-exclusive, irrevocable, royalty-free license to the rest of the world for their submissions to Change.gov under the Creative Commons Attribution 3.0 License.”

The Price of Rhodium Is About to Rocket

The celebrity elect president will have many, many followers of this move. Obama is buying his wife a ring made of rhodium - the world's most expensive metal. the ring is encrusted with diamonds. Price tag $30,000.

Update: Obama spokesman denies ring story.

Sounds Like Trouble: Obama Flunks Adam Smith 101

Barack Obama last week accused business leaders of being “tone deaf” about the economic challenges facing ordinary Americans and called on bank executives to forgo their Christmas bonuses.

Urging a new “ethic of responsibility” in US society, the president-elect said it was wrong for bankers who had gambled away other people’s money to be rewarded with huge bonuses.

In an interview with Barbara Walters on ABC, he said: “If you are already worth tens of millions of dollars, and you are having to lay off workers, the least you can do is say ‘I’m willing to make some sacrifice’.”

Obama doesn't get the Invisible Hand and Adam Smith, who wrote:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

and

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.

and

Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

and

Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only.

and

It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense... They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.

and

The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an author-ity which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a many who had folly and presump-tion enough to fancy himself fit to exercise it.

and

[The man of system] seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board; he does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single pieces has a principle of motion of its own, altogether different from that which the legislator might choose to impress upon it.

Harvard Dissed Obama Choice to Head CEA

President-elect Barack Obama filled the last of the four top economic positions Monday, announcing that his Council of Economic Advisers will be chaired by University of California at Berkeley economist Christina D. Romer, who, according to the Harvard Crimson, "was a subject of national indignation earlier this year when Harvard did not offer her a tenured professorship."

Romer appears to be the most sane economist of all Obama's selections, which is not saying a lot given the other selections. But, she clearly understands that money supply plays a role in the business cycle and she appears to be in favor of tax cuts and government spending cuts.

There are some problems with her anti-tax stance though, in that she reaches the conclusion based on some pretty wacky econometric voodoo conclusions that Kevin Drum discusses and she leaves a loophole in her thinking to occasionally raise taxes, as Drum points out:

One of the Romers' conclusions, by the way, is that tax increases designed to reduce an inherited deficit have a positive impact on economic growth. So if Obama ever does raise taxes, expect this to be the reason he gives for it.