Tags: finance

Would Mr. Smith go to the current Washington?

Mr. Smith Goes to Washington was just on TV. A great movie, every time I see it (and every time, it ends like five minutes before I thought it did). But now I'm wondering how Jefferson Smith would view the current crop in Congress.

Specifically, the ongoing nonsense over the upcoming sequestration. Each side saying the fault lies with the other. "We have rational proposals, but they're being childish about it." I've been watching it, and watching the "news" programs try to explain it. Each time, they introduce it before a commercial break, with a "stay tuned to see who's at fault." But they never place the blame where I think it ought to go: directly on the backs of the voters.

Think about it. None of this nonsense is any different than what's been going on for the last year. And we've had an intervening election. The approval ratings of Congress and the government as a whole are consistently the lowest in history. Individual people complain constantly about the dysfunctional Congress. Yet 75% of our Congresscritters were re-elected, and that number is in line with what it's been for decades.

If we're unhappy with our government, we have a few choices: we can change the people we send to represent us, or we can use the Second Amendment for the purpose for which it was written (to overthrow a potentially tyrannical government). I'm not yet ready for the bloodshed. But then again, I can't recall the last time I voted to re-elect an incumbent at the federal level. Do you keep sending your non-functional representatives back to Washington?

We chose to go to the Moon. Now, not so much...

"Is Obama grounding JFK's space legacy?" is an editorial in today's USA Today by Apollo commanders Neil Armstrong, Jim Lovell, and Gene Cernan. It's a good piece, which I recommend to you.

On the scary side of the equation, I read the first four comments, and discovered that the average person really has fallen for media's dislike of the space program. Every one of them comments on the fact that manned space is just way too expensive, completely ignoring the fact that NASA's budget is far less than 1% of the total federal budget. If we really wanted to save money, we wouldn't be looking at the spare change in the cushions, we'd be looking at the big-ticket items no one wants to talk about.

Things change, but we can't predict when

It's a long time since I was day trading stocks, but I still watch the market (well, the numbers and the trends). That's part of why I was fascinated by Mark Hulbert's piece on WINS today (you can listen to the audio file at this link; it runs two and a half minutes, and is titled "Beyond Dow 12,000, a dark history lesson"). His point is that, while it's neat that the Dow Jones Industrial Average has almost doubled in the last 22 months (you didn't think of that, did you, in these theoretically dark financial times?), coming as it did at the end of one of the biggest bear markets in history (2008-09), such a rebound is nearly unprecedented in history. In fact, it's happened once before, ending in 1987. That climb presaged the single biggest one-day drop in Dow history (I remember that one: I was working for the Bank of Boston at the time).

Trends are a (usually) good thing in investing (indeed, in many facets of life). The down side to trends is that, while humans are very good at extrapolating trends into the future, we frequently fail to realize that trends do end. So, while we can see a rising market continuing to rise ad infinitum (same thing for a falling market), it's very difficult to forecast an inflection point.

Isaac Asimov brought up a similar point in the Foundation series. Even Hari Seldon's psychohistory, which could forecast the future of human trends, could not foresee a single unexpected event (the rise of the Mule). Mike also discusses it in Robert Heinlein's The Moon is a Harsh Mistress: he can't predict when or if a technological breakthrough will occur.

Good question, Jay. Nice evasion, Mr. President

I don't normally watch Jay Leno (when I'm watching late night talk, it's usually Letterman), but since he's got the President, he's got my eyeballs tonight (well, at least my ears). Of course, I wasn't expecting hard-hitting investigative reporting, or really deep pointed questions (Leno's an entertainer, not a reporter), but he asked a really good question that impressed me mightily. Talking about the bill the House passed today, to tax those bonuses at 90% (see previous post), Leno said "Now what's to prevent Congress from saying 'We don't like him, so we're going to tax him at 90%.'?" A very insightful question, and a very important one, too.

Naturally, and completely expectedly, Obama didn't answer the question. Guess he is a politician. (On the other hand, that bill hasn't yet been passed by the Senate, and he hasn't signed it [or anything like it] into law, so he may be avoiding a hypothetical [in his mind].)

Well, we certainly showed them...

Following up yesterday's post, today we learn that the House of Representatives has passed a resolution taxing those bonuses at 90% (see this article at 1010WINS.com, for example). Now the House has told us: it isn't that they disagree with the concept of the bonuses, they just don't like the amount. So: Yay Congress! Look at you! You stood up to big old bad business and told them they have to give back most of the "bonus" money they got (well, you stood up to the employees who got the money, anyway). Oh, but of course, the bill will "tax individuals on any bonuses received in 2009 from companies getting $5 billion or more in money from the Troubled Asset Relief Program. Bonuses for people with incomes over $250,000 would be taxed at a 90 percent rate." So it isn't that 90% of that $165 million is coming back, because a lot of bonus money is paid to people with incomes of less than $250,000 (yes, believe it or not), and there's going to be some added expense to the IRS adding in a calculation to get that money back, and of course those taxes won't actually be due until April 2010… But the House showed them! (Of course, it also needs to be passed by the Senate.)

And I have to give props to Representative Charlie Rangel, Chairman of the House Ways and Means Committee, who said "We can't have any concept of we're getting even, but we must have a concept that we're trying to show that Congress… cannot tolerate that." No, they're not getting even. They're just showing that if you whip up enough public outrage, the House will do something to show that they, too, feel outraged.

Couldn't possibly have put it in the contract when they handed the money to AIG that it wasn't to go to bonuses (because then the contract would have been thousands of pages: remember, this bonus money is less than 0.1% of the money pumped into the firm). Couldn't possibly say "Okay, yeah, contracts that were in place have to be honored. But from now on, no bonuses."

Nope. The House just came out and said "Bonuses are fine, but they have to be smaller, so people are less outraged." And I'm still wondering if all the time and effort spent on this teeny-tiny piece of the bail-out pie was done to hide something much larger and more nefarious.

In which Congress screams "Look, we care!"

Finally, the members of Congress and the Obama administration found an issue they can all agree on. Something so heinous, so nefarious, that it seems like all 535 Congresscritters are speaking with one loud voice, showing how tough and threatening they can be. I'm talking, of course, about the horrible, horrible bonuses AIG paid to employees and former employees who had contracts requiring them. What horrid, evil people must be running AIG, to pay out [gasp] $165 million in bonuses.

Give me a fucking break!

To me, and probably you, $165 million is a hell of a lot of money. We all know that one percent of that is wealth beyond the dreams of avarice. And everywhere I looked at the news today, some elected official was screaming bloody murder about it, from Senator Schumer's "if you don't give it back, we'll take it" to Representative King's bill proposing a 100% tax rate on these bonuses. Can they beat their breasts any louder over what is basically a non-issue? I searched for "aig bonus", and this was the first article that popped up. In the first paragraph, it tells us AIG paid that much in bonuses, contracted for before the government bail-out. In the third paragraph, it mentions New York Attorney General Cuomo's subpoena to find out more about the bonuses. And then it mentions the amount of government bail-out money that we pumped into AIG: $170 billion. Yes, note the "b" on "bailout" and the "m" on "bonus". They're screaming bloody murder, threatening and looking tough, over less than 0.1% of the bail-out funds pumped into the company. Does that mean they think the other 99.9+% is being spent properly? And if that's the case, why don't they just go put a lock on their own supply closet and be done with it?

Sure, I'd like to think that people get paid what they're worth, and that senior level executives at a company in danger of going bankrupt probably don't merit large salaries. On the other hand, I remember working on Wall Street, where "bonuses" are actually just an expected part of one's annual compensation, as expected as the health insurance, vacation days, and company cafeteria.

The article notes that 73 people received bonuses of $1 million or more, and an earlier report said the biggest bonus was something more than $6 million. That's a lot of money for any one person. But what the hell is all the yelling for? It's a very small percentage of the company's annual budget, a tiny fraction of the bail-out money AIG received, and a vanishingly small percentage of the total amount of money our government receives and spends every year. If Congress had spent as much time per dollar dealing with this bail-out, and the others, and they're spending on the bonuses, they wouldn't have even gotten to the vote yet.

And yes, I was using hyperbole. It isn't every member of Congress bitching about the bonuses; some of them are saying the bonuses show that the Democrats are incompetent, and at least one, Charlie Rangel (who I ordinarily have no use for) seems rational when he says we shouldn't use the tax code as a weapon.

But as we hear from time to time, the government (meaning we, through our tax dollars) now owns 80% of AIG. And while it's incumbent on a new owner to honor the contracts signed by the previous owner (or else there's no reason to take over a company, since no one will trust it to do business), wouldn't our time be spent better looking for ways to fix things in the future?

[For our purchase of AIG, see this post.]

Following up yesterday's links with more

"UAW to Congress: Get a deal done" by David Goldman: because, of course (as I said yesterday), it's the job of the government spending our tax dollars to prop up a company or industry that is failing. UAW President Ron Gettelfinger said "If there's no action, we could see the collapse of one or more domestic auto companies by the end of the year." Interestingly, Gettelfinger said nothing about any action he and his members are taking—other than asking for our tax dollars—to save those companies and their jobs.

On the other side of the issue, there's "No need for bailout, say diners near thriving car plant" by Jim Kavanagh, in which people near a thriving Honda plant talk about their views on how to save the auto manufacturers.

It's the whole "it's not my fault" thing writ large. Sure, it's not entirely the UAW's fault that Detroit is in dire straits, but they are definitely a part of the problem. And if you had the choice between insisting the world let you keep doing what you've been doing all along, and then probably losing your job, or being flexible enough to say "Okay, I'll change these things and take a pay cut to help save my job", which would you do? Wake up, Mr. Gettelfinger: the world doesn't owe you anything; the government is not required to spend my tax dollars to save your job; and it'd probably be a hell of a lot more rational for the big three automakers to file for Chapter 11, cancel their contracts with your union, and then hire workers at a more reasonable, more competitive salary.

And as much as I like the concept of buying "American made" cars, lots of those Hondas and Toyotas and other foreign cars are made in America these days. If GM, Ford, and Chrysler went away, I'd be sorry to see them go, but there will still be cars to buy.

Links: privacy, economy, and archeology

"Murder Suspect Has Witness: A MetroCard" by Benjamin Weiser: shows the positive side of all the new technologies being used to track and follow everyone, but ever since a Law & Order episode several years ago that used a MetroCard record to convict someone of a crime (an issue which is also touched on briefly in the article), I've taken to disposing of the cards when I've emptied them, rather than reloading. I fear there is too much information flowing around, enabling anyone with the least bit of access to track one's movements, purchases, hobbies, everything. That's why I pay cash, replace MetroCards, and scowl at "security" cameras. Are you doing your part to live your life as far from surveillance as possible?

"The Dead Tell a Tale China Doesn't Care to Listen To" by Edward Wong: about the Uighurs living in Xinjiang, and the 3,000-year-old Tarim mummies in the museum in Urumqi, and what the combination of these two groups of seemingly non-Chinese might mean to the official Chinese government take on the region.

"Let Detroit Go Bankrupt" by Mitt Romney: talks about the current situation of US auto makers, and their pleading for government grants to bail them out. I don't want to do that. If my tax dollars are being invested in these companies (or, worse, given to them), I want stock. But if I had a choice, I wouldn't be buying stock in car companies at all.

Romney makes some good points:

"First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers." Key point: he's not saying "costs must be raised for the foreign auto makers." In order to be competitive, the US auto makers have to lower their own costs.Cut for lengthCollapse )

And this interesting sidebar: "A Sea of Unwanted Imports" by Matt Richtel talks about the growing storage problem at the Port of Long Beach, where they're warehousing imported, but unwanted, cars. Also talks about the pileup of suddenly unwanted exports (specifically, waste material for recycling) at the port.


"A Senior Fellow at the Institute of Non-Existence" by Richard Perez-Pina: Story about a very involved hoax by two film-makers to create a political adviser and source, and how many news sources were taken in by the hoax, by not doing their research.

"10 Commandments vs. 7 Aphorisms: A New Religion Covets Legitimacy" by Jess Bravin: More on the Summum attempt to have their aphorisms on a monument in a public park (see earlier post). This one also brings up the fact that the religion's founder died and is currently being mummified, which I seem to have missed elsewhere.

"Obama's Car Puzzle" by Holman W. Jenkins, Jr.: Editorial about the death spiral the Detroit automakers are experiencing, claiming it dates back 30 or so years, rather than 5. An attempt to inject some rationality into what looks to be another very expensive, and ultimately unproductive, government intervention.

"An English Lesson" by Jonathan Freedland: Interesting op-ed comparing the electoral experience of England's Conservative Party to the upcoming Republican Party.