Will You Listen Now, Cap'n Oblivious?

Back in September, I posted about Paul Otellini, CEO of Intel and his comments about investing in the US.  He ain't.

Well, OK, he is.  But most of their investment in new plants is happening overseas.  Note that the Vietnamese plant is expected to:  "...expected to create thousands of skilled jobs as the nation moves from low to hi-tech."


Vietnam is becoming hi-tech.  Viet-f'n-nam is becoming hi-tech.  


If O (and the rest of our governmental leaders) doesn't get it through his shellacked head that we compete globally for jobs, we are doomed.  Because our business leaders have figured it out.

One of the Giants Speaks

Bernie Marcus is one of the founders of Home Depot, one of the most remarkable businesses to spring to life in the last 30 years.  He and his co-founders, Arthur Blank and Ken Langone started from nothing back in the late ‘70’s and built a huge, successful business that redefined an entire industry.  In short, Marcus is the sort of man you would want to listen to about creating jobs, since he had a big hand in creating over 300,000 of them.

Being the evil rich man that he is (he’s worth somewhere in the neighborhood of $2 billion), a few years ago he single-handedly kicked in $200 million to the city of Atlanta to build what is now the world’s largest aquarium and has also signed on with Warren Buffett and Bill Gates at The Giving Pledge, (read his nasty letter at the link) where he has pledged to give most of his fortune to their foundation upon his death.

Mr. Marcus was on CNBC today and, well, he ain’t happy.  This is a little over 15 minutes long and worth every minute.  (I tried mightily with my puny HTML skilz to embed the video here, but it is apparently the video that will not be embedded.)

Are you listening up there in your Ivory Tower, Mr. President?

Another One on the Way Out

Yesterday, I wrote about Paul Otellini and his comments on investing in the US from the high point of being a Fortune 500 CEO.  Big picture, you might say.  Well, here is what it looks like up close, from the Washington Post, via Minyanville.

Read down a bit in the Minyanville piece and see what a guy went to engineering school to do in Elkhart, Indiana.

Here’s my theory on doing business with any government entity.  They pass rules and regulations not to get anything done but to keep something from getting done.  Specifically, government employees and manager come up with the regs that they come up with to keep them from getting in trouble.  That’s all.  That engineer is filling out mounds of paper for a stimulus project for no other reason than so a government clerk somewhere can make sure that all the i’s are dotted and t’s are crossed because if that is done, then they really don’t care about the outcome.

It is this that led to the Bernie Madoff scheme.  Harry Markopolos, the man who tried to stop Madoff but couldn’t get anyone to listen to him, eventually came to the conclusion that the people running the SEC were all lawyers who neither had the math skills to understand what Madoff was doing, nor the inclination to understand.  They were merely concerned with making sure all the disclosure documents were properly filed.  Which they were.  How’d that work out?

How to drive businesses out of the US in three easy steps:

• Raise taxes
• Raise uncertainty
• Bury them with paperwork:
• “The United States, by contrast, has offered financing under the stimulus program, but the process has proved too cumbersome for the small company.”

Man, it works like a charm!

Why Government Shouldn’t Try to Pick Winners

Whenever the government meddles about in any given market, trying to designate its preferred winner or outcome, it invariably fails.  Right now, the Exalted One is involved in doing just this on a number of fronts; the auto industry, the energy industry, the medical industry, the financial industry and so on.  In the auto industry, The One gives us the Chevy Volt:

Not a bad looking car.  But you can get a non-hybrid counterpart from Chevy for about $25,000 less.  Chevy had more or less mothballed the Volt until the government bought 61% of them and ordered the Volt to be brought to market.  Obama, you see, knows what we want better than we know what we want.  Prediction:  neither the Volt nor its lower-cost counterpart (the Cruze?).  See, that’s how I know it won’t sell.  I can’t even remember the name of the car.  But, because O wants to see “green” stuff (let alone the fact that there isn’t anything significantly more green about the Volt), the Volt gets built.  It’s suits his political purposes.  Sometime in November, O is going to force GM to go public and it has little to do with whether or not it makes good business sense.  It will happen because it suits O’s political purposes.

For decades, government has mucked about in the housing industry.  Mortgage interest deductions, Fannie and Freddie doing their thing with the sub-prime stuff, flood insurance and so on.  Here is proof that all this centralized planning (and that is what it is) has failed.  18 months and billions of dollars and the Moron in Chief still thinks that throwing another $50 billion or so at the economy will somehow magically cure it.  Here is an open letter to the President by Dr. Jeffrey Harding, an economics blogger that tells him exactly what the problems are and how to address them.  The blogger is right on every point.  (BTW, any time you read an econ blog you must read the accompanying comments.  They are frequently better and more informative than the original post.)  From ZeroHedge:

“Here are some guiding principles for "what works":

1. Economies can repair themselves without a lot of government help. History has proven this time and again.
2. Government interference in the repair process can hinder recovery or even make things worse.
3. Government spending is very inefficient.
4. Individuals can make better choices about what to do with their money than the government.
5. Economic growth only comes from private enterprise. The corollary of this is that government can only spend money, not make money.
6. Since government produces nothing, then real growth and real jobs can only come from private enterprise.
7. If government spending is inefficient and if economic growth comes only from the private sector, then taking vast amounts of money out of private hands and putting it into government hands will hinder growth.
8. Government spending to revive an economy has failed wherever and whenever it has been tried.
9. More legislation increases uncertainty for businesses, making them reluctant to expand (called "regime uncertainty" in economic terms).”

As noted in the comments, this viewpoint and the accompanying advice will be ignored.  It doesn’t fit with O’s worldview.

This just in and related to this post.  Austan Goolsbee is on the Prez’s Council of Economic Advisers and may be up next to replace the horribly inept Christina Romer.  This admittedly wonky piece basically sums up what I have been trying to say here.  So-called “targeted” spending or incentives don’t work, and Goolsbee based his doctoral thesis on this finding.  Now, he has to dance around his own work.  Should be fun.

Finally, here is what happens when a politician goes off the deep end when it comes to spending money based on his own preferences.  Learn about Russia’s Chess City, built in 1998 on the whim of a politician.  Why, he likes chess so everybody must like chess just as much! 

Chess City is crumbling, by the way, and largely uninhabited.  So, what color Volt are you gonna buy?

Thanks, Senator Hagan!

Senator Hagan:

Thank you so much for the "Carolina Connection Special Edition: Health Care Facts" newsletter that you sent out earlier this evening.  Since I wrote you several times during the debate over the Health Insurance Reform bill, I appreciate seeing an update from you.  I know that you worked hard to put this together.  Alas, I see that you have called your newsletter "...Health Care Facts" when in fact, it appears to be largely about Health Insurance.  Well, except for the flu shots.

I thought that I would provide you with some additional information that Mssrs. Emanuel and Axelrod may not have provided to you.  In fact, I have reproduced your newsletter below and you will see my responses in blue.

Carolina Connection Special Edition: Health Care Facts newsletter begins:

In March 2010, the Patient Protection and Affordable Care Act

and the Health Care and Education Reconciliation Act

became law. So much information is circulating about health care reform, and sorting through it can be overwhelming and frustrating. This newsletter will help explain what the law does and what it means for you and your family. Other useful information about health care reform can be found atwww.healthreform.gov

.

Starting in the First Six Months...

• Insurers are prohibited from dropping coverage when you get sick.  Sounds great!  How will that affect premium costs? 
• Children with preexisting conditions will not be barred from coverage.  Excellent, I'm OK with this in principle, but again, how will this affect costs?  My expectation is that the insurers will estimate the added cost of a known condition and have no choice but to price it into their policies.
• Young adults up to age 26 can stay on their parents' plans.  As a father, I appreciate the sentiment, but I would prefer that my daughter learn to provide for herself.
• No more lifetime caps on coverage.  Well, this can only drive costs up.  You just invited the whole country to an all-you-can-eat buffet.  I will make a further projection; costs will rise rapidly to extract as much revenue as possible in as short a time as possible.
• Seniors hitting the "donut hole" will receive a $250 check.  Well, OK, the whole donut hole thing was dumb, anyway.  But why a check?  Why not just close the hole?  Why add the administrative cost of cutting a check for several million people?
• Eligible small business owners can receive a tax credit to help pay for health insurance premiums. I have a better idea:  cut taxes permanently in stead of "allowing" business owners to get a credit.  To a small business, cash flow is king and you are forcing small businesses to flow the cash out up to 16 months before they get the credit back.  That's called negative cash flow.  Why not a tax cut, which would create positive cash flow?

Middle Class Families

For middle class families, reform means:

• Tax credits will be available for almost one million North Carolinians to make health insurance more affordable. Again, I would rather have a permanent tax cut, not a deferred tax credit.  Cash flow is important to families, too.
• As many as 2.3 million children in NC will no longer be denied coverage because of a preexisting condition.  Who pays for that?
• Preventive care services, including well-child visits and annual flu shots, will be available at no extra cost.  OK, I'm calling an intentional foul here.  "At no extra cost"?  How do you provide all that for 2.3 million without incurring extra cost?  Will the doctors and vaccine makers simply donate their goods and services?  Somebody, somewhere will have to pay for that.  Who do you think that will be?  I deem this an intentional foul because I think you know that but you are waiving that phrase in front of less-careful readers.  After all, 24% of Americans think that "the government has money on its own without using taxpayer money".  See column here

  for source.  You are playing those people for suckers by saying "no extra cost".

Click here

to read more about the benefits for North Carolina's hardworking families.

Seniors

For NC seniors, the new law means:

• 247,000 NC seniors in the prescription drug "donut hole" will receive a $250 check this year.  See previous.
• The donut hole will be incrementally closed over the next several years until it is completely closed by 2020.  See previous, though this will also increase cost.  Still, the donut hole was silly to begin with.
• 1.4 million NC Medicare beneficiaries will have annual wellness visits and preventive services at no extra cost.  AAARRRGGGHHHH!  There you go again!

Click here

to learn more about the benefits for North Carolina's seniors.

Small Businesses

• Over 120,235 NC small businesses are eligible for tax credits to make premiums more affordable. Businesses won't have to choose between providing insurance and cutting jobs.  Wrong.  We need permanent tax CUTS, not credits, for cash flow reasons.  Worse, these credits phase out with the 26th employee.  The marginal cost for that 26th employee will be so great, that companies will be very hesitant to get much bigger than 20-24 employees.  Here, look at this short paper

  (PDF) for an excellent summary of this effect.

Click here

to read about how the new law will support small business owners.

Health Care Reform and NC Job Growth

• By slowing the health care cost growth rate and allowing businesses to expand employment, researchers anticipate that NC will benefit from as many as 7,100 - 11,400 new jobs per year over the next ten years.  Well, that isn't very many in a state of nearly 10 million.  No less an expert than Fed chairman Ben Bernanke testifying before Congress on April 14 said that job growth will be "slack"

  for years.  And then there is this, from CNN, headlined "Say Goodbye to Full Time Jobs with Benefits"

  .

For more information about how the law improves care and reduces costs, click here

.

Hagan Accomplishments

Senator Hagan included the following provisions in the new law:

• Rural Physicians Pipeline Act to address the shortage of primary care doctors in rural communities.  Good luck, hope it works.  But since I read that many doctors are choosing to get out of the business, I wonder where we will find the doctors we will need to treat the extra 30 million people that will be put on the plan.
• Catalyst to Better Diabetes Care Act to move toward reducing the diabetes epidemic. Exercise and diet.
• Medication Therapy Management Program (MTM) to save money and help seniors better follow their medication regimens.  Sorry, don't know what this one is.  Are we going to have someone visiting people and checking on their medication regimens?  Really?
• An amendment with Republican Senators Mike Enzi (R-WY) and Orrin Hatch (R-UT) to create a regulatory pathway for generic biologics.  Token Republican mention here all the way at the very end of the newsletter.

Senator Hagan, going through this little exercise has really clarified for me something that I knew all along and it is this:  Neither you nor the rest of the Democrats in Washington gave any thought at all on how to pay for this thing.  You have unleashed the law of unintended consequences in a very big way on our country and the effects of this will be with us for decades.  Right now, Canada is looking into ways to move to a more market/consumer driven model.  Britain's health care service is spewing red ink faster than the Deepwater oil well.  The Congressional Budget Office now points out that the bill will NOT hold costs down.  I refer you to the blog of the Director of the CBO, found here.

  It would have been nice to know this before you voted for the bill, don't you think?

See you at the ballot box!

DaveyNC

Me and the Dingbats

 

I regularly go to the Huffington Post and comment on various articles. A conservative is guaranteed an exchange of comments there whereas, if you comment on a more conservative site, you may get one or two “True dats”.  Much more engaging to joust with the other side.  It usually results in me being called “uncaring” and other names.

Yesterday, there was a post there about AT&T taking a $1,000,000,000.00 charge to pay for Obamacare and as you would expect, HuffPo readers just think that is awful of that big, evil company to do that and to warn that some cuts in benefits or people would have to happen in order to adjust to this new reality.  (I covered this below.)  I went there and pointed out to them a point that I have made there before:  It’s fine to aspire to European-style healthcare, but they need to be prepared to live with a European-style economy; permanently higher unemployment, social stratification, etc.  My comments begin here.

So I found this nifty little website that nicely summarizes various statistics for any country that publishes stats, www.indexmundi.com .  Here is how the US unemployment rate compares to France, Italy, Canada and that paragon of Liberal pining, Sweden.  I’m using 2007 as my comparison because my argument is based on historic rates of unemployment, not current and because that was the last full year before the global meltdown began.  You know, back in the good ol’ days.

2007 Unemployment Rates, the evil US vs. Socialist Nirvana

US=4.8%.

Sweden=5.6%, 14.3% higher than the US.

Canada=6.4%, 25% higher than the US.

Italy=7%, 31.4% higher than the US.

France=8.7%, 44.8% higher than the US.

The US’s current rate is about 9.7%, my home state of North Carolina is over 11%.  Prior to the meltdown, NC hovered around 4-5%, but the losses in the finance business have really hurt us, particularly Charlotte, our biggest city.  My guess is that if this ever straightens out, the nationwide number will settle somewhere around 6-8% on a permanent basis.  We will become Canada or Italy.

Waxie and Stupie

 

Henry Waxman and Bart Stupak have ordered Randall Stephenson, the Chairman, President and CEO of AT&T to appear before the House Committee on Energy and Commerce to explain why AT&T announced that they will take a $1 billion (that’s $1,000,000,000) charge against earnings to pay for their precious baby, Obamacare.

Now, whenever Waxman is involved, you can’t discount the likelihood that this is a veiled threat and an invitation for him to launch invective through his enormous, upturned nostrils at someone. 

 

But if you read the letter Waxie and Stupie sent, it almost reads like they are surprised at AT&T’s action.  Like they never thought this could happen.  It reads to me like they they never heard of the difference between static analysis and dynamic analysis; that is, static assumes that nothing else changes in the data set while dynamic attempts to account for all possibilities.  Or, as it is more commonly known, “The Law of Unintended Consequences”, a term that seems to have first occurred to these two dopes for the very first time in this letter.

Beginning with the third paragraph of this letter, let’s look at just how stupid these two are:

 

• That first sentence in the third paragraph is our first clue of their stupidity.  They talked themselves into believing this turd would lower costs for companies. 
• The second sentence is where they begin to question AT&T’s own analysis, disbelieving that AT&T knows its own numbers and how changes in the law will affect them.  Waxie and Stupie don’t name the independent analyses that they are referring to, but I’m betting none of those looked specifically at AT&T.  Probably just looked at a broad swath of fake numbers. 
• The third sentence points out that the CBO projects a 3% decrease in average premium costs by 2016, conveniently leaving out what will happen in the intervening five years and implying that AT&T should keep their costs artificially high in the interim while awaiting this earth-shattering savings that is headed their way.  I also would be willing to guess that, if the CBO projected a savings, they said that the decrease will be 3% less than it would have been without it.  That is, not 3% less than it is now but 3% less than the normally-expected increase would have been.  Waxie and Stupie aren’t thinking dynamically here, they are assuming that everything else stays the same, nor do they or the CBO have the slightest clue about what other business expenses AT&T anticipates coming their way.  For instance, AT&T is in a notoriously capital-intensive business, requiring a huge annual investment in upgrading their network to accommodate the Jesus Phone for the millions of hipsters who voted for Obama. 
• Finally, the last sentence in this paragraph points out that the Business Roundtable “asserted…that health care reform could reduce predicted health insurance cost trends…”.  Emphasis mine.  Woulda, coulda, shoulda, douchebags.  Ideology, meet the real world.  This statement also suggests that maybe the Business Roundtable was looking at the data dynamically when they used the c-word, but Waxie and Stupie chose to only take into account what they wanted to hear.  Had the Roundtable said that it would reduce costs, that would point to static analysis.  But they didn’t say that; they are business people and are well acquainted with the Law of Unintended Consequences.

The second page of the letter is where the threat is issued.  “Give us a data dump for our accountants to dive into and then send us everybody with a title above Vice President for all of your subsidiaries.”  This, too, displays the idiocy of these two morons.  AT&T has 281,000 employees and who knows how many subsidiaries.  I hope AT&T rounds up the hundreds of VPs that they must have and sends them all to this hearing.  It would be a great display of just how big the economy is and how little Waxie and Stupie understand about what they and the Dems are screwing around with.  But the business cost of doing that would be prohibitive, especially with the Dems yanking cash out of their company as fast as they can.

Powerline speculates that companies didn’t mention these repercussions sooner for fear of being retaliated against.  But companies are thinking dynamically, knowing that whatever Congress does they can adjust.  To a point.  It’s the dumbasses like the Dems who think that whatever they do doesn’t otherwise affect the economy.  When companies unload people over this, the CEOs will be vilified by the Left, but all they are doing is responding rationally, something the Left is entirely unable to do. 

My own opinion?  We will all soon be independent contractors and off the payroll.

I Blame Tom Delay

 

And, to a lesser degree, Newt Gingrich.  And W.  And Trent f’n Lott.  Damn them, it is their fault that we are about to flip socialist. 

Why these guys?  It all started with this, Delay’s “K Street Strategy”.  This is where the fiscal irresponsibilty, corruption and appearances of corruption began.  The K Street Strategy, in a nutshell, consisted of Delay twisting the arms of the K Street lobbying firms to send the vast majority of their money to Republicans and to even remove Left-leaning lobbyists from their positions and replace them with more Right-leaning types.  In return, the lobbyists and their clients got what they wanted.  It was vote-buying in it’s most bald-faced form; a scorched-earth strategy and the earth has been fucking scorched to shit right now.

This strategy led to a surfeit of money in Republican coffers and then to assholes like Ted f’n Stevens and his goddamned Bridge to Nowhere.  And it was this effect that so thoroughly discredited them as fiscal conservatives to the point that we elected a Socialist and allowed the even more Socialist Pelosi, Waxman, Markey and so on to take the reins of government.

The article linked above appeared in the Washington Post, co-written by David Maraniss and Michael Weisskopf in 1995.  They were never more prophetic than when they wrote this, emphasis added:

“Yet money is also the source of increasing tension among House Republicans that could ultimately weaken them, if not tear them apart. The conflict, in essence, is between ideology and populist reform. One wing wants to collect as much corporate money as possible to sustain and expand the revolution. Another wing fears that this will disillusion voters who brought the Republicans to power to change the traditional ways of doing business in Washington. Gingrich stands in the middle aware, people around him say, that his tenure could depend in part on his ability to resolve the conflict.”

Newt, Newt, Newt.  You blew it.  If you saw the tension here and let it go unimpeded, you laid the groundwork for yours and America’s demise.  All those Lefty nutbags back then hated you because they thought that you would ruin the country, and they were right for the wrong reason.  The country is about to take a road that it cannot return from.  The nutbags wouldn’t be orgasming today over Obama had you simply put your foot down on this activity and set the tone then that Republicans should hew to the principles of fiscal conservatism that is so important to conservative voters.  And then along came W with an allergy to the veto pen and here we are.

Folks, it’s gonna be a long, slow descent into European-style malaise.  We get to watch China, Asia and Brazil take center stage on the world now. 

Watch now, once this crap passes on Sunday, as hiring by private companies goes nowhere.  Companies have been waiting to see what would happen with this and other bills and the only conclusion they can come to now is that their costs are going to permanently and unalterably increase.  No CEO in his right mind would take on added costs in this environment.  Get ready for permanent 10 to 12% unemployment.  We won’t have jobs, but we’ll have health care.

I wonder if I can get my congressman to put provisions for nutrient ingestion in the bill?

AP Games

 

Earlier today, I looked at Drudge and saw a headline about Warren Buffett and his comments on the effects of health care on the American economy.  At least that is what the headline on the AP/Yahoo! story said this morning:

 

I no longer have the story as written originally, but I remember that it was generally favorable to the reform that is currently on the table. 

So, later I see this story from Politico:

 

This is from the same interview that was on CNBC this morning.  So, after I see the Politico story, I go looking for the AP story.  I started at Drudge, but the headline was gone.  Then, I dig through the web history of my browser and find it and click through to the story, and here is what I find:

 

Oops!  If you read the Politico story, they really emphasize the harsh comments (well, as harsh as Buffett ever gets) that Buffett had for the current plan.  The AP story, on the other hand, buries the health care comments deep in the story and really limits the amount of reporting on the health care comments that Buffett made.  Again, I wish that I had the original story from this morning from AP; it would be really interesting to compare that story to the newer Politico version.  Regardless, I smell bias.

The Problem with Familiarity

 

Remember this?  (From the NY Times)

 

 

Now look at this headline from Bloomberg:

 

 

Now look at these two, from The Raleigh News & Observer and the Charlotte Observer, respectively:

 

 

 

In the first two stories, we have a glaring example of lack of consistency and an arrogant display of subjective bias.  He takes the “fat cats” to task on a regular basis and that is the part that people will remember.  The rabble cheers him when he does this.  But these two guys over here, the ones that he knows personally?  Lloyd Blankfein of Goldman Sachs and Jamie Dimon of JP Morgan?  Hey, they make less than A-Rod, so it’s cool.  He has given a tacit approval to their clear attempts to avoid controversy by taking stock instead of large cash bonuses.  Blankfein clearly reined himself in by taking only $9 million, while Dimon unapologetically took $16 million.  Dimon should have taken double that; JP Morgan is a very profitable company and he has served his shareholders and employees well.  Blankfein took $62 million in 2007 and Goldman is the undisputed king of Wall Street.  He should have taken another $62 million.  The problem with this is that Obama is giving a pass to two CEOs merely because he knows them personally while essentially meddling with the relationship between these two guys and their company and shareholders.  When Obama is calling out the fat cats, he is really saying, “We want our money back from the fat cats…….uh, except for my golfing buddies Lloyd and Jamie.  But all the rest of you are evil and greedy.”  This is arrogant.  This is subjective bias, with the pardon granted merely because he knows these two guys and thinks they are “savvy”.  It shows a lack of rigor in his thought processes in allowing him to grant leniency merely because of personal familiarity.

Then you look at the headlines from the Raleigh and Charlotte papers (they are both McClatchy papers, hence the identical photos) and it adds further to the recognition that Obama doesn’t know the effect his “fat cat” comments or his ongoing disdain for Las Vegas have on the economy.  Charlotte is the 2nd biggest banking center in the country, after New York.  Bank bonuses are important to the economy there and always have been.  My daughter attends a college near Charlotte that has long had a relationship with Wachovia and the donations that came from Wachovia and one of its executives in particular were vital to the school.  That Wachovia fat cat is no longer able to help out as he had done in the past.  New York Mayor Bloomberg is on record as wanting the state of New York and President Obama to soften their stances with regard to the wealthy over taxing the bonuses they receive.  He recognizes that when taxes on the rich become confiscatory, it hurts the New York City’s and Charlotte’s of the world.

Obama has absolutely no understanding of how the economy works in this country.  He wants to punish business and confiscate money from the business world to redistribute according to his whims, hence the healthcare bill and the increased taxes that he is contemplating, not to mention the cap and trade bullshit bill.  That this is done on a whim is the real problem.  He is attempting to reshape the country according to his personal vision.  This is a country of laws and individuals, not the United States of Obama.  Companies aren’t hiring or moving forward right now because Obama’s governance by fiat makes them uneasy and who could blame them? 

A suggestion to all Fortune 500 CEOs; try to get a tee time with Barry some time this year.  Maybe that will settle things down once and for all.

Well, I Feel Better Now….

 

….because Timmy said it would be OK.  Sometimes, I think these clowns that we have in office don’t know basic math.  Apparently, we can grow the national debt to insane levels while revenue drops and, if you believe our Treasury Secretary, it won’t change our credit rating.  Even though the people who create credit ratings said it would.

Look at this, and weep:

 

That was as of 10:20 AM EST, Feb. 7, 2010.  Go here to get an update; it’s changing really fast.  You may need a welder’s mask to protect you from all the red ink you will see on that page.

I understand the allure and the principle for a government to borrow money.  Like any other organization, it is a way to leverage your way into spending money on things that you would not otherwise be able to afford.  Sort of like sub-prime mortgages.  And governments, particularly the US government, can borrow money so cheaply that it is like crack cocaine for a self-aggrandizing egomaniac.  Why pay for something today when you can borrow the money and pay it out over time with inflated dollars?  Because it results in the image you see above. 

There are things that a person should borrow money for and it’s a short list; to buy a home and to get an education.  It’s not a good idea, but most of us borrow money to get a car.  That’s it; those are the only loans a person should have.   A government doesn’t need a house and you clearly cannot educate a government; Lord knows we have all tried.  Instead, the federal government has a clearly laid out set of items it should provide and they can be found in the Constitution; the defense of the country, facilitating interstate commerce, the judicial system and so on.  Most of what we pay for is not mentioned in the Constitution.  The Left likes to use the “promote the general welfare” phrase from the Constitution to justify whatever it is that they are freaking out about at any given moment, ignoring the fact that having, say, Social Security doesn’t really improve the general welfare.  It improves the welfare of those who are eligible for it, at the expense of those who must pay for it.  See here for more ideas on what parts of government need to be reduced or eliminated.

My 1 year old nephew owes over $40,000 right now and he still craps his diapers.  By the time he turns 18, at the rate this mess is going, that number will be far into the 6-digit range, maybe even 7 digits.  He will never catch up.  WE will never catch up.

“Extend and Pretend”

 

That is the phrase that bankers are using to describe how they will handle the coming commercial real estate collapse.

I saw my uncle over the holidays and he has been in and out of commercial real estate since the ‘70’s.  He was recently working with some bankers on a deal and he asked how they would handle the round of refinancing that is coming.  “Extend and pretend” was the answer.

A little explanation will help you to understand what this means.  When a new construction project is built, it is frequently done on a 5 year note (and, though I am not positive on this, maybe interest-only).  At that end of those 5 years, the borrower is supposed to retire the note and refinance into a longer term loan.  So, what was going on 5 years ago when those loans were being made?  That’s right, a lot of loans were being made on everything from shopping malls to hotels to office buildings.  Many of which are empty right now.  And therein lies the problem.  The project was originally funded based on a higher value.  Clearly, that value is gone now.  So if you are a bank and are holding a note with a face value of $10 million on a piece of property that is now worth only maybe $6 million, what do you do?

You extend and pretend.

The good news is that, according to Evil CEO Jamie Dimon at J.P. Morgan, the worst may be over.