Ron Amundson’s Political Blog

You know, at one time there must’ve been dozens of companies making buggy whips. And I’ll bet the last company around was the one that made the best goddamn buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company? You invested in a business and this business is dead. Let’s have the intelligence, let’s have the decency to sign the death certificate, collect the insurance, and invest in something with a future. “Ah, but we can’t,” goes the prayer. “We can’t because we have responsibility, a responsibility to our employees, to our community. What will happen to them?” I got two words for that: Who cares? Care about them? Why? They didn’t care about you. They sucked you dry. You have no responsibility to them. For the last ten years this company bled your money.

From Lawrence Garfield (Danny DeVito) in “Other Peoples Money”

Yep, we can’t…we absolutely positively must prop up broken business models, privatize gain, and socialize risk, even better if we can shaft the elderly and children in the process. Case in point:

Corn Ethanol, without subsidies, its not sustainable. With subsidies, it prevents competition, ie we dont have sugar ethanol, nor switchgrass, nor other sources… We can’t let corn ethanol down, even if its greatly inferior to other ethanol sources.

Coal, absolutely, we must subsidize coal, and even railroads… instead, we send high tech solar offshore. We develop, and send the tech off shore… because we must prop up buggy whip business models. No matter the damage it causes, both health wise, and economic.

RIAA, the record industry is hosed… so rather than letting the market play out, and/or encourage new business models, the status quo must be kept in place at any cost.

Healthcare, yep, just read the Baucus bill… a major subsidy to the insurance companies, even more so than HR3200. We absolutely can’t let them compete or fail, they must be protected, and now, not only do they have protection, part, A, B, D subsidies, but they get the feds giving them new money left and right. No matter that the elderly, children, and medical providers get shafted, the insurance industry business model must succeed, even if it kills 45,000 people/year.

WallStreet… well I’ve written enough on that before.

We must keep big Ag happy, albeit at the cost of the family farm… Diversity in farming options is a must, there is no question we need to support the family farm… but when the family farm gets the publicity, and not the money, being that goes to big ag, a major rationale for ag subsidies goes right out the window.

Now, I’m not saying we should be heartless, and dump all subsidiezed businesses into chapter 7… There are orderly wind-downs, such as what has happened with military bases, Fermi-lab, and some NASA operations. Yes, ghost towns do occur as a result, but people do rebuild… This aspect of subsidizing buggy whip business models for the benefit of society is not a sustainable practice.

One good thing did happen today! $80 billion in govt subsidies were removed from the loan industry, at least in the house… we shall see what happens in the Senate.

I agree that the intent of this makes sense. “To get our economy back on track and to create jobs now, we must fundamentally shift power from politicians to small business, from lobbyists to entrepreneurs, and from bureaucrats to investors.” However, tax policy, while it plays a role, is not the root issue, demand is the problem, its collapsed, and as such, there exists huge overcapacity. Here are four ideas from American Solutions, they make for good politics talk and soundbites, but do little as far as the demand side, and some are counter productive. What worked in the 80’s was based upon the history leading up to it. Considering where we are on the Laffer Curve today, such policies just dont seem to add up.

1. Reducing payroll taxes… Fostering greater consumer liquidity through tax policy can help… but more likely, the first proposal would be used by the average Joe for paying bills, and safe investing for the wealthy class rather than fostering an increase in demand. The end result, government debt increases multifold, and the citizens receive very little bang for the buck. Shrinking govt to absorb the costs is not a option, as there are too many hands in the cookie jar.
2. Eliminating Capital gains… well it makes for a good soundbite, but a good accountant and tax lawyer already have this covered. If anything, it would serve to shift the largest tax burden even more to the middle class than it already is. The flat tax would serve as a much greater leveling agent.
3. Reducing the corporate tax rate....The corporate tax rate again is subject to having a good tax lawyer, and accountant. It makes for a good sound bite, but does little in the demand arena. Its a good thing in the finance world, but does little for production of tangible goods and services in the current economic situation. I think the finance sector has been bailed out enough.
4. Eliminating the death tax… The death tax needs reform, but not removal. Removing it, being inheritance serves to keep money from being productive, at least as shown by history, would be counterproductive. The paperwork burden needs to be addressed, as do the limits.

Realistically, only a black swan will make any difference. Short of such, a long term L shaped recovery with little change in employment is the likely outcome. Thus, the questions should be asked, what can govt change to increase the probability of black swans, and what can government do to foster employment in the short term.

Encourage, rather than discourage competition, and new market creation

Vast sums of policy and regulations are in place to protect the status quo from competition, and to limit new market creation. This has to end, keeping in mind, the citizen needs protection, not the status quo. Anti-trust legislation needs to be enforced with a much larger stick.

Encourage, rather than discourage hiring for small business and startups, defined as those with under 50 employees.

Having been down the hiring path a few times, soundbite folks would be astounded to realize the costs of hiring an employee. The total cost to an employer is at a minimum 1.5 X take home pay, and 2.5 multipliers are not unrealistic in some sectors. The paperwork burden can be substantial, and the pitfalls of mistakes are huge. Shifting workmans comp, and UI somewhat to the employee side would also work wonders, even if our net costs remain the same, being such would be visible. Addressing the healthcare issue, with the proposed 8% employer contribution limit, and access to insurance will do wonders in this regard.

Encourage, rather than discourage local hiring, do not encourage outsourcing.

Tax policy encourages outsourcing for the most part, rather than local hires. This has to end… but its an impossible sale. The flat tax model would level the playing field, but being it takes the ability to influence social policy via taxation away from govt, it would never fly.

Encourage, rather than discourage early stage investing, for all people.

Currently, SEC regulations limit early stage investing to qualified investors. Only those with a high net worth can play, subject to some minor exceptions. The idea was to protect the little guy, however, as history shows, the little guy was not protected from Wall Street greed… Also, the massive overhead involved in early stage fund raising, serves as a significant barrier to entry for many. Obviously balance is needed.

Encourage the creation of startups and small business, defined as those with under 20 employees.

SBIR overhead burdens are substantial, add in small business being defined as those firms with under 500 employees, proposed institutional investors, and venture capital allowances, and a small startup firm with an idea, and limited money is out in the cold. If the intent is to encourage small business innovation and competition, the SBIR can be pretty counterproductive with such policies.

The blogosphere has been awash with folks crying in their beer… Egads, investors will never invest again, banks wont lend, the end of economic civilization as we know it is near… Well short of the last one, which imho is needed, the another two are pretty blatantly in error.

Investors want to make money… and along with that, guess what, the more potential gain, the greater the risk. Less than 2% of all patents make enough money to generate the costs of filing, far fewer even cover their development costs, and even less end up making a profit. Even less than that make a substantial return….  despite, the high risk, new tech is often the domain of IPO’s which attract substantial investment. However, even then, the chance of 100% loss of investment is very real. Just ask any holders of stock options from the dotcom era who failed…

Will changes in risk management in the investment world, especially as concerns government involvement, change the game… Yep, it probably will. However to state investors will not step up to the plate is significatly in error. If there is money to be made, or even a chance, by far investors will step in, albeit it is likely a different demographic will be in the game as contrasted with history.

Sec 363 of the bankruptcy code as concerns secure creditors has shifted things around for years… Secured creditor status does not grant safety, nor mulligans. It can be safer, but not always. This is not new, nor rocket science, and case law and history most certainly have justified twiddling with priorities. Either way, a fool is often parted with their money. Someone was either A too greedy, or B asleep at the wheel when investing in GM and Chrysler bonds. They had to know what was on the horizon, I certainly did, even going back as far as 2003, albeit I didnt know when things would unravel. As time passed, it appeared things would take a header sooner and sooner. Thus, to step in and buy bonds as many investors did late in the game was a calculated risk… and it didnt turn out too well. The beer has been spilled… and yes, some folks retirement was lost, and that is sad, especially if they were at the whims of an inept fund manager. If anything, the one change that needs to be made, is not to Sec 363, but to provide more diversity and options for folks retirement funds to prevent that lockin, plus additional education.

As far as contracts and loans go…. a bank makes money on loans and on bank fees. If, and I do hope it comes to pass, further restrictions come into play on fees, then banks have to return to their core, and that is the loan business. Interest rates are determined by market and by risk. Getting a loan when one has an equal or greater amount of cash in a bank’s CD’s is easy, and provides very low interest rates. In more than a few cases, large customers pretty much dictate what the rate will be, as the bank is backed into a corner. Otoh, getting an unsecured loan, unless one has a high income, a low debt to income ratio, and very stable employment is likely to result in a much higher interest rate, because the risk is higher. Certainly, those with low credit scores, low income, and high debt to income ratio can be charged the highest rates, as the risks of default are exceedingly high. The bank knows this, the investors know this, its not rocket science. And if default happens on an unsecured loan…. well, the bank gets a few cents on the dollar for selling it off for someone else to collect on, or if the customer declares chapter 7 bankruptcy, they get zero. On the other hand, if default doesn’t happen, the bank makes a small fortune. Its pretty simple, and its basic risk management 101, even going so far that a number of high interest loans are predicted to default, but that the aggregate will return huge gains.

The problem is, when the risk management model is upended… if one was being too greedy, or purposely chose to ignore specific factors, the default losses will exceed the gains, and before too long, they should cease to exist. Of course, there is the aspect of the culpability of the third party ratings agencies… if they are in error, the bank could still theoretically do everything right, and still loose their shirt, alas there is also an element of caveat emptor. Just because a bond rating or credit score is exemplary, its really only a tiny portion of the real risk at hand. Certainly a loan to an employee of a firm in bankruptcy with a 800 credit score is more risky than a loan to a person with a 700 working at a long term company showing positive trends and on a hiring spree.

Thus, when a bank or other firm gets hit with defaults, its their problem, they took on the risk, now they have to pay the piper. If anyone was foolish enough to have more than the FDIC limits tied up in such…. well, I would hope they are getting greater returns than the masses, as the risk is substantial. Granted, there are reasonable concerns for commercial entities.

And that’s what it comes down too… what is a reasonable risk, and how much return do I want. I have no right to cry in others beer, when I took a risk, and it fell apart, barring in mind, I took said risk with knowledge or a perception of what I was up against. Banks must loan money and investors must invest to exist, failing to do so, will ensure they will fail… thus changes in government policy, changes in risk models etc will not result in lack of loans, or investments. It will hopefully result in greater upfront awareness and understanding, and from a reactionary pov, fewer loans and investments in the short term, but they will come back… perhaps with more strings, or less favorable returns, but they will be back.

And lastly, the end of economic civilization as we know it, must come to an end. Liar loans must end, risky investments sold as no risk investments must end, and the whole ecoclimate needs to change. That is a good thing, and will poise us for future growth in a huge way based upon a real economy, with real and sold underlying fundamentals, not selective models based upon ignoring very real key factors, or bogus bookeeping.

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.

The usual conservative argument is based upon trickle down economics, and while I believe a careful analysis shows that model doesn’t work out all that great, I don’t believe Keynes does either. Instead, I’ll focus on the practical in your face situation when it comes to business decisions.

First of all, very few people have been in the hot seat, of whether to expand ie invest or not, especially when significant sums are at issue, or even ones lively-hood. I’ve been in the bet the farm mode a number of times over the years, and those decisions are never easy. For the wealthy, its different in that they are not betting the whole farm, as is often the case for the founders of a start-up. However, the wealthy individuals I’ve worked with over the years, while not sweating bullets as to whether their fortune is won or lost, whether they will be able to eat or not, take the matter almost as seriously.

The deal is this… if you are in that spot where a call has to be made, you don’t make the jump, unless you are darned sure its the right call. In some cases, its easier, a line of customers at the door with purchase orders, and cash in hand, and an existing stable platform make it a no brainer. In others, many potential customers say, if you could add this, we’ll put you at the head of the chart when it comes to making a call, and research looks super great for ones market focus. Those are trickier. Then there is the case, where its a new market, and demand is really unknown (proformas are always a guess) . The research shows it looks good, but research is far from a purchase order, and customers with cash are a huge unknown. Those are even harder to judge,

In today’s world, most research shows demand has crashed, or if it hasn’t crashed, its on life support. Unless one has customers beating down the door with purchase orders and cash in hand, no one will bet the whole farm. A few might speculate with a small amount. The thing is, with demand at zero, or very low, no one in their right mind will make substantial ie bet the farm investments. (Demand is not low in all areas, some niches, and niches in the pipeline are likely to do well, but thats an exceedingly small part of the economy for now). The end result, for most entities, tax increase or decreases are not going to pay a large role in investment decisions at this time.

However, when the economy is growing leaps and bounds, ie the real estate bubble, and the dot com bubble, by all means tax deductions can provide for more capital availability, and that can help. Not so much as to making an expansion, but more so the scope of such expansion can be larger, or with a better cushion, as more cash is available. Of course, this is also the time when hopefully govt spending drops off, such that deficits generated by the lean times can be made up, and reserves put in place for the next cycle.

The problem is, a bubble is not where we are. Granted no one wants higher taxes, but if they spur the economy as a whole, whether it be via infrastruture improvements, or even cost reductions in health care, its likely such spending will do a lot more for the economy than tax cuts which likely result in hoarding or offshore tax shelters, as internal investment/expansion is not prudent.

The end result, tax policy can affect business investment both pro and con, but external factors like demand, cash flow, and market niche likely play a much more significant role than specific tax policy within a given time frame. Granted, there are specific deductions which can make a difference, but they are few and far between.

Last night, volcano monitoring was portrayed in a negative light as part of the stimulus bill. In some ways, I must admit a good point was made, ie, its a long term investment, and short of preventing brain drain at USGS, it doesn’t immediately stimulate the economy. Same with hurricane monitoring, tornado research, or even rebuilding the levi system in Louisiana.

Ie, one could make the argument not to spend, and let the insurance companies and the free market take care of it on their own. While it might mean that the vast majority of individuals and companies in such areas would be unable to procure affordable insurance, or perhaps not at all, that is their problem, they chose to establish where to set roots. Or perhaps it would mean insurance companies would fail left and right, as investors would freak if policies could not be immediately canceled. What if their was a massive exodus of people and companies from the affected areas? Would that affect the economy over all as a boost or a drain? Is allowing them to stay a stimulus or a moral hazard? From an overall financial pov only, its not such an easy call. From a moral pov, I think the answer is pretty easy, which makes me wonder why Gov Jindahl chose it as a topic, when so many others, which are not related to his state are available.

Now, one could make the argument that such spending, being it is a long term investment doesn’t belong in the stimulus bill, just as with many other programs. The thing is with disasters, they are unpredictable, the experts are few, and brain drain is a valid concern. Lets say it was left out to be dealt with later… with appropriations, who knows, perhaps it could be many months. Then throw in political budget shifting, funding might be available, or might have so many political ramifications added in, the whole program gets watered down. Then add in the potential USGS staff reductions, and its indeed possible, the US would get a lot less bang for the buck than doing it now. Or worst case, the delay results in a gap where a disaster occurs, and much loss of life and property occurs, thus costing a ton more, both financially, as well as politically and morally. In the perfect world, by all means such would be in appropriations, but the world is not perfect, and govt far less so.

I think the right call was made to include such funding. Stimulus needs to be part short term, and part long term. Disaster planning actually does quite well in both sectors.

Paying retention bonuses greater than employee production with taxpayer money.

Brokers at Morgan Stanley and Citigroup’s Smith Barney unit who produce at least $1.75 million of revenue may be eligible for a payment equal to 105 percent of their annual production, according to a person familiar with the plan.

About 6,500 of the combined entity’s 20,000 brokers are expected to be eligible for the retention package, with the first payment in January 2010 and the second in 2012, the person said. Overall retention bonuses could total $2 billion to $3 billion, the person said.

First of all… I know brokers are a rather odd employee class. Ie, they don’t use traditional non-compete agreements and other things like most employees are exposed to. In fact if a broker switches from one employer to another, most get to freely take their clients with them!!!! Imagine the mess if that occurred in the technology realm. Work for Intel, and then go to work for AMD, and take the IP with you with no consequences…. It would not fly, but Wall Street is different.

Granted, $MS and $C are a business, they can do what they want, and maybe these somewhat oddball employee practices have value… but as soon as they take taxpayer money, now I have a real interest, and will fuss about it.

So, onto retention bonuses… I take it no one can do basic math anymore.

6500 employees eligible
As it reads, to be eligible you must produce at least $1.75 million
The bonuses are 105% of their production, or $1.8275 million, assuming all eligible employees only produce the minimum of $1.75 million each

for a total of $11.944 billion

So how on earth does this total $2-$3 billion!!!! who ate the other $8.944 billion

With this kind of accounting, no wonder Wall Street is in trouble.

In all seriousness, my guess is either the spokesman or the reporter didn’t quite get all the facts straight. Its likely out of the 6500 broker eligibility pool, only small percentage fall into the $1.75 million or more productivity realm. At least that’s what I hope the case is.

Either way… who are they going to go work for? Why pay to retain them at all at this point? Its not like they will take their client base and go to work in Antarctica or something. And if they did, and can make that kind of money starting a new firm from scratch, by all means they should do so. Remember if one renounces citizenship, they really get hammered tax wise, thus tax payers would get their due anyhow.