Geldpress

2008 was a tough election year for many Americans due to the lack of quality candidates.  Once again, Americans were forced to choose amongst the better of two evils.  I wrote back in August that the election would be determined by the best vice presidential choice, since neither of the two main party candidates were serious about the number one issue facing this nation – fiscal discipline.

• The Choice Is Clear On Obama vs McCain – Fiscal Responsibility

Sometime between August and the November election, Obama updated his candidate website and added fiscal discipline as one of his listed top issues.  In fact, he now hosts his fiscal discipline plan on his campaign website.  In the document, he mentions the following:

The cost of our debt is one of the fastest growing expenses in the federal budget. This rising debt is a hidden domestic enemy, robbing our cities and states of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of
critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on. … If Washington were serious about honest tax relief in this country, we’d see an effort to reduce our national debt by returning to responsible fiscal
policies.

Faced with the choice of the McCain and Palin team, a handful of unqualified third parties, or Obama and Biden, I voted the only way I could:

• Geldpress Endorsement For Obama – Barely

With evidence of Obama’s fiscal plan, why did I only reluctantly vote for him and Biden?   Despite his words, Obama is not really serious about fiscal discipline. As I mentioned, he only added it to his campaign issues list after August when he realized Americans wanted it.  Since that time, he has reverted once again to embracing reckless fiscal policies, runaway government spending, and fruitless handouts to ignorant financial CEO’s and underwater home owners.

Like virtually every president before him, Obama has cracked under pressure to spend more.  He hasn’t even been inaugurated yet, but already he has flip flopped again, and abandoned his call for fiscal discipline.

The consensus is this: We have to do whatever it takes to get this economy moving again — we’re going to have to spend money now to stimulate the economy. … [W]e shouldn’t worry about the deficit next year or even the year after; that short term, the most important thing is that we avoid a deepening recession.

Obama is now planing a massive drunken deficit spending spree stimulus plan that is rumored to be in excess of $1 trillion.  That’s an additional $1 trillion on top of the trillions of dollars already handed out to greedy and incompetent CEO’s everywhere.  That’s $1 trillion of new unfunded government spending on:

• Direct bailouts of irresponsible mortgage borrowers
• Tax cuts
• New infrastructure projects
• Spreading broadband access
• Promoting healthcare information technology
• Renewable energy projects
• Bailing out state and local governments overrun with their own bout of fiscal recklessness

The number one issue facing America today is the economy.  We need a new leader that will work to steer our ecomony in the right direction, enforce fiscal discipline, and work to resolve the underlying problems that caused the chaos in the financial sector.  Sure, there are other issues – position on abortion, civil rights, immigration, health care, Iraq, privacy, taxes, education, etc.  But they all stand a distant second to the number one issue on the economy.  If we do not fix our economy, then you can forget about every other issue on the table, because there will be no money left.

2008 has proven a very difficult year for endorsing a presidential candidate.  On the republican side, you have John McCain, the very kind hearted, but unfortunately economically illiterate man, and Sarah Palin, the housewife from Alaska that just spent $159,000 in campaign money on her new sexy wardrobe.  And what about Sarah Palin’s position on the economy and the $700 billion wall street bailout?  In the video below, she mentions that she is still unsure about her position.

On the democratic side, you have Obama and Biden, magnitudes more intelligent then either McCain or Palin, and without a doubt more fit to lead this country then their republican contenders.  They are both top notch public speakers and leadership comes natural to both of them.  They answer rapid fire and often difficult questions from the media directly and without hesitation.  That is exactly the kind of public speaking we need in front of the international media to help stem the influx of criticism still reigning from two Bush terms.  What are Obama’s view on the bailout?  Watch this short video of him responding to Paulson’s initial 3 page $700 billion bailout bill.  His thoughts are well organized and clearly communicated.

What about the third party candidates? – I’m as sickened as anyone that 3rd party candidates are intentionally ignored from the media and not invited to national debates.  But that should not stop us from researching those candidates on our own.  Bobb Barr and Wayne Root are the libertarian candidats running for office.  There is an interesting video of Bobb Barr on youtube, where he refers to 10 year old warnings on the coming financial crisis.  But similar to McCain, I question the logic of Bobb Barr’s choice of running mate, a sports handicapper, and Vegas gambler:

The King of Vegas’ Guide to Gambling: How to Win Big at POKER, Casino Gambling & Life!The Zen of Gambling updated by Wayne Allyn Root

Ralph Nader and Matt Gonzalez are also running as part of the the consumer advocate party.  I commend Nader’s hard line view on the bailout, and his pursuit of fiscal discipline.  But his public speaking skills are lacking, and both him and Gonzalez lack the experience to run this great country.   As for the other third party candidates, you can see the entire list here.

What about the Obama endorsement? – In the words of John McCain himself, Barack Obama is a “decent person and a person that you do not have to be scared of as president of the United States.”  I completely agree with McCain, but that does not mean I’m completely encouraged by the thought of an Obama presidency.  There is one sticking point that I can not get beyond with Obama, and that is his call for a foreclosure moratorium.  This is where Obama and I have fundamental differences.  Obama wants to use taxpayer money to pay down the principal of overpriced American homes.  I want those homes to be foreclosed and I want the market to reset their prices to reasonable and affordable levels.  Obama does not want to see former “homeowners” living on the street.  I want those “homeowners” living in apartments.  I think of that family of 4 struggling to buy food because of the burden of their $4,000 mortgage payment.  I want that family to realize the gain of $2,000-$3,000 in additional monthly cash flow when they save that much money by living in an apartment.

The Obama endorsement (barely) – Geldpress endorses Barack Obama and Joe Biden as the democratic ticket of choice in the 2008 presidential election.  We do so freely and not from bribes, torture or threats.  The choices were limited.  We searched long and hard for viable third party candidates but could not find one.  In the end, we came back to the two party system and started the elimination round.  McCain and Palin were the first to be eliminated, leaving Obama and Biden as our endorsed candidates (barely) for president and vice-president of the United States.

God bless America!  (We need it)

This youtube video is one of the most important videos you can watch prior to making your vote heard in the 2008 presidential election.  Many people in government and on the streets will tell you that the financial crisis we are facing today was unavoidable and that nobody could have predicted it. But in reality, the 2008 financial crisis has been discussed at length for at least the last 10 years.  There were countless economists, savvy investors, book authors and blog writers warning of such a collapse to our financial system.  The only issue is that 90% of our government chose to ignore the warnings because they were to busy cheerleading for the phony debt based economy.

We need smarter people in government and advisers just won’t cut it in today’s economy.  I have heard some people defend McCain’s economic illiteracy because he will probably “choose a good economic adviser”.  Now that the 2008 financial crisis is in full swing, those people really need to watch this video of former economic adviser Arthur Laffer being schooled by Peter Schiff.

Don’t wait and hope to determine who the next president chooses as their economic adviser.  Instead, vote for the more intelligent presidential candidate, and preferably a well researched candidate amongst ALL of the choices, not just Republican and Democrat.  We can’t afford 4 more years of economic illiteracy in the White House and congress.  Please vote responsibly!

If you liked the video above, you will also like the following book by Peter Schiff:

Crash Proof: How to Profit From the Coming Economic Collapse (Lynn Sonberg Books) by Peter D. Schiff

I wrote back in August how this year’s election would be determined by the VP nominee of Obama and McCain.   Despite John McCain’s warm heart and good will, he is simply not fit to run this country.  The financial crisis of 2008 only serves to strengthen the need for a true economic leader in office, and McCain simply does not qualify.  He may have earned my vote with a more competent running mate, but his choice of Sarah Palin is nothing more than an insult to the American people. Obama is clearly the more qualified choice of the two major parties.  He and running mate Joe Biden will likely win in November and be an adequate pair to run the country for the next four years.  But I stop short of endorsing Obama.  My endorsement for president requires fiscal conservatism, something the Democrats and Republicans alike severely lack.

Both Obama and McCain are supporters of the huge government bailout packages supporting incompetent financial institutions.  Obama takes it a step further, calling for foreclosure moratorium’s to keep unqualified “homeowners” with unpaid mortgages in their houses at taxpayer expense.  But the real solution to a family struggling with a $4,000 mortgage payment is for them to move into a $1,000 rental apartment and immediately reap the rewards of the additional $3,000 monthly cashflow.  Unfortunatley, neither McCain nor Obama understand basic economics, and would rather disrupt the natural law of supply and demand then to allow market forces to adjust housing prices to stable and affordable levels.

So who will I vote for in November?  It’s a tough choice for a qualified candidate, but my search will certainly include the other choices that main stream media conveniently ignores. Watch and listen as these ignored candidates discuss the 2008 bailout.

Bob Barr & Wayne A Root- Libertarian party

Ralph Nader and Matt Gonzalez – Peace party

Cynthia McKinney and Rosa Clemente – Pacific Green party

The Associated Press reported today that the credit crisis is now hitting Canada too.

The global credit crisis is starting to restrict the ability of Canadians to obtain loans for mortgages, cars and investments, Canada’s finance minister said Thursday.

But the rest of the article goes on to say that “Canada’s banks are the world’s strongest”, and that “Canada will avoid the mortgage meltdown and banking crisis that are hitting the United States and Europe hard”.

It would not be entirely surprising if Canada escapes the financial crisis entirely, or at least fares better then the rest of the world.  This is a testament to Canada’s transparency on public finance, as well as their drive to reduce reckless spending.  Canada’s current national debt stands at $457.6 billion, as of the end of 2007-2008 fiscal year, but it has declined every year since the 1995-1996 fiscal year, as shown in the graph below.  Canada had a surplus of $9.6 billion for 2007-2008.

Canadian accounting methods – Not only has the national debt of Canada been decreasing, but the government is using accepted and well defined accounting standards, unlike the United States, which intentionally conceals the truth behind their national accounts.  The annual financial report of the government of Canada is a model of transparency that employs generally accepted accounting principals (GAAP).  If the United States is looking for a way out of the current financial mess, they can start with looking toward Canada’s example of responsible accounting.

Here is an interesting story from Businessweek that outlines the 10 worst states facing severe budget shortfalls.  California makes the top 10 on the list, along with the others shown below.  Perhaps if California wasn’t carrying a 60% debt load, as compared to their tax revenue, their outlook would be better.

1. California – 22% shortfall, and need for $22.2 billion
2. Arizona – 19.9% shortfall, and need for $2 billion
3. Florida – 19.9% shortfall, and need for $5.1 billion
4. Nevada – 16% shortfall, and need for $1.2 billion
5. Rhode Island – 13.1% shortfall, and need for $430 million
6. New York – 9.8% shortfall, and need for $5.5 billion
7. Alabama – 9.5% shortfall, and need for $784 million
8. Georgia – 8.7% shortfall, and need for $1.8 billion
9. New Jersey – 7.7% shortfall, and need for $2.5 billion
10. Maryland – 7.2% shortfall, and need for $1.1 billion

This data should come as no surprise, given the atrocious accounting standards and reckless spending of the government.

For related stories:

• California’s exploding debt problem
• Washington state debt history – does Dino Rossi understand it?
• The United States has not had a balanced budget since 1957!
• The United States national debt limit has become a joke
• Congress working hard to make T Boone Pickens even richer
• Financial crisis – bailout bookstore open

Who exactly is to blame for what future historians will cause the 2008 financial crisis?  There is no shortage of answers to this question, just as there is no shortage of questions about how we will get out of the crisis.  But one thing that everyone agrees on is that we need more transparency and more effective regulation (not necessarily more regulation)  in the financial industry.  But if really expect our private corporations to have better transparency, shouldn’t we expect the same from our government?

In a previous article, I reported on the rampant deception in the US Government accounting practices.  The US government accounting standards are so morphed, they have even fooled CNN into thinking we are much better off then we actually are.  The deception goes far beyond the national government, and extends to state and local government as well.  In Washington state, for example, we have political campaign advertisements based on erroneous information related to the fiscal state of Washington.  It’s not entirely surprising, given the chaotic accounting and reporting methods employed by the state of Washington, and other municipalities.  And California is even worse.   I would challenge California treasurer Bill Lockyer to accurately answer questions related to the budget of California.  I’ve studied the Califronia treasury reports, and the numbers are anything but straight forward.

As of September 1, 2008, the total outstanding debt of California state is $57.610 billion, according to this California treasury website link.   But the total debt is $65.398 billion, according to this other California treasury website link.  I called the California treasury office for an explanation, and their response was the following:

The total amount of debt is 57.610 billion.  The other figure included lease revenue debt which is not a part of the GO debt.  Lease Rev debt is paid with lease revenue.

I’m not entirely sure what type of lease revenue they are referring to, but I’ll just let this one go for now.  What about the yearly trend of California’s state debt, determined by their total outstanding and unpaid bonds?  Unfortunately, California makes this question very difficult to answer, but the short term trend can be determined by trudging through the Treasurer’s Debt affordability reports, one by one.  Unfortunately, there is no rhyme or reason to these reports; each one uses a completely different template, a different set of headings, and obscures the total debt in an entirely different section.  Here are the results, as of July 1st of each year listed:

• 2008 – $57.882 billion, from page 36 of this report.
• 2007 – $41.3 billion, from page 10, figure 5 of this report.
• 2006 – $37.066 billion, from page 3 of this report.
• 2005 – $34.644 billion, from page B-4 of this report.
• 2004 – $33.026 billion, from page 4 of this report.
• 2003 – $27.607 billion, from page B-3 of this report.
• 2002 – $28.46 billion, from page 5 of this report.
• 2001 – $26.89 billion, from page 11 of this report.
• 2000 – $24.55 billion, from page 12 of this report.
• 1999 – $22.5 billion, from page 24 of this report.

Just how bad is the fiscal situation in California and the trend of increasing debt?  It was bad enough that California issued an emergency request for a $7 billion dollar loan from the federal government, because the market for its own bonds was drying up due to the increased risk.  California had $96.38 billion in general fund revenue for the 2007-2008 fiscal year, which gives them a debt to income ratio of over 60%.  But California prefers to use the less realistic and less shocking measurement of measuring only the yearly interest payments ($4.42 billion) of their debt as a percentage of their revenue, which came to 4.92%.

California prefers to blame their current financial woes on the rating agencies, and not their own economic policies that got them into the mess they currently face.  The 2008 debt affordability report is worth reading cover to cover for hints on their reckless spending, and blame game.  One noteworthy excerpt from the report follow below.

Letter to rating agencies – This letter to the rating agencies appears in the appendix of the 2008 debt affordability report.

We, the undersigned representatives of major municipal bond issuers, urge the rating agencies you head to create new rating standards for U.S. municipal debt. For years, municipalities have been held to a higher standard than corporate issuers…  For investors, the current system greatly inflates the risk of investing in municipal bonds relative to alternative investments, leading to investment decisions that are not based on the best information…

I can’t decide if I should laugh or cry about municipalities being held to a higher standard than corporate issuers.  For all the financial problems being exposed in private corporations, at least they are held to reasonable accounting practices (GAAP), something municipalities have never embraced!

Other Geldpress public finance articles:

• The United States has not had a balanced budget since 1957!
• Canada public finance transparency a model to the world
• Washington state debt history – does Dino Rossi understand it?
• States crumbling under the weight of their debt

There is no shortage of news and commentary on the bailout, so I won’t summarize it here.  Instead, I will offer a few quick and random thoughts of my own, in no particular order:

1. Main street vs Wall Street bailout – The politicians are posturing about how the bailout only helps wall street and does nothing for main street folks struggling to pay their mortgages.  In reality, main street is just as guilty as wall street for creating the mess.  Anyone who does not fully understand the terms of a $500,000 loan document (or any size loan document!) should not have signed it in the first place.  Also, let’s not forget how many people have walked away from their mortgage obligations as soon as they went underwater.  If they were willing to accept the leveraged potential appreciation in their home values, then they need to accept that leverage can also work against you and it sure stings when it does!  The very fact that banks are allowing people to walk away in mass – without paying the banks for the lost equity – is evidence enough of the bailout helping a large part of main street.
2. Bailout market prices – If the bailout is approved, it’s unclear how Paulson would handle purchasing the toxic mortgage waste of the financial firms.  Warren Buffet suggests selling a small percentage of the toxic waste into the open market just to determine a market price, and then using that as a gauge for all the toxic bailout.  But rumor on the street suggests that Paulson is going to pay full face value for all the toxic assets.
3. Limits on executive compensation – Unfortunately, Paulson and Bernanke are right that this crisis is very serious and could very well bring down the entire world economy.  That is the justification for wanting a quick rubber stamp of the 3 page $700 billion bailout.  But every executive of the financial, building and rating sectors have proven their complete incompetence over the last 10 years.  Congress is absolutely right for wanting a little extra time and a few more conditions.  If the idiots who caused this mess want taxpayers to bear the burden for their lunacy, then they need to accept any mandates we shove down their throat for giving them the money.  Limiting future executive compensation is a small price to pay for saving their firms!  If they think they can get a better deal somewhere else, then by all means, they should go get it.  But if they want the taxpayers to bail them out, then they should accept whatever mandates the taxpayer representatives come up with!
4. Robert Willumstad, who was only at the helm of AIG for a few short months before the government canned him and took over, kindly refused his $22 million contractual severance pay.  Perhaps other former and current financial executives should take his example, and donate their past fraudulently earned bonus payments to the general ledgers of their failing companies.  I know, wishful thinking, but it’s worth a thought.
5. Collapses prior to the mega bailout – If this mega bailout passes, how will the ex-morons in charge of Netbank, Indymac, Bear Sterns, and others reflect on the timing of their own implosions?  I guess if they had concealed their losses just a few more months, they would still be around to benefit from the taxpayer handouts.
6. 
7. Foreign bailouts – What is it with all this talk about bailing out foreign purchasers of our toxic waste known as mortage pools, tranches, etc.?  Have they not heard of the term “buyer beware”?  The United States can not afford this massive bailout even if it is limited to US corporations.  We certainly can not afford to bailout foreigners who lost money on the toxic waste.  Let them eat their own losses!
8. Jail time for rating agencies? – The blame for this financial crisis is certainly wide spread, but at the center of the mess is the rating agencies whose job it was to sound the alarm bells at the first sign of trouble.  Instead, they looked the other way and rubber stamped everything that crossed their desk as “AAA”.  If that doesn’t warrant jail time, then I don’t know what does.
9. McCain vs Obama – Let’s face it.  The financial problems we face are complicated.  I’ve listened to each of them over the last few weeks and although they each make legitimite criticisms of each other, it’s fairly obvious that neither one of them has any clue of what the problem is, how it was caused, or how to get out of the mess.  And that comment also applies to at least 90% of the members of congress.  Proposed solution: We need standardized financial/economic aptitude tests for presidential candidates and every member of congress.  If they don’t know what a derivative is, then their votes pertaining to regulating them will not count!
10. Gregory Meeks, representative of New York recently stated to Paulson and Bernanke that his biggest fear is that the banks will still hoard money after the bailout, preventing affordable loans from being available.  Just what exactly does Gregory Meeks want?  More easy and stupid $500,000 loans to unqualified borrowers?!?!?!
11. We need lower housing prices, not 100 year mortgages – The financial mess we face is directly related to artificially high housing prices.  Even if we bail out all the financial institutions, it does not change the fact that housing prices need to come down a lot more.  But beware of the coming lunacy from the financial markets after the bailout.  They will likely follow Japan’s “solution” of artificially high real estate and create new 100 year mortgage products to lower the monthly payments and make houses appear to be cheaper.  Wake up America!  The 100 year mortgage is coming, and it needs to be resisted!
12. Foreclosure moratorium – This is not an acceptable provision of any bailout plan.  If you can not afford to pay your mortgage, then stop stressing out about it, and move into an apartment that you can afford.
13. When Paulson was asked who would manage the purchased toxic waste, Paulson stated that the details were still being worked, but it he is looking to private enterprise to help manage the toxic waste.  Doesn’t he realize that the private financial sector are the ones who caused this mess, and can not be trusted?!?!?!

The financial markets are in turmoil.  Nobody disputes that.  The mystery is how we are going to get out of the mess, and how we will prevent a similar mess in the future.  But in an election year, both presidential candidates are scrambling to present their solutions to the mess.  The most interesting solution comes from John Mccain.  McCain has always stated openly and honestly that he knows nothing about economics or finance.  It’s no surprise then, that his solution is to authorize a high level commission to study the turmoil and find out what went wrong.  Such a high level commission would surely cost American taxpayers millions of dollars.  What McCain does not realize is that the exact cause of this crisis has already been conclusively determined. (Hint:  Housing Bubble)  The cause is clear, the damage has been done, and the American public is simply looking for a path out of the mess.  And they are looking for a path that does not put the taxpayers on the hook for bailing out incompetent banking and brokerage CEO’s.  If McCain is serious about leading the country out of the mess, he should stop reading Age of Turbulence, and instead concentrate on the following books that explain the mess:

Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve by William Fleckenstein

Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments by John Waggoner

Bear-Trap: The Fall of Bear Stearns and the Panic of 2008 by Bill Bamber

If you thought shares of financial firms were collapsing  last week, just wait until U.S. markets open tomorrow morning.  Lehman, which was on the verge of collapse last week, was not able to secure a weekend deal to save itself.  Weekend long jam negotiation sessions with Barclays and Banc of America failed to bring a buyer for the 158 year old firm.  And federal officials are reluctant to rescue any more incompetent financial firms with taxpayer money, due to the public opinion revolt that resulted from previous bailouts of equally incompetent firms Bear Sterns, Fannie Mae, and Freddie Mac.

The Lehman news had a strong affect in Asian markets, with shares in Australia, Taiwan, and Singapore all down sharply.  Markets in Japan, China, Hong Kong and South Korea were closed for public holidays.  The futures reading on the Dow is predicting more then a 300 point drop when markets open.  But despite the governments advertised statement of not commiting additional tax dollars for rescue attempts, the bailouts are expected to continue in a more stealth fashion.   The federal reserve is expected to expand its lending facilities to incompetent financial firms, expanding the list of worthless securities it would accept as collateral for new government loans.