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Monday, August 31, 2009

Auditing the Fed Is Economic Suicide?

That's the view from this particular blog.




The free market understands that auditing the fed is a very dangerous line to cross. If crossed, U.S. inflation will likely skyrocket over the next decade to unseen levels. U.S. economy tanks. Bond investors lose money as interest rates rise. Stock investors earn negative real return as equity risk premium rises and aggregate PE ratio tank. The US Dollar erodes due to higher domestic inflation relative to foreign inflation. Gold and commodity prices rise.


The thesis of this blog is that if Congress knows what is in the books of the Fed, they can then use that information to put pressure on the Fed Chairman to influence their decisions going forward.



This is the mantra that comes from all those that are against the a full audit of the Fed. In fact, the Fed Chairman, Ben Bernanke, has said the same thing himself.




The Congress, however, purposefully--and for good reason--excluded from the scope of potential GAO reviews some highly sensitive areas, notably monetary policy deliberations and operations, including open market and discount window operations. In doing so, the Congress carefully balanced the need for public accountability with the strong public policy benefits that flow from maintaining an appropriate degree of independence for the central bank in the making and execution of monetary policy. Financial markets, in particular, likely would see a grant of review authority in these areas to the GAO as a serious weakening of monetary policy independence. Because GAO reviews may be initiated at the request of members of Congress, reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions. A perceived loss of monetary policy independence could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability. We will continue to work with the Congress to provide the information it needs to oversee our activities effectively, yet in a way that does not compromise monetary policy independence.




It's not totally clear just how a full audit would give Congress the license to influence policy. For one, most Congress people wouldn't have the first clue what will be in the audit anyway. The thinking, I assume, goes that if Congress knows what the Fed is holding onto as far as financial instruments, cash and liabilities, that they can use this knowledge to put pressure on the Fed to influence policy.



The explanation goes that the Fed needs total independence and any influence could politicize monetary policy. Let's think about this for a minute. The Fed is required to go to Capitol Hill regularly to testify. The Fed Chairman is selected by the President and confirmed by Congress. No one that claims that an audit would threaten the Fed's independence claim that all of these political interventions now threaten the Fed's independence.



I am not discounting that the only thing worse than the Fed Chairman running the Fed is Congress. I am not discounting the idea of unintended consequences. Yet, the Federal Reserve now trades trillions of dollars of a plethora of sophisticated assets. They do this in markets, with other central banks, and with other banks in the U.S. We, the people that it's supposed to serve, don't know exactly what they are holding on to. Can this be?



So, the argument against a full Fed audit is that someone could see a scenario under which this audit could then be used by Congress people would influence Fed policy. So, we're all supposed to dismiss the very real fear that our own central bank can make decisions worth trillions of dollars without having the public know exactly what they are doing because someone has a scenario under which the solution would lead to its politicization.



Now, it's important to point out that this particular blog is one I haven't heard of. I only found it after a scan of the much more popular blog, Little Green Footballs. Charles Johnson, the proprietor of LGF, has a thing against Ron Paul, the person most responsible for legislation calling for auditing of the Fed. As such, in the view of Johnson, anything that Paul champions must be loopy. It is in fact Johnson that linked to this blog as some sort of authority. Now, I doubt that Johnson could explain how auditing the Fed would lead to its politicization. In fact, I doubt that Johnson could explain much of anything on Fed policy. It's an area he's better to simply stay away from. Yet, he can't resist because it's an opportunity to attack Paul. So Johnson, without having a clue about the authority and expertise of the site in question, puts it out there as a site of expertise.



If you think auditing the Fed might not be a bad idea, I suggest you read this: Auditing the Fed Is Economic Suicide.




As such, Johnson engages in little more than propaganda. It's just one of many unfortunate examples of the internet being the wild, wild west. Lot's of people actually trust Johnson's words as an authority, and they might even conclude that this blog is also an authority. That piece in which he purports to act as an authority on monetary policy does them no favors.

Video, Quote, and Word of the Day

concatenation

a succession

Always forgive your enemies - nothing annoys them so much.

Oscar Wilde

Our "Extraordinarily Intellectual" President

(H/T to Power Line) In this Washington Post story, there appears to be another reincarnation of the media's reminders of the public that President Obama is extraordinarily brilliant.

The president is a very sophisticated thinker and understands the implications of these decisions and events. . .I think he is making sure he makes the best decisions and sometimes you cannot just wipe the slate clean. You have to deal with what the facts are or you have to actually try to make sure you can ascertain the facts, as opposed to some of the hyperbole that is out there.

...

There are some things [Obama] recognizes are the attorney general's prerogative to do, but at the same time it's not like he just says, "well, whatever he does, he'll do. [Obama] wants to make sure we take into account those decisions and take the appropriate steps within the White House to deal with them, particularly from the standpoint of making sure we maintain that very capable, robust counterterrorism capability."


This has been repeated by some in the media that it's turned into a mantra and a broken record. The fixation by some to convince the public that President Obama is uniquely intelligent in a way no president has ever been before is equally misleading and totally without context. First, if geniuses made the best presidents, then all our presidents would have been geniuses. Second, it's far from clear that President Obama is uniquely intelligent in a way that no other president has ever been before.

Whenever anyone starts to measure the intellect of a president and use that intellect to try and prove some larger political point, I go back in history. First, Andrew Jackson could barely read. Jackson was far from an intellectual. While we can debate his place in history, it's hard to argue that Jackson was a unique and transformative president. Clearly, his lack of intellect didn't hurt him that much. Ronald Reagan graduated from Euraka College, not Harvard. No one is saying that Reagan was dumb, but he was certainly not a president of uniquely extraordinary intellect. Yet, he also was a transformative president. Abraham Lincoln wasn't necessarily a man of extraordinary intellect and yet he was instrumental in ending slavery.

I have no doubt that President Obama is extremely intelligent. I don't even doubt that he's more intelligent than the overwhelming majority of citizens of the U.S. I also don't doubt that most presidents are smarter than most of the citizenry they serve. No one has shown how Obama is somehow much smarter than most presidents. More than that, no one has show why it would even matter.

Whenever anyone makes the claim that Obama is really, really, really, really smart, what they are really saying is don't worry about his policies because you just don't get it. Obama, you see, just understands the world better than us simpletons. So, when we are concerned about his policies, that's because we don't get it.

I would challenge all of it. If Obama is so smart, why did he think that saddling the country with overwhelming debt was the only way to move us out of a recession. Warren Harding, no intellectual heavy weight, cut spending and taxes when he faced a severe recession in the beginning of his administration. That recession did not lead to a depression and in fact ushered in a decade of outstanding growth. If Obama is so smart, why does he think that a big government overhaul of health care is the best option? Furthermore, if he's so smart why can't he see that his health care reform package has no hope of passing?

The reality is that alluding to Obama being extraordinarily intellectual is a trojan horse. It's a way to change the debate from the subject at hand. In the Washington Post piece, the story was actually about AG Holder's appointment of a special prosecutor for the CIA investigation. In this case, Obama's intellect should be of no relevance. The decision was supposedly entirely that of Holders. So, who cares how smart Obama is? This is a constant technique of many in the media. It's subtle justification for a policy. It isn't the job of the media to offer justifications for Obama's policies. His intellect is irrelevant. As such, his policies need to be analyzed on their merits not on his supposed extraordinary intellect.

Connecting the Dots on Intelligence and Waterboarding

There are several questions that continue to surround the latest revelations in the CIA's EIT program. First, are waterboarding and other EIT techniques in fact torture? Whether these techniques worked or not, was it worth it? Could we have gotten any information from some detainees without using them? Finally, did we get valuable intelligence following the use of these techniques? Most of these questions are tangential. In that, there is no objective way to look at it and so your answer likely depends on your political ideology. Most will continue to be debated long after the release of the lateste memos.

Here's what's no longer debateable. Both Khalid Sheikh Muhammand and Abu Zubaydah account for an enormous amount of what we know about Al Qaeda in general. We know that both were in the top three in the leadership of Al Qaeda. We know that both were eventually waterboarded. We also know that both were initially not very cooperative but only became cooperative after the waterboarding.

That certainly doesn't answer the question about whether or not water boarding is torture. It doesn't answer the question about whether or not it's worth it. As Juan Williams points out, in a Democracy "we don't torture, period", and we don't say "it's all right to torture because it lead to a lot of information". It's hard however to argue the last two points any more. Because of the sensitivity of the matter, most of the details of the interrogations were redacted. What wasn't redacted was 1) both KSM and Zubaydah were initially not very talkative and 2)both were subjected to EIT's. Now, it's not very hard to connect the dots here. We tried standard interrogation methods and they didn't work. We tried some alternatives. Some of these were very tought and they did work.

There is a popular argument, made especially by John McCain, that if you torture someone they will tell you anything and most won't be true. That is certainly true, but the results speak for themselves. The memos make clear that both KSM and Zubaydah were a "rolo dex of information on Al Qaeda." That is how the interrogators analyzed the information that these two gave to interrogators. Both were initially not cooperative. Both were eventually waterboarded. Both eventually began singing like canaries. Is someone going to really say that waterboarding didn't work on these two? Are they really going to say that we could have gotten information from them in another way?

It's very hard to make the moral argument that even if waterboarding saves lives it's not worth it. That is taking a theoretical argument to an extreme that very few will agree with. If Americans have a decision between waterboarding a terrorist and losing American lives, most will choose waterboarding a terrorist. As such, most of those that make that argument will also claim that it doens't work. That's a much stronger argument. Not only is it immoral, but it doesn't work. It's a difficult argument to disprove. Yet, we now have overwhelming evidence that this is simply not so. If someone wants to claim that waterboarding is wrong no matter what the ends, that's one thing. If they want to claim that it doesn't work, that's now no longer an argument someone can make.

The Tea Party Express Rolls On

As some may know, the Tea Party Movement is taking a cross country trip from California and will end up in Washington D.C. on September 12th. I hope to catch up with the folks in Joliet, Il. on September 7th. Meanwhile, Fox News is the only mainstream media source to give the express any publicity.



Still, the Express is getting all sorts of publicity from alternative media sources and you can expect tens of thousands to show up in D.C. on the twelfth. Again, I would call that show of force the final death blow in the heart of health care reform but that's already dead so it's merely beating a dead bill by then.

Meanwhile, two new videos of town halls are making a splash, "going viral" if you will. Here's one of a protester being arrested for speaking out of turn at a town hall.




Here's a very revealing video of Congresswoman Diana Watson of California heaping praise on Hugo Chavez, Che Guevara, and Fidel Castro at another town hall







It is also important to note that Barney Frank came out with his support for H.R. 1207, the bill to audit the Fed, after a grilling at another town hall event.



It's hard to quantify the political effect that all these protests had. Howard Dean admitted that tort reform won't happen due to political pressure, Sheila Jackson Lee took a phone call during an event, Nancy Pelosi accused them of astro turfing and extremism, Harry Reid called them "evil mongers", and at thousands of events citizen activists spoke out against the bill. All of this happened as a result of the constant barrage of questions and noise at a plethora of town hall events. As such, we saw politicians reveal a side of themselves they never would have without the pressure of constant confrontations with citizens. The tea parties have arrived.

Morning Market Report

Equities broke their winning streak on Friday and now they may be looking to start a new streak. All three major indices are down between one half and three quarters of a percent. That's not that bad. One major index in China was off by 6% this morning on price to earnings "fears".
Stocks retreated from Shanghai to Frankfurt on speculation the six-month rally
has outpaced prospects for earnings growth.

These are the sudden "fears" in markets that are always peculiar. After all, stocks generally had the same valuations for months with no fears. Now, suddenly, the market fears that earnings are not keeping up with stock growth. The Chinese economy, in particular, has had a remarkable rise and now some are predicting a "bubble". What no one can ever figure out is how such fears materialize because they are usually, like now, sudden realizations of dynamics that had been going on for months, or in the case of China, years.

Bonds are relatively unchanged, however, most are holding near bests for the last month or so. The Ten Year U.S. Treasury is now at 3.44%. It touched 3.42% last week and that's the lowest in the last three plus weeks. The yield spread between the two and ten year is now at 2.45% which has opened up some in the last week and a half. The 30 year mortgage also continues to be below 5.5%, it's now at about 5.375%. Meanwhile, oil continues to inch down and is now trading just over $71 a barrel at $71.06 a barrel.

The economic data calendar is fairly light. The only number that will come out today is the Chicago Purchasing Managers Index which will come out later today.

As I mentioned, it was a bloody day in the markets across the board. The Hang Seng in China was down 1.86%, the Nikkei in Japan was down .46%, and the Strait Times Index in Singapore was down 1.89%. The broader China Index was down 6.7%, as I mentioned earlier. Things were only slightly better in Europe. The FTSE was unchanged, the DAX in Germany was down .72%, while the Spanish Index was down 1.17%.

Finally, in currencies, the Dollar is up by .2% against the Euro, up by .32% against the British Pound, but weakening by .34% against the Japanese Yen. The Yen looks to be stronger against most other currencies as a vote of confidence with the party change in their elections over the weekend. It was the first party change in nearly 50 years.

Meanwhile, three stocks to watch are Fannie Mae (FNM) Freddie Mac (FRE) and AIG (AIG). All three are essentially government owned now and each, coincidentally or not, have had massive run ups in the last four weeks. So far, no trader has offered a cogent explanation of any of the three's runs. AIG recently did report good earnings for the second quarter however that broke an eight quarter streak of poor earnings and the company still faces a sea of red ink. AIG, after touching single digits in July, recently shot to as high as $50 a share. It's pulled back this morning to just below $46 a share. FNM has had a similar run. It reach pennies in July and now trades at just above $2 a share. All three have been day traders dreams, but their sudden run ups is curious and should be investigated.

Sunday, August 30, 2009

Video, Quote, and Word of the Day



querolous
to complain often

When one door of happiness closes, another opens; but often we look so long at the closed door that we do not see the one which has opened for us.
Helen Keller

Examining the Civic Federation's Olympics Analysis

On Wednesday, the Chicago Civic Federation came out with a report of the analysis of the bid of Chicago 2016. Here is the conclusion of the findings of the Civic Federation.

The Civic Federation found that the operating budget, including venue construction, proposed by the Chicago 2016 is fair and reasonable and provides adequate protections against financial risks to Chicago's tax payers.

Now, if the committee and the Mayor thought that this report would quell the concerns of the citizens, it's likely he's in for a surprise. First, only in the last few weeks has the objectivity of the Civic Federation come into question. The Civic Federation gave its top honor, Lyman J. Gage Award for Outstanding Civic Contribution to the city, to Pat Ryan in 2007. Ryan heads the 2016 Olympic bid. Second, no less than 40 of the board's 82 members work for companies that are supporters of the 2016 bid . More than this, LEK Consulting, the group that the Civic Federation hired to do the analysis, is now bidding for a major contract with the city at O'Hare International Airport. The LEK disclosure was disclosed in the analysis but not before. Most of the other disclosures were actually investigated by citizens and journalists and not even revealed by the Federation itself. As such, it's unclear just how objective either the Civic Federation or LEK are in their analysis.

Within the summary, the report says something that is peculiar.

Given the limited time frame and complexity of hosting the games, the following report is not a financial audit but rather a high-level review (page 6)

It's unclear what a high level review is. It also adds to the dubious nature of the report. If the Civic Federation is unable to conduct a full audit, how can anyone trust any of their findings. The findings, as I mentioned, find that the budget projections are solid, but the findings don't question the projections or funding plans of the Olympic village. According to the Olympic Committee, the village will cost just over $1 billion. Yet, in Vancouver, their Olympic Village now stands at costing $1 billion. Yet, their village has roughly 1000 units whereas the plans for the Chicago village will be for 7000 units. Furthermore, the report doesn't question the assertion that the village will be financed entirely by private funding. This seems dubious. As I've been reporting, financing for commercial loans, like an Olympic Village, is nearly non existent. It's especially difficult for properties of $10 million and more. As such, the Olympic Village would fall into the sort of financing that is difficult to get now. The report states that "LEK (the firm that prepared the report) cannot "predict future events". As such, they must be using current circumstances. If that's the case, there's no way they can conclude that a private firm would finance the entire cost of the Village. This is potentially up to a $1 billion error.

Next, tickets for events may wind up costing out most of the citizens of Chicago. For instance, the Civic Federation estimates that tickets to the opening ceremonies will cost nearly $2000 with taxes per person. This is no small point. Even if the games wind up being a boon, if that happens because the only people that can afford to enjoy them will be the wealthy that won't be of much consolation.

The report also didn't question the veracity of the projections that the bid made for sponsorship revenues. The Olympic bid expects the revenues to be 1.8 billion dollars. In the Atlanta games, that number was about $1 billion. The Olympic committee targets $19 million for the naming rights of the rowing venue which is equal to what Citibank pays yearly for naming rights of the Mets baseball stadium. Neither of these are challenged or questioned even though the numbers appear dubious.

Most troubling, the Olympic Committee changed the structure of it insurance policy after the analysis came out. This is vital. The insurance policy may be the only thing that keeps tax payers from footing the bill of the cost overruns that are expected by many skeptics. A full transparent analysis and explanation of the policy has not yet been made public. Worse yet, the Olympic bid committee plans on having Aon provide the insurance. Aon is the company that Pat Ryan helped to found. So, the leader of the Olympic bid is having his own insurance company provide the vital piece of insurance.

(Please note I was hoping to speak with Alderman Flores regarding this report but he was pulled away on a personal matter and I hope to get his reaction next week)

Auditing the Fed Nears

If you've been to any tea party, then you've probably seen someone that supports H.R. 1207. That's a bill sponsored by Ron Paul that would mandate a full and complete audit. Now, if you're unfamiliar with the matter, you might be shocked. You'd probably assume that the finances and balance sheets of our own Central Bank would already be a matter of public record. Not so. The public doesn't know exactly what the central bank owes and owns. That appears to be coming to an end. H.R. 1207 is favored overwhelmingly. More than that, it gets support from a cross section of the population. It has bi partisan co sponsorship including the likes of ultra liberals like Brian Baird and minority leader John Boehner. Even the Green Party is in favor of this plan. Libertarians are overwhelmingly in favor of it. It simply makes sense. Now, it's gained a very important supporter.

Rep. Barney Frank, the chairman of the House Financial Services Committee, has endorsed a bill calling for an audit of the Federal Reserve.

The support from the powerful Massachusetts Democrat comes after the measure, introduced in late February by Rep. Ron Paul, has won hundreds of co-sponsors on both sides of the aisle.

Frank's office had previously declined to comment on the bill, which had been idling in his committee for months, but the congressman publicly backed it when pressed on the issue at a recent town hall meeting held during Congress' month-long summer recess.

The reason that Barney Frank's support is important has everything to do with the dynamics of our legislative bodies. Power is held in large part in the hands of committee chairs. They decide which bill get voted on and which never see the light of day.

H.R. 1207 had overwhelming support, but until Barney Frank, head of the finance committee, gave it his vote of confidence it wasn't going to get voted on. Now, it will see the light of day and a very important hurdle is crossed.

With this latest news, I have an excuse to play my favorite Fed related video.


Now, the larger point is what will we find inside the books of the Fed. Some say that we'll find the Fed is near insolvency.

Yet, has the Fed really “run out of ammunition”? First of all: what is the Fed shooting at? It is trying to artificially stimulate the economy with its monetary policy, thereby it is also unwittingly shooting at the value of the currency. Through its monetary policy, the Fed is trying to bail out an insolvent and illiquid banking system to maintain an unsustainable structure of production. As long as the currency is not totally destroyed, the Fed will never run out of ammunition. In order to assess the ammunition left, one should have a look at the balance sheet of the Federal Reserve — especially at the assets the Fed can still obtain. The Fed’s balance sheet also gives insights on the condition or quality of the dollar.

Since the crisis broke out, the Fed has continuously weakened the quality of the dollar by weakening its balance sheet. In fact, the assets the Federal Reserve holds have deteriorated tremendously. These assets back the liability side of the balance sheet, which mainly represents the monetary base of the dollar. The assets of the Fed, thereby, hold up the value of the dollar. At the end of the day, it is these assets that the Fed can use to defend the dollar’s value externally and internally. Thus, for example, it could sell its foreign exchange reserves to buy back dollars, reducing the amount of dollars outstanding. From the point of view of the buyer of the foreign exchange reserves, this transaction is a de facto redemption.

We'll see. What I have no doubt about is that a full and complete audit of the Federal Reserve will be the single most important economic event in this country since the Sherman Anti Trust Bill. Once the public understands exactly what this shadowy and all too powerful organization does, nothing in domestic policy and economics will ever be the same.

Do the Brits Have A Lot to Answer For

The London Times has a shocking article in which new details are discovered regarding the release of Abdelbaset Ali Mohmed al-Megrahi, the Lockerbie bomber.

The British government decided it was “in the overwhelming interests of the United Kingdom” to make Abdelbaset Ali Mohmed al-Megrahi, the Lockerbie bomber, eligible for return to Libya, leaked ministerial letters reveal.

Gordon Brown’s government made the decision after discussions between Libya and BP over a multi-million-pound oil exploration deal had hit difficulties. These were resolved soon afterwards.

The letters were sent two years ago by Jack Straw, the justice secretary, to Kenny MacAskill, his counterpart in Scotland, who has been widely criticised for taking the formal decision to permit Megrahi’s release.


The correspondence makes it plain that the key decision to include Megrahi in a deal with Libya to allow prisoners to return home was, in fact, taken in London for British national interests.

If this report is accurate, it leaves no doubt that 1) the release of this mass murdere was orchestrated by Britain and not Scotland, and 2)it was done for cynical financial reasons. Of course, the Brown government has denied both issues. In fact, according to the letters, the current fall guy, Kenny McCaskill, the Scottish Justice Secretary, appears to be acting on the orders of the British Justice Secretary Jack Straw.

It also raised questions of whether or not the bomber really is dying. After all, these correspondence start about two years ago. In them, clear quid pro quo is discussed. BP was struggling in finalizing an oil deal in Lybia. Meanwhile, Lybia wanted the bomber back. Now, the deal has been finalized and the bomber is free.

For all those that will rush to blame the Obama administration, remember these correspondence go back two years. As such, it's more accurate to blame the State Departments of both administrations for not making it more clear that Britain had more to lose by releasing the bomber.

Saturday, August 29, 2009

How Do You Take Control of the Internet

The Senate is actually giving consideration to a bill that would give the president the power to "shut down online traffic by seizing private networks".

A Senate bill would offer President Obama emergency control of the Internet and may give him a "kill switch" to shut down online traffic by seizing private networks -- a move cybersecurity experts worry will choke off industry and civil liberties.

Details of a revamped version of the Cybersecurity Act of 2009 emerged late Thursday, months after an initial version authored by Sen. Jay Rockefeller, D-W.V., was blasted in Silicon Valley as dangerous government intrusion.

"In the original bill they empowered the president to essentially turn off the Internet in the case of a 'cyber-emergency,' which they didn't define," said Larry Clinton, president of the Internet Security Alliance, which represents the telecommunications industry.

"We think it's a very bad idea ... to put in legislation," he told FOXNews.com.


Most are afraid that this yet another usurption of power. They should be. This is rather unprecedented.

I'm much more worried about something else, hubris. Does anyone really think that anyone person can control the internet, in an emergency or otherwise? What exactly do the framers of this bill hope to accomplish?

He'd have no access to any network that originates overseas. So, how will anyone be able to control anything? Our enemies are mostly using on line sources overseas. So, what does controlling private networks at home do? It's not going to stop terrorists from posting on line. They aren't using blogger, wordpress, or any other domestic private network.

What's scary here is that this is a naked power grab that doesn't even create a credible reason for it? This is so absurd it's not only baffling, but frightening in its hubris. Do the framers think that such a move would really make a difference in an emergency? Do they think that no one would notice that they are pulling such a naked power grab?

Even more scary is that Fox News says that this has bi partisan support. Are we really to believe that members of both parties are this out of their minds? Rather than holding hearings on the merits of this bill, I would like to hold hearings and question those that support it. They have a lot to answer for. That the legislation has even gotten this far is shame enough. It needs to stop here.

Video, Quote, and Word of the Day

tetchy

irritable

Inventing is a combination of brains and materials. The more brains you use, the less material you need.

Charles Kettering

Point Counter Point Weekly Addresses

The president marked the fourth anniversary of Hurrican Katrina by remarking on his administration's preparedness for the next storm and other disaster. He first used a dubious statistic. He claimed that over 1000 people died as a result of Hurrican Katrina, though he also once claimed that 10,000 people died from a tornado in Kansas. (that number was closer to ten) He promised to cut red tape, coordinate, and make government more responsive for the next disaster. It all sounds good but ultimately these are all just words. We'll see how prepared the government is if we ever have another storm or other disaster like Katrina. The president also spoke about H1N1 and encouraged everyone to go to http://www.ready.gov/ for ways they can be prepared for and guard against catching H1N1.



Mike Enzi, Senator from Wyoming, delivered the Republican response. In the movie, Top Gun, Tom Cruise' character once used the term "target rich environment" to describe a bar full of good looking women. Attacking the Democrats' health care bill, provides a "target rich environment" in that there is so much to attack. The problem, if you will, for Enzi is that he only had five minutes. He focused mostly on costs and the projections that the CBO gave about the bill. By this, the CBO predicted that the bill would increase medical costs and it would add to the deficit. He also talked about the portion of the bill that creates "comparative research" which would determine which are the most cost effective procedures. That's a nice sounding idea but in reality, it would be a government bureaucracy that would determine which procedures doctors can and cannot continue performing.

Enzi proposed allowing for health insurance to be sold across state lines, health savings accounts, and tort reform. Those have become the mantra of the Republicans and it's working. All polls say the Dems health care bill is disintegrating and this latest attack continues with the same talking points that have created this dynamic.

This has been called a watershed moment because Enzi is one of the gang of six. That's three Democrats and three Republicans that are in the Senate's finance committee that are trying to create a compromise. Enzi excoriated the Democrats for their "go it alone" attitude, and so, it appears that a bi partisan compromise is on life support.

Going Viral

A couple evenings back I attended a local event at the Saluki Bar sponsored by the website, Windy Citizen. At this event, the music group, the Clout Meisters, performed. The Clout Meisters is not your run of the mill music group. Instead, they were put together in order to satirize Chicago corruption by a whistle blower, Pat McDonough. McDonough was one of the whistleblowers on the Hired Truck Scandal and has since been an advocated against Mayor Daley and corruption. He wanted to put a song on his site that would verbalize what he felt about the way corruption affects the city. He reached out to a long time friend, Emery Joe Yost, and what came was this song.



Within days, this You Tube video became a sensation. It had gone viral. I spoke very briefly to Yost after the event. Yost is a lifelong musician who teaches music in the Chicago Public Schools. He reached a measure of musical success back in the early 1990's when a song of a group he was in was featured in the movie, Basic Instinct. Since then, he told me he has played in bars and performed music in relative obscurity for nearly two decades. That all changed in the last two weeks. He's now an Internet sensation with the song above. He's become a cult classic. He has "gone viral".

At first, Yost shrugged and down played his near overnight stardom. Yet, quickly he and I both remarked in amazement at the set of events and technology that made him an instant star. You Tube, more than any other vehicle, has created the force of "going viral". Whereas way back when, we had chain letters. Now, we have chain emails, links, and embeds. Since You Tube was invented just about five years ago, thousands if not millions of videos have "gone viral" but there are two that I am familiar with. Both have plenty of similarities to the meteoric rise of Yost and the Clout Meisters. The first is this speech by European MP Daniel Hannan. (a rant against PM Gordon Brown and runaway government and spending)


The second is the famous rant by Rick Santelli.



Daniel Hannan would still be a relatively unknown member of European Parliament and Rick Santelli would still be a relatively unknown business commentator had it not been for Youtube and the internet. Much like the Clout Meisters, both those videos immediately "went viral". There was no marketing campaign. It hit a nerve and they immediately were mass emailed, linked, and embedded. Nearly overnight, Daniel Hannan has become the face of fiscal conservatism. Meanwhile, Santelli, in five minutes, did more to create the tea party movement than months of organizing, a movement alive and well today.

There's more similarities between the three videos than merely their travels through the internet universe. Whatever the likes of Yost, Santelli, and Hannan owe to their newfound celebrity to You tube and the net, most videos do NOT go viral. Most videos are dropped on You Tube and seen only by family and friends. That these went viral means that they have unique characteristics that caused them to go viral.

Each of the three touched a nerve because they spoke for a segment of the population. Hannan spoke for millions of Brits and millions more outside Britain. He spoke for millions that were sick of bloated government, runaway spending, and unsustainable debts. They were sick of the excuses, the equivocation, and the double talk. As such, he spoke to them, and he immediately "went viral".

Santelli spoke for millions that weren't only outraged but petrified that our government would engage in policies that rewarded irresponsible behavior. This wasn't just morally outrageous to millions, but it was a policy that millions saw as counter productive. As such, Santellis spoke to millions, and he immediately "went viral".

The Clout Meisters also spoke for millions. They spoke for millions that were tired of corrupt governments the benefitted the few at the expense of the many. They were tired of governments that rewarded the insiders at the expense of the honest. They were tired of governments that rewarded its friends at the expense of the tax dollars of the rest. As such, he spoke to millions. While the Clout Meisters are a local sensation, they are also a national sensation. That's because many city governments have their Richard Daley. As such, like Hannan and Santelli before them, so too, the Clout Meisters went viral.

Beyond that, that they went viral meant that before them, there was no one speaking for them. We had gone through more than a decade of out of control spending. Fiscal conservatives had no voice. Even before the election of President Obama, fiscal conservatism seemed to be so very last century. In fact, it wasn't. It just needed a voice. Prior to Santelli's rant, we had the stimulus, the bank bailouts, and finally the mortgage bailout. By then, millions were sick of all the bailouts. We had some media criticism, but no one captured the emotional rejection that millions had of it all like Santelli did. Here in Chicago, the media reports on corruption, but then again, corruption is a way of life. That simply can't be if the media is really doing its job. So, just as in the previous two examples, the Clout Meisters lent voice to the thoughts and feelings of millions, millions that others had neglected. The reward for all three is that they "went viral".

Ted Kennedy's Legacy: The Consummate Legislator

I have no doubt that many of my conservative readers will protest what I am about to write. To many on the right, any praise for Kennedy is blasphemy. This is also not an analysis on his personal life or on the accident that killed Mary Jo Kopechne. I wasn't there to witness either and so I am in no position to judge. I'm also in no position to judge other's personal failings.

That said, Kennedy spent nearly five decades as a legislator, and there's no doubt that he was extremely effective in his job. More than 300 bills that eventually became laws had Ted Kennedy's name on them. Think about that for a minute. John F. Kerry has less than ten in a similar time in the Senate.

Ted Kennedy was an unabashed liberal. Yet, in a career that spanned 47 years, ten presidents, all sorts of dynamics of power structures, all Kennedy did was introduce legislation and more than anyone that legislation turned into law. This legislation spanned the spectrum of issues. He was instrumental in the Voting Rights Act, SCHIP, No Child Left Behind, Americans with Disabilities Act, and the Prescription Drug Benefit.

It's no secret that Kennedy wanted a single payer health care system. Yet, he was able to work with the likes of President Bush to turn into law legislation that went much less than that. Compare that to Hillary Clinton who refused to budge when Hillary Care blew up. Kennedy is the liberal lion and yet he worked with Republicans like John McCain, George Bush, and Orrin Hatch, to name just three, in passing legislation. Call them what you will, but none are liberals.

In August of 2001, he reached out to President Bush and they crafted into law No Child Left Behind. In 2003, he again worked with President Bush to craft into law the Medicare Prescription Drug Benefit. In the middle of it, he criticized Bush relentlessly for the war in Iraq. There's no minimizing the legislative skills of a Senator when they can essentially call the president a liar in public and turn around and in private work with them on crafting a bill. Yet, that's exactly what Kennedy did.

I am not here to judge the worthiness of the legislation he turned into law. For one, there's so much of it that such an endeavor would be impossible. I'm simply here to say that we should all realize that the sheer magnitude, scope, and breadth of his legislation prove beyond a shadow of a doubt that Ted Kennedy was a unique and effective legislator. Since that's the number one job of any Senator, I believe that's a very important part of his legacy.

Glenn Beck Vs. His Critics

I was out the other night when I found out something startling. Twitter still has no source of income. It "survives" because there's plenty of venture capital money available to carry it while it expands becomes more popular until someone finally figures out how to make money with the millions of users it has. There was a time when Google had the same problem. Everyone used the search engine but no one used it for the profitability of the search engine. Clearly, they figured things out as well. Facebook also has that problem. One in ten people on the planet have a Facebook account but its revenues aren't nearly as large as its user roll. The thing about the Internet is that as long as you can click people to your site, it's only a matter of time until you make money.

Think about that for a minute as we look at the orchestrated boycott of Glenn Beck by Color of Change. On the surface, this boycott stems from an appearance by Beck on Fox and Friends when he referred to the President as a "racist". Since then, Color of Change has tried to convince advertisers to boycott Beck. Of course, in our political world, nothing is as simple as it seems. As it turns out, Color of Change is not merely an unbiased observer, but a group with an agenda.

Glenn Beck used his popular Fox News show this afternoon to attack the background of Van Jones, a White House environmental advisor who co-founded an African American political advocacy group that organized an advertising boycott of his program.

During his 2 p.m. PDT show, Beck did not address the boycott spearheaded by Color of Change to protest the talk show host’s remark last month that he believes President Obama is “a racist.”

Instead, he spent a large share of his program suggesting that Jones, who co-founded Color of Change in 2005, is a radical. Jones now serves as a special advisor for Green Jobs, Enterprise and Innovation at the White House Council on Environmental Quality.


Now, personally, I think everyone should be careful when labeling another with the "racist" tag. That's because we can't look into some one's heart and so there are very few instances when its clear that someone is a racist. I think that Beck was applying things to the president that simply aren't there. I don't believe for one second that he's a racist and it was irresponsible for Beck to call him a racist.

That said, let's get real here. Entire networks applied the racist label to the tea parties. Entire networks applied every possible negative label to then President Bush. Kanye West stood up during an awards show and pronounced "George Bush hates black people". Contessa Brewer of MSNBC implied that health care protesters secretly wanted to assassinate the president. There's plenty of irresponsible things said on television. If we were to call a boycott for every offense, we'd be left with nothing to watch or read. Picking on Glenn Beck seems totally random and out of place.

I think he should have been rightfully condemned for suggesting that the president is racist. Going after his advertisers is not only a bit absurd but totally counter productive. The attempted boycott has received somewhat uneven media attention. It's not anywhere near front page news. Instead, some media has covered it, some blogs, and much of the liberal end of the media. For instance, Charles Johnson at Little Green Footballs has breathlessly reported on every single advertiser that drops out. Johnson has been trying desperately to prove his independent bonafides by attacking the likes of Beck, Palin, and snickering at the tea parties because there's a lot of Ron Paul supporters in it.

Here's the reality. In fact, not only is the boycott a miserable failure but in fact counter productive. While its gotten many people to back off, it matters not. Beck's ratings are as high as ever. Much like with the Internet, if you have eyeballs the income follows. There are tens of millions of potential advertisers of the Glenn Beck show on Fox. You can get five, ten, or even a hundred, but as long as millions are watching, there will be five and ten times that ready to pay to advertise on the show. The real story is not how many advertisers have dropped Beck since the boycott. The real story is how many new viewers Beck has received since the boycott.

This isn't about Beck calling the president a racist. That sort of irresponsible language is unfortunately far too common in the media. What this is really about is that Beck is an unflinching critic of Obama and he's gaining popularity. His opponents are frightful because he's not only unflinching but he continues to be a bigger and bigger player every day. Supporters of the president lose media power everyday while critics gain it. That's really what this is about. Beck received less than ten viewers on CNN and now he gets three to four million viewers on Fox News. He uses his bully pulpit to pick apart the president, the agenda that Beck believes the president is perpetrating, and the players behind the scenes the president employs to pull it off.

One thing no one can get beyond. No one has challenged any of the facts that Beck has produced over the last month. The backgrounds of the likes of Van Jones, Cass Sunstein, Jeff Jones, Dr. Ezekial Emanuel, or any of the other connections have never been challenged. Instead, as soon as Beck really put the heat on Obama, opponents started attacking Beck himself. As the old saying goes, "if the facts are on your side, you argue the facts, if not, you attack the messenger". That's what's happening here and it won't work. Since the likes of Color of Change put Beck in their crosshairs, all that happened was that his viewership exploded. The more this purported boycott gets media attention, the more viewers of the Glenn Beck Show on Fox News. No boycott will stop people from watching Beck.

Council Winners

The Council winners are up.

Council Submissions
First place with 2 points! – Joshuapundit - Obama Vs CIA: New WH Interrogation Unit Created As Panetta Threatens To Resign
Second place with 1 1/3 points – Bookworm Room - Why pay $10 for Julie & Julia just to suffer gratuitous insults
Third place with 1 points – Soccer Dad - Kindness to the cruel
Third place with 1 points – The Colossus of Rhodey - How Obama & Co. think we’re stupid
Third place with 1 points – Rhymes with Right - Texas Textbook Controversy
Fourth place with 2/3 points – Mere Rhetoric - California Dems Increase Salaries Of Personal Staff, Refuse To Release New Payroll Details
Fifth place with 1/3 points – The Glittering Eye - The Issue With the Public Option
Non-Council Submissions
First place with 1 2/3 points! – Wall Street Journal - The Summer of Discontent
Second place with 1 1/3 points – Ocean Guy - Welcome Home Scott Speicher
Third place with 1 points – Jerusalem Center for Public Affairs - New Developments in Iran’s Missile Capabilities: Implications Beyond the Middle East
Third place with 1 points – Powerline - What the CIA report says
Fourth place with 2/3 points – National Review - Holding all the cards and still losing
Fourth place with 2/3 points – Matthew Vadum @ The American Spectator - Obama’s Plan to Desecrate 9/11
Fourth place with 2/3 points – Lone Star Times - Rep. Gene Green, Photo ID, Pathetic Hypocrisy
Fourth place with 2/3 points – The American Scene - Free Markets and Government Intervention
Fifth place with 1/3 points – Big Hollywood - The Cult of Iconographyh

Friday, August 28, 2009

The Nightmare of Dr. Shirley Pigott II

Introduction: The back story is far too long and complicated to explain here. So, if this is your first exposure to this story, here is the back story.

According to the Victoria Advocate, Dr. Shirley Pigott has been convicted of two felonies for evading arrest with a motor vehicle.

Shirley Pigott, former Victoria doctor, was convicted Thursday of two felonies for evading arrest with a motor vehicle.

The charges stem from a September 2007 traffic stop when she refused to cooperate with Department of Public Safety troopers and fled the stop twice, once at speeds of 100 mph, according to a news release from the Wharton County district attorney's office.

The jury acquitted her of aggravated assault of a public servant for attempting to force a DPS trooper out of her way with her vehicle, according to the news release.

Pigott faces two to 10 years in prison and is not eligible for probation. She elected to have the judge set punishment. The punishment hearing will be Oct. 30.


The conviction stems from this incident.



Now, like I said, the back story on this is too long to explain here. So, please check it out here again. (I'll assume everyone reading from here forward is aware of the back story)

Here's what is of note. This incident occurred in Wharton, Texas. Dr. Pigott's hometown is Victoria, Texas, about fifty miles away. The Victoria Advocate is the hometown newspaper of Dr. Pigott. This story along with another that reported Dr. Pigott's medical license suspension stemming from this incident are the only two mentions of Dr. Pigott in her hometown newspaper.

Judging by the comments, (30 and counting on this story and 69 comments from the previous story) every time she's mentioned it attracts viewers to their site. Dr. Pigott has tried to get the Advocate to publish her story on numerous occasions, and she's been denied each and every time. In fact, she's been mentioned more times by me, from Chicago, than her home town paper.

Both times her story was mentioned in the Advocate, she wasn't given a chance to tell her side. Dr. Pigott is in her 60's. She has no criminal history and she was a doctor for nearly thirty years until her license was suspended in March. The area in which Dr. Pigott was convicted has a history of corruption and a source tells me that more evidence will come out between now and sentencing at the end of September.

Video, Quote, and Word of the Day



froward

willfully contrary

Good people are good because they've come to wisdom through failure.
William Saroyan

Too Big To Fail? Even Bigger

That's the supposition from this WAPO article.

Today, the biggest of those banks are even bigger.

The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.

J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.


Now, if you understand the dynamics that lead to the creation of financial institutions that became too big to fail, then none of this is any surprise. So, first here are the three main dynamics that lead to too big to fail.

1) Bank Deregulation

This bill passed in 1999. Essentially the bill broke down the proverbial wall between a commercial bank and an investment bank. As such, there was no longer a separation. The example I use is that Merrill Lynch and Paine Webber were now able to provide checking accounts. Even today, Etrade has checking accounts. This is the mundane and reasonable part of the bill. The more sophisticated part was that bank could get into investing. Banks could get into loan securitization. All sorts of financial business could be done by the exact same institution. This lead to the second dynamic.

2) Merger Mania

Mergers aren't new. I am not saying that the last ten years were the first time that banks merged. There were two differences. First, with bank deregulation, it was no longer bank merger but financial services mergers. Citigroup wouldn't have happened before 1999. That's because many of the financial services that Citigroup engaged in wouldn't have been legally done together before 1999. On top of this, with any good economy, there often follows more merger activities. That's because businesses see many more opportunities during booms. So, we had more mergers. On top of this, we had more sophisticated mergers. These created super financial services firms like Citigroup and AIG.

3) Unimaginative Regulators

If you've read my work frequently, you know I'm no fan of regulations or regulators. One area where this is different is in the case of monopolistic behavior. I believe that Sherman isn't used nearly enough to break up monopolies. In the case of financial mergers, what we had was something similar to emerging monopolies. Instead, we had regulators that couldn't imagine what the failure of newly merged companies could do. Citigroup does insurance, mortgages, investments and banking. It's failure would spread through the financial system. The regulators also were asleep when it came to what AIG was doing in credit default swaps and the risk this was causing to everything else. The regulators simply didn't have the imagination of what the brave new world of bank deregulation and mergers could do to the market.

So, with those three things in place, everyone said no more. Yet, nothing much has changed and in fact the crisis, and government's response, have only made things worse. Just think about what has happened. Almost no financial institution has failed. Any "failed" institution was immediately bought out usually with the government's help. When Washington Mutual failed, it was immediately bought out by Chase. When Merrill Lynch failed, it was immediately bought out by Bank of America. Most financial institutions of any size are immediately swooped up by financial institutions of even bigger size.

Well, Chase was big enough before. What do you think happens when you add WAMU and all its bank accounts? Now, Chase owns one in ten deposit dollars. Bank of America was already massive and now they have Merrill Lynch and all its financial dealings. In other words, these institutions were already too big to fail. They were to big too fail because they did everything and massive institutions merged with each other. Yet, knowing all this, the government not only looked the other way but even at times encouraged more of this behavior. There was a time when Bank of America was just a bank. They're know a financial services institution, and a goliath one at that. It's so in part because the government pressured it to buy Merrill Lynch rather than have Merrill fail and be broken up.

Yes, in a perfect world, these companies would fail break up and be sold for parts. As such, new smaller companies would be created. No more would you have golaiths. In this climate, the regulators are frightened of what might happen if a goliath were to fail and be forced into bankruptcy. As such, they rush to get another goliath to buy before that can happen. Of course, by doing so, they create an even bigger company. So, no one should be surprised that too big to fail is even bigger.

Deconstructing the Hired Truck Scandal: An Introduction

To understand the Hired Truck Scandal, I go back to something that Charles Krauthammer said about scandals in general. He said that the difference between a scandal that captures the public's imagination and one that gets ignored is simplicity. Krauthammer was making the thesis in the context of the scandal surrounding the bribery of William Jefferson. By then, it had been reported that about $60000 in cash were found in Jefferson's freezer. It didn't take much imagination for the public to imagine how it got there. In contrast, Krauthammer used the example of the Whitewater scandal. At this center of this scandal was a very complicated real estate deal and from there it wasn't clear who did what if anything. That didn't capture the public's imagination because instead it lead to nothing more than confusion.

The Hired Truck Scandal involves elements of both. On the surface, this scandal had everything for a titillated public. There were bags of money, run down trucks, the mafia, and all sorts of corrupt politicians and power brokers. Beyond the surface however, there was a complicated web of corruption that, if totally unravelled, would also have unravelled most if not all of the structure of corruption in the city of Chicago. Yet, after several months of a breathless public and insatiable press the scandal wound down. It took down several very powerful and important people with it, but ultimately, what we know about this scandal only scratches the surface. Worse yet, those held accountable only scratch the surface of those involved.

The Hired Truck Scandal grew out of the city's use of Hired Trucks to do little or no work. The trucking companies often used former cons and others of dubious background. As such, their drivers could be paid significantly less than most truck drivers. The corrupt power structure in the city saw a boon for everyone. Because the truckers were paid dirt, $7 an hour or so, these trucks became cash cows. As such, power brokers began taking bribes in order to secure city jobs for these companies.

The scandal grew and became even worse. Often, the city would secure a plethora of trucks for city jobs when their use was unnecessary. Trucks were used for menial tasks like picking up pencils and other simple supplies so that the trucks could be kept busy. In reality, often trucks were hired entirely so that city money could be dished out to the companies and then the principles would turn around give politicians their cuts. It was the classic shell game.

The whole thing would have very possibly never been discovered without the courage of average citizens who just happened to work as plumbers and other laborers on these jobs. Several started to notice that the trucks were just sitting there doing nothing. They also noticed that the trucks were rundown. They complained to their superiors and even to their union representatives. Like most whistle blowers, for the most part, rather than superiors investigating the corruption, it was the whistle blowers that were retaliated against.

Eventually, largely due to the reporting of Mark Brown of the Chicago Sun Times, the Hired Truck Scandal exploded in the Chicago media. It was so scintillating that it received all sorts of national media attention. It represented a sort of turning point in the way that many Chicagoans viewed its Mayor, Richard M. Daley. While the scandal never reached him directly, it was unmistakeable just how many top aides were implicated. The most notorious was likely Robert Sorich, who was Daley's patronage chief. Another was Donald Tomczak, the city's water chief, and very powerful political power broker. Tomczak admitted to taking $400,000 in bribes. Several other folks were implicated but the scandal never reached Daley directly. Though, later it was revealed that many of these trucking companies contributed to the campaigns of Daley and his allies.

At some point though, the twists and turns of the scandal became too complicated and the public, and apparently prosecutors, lost interest. Taken together, this scandal, if unravelled entirely, would also unravel most if not all of Daley's corrupt political machine. It's a machine in which politically astute allies of Mayor Daley are rewarded with cushy city positions. Then, those positions are used to line their own pockets and the pockets of their friends and anyone else that can benefit the mayor and his friends. That's why the Hired Truck Scandal happened. Daley rewarded folks like Tomczak with city jobs and then Tomczak used his position to line his pocket and as such steal millions from the tax payers.

Because the scandal had its day and fizzled out, it only took down some but left the structure in place. For instance, Donald Tomczak was instrumental in electing the current White House Chief of Staff, Rahm Emanuel to his first elected position. This is common knowledge and political insiders and junkies point this out, but it clearly didn't stop Emanuel from continuing his own rise in the world of politics.

What's much more troubling is how many folks with a lot to answer for continue in positions of power, and a good wage, within the city or surrounding government. For instance, there's John D'Amico. He's currently a State Senator in the Illinios Senate. He was also an assistant foreman on one of the jobs, the Jardine Plant, implicated in the Hired Truck Scandal. Then, there's Michael Tierney, another foreman on one of the jobs implicated, who continues to be employed by the city in another capacity. Then, there's Alderman Pat Levar, of the 45th ward. He was seen at the Sunnyside Plant, another one implicated in the corruption, while the scheme was unfolding. When news of the scandal broke, he stopped showing up. He continues his role as alderman today. The most troubling unanswered question is the corruption surrounding Angelo Torres. Torres was both a major player in the city government and in his free time a gang banger. It's still unclear how a gang banger was able to accumulate so much power within the structure of the city of Chicag. Torres was eventually convicted of shakedowns in relation to the Hired Truck Scandal.

I could go on and on, but that would require a book not a blog post. What is clear is that a scandal this large wasn't just a few rogue politicians and power brokers but the result of an entire city structure. The sheer magnitude of the scandal is evidence enough. More evidence can be found in the way that whistle blowers like Pat McDonough, who was fired as the case exploded. In McDonough's case against the city, he alleges systemic violations of Shakman decrees. Shakman was designed to make sure that city and county jobs did not go to folks based on political connections. Yet, according to the suit, McDonough alleges that the city systemically violates the decree and thus hiring and firing in the city winds up all too often being political. All of these issues remain unanswered today. Meanwhile, the Daley administration has been hit with several more scandals since the Hired Truck Scandal and of course, the city is on the verge of hosting the Olympics in 2016, which would give Daley access to far more power than he's ever had before. The kind of clout, influence and corruption in Hired Truck would be exponentially expanded by the Olympics if Daley's administration administers the Olympics the way they administered Hired Truck. So, I hope to use the next several months to unravel Hired Truck and unpeel as many of the layers of corruption as possible as it leads to the heart of the city's corruption.

U of I CSU and the Unfortunate Fusion of Race and Politics

Yesterday, the long saga over the clout scandal at the University of Illinois in Urbana Champaign (my Alma mater) took it's latest turn.

Gov. Pat Quinn announced Wednesday that he won't fire the two University of Illinois trustees who refused to resign amid an admissions scandal, and he started to rebuild the board with new appointees.

Quinn said trying to remove the holdout trustees would drag the school into a protracted legal battle and he didn't want a "cloud of litigation" hanging over the university. One trustee had vowed to fight Quinn in court

Here's something that isn't likely to be mentioned. The two remaining Trustees that refuse to be pushed out, James Montgomery and Frances Carroll, are both African American. In fact, they're the only two African American trustees left. Governor Quinn is of course white. All of this may in fact be mere coincidence and may mean absolutely nothing.

At the same time, the scandal at Chicago State continues to unfold. That scandal continues to receive little scrutiny from most of the media. At Chicago State, only four of the seven trustee posts are even filled. Some of the three unfilled have been vacant for more than a year. Three of the four are African American. Staff at CSU have repeatedly asked the Governor when he would appoint replacements to the vacant posts and his office has said that he is in the process of making a decision without yet giving a firm timeline.

At the root of both situations is corruption. In the case of the University of Illinois, powerful politicians like Dick Durbin, Michael Madigan and Chris Lauzen made personal appeals to higher ups including members of the board of trustees to reverse admission decisions and often times those that wouldn't have gotten in on their merits got in on their connections.

At Chicago State, the board of trustees appears to be engaged in a power play. Several administrators, including the Director of Human Resources, were fired without cause and their positions remain unfilled. Meanwhile, after a search that cost the school $75000, the school chose as its president Wayne Watson. Watson's appointment wasn't viewed favorably by most of the campus, but he was voted for unanimously by the four trustees. On top of it, Watson was forced to start his presidency two months late because he would violate his pension terms otherwise. His contract with CSU has not yet been augmented, and no emergency meeting has been scheduled to augment it yet. This chain of events appears to be largely orchestrated by the president of the board of trustees, Reverend Leon Finney. Because only four of the seven trustee positions have been filled, the Finance committee is a committee of one at CSU, Leon Finney.

There's an irony here. A cynic would believe that Quinn has allowed for CSU to spin out of control because taking on the board of trustees would expose him to the issue of race. Yet, I've been told that a large part of the staff at CSU that's concerned by what's been happening at the school over the last several months feels that Quinn is ignoring the corruption there because it's mostly African American. At the core both of these scandals are about corruption plain and simple. We'd all like to believe that our public servants would confront corruption regardless of race. There's of course no proof that Quinn is making any decision with an eye on race. What we can't dismiss is that the mixed school with mostly white administrators is getting the bulk of his attention while the school with mostly African American administrators receives very little attention. The audience can draw whatever, if any, conclusions from that.

Morning Market Report

There is breaking economic data and it shows a mixed bag.

US consumer spending rose as expected in July, data showed on Friday, lifted by the government's "cash-for-clunkers" program that fueled demand for autos.

The Commerce Department said spending rose 0.2 percent after increasing by a revised 0.6 percent in June, previously reported as a 0.4 percent gain.

Personal incomes were unchanged last month, a weaker showing than the expected 0.2 percent gain.


Spending was boosted by the cash for clunkers program and so it's unclear just how sustained that is. Meanwhile, the personal income numbers are troubling. It hasn't soured the mood in the markets. The Dow has been up for the last seven days in a row and it's up slightly in the pre market. All the market indices are up but all less than half a percent.

At the same time, Treasury bonds have been giving back the last couple days. The rate on ten year Treasury bonds reached a low of 3.42% during trading on Wednesday and they've been giving back since then. It's currently trading at 3.51%. The yield spread between the two and ten year is now at 2.45%. Meanwhile, after dropping for several days in a row, oil looks like it will be up for the second day. It's currently trading at $72.95 a barrel. Oil reached below $71 a barrel on Wednesday and is now slowly sliding back up.

Markets in the Far East were mixed. The Hang Seng in China was down .71%, the NIKKEI in Japan was up .57%, and the Straits Time Index was up .02%. In Europe, markets were up across the board. The FTSE in London was up 1.32%, the DAX in Germany was up 1.62%, and the Spanish Index was up .84%.

Finally, currencies are fairly quiet and the Dollar is mixed. It's down by .12% against the Euro, down .45% against the British Pound, but up by .31% against the Japanese Yen.

Thursday, August 27, 2009

Video, Quote, and Word of the Day



termagant
a nagging woman

No matter what side of the argument you are on, you always find people on your side that you wish were on the other.
Jascha Heifetz

Howard Dean's Stunning Admission on Tort Reform

This video is so stunning that I am embarrassed I didn't notice it until now.



Howard Dean admitted that the reason that there's no tort reform in the bill was that those writing it didn't want to take on the trial lawyers. Dean tried to make it seem as though this bill is so transformative that lot's of enemies were coming out of the woodwork and this was one too many.

That's just not the truth. In fact, Obama immediately stacked the drug companies, the insurance companies, AARP, and the AMA with him. Most special interest groups were bought off. The trial lawyers couldn't be bought off because personal injury lawyers simply make far too much money in the current system. They can't be bribed because bribing them would cost way too much.

Of course, the admission of the cynical nature of the oversight of tort reform is yet more evidence that the president's words are just words. He claims to want to reduce costs, but then won't attack tort reform not because that would reduce costs, but because politics says that he can't or won't.

So, what are we to make of a piece of legislation in which the proponents readily admit has been crafted based on which interest groups they can and can't take on? Are we supposed to believe that such a bill would actually work? Howard Dean just proved, for all that still weren't sure, that this bill wasn't put together in order to address public policy. Instead, it was put together strictly on the basis of political reality. It's not exactly political reality. It's the political reality of those that crafted it. After all, had the crafters crafted a bill that strictly dealt with tort reform, we would have a bill that would drop health care costs and it wouldn't create too many enemies. There'd be only one enemy, trial lawyers, and no one but the lawyers themselves like these lawyers.

With each such event, I continue to say that this would be the final nail in the coffin, but that's already happened. What this exchange showed is just what an enlightening experience these mass of town halls have been. Such an admission would not have occurred in a prepared speech. It wouldn't have occurred in a town hall where only supporters had attended. It occurred because Dean and his compatriot Rep Jim Moran were constantly put on the defensive. It's exactly such an environment when a politician let's their guard down and admits something very revealing and important. It's exactly what happened here. This video is now a very important addition to the health care debate.

No Insurance Club Vs. President Obama

Chad Harris is an entrepeneur. As such, health insurance was always expensive for him because he never had group insurance through an employer. (after all he's his own employer) It could cost well over a $1000 monthly for his family. One day he was on a business trip when his wife was discussing the difficulties of getting health insurance with her doctor Dr. Sam Sannoufi, MD. Her doctor came up with an idea. The doctor would provide a menu of basic medical care for her and her family for $599 for the whole year and the whole family. It would allow for up to 12 hospital visits and several basic tests and procedures. She was stunned and so she wrote out a check before even speaking with Chad.

Once Chad heard about the arrangement, his entrepeneurial instincts took hold. He immediately arranged a meeting with the doctor. He found out that the doctor arranged about 500 such arrangements. By doing so, patients received most basic health services cheaply. They could still get catastrophic health care coverage and that would be at a reasonable rate. Meanwhile, the doctor had unshackled himself from the bureaucracy of the insurance companies, at least with these 500 patients. He no longer needed to have basic procedures approved by an insurance bureaucrat. He no longer had to send in mountains of bills to insurance companies and carry a collections department to make sure the bills were paid.

What eventually was born was No Insurance Club. It creates an internet market place where patients and doctors come together and prices for basic medical care is transparent. Harris saw an inefficiency in the market. He said that three people could be in the same doctor's office at the same time for the same procedure and each be charged a different price. That's because each insurance company negotiates prices with the doctors separately. So, a routine check up might cost $100 with one company and $200 with another.

With No Insurance Club, doctors' services would be transparent and available for all consumers to see. Harris exploited another inefficiency in the market. There is no car insurance policy in which your oil change, tire reallignment, and tune up is covered. Instead, what is covered is damage you can't afford on your own. Yet, with health insurance, we have plans that cover every sngle medical procedure. This creates out of control medical costs. That's because it creates waste, excess administration, and it forces doctors to go to insurance company for permission to run nearly every single medical procedure.

So, if you could set up a system where most basic medical procedures can be provided outside the insurance system, you could contain costs. That's what No Insurance Club does. Doctors provide basic sets of services. Patients pay No Insurance Club and they receive most basic services. The payments, ranging from $499-$899 yearly, are much cheaper than most insurance. There's no more dealing with insurance bureaucracy, billing codes, and administrators. This puts the patients and the doctors right in front of each other.

Finally because No Insurance Club is NOT insurance, they can sell their services in multiple states. (they're currently in ten states) So, effectively, No Insurance Company, on its own, accomplishes everything that President Obama claims to want to accomplish and NO tax payer money is used. Costs are lowered. Costs are affordable. Insurance bureaucrats are no longer in charge.

Now, I don't want anyone to think that I am simply promoting No Insurance Club, and I get nothing for this story. The reason that I set all this up is that ironically enough, if HR 3200 passes No Insurance Club goes away. That's because HR 3200 would force everyone to get all the services that No Insurance Club provides to be mandated under some sort of a health insurance plan.

In fact, No Insurance Club and President Obama see the same problem and come up with two different solutions. Harris is an entrepeneur. He believes health care costs are out of control, health insurance is structured all wrong, and as such, costs are not transparent. As such, he has created a company that will exploit all those inefficiencies. That's what entrepeneurs do. That's what the free market provides. President Obama is a politician and he sees the exact same problem. He believes that government regulation and control will solve it.

Isn't it ironic though that a bill that supposedly expands choice would immediately take away this particular choice. I don't know if No Insurance Club will blow up and become a major player in health care. As I told Harris, it sounds like a good idea but the market place is full of good ideas. It's all about execution. I do know that No Insurance Club is an example of the free market allowing for opportunities to exploit inefficiencies to benefit both the entrepeneur and the consumer.

I think there's a certain irony here. President Obama wants the government to regulate and control because he thinks that leaving the free market to its own devices wouldn't produce the necessary reforms to bring down costs. Yet, No Insurance Club is proof that he's wrong. No Insurance Club is a consummate free market idea. Yet, this free market idea would be eliminated by a government hell bent on trying to solve the exact same problem that No Insurance Club. By imposing HR 3200, No Insurance Club would not survive. All its services would be mandated under a gold plated health insurance plan. That's because President Obama believes that preventative medicine is far too important and so everyone must have preventative medicine covered under insurance. He can't imagine that the free market could possibly create an alternative that would accomplish the same thing. So, unbeknownst to him, his plan would eliminate No Insurance Club which attempts to do the same basic thing as he is. One uses the free market. One tries to impose it by government decree. Which do you believe in?