Great essay in the Wall Street Journal yesterday by Michael P.  Fleischer.

Why I’m Not Hiring

“When you add it all up, it costs $74,000 to put $44,000 in Sally’s pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally’s job each year.

Because my company has been conscripted by the government and forced to serve as a tax collector, we have lost control of a big chunk of our cost structure. Tax increases, whether cloaked as changes in unemployment or disability insurance, Medicare increases or in any other form can dramatically alter our financial situation. With government spending and deficits growing as fast as they have been, you know that more tax increases are coming—for my company, and even for Sally too.”

Take a quick look at this video if you get a chance,  regarding accounting and the Banksters.

Amanda Lang and Kevin O’Leary talk with Janet Tavakoli, president of Tavakoli Structured Finance, on the SEC’s civil case against Goldman Sachs:

Need to listen to this. Makes too much sense.

I thought this article was great, a must read.

STEYN: Our own Greek tragedy

Here is the last paragraph for a summary.

“Think of Greece as California: Every year an irresponsible and corrupt bureaucracy awards itself higher pay and better benefits paid for by an ever-shrinking wealth-generating class. And think of Germany as one of the less profligate, still just about functioning corners of America such as my own state of New Hampshire: Responsibility doesn’t pay. You’ll wind up bailing out anyway. The problem is there are never enough of “the rich” to fund the entitlement state, because in the end, it disincentivizes everything from wealth creation to self-reliance to the basic survival instinct, as represented by the fertility rate. In Greece, they’ve run out Greeks, so they’ll stick it to the Germans, like French farmers do. In Germany, the Germans have only been able to afford to subsidize French farming because they stick their defense tab to the Americans. And in America President Obama, Nancy Pelosi and Harry Reid are saying we need to paddle faster to catch up with the Greeks and Germans. What could go wrong?”

Bunning Statement On The Re-Nomination Of Ben Bernanke To Be Chairman Of The Federal Reserve

Senate Banking Committee
Thursday, December 3, 2009

As Prepared For Delivery:

Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you. In fact, I was the only Senator to even raise serious concerns about you. I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right. But I did not know how right I would be and could not begin to imagine how wrong you would be in the following four years.

The Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide easy money, and thus inflate bubbles. Not only did you continue that policy when you took control of the Fed, but you supported every Greenspan rate decision when you were on the Fed earlier this decade. Sometimes you even wanted to go further and provide even more easy money than Chairman Greenspan. As recently as a letter you sent me two weeks ago, you still refuse to admit Fed actions played any role in inflating the housing bubble despite overwhelming evidence and the consensus of economists to the contrary. And in your efforts to keep filling the punch bowl, you cranked up the printing press to buy mortgage securities, Treasury securities, commercial paper, and other assets from Wall Street. Those purchases, by the way, led to some nice profits for the Wall Street banks and dealers who sold them to you, and the G.S.E. purchases seem to be illegal since the Federal Reserve Act only allows the purchase of securities backed by the government.

On consumer protection, the Greenspan policy was don’t do it. You went along with his policy before you were Chairman, and continued it after you were promoted. The most glaring example is it took you two years to finally regulate subprime mortgages after Chairman Greenspan did nothing for 12 years. Even then, you only acted after pressure from Congress and after it was clear subprime mortgages were at the heart of the economic meltdown. On other consumer protection issues you only acted as the time approached for your re-nomination to be Fed Chairman.

Alan Greenspan refused to look for bubbles or try to do anything other than create them. Likewise, it is clear from your statements over the last four years that you failed to spot the housing bubble despite many warnings.

Chairman Greenspan’s attitude toward regulating banks was much like his attitude toward consumer protection. Instead of close supervision of the biggest and most dangerous banks, he ignored the growing balance sheets and increasing risk. You did no better. In fact, under your watch every one of the major banks failed or would have failed if you did not bail them out.

On derivatives, Chairman Greenspan and other Clinton Administration officials attacked Brooksley Born when she dared to raise concerns about the growing risks. They succeeded in changing the law to prevent her or anyone else from effectively regulating derivatives. After taking over the Fed, you did not see any need for more substantial regulation of derivatives until it was clear that we were headed to a financial meltdown thanks in part to those products.

The Greenspan policy on transparency was talk a lot, use plenty of numbers, but say nothing. Things were so bad one TV network even tried to guess his thoughts by looking at the briefcase he carried to work. You promised Congress more transparency when you came to the job, and you promised us more transparency when you came begging for TARP. To be fair, you have published some more information than before, but those efforts are inadequate and you still refuse to provide details on the Fed’s bailouts last year and on all the toxic waste you have bought.

And Chairman Greenspan sold the Fed’s independence to Wall Street through the so-called “Greenspan Put”. Whenever Wall Street needed a boost, Alan was there. But you went far beyond that when you bowed to the political pressures of the Bush and Obama administrations and turned the Fed into an arm of the Treasury. Under your watch, the Bernanke Put became a bailout for all large financial institutions, including many foreign banks. And you put the printing presses into overdrive to fund the government’s spending and hand out cheap money to your masters on Wall Street, which they use to rake in record profits while ordinary Americans and small businesses can’t even get loans for their everyday needs.

Now, I want to read you a quote: “I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks. Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking. In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled.”

That should sound familiar, since it was part of your response to a question I asked about the systemic risk of large financial institutions at your last confirmation hearing. I’m going to ask that the full question and answer be included in today’s hearing record.

Now, if that statement was true and you had acted according to it, I might be supporting your nomination today. But since then, you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.

Instead of taking that money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses. Because you bowed to pressure from the banks and refused to resolve them or force them to clean up their balance sheets and clean out the management, you have created zombie banks that are only enriching their traders and executives. You are repeating the mistakes of Japan in the 1990s on a much larger scale, while sowing the seeds for the next bubble. In the same letter where you refused to admit any responsibility for inflating the housing bubble, you also admitted that you do not have an exit strategy for all the money you have printed and securities you have bought. That sounds to me like you intend to keep propping up the banks for as long as they want.

Even if all that were not true, the A.I.G. bailout alone is reason enough to send you back to Princeton. First you told us A.I.G. and its creditors had to be bailed out because they posed a systemic risk, largely because of the credit default swaps portfolio. Those credit default swaps, by the way, are over the counter derivatives that the Fed did not want regulated. Well, according to the TARP Inspector General, it turns out the Fed was not concerned about the financial condition of the credit default swaps partners when you decided to pay them off at par. In fact, the Inspector General makes it clear that no serious efforts were made to get the partners to take haircuts, and one bank’s offer to take a haircut was declined. I can only think of two possible reasons you would not make then-New York Fed President Geithner try to save the taxpayers some money by seriously negotiating or at least take up U.B.S. on their offer of a haircut. Sadly, those two reasons are incompetence or a desire to secretly funnel more money to a few select firms, most notably Goldman Sachs, Merrill Lynch, and a handful of large European banks. I also cannot understand why you did not seek European government contributions to this bailout of their banking system.

From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for. Where I come from we punish failure, not reward it. That is certainly the way it was when I played baseball, and the way it is all across America. Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case. I will do everything I can to stop your nomination and drag out the process as long as possible. We must put an end to your and the Fed’s failures, and there is no better time than now.

Some Policy recommendations

“First, the FDIC should be given regulatory authority to take non-bank financials into conservatorship the way they should have been able to do with Bear Stearns and Lehman. If this authority had existed in 2008, Bear’s bondholders would not now stand to get 100% of their money back, with interest, as they presently do, and Lehman’s disorganized liquidation would have been completely unnecessary. As I’ve noted before, the problem with Lehman was not that it went bankrupt, but that it went bankrupt in a disorganized way. If the FDIC had authority over insolvent non-bank financials and bank holding companies, it could wipe out equity and an appropriate amount of bondholder capital, and sell the fully-functioning residual to an acquirer, as is typically done with failing banks, without any loss to depositors or customers.

Second, bank capital requirements should be altered to require a substantial portion of bank debt to be of a form that automatically converts to equity in the event of capital inadequacy. This would force losses onto bondholders, rather than onto taxpayers. This policy adjustment is urgent – we have perhaps a few months to get this right.

Finally, Congress should be clear that government funds will be available only to protect the interests of depositors, not bondholders. Specifically, any funds provided by the government should be contingent on the ability to exert a senior claim to bondholders in the event of subsequent bankruptcy, even if a category is created to allow those funds to be counted as “capital” for purposes of satisfying capital requirements prior to such bankruptcy. Government-provided capital should be subordinate only to depositor claims, if equity and bondholder capital ultimately proves insufficient to meet those obligations.”

So this is a good fit for some of the biggest complaints I have on the way the entire government has handled the financial crisis. I personally start the blame entirely with the Fed and Alan Greenspan. Bernanke follows right behind, add in Paulson and it was a complete. For the full essay please follow the link below.

Money Doesn’t Grow On Trees

John P. Hussman, Ph.D.

…”As a result, instead of Merrill Lynch’s bondholders taking a loss on their bonds, or swapping their debt for BofA equity, those bondholders will now be made whole for all of the losses that Merrill incurred, with 100% principal and interest, right alongside of the bondholders of BofA that are being protected. That’s what these bureaucrats want during their stint in government service, that’s how they advise our elected officials, and then their revolving door takes them right back to Wall Street. This thing is run by investment bankers and corporate bondholders for the benefit of investment bankers and corporate bondholders.”

…”To a large extent, the funds to defend these bondholders will come by allowing U.S. businesses and our future production to be controlled by foreigners. You’ll watch the analysts on the financial news channels celebrate the acquisition of U.S. businesses by foreign buyers as if it represents something good. It’s frustrating, but we are wasting trillions of dollars that could bring enormous relief of suffering, knowledge, productivity, and innovation in order to defend bondholders of mismanaged financials, and nobody cares because hey, at least the stock market is rallying. If one thing is clear from the last decade, it is that investors have no concern about the ultimate cost of the wreckage as long as they can get a rally going over the short run.”

Excerpt from Hussman’s market commentary this week, 23 March 2009.  For the full essay please follow the link below.

Fed and Treasury – Putting off Hard Choices with Easy Money (and Probable Chaos)
John P. Hussman, Ph.D.
…”Last week, the Federal Reserve announced its intention to purchase a trillion dollars worth of Treasury debt by creating the little pieces of paper in your pocket that have “Federal Reserve Note” inscribed at the top. In effect, the Fed intends to monetize the Treasury debt in an amount that exceeds the entire pre-2008 monetary base of the United States.Apparently, the Fed believes that absorbing part of the massively expanding government debt and maybe lowering long-term rates by a fraction of a percentage point will increase the capacity and incentive of the markets to purchase risky and toxic debt. Bernanke evidently believes that the choice between a default-free investment and one that is entirely open to principal loss comes down to a few basis points in interest. Even now, the expansion of federal spending as a fraction of GDP has clear inflationary implications looking a few years out, so any expectation that long-term Treasury yields will fall in response to the Fed’s buying must be coupled with the belief that investors will ignore those inflation risks.

Here is a great paragraph from Hussman’s market commentary this week, 17 February 2009.  For the full essay please follow the link below.

How To Climb Out of the Global Financial Hole
John P. Hussman, Ph.D.

…”Our leaders, particularly those in charge of the financial and monetary policy of the U.S., have not learned anything. Our grandchildren will read in history and economics textbooks what our policy-makers should have done. They will read how the U.S. went on a binge of excessive debt creation in the belief that home prices, stock valuations, and profit margins could do nothing but increase indefinitely. They will read how “securitization” allowed loans to be cut into a million pieces and sold off as soon as they were made, removing all incentive for lenders to make sound loans. They will read how this securitization prevented anybody but the government or the courts from restructuring the debt, because government action was the only way to solve the “coordination failure” and put Humpty Dumpty back together. They will read how our policy makers focused nearly all of their efforts on protecting the bondholders of failing corporations, rather than focusing their efforts on restructuring debt and assisting distressed homeowners. They will read how the lessons of the Great Depression eluded us because we didn’t recognize that restructuring debt was the only way we could have avoided a long and difficult economic slump.”

From Hart and Zingales in the WSJ: Economists Have Abandoned Principle

“This year will be remembered not just for one of the worst financial crises in American history, but also as the moment when economists abandoned their principles. There used to be a consensus that selective intervention in the economy was bad. In the last 12 months this belief has been shattered…”

“Similar principles apply to the housing market. It appears that many people thought that house prices would never fall nationally, and made financial decisions based on this premise. The adjustment to the new reality is painful. But past mistakes do not constitute a market failure. Thus it makes no sense for the government to support house prices, as some economists have suggested….”

“Our desire for a principled approach to this crisis does not arise from an academic need for intellectual coherence. Without principles, policy makers inevitably make mistakes and succumb to lobbying pressure. This is what happened with the Bush administration. The Obama administration can do better.”

I couldn’t agree more with the article.