Ron Amundson’s Political Blog

Ben Bernanke brought this analogy up yet again as concerns bailing out AIG. However, it doesn’t hold water at all anymore, let me expand on it.

The situation:
The neighbors apartment complex is still burning after an extensive effort to put it out. So far, only minor fire damage has been occurred to the neighborhood. However, the reservoir is nearly empty, and the stress on the water table has resulted in homes in the city shifting, and drywall is cracking.

Only a few are noting the following:

1. The neighbor’s apartment complex if it was legit, would have either burned out, or water would have put it out long ago.

2. The council is concerned about the reservoir, but they think they can get neighboring towns to transport water, should it run dry. None have experienced in trucking, albeit there is some experience in firefighting, and significant experience in real estate.

3. The drywall cracks in town are getting worse, the council see’s this a bit, but takes a blind eye. Better to have cracks and a home, rather than none at all, not realizing if major sinkholes develop, the town will be worse off than had it been burned off the planet. A few on the council see this, but they are over powered.

4. Some think the neighbor had phosphorous and hazmat stored in his apartment complex. He was going to get rich in the fireworks business.

5. Why is the fire not out, something fishy is going on. Is the neighbor seeing the reservoir going empty, and diverting / stockpiling water for the future where they will make a killing selling it back to the town, even if his apartment complex finally ends up burning to the ground.

6. The neighbor sent a confidential message to the council, as he noted he was loosing support. Basically he said, keep up the water effort, or the town is gone, the residents will be hurt, the neighbors will be hurt. Your reputation will be ruined. Pretty much said, do this or else. The memo was leaked, and few if any were outraged.

7. While the neighbor knows he should move the contents of some apartments, and even put up a few barriers, just as good operating practice, he wont spend any money. Say’s its too hard to find good workers he can hire in this market for a song, and he would loose money. He did move a couple things, but its a slow process he says.

Some thoughts of an even smaller number of people early on:

1. We are sure their was hazmat in the apartment complex.

2. If we let if burn down, and loose half the town, we could rebuild pretty fast.

3. If we deplete the reservoir, trucking in water is not going to work. We may loose the town, and rebuilding after sink holes appear everywhere is a huge problem, it will take years to fill those in.

4. It would be a good idea to build barriers around the neighbors apartment complex, but to do so, we would need to dedicate much of the fire staff to barrier building, rather than water and hose work. Perhaps we would loose 50% of the complex, so we need to provide new housing for some of the residents. The towns residents will complain, why did those residents get help, their not getting any, plus we’d ask the neighbor to pay for the relocation. He is a good old boy, we owe too many favors too, we really can’t ask him.

5. It may be possible to bring in movers, and relocate the unburned parts of the neighbors apartment complex, as well as the adjoining neighborhood. Of course, that will require major council intervention in the apartment complex operations, as well as the adjoining neighborhood. The business community would have a bird, who gives the city the right to upend a business, irrespective of whether storing hazmat was ok or not. The city just doesn’t have the resources or skill to move houses, they best not touch this. Also if they outsource to the experts, the movers will make a fortune and it will cost the neighbor plenty both in cash and PR. We can’t do that to him.

6. Some guys on the council thought maybe they should put a watchman in place to make sure water is not diverted. Most of the council thought, no, if we do that, it will slow down our efforts to put out the fire, and to even suggest it could damage the neighbors reputation. Remember we owe him a lot already. Also, his friends will talk of this all over the county.

What should we do now? The neighbors house on fire analogy doesn’t hold water anymore…

To establish the Food Safety Administration within the Department of Health and Human Services to endanger the public health by encouraging food-borne illness, decreasing the safety of food, improving research on contaminants leading to food-borne illness, and decreasing the security of food from intentional contamination, and for other purposes.

1. It encourages food borne illness through consolidation of operations, through preferable treatment to large agribusiness.

Its interesting to note the major food borne illness outbreaks are the result of large consolidated ag practices, which are encouraged under this bill. Diversity of production is a national security concern. Imagine the consequences of Monsanto, or ADM screw up in a huge way, its not a matter of if, its a matter of when, biology can be messy that way. In part, this is why small producers are subsidized to encourage some level of diversity. Just as we found in banking, the too large to fail mantra, and the monopolistic practices granted to some firms are counter productive. Thousands of small banks did ok. The 18 or so super banks are in serious trouble.

2. It decreases the safety of food, by a massive influx of new and inexperienced inspectors, and focuses more on the administrative side than physical inspection and testing.

The FDA is tragically undefunded as it is. Adding a new overhead layer of govt, re-arranging all the chairs, increasing the paper work burden, and the inspection scope, will require a massive increase in human resources and training. As a result, experienced people are likely to be diverted to greater administrative functions, rather than being in the field. The end result, greater administrative functions, and a focus on paperwork inspections, combined with less actual testing, planning, and review by those skilled in the art.

3. It decreases the security of food from intentional contamination.

This comes back to the diversity issue once again. Ie, one person could now jeopardize security of food for millions of people, rather than just a local area. It would no longer be necessary to utilize massive terrorist cells for a ampaign, as the vulnerabilities are so concentrated. The lone errant individual would be a much greater concern as well. Introducing pathogens in the food supply chain is not rocket science, doing it over a large scale as existed 30 years ago would be impossible. Today, its possible but difficult. After passage of this bill, it would be rather simple.

In many ways large agribusiness using transgenic crops is in effect a bio lab on a large scale, and its open for business pretty much anytime day or night, with exceedingly limited security. Such crops pose a serious enough problem in the south that over 50% of biotech cotton land must be used as refuge acres, and even here in the north, the EPA requires 20%. The idea is to prevent transgenic crops from loosing their specific traits as concerns insect resistance. Its a similiar situation with volunteer corn having different gene expressions than off the shelf corn. In other words, if left unchecked its a disaster waitng to happen. Case in point, BT volunteer corn.

Wowzers, talk about a ton of spin on this deal, I wonder how many folks have actually read the proposed legislation, instead of the sound bites. Granted, its not super easy to follow, but the Committee on Education and Labor has a mythbusters page Its a must read to counter the sound bites.

One myth I’d like to look at is the following:

MYTH: Given the economic crisis, now is not the time to enact the Employee Free Choice Act.

FACT: The Employee Free Choice Act is needed to address underlying economic problems that helped create the current crisis and to ensure that the recovery is fair and sustainable. Dozens of prominent economists, including three Nobel Prize laureates, recently signed a statement in support of enacting the Employee Free Choice Act, as “a critically important step in rebuilding our economy.”

As a general rule, I am not pro union, having experienced a significant amount of the downsides over the years. Everything from paying $250 for a union guy to connect tradeshow gear, to friends who work at the big3 complaining about the inability to get rid of problematic employees, and other stories. Even in education there are problems. Many years back, when I did a lot of programs for school children, it was exceedingly demoralized to see all the union propaganda in some teachers lounges. I was like, how on earth can anyone work in such a toxic environment, even more so, should I be an employee, part of my check would be used for such… sad, very sad.

By the same token, I’ve worked in industrial and lab settings all around the world. One offshore steel mill I consulted at, they had a siren and warning strobes. Apparently it was such a common occurrence for things to go wrong, that drills were not needed. And yes, the week I was there, I did get to put in my exercise for the day, running out of the facility to avoid a shower of molten steel. It was accepted as normal operating practice. At another facility, they were processing volatile epoxies, and while they had a ventilation system, it turns out that when the wind blew a certain direction, the fans couldn’t keep up. The end result, explosive fumes built up in the ventilation system, and such that an explosion would result, thus creating a flame thrower on the plant floor. This happened frequently enough, they had used duct tape on the floor to mark off where the flames came out. No union would let that happen here in the US, but offshore is another matter entirely.

I’ve also spent a fair amount of time with US air traffic controllers over the years. In some facilities, things work quite well. In many others, the managers are anything but management material. If it were not for the union, the unchecked magnitude of distraction in the workplace would rise to such a point, I am sure serious accidents would result. Even with the union, a review of NTSB reports shows serious ATC management deficiencies impacting safety… its not good.

The end result, my views on unions have tempered a lot over the years. I still believe the traditional MBA mantra that unions are the result of failed management, but I moreso firmly believe far too many managers are failures. Even in a serious downturn, only a small percentage of employees are going to take issue with major benefits/salary cuts, contract rewrites, or even layoffs if it means stability for their jobs and their employer, provided the process is managed correctly.

Sadly, in too many cases its not. Communication failures and/or setting the wrong examples abound, such that the overall company mission is compromised in addition to the employees livelyhood. Ie, cutting employees pay, while taking a huge bonus shortly thereafter is not setting the right example. Another is overlooking safety hazards as they are too expensive, all the while getting new office furniture. Sure, that can be a perception issue, ie, it may take time to get the right specialist in for a safety retrofit, and a 2 cent on the dollar firesale on office furniture may be the deal of a lifetime. If such is communicated, people will understand, if not, expect trouble. Its management 101… and either business schools pass an idiot once in a while, or greed is the highest possible calling for a few.

In addition, as the economy winds down, and boards of directors end up more and more distracted, the potential for corporate looting and other errant corporate behavior will increase. In some cases, it may go so far, such that no recovery will be possible, much less the ability to ramp up as the economy comes back to life. A third party audit may or may not catch such… but employees may well suspect something is up, and the union may give them a path to safely make it known.

However, the proposed legislation doesn’t address my initial issues at all. No one needs $250 guys to plug in a cord, nor a teachers union that kills off far too many good teachers with all the garbage, nor a union that protects bad employees, or even forces an employer to continue paying laid off employees at 90% rates. Those are very real concerns, but fortunately they are a minority of occurrences, and again are subject to bad management, Ie, what business in their right mind would agree to such terms.

I sort of doubt such insane agreements were intentional, but more so concessions under arbitration. Some legislative guidelines for arbitrators might have been useful additions to this bill, albeit difficult to do and not really directly within the scope either.

Overall, the potential positive outcomes of the proposed legislation far outweigh the downside. It makes a lot of sense to leave the decisions to unionize or not in the hands of the employee. It might even save some jobs, or even entire firms, whether they get unionized or not, ie just knowing an additional party is keeping watch during this time is a help. This legislation is well worth it.

demonstration is removed in the Omnibus spending bill. Yep, the Bush administrations program was costing the taxpayers $346,000 every time a recorded participating truck traveled beyond the border zone. Some stats from the inspector generals report based upon the first years result.

Only 1,443 of 12,516 (11.5 percent) trips that FMCSA recorded were identified as going beyond the commercial zone.

Only 29 of 100 projected Mexican carriers were admitted to the project and 2 of those carriers have since withdrawn. This level of participation is not adequate to yield statistically valid findings. Only 1188 of a projected 540 trucks have participated.

Granted, this was a demo program, so the costs will be quite high, and participation will be low… but egads, not that high. Then add in the participation was so low as to not create much for statistically relevant results… this is pork to the max and then some. I have no problem with trying out programs, and having them fail, that will happen, its expected… but this is far beyond that, and worse, not even the US Chamber of Commerce who sees pork to the max in the Omnibus bill seems to be suggesting this program be put down… it just doesn’t add up. Of course, its not pork if it benefits you or the firms paying you to lobby them. The Washington Post has an interesting article on this as well, as to who is for it, and who is not.

The inspector generals report states:
We are recommending that FMCSA determine the minimum number of Mexican carriers that must participate in the demonstration project to yield statistically valid results and develop a plan to meet this level of participation as needed, develop and implement a new quality control plan to provide assurance that all Mexican trucks are checked at the border, and conduct a cost/benefit analysis to evaluate the benefits of renewing GPS services.

Should that not have been done ahead of time? And as soon as it wasn’t matched, why were their not provisions in place to kill the project as non-viable? Granted the participants would take a loss if the program ended early, otoh a cost and risk sharing type of program could have mitigated much of that. Ie a surcharge on US businesses and brokers utilizing the trucks in the program, such that the Mexican carriers could be reimbursed if it ended early. Of course, ideology likely got in the way… and in fairness program risk sharing, might well have biased the results, but just in reading the reports, there is bias all over the place. It is a bear to sort through.

This is an interesting statement:
Far more Mexican carriers were operating legally beyond the border commercial zones than were in the demonstration project, including carriers operating within specific states or anywhere in the United States under pre-NAFTA provisions, and within border commercial zones. Vehicle out-of-service rates for these carriers were higher than the rate for demonstration project carriers. Only the project participants were subject to the pre-authorization safety audit.

At least the Omnibus bill puts an end to this porker…

The one I got last night is from an outfit called Worldview Times, sort of an offshoot of worldview weekend. Its marketed as a Christian organization, and has the support of a number of pastors… The pastors as long as they stick to the Bible I respect a great deal and have learned much from them. The problem is, once in a while it seems Jesus gets overshadowed, and the Gospel ends up replaced by questionable economic / political analysis. This is one of those times.

Case in point.

Why is this so? Why does virtually every liberal scheme result in ever-increasing public spending while conditions seem to get continually worse? There are a number of reasons:

1. The programs usually create adverse incentives. This is especially true in so-called “anti-poverty” programs. The beneficiaries find government subsidies a replacement for, rather than a supplement to, gainful employment and eventually become incapable of supporting themselves. This in turn creates a dependent culture with its attendant toxic behaviors which demand still more government “remedies.”

There is some truth in that, but it affects both parties, let me make some minor changes.

1. The programs usually create adverse incentives. This is especially true in regressive tax and corporate welfare programs. The beneficiaries find government subsidies a replacement for, rather than a supplement to, gainful employment and eventually become incapable of supporting themselves. This in turn creates a dependent culture with its attendant toxic behaviors which demand still more government “remedies.”

Imagine had the legislature not done the following:

Allowed “investment” banks to run free for alls with 40:1 leverage
Created SarOx to “protect” the investor, all the giving a blind eye to SEC violations, and penalizing the small startup
Allowed mark to model accounting or as I refer to it as mark to finger in the wind
Allowed for no bid contracts
Allowed CAFE standards to be so low, we ended up in a real mess last summer.
Subsidized farms such that big ag wags everyone’s tail, and the small farmer gets killed due to govt created price fluctuations. I’m not against farm subsidies for small entities, they play a vital role in ensuring food diversity, which is a public health concern.
Failed to regulate insurance companies, such that AIG is blowing through $30 billion every month or two, as they are now too big a monopoly to fail.
Failed to regulate broadcasters, such that a very few corporations have a monopoly on the airwaves, thus reducing diversity in programming, and encouraging an almost backdoor payola situation.
Funded the FDA at such a low level, we ended up with people dieing, whether it be contaminated peanuts, or other food contamination issues.

Next we have:

Similarly, liberals use government to promote legislation that imposes mandates on the private sector to provide further benefits for selected groups. But the results are even more disastrous. For example, weighing the laws or stacking the courts to favor unions may provide short term security or higher pay for unionized labor, but has ultimately resulted in the collapse of entire domestic industries.

And a couple minor tweaks:
Similarly, conservatives use government to promote legislation that imposes mandates on the private sector to provide further benefits for selected groups. But the results are even more disastrous. For example, weighing the laws or stacking the courts to favor highly connected investors may provide short term security or higher pay for CEO’s as well as returns for said investors, but has ultimately resulted in the collapse of entire domestic industries.

Next, being its long, I’ll just provide my modified version.

Another example is health care. The Republicans are always trying to impose backdoor benefits to insurance companies with incremental legislation. Why do you suppose American healthcare is in such crisis? Answer: the insurance business has already become too deeply involved. For example, many doctors are no longer making a decision based upon what will provide the best outcome for a patient, but more so, the insurance company is dictating to the doctor what he can or cannot do, such to maximize the insurance companies revenue stream. At the same time, insurance companies are decreasing what is covered and the amount they will pay, all hidden from the consumers view. Hospitals are closing their doors because they are overwhelmed with the burden of reduced reimbursements, no win contracts forced by HMO’s, and so much administrative overhead, it dwarfs the number of staff involved in patient care. The net result is reduced availability of care for everyone, exactly the opposite of what everyone claims to want.

There are many more, both parties are culpable in the mess we are in, its not nearly as one sided as the author portrays. Ultimately though, the downfall is due to greed and the self interest of a few. Pretty much the opposite of what Jesus would want his people to do.

Its probably old news by now, but a confidential memo from AIG likely to the treasury was leaked a few hours ago. What an absolute mess… For reference, the memo is located at:

Apart from the obvious outrage the memo’s content will create, I’m wondering what on earth motivated someone to leak it. Granted, there is a semblance of justice, ie burning all of AIG’s political capital might be a form of payback from a disgruntled client, investor, or employee. And yes, I fully believe, this leak will serve to burn capital in such a way, that AIG will not exist in its present form, or perhaps at all. The average Joe is not versed in finance, global economics, or insurance such that virtually no argument could be presented which he would buy into. To further fund them at this point would be the end of a politicians career I’m afraid. By the same token, to let the market solve it is not really an answer either. No doubt this is the last thing the treasury needed, but it will force them to make decisive and difficult calls in a short time period. In that regard, its sort of a good thing, otherwise we could figure on AIG returning in another 30-60 days for the next few years asking for another $30 billion, until there was no political capital left, at least this way Washington will be forced to make a call.

Its an interesting read for sure, albeit egads, if this is the best Wall Street can come up with, I think they need to get their MBA’s from a different school of thought. Both in the situation they are in, but also in its presentation. Its borderline extortion, and I think runs a pretty fine line towards whether the execs stay free or in jail. Someone must have been asleep at the wheel.

The other thing is, assuming the memo is correct, the linkages are not that strong, or should I say, no where near as strong as the automaker world. By the same token, the whole mess is just too intertwined to be viable anymore. Dis-assembly will be a tricky deal indeed, with an unlit path consisting of sheer drop-offs on either side. Yet, I think that really is the only option available, govt seizure, and chapter 11 reorg, and with it, significant collateral damage. Its too bad the proposed commodities laws had not yet been passed. The ability to stagger CDS redemptions would have been a great tool to have at hand. As it is, their will be a ton of juggling. I guess the one positive, is the govt will find they are ill-equipped to handle this dismantling, and as such may go a bit slow in the automaker domain, as they have their hands full. Unlike manufacturing, where once tooling is gone, the jig is up, finance and insurance can rebuild, its just a transfer of wealth, albeit the casino side of finance will evaporate, and I think that’s something which would have happened sooner or later anyhow.

The saddest part of this, is all the employees who will be affected, the human aspect is going to be the rough part, and sadly, the govt doesn’t have the ducks in a row to deal with the massive unemployment that will result, whether it be in the time it takes to file chapter 11, or during the actual unwinding process. That, and protection against executive pillage need to be where he focus lies…. Its going to be a rough road for sure.