recession

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What Would a Citizen Do?

Seal of the United States of AmericaThose who insist that the US government “live within its means” just like its citizens must in our own lives, are absolutely correct!

So, let’s play out that comparison, from which we can then determine the best strategy for our lawmakers to embrace.

Our government owes more than it brings in, so it must borrow money to meet its obligations.  Its been doing this for decades, with the blessing of both Republican and Democratic legislatures.  Many US citizens have done the same thing, a vast majority of them Boomers.  Now, if the government does not borrow more, it will default on what it already owes, its credit rating will be devalued, bills will go unpaid, and an already weak economy will become even weaker just when it needs a boost to avoid a second recession.

Here’s the same scenario but for a US family.

For the past decade, the Highlife family has been borrowing to make ends meet as they spent more than they brought in.  This included a second mortgage on their home.  But now the home’s value is less than half what it was three years ago when they took the second mortgage, and their first loan value is upside down.  If they don’t meet their fiscal obligations they’ll lose their home which will add yet another empty, unkempt property to their neighborhood which in turn will harm the values of their neighbors’ homes, their credit rating will tank making recovery from this bad situation that much more difficult and lengthy, and all who depend on them (children, elderly parents for example) will suffer as a result of their inability to provide the assistance they need to live decently (home care, books for school, etc.).   If you were the Highlifes, what would you do to dig yourself out from under this terrible mess (besides change your name…)?

What the vast majority of us have and would do is:

  • reduce our expenditures as much as possible without harming the basics we need to live (food, clothing, shelter, safety for us and our dependents, transportation, etc.)
  • bring in extra income to bridge the AP/AR gap (take another job, have the older kids work)
  • to avoid the disaster that defaulting on what we owe would bring to ourselves and all around us, we would use the credit and borrowing power we have available to us, but much more smartly, to get us through while the other strategies start to bear fruit, building our 5-10 year plan on the bedrock that, once a certain level of solvency is accomplished, we will no longer rely on borrowing to pay our bills
  • and….we do all the above with the clear understanding that digging out will require years to accomplish safely.

There you have it.  What the US government must do to handle this economic crisis just like a citizen would.

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RE: "An Open Letter to Obama" by Lou Pritchett

This letter, originally written to the NYTimes by businessman & author Lou Pritchett, but not printed there, has been recently picked up by bloggers in search of material to keep their base “mobilized” and as a result, email-forwarders…which is how I learned of it. 

So…here is my take in the hope of providing some needed perspective, on Mr. Pritchett & his letter.

On Mr. Pritchett’s “living legend” status:

Lou Pritchett did write a very successful book, and has made a fortune as a result, but that doesn’t make him the “living legend” he is purported to be.  By all accounts by the giants of commerce, the true legend of American innovation and business management is Peter Drucker, known as the “father of modern management” – to support this:

“The world knows he was the greatest management thinker of the last century,” Jack Welch, former chairman of General Electric Co. (GE ).

“(Drucker) was the creator and inventor of modern management,” said management guru Tom Peters. “In the early 1950s, nobody had a tool kit to manage these incredibly complex organizations that had gone out of control. Drucker was the first person to give us a handbook for that.”

Adds Intel Corp. (INTC ) co-founder Andrew S. Grove: “Like many philosophers, he spoke in plain language that resonated with ordinary managers. Consequently, simple statements from him have influenced untold numbers of daily actions; they did mine over decades.”

Now, on to Pritchett’s fears:

You scare me because after months of exposure, I know nothing about you.

A simple search on Webcrawler brings up 3 pages in information on Obama the man, the Senator, the Pres, etc. – much more w/a basic Google search – and that doesn’t include two well published books he wrote about his life & beliefs, which no other modern President did prior to holding office – the only thing missing is an invitation to dinner…there is just as much, actually more, information about Obama as there is/has been for any other President, living or dead – so we all know no less, and in fact more, about Obama as we did other Presidents

You scare me because I do not know how you paid for your expensive Ivy League education and your upscale lifestyle and housing with no visible signs of support.

Go to http://www.snopes.com/politics/obama/money.asp for all the information you want on how he paid for everything;

You scare me because you did not spend the formative years of youth growing up in America and culturally you are not an American. 

The first 6 years of his life (considered to be the most formative by any psychological standard) were spent in Hawaii; he spent 4 years (from age 7-11) in Indonesia, and the rest back in Hawaii – Hawaii is still a State in our Union last I heard…in comparison, John Quincy Adams spent 8 years in France & Russia with his father, Barry Goldwater was born in an AZ territory that at the time was not part of the US, & John McCain was born in the Panama Canal Zone Y there has still been no resolution as to whether that makes him a “natural born citizen”.

You scare me because you have never run a company or met a payroll.

Neither did Ronald Reagan…

You scare me because you have never had military experience, thus don’t understand it at its core.

Neither did Clinton (who the military loved…),  Roosevelt (FD) Hoover, Coolidge, Harding, Wilson, Taft, Cleveland, VanBuren, JQAdams, and John Adams, the man without whom we would not have attained American Independence when we did.

You scare me because you lack humility and ‘class’, always blaming others.

I’m guessing, then, that your fellow corporate CEO’s/CFO’s etc., like the Enron & Countrywide guys, also scare you, as they became famous for passing the blame and some of the classiest are now in prison or dead…

You scare me because for over half your life you have aligned yourself with radical extremists who hate America and you refuse to publicly denounce these radicals who wish to see America fail.

John Adams was considered a radical extremist by his fellow representatives in the Continental Congress, for having the audacity to insist on American Independence…

You scare me because you are a cheerleader for the ‘blame America’ crowd and deliver this message abroad. 

Humility, which includes admitting mistakes as Obama has done, is difficult for most of us, but here’s a few folks you’ll recognize who believe doing so is not only right, but expected by our highest power:
And whosoever shall exalt himself shall be abased; and he that shall humble himself shall be exalted.
(Matthew 23:12)
Let another man praise thee, and not thine own mouth; a stranger, and not thine own lips.
(Proverbs 27:2)
Blessed are the meek: for they shall inherit the earth.
(Matthew 5:5)
And whosoever shall exalt himself shall be abased; and he that shall humble himself shall be exalted.
(Matthew 23:12)

You scare me because you want to change America to a European style country where the government sector dominates instead of the private sector. 

In fact, the only Western European country that has a government dominating all commerce (socialism) is….none…Eastern European countries rely much more on the old socialist style left over from their communist days, but they too are quickly changing to a Western (starting in Western Europe) economic system, based in capitalism.  Having a government run healthcare system, as does England & Canada for instance, does not logically translate to all commerce being government run….

You scare me because you want to replace our health care system with a government controlled one. 

That’s funny!  Adding to the humor of this one is that many of those polled who are against any health care plan under government control are on…Medicare…a “socialist” government controlled health care plan…or happily took (or will take) advantage of the GI Bill that offered government stipends & “unemployment funds” – government run…

You scare me because you prefer ‘wind mills’ to responsibly capitalizing on our own vast oil, coal and shale reserves.. 

It surprises me that someone who is known for thinking progessively, changing the way corporate America operates and which even more ironically is about change management, is holding onto energy producing technologies developed in the late 19th Century.  Taking carbon from the ground, and ultimately placing it in the air, makes as much sense as smoking, or inhaling fumes from a burning building – this is why people can kill themselves by turning on the car in a closed space…and waiting… The virtue of these energy sources (oil/coal/shale) is none more than “it’s how we’ve always done it” which not only flies in the face of his corporate thinking, but shows an unfortunate desire to stick with “technology” founded during a time when they also used mercury and lead to “cure disease”…

You scare me because you want to kill the American capitalist goose that lays the golden egg which provides the highest standard of living in the world. 

When he wrote this, we were in the thoes of the worst financial/economic melt-down since the Great Depression as a result of unregulated corporate shell games founded in greed that left millions losing their homes and jobs… and this is telling coming from a man who is a member of the 1% of the population for whom that goose lays those eggs (according to the most frequently used gauge of income distribution, the Gini coefficient, the top 1% of Americans take in 22% of all income, that figure was 7% in 1976; between 1967 & 2007, the lowest earners’ income increased approxmately 25%; the highest earners’ increased approximately 43%; the middle class fared the worst with an increase of approximately 24%).

The problem is not captalism, but captialism run amok, which is what Obama has stated clearly he wants to fix – this does not constitute elimination of it.

You scare me because you have begun to use ‘extortion’ tactics against certain banks and corporations. 

See “capalist goose” above

You scare me because your own political party shrinks from challenging you on your wild and irresponsible spending proposals.

Gee, didn’t we say this about the Republican party when they were in power…which is why they were ousted by a majority of the US electorate?

You scare me because you will not openly listen to or even consider opposing points of view from intelligent people. 

Not considering and not agreeing are two very different things…he clearly considers…unless you include in this group of intelligent people the “birthers” and the “tea-baggers” and then most of us tune out, too…  In fact opposing points of view are aired and considered regularly, which is why the HC reform package did not go through when Obama wanted it to, too much opposition from both the Republican & “Blue Dog” Democrat representatives, and if you follow the progress of the bill closely, you will see the numerous changes made to the bill as a result of listening to these opposing views

You scare me because you falsely believe that you are both omnipotent and omniscient.

You know, the saying goes that Caridiologists think they’re God, Neurologists and Bankers KNOW they’re God; from the economic facts before us with which we “common folk” must now live, it was in fact Pritchett’s fellow Corporate folks, particularly bankers & insurance company execs, who thought of themselves as God-like, making broad and dangerous decisions for us all, the price for which we all now pay dearly with our homes and incomes

You scare me because the media gives you a free pass on everything you do. 

I guess Fox News, the Wall Street Journal, The Free Republic, and the Washington Times, to name the 4 most recognizable outlets of the 34 most read/heard outlets (e.g. there’s many more on local levels, such as WGUL in Tampa Bay) don’t count as media…?

You scare me because you demonize and want to silence the Limbaughs, Hannitys, O’Relllys and Becks who offer opposing, conservative points of view. 

Wait…I thought the news media gives him a free pass?  And last I saw/heard, all of these individuals were soundly viewed/heard daily on their respective shows; Obama has spent little if any time speaking about these folks.

You scare me because you prefer controlling over governing. 

There is no such thing, as Republicans learned the hard way, as “controlling” much legislatively, particularly for the President – our Founding Fathers saw to that.  And Obama has a long way to go to match let alone surpass truly controlling behaviors like we see when health insurance companies refuse treatments just when folks need them, or cancel policies because a person has gotten an expensive diagnosis.

Finally, you scare me because if you serve a second term I will probably not feel safe in writing a similar letter in 8 years. 

Finally, given the flack he is receiving from the extreme right (see “non-existent conservative media sources” above) after just 8 months in office, if Obama wins a second term, Mr. Pritchett and folks who agree with him will know clearly that their notions are not sustainable, so will have no need to write something like this…again.

Lou Pritchett 
Terri Benincasa

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Do We Owe Our Progeny an Apology?

According to some featured graduation speakers as reported by the Wall Street journal (& commented on by Rita Robinson of the Seattle Press -reprinted here), we most assuredly do:

“Is it necessary for baby boomers to apologize to younger generations for their excesses?

When I was reading The Boomer Blog, I found an article in The Wall Street Journal called “Boomers to This Year’s Grads: We Are Really, Really Sorry.”

These are among the quotes in the article:

Indiana Gov. Mitch Daniels, 60 years old, told the graduating class of Butler University last month that boomers have been ‘self-absorbed, self-indulgent and all too often just plain selfish.’

New York Times columnist Thomas Friedman, 55, told Grinnell College graduates in Iowa that his was ‘the grasshopper generation, eating through just about everything like hungry locusts.’

Colorado Sen. Michael Bennet, at 44 barely a boomer himself, told seniors at Colorado College that the national creed of one generation standing on the shoulders of the next was at risk ‘because our generation has not been faithful enough to our grandparents’ example.’

The article said the collective advice of the speakers for the class of 2009: Don’t be like us.

What do you think of these apologies?”

I’m glad to hear ’em – and my hope is we’ve just begun, at last, to recognize the damage we’ve done as a generation over the last 25 years, when we started with such promise.  Remember when we fought against “the man” and all his excesses, his polluting ways, his corporate greed, and his disdain for anything but his own bottom line?  So we changed the world for the better w/civil rights, environmental controls, and the uncovering of corporate shenanigans?  We were good!  Then we went bad….

Robin goes on to say that Gen Y/X experience their share of excesses, so it’s not just us…but gee, who raised them?  She states that there were/are those of our parents’ generation who have as well lived lives of excess….in contrast to ours, they were in the minority – and it was not a generational past-time to live beyond their means & consider themselves worthy only if they had more things, as it was ours.

Finally she says: “I know boomers who are environmentalists and live a simple lifestyle. Not all boomers practiced instant gratification.”  Yep… all three of them.

Then, there’s this from Harry Dent of the Miami based HSDent research firm as reported in the Newark Star Ledger, about how Boomers are the prime cause of this recession (as he predicted would be the case back in the ’80’s) – but this time for the opposite reason of the apology:

“Q: You said years ago that the spending habits of the Baby Boomers will eventually cause the economy to crash. Why?

A: This Baby Boomer generation is massive — the largest we’ve seen in a couple hundred years, probably since the American Revolution. They’ve been entering the work force, getting married, raising families, buying houses and earning more money since the early ’80s.

…We said 20 years ago, “Hey, there will be an end to this.” They’ll peak in their spending cycle after they buy houses, raise their kids, get them into college and all that good stuff.

Now, they’re just doing predictable things as they age. In other words, they’ll become savers, not spenders. They don’t need a bigger house. They don’t need more cars. The kids are gone. That’s what happening. They’re going to spend less and the economy’s going to get slower and slower.”

To Mr. Dent I say…”yeah…right…apparently you’ve not been keeping up with your fellow Boomers spending habits…”  We may down-size some things like our home space (although many are actually up-sizing as they “retire in place” and make room for children and/or parents to move in w/them), but we are not down-sizing our willingness to spend for things that keep us feeling good about ourselves. From ultra-expensive “cosmeceuticals” to high-end vacations, our penchant for instant gratification and determination to halt the aging process will well make up for any “savings” we embrace in other areas. 

And please prove me wrong, my fellow Boomers, but once this econonic crisis passes, and our portfolios make a come-back, too many of us will go back to our old ways.  We will be the first generation to leave less for our children (inheritance) than we spent on ourselves.

But all is not lost, says she who has so far filled this post with a quite curmudgeonly “bad Boomers!” diatribe.

I always have faith in my generation, it is faith in ourselves that I fear we lack.  We still don’t recognize the enormous power (for good or ill) we wield (lost track of that once we moved from our youth to becoming “the man” in adulthood), and the immense changes for the better of which we are capable if we put our collective will to it.

If we make driving small, fuel efficient cars the thing to do, they will sell like pork-barrel projects in Washington!  If we make it a priority to hold our legislators accountable for their behavior, we will have far better government leadership.  As the current corporate leadership, if we move from an emphasis on gluttony to one of benevolent leadership (as we demanded of those in this same position in our youth), we will change the face of corporate America.

So, Boomers, as has been the case for the past 40 years, the proverbial ball is in our court.  Will we use our collective might to fix what’s wrong today, and leave a legacy perhaps not equal to but near that of our parents’, or will be continue to ignore our power and by doing so remain destructive?

You tell me.

 

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The Bail out…is a cop out

Why, you say, do I say that the wall street bail out, in essence, won’t work?  Here’s an excerpt from an article on this topic found in Money Morning, that explains it well.  To read the full article, go to: http://www.moneymorning.com/ppc/senate_agg.html?gclid=CKPn18iok5YCFQhdswodiCp_FA and subscribe.

Heads I Win, Tails You Lose: Why the Senate Bailout Bill Will Fail Taxpayers

 

In plain English, here’s what’s wrong with the proposed plan and what alternatives should be immediately vetted and constituted into a new plan.

The Treasury plan was originally predicated on buying $700 billion of collateralized residential mortgage-backed securities that banks could not unload. The idea was that the banks would get the money, which they could then turn around and lend to keep the credit markets open and credit flowing throughout the economy. In the meantime, the Treasury Department would sit on the securities until it is able to sell them, hopefully at a profit. The idea, from a theoretical standpoint,isn’t stupid. It is, however, impossible to implement to any degree that will result in its intended effect.

Here’s why:

  • There are more than $1 trillion worth of subprime collateralized mortgage-backed securities out there – and that’s just one type of problematic derivative security. The bottom line: $700 billion isn’t enough. Period.
  • The purchase plan is not limited to just residential mortgage-backed securities. Surprise! What else will Treasury buy?
  • Who’s going to fight off the lobbying groups out to influence the managers that the Treasury Department hires to direct money to their masters? Did we mention that $700 billion wasn’t enough?
  • The government plan is even more under-funded than people realize, for it doesn’t authorize the full $700 billion: Indeed, it starts with only $350 billion, leaving an even greater shortfall. Did we mention that $700 billion wasn’t enough?
  • Treasury is going to hire banking-industry managers to manage the process. Those managers are going to serve themselves – just as they served themselves to get us into the crisis.
  • There is no defined mechanism to determine what price the Treasury Department will pay for what it buys. For argument’s sake, even if Treasury were to only buy the problem securities its leadership speaks of in public – residential mortgage-backed securities – there are problems if it prices them too low: If that happens, some holders won’t sell them, taking the chance that if they hold them long enough they will be worth more than Treasury is willing to pay. How will those financial institutions regain liquidity if they won’t sell the securities needed to make this happen?
  • Since Treasury can’t buy all the problem securities, if it prices what it’s going to buy too low, all remaining holders will have to mark down their holdings and take more write-downs and losses. How will that create confidence and facilitate “liquidity”?
  • However, if the Treasury Department prices the securities too high, several problems quickly emerge: Hedge funds will rush to sell their current holdings, and may very well speculate by buying up more securities to sell them at a higher price (profit) to Treasury, meaning that the Treasury Department plan won’t necessarily be helping banks directly. What’s more, if those securities are priced too high, and the market for them continues to fall, taxpayers will eat the losses – a reality that likely will lead to an end to further program funding.

While the idea that taxpayers should get warrants and ownership in the entities that we buy securities from is theoretically a good idea, there are some issues. Let’s take a look at some of the biggest potential pitfalls:

  • Foreign banks aren’t going to be thrilled about that; yes, they are included in the list of whom the Treasury will buy from.
  • Are taxpayers going to be limited partners in hedge funds? What if those hedge funds implode?
  • The U.S. Treasury Department could end up in control of our banks. Considering how well they run the government’s fiscal house, is that what we want?
  • Who is going to decide when to sell any of government’s ownership interests, should they turn out to be profitable? Will we own these businesses forever?
  • Is government going to control private enterprise? Is this a ruse? Are we heading into an era under the stewardship of a socialist government?
  • There is no direct support for homeowners in the plan and no support mechanism for falling home prices. And yet, these twin evils are the root causes of what has happened.