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Government Should Listen To These Wealth Managers

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A good deal of Mitt Romney’s appeal as a Presidential candidate is based on his experience as a private equity fund manager – despite the “vulture capitalist” moniker, favored by some of his critics.  Many voters believe that America needs someone with more “business sense” in the White House.  Listening to Mitt Romney would lead one to believe that America’s economic and unemployment problems will not be solved until “government gets out of the way”, allowing those sanctified “job creators” to bring salvation to the unemployed masses.  Those who complained about how the system has been rigged against the American middle class during the past few decades have found themselves accused of waging “class warfare”.  We are supposed to believe that Romney speaks on behalf of “business” when he lashes out against “troublesome” government regulations which hurt the corporate bottom line and therefore – all of America.

Nevertheless, the real world happens to be the home of many wealth managers – entrusted with enormous amounts of money by a good number of rich people and institutional investors – who envision quite a different role of government than the mere nuisance described by Romney and like-minded individuals.  If only our elected officials – and more of the voting public – would pay close attention to the sage advice offered by these wealth managers, we might be able to solve our nation’s economic and unemployment problems.

Last summer, bond guru Bill Gross of PIMCO  lamented the Obama administration’s obliviousness to the need for government involvement in short-term job creation:

Additionally and immediately, however, government must take a leading role in job creation.  Conservative or even liberal agendas that cede responsibility for job creation to the private sector over the next few years are simply dazed or perhaps crazed.  The private sector is the source of long-term job creation but in the short term, no rational observer can believe that global or even small businesses will invest here when the labor over there is so much cheaper.  That is why trillions of dollars of corporate cash rest impotently on balance sheets awaiting global – non-U.S. – investment opportunities.  Our labor force is too expensive and poorly educated for today’s marketplace.

*   *   *

In the near term, then, we should not rely solely on job or corporate-directed payroll tax credits because corporations may not take enough of that bait, and they’re sitting pretty as it is.  Government must step up to the plate, as it should have in early 2009.

In my last posting, I discussed a February 2 Washington Post commentary by Mohamed El-Erian (co-CEO of PIMCO).  El-Erian emphasized that – despite the slight progress achieved in reducing unemployment – the situation remains at a crisis level, demanding immediate efforts toward resolution:

Have no doubt, this is a complex, multiyear effort that involves several government agencies acting in a delicate, coordinated effort.  It will not happen unless our political leaders come together to address what constitutes America’s biggest national challenge. And sustained implementation will not be possible nor effective without much clearer personal accountability.

One would think that, given all this, it has become more than paramount for Washington to elevate – not just in rhetoric but, critically, through sustained actions – the urgency of today’s unemployment crisis to the same level that it placed the financial crisis three years ago.  But watching the actions in the nation’s capital, I and many others are worried that our politicians will wait at least until the November elections before dealing more seriously with the unemployment crisis.

On October 31, I focused on the propaganda war waged against the Occupy Wall Street movement, concluding the piece with my expectation that Jeremy Grantham’s upcoming third quarter newsletter would provide some sorely-needed, astute commentary on the situation.  Jeremy Grantham, rated by Bloomberg BusinessWeek as one of the Fifty Most Influential Money Managers, released an abbreviated edition of that newsletter one month later than usual, due to a busy schedule.  In addition to expressing some supportive comments about the OWS movement, Grantham noted that he would provide a special supplement, based specifically on that subject.  Finally, on February 5, Mr. Grantham made good on his promise with an opinion piece in the Financial Times entitled, “People now see it as a system for the rich only”:

For the time being, in the US our corporate and governmental system backed surprisingly by the Supreme Court has become a plutocracy, designed to prolong, protect and intensify the wealth and influence of those who already have the wealth and influence.  What the Occupy movement indicates is that a growing number of people have begun to recognise this in spite of the efficiency of capital’s propaganda machines.  Forty years of no pay increase in the US after inflation for the average hour worked should, after all, have that effect.  The propaganda is good but not that good.

*   *   *

In 50 years economic mobility in the US has gone from the best to one of the worst.  The benefits of the past 40 years of quite normal productivity have been abnormally divided between the very rich (and corporations) and the workers.

Indeed “divide” is not the right word, for, remarkably, the workers received no benefit at all, while the top 0.1 per cent has increased its share nearly fourfold in 35 years to a record equal to 1929 and the gilded age.

But the best propaganda of all is that the richest 400 people now have assets equal to the poorest 140m.  If that doesn’t disturb you, you have a wallet for a heart.  The Occupiers’ theme should be simple:  “More sensible assistance for the working poor, more taxes for the rich.”

I’ve complained many times about President Obama’s decision to scoff at using the so-called “Swedish solution” of putting the zombie banks through temporary receivership.  Back in November of 2010, economist John Hussman of the Hussman Funds discussed the consequences of the administration’s failure to do what was necessary:

If our policy makers had made proper decisions over the past two years to clean up banks, restructure debt, and allow irresponsible lenders to take losses on bad loans, there is no doubt in my mind that we would be quickly on the course to a sustained recovery, regardless of the extent of the downturn we have experienced.  Unfortunately, we have built our house on a ledge of ice.

*   *   *

As I’ve frequently noted, even if a bank “fails,” it doesn’t mean that depositors lose money.  It means that the stockholders and bondholders do.  So if it turns out, after all is said and done, that the bank is insolvent, the government should get its money back and the remaining entity should be taken into receivership, cut away from the stockholder liabilities, restructured as to bondholder liabilities, recapitalized, and reissued.  We did this with GM, and we can do it with banks.  I suspect that these issues will again become relevant within the next few years.

The plutocratic tools in control of our government would never allow the stockholders and bondholders of those “too-big-to-fail” banks to suffer losses as do normal people after making bad investments.  It’s hard to imagine that Mitt Romney would take a tougher stance against those zombie banks than what we have seen from the Obama administration.

Our government officials – from across the political spectrum – would be wise to follow the advice offered by these fund managers.  A political hack whose livelihood is based entirely on passive income has little to offer in the way of “business sense” when compared to a handful of fund managers, entrusted to use their business and financial acumen to preserve so many billions of dollars.  Who speaks for business?  It should be those business leaders who demonstrate concern for the welfare of all human beings in America.


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Thinking Clearly During An Election Year

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The non-stop bombardment of inane, partisan yammering which assaults us during an election year, makes it even more refreshing when a level-headed, clear thinker catches our attention.  One popular subject of debate during the current election cycle has been the American Recovery and Reinvestment Act (the 2009 stimulus bill).  In stark contrast with the propaganda you have been hearing about the 2009 stimulus (from both political parties), a new book by Mike Grabell of ProPublica entitled, Money Well Spent? brought us a rare, objective analysis of what the stimulus did – and did not – accomplish.

Matt Steinglass of The Economist recently wrote a great essay on the “stimulus vs. austerity” debate, which included a discussion of Mike Grabell’s new book:

The debate we had about the stimulus probably should have been a lot like the book Mr Grabell has written:  a detailed investigation of what does and doesn’t work in stimulus spending and whether the government really can jump-start a promising industry through investments, tax breaks and industrial policy.  But that wasn’t the debate we had.  Instead we had a debate about the very concept of whether the government ought to spend money counter-cyclically during a recession in order to keep the economy from collapsing, or whether it should tighten its belt along with consumers and businesses in order to generate confidence in the financial markets and allow markets to clear.  We had a debate about whether governments should respond to recessions with deficit spending or austerity.

The ProPublica website gave us a peek at Mike Grabell’s book by publishing a passage concerning how the stimulus helped America maintain its status as a competitor in the electric car industry.  Nevertheless, America’s failure to support the new technology with the same zeal as its Asian competitors could push domestic manufacturers completely out of the market:

A report by congressional researchers last year concluded that the cost of batteries, anxiety over mileage range and more efficient internal combustion engines could make it difficult to achieve Obama’s goal of a million electric vehicles by 2015.  Even many in the industry say the target is unreachable.

While the $2.4 billion in stimulus money has increased battery manufacturing, the congressional report noted that United States might not be able to keep up in the long run.  South Korea and China have announced plans to invest more than five times that amount over the next decade.

As Matt Steinglass concluded in his essay for The Economist, current economic circumstances (as well as the changed opinions of economists John Cochrane and Niall Ferguson) indicate that the proponents of economic stimulus have won the “stimulus vs. austerity” debate:

The 2010 elections took place at a moment when people seemed to have lost faith in Keynesianism.  The 2012 elections are taking place at a moment when people have lost faith in expansionary austerity.

Although the oil industry has done a successful job of convincing the public that jobs will be lost if the Keystone Pipeline is not approved, big oil has done a better job of distracting the public from understanding how many jobs will be lost if America fails to earn a niche in the electric vehicle market.

The politicization of the debate over how to address the ongoing unemployment crisis was the subject of a February 2 Washington Post commentary by Mohamed El-Erian (co-CEO of PIMCO).  El-Erian lamented that – despite the slight progress achieved in reducing unemployment – the situation remains at a crisis level, demanding immediate efforts toward resolution:

The longer that corrective measures are delayed, the harder the task at hand will be and the greater the eventual costs to society.

*   *   *

In fact, our current unemployment crisis is a force for broad and disruptive economic, political and social dislocations.

Mr. El-Erian noted that there is a faction – among the opposing forces in the debate over how to address unemployment – seeking a “killer app” which would effectuate dramatic and immediate progress.  He explained why those people aren’t being realistic:

There is no killer app.  Instead, Congress and the administration need to move simultaneously on three fronts that incorporate multiple measures:  those that address the immediate impediments to job creation, including a better mix of demand stimulus and medium-term fiscal reform involving both federal spending and revenue, as well as stronger remedies for housing and housing finance; those that deal with the longer-term enablers of productive employment, such as education, retraining and retooling; and those that strengthen the social safety nets to appropriately protect citizens in the interim.

Have no doubt, this is a complex, multiyear effort that involves several government agencies acting in a delicate, coordinated effort.  It will not happen unless our political leaders come together to address what constitutes America’s biggest national challenge. And sustained implementation will not be possible nor effective without much clearer personal accountability.

One would think that, given all this, it has become more than paramount for Washington to elevate – not just in rhetoric but, critically, through sustained actions – the urgency of today’s unemployment crisis to the same level that it placed the financial crisis three years ago.  But watching the actions in the nation’s capital, I and many others are worried that our politicians will wait at least until the November elections before dealing more seriously with the unemployment crisis.

In other words, while the election year lunacy continues, the unemployment crisis continues to act as “a force for broad and disruptive economic, political and social dislocations”.  Worse yet, the expectation that our political leaders could “come together to address what constitutes America’s biggest national challenge” seems nearly as unrealistic as waiting for that “killer app”.  This is yet another reason why Peter Schweizer’s cause – as expressed in his book, Throw Them All Out, should be on everyone’s front burner during the 2012 election year.


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Transparent Dishonesty

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Immediately after assuming office, President Obama promised to provide a greater degree of transparency from his administration:

Transparency and the rule of law will be the touchstones of this presidency.

Since that moment, an enormous list of broken campaign promises has buried those false assurances of transparency.  Pondering over the heap of Obama’s discarded “bait and switch” enticements can cause a person to wonder how this man expects to get re-elected  … until the Republican aspirants come into view.

A recent gimmick of the current administration has been the “We the People” initiative.  This project resulted in the creation of a platform on the White House website, allowing for citizens to create petitions requesting government action on certain issues:

The We the People platform on WhiteHouse.gov gives Americans a new way to create, share, and sign petitions that communicate your views about your government’s actions and policies.

A signature threshold was established, requiring 5,000 on-line “signatures” within a 30-day period.  The threshold has subsequently been increased to 25,000 signatures in a month:

If a petition meets the signature threshold, it will be reviewed by the Administration and an official response will be issued.  And we’ll make sure that the petition is sent to the appropriate policy makers in the Administration.

The White House began responding to those petitions on October 26.  On November 5, Nancy Atkinson reported for Universe Today that We the People are interested in UFOs and space aliens:

The White House has responded to two petitions asking the US government to formally acknowledge that aliens have visited Earth and to disclose to any intentional withholding of government interactions with extraterrestrial beings.  “The U.S. government has no evidence that any life exists outside our planet, or that an extraterrestrial presence has contacted or engaged any member of the human race,” said Phil Larson from the White House Office of Science & Technology Policy, on the WhiteHouse.gov website.  “In addition, there is no credible information to suggest that any evidence is being hidden from the public’s eye.”

5,387 people had signed the petition for immediately disclosing the government’s knowledge of and communications with extraterrestrial beings, and 12,078 signed the request for a formal acknowledgement from the White House that extraterrestrials have been engaging the human race.

The denials made by Phil Larson are as false now as they were many years ago, when a 15-year-old high school student named John Greenwald, Jr. began sending Freedom of Information Act requests to the Pentagon, Air Force and numerous government agencies to ascertain what our officials had learned about those Unidentified Flying Objects, which have aroused so much curiosity since the advent of the Internet.  Over the years, John Greenwald has amassed a collection of over 600,000 pages of documents, which are available for free on his website, The Black Vault.

I was amused by John Greenwald’s lecture, recounting how – as a teenager – he made fools of the bureaucrats, who were charged with the responsibility of stonewalling any inquiries concerning the UFO phenomenon.  At his website, Greenwald recounted some of the highlights of this experience:

When I started researching this phenomenon fifteen years ago, you quickly learn that the government and military alike dismiss the entire topic, deny any involvement or interest in it, and they claim they could explain the mystery after their official investigation back in 1969 – and haven’t collected anything since.  Nothing could be further from the truth.

John Greenwald hit paydirt when he came across a document entitled “Air Force Instruction 10-206” or “AFI 10-206” (a 2008 edition can be seen here).  Here is Greenwald’s explanation (in the third person) of where this lead took him:

In the regulation entitled, “Operational Reporting,” chapter 5 outlines procedures for cataloguing different types of sightings, including the third on the list, “Unidentified Flying Objects” or UFOs.  Although this reference to UFOs is not a reference to alien spacecraft, the fact remains that this publication shows that the military does have an interest in the phenomena, whatever it might be.

*   *   *

Upon further investigation, Greenewald uncovered that the reports made under this Air Force document were called CIRVIS, or Communication Instructions for Reporting Vital Intelligence Sightings, reports.  He noted that they are filed and sent to the NORAD installation –which he then found out when he filed a FOIA request for the records – that NORAD was not subject to the FOIA.  This was due to the fact that it was under control by both Canadian and U.S. forces – therefore excluding it from U.S. law.

But “in good faith” the request was processed under a special NORAD instruction allowing access to their documents, but they claim they found “no records.”

Pushing forward, a simple phone call by Greenewald to the Department of National Defence (DND) in Canada yielded more than 100 pages of UFO / CIRVIS reports. According to NORAD – there was nothing.  According to Canada – there was a pile of records.

On September 2, 2011 Lee Speigel of The Huffington Post interviewed John Greenwald about the extent of UFO information obtained for The Black Vault by way of the Freedom of Information Act.  Lee Speigel provided this account of what happened after that interview:

On Sept. 2, The Huffington Post made inquiries to the Air Force about the UFO directives.  A spokesman said he’d arrange an interview with an appropriate officer.  But before the interview was set up, the 111-page instruction manual was revised on Sept. 6, and the UFO instructions were deleted, as were other portions of the document, now shortened to 40 pages.

*   *   *

For several weeks, military officials failed to respond to HuffPost inquiries about the rewritten manual, which included changes to areas unrelated to UFOs.

Finally, on Oct. 5, after several follow-up calls, an Air Force major emailed a response, informing HuffPost that UFO reporting is not a duty of the armed forces branch.  He denied any cover-up, and instead said it was a coincidence that the document was updated after this news organization asked for an explanation.

The Huffington Post piece included the reaction from John Greenwald:

“They’ve had many opportunities to take [the UFO reference] off of this publication and now look at what happens,” said Greenewald.  “All of a sudden, when a major news outlet like Huffington Post starts asking questions about why UFOs are still on the books — to have that media outlet not get a fast response, number one; and number two, the military completely re-writes the regulation, changes it and UFOs are nowhere to be found — that’s a fascinating coincidence.”

Obama’s promised “transparency” seems to have befallen the same fate as “hope” and “change”.  President Clinton’s former Chief of Staff, John Podesta, is now a Visiting Professor of Law at the Georgetown University Law Center.  Here is a video clip of John Podesta, making the case for disclosure of data compiled by the United States government on the subject of UFOs.  In a speech before the National Press Club on November 14, 2007, Mr. Podesta said this:

“I think it’s time to open the books” (on government investigations of UFOs).    .  .  .  “We ought to do it because it’s right.  We ought to do it because the American people, quite frankly, CAN handle the truth and we ought to do it because it’s the law.”

Yes, Mr. Podesta  . . .  but it’s so much easier for our officials to just lie.  They lie about everything else.  Why should this subject be treated any differently?


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Jeremy Grantham And Ike

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As an avid reader of Jeremy Grantham’s Quarterly Letter, I was surprised when he posted a Special Topic report on January 14 — so close to release of his Fourth Quarter 2010 Letter, which is due in a couple of weeks.  At a time when many commentators are focused on the 50th anniversary of John F. Kennedy’s historic Inaugural Address, Jeremy Grantham has taken the opportunity to focus on President Dwight Eisenhower’s Farwell Address of January 17, 1961.  (Grantham included the full text of Ike’s Farwell Address at the conclusion of the Special Topic essay.)

One passage from Ike’s Farwell Address seemed particularly prescient in the wake of the TARP bailout (which was not a success) and the “backdoor bailouts” including the Maiden Lanes (which were never to be repaid) as well as the cost of approximately $350 billion per year to investors and savers, resulting from the Federal Reserve’s zero-interest-rate-policy (often referred to as “ZIRP”).  Keep those Wall Street bailouts in mind while reading this passage from Ike’s speech:

Crises there will continue to be.  In meeting them, whether foreign or domestic, great or small, there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties.  A huge increase in newer elements of our defense; development of unrealistic programs to cure every ill in agriculture; a dramatic expansion in basic and applied research – these and many other possibilities, each possibly promising in itself, may be suggested as the only way to the road we wish to travel.

But each proposal must be weighed in the light of a broader consideration:  the need to maintain balance in and among national programs – balance between the private and the public economy, balance between cost and hoped for advantage – balance between the clearly necessary and the comfortably desirable; balance between our essential requirements as a nation and the duties imposed by the nation upon the individual; balance between actions of the moment and the national welfare of the future.  Good judgment seeks balance and progress; lack of it eventually finds imbalance and frustration.

In his Special Topic report, Jeremy Grantham focused on the disappointing changes that caused Ike’s America to become 21st Century America.  After quoting Ike’s now-famous admonition about the power of the military-industrial complex (for which the speech is frequently quoted) Grantham pointed out that the unrestricted influence of corporate power over our government has become a greater menace:

Unfortunately, the political-economic power problem has mutated away from the military, although it has left important vestiges there, toward a broader problem:  the undue influence of corporate America on the government, and hence the laws, taxes, and social policies of the country. This has occurred to such a degree that there seems little real independence in Congress, with most Congressmen answering first to the desire to be reelected and the consequent need to obtain funding from, shall we say, sponsors, and the need to avoid making powerful enemies.

*   *   *

The financial resources of the carbon-based energy companies are particularly terrifying, and their effective management of propaganda goes back decades.  They established and funded “independent” think tanks and even non-profit organizations that have mysteriously always come out in favor of policies favorable to maintaining or increasing the profits of their financial supporters.  The campaign was well-organized and has been terrifyingly effective.

*   *   *

The financial industry, with its incestuous relationships with government agencies, runs a close second to the energy industry.  In the last 10 years or so, their machine, led by the famously failed economic consultant Alan Greenspan – one of the few businessmen ever to be laughed out of business – seemed perhaps the most effective.  It lacks, though, the multi-decadal attitude-changing propaganda of the oil industry.  Still, in finance they had the “regulators,” deregulating up a storm, to the enormous profit of their industry.

Grantham concluded his report with a suggestion for the greatest tribute we could give Eisenhower after America ignored Ike’s warnings about the vulnerability of our government to unrestricted influences.  Grantham’s proposed tribute to Ike would be our refusal to “take this 50-year slide lying down”.

To steal a slogan from the Tea Party, I suggest the voters need to “take America back” from the corporations which bought off the government.  Our government has every intention of maintaining the status quo.

In the 2010 elections, voters were led to believe that they could bring about governmental reform by voting for candidates who will eventually prove themselves as protectors of the wealthy at the expense of the disappearing middle class.  In the 2008 elections, Barack Obama convinced voters that he was the candidate of change they could believe in.  In the real world of 2011, economist Simon Johnson explained what sort of “change” those voters received, as exemplified by the President’s appointment of his new Chief of Staff:

Let’s be honest.  With the appointment of Bill Daley, the big banks have won completely this round of boom-bust-bailout.  The risk inherent to our financial system is now higher than it was in the early/mid-2000s.  We are set up for another illusory financial expansion and another debilitating crisis.

Bill Daley will get it done.

Just as Jeremy Grantham explained how Eisenhower’s concerns about the military-industrial complex were materialized in the form of a corporate-controlled government, another unholy alliance was discussed by Charles Ferguson, director of the documentary film, Inside Job.  Ferguson recently offered an analysis of the milieu that resulted in President Obama’s appointment of Larry Summers as Director of the National Economic Council.  As Larry Summers announced plans to move on from that position, Ferguson explained how Summers had been granted the opportunity to inflict his painful legacy upon us:

Summers is unique but not alone.  By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government.  What few Americans realize is that the revolving door is now a three-way intersection.  Summers’ career is the result of an extraordinary and underappreciated scandal in American society:  the convergence of academic economics, Wall Street, and political power.

America needs new leaders who refuse to capitulate to the army of lobbyists on Capitol Hill.  Where are they?


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