Government programs & regulations, spending, deficit, and budget process

[DougMacG]

[youtube]http://www.youtube.com/watch?v=5P8hyMG3qsM&feature=player_embedded[/youtube]
http://www.scrappleface.com/

[Body-by-Guinness]

Stimulus job boost in state exaggerated, review finds
Errors, incomplete data, estimated positions go into federal report
By Jenn Abelson and Todd Wallack, Globe Staff  |  November 11, 2009
While Massachusetts recipients of federal stimulus money collectively report 12,374 jobs saved or created, a Globe review shows that number is wildly exaggerated. Organizations that received stimulus money miscounted jobs, filed erroneous figures, or claimed jobs for work that has not yet started.

The Globe’s finding is based on the federal government’s just-released accounts of stimulus spending at the end of October. It lists the nearly $4 billion in stimulus awards made to an array of Massachusetts government agencies, universities, hospitals, private businesses, and nonprofit organizations, and notes how many jobs each created or saved.

But in interviews with recipients, the Globe found that several openly acknowledged creating far fewer jobs than they have been credited for.

One of the largest reported jobs figures comes from Bridgewater State College, which is listed as using $77,181 in stimulus money for 160 full-time work-study jobs for students. But Bridgewater State spokesman Bryan Baldwin said the college made a mistake and the actual number of new jobs was “almost nothing.’’ Bridgewater has submitted a correction, but it is not yet reflected in the report.

In other cases, federal money that recipients already receive annually - subsidies for affordable housing, for example - was reclassified this year as stimulus spending, and the existing jobs already supported by those programs were credited to stimulus spending. Some of these recipients said they did not even know the money they were getting was classified as stimulus funds until September, when federal officials told them they had to file reports.

“There were no jobs created. It was just shuffling around of the funds,’’ said Susan Kelly, director of property management for Boston Land Co., which reported retaining 26 jobs with $2.7 million in rental subsidies for its affordable housing developments in Waltham. “It’s hard to figure out if you did the paperwork right. We never asked for this.’’

The federal stimulus report for Massachusetts has so many errors, missing data, or estimates instead of actual job counts that it may be impossible to accurately tally how many people have been employed by the massive infusion of federal money. Massachusetts is expected to receive an estimated $1 billion more in stimulus contracts, grants, and loans.

The stimulus bill - a $787 billion package of tax breaks, expanded government benefits, and infrastructure improvements - was signed into law in February by President Obama, who said it would create and save jobs by preserving local government services and spurring short- and long-term economic development.

To be sure, the legislation has accomplished an important goal: funding public services facing the ax after the recession created gaping shortfalls in state and local government budgets. So Worcester and Lynn, for example, were able to keep police officers targeted for layoffs, schools across the state lost far fewer teachers, and community agencies preserved staff in the face of mounting demands for social services.

The president also said the legislation demanded an unprecedented level of accounting from recipients, who report on the uses of the money and the jobs via a massive online system, www.Recovery.gov.

Clearly, the first comprehensive accounting had shortcomings.

Recipients said they found the reporting system confusing, leading them to submit information erroneously, and leaving them unable to correct mistakes in their reports. Additionally, the government files are massive and unwieldy. Reports do not distinguish between newly created positions and those that were “retained.’’

“We see $15 million construction projects with no jobs, and a $900 shoe sale that created nine jobs. Both are obviously wrong,’’ said Michael Balsam, chief solutions officer for Onvia, a Seattle data company tracking the stimulus spending. “There were a lot of recipients that did not report. Those that did report have some data challenges - wrong data or missing data.’’

Cheryl Arvidson, assistant director of communications for the Recovery Accountability and Transparency Board, the federal government’s oversight panel for the stimulus money, acknowledged the problems recipients are having reporting job counts.

“Some people are going to be confused. Some people are manually entering data. We figured there would be innocent mistakes,’’ Arvidson said. “We anticipate that as we go forward . . . the data quality will be increasingly improved. We knew there was going to be a shake-out.’’

Some of the errors are striking: The community action agency based in Greenfield reported 90 full-time jobs associated with the $245,000 it got for its preschool Head Start program. That averages out to just $2,700 per full-time job. The agency said it used the money to give roughly 150 staffers cost-of-living raises. The figure reported on the federal report was a mistake, a result of a staffer’s misunderstanding of the filing instructions, said executive director Jane Sanders.

Several other Head Start agencies also reported using stimulus funds for pay raises and claimed jobs for it.

At Bridgewater State, Baldwin said the college mistakenly counted part-time student jobs as full time.

Some agencies that received stimulus money reported jobs for work that had not started. The Greater Lawrence Family Health Center reported 30 construction jobs “have been created,’’ even though it hadn’t begun construction on a $1.5 million renovation and expansion. Grant administrator Beth Melnikas said the health center does expect to hire 30 workers.

There was often variance among recipients of the same source of funding. Some did not report any positions retained; others did. Some used different methods and got different results.

For example, the City of Waltham said a $630,500 solar panel installation on the roof of City Hall created 10 jobs - even though the work had yet to begin. Revere spent $485,500 in stimulus funds to install solar panels on the roof of a city school. Revere’s job count? 64.

The city’s project consultants used a different formula than the one the federal government recommended.

“If not for this stimulus money, we would not have done the solar panel roof,’’ said Revere Mayor Thomas G. Ambrosino. “A lot went into this.’’

Another source of confusion over the job counting is because Congress this year labeled as stimulus initiatives several longstanding programs, such as student work-study and low-income rental subsidies, that it otherwise regularly funds in annual appropriations bills. In some cases Congress increased the funding amount, too, so the stimulus legislation was a vehicle for expanding government support for people in need.

Regardless of its label, the recipients treated the funding as business as usual. Only in September, when government officials told them they had to report on their stimulus spending, did they confront the issue of how to account for jobs associated with the money they received.

Massachusetts property owners received $75.5 million in rental subsidies from the stimulus bill, for a reported total of 437 jobs. Recipients of 27 of the 87 contracts reported zero jobs. The others, meanwhile, simply reported the number of employees working at the property. If they received two contracts, for a larger property, they reported the employee figure twice.

For example, Plumley Village East in Worcester listed 23 jobs for each of its two contracts for a total of 46 jobs, even though it has only 23 employees working throughout the complex.

“There was some confusion about what they were really looking for,’’ said Karen Kelleher, general counsel for Community Builders Inc., which runs Plumley Village.

Those overstated jobs are going to disappear from future counts. The Obama administration has recently determined the rental subsidies don’t have to be reported under the stimulus bill.

One of those property owners, meanwhile, is frustrated by his experience with the legislation. Robert Ercolini manages a 201-unit affordable housing development in Plymouth. After being notified his annual rental subsidies were classified as stimulus spending, Ercolini renewed a request to the US Department of Housing and Urban Development for more than $1 million to fix up the property, reasoning he would be creating jobs by hiring contractors. He was refused.

“After HUD denied me money to make needed improvements and actually create jobs,’’ Ercolini said, “it’s really funny to find out in September that I’ve been receiving stimulus funds all along and they want to know how many jobs we’ve saved or created.’’

By his count, the answer is: “No jobs.’’

Matt Carroll of the Globe Staff contributed to this report. Jenn Abelson can be reached at abelson@globe.com. Todd Wallack can be reached at twallack@globe.com.

http://www.boston.com/business/articles/2009/11/11/stimulus_fund_job_benefits_exaggerated_review_finds/

[Body-by-Guinness]

Interactive map tracking all those claims of stimulus jobs that don't quite add up:

http://www.washingtonexaminer.com/maps/Bogus-jobs-created-or-saved-by-the-Stimulus.html

[Rarick]

"This is not really a real number of people," a CSU spokesman said. "It's like a budget number."     This kind of thinking in a college?!  Welll, it is California...........  Quite frankly G. Dawg I am surprised you are still staying there.

[Body-by-Guinness]

More cash for fewer clunkers
November 18, 2009 9:33 AM by Mark Thornton (Archive)

The CPI rose three tenths of one percent in October and one of the big factors was the rise in used car prices. Used car prices increased 3.4% in October. This is no doubt due to the hundreds of thousands of cars taken off the market and destroyed by the cash for clunkers program. This is good news for those trading in used cars to buy a brand new one, but bad news for those struggling to get basic transportation to get to work.

http://blog.mises.org/archives/011056.asp

[Crafty_Dog]

TARP Inspector General Neil Barofsky keeps committing flagrant acts of political transparency, which if nothing else ought to inform the debate going forward over financial reform. In his latest bombshell, the IG discloses that the New York Federal Reserve did not believe that AIG's credit-default swap (CDS) counterparties posed a systemic financial risk.

Hello?

For the last year, the entire Beltway theory of the financial panic has been based on the claim that the "opaque," unregulated CDS market had forced the Fed to take over AIG and pay off its counterparties, lest the system collapse. Yet we now learn from Mr. Barofsky that saving the counterparties was not the reason for the bailout.

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REUTERS
 
Timothy Geithner
.In the fall of 2008 the New York Fed drove a baby-soft bargain with AIG's credit-default-swap counterparties. The Fed's taxpayer-funded vehicle, Maiden Lane III, bought out the counterparties' mortgage-backed securities at 100 cents on the dollar, effectively canceling out the CDS contracts. This was miles above what those assets could have fetched in the market at that time, if they could have been sold at all.

The New York Fed president at the time was none other than Timothy Geithner, the current Treasury Secretary, and Mr. Geithner now tells Mr. Barofsky that in deciding to make the counterparties whole, "the financial condition of the counterparties was not a relevant factor."

This is startling. In April we noted in these columns that Goldman Sachs, a major AIG counterparty, would certainly have suffered from an AIG failure. And in his latest report, Mr. Barofsky comes to the same conclusion. But if Mr. Geithner now says the AIG bailout wasn't driven by a need to rescue CDS counterparties, then what was the point? Why pay Goldman and even foreign banks like Societe Generale billions of tax dollars to make them whole?

Both Treasury and the Fed say they think it would have been inappropriate for the government to muscle counterparties to accept haircuts, though the New York Fed tried to persuade them to accept less than par. Regulators say that having taxpayers buy out the counterparties improved AIG's liquidity position, but why was it important to keep AIG liquid if not to protect some class of creditors?

Yesterday, Mr. Geithner introduced a new explanation, which is that AIG might not have been able to pay claims to its insurance policy holders: "AIG was providing a range of insurance products to households across the country. And if AIG had defaulted, you would have seen a downgrade leading to the liquidation and failure of a set of insurance contracts that touched Americans across this country and, of course, savers around the world."

Yet, if there is one thing that all observers seemed to agree on last year, it was that AIG's money to pay policyholders was segregated and safe inside the regulated insurance subsidiaries. If the real systemic danger was the condition of these highly regulated subsidiaries—where there was no CDS trading—then the Beltway narrative implodes.

Interestingly, in Treasury's official response to the Barofsky report, Assistant Secretary Herbert Allison explains why the department acted to prevent an AIG bankruptcy. He mentions the "global scope of AIG, its importance to the American retirement system, and its presence in the commercial paper and other financial markets." He does not mention CDS.

All of this would seem to be relevant to the financial reform that Treasury wants to plow through Congress. For example, if AIG's CDS contracts were not the systemic risk, then what is the argument for restructuring the derivatives market? After Lehman's failure, CDS contracts were quickly settled according to the industry protocol. Despite fears of systemic risk, none of the large banks, either acting as a counterparty to Lehman or as a buyer of CDS on Lehman itself, turned out to have major exposure.

More broadly, lawmakers now have an opportunity to dig deeper into the nature of moral hazard and the restoration of a healthy financial system. Barney Frank and Chris Dodd are pushing to give regulators "resolution authority" for struggling firms. Under both of their bills, this would mean unlimited ability to spend unlimited taxpayer sums to prevent an unlimited universe of firms from failing.

Americans know that's not the answer, but what is the best solution to the too-big-to-fail problem? And how exactly does one measure systemic risk? To answer these questions, it's essential that we first learn the lessons of 2008. This is where reports like Mr. Barofsky's are valuable, telling us things that the government doesn't want us to know.

In remarks Tuesday that were interpreted as a veiled response to Mr. Barofsky's report, Mr. Geithner said, "It's a great strength of our country, that you're going to have the chance for a range of people to look back at every decision made in every stage in this crisis, and look at the quality of judgments made and evaluate them with the benefit of hindsight." He added, "Now, you're going to see a lot of conviction in this, a lot of strong views—a lot of it untainted by experience."

Mr. Geithner has a point about Monday-morning quarterbacking. He and others had to make difficult choices in the autumn of 2008 with incomplete information and often with little time to think, much less to reflect. But that was last year. The task now is to learn the lessons of that crisis and minimize the moral hazard so we can reduce the chances that the panic and bailout happen again.

This means a more complete explanation from Mr. Geithner of what really drove his decisions last year, how he now defines systemic risk, and why he wants unlimited power to bail out creditors—before Congress grants the executive branch unlimited resolution authority that could lead to bailouts ad infinitum.

[Crafty_Dog]

With F.H.A. Help, Easy Loans in Expensive Areas
 DAVID STREITFELD
Published: November 19, 2009
SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.

Policy changes in insurance, while introduced on a temporary basis, are becoming so popular that they could prove difficult to undo.
Back to Business



From left to right, Jordan Kurland, Mike Rowland and Michael Bedar, in front of the building they bought in San Francisco for nearly a million dollars, with help from the Federal Housing Administration.

A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”

In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.

In 2007, the government did not insure a single mortgage in this city, one of the most expensive in the country. Buyers here, as well as in Manhattan, Santa Monica and every other wealthy area, were presumed to be able to handle the steep prices and correspondingly hefty down payments on their own.

Now the government is guaranteeing an average of six mortgages a week here. Real estate agents say the insurance is such a good deal that there will soon be many more.

Policy changes like the shift in insurance, while often introduced on a temporary basis, are becoming so popular that they could prove difficult to undo. With government finances already under great strain, the policy expansions are creating new risks for American taxpayers.

The Internal Revenue Service is giving tax rebates to first-time buyers, and soon to move-up buyers, in a program beset by accusations of fraud. And the government agency that issues mortgage insurance, the Federal Housing Administration, is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling. On Thursday, the Mortgage Bankers Association said more than one in six F.H.A. borrowers was behind on payments.

F.H.A. insurance was created for minority and low-income families who could not come up with the traditional down payment of 20 percent required by private lenders. Buyers receive loans from government-approved lenders and are required to document their income and assets. They must pay a substantial insurance premium of 1.75 percent of the loan. But in return, their down payment can be as low as 3.5 percent.

For decades, most F.H.A. loans were in low-cost states like Texas and Michigan. Under the agency’s loan limits, houses along the coasts were usually too expensive to qualify. In 2007, fewer than 4,400 F.H.A. loans were made in California, according to the research firm MDA DataQuick, and none were in San Francisco.

The Economic Stimulus Act of 2008 helped change that by temporarily doubling the maximum loan the F.H.A. insured, to $729,750. A two-unit property like the one bought by Mr. Rowland and his friends can be insured for up to $934,200.

“F.H.A. financing was a lost language in San Francisco, the real estate equivalent of Aramaic,” said Michael Ackerman, the agent who represented Mr. Rowland and his friends. “Once the limits were raised, smart buyers started calling.”

The F.H.A. has insured more than 107,000 loans so far this year in the state, according to DataQuick, about 270 of them in San Francisco.

Condominium buildings approved for F.H.A. financing — a relative handful — trumpet the news on their Web sites. The Soma Grand, a new 246-unit building downtown where one-bedrooms cost in excess of $500,000, received F.H.A. certification early in the summer. A half-dozen buyers since then used F.H.A. insurance.

At Guarantee Mortgage Corporation, which has 150 mortgage brokers in the Bay Area, Seattle and Portland, Ore., F.H.A. loans have grown to about 15 percent of its business, from less than 3 percent a few years ago.

“It sure has helped us put a lot of deals together,” said Guarantee’s chief sales officer, Bob Siefert. He predicts that a quarter of Guarantee’s deals will soon be guaranteed by the F.H.A.

Some F.H.A. borrowers here say they have the cash for a full down payment but would rather invest it in the stock market or use it for remodeling. Others, like Mr. Rowland and his friends, simply do not have the money required by private lenders — which would have been nearly $200,000, in their case.

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“We were resigned to waiting another year,” said a second partner, Michael Bedar, 31. “Then we read about the F.H.A. I had never heard of it before, and couldn’t quite believe it. But it was the answer to our problems.” They put down about $33,000, split among the three of them.


While the F.H.A. is certainly strengthening the high-end market in the Bay Area by prompting more sales, there are growing concerns that it might become a destabilizing force.

Kenneth Donohue, inspector general for the Department of Housing and Urban Development, the parent agency of the F.H.A., said the higher loan limits were increasing the potential risk to the F.H.A. Last week, the agency said its cash reserves had fallen below their Congressionally mandated minimum because of the large volume of foreclosures.

“If one of these higher-limit loans fail, that’s equivalent to two or three cheaper loans,” Mr. Donohue said. “You have to ask yourself, was the F.H.A. ever intended to address these markets?”

He sees another risk: larger loans will be a greater draw for those who want to commit fraud. That would exacerbate a problem already besetting the agency.

Even some San Francisco agents who are doing F.H.A. deals worry about the long-term consequences. Real estate commissions are 6 percent. If the value of a property were to hold steady, a seller who put down the F.H.A. minimum would suffer a loss after fees. And while the Bay Area has traditionally been an excellent investment, the last few years have proved a big exception.

“Is this going to be the next wave of the housing downturn?” asked Eileen Bermingham, an agent with Pacific Union. “With such a minimal down payment, how do we make sure people don’t get in over their heads?”

The F.H.A. commissioner, David H. Stevens, said recently that its loans were relatively safe because the buyer was required to live in the property. They “are for shelter. They aren’t speculative-type investments,” Mr. Stevens said.

But the idea of a house as an investment dies hard. Mr. Bedar, Mr. Rowland and the third partner in their property, Jordan Kurland, are all in the technology field, but their dreams of wealth do not feature stock options.

“We’re banking on real estate,” said Mr. Kurland, 24. “Everyone expects prices to keep going up.”

Mr. Kurland and Mr. Bedar, who are employed full time, are the buyers of record. Mr. Rowland, a freelancer, will have his interests protected by a legal agreement.

Their building, for which they paid $963,000, is on a quiet street in the up-and-coming Hayes Valley neighborhood, close to fashionable restaurants they have already been trying out. The friends plan to live in the bottom unit and rent out the top. Thanks to rock-bottom interest rates, none of them will pay much more than a thousand dollars a month. “Everyone should have the chance to do this,” Mr. Kurland said.

Everyone may get a chance.

A few weeks ago, Congress extended the higher lending limits for another year. Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that he planned to introduce legislation next year raising the maximum F.H.A. loan by $100,000, to $839,750.

His bill would make the new limits permanent.

[Crafty_Dog]

U.S. Unlikely to Use the Ethanol Congress Ordered

MaTTHEW L. WALD
Published: November 26, 2009
WASHINGTON — Two years ago, Congress ordered the nation’s gasoline refiners to do something that is turning out to be mathematically impossible.

To please the farm lobby and to help wean the nation off oil, Congress mandated that refiners blend a rising volume of ethanol and other biofuels into gasoline. They are supposed to use at least 15 billion gallons of biofuels by 2012, up from less than seven billion gallons in 2007.
But nobody at the time counted on fuel demand falling in the United States, which is what has happened during the recession. And that decline could well continue, as cars become more efficient under other recent government mandates.

At the maximum allowable blend, in which gasoline at the pump contains 10 percent ethanol, updated projections suggest that the country is unlikely to be able to use all the ethanol that Congress has ordered up. So something has to give.

“The market is full,” said Jeff Broin, chief executive of Poet, a company in Sioux Falls, S.D., that produces ethanol.

In theory, the Environmental Protection Agency has the power to solve this problem by tweaking the mandates imposed by Congress, and it may act as early as next week.

Each potential solution would anger one interest group or another, so the agency has been subjected to fierce lobbying, including from members of Congress lining up behind various factions. One possibility is to raise the maximum proportion of ethanol in gasoline to 15 or 20 percent.

But that idea is opposed by some carmakers and pollution experts. They contend that high ethanol blends can cause damage to cars, including making catalytic converters run hotter.

The Alliance of Automobile Manufacturers says it believes this could cause the converters, components that help control pollution, to fail at around 50,000 miles. They are supposed to last for 120,000 to 150,000 miles. “We are sensitive to the issues facing the ethanol industry, but the government must make decisions based on sound science,” said Dave McCurdy, president and chief executive of the alliance, in a letter to the E.P.A.

Another possibility is that the agency could waive the mandates requiring use of a large volume of biofuels. But that would anger farmers, who sell a great deal of corn to ethanol factories, and the members of Congress who represent them. It might also undermine the efforts of companies that are investing millions in factories to make ethanol from waste materials, like corncobs, straw and garbage.

“Ethanol is the only viable, competitive alternative to foreign oil,” said Tom Buis, chief executive of Growth Energy, the ethanol trade group that filed the petition with the E.P.A. to increase the blending percentage. “If we’re going to become less dependent on foreign oil, we’ve got to move forward.”

A third possibility is that the E.P.A. could announce that it is waiting for more data on how cars perform at higher blends, but that would merely put off the hard decision.

When Congress wrote the rules, in 2007, gasoline consumption had been growing for years, and it looked as if the nation would be able to use considerably more ethanol in the future. Gasoline consumption hit a peak of 3.4 billion barrels that year.

But gasoline demand fell in 2008, after soaring gas prices early in the year were followed by the economic crisis. Consumption was slightly less than 3.3 billion barrels last year, and it could end 2009 at about the same level.

With consumers buying more fuel-efficient cars these days, and carmakers rushing to bring even more of those to market, gasoline demand may not recover much in coming years, even as ethanol production soars.

As of yet, not all gasoline is blended with 10 percent ethanol, but that saturation point is rapidly approaching. Under the present rules, the nation could hit the upper limit of its ability to consume ethanol in 2011.

Mr. Buis and others argue that Congress or the E.P.A. must do something if the country is to move to a new generation of biofuels that do not compete with food crops. The possibilities include ethanol made from wood chips, waste paper or agricultural waste like straw and corncobs.

Congress has also passed mandates for the blending of this type of fuel, so that the nation’s total consumption of all renewable fuels, in vehicles and other equipment, is supposed to reach 36 billion gallons in 2022.

Perhaps the easiest way for the country to absorb all the excess ethanol would be to make wider use of an ethanol blend called E85, which contains 85 percent ethanol and 15 percent gasoline. Most cars on the road cannot use it, but in recent years, millions of “flex-fuel” cars have been sold, especially by General Motors. (Any car with a yellow gasoline cap can use E85.)

The problem is that at current prices, E85 does not make economic sense for drivers, and most of them use regular gasoline in their flex-fuel cars. That means gasoline stations have little incentive to install pumps for E85. The fuel can be found in the Corn Belt but is not readily available elsewhere in the country.

Gasoline was selling on average Thursday for $2.63 a gallon, while E85 was selling for $2.23 a gallon. That might make E85 sound like a bargain, but cars go fewer miles on a gallon of ethanol than of gasoline. Adjusted for that factor, E85 on Thursday was effectively 31 cents a gallon more expensive than gasoline.

A return of $4 gasoline might change things, by making E85 a relative bargain and spurring wider use. So would an unexpected spurt in total fuel demand. Otherwise, it is not at all clear how the nation’s coming surplus of ethanol can be absorbed.

Gregory M. Scott, executive vice president of the National Petrochemical and Refiners Association, drives a flex-fuel car in the Washington area, but said he had never put E85 in it.

He said the amount of renewable fuel that Congress had mandated refiners to use, and the amount that can be blended for conventional automobiles, were on a collision course.

“At some point,” he said, “those two lines cross.”

[Rarick]

Too Much Here, Too Little There, and inability to adjust because of an embedded CYA Bureaucracy.  Sound like USSR to me.   They proved that centrally managed economies just don't work.  China has made some serious changes and will probably be the only viable "communism" if only in name.

I think that all these PoliSci's running the gov't are totally incapable of learning from history, do they have ANY as part of their coursework?

[Crafty_Dog]

There's encouraging news on that other Washington effort to force Americans into a government-run system. The White House plan to drive private lenders out of the market for student loans is igniting a backlash on campus and Capitol Hill.

The typical tale of a free-speech controversy on campus involves administrators landing on some poor undergrad who violates political correctness. But in this story the administrators have been afraid to speak as the Department of Education pressured them to drop private lenders and embrace the department's own Direct Lending (DL) program. The pending bill, which has passed the House but is stalled in the Senate, would ban private lenders from making federally guaranteed loans after July 1, 2010.

Congress has already enacted regulations in recent years to discourage making loans without a federal guarantee. And many lenders have quit the business. Now the White House and Democrats like California Rep. George Miller want to go further and convert students from private loans largely backed by the taxpayer into government loans made and serviced by government and backed by the taxpayer. Think of this as a prelude to how Congress will rig the rules for any public option in health care.

The private lenders have been the most popular choice, while—big surprise—the government's program has a history of shoddy customer service. But before the bill has even come to the Senate floor, federal officials have been making unsolicited contacts to schools urging them to accept this "public option." In October, Secretary of Education Arne Duncan sent a letter to schools nationwide offering to help them "in taking the necessary steps to ensure uninterrupted access to federal student loans by ensuring your institution is Direct Loan-ready for the 2010-2011 academic year."

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.Schools got the message. The leader of a large university recently refused to discuss the issue with us on the record, fearful that the feds are taking names. Rep. John Kline (R., Minn.) has asked the Department of Education's inspector general to investigate efforts by officials to encourage outside groups to advocate for the ban on private lenders. He wants to know if department staff violated a federal law against lobbying with appropriated funds, among other possible offenses.

Several House Democrats wrote to Mr. Duncan this week questioning the "aggressive outreach" to schools on behalf of one option while Congress is still considering others. We seem to remember from our student days that the executive branch is supposed to enforce laws only after the legislature has written them. Over in the Senate, more than a dozen Democrats have criticized the Administration's plan, and Senator Bob Casey has offered an alternative that would allow private lenders to stay in business.

Meanwhile, faced with the prospect of a monopoly government-run loan provider, the tweed-jacket crowd is finding its voice. Mr. Duncan spoke this week at a conference for financial aid officers in Nashville, and he may be sorry that he agreed to take questions from the audience. To vigorous applause, several attendees questioned whether financing that's good enough for government work will be good enough for their students.

Ted Malone of the University of Alaska said that the department had already "created an impossible-to-administer program" for Pell Grants and therefore said it's "hard to trust that you're going to be looking out for our best interests" when forcing all colleges into the government-run lending system.

Another speaker talked about how hard the private firms work to serve students and said, "My partnership with my lenders is being taken away from me."

Sheila Nelson Hensley of Virginia's Bluefield College said, "I'm concerned that there's going to be a delay in us receiving our funds, which will ultimately affect our students and the cash flow of our institution."

When even such natural allies as college administrators are warning that Team Obama is moving too quickly and too far left, perhaps it's time to go back to school on this issue. Focusing on the needs of students and taxpayers—rather than an ideological conviction that government always knows and does best—would be a good place to start.

[Crafty_Dog]

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
-- Cicero (55 BC)

[ccp]

eom

[Rarick]

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
-- Cicero (55 BC)

I find that reassuring, which scares me..........

[Crafty_Dog]

"Politics is the art of looking for trouble, finding it everywhere,
diagnosing it incorrectly, and applying the wrong remedies" -- Groucho Marx

=====================================

Stimulus III
Democrats want TARP to become a revolving line of political credit..

If at first fiscal stimulus doesn't succeed, spend, spend again. That's the motto President Obama embraced yesterday, even if he didn't use the word "stimulus," which has managed to set a political record in the speed with which it has become unpopular with voters. This time, the spending is being called "Proposals to Accelerate Job Growth and Lay the Foundation for Robust Economic Growth."

But wasn't that also supposed to be the point of last February's $787 billion stimulus, or for that matter of the Nancy Pelosi-George W. Bush $165 billion stimulus of February 2008?

Nearly two years after that first Keynesian stimulus that was supposed to prevent a recession, and nearly a year after the second that the White House said would keep the jobless rate below 8%, the President now feels obliged to propose a third. Like the joke about Paul Krugman having predicted seven of the last two recessions, sooner or later the White House is bound to get the political timing right.

This time around, the President is at least suggesting a couple of good ideas. One proposal would revive his 2008 campaign promise for a zero capital gains tax on new investments in small business stock. Mr. Obama dropped the idea from his first stimulus because liberals on Capitol Hill hate the words "capital gains," but yesterday he proposed a zero rate for one year.

View Full Image

Associated Press
 
Eight of the 18 California Conservation Corps workers were hired by the U.S. Forest Service as part of the federal stimulus plan.
.Another decent idea would extend enhanced expensing for small business that was otherwise set to expire at the end of this year. This will allow businesses to immediately expense up to $250,000 of certain investments, which should help with business cash flow.

Both ideas would reduce the cost of capital, and thus would partially counteract the many tax increases coming from the House and Senate that would raise the cost of capital and hiring. These tax reductions also recognize that the only source of real long-term job creation is private business.

Most of the rest of Mr. Obama's proposals are unfortunately a grab-bag of greatest Congressional mis-hits. They include a "new" tax credit for small business hiring that looks suspiciously like Jimmy Carter's jobs tax credit that led to few net new jobs and was abandoned after a year.

There's also a flood of new spending, with the amount presumably to come later from Congress (oh oh!), on highways and other public works. Perhaps you thought these "shovel-ready" projects had been included as part of Stimulus II. Alas, that was merely the sales pitch. In the event, the bulk of that money was shovel-readied to such transfer payments as Medicaid, welfare, community block grants, and cash for the clunkers who run failing public schools. This time, we're told, roads and bridges really will get the money—and you can bet they'll all be built with higher Davis-Bacon wage rates that will balloon their cost, too.

OpinionJournal Related Stories:
TARP's Moment of Truth
A Merry TARP Christmas
Rolling Up the TARP
.How will this all be paid for? Well, there are the huge tax increases to come in 2011, if not earlier, as well as more federal borrowing. This time, however, Mr. Obama is also proposing to use funds repaid by banks to the $700 billion Troubled Asset Relief Program. When Congress passed TARP a year ago, the Democrats who ran the joint vowed that the cash was intended to save the financial system and that any returns would promptly go to pay down the debt. As Candidate Obama put it, "every penny" would go "directly back to the American people." That was then.

Now, we're heading into a new election year and Treasury says it expects the bailout to cost $200 billion less than expected, and that it should be able to recover all but $42 billion of the $370 billion it has lent to financial firms. That ought to be cause for rejoicing—and for using the cash to reduce a federal deficit that reached $1.4 trillion in fiscal 2009 and after two months is on pace to be even higher in 2010.

Instead, TARP is now morphing into a revolving line of Democratic political credit. Barney Frank wants to divert at least $4 billion to bail out more home owners. Virginia Senator Mark Warner wants $50 billion for loans to small business. Mr. Obama proposed yesterday to use TARP to finance his own ideas as part of Stimulus III, and if he and fellow Democrats succeed the taxpayers will never see this cash again.

The President tried to recast his "every penny" promise yesterday by arguing that recycled TARP cash would create jobs and thus revenue to bring down the deficit. This is also Speaker Nancy Pelosi's new talking point. They're right that a strong economy is the best way to reduce deficits, but their spend and spend again policies only make closing those deficits more difficult.

One note of hope here is that the White House admits that the TARP statute restricts its use to the "stabilization" of the financial system. The law also specifies that repaid money must go to deficit reduction, a fact that allowed Mrs. Pelosi to gather enough votes to pass TARP last year. This means Democrats are going to have to rewrite the law to spend TARP on pork and green jobs, giving Senate Republicans some leverage and Blue Dog Democrats another chance to write the ad scripts for their 2010 opponents.

As the President gladly admitted yesterday, the economy is recovering and even the job market is healing. If Congress won't reduce taxes, the best stimulus now would be for Congress to stop scaring private job creators by promising to help them. Just do nothing at all.

[Rarick]

If he made an effort to send some of that money to the small business level, I might believe it might have an effect.  I am totally against the government distorting the economy at a time it is trying to fix itself in the first place.

Too bad we can't specify what programs we want to fund when we pay our taxes, eh?

[Crafty_Dog]

I'm against the govt distorting, managing, directing, "partnering with" the economy.  Period. 

[Rarick]

Welllll- Yeah.

[Body-by-Guinness]

Global Warming as a Political Tool
Jonah Goldberg
Friday, December 11, 2009
On Monday, Lisa Jackson, head of the Environmental Protection Agency, formally announced that her agency now considers carbon dioxide to be a dangerous pollutant, subject to government regulation. The "finding" comes two years after the Supreme Court ruled that CO2 falls under the EPA's jurisdiction.


A day later, an unnamed White House official told Fox's Major Garrett that the message for Congress is clear: "If you don't pass this (cap-and-trade) legislation ... the EPA is going to have to regulate in this area. ... And it is not going to be able to regulate on a market-based way, so it's going to have to regulate in a command-and-control way, which will probably generate even more uncertainty."

And such "uncertainty" is a huge "deterrent to investment," which will hurt the economy even more.

Translation: We don't want the EPA to kick the economy in the groin, but if Congress doesn't act, well, a-groin-kickin' we shall go.

This is grotesquely dishonest.

The White House and Congress could, quite easily, do something about the EPA's threat. President Obama could instruct Jackson to interpret the Supreme Court's 2007 decision granting the EPA power to regulate greenhouse gases more loosely. He could ask Congress to simply rewrite the Clean Air Act so as to exclude carbon dioxide from its list of official pollutants -- the policy the EPA followed for years until the Supreme Court reinterpreted the Clean Air Act.

But no.

As part of the enduring statist desire to penetrate ever deeper into every nook and cranny of our lives, Greens have wanted to find a way for the government to regulate CO2, a natural byproduct of fire and breathing, for decades. Now they can.

That is why the White House will use Jackson as a Medusa's head, to petrify cap-and-trade opponents with the prospect of something even worse: the effective seizing of the means of production. The White House says nothing of the sort is going on. Jackson, the former chief of staff to lame-duck New Jersey Gov. Jon Corzine, is an independent, disinterested public servant simply following sound science with no concern for politics.

If Jackson cares so much about sound science, why is she basing some of her policies on data from the discredited scientific frat house, the Climatic Research Unit?

If Jackson cares so little about politics, why did she make her announcement to such fanfare at the opening of Climapalooza in Copenhagen?

In fairness, Jackson is only a Medusa's head to those who care desperately about economic growth and who don't think draconian taxes on energy and massive wealth transfers for white elephants in the Third World are the answer to our problems. But for others, she represents another icon from Greek mythology: the Golden Fleece.

Jason and his Argonauts set out to find the fleece so they might place Jason on the throne of Iolcus. The original story is one of power-seeking in a noble cause.

It's debatable whether the modern tale of Jackson and the Goregonauts is quite so noble. But it's obvious they're interested in power and hell-bent on fleecing.

Indeed, some of loudest voices have a weird habit of telegraphing their priorities. Tim Wirth, a former Senator and now chairman of the United Nations Foundation, once said: "We've got to ride the global-warming issue. Even if the theory of global warming is wrong, we will be doing the right thing, in terms of economic policy and environmental policy." New York Times columnist and prominent warm-monger Thomas Friedman has repeatedly said (most recently this week) that he doesn't care if global warming is a "hoax" because even if it is, the fear of it will force us to do what we need to do.

And it just so happens that with the exception of nuclear power -- which most greens still won't support -- global warming fuels nearly every progressive ambition. Wealth transfers from rich to poor nations: Check. The rise of "global governance" and the decline of American sovereignty: Check. A secular fatwa not only to erode capitalism but to intrude on every aspect of our lives (Greenpeace offers a guide to carbon-neutral sex): Check. Weaning us off of oil (which, don't let the Goregonauts fool you, was a priority back when we were still worried about global cooling): Check. The checks go on for as far as the eye can see, and we will be writing them for years to come.

http://townhall.com/columnists/JonahGoldberg/2009/12/11/global_warming_as_a_political_tool

[Crafty_Dog]

http://coburn.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=a28a4590-10ac-4dc1-bd97-df57b39ed872

[Crafty_Dog]

Geothermal Project in California Is Shut Down


By JAMES GLANZ
Published: December 11, 2009
The company in charge of a California project to extract vast amounts of renewable energy from deep, hot bedrock has removed its drill rig and informed federal officials that the government project will be abandoned.


AltaRock Energy has told the Department of Energy it has removed its drill rig, shown above in May, from a Northern California site and abandoned the project. The project by the company, AltaRock Energy, was the Obama administration’s first major test of geothermal energy as a significant alternative to fossil fuels and the project was being financed with federal Department of Energy money at a site about 100 miles north of San Francisco called the Geysers.  But on Friday, the Energy Department said that AltaRock had given notice this week that “it will not be continuing work at the Geysers” as part of the agency’s geothermal development program.

The project’s apparent collapse comes a day after Swiss government officials permanently shut down a similar project in Basel, because of the damaging earthquakes it produced in 2006 and 2007. Taken together, the two setbacks could change the direction of the Obama administration’s geothermal program, which had raised hopes that the earth’s bedrock could be quickly tapped as a clean and almost limitless energy source.

The Energy Department referred other questions about the project’s shutdown to AltaRock, a startup company based in Seattle. Reached by telephone, the company’s chief operations officer, James T. Turner, confirmed that the rig had been removed but said he had not been informed of the notice that the company had given the government. Two other senior company officials did not respond to requests for comment, and it was unclear whether AltaRock might try to restart the project with private money.

In addition to a $6 million grant from the Energy Department, AltaRock had attracted some $30 million in venture capital from high-profile investors like Google, Khosla Ventures and Kleiner Perkins Caufield & Byers.

“Some of these startup companies got out in front and convinced some venture capitalists that they were very close to commercial deployment,” said Daniel P. Schrag, a professor of geology and director of the Center for the Environment at Harvard University.

Geothermal enthusiasts asserted that drilling miles into hard rock, as required by the technique, could be done quickly and economically with small improvements in existing methods, Professor Schrag said. “What we’ve discovered is that it’s harder to make those improvements than some people believed,” he added.

In fact, AltaRock immediately ran into snags with its drilling, repeatedly snapping off bits in shallow formations called caprock. The project’s safety was also under review at the Energy Department after federal officials said the company had not been entirely forthcoming about the earthquakes produced in Basel in making the case for the Geysers project.

The results of that review have not yet been announced, but the type of geothermal energy explored in Basel and at the Geysers requires fracturing the bedrock then circulating water through the cracks to produce steam. By its nature, fracturing creates earthquakes, though most of them are small.

On Friday, the Energy Department, which has put some $440 million into its geothermal program this year alone, said that despite the latest developments, it remained confident of the technology’s long-term prospects. Many geothermal methods do not require drilling so deep or fracturing bedrock.

“The Department of Energy believes that geothermal energy holds enormous potential to heat our homes and power our economy while decreasing our carbon pollution,” said Stephanie Mueller, a spokeswoman.

AltaRock has also received some $25 million in federal money for a project in Oregon, and some scientists speculated on Friday that after the spate of problems at the Geysers, the company wanted to focus on a new site.

But the company, whose project at the Geysers was located on land leased from the federal government by the Northern California Power Agency, has held information about its project tightly. Not even the power agency has been informed of AltaRock’s ultimate intentions at the site, said Murray Grande, who is in charge of geothermal facilities for the agency.

“They just probably gave up, but we don’t know,” Mr. Grande said. “We have nothing official from them at all.”

But a resident of the nearby town of Anderson Springs, which is already shaken by quakes generated by less ambitious geothermal projects, reacted with jubilation when told it appeared the new project was ending.

“How I feel is beyond anything that words can express,” said the resident, Jacque Felber, who added that an unnerving quake had rattled her property the night before. “I’m just so relieved, because with this going on, I’m afraid one of these days it’s going to knock my house off the hill.”

[Body-by-Guinness]

FAA Says Wasteful Spending ‘All Good’

Posted by Tad DeHaven

It’s not uncommon to hear the claim made that the “stimulus” would have had a greater economic impact had the money been focused on infrastructure. But proponents of public “investment” in infrastructure seem to forget that the government allocates capital on the basis of politics rather than economics. Government is naturally inefficient because it is immune to the market signals that guide private actors who stand to lose their own money should an investment not pan out.

A perfect example is federal spending on airport infrastructure. The USA Today’s Thomas Frank has been doing good work looking at how the Federal Aviation Administration distributes funds to the nation’s airports. In his latest piece, Frank analyzed FAA records obtained under the Freedom of Information Act and found that taxpayer money is being put to questionable use:

Airports have spent $3.5 billion in federal money since 1998 on projects the Federal Aviation Administration rated as low priority because they do little to improve the most pressing needs in the nation’s aviation system…The money comes from a program that is supposed to improve aviation safety…But the program also has funded terminals at little-used airports, hangars to store private jets, and parking areas that are free to customers.

For example, Frank reports on Pellston Regional Airport in Michigan, which “used $7.5 million in federal funds to build a terminal with stone fireplaces and cathedral ceilings. The airport averages three departures a day.”

But the FAA sees it differently:

‘They’re all good projects,’ said Catherine Lang, FAA acting associate administrator for airports.

C@L readers who get stuck in congested airports this holiday season may wish to keep that quote in mind.

In a sister piece, Frank quotes Lang as saying that the terminals at these airports are “crumbling, loaded with asbestos and have no other source [of money].” If airport infrastructure in this country is truly crumbling, then why is the FAA expending scarce resources on stone fireplaces?

Frank cites more examples:

Lake Cumberland Regional Airport in Kentucky got $3.5 million to build a glass-fronted terminal in 2004 that was largely unused until the first passenger flights began this June. The airport now has six flights a week.

Montgomery Regional Airport in Alabama got $22 million to build a $35 million terminal with a sloping glass facade and a rotunda topped with a domed ceiling that reflects the historical architecture of the state Capitol.

Halliburton Field Airport in Duncan, Okla., got $700,000 for a terminal with a pilot room and a reception room. The airport, open only to private planes, has 24 landings and takeoffs a day, mostly local pilots in piston-engine planes.

We should be looking to privatize infrastructure as this Cato op-ed states:

First, privatization would reduce the responsibilities of the government so that policymakers could better focus on their core responsibilities, such as national security. Second, there is vast foreign privatization experience that could be drawn upon in pursuing U.S. reforms. Third, privatization would spur economic growth by opening new markets to entrepreneurs.

I suppose the drawback would be that politicians would be denied the fun of spending other people’s money, not to mention the campaign contributions.

http://www.cato-at-liberty.org/2009/12/15/faa-says-wasteful-spending-all-good/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Cato-at-liberty+%28Cato+at+Liberty%29

[Crafty_Dog]

Unemployment funds going broke

December 22, 2009 - 5:23am

WASHINGTON - Joblessness is becoming such a drain on state unemployment funds that 40 states will go broke within two years.


Those states need $90 billion in loans to keep issuing benefit checks, The Washington Post reports.

The projection comes from Department of Labor estimates.

Twenty five states have already run out of benefit money and had to borrow $24.2 billion from the government. Virginia is among those states.
The options may be to cut unemployment benefits or raise payroll taxes, something that industry and business groups oppose.

Experts say the problems have occurred because states failed to prepare for the economic downturn.
(Copyright 2009 by WTOP. All Rights Reserved.)
__________________

[Rarick]

I know a couple of guys that cannot find a job that pays more than unemployment............

They both had jobs that allow for them to collect a substantial check, but they cannot get back into the work force at their previous level, and cannot support their "basics" for below a certain wage. That is a couple $ an hour above unemployment but below what they were earning.  I suspect a lot of people are in that sort of catch 22.

(Try getting laid off from a 20$ hour job and living on unemployment, now add the stress of trying to collect at least 14$ an hour at a new job which is not hiring.  There are a lot of 10$ an hour jobs, but they are paying less than unemployment, so why take the job? Maybe when the benefits run out yes, but until then.......)

[Body-by-Guinness]

http://reason.com/archives/2009/12/29/black-liquor-binge
Reason Magazine


Black Liquor Binge

Bringing an end to the costly and unnecessary Alternative Fuel Mixture Credit

Greg Beato | December 29, 2009

Thanks to a federal tax credit that was originally introduced in 2005 to encourage motor vehicle users to add a little biomass fuel to their diesel, the stench of rotting eggs that permeates the air in mill towns like Coosa Pines, Alabama and Baileyville, Maine smelled as sweet as perfume this year. That’s because the stench results from the incineration of black liquor, and in 2009, burning this sticky, chemical-laced byproduct of the wood-pulping process proved far more profitable to the pulp and paper industry than actually selling newsprint, cardstock, or any of the other myriad products it manufactures. On December 31st, however, the good times come to an end.

In a year where the government famously entered the automobile business and spent months trying to increase its presence in the healthcare industry as well, state support of the pulp and paper industry went largely unnoticed by the general public. On the level of sheer weirdness, and as a case study in unintended consequences, however, it was at least the equal of the more notorious bailouts. In one year, approximately three dozen companies received upwards of $8 billion from the U.S. Treasury for increasing their consumption of diesel fuel when they were supposed to be decreasing it, depressing worldwide paper prices at a time when demand for paper isn’t particularly strong, and discouraging the production of recycled paper in the name of environmental sustainability. Oh, and as if that weren’t enough, they almost started a war—okay, a trade war—with Canada!

The elixir at the heart of all this drama is a sticky, chemical-ridden substance known as black liquor. To turn trees into the glossy pages of your favorite magazines and catalogs, pulp mills first “cook” wood chips in a broth of sodium hydroxide and sodium sulfide. This extracts the cellulose fibers from the chips that eventually get made into paper; the dark mixture that remains, which consists mostly of lignon and chemicals, is known as black liquor.

In bygone days, and even in more recent times, pulp mills used to dump 
this black liquor into those natural but not terribly efficient recycling bins otherwise known as lakes and rivers. As early as the 1930s, however, the industry had also started incinerating black liquor in recovery boilers. This allowed pulp mill operators to reclaim still-useable chemicals and also to create something that could in turn power turbogenerators. In this manner, they were able to create electricity they could use to run their machinery.

Today, the pulp and paper industry generates approximately two-thirds of the energy it uses through such processes. Some mills produce so much energy via black liquor and other renewable byproducts that they sell it to local 
utilities.

When Senator Chuck Grassley (R–Iowa) proposed a 50 cents per gallon 
tax credit for alternative fuel users as part of 2005’s Safe, Accountable, Flexible, Efficient, Transportation Equity Act, he reportedly wasn’t thinking about black liquor or the pulp and paper industry. Instead, he wanted to encourage motor vehicle operators to use domestic alternatives rather than imported fossil fuels.

However, while the “Alternative Fuel Credit” section of the statute explicitly states that the credit applies only when the alternative fuel is used in a “motor vehicle or motorboat,” the “Alternative Fuel Mixture Credit” section of the statute is not so explicit. It states that the credit applies to any alternative fuel mixture that is “for sale or use in a trade or business of the taxpayer.” According to a recent press release issued by Rep. Ann Kirkpatrick (D-Ariz.), Congress “expanded the tax credit to allow non-transportation entities to qualify” in 2007.

While most pulp mills were burning pure black liquor in their recovery boilers, some canny alchemist realized that by adding a small amount of diesel to the process, the black liquor would be transformed into an alternative fuel mixture—and thus quality for the 50 cents a gallon tax credit. In late 2008, at least two companies, Verso Paper and International Paper, applied to the IRS for certification as “alternative fuel mixers” and passed muster. Shortly thereafter, the checks started arriving. In February 2009, Verso Paper received a $29.7 million payment from the IRS for its black liquor usage in the last three months of 2008. In March, International Paper received a $71. 6 million payment for the black liquor it used in a month-long period at the end of 2008.

In a March Securities and Exchange Commission filing, Verso revealed that it had received the payment and that more could be on the way. Two weeks later, JPMorgan analyst Claudia Shank Hueston published a briefing on how the industry at large might benefit from this development. After that, every pulp mill in the country started adding adding diesel to its black liquor and the Treasury Department found itself on the hook for what would eventually amount to billions of dollars.

For pulp and paper companies, these are tough times. Thanks to declines in the construction industry and the subsequent sawmill closings, the price of wood chips has gone up even as demand for paper has fallen. Newspapers are shrinking or disappearing altogether, magazines aren’t any healthier, and even junk mailers are showing genuine restraint these days. In good times and bad, digital revolution be damned, we’ll always need toilet paper and cocktail napkins—but that’s not enough to keep the industry afloat. Over the last two years, it lost 25 mills and 250,000 jobs.

In the early months of 2009, worldwide demand for paper was declining and inventory levels were high. For the companies that qualified for the tax 
credit, however, business had fundamentally changed. Instead of producing pulp and paper for their traditional consumers, they were consuming alternative fuel mixtures for the federal government. In the second quarter of the year, Rayonier earned $79 million for burning black liquor and $28 million for selling its products. In the first three quarters of the year, Clearwater Paper earned $87 million for burning black liquor and $48 million for selling its products. During that time, its stock price rose from $15.50 to $59.31.

“The tax credits give U.S. companies a huge incentive to keep their kraft-pulp mills running full bore and then to turn that pulp into paper, even if it has to be sold at rock-bottom prices,” observed the anonymous editor of Dead Tree Edition, a blog that focuses on the production and distribution of print publications. He also noted that mill operators were choosing kraft-pulping over more environmentally friendly methods of pulp production, and surmised that they were likely using such tricks as “cooking” wood fibers longer to maximize their output of black liquor.

In May, Canada, Brazil, Chile, and the European Union sent a letter to Congress threatening trade sanctions against the U.S. in retaliation for the negative 
impact the tax credit was having on global markets. In July, the European Commission accused U.S. paper manufactures of using the no-strings-attached “cash injection” they were getting from the government to “undercut market prices for other wood products” like newsprint.

In response to such criticisms, and as a relatively modest attempt at fiscal restraint, Sen. Grassley and Sen. Max Baucus (D-Mont.) floated the idea of terminating the credit at a Senate Finance Committee meeting in April. Other senators leapt to the paper’s industry’s defense, however. “Given the gravity of our economic circumstances, do we really want to punish an industry that employs 1.3 million Americans?” asked Sen. Olympia Snowe (R-Maine). “Here’s an industry that generates a majority of its own power,” exclaimed Sen. Debbie Stabenow (D-Mich.). “We don’t want to penalize them.”

In less entitled times, words like “punish” and “penalize” were generally associated with phenomena such as jail time, fines, or public floggings. Now, apparently, it’s a penalty when the government stops giving companies piles of cash simply for engaging in practices that are inherently beneficial to them. It’s a brave new world but a costly one. By the time Alternative Fuel Mixture Credit expires on Thursday, the government will have paid out more than $8 billion to a few dozen companies—and to what end? Smurfit-Stone Container, the second-largest recipient of 2009’s black liquor binge, with an estimated take of more than $500 million, is ringing in the new year with permanent mill closures in Frenchtown, Montana and Ontogan, Michigan. Apparently even carbon-neutral fuel can’t propel a company into the future if demand for its products is waning.

Contributing Editor Greg Beato is a writer living in San Francisco. Read his Reason archive here.

[Crafty_Dog]

This year, I've heard how tough it is for folks to get work and make ends meet. But not in Washington. The following facts should make you madder than a hornet's nest hit by a baseball bat. When I started reading this stuff, I wanted to go to Washington and fire the whole lot of 'em.

First, the government is posting data about the stimulus money spending on the website www.recovery.gov for all to see. It's part of the new transparency theme from Obama's team. Hah. If this is the stuff it's willing to disclose, I'd hate to know what it's hiding.

One group I trust, the nonprofit investigative news outlet ProPublica, has organized the "recovery" data by state and reported stimulus spending per capita in places around the country.

In most states, the numbers are kind of boring... per capita (per person) spending exceeds $1,000 in only 15 states, and the average of those 15 is $1,241. In the other 35 states, the amount is closer to $900 a head.

However, in D.C., per capita spending totals $5,276.84. Yep, you read that right. Spending in D.C. is at least four times higher than the next 15 states and nearly six times higher than the other 35 states. This means in the area surrounding the capital, thousands of bureaucrats are feeding themselves from the taxpayer trough. They're taking our hard-earned money and spending it on questionable programs.

Consider this outrage: Last summer, internships in D.C. paid city youths for essentially doing nothing. The government gave several hundred disadvantaged kids "internships" to come and learn about politics and the capital. They were supposed to show up every day, check in, and shadow some politicos. Apparently, over the whole summer, only a couple showed up out of hundreds, yet they all got paid. Imagine the lessons they learned. It's a mockery of the ethics of hard work and responsibility.

But it gets worse. The newspaper USA Today reports that before the recession started, the Department of Transportation employed only one person earning more than $170,000 a year. (I might argue even one is too many). Today, more than 1,690 people there earn more than $170,000.

That's not a typo... In 18 months, the government has increased the number of people in one federal department making more than $170,000 by hundreds of thousands of percent. While the average American worries about making ends meet, these federal bureaucrats are taking more and more of our tax dollars. Moreover, I don't understand how there needs to be more than a few people at the Department of Transportation making that kind of money, yet there are thousands of them.

Look, the average federal worker makes $71,206 versus $40,331 in the private sector. I think this is absurd. And the counterargument from the government affairs director at a federal employees union is laughable. It's "because the government employs skilled people," he told the USA Today.

Take the Secret Service. They couldn't keep two party-crashers out of the president's home – I'm sure you heard how a couple walked into a White House State Dinner uninvited and unchallenged at the door. It turns out, hundreds of these sorts of security lapses have gone on under the Secret Service's watch.

Folks, please listen... This nonsense will lead to higher and higher taxes. Unless we tell people in power to stop the nonsense immediately, things will go from bad to worse really quickly. I can't spend more than I earn. Neither can you. What makes lazy government bureaucrats think it works differently when they're spending someone else's money?

I encourage you to do what I do and write your local and national elected officials and tell them to stop spending our hard-earned money and start cutting taxes so people can get back to work. And also remember in upcoming election cycles to vote for people who will be fiscally responsible (we'll try and keep track of this for the 2010 elections). Sitting around and doing nothing about it is simply condoning the behavior.

And finally, I'm often asked if things I do work. Honestly, I don't know because it's hard to test something like writing my elected officials. But unless they know you are mad about government spending and money wasting, there's no chance they'll pull their snouts from Washington's feed trough.

**********

If you don't believe me that taxes will skyrocket across states, cities, and municipalities soon, then just look at what's happening at public airport authorities. I recently rented a car from the Minneapolis airport... I paid a 56% tax on the rental. Seriously... here's my car rental bill:

Base Rate $65
Facility Fee $9.75
Recovery Fee $6.82
Rental Tax $4.03
Vehicle Rental Fee $3.25
Energy Recovery Fee $3
Loyalty Charge $3
Sales Tax $ 6.90
Total Charge $101.75
 That $36.75 equates to a 56% tax rate on the $65 the rental company charges. Think about that for a moment, a 56% tax! And it all reflects pass-along fees and taxes imposed by the airport authority, a state government entity.

Local governments are hurting for money so badly they're dreaming up new ways to raise revenues and that means fees and taxes for everything.

I suspect this sort of taxation will get worse. In many states, income and real estate tax revenues are plummeting... that means taxing consumption – on things like rental cars, gasoline, and even college tuition – is one of the few options left.

Let's hope the Feds don't get any ideas.

[DougMacG]

'Minneapolis car rental tax 60%.'  His itemization missed the sales tax surcharge for the outdoor ballpark totally unusable here in April and November.  I recall that in Denver car rental tax is worse, a lower tax state but a newer airport.  They think it is free money since the tourist doesn't get to vote.  Then they dream up subsidy schemes and incentives because tourism is down.  Go figure.  The home phone tax is also 60% with a similarly long list.  Hurts the poor worst who do not even pay it because they no longer afford landlines.  When their prepaid cell minutes run out they are out of luck, out of touch, out of job contact etc.  Same for the energy bill, quite a few fees before the first kilowatt hour gets billed.  In the land of lakes we have the 'cabin tax'.  Again tax the non local resident at a higher rate since they can't vote in the district or do anything about it, then up go the new schools and government centers of construction to make the great pyramids blush.  My total property taxes alone are more than food, clothing and shelter costs combined.  That's before federal and state income taxes and the returning 55% death tax.  Ahhhh...  freedom and limited government in the greatest country on earth.  What could possibly go wrong?

[Crafty_Dog]

Living on Nothing but Food Stamps

 
By JASON DEPARLE and ROBERT M. GEBELOFF
Published: January 2, 2010
CAPE CORAL, Fla. — After an improbable rise from the Bronx projects to a job selling Gulf Coast homes, Isabel Bermudez lost it all to an epic housing bust — the six-figure income, the house with the pool and the investment property.


“Without food stamps we’d probably be starving,” said Rex Britton, who has had trouble finding paving work and lives with his girlfriend, Amy Freeman. More Photos »

The Safety Net
Zero Income
With millions of jobs lost and major industries on the ropes, America’s array of government aid — including unemployment insurance, food stamps and cash welfare — is being tested as never before. This series examines how the safety net is holding up under the worst economic crisis in decades.


Now, as she papers the county with résumés and girds herself for rejection, she is supporting two daughters on an income that inspires a double take: zero dollars in monthly cash and a few hundred dollars in food stamps.

With food-stamp use at a record high and surging by the day, Ms. Bermudez belongs to an overlooked subgroup that is growing especially fast: recipients with no cash income.

About six million Americans receiving food stamps report they have no other income, according to an analysis of state data collected by The New York Times. In declarations that states verify and the federal government audits, they described themselves as unemployed and receiving no cash aid — no welfare, no unemployment insurance, and no pensions, child support or disability pay.

Their numbers were rising before the recession as tougher welfare laws made it harder for poor people to get cash aid, but they have soared by about 50 percent over the past two years. About one in 50 Americans now lives in a household with a reported income that consists of nothing but a food-stamp card.

“It’s the one thing I can count on every month — I know the children are going to have food,” Ms. Bermudez, 42, said with the forced good cheer she mastered selling rows of new stucco homes.

Members of this straitened group range from displaced strivers like Ms. Bermudez to weathered men who sleep in shelters and barter cigarettes. Some draw on savings or sporadic under-the-table jobs. Some move in with relatives. Some get noncash help, like subsidized apartments. While some go without cash incomes only briefly before securing jobs or aid, others rely on food stamps alone for many months.

The surge in this precarious way of life has been so swift that few policy makers have noticed. But it attests to the growing role of food stamps within the safety net. One in eight Americans now receives food stamps, including one in four children.

Here in Florida, the number of people with no income beyond food stamps has doubled in two years and has more than tripled along once-thriving parts of the southwest coast. The building frenzy that lured Ms. Bermudez to Fort Myers and neighboring Cape Coral has left a wasteland of foreclosed homes and written new tales of descent into star-crossed indigence.

A skinny fellow in saggy clothes who spent his childhood in foster care, Rex Britton, 22, hopped a bus from Syracuse two years ago for a job painting parking lots. Now, with unemployment at nearly 14 percent and paving work scarce, he receives $200 a month in food stamps and stays with a girlfriend who survives on a rent subsidy and a government check to help her care for her disabled toddler.

“Without food stamps we’d probably be starving,” Mr. Britton said.

A strapping man who once made a living throwing fastballs, William Trapani, 53, left his dreams on the minor league mound and his front teeth in prison, where he spent nine years for selling cocaine. Now he sleeps at a rescue mission, repairs bicycles for small change, and counts $200 in food stamps as his only secure support.

“I’ve been out looking for work every day — there’s absolutely nothing,” he said.

A grandmother whose voice mail message urges callers to “have a blessed good day,” Wanda Debnam, 53, once drove 18-wheelers and dreamed of selling real estate. But she lost her job at Starbucks this year and moved in with her son in nearby Lehigh Acres. Now she sleeps with her 8-year-old granddaughter under a poster of the Jonas Brothers and uses her food stamps to avoid her daughter-in-law’s cooking.

“I’m climbing the walls,” Ms. Debnam said.

Florida officials have done a better job than most in monitoring the rise of people with no cash income. They say the access to food stamps shows the safety net is working.

“The program is doing what it was designed to do: help very needy people get through a very difficult time,” said Don Winstead, deputy secretary for the Department of Children and Families. “But for this program they would be in even more dire straits.”

But others say the lack of cash support shows the safety net is torn. The main cash welfare program, Temporary Assistance for Needy Families, has scarcely expanded during the recession; the rolls are still down about 75 percent from their 1990s peak. A different program, unemployment insurance, has rapidly grown, but still omits nearly half the unemployed. Food stamps, easier to get, have become the safety net of last resort.

==========

“The food-stamp program is being asked to do too much,” said James Weill, president of the Food Research and Action Center, a Washington advocacy group. “People need income support.”



With millions of jobs lost and major industries on the ropes, America’s array of government aid — including unemployment insurance, food stamps and cash welfare — is being tested as never before. This series examines how the safety net is holding up under the worst economic crisis in decades.



Food stamps, officially the called Supplemental Nutrition Assistance Program, have taken on a greater role in the safety net for several reasons. Since the benefit buys only food, it draws less suspicion of abuse than cash aid and more political support. And the federal government pays for the whole benefit, giving states reason to maximize enrollment. States typically share in other programs’ costs.

The Times collected income data on food-stamp recipients in 31 states, which account for about 60 percent of the national caseload. On average, 18 percent listed cash income of zero in their most recent monthly filings. Projected over the entire caseload, that suggests six million people in households with no income. About 1.2 million are children.

The numbers have nearly tripled in Nevada over the past two years, doubled in Florida and New York, and grown nearly 90 percent in Minnesota and Utah. In Wayne County, Mich., which includes Detroit, one of every 25 residents reports an income of only food stamps. In Yakima County, Wash., the figure is about one of every 17.

Experts caution that these numbers are estimates. Recipients typically report a small rise in earnings just once every six months, so some people listed as jobless may have recently found some work. New York officials say their numbers include some households with earnings from illegal immigrants, who cannot get food stamps but sometimes live with relatives who do.

Still, there is little doubt that millions of people are relying on incomes of food stamps alone, and their numbers are rapidly growing. “This is a reflection of the hardship that a lot of people in our state are facing; I think that is without question,” said Mr. Winstead, the Florida official.

With their condition mostly overlooked, there is little data on how long these households go without cash incomes or what other resources they have. But they appear an eclectic lot. Florida data shows the population about evenly split between families with children and households with just adults, with the latter group growing fastest during the recession. They are racially mixed as well — about 42 percent white, 32 percent black, and 22 percent Latino — with the growth fastest among whites during the recession.

The expansion of the food-stamp program, which will spend more than $60 billion this year, has so far enjoyed bipartisan support. But it does have conservative critics who worry about the costs and the rise in dependency.

“This is craziness,” said Representative John Linder, a Georgia Republican who is the ranking minority member of a House panel on welfare policy. “We’re at risk of creating an entire class of people, a subset of people, just comfortable getting by living off the government.”

Mr. Linder added: “You don’t improve the economy by paying people to sit around and not work. You improve the economy by lowering taxes” so small businesses will create more jobs.

With nearly 15,000 people in Lee County, Fla., reporting no income but food stamps, the Fort Myers area is a laboratory of inventive survival. When Rhonda Navarro, a cancer patient with a young son, lost running water, she ran a hose from an outdoor spigot that was still working into the shower stall. Mr. Britton, the jobless parking lot painter, sold his blood.

Kevin Zirulo and Diane Marshall, brother and sister, have more unlikely stories than a reality television show. With a third sibling paying their rent, they are living on a food-stamp benefit of $300 a month. A gun collector covered in patriotic tattoos, Mr. Zirulo, 31, has sold off two semiautomatic rifles and a revolver. Ms. Marshall, who has a 7-year-old daughter, scavenges discarded furniture to sell on the Internet.

They said they dropped out of community college and diverted student aid to household expenses. They received $150 from the Nielsen Company, which monitors their television. They grew so desperate this month, they put the breeding services of the family Chihuahua up for bid on Craigslist.

“We look at each other all the time and say we don’t know how we get through,” Ms. Marshall said.

===========

(Page 3 of 3)



Ms. Bermudez, by contrast, tells what until the recession seemed a storybook tale. Raised in the Bronx by a drug-addicted mother, she landed a clerical job at a Manhattan real estate firm and heard that Fort Myers was booming. On a quick scouting trip in 2002, she got a mortgage on easy terms for a $120,000 home with three bedrooms and a two-car garage. The developer called the floor plan Camelot.

With millions of jobs lost and major industries on the ropes, America’s array of government aid — including unemployment insurance, food stamps and cash welfare — is being tested as never before. This series examines how the safety net is holding up under the worst economic crisis in decades.


“I screamed, I cried,” she said. “I took so much pride in that house.”
Jobs were as plentiful as credit. Working for two large builders, she quickly moved from clerical jobs to sales and bought an investment home. Her income soared to $180,000, and she kept the pay stubs to prove it. By the time the glut set in and she lost her job, the teaser rates on her mortgages had expired and her monthly payments soared.

She landed a few short-lived jobs as the industry imploded, exhausted her unemployment insurance and spent all her savings. But without steady work in nearly three years, she could not stay afloat. In January, the bank foreclosed on Camelot.

One morning as the eviction deadline approached, Ms. Bermudez woke up without enough food to get through the day. She got emergency supplies at a food pantry for her daughters, Tiffany, now 17, and Ashley, 4, and signed up for food stamps. “My mother lived off the government,” she said. “It wasn’t something as a proud working woman I wanted to do.”

For most of the year, she did have a $600 government check to help her care for Ashley, who has a developmental disability. But she lost it after she was hospitalized and missed an appointment to verify the child’s continued eligibility. While she is trying to get it restored, her sole income now is $320 in food stamps.

Ms. Bermudez recently answered the door in her best business clothes and handed a reporter her résumé, which she distributes by the ream. It notes she was once a “million-dollar producer” and “deals well with the unexpected.”

“I went from making $180,000 to relying on food stamps,” she said. “Without that government program, I wouldn’t be able to feed my children.”

[G M]

http://hotair.com/archives/2010/01/04/27-million-in-porkulus-money-spent-in-nonexistent-zip-codes/

$27 million in Porkulus money spent in nonexistent zip codes

[ccp]

One in eight Americans now receives food stamps, including one in four children

Incredible.

But I just don't get it. 

We have illegals coming here by the millions and finding work and yet we have people who ?are Americans (some probably are also illegal) who claim they cannot find any job at all?

Why is this NEVER addressed by the mainstream propaganda media??

Yet we have foreigners going to our schools, getting Medicaid and Medicare - I think I know how they do it - the have relatives who come here and work or own businesses and they put their relatives on a payroll claiming payroll taxes and then later they get them Medicare.

Yet Americans cannot find a job.

And the liberal answers to everything.  Tax and give out more handouts.

[DougMacG]

CCP: "One in eight Americans now receives food stamps, including one in four children.  Incredible...
Yet Americans cannot find a job."

I can't add much to what you wrote, just appreciate that someone else notices this stuff.  With unemployment pay, you are required to job search or pretend job search and fill out forms.  With food stamps - no such thing.  They are marketed on television as being cool and for almost anyone.  There is no stamp anymore, just a free credit card with money put on it automatically on a regular basis.  There are restrictions on what you can buy with it but the restricted free dollars are very openly sold in the inner cities at fifty cents on the dollar for cash that can be used for the other necessities of life like booze and drugs.

As an inner city landlord what I am noticing more is how it seems almost everyone gets a disability check, SSI for kids, adults, anyone.  No visible disability ever it seems.  Sometimes I ask and hear about a healthy twenty something year old with a bad back while my 85 year old parents both keep working because they can.  Sometimes I think it may be something more like ADHD or learning disability but it always seems to be something subtle. No wheelchairs or amputees in my experience.  Steep stairs, no problem.  They move the beds and dressers in and if they need a refrigerator or washing machine moved in somehow they find a way to get it done, but not work or job hunting.   - From the original story, "she did have a $600 government check to help her care for (her own daughter!) Ashley, who has a developmental disability."

The new healthcare bill puts people at 400% of the poverty rate in the subsidy pool.  Families of 4 making $88,000 on welfare - the public dole.

What is sad is that it is the government's goal to get more and more people on assistance (and politically supporting the programs) when it seems to me the goal should be to get more and more people OFF of assistance.

CCP, you, me, Crafty?, and about 7 other people on earth seem to get this and everyone else seems to have that 'see no evil', 'what's the problem' reaction to it all as it grows and grows and continues to swallow up more and more people in more and more ways enticing them to move away from work ethic and individual responsibility toward a dependency mentality and adopting the 'welfare rights' agenda.   - The underlying point of the original NYT piece was: why aren't these programs much bigger and easier to get!

The immigration aspect is whole 'nother deal.  I first tried to post the swedish muslim riot video under the health care thread.  They come for the world's greatest free benefits  - for doing nothing.  Same goes for the riot videos from Chicago.  Minneapolis has shorter lines, better services and higher benefits, so if you are a 4th generation welfare recipient in Chicago and want to make a 'better life' for you and your family, move to Mpls. and start applying for all the programs, free health care, free food, free clothing, cab rides to your appointments, section 8 housing, and on and on.  And they come.  The largest US Somali population is in Mpls.  The largest Hmong location is Mpls-St.Paul.  Yet the inner city neighborhoods have no major employers.  Unfortunately, that is no problem because they didn't come looking for employers.

[Crafty_Dog]

Good post.

Like the eternal flame of the Hanukah menorah, we seek to keep the flame of Truth alive around here.  It is always darkest before the dawn.  Ben Franklin told us the Constitution gave us a republic "if we can keep it."  Time to stand up for the American Creed.

[ccp]

I can only pray we get someone who is a spokesman for the Americans who are still probably slightly in the majority who have to pay for all this abuse of the "system" and hence them before they become the minority.  This critical tipping point seems nearer and nearer.

There is no question in my mind this is part of the grand design of the people who chose Bama as their One spokesperson.
Make no mistake he believes in this socialistic agenda fervently.
He only pretends to believe in the American just enough to hold onto power.

He is only coming out with a big mouth now on terrorism in words only and only precisely because he IS falling in the polls and he knows he is vulnerable on this.  Don't think for one second this guy is tough on terror.

But I think I preach to the choir here unfortunately. Except for Fox and talk radio this country is screwed.

[G M]

The public is waking up and the Obama koolaid is turning bitter in many mouths.

[ccp]

I have had a few people say they are being told more and more that people who supported Bama are now admitting they were wrong about him.

This is purely anecdotal but I hope the tide has turned.

[Crafty_Dog]

I too am hearing this.

[Crafty_Dog]

No Shock: Stimulus Is A Money Loser
Posted 01/12/2010 06:36 PM ET
IBD
 

Economic Recovery: The results are in, and last year's $787 billion stimulus not only failed to do what it was supposed to do, but it has also turned out to be one of the worst investments in economic history.

Remember the debate in 2008 over the bailouts then being put together by the Treasury, the Fed and the Democratic Congress? Proponents often raised the possibility that any bailout would make money for taxpayers.

Didn't work that way. As we've discovered, the American people aren't just saddled with the ongoing costs of the various and sundry stimulus programs. They're also taking huge losses in doing so.

On Tuesday, the Treasury estimated that taxpayers had lost $68.5 billion in the fiscal year ended Sept. 30, 2009, on the Troubled Asset Relief Program and that the losses could go as high as $120 billion.

That isn't imaginary cash stuffed under some government cushion. It's a tax on you that comes straight out of your pocket. It's money that won't be used to fund private-sector jobs or pay for a child's education or a new house. It's gone.

Meanwhile, the Federal Reserve says it earned $45 billion last year — the largest one-year profit in its 96-year history.

As the Washington Post points out, that will easily eclipse "the expected profits of Bank of America, Goldman Sachs and JPMorgan Chase combined."

Why the big Fed profit? Basically, it printed money, bought Treasuries and private bonds with what it printed (we called it a bailout), then watched as interest on the investments flowed in. At year-end, the Fed held $1.8 trillion in U.S. government debt and mortgage securities, up from $497 billion a year earlier.

Don't worry, though. The Fed doesn't keep the money. It goes to the Treasury — which will just spend the money on something else.

All of this only underscores how badly the so-called stimulus has turned out. After trillions of dollars in outlays by the Fed, Treasury and Congress, the U.S. has zero net new jobs to show for it. Zip.

In fact, jobs at private businesses shrank by 4 million in 2009.

Nor have banks started lending to small and midsize businesses. Commercial and industrial loans, the lifeblood of U.S. industry, fell $252 billion, or nearly 16%, from January through November.

Why aren't profitable banks lending to businesses? Good question. For one thing, like the Fed, banks have found a sure thing in round-tripping bailout funds provided at virtually zero interest into Treasuries yielding 3%. No risk, all gain.

[Crafty_Dog]

The piece misses the point that the better strategy would be NOT to have stimulus, but does note the massiveness of the fraud coming down the pike.
=========================

By DANIEL J. CASTLEMAN
The Obama administration—and state and local governments—should brace themselves for fraud on an Olympic scale as hundreds of billions of taxpayer dollars continue to pour into job creation efforts.

Where there are government handouts, fraud, waste and abuse are rarely far behind. The sheer scale of the first and expected second stimulus packages combined with the multitiered distribution channel—from Washington to the states to community agencies to contractors and finally to workers—are simply irresistible catnip to con men and thieves.

There are already warning signs. The Department of Energy's inspector general said in a report in December that staffing shortages and other internal weaknesses all but guarantee that at least some of the agency's $37 billion economic-stimulus funds will be misused. A tenfold increase in funding for an obscure federal program that installs insulation in homes has state attorneys general quietly admitting there is little hope of keeping track of the money.

While I was in charge of investigations at the Manhattan District Attorney's office, we brought case after case where kickbacks, bid-rigging, false invoicing schemes and outright theft routinely amounted to a tenth of the contract value. This was true in industries as diverse as the maintenance of luxury co-ops and condos, interior construction and renovation of office buildings, court construction projects, dormitory construction projects, even the distribution of copy paper. In one insurance fraud case, the schemers actually referred to themselves as the "Ten Percenters."

Based on past experience, the cost of fraud involving federal government stimulus outlays of more than $850 billion and climbing could easily reach $100 billion. Who will prevent this? Probably no one, particularly at the state and local level.

New York, for instance, has an aggressive inspector general's office, with experienced and dedicated professionals. But, it is already woefully understaffed—with a head count of only 62 people—to police the state's already existing agencies and programs. There is simply no way that office can effectively scrutinize the influx of $31 billion in state stimulus money.

There is a solution however, which is to set aside a small percentage of the money distributed to fund fraud prevention and detection programs. This will ensure that states and municipalities can protect projects from fraud without tapping already thinly stretched resources.

Meaningful fraud prevention, detection and investigation can be funded by setting aside no more than 2% of the stimulus money received. For example, if a county is to receive $50 million for an infrastructure project, $1 million should be set aside to fund antifraud efforts; if it costs less, the remainder can be returned to the project's budget.

While the most obvious option might be to simply pump the fraud prevention funds into pre-existing law enforcement agencies, that would be a mistake. Government agencies take too long to staff up and rarely staff down.

A better idea is to tap the former government prosecutors, regulators and detectives with experience in fraud investigations now working in the private sector. If these resources can be harnessed, effective watchdog programs can be put in place in a timely manner. Competition between private-sector bidders will also lower the cost.

Some might object to providing a "windfall" to private companies. Any such concern is misplaced. One should not look at the 2% spent, but rather the 8% potentially saved. Moreover, consider the alternative: law enforcement agencies swamped trying to stem the tide of corruption on a shoestring and a prayer.

There will always be individuals who will rip off money meant for public projects. In the aftermath of the 9/11 attacks, and Hurricane Katrina hundreds of people were prosecuted for trying to steal relief funds. But the stimulus funding represents the kind of payday even the most ambitious fraudster could never have imagined

To avoid a stimulus fraud Olympics that will be impossible to clean up, it is better to spend a little now to save a lot later. The savings could put honest people to work and fraudsters out of business.

Mr. Castleman, a former chief assistant Manhattan district attorney, is a managing director at FTI Consulting.

[Body-by-Guinness]

Paying for the Privilege
Wall Street still funds the Democrats who vilify it.

By Kevin Williamson

The new proposed tax on banks — 15 basis points on all liabilities — is not about revenue or responsibility: It’s about politics. President Obama is running away from Wall Street as fast as he can, but Wall Street has a funny way of catching up with him.

As I reported some months ago (“Losing Gordon Gekko,” subscription required), Wall Street is, contrary to stereotype, a strongly Democratic place: Goldman Sachs gave 73 percent of its 2006–08 political money to Democrats, who also took in a majority of the political contributions in that same cycle from Citigroup, JPMorgan Chase, Morgan Stanley, UBS, and Lehman. Democrats took in the majority of the hedge-fund money and the lion’s share of political contributions from six of ten non-financial Big Business sectors: law, health care, defense contractors, communications/electronics, finance/insurance/real estate, and the catch-all category that includes chemical firms, retailers, manufacturers, food processors, and other industrial operators. E. J. Dionne, writing in The New Republic, argues that Obama fears being permanently tagged as a “Wall Street liberal” — which is what he is — and this, not recouping losses from the Troubled Asset Relief Program, is what the bank tax is all about.

But if the Democrats are gluttons for Wall Street money, Wall Street is a glutton for punishment: The president and his party in Congress are engaging in truly dishonest demagoguery — as National Review has noted, TARP losses aren’t coming from the banks, but from largely Democratic messes including AIG, the automakers’ bailouts, and Rep. Barney Frank’s beloved foreclosure-prevention program. But even as the Democrats demonize Wall Street and vilify Big Business in general, the pinstripes-and-obscene-bonuses set continues to write big checks to Obama’s party.

For the 2010 election cycle, Democrats have an enormous lead in almost every business sector they denounce: According to the Center for Responsive Politics, the hedge-fund industry has, so far, given 70 percent of its money for this cycle to Democrats. The numbers for other industries are comparable — insurance: 53 percent to Democrats; mortgage bankers and brokers: 55 percent to Democrats; finance and credit companies: 57 percent to Democrats; pharmaceuticals: 58 percent to Democrats; utilities companies: 59 percent to Democrats; automakers: 64 percent to Democrats; private-equity and investment firms: 74 percent to Democrats. And to top it off, the venture-capital industry has given 75 percent of its contributions to Democrats. There are very few sectors that outperform VC guys in their fealty to the Democratic party — except for usual suspects such as the teachers’ unions (92 percent to Democrats, and it’s a mystery who those Republicans are who took in the other 8 percent).

If you needed any more evidence that this is about politics and not about smart financial regulation, consider that Obama did not even consult his own FDIC chief, Sheila Bair, before announcing his bank-tax plan. Sheila Bair is not exactly a candidate for conservatives’ unalloyed admiration, but the FDIC is one of the few institutions that have performed well during the financial crisis, and her plan for establishing an FDIC-style resolution authority that would charge too-big-to-fail financial institutions an insurance premium in exchange for the government’s support of them in times of financial crisis is something that is endorsed both by many Democrats and, in principle, by the editors of National Review. But such a plan would not allow the president to preen on television and deliver homilies about fat cats and their wicked ways. Meanwhile, note that the president’s allegedly anti-fat-cat agenda is filtered through a bunch of Wall Street guys: Tim Geithner, Rahm Emanuel, etc.

The bank tax is not only a new and unneeded burden on our struggling financial sector, it’s also a long-term competitive disadvantage for American industry: Finance is a cutthroat world, and New York City is in a constant battle with London, Shanghai, and other financial centers for jobs and investment. If it inspires even a handful of firms to relocate, Obama’s new tax could end up costing the government money in the form of forgone revenue from personal-income taxes, corporate-income taxes, and capital-gains taxes. Wall Street’s loss will be the City of London’s gain. The real mystery is why Wall Street is still paying for the privilege of being scourged.

— Kevin Williamson is an NRO deputy managing editor.

National Review Online - http://article.nationalreview.com/?q=NThhNDZkZmQxNjcxZDExYWRjNTJkYmQ4YTFmNjFjNzU=

[ccp]

Well I guess the latest deal made between "law" makers and the unions involving their so called "cadillac plans" shows that donations to the Democrats pays off in great dividends and makes good business sense.

"Wall Street is a glutton for punishment".  There are the Soros of the world - the true believers etc but the rest is simply an investment in the party that holds power.  The NYC insiders know that DC has to do its political grandstading.  But the real deals are made in secret behind closed doors.   Their bribes work obviously.

There is no end to the outrage.  There never will be.

[ccp]

We keep hearing the Dems threaten to use resolution process to ram through the health care bonanza with 51 Senate votes instead of the usual 60 needed for normal bills.

So what is this process?  If I read this correctly the process used multiple times since around 1980 (passed in 1974) is meant to *control* budgets not *explode* them with a takeover of one seventh of the economy.

http://www.rules.house.gov/archives/bud_rec_proc.htm

[Crafty_Dog]

Good question CCP.  Anyone here care to take a stab at answering it?

Separately:

The White House has spent months imploring banks to lend more money, so will President Obama's new proposal to extract $117 billion from bank capital encourage new bank lending?

Just asking. Welcome to one more installment in Washington's year-long crusade to revive private business by assailing and soaking it.

Mr. Obama's new "Financial Crisis Responsibility Fee"—please don't call it a tax—is being sold as a way to cover expected losses in the Troubled Asset Relief Program. That sounds reasonable, except that the banks designated to pay the fee aren't those responsible for the losses. With the exception of Citigroup, those banks have repaid their TARP money with interest.

The real TARP losers—General Motors, Chrysler and delinquent mortgage borrowers—are exempt from the new tax. Why the auto companies? An Administration official told the Journal that the banks caused the crisis that doomed the auto companies, which apparently were innocent bystanders to their own bankruptcy. The fact that the auto companies remain wards of Washington no doubt has nothing to do with their free tax pass.

Also exempt are Fannie Mae and Freddie Mac, which operate outside of TARP but also surely did more than any other company to cause the housing boom and bust. The key to understanding their free tax pass is that on Christmas Eve Treasury lifted the $400 billion cap on their potential taxpayer losses expressly so they can rewrite more underwater mortgages at a loss.

View Full Image

Reuters
 .In other words, the White House wants to tax more capital away from profit-making banks to offset the intentional losses that the politicians have ordered up at Fan and Fred. The bank tax revenue will flow directly into the Treasury to be spent on whatever immediate cause Congress favors. Come the next "systemic risk" bailout, taxpayers will still be on the hook. "Responsibility" is not the word that comes to mind here.

The tax will apply to liabilities that are not already insured by government, so the White House is saying it will deter excessive risk-taking. And it does at least tilt at the role of excessive debt in creating systemic risk. But the heart of the moral hazard for the biggest banks is the implicit government guarantee that they will never be allowed to fail, and the tax does nothing about this.

The tax will be levied on financial companies with more than $50 billion in assets. However, as a too-big-to-fail litmus test, $50 billion can't possibly be the right answer. America has just run the experiment by putting a company bigger than $50 billion—CIT Group—through bankruptcy. By any objective reckoning, there were no systemic consequences. The new $50 billion tax threshold thus increases the scope of future bailouts by drawing a wider circle around firms that can gamble with implicit federal backing.

A better idea is to do the hard policy work of creating a plan that allows failure or else separates traditional banking from hedge-fund trading, as Bank of England Governor Mervyn King and former Federal Reserve Chairman Paul Volcker have suggested.

There's encouraging news that bank failure may still be an option. A bipartisan Senate effort led by Bob Corker (R., Tenn.) and Mark Warner (D., Va.) is considering the creation of a special bankruptcy court to decide whether an institution should go through bankruptcy or be subjected to an FDIC resolution process.

The first route sounds better than the second. Although FDIC Chairman Sheila Bair has been an outspoken advocate for a resolution process with certain punishment for failure, the provisions recently passed by the House would yield the opposite. The FDIC could choose among a number of ways to assist a company, and could decide how hard a bargain to drive with the firm's various creditors as well as discriminate within the same class of creditors. Not even the New York Federal Reserve of AIG fame has been willing to do the latter.

Another idea to reduce the moral hazard of too-big-to-fail would be to restore long-ago limits on leverage. For example, abolish the corporate income tax for financial companies and replace it with a tax on assets that rises with the bank's leverage ratio. There could be a tax-free zone at leverage levels below current regulatory standards. Washington could also reform margin requirements.

These ideas should all be thoughtfully considered, but of course that is hard political work and the biggest banks would oppose them because they secretly like too-big-to-fail. As for the politicians, it's so much easier to blame bankers, deplore their bonuses, tax them, regulate them, accept their campaign contributions and then bail them out while you talk about "change" and "responsibility."

[Crafty_Dog]

The Congressional Budget Office has lopped $20 billion off its estimate of the cost of keeping Fannie Mae and Freddie Mac afloat for the next decade—to a mere $79 billion. That will have to pass for good news, even if the estimate comes loaded with caveats. The bigger story is why the White House continues to keep these wards of the state off-budget.

As the CBO notes in a recent background paper, the standards for when to include government-sponsored entities in the budget go back to the 1960s, when a Presidential commission laid out a set of questions.

To wit: "Who owns the agency?" (In the case of Fan and Fred, taxpayers.) "Who supplies its capital?" (Taxpayers.) "Who selects its managers?" (The federal government.) And finally, "Do the Congress and the President have control over the agency's program and budget, or are the agency's policies the responsibility of the Congress or the President only in some broad ultimate sense?" (The feds have control in every sense.)

Since Hank Paulson placed them in conservatorship in September 2008, Fan and Fred have stopped even pretending to be run for profit. Losses have mounted accordingly: Some $291 billion for taxpayers through 2009, $48 billion for the cost of new business in 2009 alone, and $21 billion more this year. Last August, CBO estimated the 10-year cost to taxpayers of keeping Fannie and Freddie afloat at $389 billion.

Yesterday's estimate reduces that by some 5%, but this assumes the companies will stabilize at a loss rate of nearly $8 billion a year on average over the next decade. CBO bases its projection on an expectation that the housing market will "normalize" as the recession ends. However, there is no more normal in a housing market that now depends almost entirely on government subsidies. The full cost of subsidizing mortgages via Fannie and Freddie, the FHA and Ginnie Mae remains hidden and off the official balance sheet, so there is little political pressure to stop the losses.

As the CBO notes, Fannie and Freddie "purchase mortgages at above-market prices," driving down interest rates and passing some of the savings to home buyers. That subsidy is felt right away, but the risks in providing it are stored up over time, and their real costs may not be felt for years or even decades—as was the case in the years leading up to their spectacular collapse in 2008.

Yet this is precisely the fiction that the Obama Administration seeks to preserve by keeping the cost of Fan and Fred off the government's books. The Administration's budget accounting assumes Fannie and Freddie are private companies. So under its preferred treatment, the only recognized cost to taxpayers is the money that is being pumped in to keep them afloat—$110 billion so far.

That's plenty as it is, but in the wake of their government takeover, there is no justification for pretending that their risks aren't taxpayer risks. This is all the more true with the likes of New York Senator Chuck Schumer giving the companies marching orders to rescue tenants in the Stuyvesant Town development in Manhattan.

We suspect the real reason the White House wants Fan and Fred off budget is to disguise their real costs to taxpayers. They have become off-the-books subsidy engines for the housing lobby, and it is easier to push off the recognition of their losses to some future Administration and Congress rather than pay for them today. The new age of transparency has once again died aborning.

[Body-by-Guinness]

President Obama’s Binge Diet

By Veronique de Rugy
Thursday, January 28, 2010
Filed under: Economic Policy, Government & Politics, Numbers

The proposed budget freeze is akin to skipping dessert after binging at an all-you-can-eat buffet, and still hoping to lose weight.
The president announced in his State of the Union address last night that he will put the federal government on a diet. The centerpiece of this diet, he explained, rests on a three-year freeze of non-defense, non-homeland security discretionary spending starting in fiscal 2011. This, the White House touts, will save taxpayers $250 billion over ten years.

That’s right. President Obama is talking about freezing—not cutting—16 percent of the total fiscal 2011 budget. This is a small part of the budget, especially considering that this portion grew by 16.3 percent between fiscal 2009 and fiscal 2010 (and, once we include all fiscal 2010 spending, this increase will reach 24 percent). And this is on top of the 5.5 percent increase a year during each of the Bush years.

In other words, this budget freeze is akin to skipping dessert after binging at an all-you-can-eat buffet, and still hoping to lose weight.

Using data from the Office of Management and Budget, the chart below shows which part of the budget the president is targeting.



In addition, the across-the-board freeze is so full of caveats and loopholes that it can only be seen as a joke. Here, our dieter isn’t allowed to eat desserts, unless it’s one with chocolate and whipped cream.

For instance, the freeze won’t apply to the $513 billion in unspent stimulus funds. Nor will it apply to the $247 billion of Troubled Asset Relief Program funds or to any of the programs that cash from repaid TARP funds will pay for, such as the $30 billion to prop up community bank lending to small businesses proposed by the president during his speech.

Besides, the president might ask for a freeze, but if history is any guide, Congress won’t give it to him. The president asserted his commitment to his diet by saying that he would veto any spending bill that doesn’t meet his requirement. It will be interesting to see if he can keep this promise, especially considering how unpopular this proposal was among liberals.

In the best-case scenario, the three-year freeze over the course of ten years will save on the order of $250 billion. That amounts to only 0.58 percent of the total federal spending during that period. This seems a rather meek savings especially in light of the CBO data showing ten-year baseline deficits of $6 trillion under current laws.

Last but not least, President Obama outlined a menu of small initiatives aimed at helping middle-class families (increasing child care tax credits) and small businesses (such as eliminating the capital gains tax). He also outlined larger infrastructure initiatives and green energy initiatives. All these measures would be part of a new job bill, which he told Congress he is expecting on his desk soon.

He also announced a series of spending measures to bolster education spending, boost community college education, make college affordable, and expand Pell Grants. He proposed to require that students never have to spend more than 10 percent of their income each year repaying their student loans and to give debt forgiveness to those going into “public service.”

Finally, he asked Congress to pursue healthcare overhaul.

In the end, these initiatives amount to many calories. The total cost of all of the measures will definitely be well over $250 billion over the next ten years. How is that a freeze? Where are the cuts coming from?

Veronique de Rugy is a senior research fellow at The Mercatus Center of George Mason University.

FURTHER READING: De Rugy regularly illustrates the follies of government spending for THE AMERICAN. She recently explained "So How Is the Stimulus Working Out? Part II” and “The High Cost of No Price” for healthcare. “Why Reform Will Cost Taxpayers More, Much More” looks at some of our recent cost overruns in government-driven medical spending. And AEI’s John Makin reviewed the U.S. economy and government policy in “Post Crisis Risks.”
Image by Darren Wamboldt/Bergman Group.

[Body-by-Guinness]

There Is Some Budget Good News, but It Is Actually Really Bad News

Posted by Daniel J. Mitchell

The Office of Management and Budget has released the President’s FY2011 budget and the Congressional Budget Office has released its semi-annual Budget and Economic Outlook. Much of the coverage of these documents has focused on deficit numbers. This is not a trivial concern, particularly since the Bush-Obama policies of bigger government have dramatically boosted red ink.

But the most important numbers in the budget documents are the estimates of what is happening to government spending. The good news is that burden of government spending is projected to decline over the next few years from about 25 percent of GDP to less than 23 percent of GDP.

That’s the good news. The bad news is that federal government outlays only consumed 18.2 percent of economic output when Bush took office. In other words, notwithstanding the good news cited above, the size and scope of government has increased dramatically since 2001. The worse news is that the long-run spending forecasts show a cataclysmic expansion in the burden of government. The “optimistic” estimate is that the federal government will consume more than 30 percent of GDP by 2050 and 40 percent of GDP by 2080.

http://www.cato-at-liberty.org/2010/02/01/there-is-some-budget-good-news-but-it-is-actually-really-bad-news/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Cato-at-liberty+%28Cato+at+Liberty%29

[Body-by-Guinness]

The Federal Government Is Bribing States to Create More Welfare Dependency?!?

Posted by Daniel J. Mitchell

If you want to get depressed or angry, the New York Times has an article celebrating the effort by politicians at all levels of government to lure more people into the food stamp program. New York City is running ads in foreign languagues asking people to stick their snouts in the public trough. The City is even signing up prisoners when they get out of jail. The state of New York, meanwhile, actually set up quotas for enrolling new recipients. And on the federal level, there apparently is a program that gives states “bonuses” for putting more people on the dole. No wonder one out of every eight Americans is receiving food stamps. By the way, this is not just the fault of Democrats. The ranking Republican on the Agriculture Committee is a big defender of the program, in part because of the sordid pact among urban and rural politicians to support each other’s handouts. And President George W. Bush’s food stamp administrator actually had the gall to assert “food stamps is not welfare.” No wonder the burden of federal spending skyrocketed during the reign of so-called compassionate conservatism. The correct policy, of course, is to get the federal government out of the welfare business. If Mayor Bloomberg thinks it is a “civic duty” to expand food stamps, he should see whether New York City voters agree with him – and want to foot the bill.

http://www.cato-at-liberty.org/2010/02/11/the-federal-government-is-bribing-states-to-create-more-welfare-dependency/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Cato-at-liberty+%28Cato+at+Liberty%29

A decade ago, New York City officials were so reluctant to give out food stamps, they made people register one day and return the next just to get an application. The welfare commissioner said the program caused dependency and the poor were “better off” without it. Now the city urges the needy to seek aid (in languages from Albanian to Yiddish). Neighborhood groups recruit clients at churches and grocery stores, with materials that all but proclaim a civic duty to apply — to “help New York farmers, grocers, and businesses.” There is even a program on Rikers Island to enroll inmates leaving the jail. “Applying for food stamps is easier than ever,” city posters say. …These changes, combined with soaring unemployment, have pushed enrollment to record highs, with one in eight Americans now getting aid. “I’ve seen a remarkable shift,” said Senator Richard G. Lugar, an Indiana Republican and prominent food stamp supporter. “People now see that it’s necessary to have a strong food stamp program.” …The program has commercial allies, in farmers and grocery stores, and it got an unexpected boost from President George W. Bush, whose food stamp administrator, Eric Bost, proved an ardent supporter. “I assure you, food stamps is not welfare,” Mr. Bost said in a recent interview. Still, some critics see it as welfare in disguise and advocate more restraints. …The federal government now gives bonuses to states that enroll the most eligible people. …In 2008, the program got an upbeat new name: the Supplemental Nutrition Assistance Program — SNAP. …Since Mayor Michael R. Bloomberg took office eight years ago, the rolls have doubled, to 1.6 million people… Albany made a parallel push to enroll the working poor, setting an explicit goal for caseload growth. “This is all federal money — it drives dollars to local economies,” said Russell Sykes, a senior program official. But Mr. Turner, now a consultant in Milwaukee, warns that the aid encourages the poor to work less and therefore remain in need. “It’s going to be very difficult with large swaths of the lower middle class tasting the fruits of dependency to be weaned from this,” he said.

[Rarick]

The more of this stuff I read, the better the family farm starts to look.  If I am going to have to work like a slave, better for myself than these guys.   I will have the space to do a lot more of what I want- when I can- than near the welfare thieves anyway.

[Crafty_Dog]

Even though this is POTH (i.e. the NYT) it does a surprisingly honest job of flagging yet another facet of the coming clusterfcuk.
====================

Public Pension Funds Are Adding Risk to Raise Returns
By MARY WILLIAMS WALSH
Published: March 8, 2010

States and companies have started investing very differently when it comes to the billions of dollars they are safeguarding for workers’ retirement.  Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, said states were looking at riskier investments in an effort to meet pension obligations. Trent May, chief of Wyoming's pension fund, said states were “moving away from the perceived safety and liquidity of the investment-grade market.”

Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds. But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

“In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. “Double up to catch up.”

Though they generally say that their strategies are aimed at diversification and are not riskier, public pension funds are trying a wide range of investments: commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing. And some states that previously shunned hedge funds are trying them now.

The Texas teachers’ pension fund recently paid Chicago to receive a stream of payments from the money going into the city’s parking meters in the coming years. The deal gave Chicago an upfront payment that it could use to help balance its budget. Alas, Chicago did not have enough money to contribute to its own pension fund, which has been stung by real estate deals that fizzled when the city lost out in the bidding for the 2016 Olympics.

A spokeswoman for the Texas teachers’ fund said plan administrators believed that such alternative investments were the likeliest way to earn 8 percent average annual returns over time.

Pension funds rarely trumpet their intentions, partly to keep other big investors from trading against them. But some big corporations are unloading the stocks that have dominated pension portfolios for decades. General Motors, Hewlett-Packard, J. C. Penney, Boeing, Federal Express and Ashland are among those that have been shifting significant amounts of pension money out of stocks.

Other companies say they plan to follow suit, though more slowly. A poll of pension funds conducted by Pyramis Global Advisors last November found that more than half of corporate funds were reducing the portion they invested in United States equities.

Laggards tend to be companies with big shortfalls in their pension funds. Those moving the fastest are often mature companies with large pension funds, and who fear a big bear market could decimate the funds and the companies’ own finances.

“The larger the pension plan, the lower-risk strategy you would like to employ,” said Andrew T. Ward, the chief investment officer of Boeing, which shifted a big block of pension money out of stocks in 2007. That helped cushion Boeing’s pension fund against the big losses of 2008.

Shedding stocks gave Boeing “material protection right when we needed it most,” Mr. Ward said. By the time the markets had bottomed out last March, Boeing’s pension fund had lost 14 percent of its value, while those of its equity-laden peers had lost 25 to 30 percent, he said.

“We estimated that the strategy saved our company in the short term right around $4 or $5 billion of funded status,” he said.

Boeing and other companies seeking to reduce their investment risk are moving into fixed-income instruments, like bonds — but not just any bonds. They are buying and holding bonds scheduled to pay many years in the future, when their retirees expect their money.

The value of the bonds may fall in the meantime, just like the value of stocks. But declining bond prices are not such a worry, because the companies plan to hold the bonds for the accompanying interest payments that will in turn go to retirees, not sell them in the interim.

Towers Watson, a big benefits consulting firm, surveyed senior financial executives last year and found that two-thirds planned to decrease the stock portion of their companies’ pension funds by the end of 2010. They typically said their stock allocations would shrink by 10 percentage points.

“That’s 10 times the shift we might see in any given year,” said Carl Hess, head of Towers Watson’s investment consulting business. Economists have speculated that a truly seismic shift in pension investing away from stocks could be a drag on the market, but they say it would not be long-lasting.

Corporate America’s change of heart is notable all on its own, after decades of resistance to anything other than returns like those of the stock markets. But it’s even more startling when compared with governments’ continued loyalty to stocks. When governments scale back on the domestic stocks in their pension portfolios these days, it is often just to make way for more foreign stocks or private equities, which are not publicly traded.

============



Government pension plans cannot beef up their bonds that mature many, many years from now without dashing their business models. They use long-range estimates that presume high investment returns will cover most of the cost of the benefits they must pay. And that, they say, allows them to make smaller contributions along the way.

Most have been assuming their investments will pay 8 percent a year on average, over the long term. This is based on an assumption that stocks will pay 9.5 percent on average, and bonds will pay about 5.75 percent, in roughly a 60-40 mix.

(Corporate plans do their calculations differently, and for them, investment returns are a less important factor.)

The problem now is that bond rates have been low for years, and stocks have been prone to such wild swings that a 60-40 mixture of stocks and bonds is not paying 8 percent. Many public pension funds have been averaging a little more than 3 percent a year for the last decade, so they have fallen behind where their planning models say they should be.

A growing number of experts say that governments need to lower the assumptions they make about rates of return, to reflect today’s market conditions.

But plan officials say they cannot.

“Nobody wants to adjust the rate, because liabilities would explode,” said Trent May, chief investment officer of Wyoming’s state pension fund.

The $30 billion Colorado state pension fund is one of a tiny number of government plans to disclose how much difference even a slight change in its projected rate of return could make. Colorado has been assuming its investments will earn 8.5 percent annually, on average, and on that basis it reported a $17.9 billion shortfall in its most recent annual report.

But the state also disclosed what would happen if it lowered its investment assumption just half a percentage point, to 8 percent. Though it might be more likely to achieve that return, Colorado would earn less over time on its investments. So at 8 percent, the plan’s shortfall would actually jump to $21.4 billion. Contributions would need to increase to keep pace.

Colorado cannot afford the contributions it owes, even at the current estimated rate of return. It has fallen behind by several billion dollars on its yearly contributions, and after a bruising battle the legislature recently passed a bill reducing retirees’ cost-of-living adjustment, to 2 percent, from 3.5 percent. Public employees’ unions are threatening to sue to have the law repealed.

If Colorado could somehow get 9 percent annual returns from its investments, though, its pension shortfall would shrink to a less daunting $15 billion, according to its annual report.

That explains why plan officials are looking everywhere for high-yielding investments.

Mr. May, in Wyoming, said many governments were “moving away from the perceived safety and liquidity of the investment-grade market” and investing money offshore, but he said he was aware of the risks. “There’s a history of emerging markets kind of hitting the wall,” he said.

Last year, the North Carolina Legislature enacted a measure to let the state pension fund invest 5 percent of its assets in “credit opportunities,” like junk bonds and asset-backed securities from the Federal Reserve’s Term Asset-Backed Securities Loan Facility, an emergency program created to thaw the frozen markets for such securities.

The law also lets North Carolina put 5 percent of its pension portfolio into commodities, real estate and other assets that the state sees as hedges against inflation. A summary of the bill issued by the state’s treasurer and sole pension trustee, Janet Cowell, said it would provide “flexibility and the tools to increase portfolio return and better manage risk.”

But some think they see new risks.

“It doesn’t pass the smell test,” said Edward Macheski, a retired money manager living in North Carolina. “North Carolina’s assumption is 7.25 percent, and they haven’t matched it in 10 years.” He went to a recent meeting of the state treasurer’s advisory board, armed with a list of questions about the investment policy. But the board voted not to permit any public discussion.

Wisconsin, meanwhile, has become one of the first states to adopt an investment strategy called “risk parity,” which involves borrowing extra money for the pension portfolio and investing it in a type of Treasury bond that will pay higher interest if inflation rises.

Officials of the State of Wisconsin Investment Board declined to be interviewed but provided written descriptions of risk parity. The records show that Wisconsin wanted to reduce its exposure to the stock market, and shifting money into the inflation-proof Treasury bonds would do that. But Wisconsin also wanted to keep its assumed rate of return at 7.8 percent, and the Treasury bonds would not pay that much.

Wisconsin decided it could lower its equities but preserve its assumption if it also added a significant amount of leverage to its pension fund, by using a variety of derivative instruments, like swaps, futures or repurchase agreements.

It decided to start with a small amount of leverage and gradually increase it over time, but word of even a baby step into derivatives elicited howls of protest from around the state.

The big California pension fund, known as Calpers, was already under fire for losing billions of dollars on private equities and real estate in the last few years. So far it has stayed with those asset classes, while negotiating lower fees and writing off some of the most troubled real estate investments.

It announced in February that it had started looking into whether it should lower its expected rate of investment return, now 7.75 percent a year. It has embarked on a study, but a spokesman said that process would not be done until December, safely after the coming election.

[Crafty_Dog]

Federal Pay vs. Private Sector Pay
USA Today recently conducted a survey comparing average salaries of private sector employees to those of federal employees. Guess who did better? If you said the public sector worker, go to the front of the class.

First of all, many federal workers are covered by civil service rules, making them nearly impossible to fire and difficult to layoff. On top of that, based on 2008 data, the typical federal worker is paid 20 percent more than one in the private sector in the same occupation. The median salary for a federal employee is $66,591, while that of a private sector employee is $55,500, a difference of $11,091 -- before adding benefits such as medical insurance, sick days and holidays, pensions and the like. According to the Bureau of Economic Analysis, benefits averaged $40,785 per federal employee versus $9,882 per private worker. Add these to the USA Today figures and the average in total compensation for each is $107,376 versus $65,382, a whopping 64 percent difference of $41,994.

The difference in salaries is greatest in the public relations occupations. The widest spread, $44,169, was for public relations managers, with the federal employee receiving $132,410, compared to $88,241 for his private sector counterpart. The next largest difference was $41,045 for broadcast technicians.

So if you want a job that pays well, has great benefits and offers little chance of being laid off, the federal government is the employer for you -- that is, until it runs out of other people's money.

[Rarick]

San Francisco-  I recently Talked to a friend in the bay area.  It looks like at least 1 mayor is getting creative.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/03/11/BAUF1CE0E3.DTL

[Crafty_Dog]

The U.S. government's rescue of wobbly companies and financial markets is starting to look far less expensive or long-lasting than once feared.

As momentum grows at companies that looked like zombies just a few months ago to repay taxpayers for lifelines they got during the financial crisis, the projected cost of the bailout is shrinking to just a fraction of previous estimates. Treasury Department officials say the tab is likely to reach $89 billion, which includes the Troubled Asset Relief Program, capital injections into Fannie Mae and Freddie Mac, loan guarantees by the Federal Housing Administration and Federal Reserve moves ...