JP Morgan Chase and the Obama hypocrites

JP Morgan Chase just lost $2 billion in a derivatives trade. The long knives are out with the president and the treasury secretary crowing that if Dodd-Frank had been fully implemented, this would have never happened. You want to bet? No amount of regulation has ever prevented mistakes from happening among the regulated or the regulated figuring out a way to get around the law in the first place. Jaime Dimon, head of Chase has said that the company’s trading did not violate Dodd-Frank. Also, the loss was in the investment banking arm and not in the bank itself. Since the bank was not affected, what is the big deal? Actually there is no big deal. The bank lost is own money from its investment bank and not any money from its deposit bank so the FDIC is not involved. So now the question is whether it should be illegal for investment banks to use their own money to make money. That seems to be an issue for the board of directors and the shareholders and not for the government to decide. Moreover, the total assets of the bank is $2.2 trillion so it is no surprise that its quarterly dividend will not be affected and the stock price has started moving back up. Yet you would not know this if you listen to the president who wants even more heavy handed regulation. The president has said that JP Morgan was making bets while Dimon says that the bank was hedging against financial risk. Banks hedge against risk all the time. If the administration were to step in and ban all derivatives then the banks would actually be more exposed to financial risk of interest rate changes – but the administration is apparently ignorant of this fact. Well a relevant question is how much money has the Obama administration lost in its ill-fated green initiatives? I bet you it is many times the $2 billion loss of JP Morgan Chase. In Chase’s case, the head of trading has been fired and replaced. How many Obama administrators have been fired for their bad decisions? Precious few if any. While the GSA head has been placed on paid leave for his waste of taxpayers money, if he were at Chase, he would be collecting unemployment rather than being on what amounts to a paid vacation.

The looming debt ceiing: The September surprise

Note: Blogger has changed its look for us bloggers. I hate it. I can't find anything. I can't find any comments made by readers so please forgive me if I do not respond right away to comments. One important issue that will have gigantic ramifications on the elections in November has been entirely ignored. You have heard of the October surprise. Well what of the September surprise? Its the looming hitting of the debt ceiling coming in September. I am sure you remember the debate of the issue last year. What we got out of that charade was an even bigger mess than that which was in place before. Recall that there were mandatory "cuts" that were split 50/50 between domestic and military budgets. The "cuts" have mean that federal government spending has proceeded apace at adding around $5 billion a day to the national date. Indeed, I wrote a piece on this saying "we've been had". If you recall I have written much on this topic (Just say no - March 6, 2011). In order to control government spending, I prefer my 20 percent solution where the government cannot spend more than 20 percent of the previous year's GDP. However, already in place is a law that limits government spending - the debt ceiling. When the issue looms again we will be treated to endless commentary on "shutting down the government". You can imagine the handwringing and angst. The democrats are off the hook since every one of them will vote to increase the ceiling. They will sit back and revel in the agonies of the republicans who will be in the eyes of the crosshairs. Do they shut down the government right before the election or do they raise the ceiling? All the pundits will say that if they capitulate and vote to raise the ceiling, they have abandoned their smaller government mantra and might lose their base and be pilloried as hypocrites. If they vote to keep the current ceiling which in fact will impose a hard cap on government spending, the media will attack them with even more vigor. They will scream that social security checks will stop, the military won't get paid, seniors will be imperiled, babies will die, students will not be able to attend college and just basically locusts and famine will plague the land. Of course all that is nonsense since the government can still spend an obscene amount of money - $3.8 trillion. Its only that the amount cannot keep growing and the government will have to decide how to allocate what they have granted themselves last year rather than granting themselves more this year. So the question is "what will Mitt Romney say?"

Have we run out of new ideas? The case of startups

My old University of Georgia classmate Bob McTeer recently posted this to his blog: What key indicators have traditionally signaled a healthy, robust economy that is vital and independent of monetary injections or government subsidy? I would vote for entrepreneurialism, which the government can’t do much to promote except stay out of the way. If that is the case, then it is telling that new business startups have been at a record low Reuters reported on May 2. WASHINGTON (Reuters) - The pace at which new businesses are created in the United States dropped to a record low in 2010, a troubling development for an economy that is struggling to achieve higher growth rates necessary to reduce high unemployment. The latest Census Bureau data, published on Wednesday, showed the startup rate fell to an all-time low of 7.87 percent from 8.10 in 2009. The figures are based on a survey conducted by the Census Bureau's Center for Economic Studies and the Ewing Marion Kauffman Foundation, a nonprofit organization that focuses on entrepreneurship. The startup rate peaked at 13.02 percent in 1987. Startups are critical contributors to job creation, and the declining trend could help explain the economy's sluggish recovery from the 2007-09 recession. "There are a lot of questions as to why the economy has been slow coming out of the recession, and it is possible that some of that could be explained by the decline in the trend of startups and new firms in the U.S. economy," Javier Mirada, principal economist at the Center for Economic Studies, told Reuters. Well Dr. Mirada is wrong. The slow recovery cannot be explained by the slow pace of startups. Quite the contrary, perhaps Dr. Mirada is too young (or too old) to remember 1987. But 1987 was a year of slow growth with slower growth forecast for 1988. There was a Black Monday in October 1987 which was the largest single day decline in the Sow since the Great Depression and the country was still reeling from the previous year's recession. Yet in the face of all this, new startups were at a record high. Why? Well one of the reasons was that the 1985 recession was accompanied by record layoffs of white collar workers displaced by technological advances. One of the results was that these college educated workers started their own companies. Why is that not happening now? My guess it is because of the ever increasing burdens of regulations on small businesses and the uncertainties surrounding costs of healthcare and taxes.

Balance the Budget? Ha!

There is a video that describes why balancing the budget is impossible. No it is not akin to my posting regarding rejecting the proposed balanced budget amendment. Recall that you can balance a budget either by decreasing spending or increasing taxes or both. As I observed when the senate rejected a reduction in the budget by a paltry $10 billion, our politicians cutting spending is virtually impossible leaving increasing taxes as the only choice. What the video shows is that federal nondiscretionary spending (social security, medicare) is equal to tax receipts. This means that if you would have to eliminate federal spending on everything else, to have a balanced budget. Of course, nondiscretionary spending is nondiscretionary because the government says it is. Nonetheless, everyone knows that in order to control federal spending then the spending on social security and medicare must be corralled. After the video makes these points it wimps out. Its solutions are no solutions at all. So I offer a few real solutions of my own that will work. 1. Eliminate duplication 2. Eliminate automatic escalators 3. Raise the full benefit age in social security to 70 4. Privatize medicare and medicaid 5. Privatize social security with a benefit floor guaranteed by the federal government 6. Institute a flat income tax with no exemptions 7. Limit the growth in the number of pages in the federal register 8. Institute an aggressive review of all regulations by all federal agencies 9. Mandate that regulatory burdens must be reduced by at least 5 percent per year. (We did this when I was at NCUA). 10. Limit federal pay (including perks) to no more than 10 percent over the average pay for the same position in the private sector. 11. And of course, cap the federal budget to 20 percent of the previous year's GDP. http://www.youtube.com/watch?v=EW5IdwltaAc&feature=youtu.be

Don't worry Julia - at least the government loves you

The political silly season has spawned the pandering to the stupid. First the president has taken to speaking trips to colleges telling them that the congress is going to double the rates on student loans. One of the things that frustrated me when I was teaching was that this generation has information at their fingertips and are too lazy to use it. Well if they decided to google the student loans, they would find that the doubling of rates would only be on new loans and not on existing ones. Thus, the college audiences should go ho-hum, what’s the big deal. Also they would know that it was the democratic congress and the democratic president who signed the law that will cause the change. So the president is assuming the students are either stupid or ignorant. Sadly most of them are both. The second salvo of pandering to the stupid is to stupid women with the Life of Julia (http://www.barackobama.com/life-of-julia). Here we have cradle to grave government assistance to women who obviously cannot provide for themselves. Tellingly, Obama’s Julia doesn’t ever have a man, never gets married yet opts to have a child. What message is this sending other than the government is the male substitute for women such as “Julia”. The Heritage Foundation has posted its conservative approach to Julia (http://blog.heritage.org/a-better-life-for-julia/?gclid=CJqQn4XY568CFcSa7QodrDms2g). Regardless, the women that I know are apparently not the norm. The polls show that women as a group favor a more activist federal government than do men. The women I know, even the liberal ones, fear government intrusion into every aspect of their lives. They treasure their freedoms and they are just as suspect of left wing intrusions as their NOW sisters fear right wing intrusions. Thank goodness I don't know Obama's Julia and hopefully she will only exist in the ether of the internet.

Joe Biden: The gift that keeps on giving

If Joe Biden were a republican he would be ridiculed and lampooned and make Dan Quale look like Einstein. In case you missed it, the other day he gave a speech in which he compared Obama's foreign policy with that of Teddy Roosevelt assuring the audience that "Obama has a big stick". Here is the video: http://www.cbsnews.com/8301-503544_162-57422403-503544/biden-on-foreign-policy-obama-has-a-big-stick/. Enjoy.

America's disappearing moderates

An old friend while a sitting senator told me once that a moderate was like a person walking down the middle of the street and getting hit by traffic going in both directions. True words today. It is an interesting contradiction that all the pundits are obsessed with the moderate independent voters while our moderate elected officials are an endangered species. Seemingly lost in the reporting of politics in America is the polarization of America’s political parties. We have widespread reporting of Obama aide David Axelrod’s statement that Republicans in the congress are operating “under a reign of terror imposed by the party’s conservative wing. The commentary accompanying this accusation accept this as truth. Of course this is part of the never-ending demonizing of the Tea Party. Apparently, the Obama campaign have decided to campaign against the Tea Party and tie it to the republicans. Such a strategy is curious given the results from the last election where the Tea Party can take a great deal of credit for 80 new congressmen and republicans taking control of the house of representatives. Missing from the discussion is the change occurring in the democratic party where Blue Dog congressmen are being ousted by leftist democrats. The Blue Dogs once a force in the democratic caucus with 54 members suffered defeats by republicans in the 2010 elections. The republicans argued that even though the Blue Dogs were moderates In the mold of Scoop Jackson, they still were going to vote for Nancy Pelosi for speaker and reinstall the leftist democratic leadership. After the bloodbath in 2010, there were 25 Blue Dogs left. Then because of redistricting, several Blue Dogs including Heath Shuler (D-NC) opted not to run for re-election. Then in recent primaries, the Blue Dogs have suffered defeats at the hands of the democratic left wing. Tim Holden (D-PA) and Jason Altmire (D-PA) lost to leftists (now called “progressives”) who ran with union support criticizing their votes against Obamacare and clean energy. Now why people in Pennsylvania would support “clean energy” which wants to destroy coal mining is beyond me. Mike Ross (D-Ark) has said that it is now tough to be a moderate in this congress. If the two parties now find it difficult to find compromise on tough issues, it will be neigh impossible in the next one congress.