Transparency II?

Surely one of the more secretive branches of government is the Federal Reserve. It refuses to tell us - or its own Inspector General - anything about specific borrowers, even months after the borrowing has occurred. We can find out such information for the TARP. Why can't we do so for the Fed which has given out a lot more money than that given under TARP?

Ron Paul has introduced the Federal Reserve Transparency Act which asks the GAO to audit the Fed. Yet, few Democrats are supporting it and it seems unlikely to pass.

Transparent?

Members of the House and Senate receive an annual expense allowance for office, travel and other expenses associated with the position. The allowances vary from $1,300,000 to $4,500,000 per year and must be used up in the year or the politician loses it. As with the expense account of many organizations, some misuse it. One representative leased a Lexus for $24,720 a year. Another bought a $1,435 digital camera. A third bought two large screen Sony televisions. And some don't spend it all; Pelosi returned $57,000, Boehner $228,000.

It is not easy to get this information, as it is only printed on paper and there's a lot of paper: 3,000 pages each quarter for the House. There are no plans to produce the data electronically; I think they're waiting until the 22nd century.

He doesn’t like McChrystal

Tom Englehardt calls McChrystal, our new leader in Afghanistan, the general from the dark side because that’s essentially where he has been for the past five years when he commanded the Joint Special Operations Command (JSOC), which did things we don’t want to know about.

Englehardt sees the recent Obama moves in “Af-Pak” as an all around expansion of the conflict: more troops, more drones, more interference in internal affairs (i.e., Khalilzad as CEO), more war (in Pakistan), more dead and injured civilians, more anti-Americanism.

His conclusion as to where such expansion will take us:

For those old enough to remember, we've been here before. Administrations that start down a path of expansion in such a war find themselves strangely locked in -- psychically, if nothing else -- if things don't work out as expected and the situation continues to deteriorate. In Vietnam, the result was escalation without end. President Obama and his foreign policy team now seem locked into an expanding war. Despite the fact that the application of force has not only failed for years, but actually fed that expansion, they also seem to be locked into a policy of applying ever greater force, with the goal of, as the Post's Ignatius puts it, cracking the "Taliban coalition" and bringing elements of it to the bargaining table.

Moving towards Vietnam

It’s an assumption I know, but it is likely that Graham E. Fuller, former CIA station chief in Kabul and former vice-chair of the CIA’s National Intelligence Council, knows something about Afghanistan and terrorism in general. He’s worried that Obama is making things worse in the area. His knowledge of the area leads him to the following conclusions:

• Military force will not win the day in either Afghanistan or Pakistan; crises have only grown worse under the US military footprint.
• Most Pashtuns see the Taleban -- like them or not -- as the primary vehicle for restoration of Pashtun power in Afghanistan, lost in 2001. Pashtuns are also among the most fiercely nationalist, tribalized and xenophobic peoples of the world, united
only against the foreign invader.
• It is a fantasy to think of ever sealing the Pakistan-Afghanistan border.
• India is the primary geopolitical threat to Pakistan, not Afghanistan. Pakistan must therefore always maintain Afghanistan as a friendly state.
• Pakistan will therefore never rupture ties or abandon the Pashtuns, in either country, whether radical Islamist or not. Pakistan can never afford to have Pashtuns hostile to Islamabad in control of Kabul, or at home.
• Occupation everywhere creates hatred, as the US is learning.
• The situation in Pakistan has gone from bad to worse as a direct consequence of the US war raging on the Afghan border.
• The deeply entrenched Islamic and tribal character of Pashtun rule in the Northwest Frontier Province in Pakistan will not be transformed by invasion or war.
• Anti-American impulses in Pakistan are at high pitch, strengthening Islamic
radicalism and forcing reluctant acquiescence to it even by non-Islamists.

Only the withdrawal of American and NATO boots on the ground will begin to allow the process of near-frantic emotions to subside within Pakistan, and for the region to start to cool down. It would be heartening to see a solid working democracy established in Afghanistan. Or widespread female rights and education - areas where Soviet occupation ironically did rather well. But these changes are not going to happen even within one generation, given the history of social and economic devastation of the country over 30 years.

What can be done must be consonant with the political culture. Let non-military and neutral international organizations, free of geopolitical taint, take over the binding of Afghan wounds and the building of state structures. If the past eight years had shown ongoing success, perhaps an alternative case for US policies could be made. But the evidence on the ground demonstrates only continued deterioration and darkening of the prognosis. Will we have more of the same? Or will there be a US recognition that the American presence has now become more the problem than the solution? We do not hear that debate.

Will the Chinese Wall Prevent Corruption?

Geithner has determined that the only people who can do the basic work in evaluating the banks are people who have spent most of their careers working for the banks in some capacity - employee, attorney, consultant, etc. - and are still working with the banks. It is these people who talk with Geithner & Co. often to give the Treasury the benefit of their opinions and advice. But we should not worry as these firms have a "Chinese Wall" which prevents their work with the government from influencing their non-government work. If you believe that, I have a bridge to sell you.

Elana Schor has an excellent article in The Washington Independent that names names with regard to this issue. She also reminds us of another useful technique of the Resolution Trust Corporation - audit the contractors to ensure that there is no actual conflict of interest.

More Waste

Have you heard of Alhurra? It's a televison station that you and I fund. The station aims to tell our truths to the Arab world. It is not doing that well, as not many Arabs watch it; in fact, the number watching it is decreasing. In 2008 it had a 2% audience share, now it's 0.5%, which is below the statistical margin of error. It is the least watched station in the area. Yet, it's budget has increased by 20% in the past two years and it has now spent $500,000,000 of our money since 2004.

The station is run by the Broadcasting Board of Governors, which does not seem to be a paragon of excellence. The Office of Personnel Management ranked the board at the bottom of 37 government agencies it evaluated. According to a ProPublica study, the board has staff problems and does not manage our money very well. A report by USC found that Alhurra "fails to meet basic journalistic standards, suffers from poor programming and is plagued by perceived bias".

Afghanistan, Iraq, Pakistan

We're moving into Pakistan in a very big way. Obama is asking Congress for $736,000,000 to build a new embassy in Islamabad. This is only $4,000,000 shy of our Baghdad embassy, which just happens to be our largest. And, this is not all we are spending on embassies in Pakistan. We've just upgraded our consular facilities in Karachi, will be buying the only 5-star hotel in Peshawar and will upgrade the facilities in Lahore.

Will all this building defuse the anti-American feelings in Pakistan or will it intensify them?

Is there really a change in our policies in South Asia? It's starting to look like there will not be.

It's how you define it?

Golden parachutes were forbidden by the TARP legislation. The parachute was defined as a payment made solely because an executive was leaving. What do you call a payment made when an executive leaves and signs a non-compete? You call it "services rendered" and hope no one notices.

That's what Associated Bancorp, to whom we gave $525,000,000, did when their president left. She got a payment of $1,650,000 for her services of not competing by working for a company in a nearby state or for one of the bank's competitors for one year.

Update
One day later we learn of Hampton Roads Bankshares giving its president a golden parachute. This time the president will provide consulting duties for three years, in exchange for which he'll be paid $1,300,000 plus the usual perquisites.

Who's next?

Another Friend of John

John Murtha does look out for his constituents. He is not loath to give them our money. The most recent beneficiary of his largesse to be come known is Mountaintop Technologies, which was started in 1993 to make and sell computer-based training. Since then, it has branched out to a wide variety of fields – distributing grants ($10,000,000 so far) to small police forces in Murtha’s district, robotics, battlefield anesthesiology, emergency communications, airport management and autism therapies. Over the past eight years, we’ve given Mountaintop $36,000,000. The firm did spend money to get this money; they’ve paid lobbyists, including Murtha’s brother, $725,000 since 1999

Why the firm is needed is a question. They seldom face competition; in only 11% of their contracts have they won against another firm. Their profit margins apparently are not bad; they took in $121,000 to distribute $1,800,000.

How long will Murtha last before being indicted?

Testing Obama?

Is that what North Korea has been doing over the past couple of months? First, they arrested the two journalists. Now they have tested a nuclear device and shot three surface-to-air missiles into the sea between North Korea and Japan. The device is quite a bit more powerful than the one tested in 2006. The first one was .8 kilotons, this one is between 10 and 20 according to Russian scientists.

A 21st Century House in Gaza

In the foreground are the mud 'bricks' that will be used to build some more houses similar to those in the background. Gazans are limited to such construction materials because the Israelis have banned the import of building materials into Gaza since 2007.

I'm sure that you're aware of the sewage problems in Gaza. Well, the Red Cross has joined other Gazans in scavenging materials needed to live. The organization is using cement slabs that were once part of the border wall with Egypt to help fix the sewage system.

I wonder what Netanyahu thinks of all this.

Another great deal by the Treasury

Using the wonderful Old National Bank model of selling warrants back to TARP recipients, the Treasury sold back to Iberiabank for $8.66 per share warrants that by most reasonable calculations were worth $19.78 a share. If they continue at this rate, we can expect to forfeit almost $10 billion of gains to the TARP recipients.

The Treasury also has difficulty buying these warrants, at least they did with the Goldman-Sachs warrants. Buffet bought them with a resale value of $82.18, Treasury at $72.33.

Who the hell is Geithner working for? Why doesn't Obama rein him in? Where is the Council of Old Men (the Economic Recovery Advisory Board) in all this? These deals are so @#$%^ bad. They defy logic.

The Hub of Economic Development

Many remote regions of the country are convinced that their economic salvation lies in having an airport. Last week I wrote about Johnstown, PA. and the subsidies we are giving them largely to transport Congressman Murtha to Washington and back. Today, it's Somerset, KY, hometown of Rep. Hal Rogers, and site of the Lake Cumberland Regional Airport, for which we paid $3,000,000 to have built and $1,000,000 to subsidize its operations while it attempts to demonstrate its viability.

The airport, which is a 45-minute drive from Louisville airport, is not yet very busy. It flies four times a week (not a day) to Nashville, a 45-minute flight. It will soon fly to DC every Monday morning and fly back on Friday night. Hmm, I wonder who will be on that flight?

The $1,000,000 operating subsidy is in the form of a grant from the Small Community Air Service Development Program, a government program which has distributed $110,000,000 of our money since 2002. Somerset could have also applied to the Essential Air Service program for a grant; this program gave away $1 billion of our money in the past ten years. Only 30% of the airports that have received these grants are still in business.

Is this a good use of our money when a major airport is less than an hour's drive away? Heck, it usually took me an hour to drive to Logan Airport in Boston from Wellesley.

Sense

Every so often you read something that resonates with you and are surprised at who wrote it. A year ago I wrote about Lee Iacocca’s words. Today, I read a speech by Leo Hindery and was surprised at how sensible he was. Hindery is not an academic. He is a very successful businessman in the telephone industry - CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. (TCI) and Liberty Media. He now runs his own investment company.

Like any human, he is not without problems, one of which was his association with Daschle that forced Daschle to withdraw as nominee for Health and Human Services Secretary.

Nonetheless, he has some worthwhile things to say about our economic quandary. Hindery lays most of the blame on the shift from advancing the cause of the middle class to advancing the cause of the rich, which was really a change in the sense of responsibility of corporate leaders. Hindery speaks approvingly of Reginald Jones, CEO of GE, who in 1972 said that his job was to work in behalf not only of shareholders but also in behalf of employees, customers, communities and the nation. Hindery writes that Jones then went on to say that a large fully-employed middle class growing from the bottom up would be the very best thing for his company, its shareholders, and the United States.

Jobs are a major concern for him and he’s not talking about any old job. He’s convinced that good-paying jobs are the heart of a good economy. He asserts that if you add in those who are underemployed we are really looking at a much higher unemployment rate, something on the order of 15+%.

He makes the interesting point that in other developed countries consumer spending accounts for less of the economy than in ours. Here, it was 71%. But we are now moving to a lower ratio; this movement has to be considered in any economic planning. And, of course, he laments the size of our trade deficit, the loss of manufacturing jobs and the size of the credit losses.

Hindery does not think the current economic plans are up to the job because they are

• Too small by half;
• Not nearly timely enough in some of its spend-out rates;
• Too focused on small one-time individual tax cuts [$233b]; and, most important,
• Too underperforming against the only measure that really counts, which is job creation.

He thinks we need our own Marshall Plan.

More specifically, he advocates the following:

1. A genuine national industrial & manufacturing policy plus trade policies that put American workers first and are as mercantilist as the policies that exist in the major emerging markets - especially in China, India and Brazil - and in some of the other major developed countries such as Germany.

2. A ten-year (not a two-year) program of significant public investment to upgrade and rebuild our nation's infrastructure, which will immediately create 18,000 new jobs for each $1 billion we spend [source: Univ. of Mass.-Amherst PERI] and help American companies succeed in the global marketplace.

3. Policies that encourage private investments in wind and solar PV energy, together with targeted [i.e., $50b] federal government spending related to:

• Improving energy efficiency in manufacturing facilities,
• Smart grids and smart meters,
• Ready-to-go transportation projects and clean-energy public transit vehicles, and
• Building retrofits.

These initiatives alone would very quickly create 3 million new jobs, including nearly 1 million construction jobs and 800,000 manufacturing jobs.

4. A very strong "Buy American" requirement related to all federal procurement, which now comprises about 19% of our economy, along with policies which encourage the domestic manufacturing of green energy component parts.

5. Major tax incentives for businesses of all size to invest in state-of-the-art laboratories, domestic jobs-focused R&D, and follow-on manufacturing plants and equipment.

6. Programs similar to Roosevelt's Civilian Conservation Corps and later programs like VISTA and CETA, in order to provide employment opportunities for this year's 6.4 million high school and college graduates and the graduates who will follow. To appreciate the magnitude of just this one challenge, the unemployment rate of workers with only high-school diplomas is already 19.6%, not even including the high school classes of 2009.

7. Significant expansion of job training and apprenticeship programs.

8. Public-sector employment initiatives that target urban renewal and, especially, enhanced inner-city K-12 education.

9. Passage of the Employee Free Choice Act so that the 60 million or so workers who would like to join unions can do so without obstacles, since expanding union membership is one of the clearest signposts on the road to growing the middle class from the bottom up and less income inequality.

Beyond these nine points, Hindery urges a restructuring of the financial world as well. He is at a loss to understand why TARP money was given without any charter that loans had to be made. And the stress tests which accept a 25:1 debt-to-net-capital ratio are laughable.

He closes by discussing what he feels are the root causes of the current problems, corporate irresponsibility and excessive executive and management compensation.

For the 35 years following the end of the Second World War, the critical component of making the pursuit of the American Dream fair for all Americans was how honorably government and business behaved and interacted, and for the most part they did pretty well. Now, however, Corporate America often uses the excuse of needing to "stay competitive" in the global economy to justify breaking its social contract with workers.

But the global economy doesn't have to mean more job insecurity, stagnant wages, and little or no health care or pension benefits. And it also doesn't have to mean threatening workers with moving their jobs overseas and slashing their benefits, just because multinational corporations have almost complete mobility of capital and technology and American workers have almost no mobility.

Every day in America, we tolerate the needless offshoring of millions of jobs, when CEOs could instead be demanding immediate tax cuts for manufacturers, tax credits for U.S.-based R&D expenditures, and trade agreements that incorporate anti-subsidy and anti-currency manipulation provisions and strong labor and environmental standards.

Every day in America, we are foreclosed from the benefits that would come from a meaningful carbon cap-and-trade system, because just one member of the 160-member Business Roundtable - Exxon Mobil - opposes this system, despite the fact that nearly every other developed nation in the world is in the process of implementing one.

Every day in America, a handful of insurance companies keep universal health care from the 100 million or so citizens who are either uninsured or chronically underinsured.

In my opinion the reason these things are happening is because also every day in America, the average public company CEO earns about 400 times what his average employee makes, while thousands of other managers in both business and financial services drink heartily from the same frothy trough.

For most of the last century, CEOs in the U.S. earned roughly 20 times as much as the average employee [source: EPI per NY Times, 12-18-05 and 1-01-06], and even today the ratio of CEO pay to that of the average employee has remained around 22-times in Britain, 20-times in Canada, and 11-times in Japan. But in just ten years time or so, we in America abandoned this fair and equitable relationship, both in business and in financial services.

And in the process, we not only shot our own economic foot off, but that of nearly every other economy in the world. For not only is our current extreme disparity in compensation an ethical embarrassment and an affront to workers and shareholders, but it also sadly underpins, in my opinion, almost every major corporate misbehavior of the last decade, especially including this great "financial crisis of 2008". As the infamous bank robber Willie Sutton said when asked why he robbed banks, "It's where the money is."

The Zogby Poll

Marc Lynch summarizes the most recent poll of six Arab countries. Some of the results:

• While the most important issue seems to be Iraq, an Israeli-Arab peace remains very important. 51% would like us to withdraw from Iraq, 41% want peace with Israel.
• Fatah and Hamas should get together to create a united government in Palestine.
• Surprisingly the most admired leader is Bashar al-Assaad of Syria.

Murdoch's Changes

Liza Featherstone doesn't think too highly of what The Wall Street Journal seems to be moving towards - less business, more news and entertainment and all delivered in short bursts. She has a point.

Take the simple matter of mistakes in grammar, punctuation and facts. They have increased because there is no longer a copy desk. And, I'd wager that the closing of the library has added to the errors of fact.

Personally, I was shocked to see a Sports page in The Journal. Sure, Allan Barra has had a column for a while and it was usually quite interesting. But why does what was the premier business paper in this country need to waste a page on the same sports news we can get anywhere?

Time was when many Journal articles went to another page. That day is rapidly diminishing. The mantra seems to be shorter, faster and more current. That is not what made The Journal great. Featherstone asks whether the dropping of The Journal's competitive advantage of being #1 in quality, comprehensive, business reporting will result in the newspaper becoming another run-of-the-mill part of the mass media.

Line by Line

Jonathan Landay and Warren Strobel examine about twenty of the points Cheney tried to make in his speech yesterday. Need I say that they demolish each one? Why does Cheney still get so much press?

Another About Face By Our Congress

The statements by Reid and Feinstein are classic.

Visit msnbc.com for Breaking News, World News, and News about the Economy

How is this possible?

From a brochure touting California wine:

"A brilliant wine that offers aromas of delicate orange blossom and citrus followed by flavors of melon, pear, honey and almond."

And, of course, there is always the flavor of grape.

Making deals for the taxpayer

Another indication of the Treasury's difficulties in managing our money well is highlighted by Linus Wilson's discussion of the repurchase of warrants granted by Old National Bank in exchange for TARP money. Wilson thinks that the warrants were worth between $1,500,000 and $6,900,000. How much did Treasury accept for them? $1,200,000. If Wilson is right - and at least James Kwak thinks he is - we lost at least $300,000.