The Capitalist v. Government Tango

The print, radio and television mouthpieces of capitalism are expressing trepidation about the federal government’s ousting of CEOs. Thus demonstrating, once again, that when one (or more) doesn’t understand that something’s in their best interest they’ll object, no matter how ignorant it paints them.

The American auto manufacturers (once known as the big three) came to the US government, hat in hand, asking for billions of dollars in federal (read: taxpayer’s) assistance; similar to what they’d done in the 1980s. Reappearing on the government’s doorstep cemented the reputation, as incompetent, of the American auto industries’ executives.

The financial services industries, and the previous administration, waited till the US economy was in freefall before coming to the folks that have always bailed them out before: the American taxpayer. Perhaps they were concerned that the taxpayer would tire of freeing these folks from the traps that they’d set for themselves; possibly even hold them accountable, finally.

Companies, auto and finance, were allowed to grow, “too big to fail,” in an unregulated business environment. They demonstrated certainty that they wouldn’t have to face the consequences, intended or otherwise, of their actions.

The vast majority of the aforementioned industry’s leaders seem terrified of the bankruptcy courts, because the proceedings become public record. Corporate legal departments move rapidly to seal said records, but apparently there is insufficient confidence in the success of such an effort.

Taxpayers have provided the money to recover from all the recessions and depressions that have occurred since capitalism took root in the world. Imperial and mercantile economies were also built on the backs working folks; nothing new here. What is reasonably new is the ability of voters, in a democratic republic, to call for an accounting of the expenditures and that makes the plutocrats nervous.

When one looks at the US federal government’s history of taking control of businesses it should be remembered that that government took over some industries after the Great Depression and it was recovering the economy prior to the start of our active engagement in World War II; contrary to some recent attempts to rewrite that bit of history. One also needs to remember that the US war effort during WWII was successfully run by the War Department (a.k.a., the Department of Defense).

It is true that the government should not run most industry, excepting most common carriage business efforts. It has, however, been clearly demonstrated (time and again) that when capitalism is allowed to operate in an unregulated environment it gets massively carried away with itself: creating innovation, profiting from it, creating excess (recurring irrational exuberance), leading to bubbles, bubbles burst in spectacular and intentionally unanticipated (read: unprofitable to anticipate) fashion.

The government/taxpayer, once again, needs to underwrite, clean up and re-regulate the businesses that undermined the economy; then move back to the sidelines. There needs to be a friendly, continuous competition between the capitalists, the regulators and the voters/customers, because none work best on their own.

Please, don't fret o'er the budget; TX style!

It is interesting, almost humorous (from a pathetic perspective), that the person who’s been the Chairman of the TX Senate’s Finance Committee for multiple legislative sessions, Steve Ogden, has noted that (after participating in the Republican state legislative majority’s reduction in regulation, revenue and expenditures) there are unfunded obligations (promises made, funding forgotten) in many of the state’s permanent investment funds (e.g., the Permanent University Fund, the Employee’s Retirement System, the Teacher’s Retirement System, etc…).

After years spent creating the problem Senator Ogden is proposing legislation to appear as if he were addressing said problems. The proposed investment board oversight should have been in place already, conflicts of interest a matter of public record and fiduciary responsibility clearly defined long ago. The current economic downturn, that has affected everybody’s investment funds, has exacerbated the long-standing lack of state funding and will only be solved when financial markets, as well as state funding, recover; irrespective of the Senator’s current legislation.

Pretending to address the state’s permanent funds problems, erecting state obstacles to stem cell research (attention: all Scott & White Hospital [TX A&M System] and MD Anderson Cancer Center [UT System] aficionados) and frothing with 2nd amendment issues (VA quietly slapped gun and ammo ownership restrictions on folks under court ordered psychiatric care after one of the aforementioned individuals went on a killing spree at Virginia Tech)...

Mayhaps all this will draw attention away from the underfunded, state, biennial budget; or not!

Why Texans need change of their own.

The Dallas Morning News has a series of articles about Texas under the banner: State of Neglect. The Austin American Statesman has a series of articles on privatization of the state’s business that asks key questions:
1. How much the state of Texas has contracted to for-profit companies?
2. How much have we, the taxpayers, saved?

Both answers: “no one knows.”

We know of a very public failure of a contract between TX Health and Human Services and Accenture LLP. We also know of the serious difficulties with the contract between the TX Department of Information Resources and IBM. Then there’s the lesser known failure of the Camino Columbia private toll road in south TX.

The state’s budget isn’t in the red, because the TX constitution doesn’t allow deficits. The state has no documentation to show that the budget has been met by outsourcing, but there is a plethora of proof of the fact that the budget has been met by cutting state services; hence the State of Neglect.

The state’s expenditures are not declining while things get better, and there is no data being brandished that demonstrates where and how outsourcing is improving services while reducing cost, yet…

The US Department of Justice has found serious problems in the way Texas cares for its institutionalized people with mental health problems, and some folks are calling this a reason to continue to outsource the state’s work. I maintain that this is the continued effort of the state’s majority party trying to justify their claim of government as the problem, by governing badly.

In order to do better at serving Texans and meet budget guidelines the current legislative session would need to find a way to increase the state’s revenue in a soured economy. That would be best accomplished in a manner I suggested in the previous post. That would require the current majority party in both legislative bodies and the governor’s office to admit that they can’t deliver everything and a tax cut.

Those least able to afford the day to day costs of living, let alone lobby their state government, can expect life to get a little rougher as the State of Neglect is maintained.

There are more state, elected offices that will be contested in 2010. Make sure to register and vote for change here in Texas, too!

Taxation suggestions for Texas.

I hope to be wrong, but I think the 2009, TX, legislative priority will be an attempt to justify and continue the, "everything and a tax cut," nonsense. The majority in the legislature team with the governor to try to spend the rainy day savings account (RDSA) to cover the fraud. The RDSA grew rapidly while the price of fuel (gas and diesel) hovered around four dollars a gallon, but those days are gone; they’ll return, but nobody knows when. So spending the RDSA will deplete another valuable resource.

There will be active resistance to funding necessary/overdue transportation infrastructure via a rise in the state's, long dormant and oft re-directed, fuel tax.

There will be active resistance to the state raising the funds needed to get the state out of property taxes, reduce the state's need for high sales taxes and end the fraud of the 'business tax.'

The state needs a simple, clear and low, state income tax (unlike the complex, loop-hole infested, federal income tax).

Your income can not be reappraised higher, lowered statewide only to be increased locally, doesn't cause the cost of shopping to increase nearly 10% and doesn't add many thousands of dollars a year to home ownership.

Nobody likes paying taxes, but there needs to be organized, responsible governance of society and that isn't free.

'Market' operation and coverage nonsense.

Reading, watching or listening to business news one often hears things like, “instant markets,” “baked in,” or, “already reflected in ‘the market’…” This is an indication of the depth to which the mythology of ‘the market’ is ‘baked in’ to the mind set of those who are involved in the day to day coverage and operation of the business environment in the USA.

The studies revealed that the recession started in December of 2007 and was reflected in the stock market dive of September 2008; some instant market. The market is reactive, with darn slow reflexes, not proactive.

The mythology also suggests that the current mortgage crisis has core causes that are everywhere, except in ‘the market.’ The current crisis is centered on mortgage manipulation, same as (only worse than) the financial crisis of the 1980s: lots of cheap and easy credit made available while regulators napped.

Both financial catastrophes were created by ‘the markets’ insistence on demonstrated short term profit gains, and business growth (the Wall Street Two Step). Mortgages are very long term investments (15 and 30 years primarily) that introduce large quantities of money into ‘the market’ with each individual transaction; especially as ‘affordable’ housing is discouraged. ‘The market’ created a variety of kinds of “mortgaged backed” ‘investment instruments’ to attempt to pretend short term profits while allowing continued, unrestrained growth.

The Resolution Trust Corporation (RTC) cleaned up the mess of the 1980s without addressing, actually complete avoidance of, the aforementioned underlying causes. Now the US Treasury Secretary is attempting to prop up ‘the market’ with hundreds of billions of taxpayer dollars without increased regulation, and without establishing responsibility, of ‘the market’ players that are involved in the recurring financial crises.

Those who deny history feel free to repeat it.

GM is not too big to fail!

There is an effort to say that the U.S. government must save the American automakers from themselves; socialize failure, without consequences.

Nonsense!

In the 1970s the price of gas was going up, and the American consumer needed to get a car from Japan for fuel efficiency. They discovered that the imported cars didn't start to fall apart after the 3 year or 60,000 mile barriers that KO'd cars from the 'big three (GM, Ford and Chrysler).' This was the first indication that there was a systemic problem at the 'big three.'

The market, and government, had their first opportunity to restructure GM via the bankruptcy system in 1989/90, and didn't; about five years after the taxpayers had underwritten the restructuring of Chrysler.

Here we are again facing the fact that GM, Chrysler and Ford, like Wall Street, can't find their own backsides with both hands; even while sitting on those very same hands.

Yes, it will be painful to allow GM, Chrysler or Ford to fail, but throwing money at these companies has not been successful, let alone painless.

Solving Wall Street: Step One.

A great many companies in the financial services sector (a.k.a.: Wall Street, the market) are in trouble, because the credit worthiness of their ‘mortgaged backed’ paper, collateralized debt obligations (cdo) and credit default swaps (cds) are being downgraded arbitrarily in a panicked flurry of activity. This devaluation frenzy needs to stop. The aforementioned ‘investment grade’ paper was given an initial rating of AAA by the agencies responsible for said ratings, and those need be frozen as is temporarily.

Pause, to catch a breath, then go back and (figure out?) follow the paper trail.

These investment instruments were created (by geeks hired specifically for that purpose) and sold, with an arbitrary initial debt rating of AAA, to generate immediate cash from long term investments: mortgages. They were very successful, so the call went out for more. The next generation was also very successful, so the market decayed into the irrational exuberance that accompanies any trend, that is successful long enough, on Wall Street.

Time needs to be taken to find all that paper and determine what’s still AAA, what’s junk and what’s somewhere in between. This is not being done because once the paper trail is straightened out it will be obvious that Wall Street caused its own problem.

The market has never accepted any responsibility for failure, and is of no mind to start now.