Monday, December 29, 2008

Power of Yes-Not So Funny in Real Life

I liked Jim Carrey's latest movie "Yes Man" in which a bank employee changes his life by always saying "Yes."

The real life picture of always saying yes isn't so amusing. Washington Mutual's slogan was the "Power of Yes." (

And, they were true to their slogan! They always said Yes to loan applicants just like Jim Carrey's character. Unfortunately, they were one of the largest mortgage lenders in the country and the effect of this policy was to bankrupt the company. The losses from the "Power of Yes" policy have been staggering.

Some of Wamu's personnel now say that the company's loan officer's didn't want the bank to check as to whether loan applicants had the income and assets that they claimed because their salary was based on how many loans that they wrote. And appraisals were false as well. These were criminal acts and should be approached from that perspective. It's time to put these clowns in jail where they belong.

Thursday, December 4, 2008

Comments on Steve Lonegan's Campaign

I reviewed Steve Lonegan's web page. I think his campaign is based too much on the Liberal/Conservative divide. In New Jersey, the Liberals are likely to win that battle. He has to find a way to get around that problem.

Here are issues that I see that might work for Steve Lonegan:

(1) Educational funding-The court mandated policy of funding extremely high per pupil expenditures for poor urban school districts has failed educationally and is bankrupting the state. Less than 25% of the Newark high school students pass the high school exam even though we are paying 19K per pupil. So this is 20 years of a failed policy.

Basically, the Supreme Court judges who mandated this policy are like those stiffs who try to reform the Three Stooges. Except that in the Stooges, the stiffs learn quickly what can be changed and what can't be changed. Mainly because the stiffs are the ones paying for it. The judges have never learned that lesson because they aren't the ones paying.

The educational funding formula has caused massive funding cuts for suburban and rural districts that have greatly boosted property taxes in those districts. In my view, it doesn't matter whether you are a Liberal or Conservative, McCain supporter or Obama supporter. If you live in a town that was flat funded for six years under the McGreevy/Codey/Corzine administrations, regardless of how many more pupils your district had, then how can you support a Governor who wants to continue a version of this policy.

Furthermore, why are wealthy districts such as Hoboken still being funded as if they were poor districts?

So I think Steve Lonegan needs to play up the suburban vs. Newark/Jersey City/Hoboken issue.

(2) Married vs. single issue-The earned income credit greatly favors single parents with children over married parents with children. There is no justification for such a tax rebate that does this. And the homestead rebate law greatly favors singles over married people. As does the pension exclusion cutoff.

So I think Steve Lonegan needs to play up this married vs. single issue.

(3) Constitutional reform-In the short term, courts can mandate things such as massive educational funding for poor schools even though I can't see how this policy has any basis in the constitution. What we need is a referendum so that policies such as Abbott can be eliminated without having to go to court.

And we could have Swiss style direct democracy for educational budgets rather than just having the Board vote on things.

Will that work? I am not sure yet.

(4) Transportation-Corzine continues to support boondoggle projects such as the Atlantic City Railroad and passes on the costs of those projects to other NJ Transit riders. What will the Hudson Tunnel cost each year to fund? And what I think Steve Lonegan needs to emphasize-Why should New Jersey be funding a project that is massively benefiting New York's, not New Jersey's tax base.

Saturday, November 8, 2008

Final Thoughts on the White House Race

Sen. McCain was up against it before it started. (See the Below detail from

From the Crystal Ball

Based on President Bush's net approval rating in the most recent Gallup Poll (-39), the annual growth rate of the economy during the first quarter of 2008 (+0.6 percent), and the fact that the Republican Party has controlled the White House for the past eight years, the Electoral Barometer reading was a dismal -63. (EB = NAR + (5*GDP) - 25. ) This is a reading of -63.

Year Barometer Reading Incumbent Party Margin of Popular Vote (incumbent party)
1952 -49.5 Lost -10.90%
1956 71.0 Won 15.40%
1960 -5.0 Lost - .20%
1964 82.5 Won 22.60%
1968 2.0 Lost - .70%
1972 73.0 Won 23.2%
1976 -5.0 Lost -2.1%
1980 -66.0 Lost -9.7%
1984 51.5 Won 18.2%
1988 9.0 Won 7.7%
1992 -22.5 Lost -5.6%
1996 43.5 Won 8.5%
2000 22.0 Lost .5%
2004 13.0 Won 2.5%

My commentary

The barometer was probably at -85 at the time of the election. Bush's net disapproval rating was closer to -45, and economic growth had turned negative. The banks collapsed, the stock market collapsed, and AIG collapsed.

It's amazing that Sen. McCain had a chance when September came around.

I think the only Republican who may have done better this year in this environment was Mike Huckabee. That is because he offerred something different, i.e., the fair tax. He could have attempted to sell the public on the merits of the fair tax. It's possible that manufacturing workers would have bought his logic. I'm not sure the public would have liked it. But his proposal would certainly have countered Sen. Obama's trade arguments because he could have said the fair tax would imposed the same tax cost on American goods as foreign goods. That may have sold. And, he didn't have any connection to Bush whatsoever.

Regarding Sarah Palin, was she a bad pick? No, she is who gave Sen. McCain a chance going into the middle of September. When the banks collapsed, nothing could save Sen. McCain.

Monday, November 3, 2008

Economic Effect of a Cap and Trade System

What is the economic effect of a cap and trade system for carbon dioxide?

Let's say natural gas trades at a premium to coal at the current time to produce the same amount of power and natural gas produces less carbon dioxide for that amount of power. The effect of the cap and trade system that imposes a fee on each emission of carbon dioxide is to: (a) increase demand for natural gas and (b) reduce demand for coal. A similar effect occurs to the extent that natural gas produces less carbon dioxide than oil.

Now who benefits from a cap and trade system. Those who have large investments in natural gas or alternative fuels. From a political standpoint, an aggressive cap and trade system may benefit Pennsylvania to the extent that Pennsylvania will become a major natural gas producer in the future as a result of the Marcellus Share Resorvior. Thus, even though coal has been a major contributor to the PA economy, the new reality is that Pennsylvania probably benefits as much as any state from a cap and trade system to the extent that my theory is correct and natural gas replaces oil and coal.

I believe major Obama supporters such as Warren Buffet and Bill Gates have major investments in natural gas. Presumably, a cap and trade system vastly boosts the value of their natural gas holdings. Google, which has several Obama supporters, is making major investments in alternative energy. Energy costs are a major concern for Google. A cap and trade system may benefit Google by raising energy prices for potential competitors. Anyway, these businesses and investors aren't supporting Obama out of concern for the poor. There is a lot of profit to be made as a result of a cap and trade system.

It won't help coal miners and coal towns which will be devastated by this system. It won't help individuals and businesses which will pay much higher energy costs. But it will provide additional money to those who will generate the most benefit from cap and trade, which is those who produce the fuel that creates the lower carbon dioxide emissions per the BTUs produced. For them, the higher the tax on carbon emissions, the more money they can make.

Will a cap and trade system help spur alternative energy sources such as solar, wind, etc? It depends on how high the tax on carbon emissions is.

Do I think a cap and trade system is good? If it is used as a tax raising device as appears to be the proposal by President-Elect Obama, then I don't think it will work well. It will probably make the cost of manufacturing prohibitive in many parts of the country.

Saturday, November 1, 2008

The Gasoline and Electricity Tax Increase Will Offset Obama's Tax Credit

My thinking is that what will propose a global warming bill with large increases in the gasoline tax and electricity. (Personally, I favor a higher gasoline tax to cut imports but certainly do not favor a higher tax on electricity.) (See interview with Iowa Public Television. )

I expect that this green tax will equal the $500/$1,000 tax credit for most individuals.

The biggest problem with Obama's proposal is that raising the tax on electricity will be a job killer. Electricity costs are an important part of manufacturing costs. It would make U.S. products less competitive with products in other countries. And, if it was based on greenhouse gases emitted, the states which have coal plants would suffer enormously.

My own thinking is that while there may be somethng to it, global warming could be the biggest hoax ever perpetrated. I think Obama's assertions in the interview that global warming is causing droughts or heat waves is laughable. It has been cold this October here. There was a snowstorm in London, the first in 86 years in October. There was a devastating freeze in China last winter creating havoc and devastation. Reportedly, there has been no warming since 1998.

Now I understand the need for a gasoline tax. You can't keep on paying to import 17 million barrels a day. Whether its $40 a barrel which equals 680 million dollars a day or $100 a barrel which equals $1.7 billion dollars a day, we can't do it.

But the electricity tax is another matter. That will devastate the economy.

Redistribution in New Jersey

We have had two forms of redistribution in New Jersey. One program takes state dollars and pours that money into urban school districts. Those districts now spend 50% more than suburban districts. The other is redistribution in the form of a homestead rebate. The rebate is currently 20% of property taxes up to $10,000 with the maximum rebate being $2,000.

The redistribution in the form of educational funding has massively raised property taxes in suburban areas. Those districts receive little funding from the state because all the money goes to the urban districts. The urban districts are as bad as they were before this funding increase started twenty years ago.

The redistribution in the form of the homestead rebate was cut back this year. Taxpayers with income between 150,000 and $250,000 did not receive a rebate of 10% of their property taxes as they last year. Those with New Jersey gross income above $100,000 received 10% of their property taxes back, down from 15% in the prior year. I think the New Jersey experience is relevant to the redistribution issue.

Saturday, October 25, 2008

529 Plans-The Next Big Problem Area

States have sponsored a variety of 529 plans. The idea was for a parent to pay for college through a tax-free account. The accounts have income tax advantages and provide phenomenal estate tax benefits.

There are two types of accounts. There are prepaid accounts in which a parent buys tuition credits in advance. And, there are savings accounts which are not that distinguishable from regular savings accounts except for the tax benefits.

The savings accounts do not present a problem that could bring down the system because the owners of those accounts take the losses. So if someone invested 50K and has 35K in the account because of market losses, it's a problem for them but not a problem for the system.

The prepaid accounts on the other hand represent a major problem for the universities if that money has been invested in the stock market. Basically, the idea was that the parent would pay the 529 fund 30K and receive tuition at today's price. The idea worked as long as the state's 529 prepaid plan made money on its investments. But it is unlikely that they have made money. So there is likely to be a very large shortfall with respect to what the fund has in the balance and its future committments to pay for college education.

My attitude is that the colleges should just have to swallow the shortfall. But that is my view and is not likely the view of those who will make the decisions.

Wednesday, September 24, 2008

A Rolling Loan Gathers No Loss

One of the major accounting principles during the S&L fiasco was that a rolling loan gathers no loss. If you have a bad loan, you simply exchanged it for another bank's bad loan. In that way, an S&L could fool an auditor into thinking that the loan exchanged had actually been paid off.

My thoughts are that the same type of scams are very prevalent today. It's possible that some of these collateralized debt obligations could be exchanged in the same types of scams. Let's say Lehman had bad CDOs that they were underwriting. And Merrill had bad CDOs. Let's say Lehman sells the underwritten securities to Merrill Lynch in one transaction and then buys bad CDOs Merrill Lynch is underwriting in exchange. Or buy CDOs in Merrill's existing portfolio.

Now you might say this is crazy. How could Lehman be stupid enough to buy bad CDOs so that they could keep underwriting more CDOs and book the profits on those underwritings? That's suicidal. Are Lehman employees stupid enough to buy 1 billion dollars in CDOs to obtain 40 million in underwriting revenue. No, but they are smart enough to realize that Lehman can book profits on those underwriting revenues. And, the employees are well aware of how much in bonuses they can make.

Its possible that once the losses reached 5 to 10 billion dollars on the CDOs at Lehman, then management decided the hell with it. They were going to lose their jobs if they did the honorable thing and stopped this spiraling explosion. So they decided to try and prop things up so that they could keep on raking in bonuses and have a chance to unload their stock before the whole thing collapsed.

What leads me to this theory is Lehman's investments in CDOs went up from 57 billion in Nov. 2006 to 89 billion in Nov. 2007. Now what could have possibly prompted Lehman to do this?
The only reason I can think of to keep on buying CDOs at that time was to help out their underwriting. Otherwise, what they were doing was pure stupidity.

The mistake some observers make is that they believe that employees and firms will act rationally. However, for the people in the Lehman underwriting department, the behavior is rational. They can make huge bonuses from each offerring. So they
have an incentive to push through "swaps' to do so. For the company, the behavior isn't rational. But its the employees and management whose motives control.

Tuesday, August 5, 2008

Stimulus Rebates and Energy Prices

In response to the proposed stimulus rebates, Mike Huckabee said: Whose economy are we stimulating? Ours or China's. I would go further than Mr. Huckabee and suggest that we have also done a lot to stimulate the Venezuelan, Iranian, Saudi Arabian and other oil producing economies too with the stimulus rebates.

What is my theory? That the stimulus rebates were created to increase demand for goods. And, that by artificially driving up demand for goods, the stimulus rebates increased demand for the diesel oil that is required to ship those goods. (Not to mention directly increasing the individual's amount of money that he can spend on gasoline.) Thus, if demand for goods increased by 100 billion dollars more than what otherwise would have been shipped as a result of the stimulus rebates and the diesel oil required to ship such goods is 7-10 billion dollars, such an increase in demand above what otherwise would have been the case caused the price of oil to rise rather than fall. Therefore, its not simply a coincidence that the highest oil prices in history coincided with the stimulus payments.

Friday, July 25, 2008

Bribery 301

So this is how a pharmaceutical company bribers doctors and hospitals to approve and pay for certain drugs. They make contributions to a doctor's private foundation. The doctor invests it with a crooked businessman in the hopes of a big payoff.

The Chicago Sun Times has the story. But they have no idea what is really going on. The pharmaceutical companies had no intention of investing in the doctor's research. This was a payoff. Pure and simple? Why are we paying 17% of GDP for healthcare? Because of these types of scams.,CST-NWS-watchdog24.article

While on the county payroll, a top urologist at Cook County Hospital solicited nearly $1 million from drug companies over the last decade for his private foundation.
Dr. Paul S. Ray's pitch was that the money would go toward medical research and education.

Dr. Paul S. Ray has been granted immunity from prosecution to testify against Tony Rezko in a still-pending criminal case. (Courtesy)

But most of the money hasn't gone to health care at all. Instead, Ray invested it -- mostly in Tony Rezko.
Rezko is the convicted influence-peddler who had been a prodigious fund-raiser for politicians including Sen. Barack Obama, Gov. Blagojevich and the late Cook County Board President John Stroger, the ultimate boss of the county hospitals.
Ray had long worked with Stroger's godson, Orlando Jones, a top administrator at Cook County Hospital who became Stroger's chief of staff. Jones eventually left county government for a job with Rezko. Last September, after he had been questioned by the FBI, Jones committed suicide.
Ray set up the Paul S. Ray Urology Education and Research Foundation 16 years ago. It began investing with Rezko's companies in 2002, according to reports Ray filed with the Internal Revenue Service. The foundation invested $500,000 with Rezko Concessions, which operated Panda Express and Papa John's Pizza restaurants. It also put $100,000 into a proposed housing development Rezko unsuccessfully sought to build on a 62-acre site along the Chicago River in the South Loop.
Ray, 63, of Chicago, also invested his own money with Rezko, spending millions to buy real estate and Papa John's Pizza restaurants from Rezko.
Ray's Rezko deals didn't turn out well:
• • Ray's foundation appears to have lost the $500,000 it invested with Rezko Concessions -- nearly half of the foundation's assets. But the foundation apparently got back the $100,000 invested in Rezko's failed South Loop development.
• • Ray is battling lawsuits over two deals with Rezko. One was filed by Jabir Muhammad, a son of Nation of Islam founder Elijah Muhammad, claiming Rezko and Ray fraudulently took ownership of the South Side mansion where Muhammad lives. The other involves a $646,949 loan Ray allegedly got from a Rezko associate, Elie Maloof, to buy the Papa John's restaurants that Rezko owned in Wisconsin.
• • Ray's purchase of those restaurants is part of a second, still-pending criminal case against Rezko. Federal prosecutors say Rezko engaged in a conspiracy so Ray could buy the Papa John's stores in Wisconsin. Ray -- who has not been charged -- has been granted immunity from prosecution to testify against Rezko.
Sources say Ray has lost at least $3 million on his deals with Rezko. After 25 years, Ray resigned June 30 as chief urologist for the county's hospitals, including Stroger Hospital, which replaced Cook County Hospital. Ray's attorney, Thomas A. Durkin, declined to comment.
Cook County officials did not answer questions about Ray -- including whether he had permission to set up the foundation that he once ran from his county office, whether the foundation did studies or research on county patients and why the foundation paid Jones an $8,319 consulting fee in 2002 while Jones was John Stroger's chief of staff.
GlaxoSmithKline, the pharmaceutical giant, has been the biggest supporter of Ray's foundation, giving more than $420,000 since 1998. A GlaxoSmithKline spokesman said the company paid Ray's foundation and the county hospital to conduct clinical research.
Ray's foundation has taken in more than $1.2 million since 1998 and spent $583,000. The biggest expense: more than $160,000 for travel, conferences and meetings. The foundation also reported spending $26,000 on unspecified "contracted services" and $25,799 on "recruiting fees/medical study.'' Much of the other money went for computers and office supplies, Ray told the IRS.
Ray was one of the people Rezko tried to get Blagojevich to appoint to the Illinois Health Facilities Planning Board, the state agency that must approve major medical construction projects.
Last summer, Ray landed in the national spotlight when Obama, seeking to distance himself from Rezko, gave to charity $6,000 that Ray had contributed to Obama's U.S. Senate campaign.

Sunday, June 22, 2008

High Speed Rail Transportation

Let's look at the economics of high speed rail transportation.

One of Sen. Obama’s energy and environmental proposals is that high-speed rail (which has enormous costs to start up) would provide great environmental benefits.

My own view of high-speed rail transportation is that this program would greatly benefit elites who would love to cut their travel time from New York to Washington from the current rail system's 3hr. 20 min. but it would do nothing for the people who take the bus, which burns about 1/3 of the energy of Amtrak per passenger mile, because the bus costs much less than Amtrak.

If people switched from flying from New York to Washington, then this might save some energy. However, if people switch from the currently slower rail service to the high speed rail service, then energy use almost doubles, a point made by the U.K. rail minister in rejecting a high speed line from London to Glasgow. (See link below.) So if 50% of the passengers switch from regular rail to high-speed rail, you have almost doubled the per passenger mile energy use for those passengers.

So you have the likelihood that the beneficiaries of this expenditure after it is built are business executives and Congressmen who can now get from downtown Boston, New York or Philadelphia to the federal district in Washington in half the time it used to take and those who will have high paying jobs on the rail line. Meanwhile, towns that currently benefit from Amtrak but where stops will not be made on the high speed line will have service dropped.

Britain's Rail Minister


Britain is to be left out of Europe’s high-speed rail revolution because the Government has decided that 200mph trains are bad for the environment.
Despite repeated promises to consider the benefits of a dedicated new line capable of carrying passengers from London to Scotland in less than three hours, ministers are thinking again.
In a letter obtained by The Times, Tom Harris, the Rail Minister, said: “The argument that high-speed rail travel is a ‘green option’ does not necessarily stand up to close inspection. Increasing the maximum speed of a train from 200kph [125mph – the current maximum speed of domestic trains] to 350kph leads to a 90 per cent increase in energy consumption.”

Friday, April 11, 2008

Union City Schools

Query: How much of the districts contracts represent kickbacks? Which board members have relatives that are school bus drivers?

Millennium Radio News reported exclusively yesterday on an audit of the Union City School District done by KPMG and paid for the State Department of Education.

(1) The audit revealed that school bus drivers in the district are paid six hours of overtime per month just to charge their cell phones. In a written response to the findings in the audit, Union City School District Superintendent Stanley Sanger says of the overtime for charging the cell phones, "This item was part of a Contracted Collective Bargaining Agreement. It is a priority item to be negotiated out of the collective bargaining agreement for September 2008."

(2) The district spent just under $73,000 for cable television spots to advertise the district and $55,000 for a PR company to prepare a monthly superintendent's newsletter. (Can you say kickback?)

(3) Another $50,000 was spent for brochures and posters to promote the superintendent's agenda. (Can you say kickback?)

(4) Another $148,000 was spent on website development. (Can you say kickback?)

(5) One school bus driver in the 04-05 school year earned $61,456 in overtime. Another bus driver in the 05-06 school year earned $51,725 in overtime. Another driver in the 05-06 school year, Got $73,000 in overtime. (Query: How many school bus drivers are related to board members?)

(5) The audit report says $150,000 is paid for an annual lease of the Ronald Dario Swimming Complex, which was used only part-time in year 05-06; and $100,000 for 04-05, again for part-time use. Sanger responds, "Facilities are used for middle and high school swim teams, alternative and special education students, after school and summer programs, which enhances physical wellness for our students."

The Union City School District stands to receive a 16% increase in State aid under Governor Jon Corzine's new school funding formula this year for a total of roughly $150 million. That 16% translates into roughly $20 million extra dollars.

Thursday, April 3, 2008

Obama's Education Plans and New Jersey

Given my experiences living in New Jersey, Barack Obama's comments really tick me off.

"I'm talking about the larger American community, to acknowledge that we've never even come close to providing equal opportunity to the majority of black children. Real opportunity would mean quality prenatal care for all women and well-funded and innovative public schools for all children. "

Let me give Barack a piece of my mind here. Listen to this Barack:

For the first four years of my schooling, I went to school with a lot of black children. So I have four more years of going to school with black children and studying black history than you do. Was I disadvantaged because of this? Not in the least. You went to some fancy private school for wealthy white kids and now you look down your nose at the rest of us.

Why is it that white or Asian children can do fine in the schools that you call inferior? In New Jersey, in Demographic Group A (the poorest schools), 22.1% of Asian 8th graders and 15.1% of white 8th graders are advanced proficient in Math while only 2.5% of black 8th graders are in that category? How do you explain that, Sen. Obama? In Demographic Group J (the wealthiest group), only 18.4% of black 8th graders are advanced proficient in Math. With Asians, its almost 71%.

Another thing. I live in New Jersey and let me tell you that nothing pisses me off more than someone telling me we need to spend more on poor children's education. We spend over 18K per student in Newark, NJ and what have we accomplished. Absolutely nothing! We are fed up with having our property taxes raised to support the urban school districts.

Don't tell me tests don't measure achievement. I can't look into these children's souls as you claim to be able to do. Tests are the only way I can measure performance. And the tests show that all this education spending in NJ has been an absolute waste.

So, no I do not support the same stupid educational theories that have been tried in NJ and failed for 20 years. So stop this blame whitey nonsense. And don't call me a racist when you have been listening to that quack reverend for 20 years.