Abel’s Extortion – California Budget Deal Now Has To Be Ratified By Voters. Uhh?

it's 4 a.m and darryl steinberg is shaking the hand of abel maldonado, the man he hates most in the whole world, with a big, big, grin on his face

Just ask Abel Maldonado. There’s nothing better than a little late-night horse-trading to get the blood circulating. Abel managed to extract his pound of flesh from the willing Democrats, trying to stave off collapse in California on behalf of a toothless Republican Governor. Putting his obnoxious opportunism aside for a moment, Abel’s high stakes poker game (the chits being the lives and treasure of the California citizenry) might all be for naught.

Why? Because the people of the state have to ratify the deal. Uhh? Our lawmakers, elected to represent us, don’t get to actually do the representing part because we end up representing ourselves in the single most important budget in the state’s history. We’re likely to turn it down. Not because it sucks, but because we just don’t want to know how bad things truly are. We’ll refuse to accept things got that bad. We’ll apply the blame to the system. We’ll blame Republicans and Democrats and politicians and vested interests. We’ll blame the Governator and his bloviating. We’ll blame Washington, we’ll blame Wall Street. But mark this, we’ll blame the New York Yankees before we blame ourselves. 

Healthcare Reform IS The Economic Stimulus We Need

let's hope the ambulance is coming because there is no time to waste

In today’s NYT, Paul Krugman wonders why we haven’t heard more about major healthcare reform in the first few days of the new administration. His concern is that the economic crisis will only make the oncoming healthcare catastrophe that much more severe. It’s a very good point. Krugman surmises that perhaps solving the economic meltdown is dominating the agenda to the exclusion of almost everything else.

But Krugman doesn’t go far enough. What he fails to mention is that solving the healthcare crisis will, over the medium term, will dramatically help overcome America’s deep economic weaknesses.

It goes like this. Regardless of the plan adopted, and it’s most likely to be a build on Obama’s idea of offering a competitive government plan that will release the grip on our healthcare held by profiteering private insurance companies, the new system will have a very significant downward pressure on healthcare costs.

Green Doesn’t Stop in a Recession

own a prius? cough it up, chump.

In the midst of US preparation for the upcoming Copenhagen Treaty on climate change you’d think that we were all laser-focused on trying to combat global warming for once and for all. Uhh, no.

Despite the fact that the lower fossil fuel demand is a boon for reducing emissions it seems that at lower levels of government, reducing our carbon footprint is thrown out with the bathwater when it comes to paying our lowly state and city bills.

I live in Los Angeles. As I drove to drop off my son at school, I heard two news stories. First, the national story – a stirring presentation at the Senate by Al Gore urging Senate support for the Copenhagen treaty. The second was a local story about how money was so tight that the City of LA would no longer offer free meter parking downtown for Hybrids. The amount of money they’ll save will be negligible, but the message is clear. The City of LA doesn’t care if you buy hybrids anymore.

Obama – The Time to be Unpopular is Now

Obama is all about popularity. But he forgets that popularity is least important after you’ve just won an election. He went out of his way to court the GOP on his stimulus bill, and despite an awful lot of bipartisan BS, not one voted knuckle-dragger for it.

For a President apparently more politically savvy than most on arrival in the White House, he let himself down badly. He forgot that Bipartisanship BS is only meant to be trotted out for winning elections. After they’re over, you kick the losers when they’re down. But Obama’s flaw is that he hates the idea of being hated. So instead, the President got an earful of whining from the GOP who had ample opportunity to diss the plan, and Obama ends up looking like an unconvincin blowhard, after only a week on the job.

The lesson of the day is pretty simple. The GOP is more right-wing, doctrinaire and disagreeable than ever. They’re MO is very simple. If the President had ignored them they would have bleated on that nobody listens. If the President gives them the time of day, they give him the finger. Neither apporach is without costs, but the former is a far better alternative, considering that right now Republicans are more discredited than at virtually any time since Roosevelt.

Politics is not a pretty business. It never was and it never will be. The sooner Obama realizes that the better, because right now he’s at risk of becoming a victim of his own magnanimity. Most kids learn it in the school yard. There are certain people that are just dangerous to be friends with. Obama apparently missed that memo.

Federal and State Deficits – Out of Sync

This 17 carat gold railroad spike was pounded into the ground by Leland Stanford at Promontory Point, Utah on May 10, 1869, to commemorate the joining of the Union Pacific and Central Pacific Railroads to complete the first Transcontinental Railroad.

America was built on Infrastructure. Take the Railroad Era, for example. Infrastructure represents a short term economic boost and long term economic investment. Just ask your average railroad baron. So If you agree that infrastructure spending is a keystone of economic recovery in the United States, then you’re likely to agree that, a) both the Federal and State Governments are critical to infrastructure spending, and b) that concerns about the deficits have to take a back seat to economic recovery.

That is clearly already true about the Federal Deficit. We’re going to hit a trillion a year pretty soon, and we’re going to be spending way more. The economy is so bad, and deflation such a risk, that printing money seems like a very attractive option. Sheets of the stuff will be churned out. The Mint will be working overtime.

But what about the states? Many States are constitutionally mandated to balance their budgets, including California. And none of them print their own money. States have to raise money from taxes, borrow it, or sell bonds to finance themselves. The first of these is a nasty option politically, especially during an economic squeeze, the second is tough sledding, and the third is deeply unattractive for investors. Which leaves the States in a terrific crisis. Among the many things that suffer are – guess what, infrastructure projects, the very lifeblood of the Keynesian (boy, is he back with a vengeance) recovery.

Problem? Uhh, yeah.

“We Simply Cannot Ask The American Taxpayer To Subsidize Failure”

Study the words in the title, and take a think. Haven’t we already subsidized failure to the tune of hundred of billions in the last three months?

i speak with forked tongue

Before Mitch McConnell uttered the phrase above, he made sure to try to separate the bailout of the auto industry from the bailout of the financial industry. The financial bailout he said, was to shore up the entire economy. The auto bailout would support a single industry.

But McConnell’s cries of selectivism should fall on deaf ears. The US Auto Industry is no ordinary industry. It represents a big chunk of our albeit shrinking manufacturing output. It’s not as if the aluminum siding, or the garden furniture industries were looking for federal handouts. We’re talking about cars here. You can’t walk five yards in this country without seeing fifty. If the US car industry were to fail it would impact millions of Americans, would crush a thousand companies that rely on the Big Three, would severely impact the world auto industry, and would dig us deeper into recession.The truth is that sometimes principles have to suffer. But it’s not as if McConnell and his fellow Republicans can make any claim on ideological purity when it comes to subsidies.

Some Bailouts Are Big Gifts. Some Bailouts Are Bad Loans.

Maybe it’s the rise of the Internet that did it, but there are an awful lot of lemmings in the fourth estate these days. Once the zeitgeist gets hold of a word it’s everywhere fast. That’s especially true of catch-all terms that lose their meaning the moment anyone begins to dig even a tiny bit deeper into a story.

Take the term “Bailout”.

In economic terms it means ‘assistance to a financial or other institution in distress’. But assistance can mean anything from a loan that nobody else will give with very stringent terms to a total and utter gift.

There have been a ton of bailouts in the last few months. We don’t have to list them all, we’re just going to focus on two ‘institutions’, Citigroup and the Big Three Auto manufacturers.

Let’s look at what these two have in common. Both of them are vast with global reach and influence.  Both of them made awful business decisions in the short, medium and long term that led them to the brink of collapse.

Now let’s look at what people perceive they have in common, namely that both are “too big to fail”, another term of limited meaning. Citigroup is too big to fail because of the depth of its interconnected interests throughout the financial world. The Auto Industry is too big to fail because whole regions of the country depend on it for their economic welfare.

Finally let’s examine where they are different. Citigroup is a financial institution that buys and sells assets with client and depositor funds. It employs in the region 300,000 people worldwide. The Auto industry makes cars and trucks, is the backbone of US manufacturing and directly and indirectly employs around three million Americans.

It’s a tribute to how well the Finance, Insurance, Real Estate or FIRE sector has sold itself over the last twenty years of the Reagan Revolution that a bloated, shapeless and rudderless behemoth of a bank should be regarded so highly, while the jewel of America’s industrial crown should be treated as if it’s already on the scrapheap.

That contrast is perfectly reflected in the way that the United States Congress and the Administration has handled the ‘bailouts’ to Citigroup and the Auto Industry.

The Fix Is In – Part Two

it's always xmas on wall street

Today, a distinguished board of economists said the country had been in a recession since December ’07, a statement that normally the markets would have discounted, because, yeah, like we knew that. But no, the market’s took a massive swoon, again, giving back all the hard earned gains of the past week’s rally.

Call it rank cynicism, but it just can’t be helped. It’s just too tempting a thought not to consider all this just a tad convenient. Last week the long guys had a party to celebrate a completely predictable new Secretary of the Treasury. This week the toilet beckons because we were told what we already know, and the short guys make a bomb. Coincidence? Perhaps. But if there was collusion between the traders, who after all work either a drink after work or a few desks apart, one could hardly be surprised. After all they’re just trying to make a buck or two with someone else’s money. Right?