Pay

As a result of the media focus on the crash of a commuter flight in Buffalo, NY it has been revealed that pilots starting out and breaking into the industry make about as much as the girl at Starbucks that hands you your coffee in the morning. Add on to that, the fact that the pilots work long days at a job that it is critical they maintain focus and composure and you get a mild national shock.

I was surprised also. I really shouldn't have been given the nature of corporate America that pays the people that actually do the work a pittance while the executives who have never worked a day in their lives rake in exorbitant salaries. Still when you think of a pilot, its the one job that you wanted as a child that even from adulthood still looks like it has the least chance of turning out like the soul crushing office work you wound up doing.

Now more than ever we need the minimum wage to be set to the actual living wage. There really shouldn't be a distinction between the two. Congress should act now because the old argument that raising the minimum wage would cost jobs doesn't fly when companies nation wide have already cut their staff down to bare bones, cutting labor down to workers with essential functions and then cutting just a few more. There aren't any more jobs to loose.

You might still be foolish enough to believe in the American Dream, that hard work pays off, or you might be an aspiring corporate raider and make the argument that this still increases overhead of even small businesses. Sure it does, but you are willfully ignoring the big picture. To be trite, the rising tide raises all boats. If everyone is being paid a living wage, suddenly you have a surge of new consumers that have never had disposable income before. They are buying their coffee from Starbucks instead of from Maxwell House, which increases the dollars in circulation and increases profits and liquidity.

Of course this only happens if Starbucks, forced to increase wages, doesn't increase the price of their already overpriced coffee. Theoretically this could cause an increasing spiral where the costs of goods is increases commensurate to the increase in the minimum wage creating an runaway spiral of inflation. But that's where the other market forces come in. First, not every company will simply raise prices to artificially keep wages low. In our global mega corporation economy where even the store brand discount paper towels are made by the massive conglomerate that makes the costly brand name ones it is easier for such companies to spread any cost increase out over a large population and over time. This doesn't even have to turn into a situation where Congress is robbing the rich to pay the poor.

This was what we once got from unions. We have them to thank for the weekend and the forty hour work week. Unfortunately now they have turned into a punchline about organized crime and an albatross around the neck of the poorly run auto companies. If unions want to become relevant again they need to seize on this recession and take big bold action that will carry us out of the recession. I don't see this happening. They protect workers who don't work and see themselves as the enemy of management. Even worse younger workers have to pay dues into the union and get little out of it by being relegated to the worst jobs not by the company but by the union that is supposed to be looking out for them, and they still get crap wages because the union had to sell out the decent wages of new employees to maintain the benefits of the retired.

That being said, I have worked for companies that hate unions, ones that just aren't unionized, and ones that have a large powerful union and ones where the union is a minor impact on a portion of business, and I have seen that the big powerful unions still have a beneficial impact on more than the quantifiable benefits and wages one gets.

Finding a New Dealer

With the announcement that GM and Chrysler will be slashing their dealer networks over the coming weeks it is obvious that thousands of family owned small businesses will be going out of business. This will of course exacerbate the current recession. Clearly this will cause a similar chain of events that the auto giants threatened us with when they blackmailed Congress into bailing them out. The dealers go out of business, sending their employees out into the street and into unemployment and into the worst employment market in decades. Auto repair technicians who were making a middle class living will now be changing your oil at Speedy Lube for minimum wage. This cuts into the spending power of the community at large, and greatly reduces local tax revenues, which are already having the carpet pulled out from under them because of the housing market collapse. I hope you are getting ready for monthly garbage pick up instead of weekly because as the purse strings tighten municipalities all over the country are going to start looking as dilapidated as Detroit and Cleveland.

The closing of auto dealers also helps to worsen the recession by directly adding to the liquidity problem that got us into this recession in the first place. All those acres of cars that the dealer can't sell anyway will not be packed up onto trucks and hauled back to the manufacturer. Oh no. These cars will continue to sit in your dealers lot.

The dealer doesn't own those cars either. The dealer has huge loans to keep those things on property. The longer they sit there the less profit they make. More seriously for the rest of us though, is the probability that these cars will now be sold at fire sale prices by dealers desperate to unload unpopular merchandise and avoid bankruptcy. Which is exactly like those assholes that were flipping houses in Vegas and Atlanta. Except auto dealers know how to unload cars and house flippers couldn't tell their own ass from a hole in the wall.

The real threat is that banks might wind up owning these unwanted cars. That's something no one wants so hopefully they will all see their own best interest is in making credit available to dealers to keep the cars profitable and by making auto loans available to buyers so the dealers can unload these heaps of smoking steel and glass on us. Somehow I don't see that happening, and what we end up with is a sub prime mortgage and credit default swap sundae with bad auto loan sprinkles.

Obama and the Military Industrial Complex

In the first few weeks of the Obama Administration, it is becoming increasingly clear that he can't please everyone. Unfortunately, some in the military establishment have gone almost to the point of blackmail in attempting to place controls on U.S. Defense Policy.

With the word "stimulus" in the air, and every corporation with operations in the United States smelling bacon, an effort has emerged in Washington seeking to extend production of the F-22 as a sort of stimulus spending. A webpage sponsored by manufacturer Lockheed-Martin alleges that 95,000 jobs can be saved by continuing to manufacture the F-22 Raptor, without mentioning a specific cost in additional military spending. Undoubtedly, the Air Force itself is hoping for this increase as well, considering reports that the F-35 can't stand up against Russian air defense systems. However, this is the least of Obama's military problems.

Adm. Mike Mullen, Chairman of the Joint Chiefs of Staff, acknowledging the change of focus for the Defense Department from Iraq to Afghanistan, has a laundry list of potential military problems which are very far-reaching.

For instance, [Adm. Mullen] said, the United States needs to help Iran develop stability instead of fomenting terror.

Other sticking points abroad, Mullen said, are assuring stability in places like Russia and China, dealing with issues like famine and genocide in Africa, and the drug trade in Mexico.

This news report on Adm. Mullen's full lecture is well-worth reading. Obviously, the Department of Defense is going to be on the receiving end of a lot of government funding, especially considering the costs of expanding operations in Afghanistan, despite efforts to curb U.S. strategic objectives.

Two other reports regarding the military-industrial complex could serve as an early test of the new administration. The first, that the military is attempting to accuse Obama of reducing military spending, by not giving them all that the Joint Chiefs of Staff wanted, smacks of career military officials attempting to establish their role in crafting defense policy. While bureaucratic squabbling is hardly anything new, this second report, is far more disturbing. If senior military officials are truly attempting to pressure Pres. Obama into accepting a misleading plan to rename apples oranges, they are certainly making a political decision instead of respecting the orders of their new Commander-in-Chief.

Defense policy, especially spending decisions, are fundamentally political decisions, and thus the exclusive province of elected civilian leaders. Even if General Petraeus is worried that he is losing his hotline to the White House that he enjoyed in the days of the Bush Administration, it would probably be more useful for him to pursue a good working relationship with the incoming administration, rather than engaging in bureaucratic in-fighting over issues which have already been addressed.

The New Politics: RIP 2/1/09 That Didn't Take Long

Apparently Republicans are running around raising ideological opposition to Obama's huge economic stimulus package. Heh heh. The Republicans got a good look at Obama's Package this week and the President spent time coming in and out of their offices trying to get them to take it. It seems like the do nothing Congress has decided to keep with what they know rather than try to spend massively huge shit tons of money in hopes Keynesian economics does work.



The kicker is that the debate isn't over whether the money should be spent. Its about whether we are giving enough tax breaks to the wealthy fuckers that aren't feeling the pinch. This is a debate over ideology rather than substance. Let me point out that tax cuts and government spending are actually the same thing. Cuts in income and spending both reduce the amount of money in the treasury. The two terms are just ideological code for where the politician thinks the money should go. If you believe in entitlement of the upper class you say "tax cuts." If you believe in entitlement of the poor you say "appropriation." It's bullshit and I am surprised that the fact this is all about ideology doesn't rise to the level of public discourse. Sure you might say that there is an economic debate behind the two sides, except real economists will admit that even amongst them it is really an ideological debate because there is no lab in which to experiment and prove who is more wrong.

The Real Cost of the Bailout

As I've written here on this blog before, our public policy has come closer and closer to engendering moral hazards. Now, this statement has come to a sick and twisted fruition. The cause of this putried flowering is the confluence of two individual factors. The first, is President-elect Barack Obama's pledge to help the ailinig auto industry. Already bleeding money like it needs a tournequet and considering passing another series of economic stimulus packages, the deficit is already such a theoretical number that adding to it won't make much of a difference. The second is another set of behaviors that, besides the aforementioned moral hazard, are morally questionable in other ways. General Motors is burning cash like it's needed to power plant machinery lost $7.35 per share in its latest report. Furthermore, this cash crunch is putting the company in the position where it will no longer be able to fund regular operations. However, instead of consider options like marginal spending decreases, or bankruptcy, the consequences of which CEO Rick Wagoner says would be "dire", he is waiting for President Obama to pull out the checkbook and write a check to the auto industry. After all, the financial industry is in the process of receiving checks without any strings attached, so why shouldn't the Big Three, also? I'm sure Rick is also already beginning to plan how he is going to spend the bonus that he no doubt will feel he earned because he drove the company into the ground so hard and fast that the government needed to bail it out or face political consequences.  Herein lies the moral hazard and the real cost of the Emergency Economic Stabilization Act. Instead of engaging in normal business practices that would help shore up the bottom line, such as closing additional plants and laying off hourly workers, or even declaring bankruptcy and arresting the further deterioration in its credit rating, a company that is potentially too big to fail, is probably going to be able to get a handout from the federal government. So, instead of receiving the punishment of the markets for not balancing its liabilities and assets properly, and for not developing products that the public is willing to purchase, a company is instead able to receive the public's money in the form of a handout, probably without any strings attached.  

The Ben Franklin Report: Strains in the Economy

With the latest manufacturing data from the United States showing even more signs of contraction, one of the few thigns that can be said for certain about the overall situation, is that what might have been limited to the financial sector is clearly affecting the very basic sectors of the economy. Also, those were predicting that this affair was going to be a minor correction that would pass in a quarter or at most two, have been revealed as having played a guessing game, as the crisis is instead shaping up to be the worst economic crisis in almost a century. 

Manifestations of the problems are appearing in sales reports of the auto industry, where all of the manufacturers were hit with double-digit drops in sales, especially trucks. On Wall Street, too, there are signs as Circuit City has received a delisting notification from the New York Stock Exchange, and plans to close 155 stores as its death spiral continues to get tighter and tighter. 

Part of the misdirection that was at the heart of the financial crisis is coming unwound, as investors who bought notes from the now defunct Lehman Brothers that were promised to be sound investments worth of inclusion in retirement investment portfolios are now revealed to be worth only pennies on the dollar. Regulators are going to investgiate, but unfortunately, due to the counter-terrorism priorities of the Bush Administration, the FBI has been left critically short-handed as they try to investigate the myriad economic crimes and financial fraud. School districts in Wisconsin were caught up in their own form of financial mismanagement. Buying supposedly safe investments, the now infamous C.D.O.s, school boards all over the state are facing the prospect of cutting services in order to meet financial obligations from the defaults of various corporations.

Strains are also being seen on the macro scale, as the primary contributor to American GDP, the Federal Government, has announced plans to finance the largest budget deficit in history. The government itself won't put a number on how much the deficit will be exactly, but estimated that the total amount of bonds issued would be approximately $550 Billion for the October-December period, including $300 Billion for Federal Reserve liquidity operations. Analysts in the field estimate that the government's borrowing needs for the next fiscal year, which began in August, will total up to $2.1 Trillion. This number stems from funding the $850 Billion deficit projected in the Federal Budget, and approximately $500 Billion to further reinforce the Fed's liquidity operations of the amalgram soup, and the remainder going to roll over securities from state and local governments which are expected to see a significant drop in demand over the next year. The budget deficit is so large partly in thanks to deteriorating economic conditions and the $700 Billion bailout package passed by Congress against almost every economist's better judgment, but doesn't factor in whatever additional stimulus proposal will be passed by the Congress during the lame duck period following the election. 

On the micro scale, individual homeowners and families are also showing severe signs of strain. Throughout the country, but particularly in areas that are hardest hit by the mortgage crisis, more nad more homes are going 'underwater' to use the industry phrase. That is to say, about 1 in 5 of all homes in American are worth less than the balance of the mortgage the homeowner is paying. Families are also having a harder time making ends meet with their utility bills, also. As further evidence, about 44% of families are living paycheck to paycheck, and about 48% have less than $5,000 in liquid assets. So, in the event of a family emergency, medical or otherwise, very few would have any options, especially with bank lending still not an option, despite the Treasury's and Federal Reserve's efforts.

There is no shortage of people who are ready to criticize the Treasury and the Federal Reserve for their management of this crisis and their willingness to bail out institutions that were threatening to go bankrupt. A Nobel Prize-winning economist Robert J. Aumann predicts that more banks and insurance companies will go under because of moral hazard and the lack of consequence. Others say that deflation is the order of the day, also brought about by the various interventions in the free market. My question has been, since this crisis started, where were those in the position to do something about this problem when it started becoming apparent? Why weren't more authorities, for lack of a better word, willing to stand up and make warnings? Unfortunately, someone who is such a position is also at a loss for why pronouncements against the general consensus come in whispers, rather than shouts. 

I'll leave off with the latest scary charts from the Federal Resreve of St. Louis. Good night and good luck.

Click on the charts to see them at full size.

Ben Franklin Report: Unraveling the Knot

Although this article is long, it gives a thorough look at the fundamental conflict of interest between the credit rating agencies and the financial markets that exploded and is, to say the least, now exposing the U.S. economy to further downside risks. However, this is only one part of the calculations behind Gross Domestic Product.

Private spending and business activity is also fairly important when considering the health of a particular economy. While oil futures are a good indicator of what will happen in a few months, after oil has been refined, with near record low refinery utilization rates, into various chemical products, individual corporations earnings are perhaps a better indicator. Bank of America, the giant in discount consumer financing announced a 77% drop in profit for the first quarter of this year, mostly because of concerns with defaulting mortgages. For some anecdotal evidence, one need do no more than compare this graph of subprime mortgage concentrations, with this article about California's foreboding rising in foreclosure rates. Global shippers UPS and FedEx are usually a good indicator of economic prospects.

However, with the ongoing catastrophe that is the hunger crisis, inflation, rather than the lack of available credit, would seem to be the biggest threat to global economic stability. This inflation is, of course, a natural response to the growth in oil prices, as industrialized economies depend on the supply of crude oil in just about every sector.

The situation is exponentially compounded when the currency that is the basis of all of these transactions is rapidly depreciating in value, as seen in record lows versus the Euro. One must wonder if Ben Bernanke and the rest of the Federal Reserve Board are questioning their monetary policy, as economies that are keeping interest rates up to draw capital are seeing their currencies rise in relative value.

Another factor in this fiduciary fiasco is the echo chamber of ideas. Last summer, CEOs declared the housing crisis near its end, and more recently that the crisis was in its last throes. The point that we can take from these statements is that their companies are more important than reasoned, open discourse about the overall state of the economy. And that it is a losing proposition to trust those who are dependent upon a stock price. As long as there are CDOs and other arcane financial creations that do not have a monetary value, banks will continue to be plagued with problems, which will be further complicated by consumer spending withering away under the burn of inflation and unemployment. Surveying a crystal ball to find the answers to when the U.S.' GDP might become positive again is less than useful.

A Crisis Meeting

G7 finance ministers and Central Bankers are scheduled to meet in Washington, D.C. through this weekend to hammer out solutions to the numerous crises facing the world economy. Here's a handy list of items that might be on their agenda.

• General Electric reported losses across almost every sector of operations for the first quarter of the year, and revised revenue for the year downward. The normally stalwart stock is perhaps the strongest indicator yet that the global recession is reaching into every part of the economy.
  
• Bear Sterns has delayed releasing its first quarter results due to the disruptions caused by the merger with JP Morgan. As they are expecting negative results, one can understand their disinterest in transparent financial accounting, but its losses will probably be indicative of the weakest parts of the financial markets.
  
• Head of Germany's Bundesbank, Axel Weber, is concerned about inflation in the Eurozone, and doesn't see any room for interest rate hikes. One can imagine the back and forth between European and American banking officials over the difference in interest rates and other monetary policies.
• According to the IMF, inflation is also expected to tap down growth in emerging nations in Asia. With consumer confidence in the United States slumping, to put it mildly, in the facing of rising import costs, growth in Asia will come to be the growth engine for the world economy.
• The food crisis throughout the developing world, while the most important of the various crises to be discussed, is unlikely going to be at the top of the agenda as finance ministers through the developed world are beginning to see the limitations of their capital.
  
• As mentioned before, the position of Ben Bernanke is likely to come under heavy scrutiny among his colleagues, as the Fed Chairman continues to stand by the notion that banks and other perhaps insolvent financial institutions should be allowed to continue operating, and although the 'originate-to-distribute' system of loans failed at almost every level and started the current credit crisis, the system could be fixed and return to being useful in the future.
• Oil prices, while retreating from their record high of $112 a barrel set earlier this week, are continue to weigh on the economy. However, the larger economic impact is felt by record high gas prices in the United States, edging closer and closer to $4 as the Summer driving season approaches.
  

Ben Franklin Report: Quick Shots Across the Bow

Today will see Round 2 of top economic officials versus Congress! To the finish! For the first time yesterday Fed Chairman Ben Bernanke mentioned the dreaded "R" word, and it isn't radical or racism.

In the Wall Street Journal today, Andy Lapierre gives a thorough look at the ongoing credit crisis and the Fed's responsibility in causing asset bubbles, malinvestment, and labor dislocation through the "Greenspan put."

The President of the New York Federal Reserve, Timothy Geithner is still worried about the state of capital markets, and has a plan to fix the regulatory overhang created by the Federal Reserve's new lending options. In an election year, the Fed has a steep hill to climb in justifying putting so many billions of tax payer dollars at risk. His testimony, though really boring to read, has a couple of gems firmly lodged into it. Like this:

The sudden discovery by Bear’s derivatives counterparties that important financial positions they had put in place to protect themselves from financial risk were no longer operative would have triggered substantial further dislocation in markets. This would have precipitated a rush by Bear’s counterparties to liquidate the collateral they held against those positions and to attempt to replicate those positions in already very fragile markets.

In short, we judged that a sudden, disorderly failure of Bear would have brought with it unpredictable but severe consequences for the functioning of the broader financial system and the broader economy, with lower equity prices, further downward pressure on home values, and less access to credit for companies and households.

In a sign that the credit crisis is spreading beyond the mortgage market where it first reared its ugly head, Americans are falling behind on every single type of loan.

And, for good measure, here are some anecdotal accounts of the muni bond problems. Public projects are being forced to sell bonds due to tighter and tighter budgets, but being handled on the other end by higher financing costs. Of course, in some cases, these are projects that will save money for the taxpayer.

Ben Franklin Report: Sober Up

This morning Ben Bernanke tried on a new role, that of a voice of reason to the financial markets. In testimony before Congress, Bernanke warned that the economy is still probably headed into a recession and that the American economy probably won't see growth until 2009. In pointing out the potential problem areas, the Fed Chairman rattled off a list of the biggest sections of the credit market. To be fair, his calculations account for a wide degree of volatility in the markets and an inability to forecast the future amidst this turmoil.

Treasury Secretary Henry Paulson, while in his sixth visit to China to address outstanding economic issues between two largest economies in the world, took a step back from policy brinkmanship and indicated flexibility in using government money in addressing the crisis in the housing market. However, he revealed his true feelings on the matter in his disregard of those homeowners who are now suffering the phenomena "negative equity" in their homes. It remains to be seen whether this change of heart is a result of recognizing the benefits of government intervention in the marketplace or the windfall benefits the financial industry will receive in the event of any government intervention.

In perhaps some strange sort of April Fool's joke, the markets reacted exuberantly to UBS and Deutsche Bank writing down a combined $19 billion dollars and will seek to elicit almost as much capital investment. And the good news doesn't end there. The Commerce Department announced factory orders decreased 1.3% in February. When one considers the recent rise in unemployment, these numbers can be expected to go down further with a shrinking labor force. The IMF is predicting a significant downturn in the global economy, to understate the conclusion. Cleveland-based National City bank appears to be headed down the road to failure in the wake of the ongoing financial crisis. If they're hoping for a turnaround in the greater Cleveland area to cleanse their balance sheets to make a takeover more appealing, they can probably sooner expect a deux ex machina to show up at their headquarters in the form of a flying pig. The crux and source of the entire problem, the financial industry, is facing a slowdown for the entire year of 2008, in case that wasn't obvious.

In other news, it would appear that homeowner relief has gotten a rider of tax breaks for home builders. The only good side to this is that the provision probably won't cost the government much, as it will be shrinking revenue from a shrinking sector.

Ben Franklin Report: Questions, Questions Everywhere

Unfortunately, due to the arcane nature of economic measurements and a desire on the part of the elite to remain elite, there is an entire market around attempting to provide answers to clients and predict near- and long-term economic phenomena. So, in an effort to help you from wanting to go spend money on overpriced financial services, here are some questions you may be asking, and some answers.

• How much will this crisis cost the economy in the long term? According to JP Morgan Chase, the overall costs could be as much as $1.2 trillion.
  
• How is the crisis being felt in other markets? Europe's economy is resilient against the contagion, thanks to the rising Euro and sound monetary policy of keeping interest rates stable, which, in turn, draws available capital into the Eurozone. Head of the European Central Bank President, Jean-Claude Trichet remains skeptical if the worst has yet to come. Canada's CIBC still is working through at least $25 billion in exposure to monoline insurers.
  
• Is there more unwinding yet to happen in bad loans? The simplest way to answer this would be to say, "Yes." However, as details are still emerging about the prevalence of home equity loans, or other liens placed on homes in addition to the traditional first lien, mortgages, there is still a lot of red ink to be spilled.
  
• Is the stock market going to be a viable investment anytime soon? Perhaps, but not for the next few years. In the cyclical nature of business, the stock market traditionally sours for a decade after a decade of strong trading. So if this trend continues, the market will probably not begin to make lasting gains until approximately 2012.
  
• With increasingly visible protests against financial corporations receiving bailouts from the Federal Government, are there any other potential targets of popular discontent? As all politics are local, one need look no farther than the financing of your local Wal-Mart. Does your local community allow 'tax increment financing?'
• The employment outlook is souring, but was there any good news in the latest batch of GDP data? Not really, almost every number on the page is down in comparison to the quarter before, with a very precipitous drop in government spending. Also of note, exports are declining at the same time as imports are decreasing, which is a reflection of real consumer spending. Also of note, the value of real residential fixed investments, that of houses and such, fell by 25.2%.
• With all of the concerns about moral hazard, is there really a bad way to intervene in the marketplace? Yes, there is. For instance, pushing Fannie and Freddie into buying bad loans and then holding more capital in reserve against this new volume of bad loans. Businesses and executives that made bad decisions need to face the consequences of their decisions. The government has enough work to do to get its own house in order. I'm not alone in thinking that with this bailout will come a spiraling dollar.
  

Fed Chairman uses Telepathy to Drive Stock Rally

Yesterday during a presentation before the New York Port Authority, Ben Bernanke demonstrated his telepathic and psycho-economic skills to cause the stock market to rally briefly. It is unclear whether he used his powers of econotelepathy to manipulate the minds of JP Morgan execs to get them to pay a higher price for Bear Stearns, or if he caused traders in the black pits of Wall Street to interpret the offering favorably. Or if he simply moved the markets directly with his voodoo economics. When asked why the initial rally did not continue and keep the gains throughout the day, Bernanke replied with exhaustion, "I couldn't hold it."

Ben Franklin Report: Caturday Reading

With Ben Bernanke's newfound affinity for nimble and flexible policy, the comparison to a cat almost seems natural. However, in an effort to help you better channel your inner cat here is some reading and food for thought.

First, usaspending.gov is a really awesome website for policy addicts out there with some dynamic ways of looking at the way that the U.S. Government spends its money, with much potential for fun and blogging. For instance, in 2007, the Federal government spent less on traditional state spending than in previous years. This continues, despite record federal deficits. As one would expect the crumbling value of the dollar is being reflected in exponentially increasing federal spending. Unfortunately, for us, the War in Iraq and the Global War on Terror are contributing, if not causing, this problem.

Here is a handy slide show from the GAO about how the government is spending its money. The numbers are pretty terrifying, especially considering that these numbers don't reflect the quicksilver economic reality that we are currently faced with, aka the increased transportation costs of gas prices going up by 25% on average. Remember when it was serious when gas reached $2 a gallon? Not to mention the fuel inefficient vehicles the military relies on aren't going to see less use in the near future. Unlike the GAO, we here at the Fringe Element feel that more constructive advice is necessary, if for nothing more than general principle. My recommendation would be to move towards an asset-based financial system, perhaps similar to Islamic banking practices, in an effort to provide some stability to the dollar to try to halt its historical slide to worthless.

The Child-Man

Not long ago a shrill bitter woman published an op-ed decrying the contemporary propencity of men in their late twentys to delay marriage and career advancement. Many outlets of the old media recognized the inflamitory nature of her insult and decided to piggyback on its ratings generation powers by printing articles like this. (freedom hating British!)

Most responce to the author has been either an attempt to counter the assumptions in the article or to simply disagree with the author or the traditional notions of success. My contention is that her position is immoral.

This is best explained from a Kantian perspective; Hymowitz is treating all western males as means to an end rather than ends in themselves. To use the language of feminism, she is objectifying men. Or to describe my own moral outrage; Hymowitz has no right to declare that I be of use to her.

Ben Franklin Report: the Buttered Side

Even though the Industrial & Commercial Bank of China, the largest bank in the Middle Kingdom has announced $1.2 billion in exposure to the subprime crisis, there may yet be a silver lining. Considering that the Bank of China, number two in terms of amount of exposure in China, announced that they might post a loss on the year on such transactions, the executives at the ICBC are obviously re-examining the fundamental risk beneath the AAA-rated financial instruments behind the ongoing crisis.

There are still a couple of good opportunities out there in the world of finance for even the most bearish investor. If you are looking for banks that have strong fundamentals, no exposure to the subprime crisis, and are being sold at bargain prices, look no farther than Scandanavian banks. Or, if you are completely risk-averse and require underlying assets to your investment, perhaps you should consider Islamic banking, like in Malaysia.

Here in the U.S., the economy has risen to the tip of everyone's tongues. In hard-hit California, candidates are pitching their message to whoever will listen. In Massachusetts, the State is bringing civil suit against Merrill Lynch, seeking profits from selling the aforementioned AAA-rated credit instruments, collateralized debt obligations to Springfield, Massachusetts. And there are one or two more thoughts floating around about the planned economic stimulus moving through Congress.

Ben Franklin Report: the Economic Stimulus

In the course of putting together their bipartisan economic stimulus package together, Congressional Democrats are willing to put aside something as small as the rule of law. After all, it wouldn't be prudent to try to bring contempt citations against former White House officials during the middle of negotiations, nonetheless the mountain of lies that led up to the Iraq War.

Bush hasn't outlined his plan, per se, just given a rough outline, namely a "robust" package with a $150 billion price tag. All of the key players in Washington have some version of the stimulus on their wish list, and each has already staked out his or her position on the matter. The Republicans and Democrats in Congress are pondering how to bridge the philosophical divide between individual tax rebates and decreasing business taxes. Lou Dobbs, ever the interested observer, says that the economy is going into a recession and there isn't much that a stimulus could hope to accomplish.

Of course, the presidential candidates of both parties aren't to be left out of the fray, each of them is sticking their pole into a position. We can probably expect to see more of the petty bickering among the Democratic candidates that they've exemplified so far. What they hope to accomplish using the decade-old "No Friends in Politics" mindset that has gotten us so far over the course of Republican control of the Congress. The only candidate who is actively against the stimulus is the one candidate who isn't officially running, Mayor Michael Bloomberg (I-$$$$) of New York City, who sees the giveaway as bad fiscal policy.

Meanwhile, the Congressional Budget Office is seeing the glass as more than half full. Focusing more on the $219 billion dollar deficit that the government has run so far this year, and predicting that the economy won't hit recession levels.

Regardless of how I otherwise disagree with Mayor Bloomberg's politics, I find his position the most reasonable. With another year of phenomenal deficit in the face of countervailing trends, this drop into the general economy will prime the markets for further spending, if the authors of the agreement see their dreams come to fruition. I remain skeptical. With the further aggravation of the deficit, this will further aggravate the U.S. National Debt, and contribute to a worsening macroeconomic situation. On Aug. 9, 2009, by my rough calculations, the clock will turn over to $10 trillion dollars, or roughly the same as our annual GDP, barring additional spending or the unlikely attempt to pay it down.

As another reminder on why not to put off anything, negotiations are over and the stimulus package has been assembled. Unfortunately, workers who earned less than $75K or couples who earned less than $150K, will earn approximately $300 and $1200, respectively. This little drop is hardly likely to inspire the next bubble, unless it's for pharmaceuticals; breweries, wineries, and distilleries; or for local head shops.

Cleveland, Clinton, and Capitalism, That's a Twisted Trifecta

The courts are now being called in to help arbitrate the ramifications of the subprime crisis. Cleveland, one of the worst cities, or was it the worst, is now suing 21 different lenders that "knowingly created a public nuisance by exploiting the city of Cleveland." The city is seeking hundreds of millions of dollars "at least" to help cover the cost of demolishing thousands of abandoned homes. The plummeting population of Cleveland is putting the city in a budgetary squeeze to maintain services. Baltimore, on Thursday, beat them to the punch, though, and filed suit against Wells Fargo Bank NA, subsidiary of Wells Fargo & Co. Of these two suits, it's easier to see the Baltimore suit going farther because of its limited scope, but I'm not a lawyer. The Cleveland suit seems more like a shot in the dark, but may get much more interesting if the suburbs become involved in a class action type action.

Washington is all abuzz with talk of an economic stimulus package to help offset the downside pressures in the market. Bipartisanship is a word that's hardly mentioned without a curse, but congressional leaders are falling over themselves trying to say it the most. As well they should, because any deal will have to accord with the wishes of our King, I mean, President. Treasury Secretary Paulson says that Bush has yet to decide, but stresses that any stimulus package should be temporary at best. It should make Bush's State of the Union Address more interesting.

The Democrats, for their part, are now faced with breaking their "pay as you go" promise, and could potentially borrow billions more to help finance their version of an economic stimulus package. In a bipartisan fashion, everyone agrees that the measure should be permanent and it needs to be felt by the general population very quickly. With the coming Presidential election, the stakes are much higher, and Hillary Clinton is trying to be one of the first in the field to offer a plan to offset the downside risks. Ben Bernanke is going to pow wow with the Democrats at a policy retreat later this month, to consult with them as they try to find a way out of this fiscal nightmare. The Fed Chairman's words are being parsed for hints at the January board meeting and what moves the Fed will take. Most economists are betting on a rate decrease of at least half a percentage point, down to 3.75%. Ben will meet with Nancy Pelosi on Monday for what will amount to little more than a photo opportunity and a chance for the Speaker of the House to appear as though she's doing something in the midst of growing signs that the economy might be in real trouble.

Among these signs are the rising price of gold, which is expected to hit $900 per troy ounce, as investors seek reliable shelters in the face of market uncertainty. Another sign of troubled times in the economy are the anemic holiday sales at all of the major retailers, with the notable exception of Wal-Mart. Considering Tiffany's was also subject to the slow down, the upper echelons of earners no longer appear immune to these downward risk pressures. Another interesting note is that the Treasury Department's last issuance of inflation protected securities fell to 1.65%, down from October's rate of 2.36%.

The difference in response between the Federal Reserve and the European Central Bank couldn't be more stark. Whether the glass is half full of half empty, it would appear that the philosophical difference lies in whom the stimulus package and the results are directed at. The Federal Reserve, in lowering rates, makes it more appealing for businesses to earn money and to help money move through the economy, hopefully in the form of capital investment. The European Central Bank, on the other hand, appears to be betting that keeping rates up will encourage people to save money in depository institutions, which will then be on a much sounder footing to issue new loans and securities. The question remains to be seen whether investors will respond to this strategy, but so far it would appear not.

Among the companies named in the city of Cleveland's law suit are some of the most troubled financial institutions in the U.S. Countrywide Financial, the biggest mortgage dealer which helped spur the growth in subprime mortgages is being purchased by the Bank of America. Citigroup is turning towards Kuwait and China to seek billions more in capital infusions to stay afloat. Merrill Lynch is looking at a much larger loss in the fourth fiscal quarter in attempting to move stock options issued to its employees off of its balance sheet.

All of this talk of moving the economy out of recession through a temporary spending measure, as Ron Paul said in the debate on Thursday night, would be productive in that it would inject capital into the economy in a way that the Fed cannot, but would be counter productive in that the United States government has no money to pay for anything that it would want to.

Ripple Effects

As closing the port of Mombasa in Kenya because of the post-electoral violence could potentially cause severe economic contraction in surrounding countries, so too goes the unfolding story of the financial markets. With the announcement that 2007 was a horrible year to try to find a job, the "r" word is on the lips of many experts. The most important note of the Employment Situation is that if one discounts government jobs and those in the service sector, the number of jobs fell by several thousand during 2007.

The Federal Reserve and the European Central Bank are more worried about inflation tying their hands as the crisis further unfolds.

On a positive note, the price of oil went down based on projections of lower demand in the U.S.! I'm sure that this is going to be more than lost considering that the violence in Kenya and its consequent economic ramifications will cost the U.S. far more than getting crude for a couple of bucks cheaper on the barrel.

Shifting Sands Would Make a Better Foundation

In the wake of the economic troubles roughly centering around 9/11, the United States and the European Union enjoyed explosive growth, propelled mostly by the housing sector of the economy. Flash forward to the present when this entire trend of growth is amounting to so much nothing, and one must consider how much this growth really amounts to. Was this entire boom created by the Federal Reserve, the European Central Bank, and other prime lending institutions as a way of creating growth from nothing?

What would you do if you realized that everything you've done for the past six or seven years did not add any value to anything? If you realized that all of the work you had done was so much busywork?

Some are openly talking about recession, and some are talking about the "d" word. Considering the way that ECB dropped $500 billion in capital into the financial markets, they must be worried about the huge bubble that they've helped develop in Spain and the southern Mediterranean.

The Budget Process

In one of the surest signs yet that the "opposition" party is firmly in the pocket of W and his administration, Congressional Republicans are more upset about the federal spending bill under consideration than the Democrats are. The interested onlooker might note that the bill includes most of what Bush asked for, and also some extra money to spend on developing coal power sources. Because that's real progressive legislative policy in keeping with the preferences and long-term interests of the American voter. As of press time, I hadn't heard back from the article's author on whether or not the Congress was really planning on spending $195 billion to fix that bridge up in Minnesota, see the video goodness below.