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Congress Under The Microscope

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The November 13 broadcast of 60 Minutes, which featured a piece by Steve Kroft about Congressional insider trading, gave some needed momentum to the effort seeking a ban on the practice.  I originally wrote about this activity in September of 2009:

A recent report by American Public Media’s Steve Henn revealed how the law prohibiting “insider trading” (i.e. acting on confidential corporate information when making a transaction involving that company’s publicly-traded stock) does not apply to members of Congress.  Remember how Martha Stewart went to prison?  Well, if she had been representing Connecticut in Congress, she might have been able to interpose the defense that she was inspired to sell her ImClone stock based on information she acquired in the exercise of her official duties.

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Mr. Henn’s report went on to raise concern over the fact that there is nothing to stop members of Congress from acting on such information to the detriment of their constituents in favor of their own portfolios.

In February of 2011, I discussed the subject again, including the history of Congressman Brian Baird’s introduction of  H.R.682, the “Stop Trading on Congressional Knowledge Act” (STOCK Act) in January of 2009.  On November 14, I was pleased to report that a conservative pundit – Peter Schweizer – a research fellow at Stanford University’s Hoover Institution – had joined the battle against Congressional insider trading:

A new book by Peter Schweizer – Throw Them All Out – deals with this very subject.  The book’s subtitle is reminiscent of the point I tried to make in my February posting:  “How politicians and their friends get rich off insider stock tips, land deals and cronyism that would send the rest of us to prison”.

On December 28, J.R. Dunn – consulting editor of the conservative American Thinker, enthusiastically weighed-in with a supportive review of Peter Schweizer’s book.  Beyond that, Dunn’s opening remarks addressed the greater problem:

Crony capitalism is the most serious current danger to the American community, a threat not simply to government or the economy, but to our very way of life.  It is the worst such threat since the trusts and monopolies of the early 20th century, and in much the same way. Cronyism is one of the major forces behind the establishment of the corrupt pseudo-aristocracy that has been taking shape in this country over the past two decades, a synthetic privileged class made up in large part of politicians, hustlers, and hangers-on who have become expert in exploiting the rest of us.

Fortunately, we have now reached a point where greater scrutiny is being used to investigate the manner in which Congress-cretins enrich themselves while in office.  David Richards wrote a great piece for the Daily Mail, which focused on the fact that over the past 25 years, the median net worth of a member of Congress has nearly tripled while the income of an average U.S. family has actually fallen:

Against a backdrop of a vast budget deficit and fears of the fragility of the economy, analysis by the Washington Post shows that the median net worth of a member of Congress has nearly tripled over 25 years while the income of an average U.S. family has actually fallen.

It calculated that their median net worth, between 1984 and 2009 and excluding home equity, rose from $280,000 to $725,000.

Over those same 25 years the wealth of the average U.S. family slipped from $20,500 from $20,600, a University of Michigan study shows.

The Daily Mail article went on to point out that members of Congress are actually doing significantly better than America’s most wealthy citizens – who are so zealously defended by critics of the Occupy Wall Street movement:

The New York Times’ report into the wealth of members of Congress found that they were also getting rich compared with affluent Americans.

It found that the median net worth of members of Congress rose 15 per cent from 2004 to 2010 as the net worth of the richest 10 per cent of the country remained for the most part flat.

This disparity between those they represent also translated into a wider gap in their experiences of the economy, the Post found.

It interviewed Gary Myers, the son of a bricklayer, a Republican who entered Congress in 1975. He said his experience of having worked as a foreman in a steel mill shaped his outlook and led him to vote in favour of raising the minimum wage and helped him to understand the need for workers to have a safety net.

‘It would be hard to argue that the work in the steel mill didn’t give me a different perspective,’ he told the Post. ‘I think everybody’s history has an impact on them.’

The same area is now represented by Republican Mike Kelly who was elected last year. After graduating he married the heiress to an oil fortune and took over his father’s car dealership where he had worked as a youngster.

He told the paper he believed he was overtaxed already and that unemployment benefits made some people less willing to look for employment.

On the other hand, there is one Congressman’s investment portfolio, which is being criticized for other reasons.  In fact, I’m sure that many investment analysts are having a good laugh as they read Jason Zweig’s recent posting for his new Total Return blog at The Wall Street Journal:

Yes, about 21% of Rep. Paul’s holdings are in real estate and roughly 14% in cash.  But he owns no bonds or bond funds and has only 0.1% in stock funds.  Furthermore, the stock funds that Rep. Paul does own are all “short,” or make bets against, U.S. stocks. One is a “double inverse” fund that, on a daily basis, goes up twice as much as its stock benchmark goes down.

The remainder of Rep. Paul’s portfolio – fully 64% of his assets – is entirely in gold and silver mining stocks.  He owns no Apple, no ExxonMobil, no Procter & Gamble, no General Electric, no Johnson & Johnson, not even a diversified mutual fund that holds a broad basket of stocks.  Rep. Paul doesn’t own stock in any major companies at all except big precious-metals stocks like Barrick Gold, Goldcorp and Newmont Mining.

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Rep. Paul appears to be a strict buy-and-hold investor who rarely trades; he has held many of his mining stocks since at least 2002. But, as gold and silver prices have fallen sharply since September, precious-metals equities have also taken a pounding, with many dropping 20% or more.  That exposes the risk in making a big bet on one narrow sector.

At our request, William Bernstein, an investment manager at Efficient Portfolio Advisors in Eastford, Conn., reviewed Rep. Paul’s portfolio as set out in the annual disclosure statement.  Mr. Bernstein says he has never seen such an extreme bet on economic catastrophe.  “This portfolio is a half-step away from a cellar-full of canned goods and nine-millimeter rounds,” he says.

There are many possible doomsday scenarios for the U.S. economy and financial markets, explains Mr. Bernstein, and Rep. Paul’s portfolio protects against only one of them:  unexpected inflation accompanied by a collapse in the value of the dollar.  If deflation (to name one other possibility) occurs instead, “this portfolio is at great risk” because of its lack of bonds and high exposure to gold.

At least Congressman Ron Paul is authentic enough to “place his money where his mouth is” when criticizing Federal Reserve monetary policy.

As election year progresses, the current trend of “turning over rocks” to investigate the financial dealings of those in Congress could make things quite interesting.


 

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Post-Free-Market Reality

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The problem became obvious at the onset of the financial crisis.  All of the huffing and puffing about our glorious Free Market system was a big lie.  Once the credit bubble had burst, former Treasury Secretary Hank Paulson went into panic mode – his eyes bulging outward even more than normal.  During that fateful week of September 15 2008, Paulson had 24 telephone conversations with Lloyd Blankfein, his successor CEO at Goldman Sachs.  AIG had to get bailed out at taxpayer expense.  From across the pond, the reaction was immediate.  On September 18 2008, Philip Broughton wrote an article for the Daily Mail entitled, “Free-market capitalism lies shredded … while America’s confidence is badly shaken”.  Near the outset of the piece, Broughton chronicled the ugly truth:

For years now, we have had to listen to bankers attacking Washington for imposing regulations that inhibit the free markets from making even more money.

And all the while, they took exorbitant salaries, justifying them on the grounds of their huge contribution to capitalism.

How bitterly ironic it is, then, to see these one-time freemarketeers becoming socialists overnight.

The schoolyard bullies of Wall Street have gone running to the state for help, pleading to be saved from destruction.

They deserve neither our sympathy nor the billions in taxpayer support they are now receiving.

That theme has been reverberating through commentaries ever since.

A year later, Paul Farrell of MarketWatch provided an overview of writings by Jack Bogle, Marc Faber and Thomas Moore to support his contention that “America’s Soul of Capitalism” has been lost:

You know something’s very wrong:  A year ago, too-greedy-to-fail banks were insolvent, in a near-death experience.  Now, magically, they’re back to business as usual, arrogant, pocketing outrageous bonuses while Main Street sacrifices, and unemployment and foreclosures continue rising as tight credit, inflation and skyrocketing federal debt are killing taxpayers.

Down in Australia, The Propitious Manager wrote an essay on April 4 2010, expressing his amazement that America was having so much trouble trying to stomach the idea of government-backed healthcare:

When you read President O’bama’s healthcare plan the most striking message is the failure of a free market to provide for the community. The healthcare market in the US, left unfettered to run free, just crashes into a heap of mismanagement, inefficiency and opportunism (hold on – isn’t this a familiar story).  I’ll leave you to read the script – but it isn’t a pretty picture.

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What I like to call post free market economies, are about identifying the markets which are essential to maintaining thriving people and communities and develop the frameworks which optimize their performance.  Some require complete freedom while others require varying degrees of framework from elected governments.  Developing an increasingly sophisticated community and social framework is really the challenge of the century.  One where it doesn’t matter whether your a rubbish collector or a billionaire – if you get sick, someone will care for you and if you invest your money it will be there when you wake up in the morning.

The idea that we are now living in a post-free-market economy presents itself in a recent commentary by Veronique de Rugy for Bloomberg News, entitled “Why Businesses Can’t Stand Free Markets”.  Ms. De Rugy discussed how businesses exploit regulatory capture and use lobbyists to obtain favorable laws and regulations in order to stifle competition at the expense of consumers.  She concluded with this thought:

Let’s hope that any court ruling deals a blow to the practice of entrenched businesses using government to impose higher costs on consumers while also thwarting upstart entrepreneurs.  No one said loving free markets was easy.

On the other hand, there are many “upstart entrepreneurs” seeking government assistance to circumvent obstacles existing in the free-market system.  This has become especially apparent in the burgeoning solar power industry, where American upstarts are attempting to compete with entities which obtain government financing – not only in China but in the eurozone as well.  Martin LaMonica recently discussed this problem in an article for CNET:

Before the financial crisis, solar challengers were able to build manufacturing facilities using private money–venture capital, private equity, and hedge funds.  These sources still exist, but private investors are being pickier about how they place their bets, said Ted Sullivan, solar analyst at Lux Research.

Raising money on the public markets with an initial public offering was possible a few years ago, too, but is very difficult now, said Ethan Zindler, head of policy analysis at Bloomberg New Energy Finance.  Banks, meanwhile, are unlikely to finance the first factory for a solar company if the technology is relatively new and untested.

That leaves government programs, such as low-cost loans, and state incentives for economic development to help fill the financing gap in many cases.

*   *   *

In an effort to stimulate exports, the China Development Bank has made $40 billion in credit available to six solar companies in the past six months, said Zindler from Bloomberg New Energy Finance.  The U.S. stimulus program made billions of dollars available to stimulate clean-energy technologies, but the U.S. can’t match the amount of money China has made available through these low-cost loans, he said.

“Chinese solar companies are grinding down the cost by building plants the size the world has never seen before and deploying unbelievable amounts of capital to do it,” Zindler said.

In the U.S., the solar industry scored a victory with the passage of the tax bill last week because it included a one-year extension to a grant that replaces a tax credit subsidy.  But it’s unclear what the long-term direction on renewable energy policy is in the U.S., which creates questions over how strong demand will be for solar, Zindler said.

In our post-free-market milieu, there are many exceptions to the general rule that government assistance to business is a bad thing.  Now that people are finally facing up to the reality that many companies (some of which are Cayman Islands-based corporations) have been receiving U.S. government subsidies (of some sort) for decades, difficult decisions must be made to determine when this is appropriate and when it’s not.  American voters need to face up to the fact that many of those poseurs claiming to be champions of “American free enterprise” are nothing more than hypocritical tools for whoever is lining their pockets.  “American free enterprise” died at Maiden Lane.  Deal with it.



The High Road To Nowhere

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August 21, 2008

He’s blowing it.  With each passing day, the opinion polls show increasing momentum by the McCain campaign.  For their part, the Democrats have put together a lineup of really uninspiring orators for next week’s Convention.  The schedule for this event will include such former stars as Jimmy Carter, Bill Clinton and John Kerry.  (At least they had the sense to leave Mike Dukakis and Walter Mondale off the program.)  What is Jimmy Carter going to discuss?  … “How to Facilitate Runaway Inflation”?  Is Bill Clinton going to explain “How to Beat a DNA Test”?  (John Edwards will be listening to that one with abated breath.)  We can count on John Kerry to present a coma – inducing diatribe about “How to Snatch Defeat from the Jaws of Victory”.  Meanwhile, Obama appears to be writing his own handbook on that subject.  After folding on the FISA (wiretap) bill and capitulating to the public’s ignorance on the offshore oil drilling controversy, he now appears ready to undermine his campaign theme of Change, by selecting a running mate, who has spent nearly his entire adult life in the Senate:  Joe Biden.

Obama would be better off running with his best choice: Virginia Governor Tim Kane.  Does Barack really believe that some chucklehead, watching “reality TV”, is going to be concerned about whether Kane has the adequate foreign policy acumen to attend the funerals of foreign dignitaries on behalf of the United States?  The people of Virginia will support the team that includes a fellow Virginian.   Southern voters will not vote for a ticket consisting of two individuals who put sugar on their grits.  Catholics will vote for the candidate with a Catholic running mate, despite McCain’s anti-abortion pander.

At this point in the campaign, the often – repeated mantra of the commentators is that “negative campaigning works”.  Obama has expressed his belief that by taking the “high road”, he will somehow be immune to any negative attacks.  If he wants to win this election, he must face up to the need to launch his own negative character attack against McCain.  For starters, he must restrain himself from saying nice things about his opponent.  He should then draw some attention to the following issues:

1.)  McCain’s divorce from his first wife, Carol, and Ross Perot’s feelings about that.  In the June 8 issue of Britain’s Daily Mail, Sharon Churcher discussed Perot’s reaction to how McCain ditched Carol upon his return from Viet Nam, when he first learned of her crippling injuries:

But Ross Perot, who paid her medical bills all those years ago, now believes that both Carol McCain and the American people have been taken in by a man who is unusually slick and cruel – even by the standards of modern politics.

“McCain is the classic opportunist.  He’s always reaching for attention and glory,” he said.

“After he came home, Carol walked with a limp.  So he threw her over for a poster girl with big money from Arizona. And the rest is history.”

2.)  McCain’s involvement in the “Keating Five” scandal.  In 1991, McCain was criticized by the Senate Ethics Committee as having exercised “poor judgment” in connection with the Federal Home Loan Bank Board’s investigation of Lincoln Savings and Loan.

3.)  Obama’s staffers should contact McCain’s fellow inmates from the Hanoi Hilton, to obtain a little more information than “no comment” as to their feelings concerning McCain’s candidacy.

4.)   Get in touch with McCain’s Vietnamese captors to find out whether he provided them with any worthwhile information, justifying  the reason for their offer of early repatriation, which he declined.

There’s a dirt in them there hills.  Obama’s camp has to go dig for it.  If they find it  . . .  they damned – well better use it.

It’s a dirty world out there, with such dirty players as: Vladimir Putin, Hugo Chavez and the Chinese baseball team.  Unless he really can perform a miracle, the guy with the halo over his head won’t be moving into 1600 Pennsylvania Avenue.  Of course, he could always trade in the halo for a nice set of darts.

A McCain – Edwards Ticket

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August 11, 2008

As mid-August approaches, the Hillarologists are preparing to descend upon Denver to vent their spleens at the Democratic Convention.  We’ve seen videos of them at backyard parties, cheering for their fallen hero, and shouting out for … uhh … catharsis?  As their hearts filled with rage, visions of sexists danced in their heads:  the usual big-mouths who weren’t used to restraining themselves while making on-air comments.  Most of the liberally-inclined men I know, couldn’t understand the charges of sexism in media coverage of the Presidential campaign, as alleged by Clinton’s supporters.  That’s because these men don’t watch Fox News or the likes of Glenn Beck.  Had they watched Keith Olbermann’s Countdown program a while back, they would have been treated to a sampling of some ugly, sexist remarks, as rebroadcast to an audience who, for the most part, tended to avoid the White House echo chamber.

Suddenly, Hillary’s female activists have a big distraction.  John Edwards (age 55) has now admitted to having an affair with a dilettante filmmaker named Rielle Hunter (age 44).  Edwards has admitted to having the affair that began after his wife, Elizabeth (now age 58), had been diagnosed with cancer.  To the Hillarologists, the Edwards caper sounded all too familiar.  It was yet another case of “throw your first wife under the bus” syndrome, with the added feature of doing so while she is in the throes of a medical crisis.  The Clinton supporters must have been reminded of a similar situation involving another candidate in the 2008 Presidential campaign:  John McCain.

Sharon Churcher provided an informative history of McCain’s first marriage in the June 8 issue of Britain’s Daily Mail.  Her article described how McCain (who turns 72 at the end of this month) married the sexy swimwear model named Carol Shepp in 1965.  Carol is only two years younger than John.  Carol had been previously married to one of McCain’s Annapolis classmates, by whom she had two sons: Douglas and Andrew.  When McCain married Carol, he adopted her sons.  During the Christmas season of 1969, while McCain was a prisoner in Viet Nam, Carol was driving to a friend’s house and experienced a horrible automobile accident.  A few hours after the accident, she was found next to the wreckage of her car, having been thrown through the windshield.  Churcher’s article went on to point out that after McCain’s release from the “Hanoi Hilton” and upon his reunion with Carol in 1973, he first learned of Carol’s injuries.  She was no longer the tall model he remembered.  Her doctors “had been forced to cut away huge sections of shattered bone in her legs, taking with it her tall, willowy figure” as Churcher explained.

The Daily Mail article mentioned a man named Ted Sampley, who fought with the Special Forces in Viet Nam.  Mr Sampley was quoted as saying:

“When he came home and saw that Carol was not the beauty he left behind, he started running around on her almost right away. Everybody around him knew it.”

“Eventually he met Cindy and she was young and beautiful and very wealthy. At that point McCain just dumped Carol for something he thought was better.”

The article included the following quote from Carol about McCain’s reason for leaving her:

My marriage ended because John McCain didn’t want to be 40, he wanted to be 25. You know that happens … it just does.

The disgruntled Hillarologists must be aware of the pattern here: opportunistic male politician strays from his first wife after she sustains a physical setback.  The 2008 Presidential campaign brought us two candidates with the same modus operandi.  The fact that they are from different parties shouldn’t exclude John Edwards as a running mate for John McCain.  After all, non-Republican Joe “The Tool” Lieberman has been vying for that spot for over a year.