GM=Government Motors?

First we bailed GM out with $17.5 billion last December...then an additional $6 billion in March.

At that time President Obama said "We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars. These companies -- and this industry -- must ultimately stand on their own, not as wards of the state."

After GM declares bankruptcy today, the U.S. Government will own 70% of the company, with upwards of $50 billion in federal money being infused into the new GM.

The United States will accept stock in lieu of the cash the company owes, and Washington -- that is, you, the taxpayer -- will become the owner of 70 percent of the new GM. When might the company stand on its own, to paraphrase Mr. Obama? When would the government exit the stage? The (Washington) Post reports today that administration officials hope to depart within five years, but the truth is that nobody knows when or whether taxpayers would recover their investment. (emphasis added)

Not only that, but the deal made goes against U.S. bankruptcy rules by giving other claimants more stock/money than secured bondholders (see earlier posts). And, the Treasury Department has given GM a list of which dealerships must be closed, without ever disclosing any kind of criteria for which should be closed and which should not (profitability is not the criteria, as the list shows).

Also amazing is that the Executive Branch has engineered this entire thing without Congress, even though something like this would traditionally be handled by Congress.

North Korea

On May 25th, North Korea detonated a nuclear bomb reportedly as strong as the bomb that was dropped on Hiroshima.

Global Warming, Climate Change, etc.

Here is some climate change logic for you...

Assume that there really is "global warming" or some kind of catastrophic climate change (even though the climate has changed many times over the millenia).

Then assume that this climate change is primarily cause by humans and our carbon emissions (even though there is evidence to the contrary on this point).

Even if you agree with those two assumptions, our government is not behaving rationally as it tries to "fix" global warming by forcing Americans to "reduce our carbon emissions." Why?

Because China, India and other developing countries will not impose restrictions on their carbon emissions, and they have high levels of emissions!! So we could cut our emissions to almost zero (and we would all be farming and living in poverty to do so) and it still would not "fix" global warming (in 2006 the U.S. emitted 20% of the world total, with China emitting 21%).

The Administration and its Congressional allies are trying to impose a significant carbon price in the U.S. through something like the Waxman-Markey bill, while entering an international negotiation process in which as much as 60% of global carbon emissions could face little to no carbon price. The likely outcome would dramatically tilt the global economic playing field, harming U.S. workers and firms relative to their counterparts in China and India. At the same time, it would make little progress toward addressing the risk of severe global climate change, as a large portion of global carbon emissions would remain effectively uncapped.

From an American standpoint this seems extremely unwise. It is an incomplete climate change strategy, with a hole about how to deal with China, India, and other large developing nations. (emphasis added)

This is from a very interesting and readable article...check it out.

Big Brother Knows What You Should Read...

Keep your eye on the Department of Justice (DOJ): they want to tell some newspapers what kind of editorial content and news they should cover!!

...the DOJ is currently pursuing litigation against two West Virginia newspapers, who have been operating for decades under a joint operating agreement. The DOJ wants to dissolve the agreement because it is dissatisfied with the editorial quality of one of the papers, the Daily Mail. The Newspaper Association of America, in a court filing, explained why that would be a bad idea:

"The government cannot properly base a claim on its negative evaluation of the Daily Mail's content. Nor could it properly seek a judicial decree that more newspaper editorial and news content be published in Charleston then currently exists. No branch of government in this Nation is entitled to determine the type or volume of the editorial and reportorial content of newspapers.

Editorial quality is in the eye of the beholder. One need only contrast 60 Minutes with Entertainment Tonight to see the subjectivity involved. In the field of newspapers, different publications may take vastly different approaches. The New York Daily News is not the same type of paper as the Miami Herald, the New York Times or USA Today, to arbitrarily pick a few. Which newspaper would the DOJ most want the Daily Mail to resemble and have the Court require?"

And don't think they are stopping at newspapers...The Federal Trade Commission (FTC) is thinking about ways to regulate the credibility of bloggers on the net.

Government Workers are Sitting Pretty

Years ago, my Dad suggested I get a job in the government, because they have rich benefits, short hours, and you can't get fired!! I never took him up on this advice, but you can really see how right he was....

A study in 2005 by the nonpartisan Employee Benefit Research Institute estimated that the average public-sector worker earned 46% more in salary and benefits than comparable private-sector workers. The gap has only continued to grow. For example, state and local worker pay and benefits rose 3.1% in the last year, compared to 1.9% in the private sector, according to the Bureau of Labor Statistics (BLS).

But the real power of the public sector is showing through in this economic crisis. Some five million private-sector workers have lost their jobs in the last year alone, and their unemployment rate is above 9% according to the BLS. By contrast, public-sector employment has grown in virtually every month of the recession, and the jobless rate for government workers is a mere 2.8%. For anyone who thinks such low unemployment numbers are good news, remember that the bulging public sector must be paid for with revenues that most governments don't currently have. (emphasis added)

Remember, we pay for those salaries and benefits.

In addition to having recession-proof jobs and rich benefit plans, the public sector unions yield great political power. For example:

The Obama administration is threatening to rescind billions of dollars in federal stimulus money if Gov. Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers approved in February as part of the budget.

California has a huge budget deficit, and unlike the federal government, cannot print money or issue debt to pay for their deficits. But it looks like they won't be allowed to cut public payrolls either, which will make it nearly impossible to get their deficits under control. Not to mention the philosophical issues with the federal government telling a state how to run their business...

Obama Misquotes Health Care Leaders

As you may have heard, the president had a meeting Monday with leaders from 6 major health care organizations. After the meeting, the president made the following statement.

These groups are voluntarily coming together to make an unprecedented commitment,” Mr. Obama said. “Over the next 10 years, from 2010 to 2019, they are pledging to cut the rate of growth of national health care spending by 1.5 percentage points each year — an amount that’s equal to over $2 trillion.”

Well, according to the health care folks, that was NOT what they said. They did agree to work to cut the rate of increase in costs, with the target being that eventually the annual rate of increase would be about 1.5%. That's a lot different than what the president said.

To add to the confusion, the director of the White House Office of Health Reform, said “the president misspoke” on at least 2 different occasions. But yesterday, she took that back and said that the president did not misspeak (wonder what the health care execs think of that!)

This is another case of the president saying something that is not correct, but sounds good. As you read the full article, notice the statement about hospitals putting major construction projects on hold, given all the confusion about what is going to happen in the health care arena.

White House Accused of Threatening Chrysler Debt Holders

Now there are accusations that Steve Rattner, the head of the Auto Industry Task Force (who is also under scrutiny in a probe of kickback schemes involving NY pensions), threatened to destroy the reputation of an investment bank that owns Chrysler debt if they didn't accept the government's plan for divvying up Chrysler (see earlier posts on the flaws in the government's plan).

Perella Weinberg Partners, Lauria said, "was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under the threat that the full force of the White House press corps would destroy its reputation if it continued to fight. That’s how hard it is to stand on this side of the fence."

...Lauria said his clients "are mainly fiduciaries for pension plans, college endowments, retirement plans and credit unions who invested in low yield supposedly very secure first lien debt" with Chrysler.

...President Obama singled out Lauria's clients for criticism when he announced the Chrysler plan on Thursday.

The White House is denying the report.

Chrysler to file for Bankruptcy

Chrysler announced yesterday that it would file for Chapter 11 bankruptcy. Chrysler and the government were not able to obtain approval of their restructuring plan from some of the senior debt holders.

The principle at stake is the long-standing legal precedent of senior debt holders having first rights to assets of the company that they have lent money to. In the proposed plan, unsecured creditors and union members would jump ahead of the debt holders claims. The debt holder group is divided in it's support of the plan. Those in favor are the large banks (who are receiving TARP and other bailout funds). Those opposed tend to be the smaller hedge funds and private investment firms (which by the way, are investing money for teachers, pension plans retirees and other investors like you and me). Of course, the Obama administration is portraying this group as "speculators who are endangering the future of Chrysler".

Here are the highlights of the plan developed by the Obama administrations auto task force.

1. The $4 Billion that we lent them so far is wiped out. Instead, US gets 8% equity ownership
   
   
2. Current equity shareholders are wiped out, and will have to contribute $600 million to cover pension obligations
   
   
3. UAW Retiree health care fund is currently owed $10.6 Billion by Chrysler. They will receive a $4.6 Billion promissory note to be paid back (with interest) over the next 13 years. In addition, the UAW gets 55% ownership of the company.
   
   
4. Pension obligations are untouched
   
   
5. Amounts owed to suppliers will be repaid over time, with assistance of TARP funds
   
   
6. Secured/Senior Debtholders would forgive $4.9 Billion of what is owed them. They would end up owning $2 Billion of debt from Chrysler (30 cents on the dollar).
   
   
7. Fiat gets 20% ownership now and 15% more later, in exchange for giving technology to Chrysler. (Editorial comment: what are the odds that they get the 15% later if they do not produce the kind of eco-cars that the US government wants them to make?).
   
   
8. U.S. to provide an additional $8 Billion dollars to assist during the transition.
   
   

Link to WSJ article

Mortgage Cramdown Bill Fails

The Senate voted 51-45 (12 Democrats voted with Republicans) against passage of the amendment sponsored by Senators Durbin (IL) and Schumer (NY). As you may recall, this was part of the "mortgage bailout" plan announced several weeks ago. The cramdown would have allowed bankruptcy judges to rewrite mortgage contracts, reducing the principal that would need to be repaid (I wish I could get one of those!). Opponents argue that this would increase the cost of doing business for lenders (banks), who would pass this along by increasing mortgage interest rates in the future.

Over the past few weeks, Senator Durbin has attempted various legislative maneavers to get this passed. For example, he tried to make it part of a bill that was going to increase funding for FDIC insurance. He assumed that there was no way the Senate would not increase funding. However, he was unable to do that.

$100 Million in Budget Cuts - Short Video to Provide Perspective

Only 100 seconds, and is a good visualization.... Video

Government to own 50% of GM?

Private Property. This is one of the founding principles of Western civilization and capitalism. If you borrow someone's private property, you have to pay it back (It's not optional). GM has borrowed $27 billion from its bondholders. If GM cannot repay these debts on time with interest, then according to all the laws of this country and 1,000 years of common-law tradition, GM's assets are legally transferred from the company's equity investors to the bondholders through bankruptcy. Those are the rules (equity is what is "left over" after all other claims have been satisfied). However this Administration does not seem to want to play by the rules.

The U.S. government is demanding a 50% equity stake in the restructured GM. On what basis, you might ask? True, they have put $15 billion into the company, but only after GM should have filed for bankruptcy. In other words, without the government's "help," the bondholders would have gotten 100% of the new company. Now, even though the bondholders (you, me, our pension plans) are still owed $27 billion (almost twice what the government is owed), they (we) are being asked to accept only 10% of the equity in the new GM. So the government get's 50% and the unions get 39%; while the company's legitimate creditor's receive 10%. How fair is that?

Capitalism doesn't work when debts aren't repaid. Capitalism doesn't work when legitimate creditors are put last in line – behind the government and the union. What impact do you think this will have on lenders? Would you be willing to lend money to a company, knowing that the government may come in, disregard your rightful claims and steal your money?

TARP Funds Closer to $3 Trillion than the $700 Billion Passed Last Fall

More troubling news about the TARP bailout (in addition to the fraud investigations and the threats made by the government to banks):

On April 21, the Special Inspector General for the Troubled Asset Relief Program Act of 2009--"SIGTARP"--submitted his quarterly report to Congress on his office's activities in relation to the TARP program. The report is a disquieting document that should be read by every American--certainly be every taxpayer.

The Inspector General's report documents the stunning and at least partly illegal expansion of TARP from the $700 billion originally allocated by Congress to what is now a $3 trillion complex of programs. This chart shows the various programs that are now included within SIGTARP's oversight, and how they have expanded from the initial $700 billion. Note that some of the programs are still incipient; $3 trillion is by no means a final number.

It is also distressing that the Treasury is refusing to tell taxpayers how this money is being spent (this is from the SIGTARP report):

In light of the fact that the American taxpayer has been asked to fund this extraordinary effort to stabilize the financial system, it is not unreasonable that the public be told how those funds have been used by TARP recipients. Treasury is now conducting regular surveys of the banks' lending activities; however, with the exception of Citigroup and Bank of America, Treasury has refused to seek further details on TARP recipients' use of funds.

The entire report is available here.

Proposed Federalism Amendment

A concern of many Americans has been the expansion of power by the federal government. This expansion grew under the Bush Administration, and has accelerated under the Obama Administration.

One idea being floated is a set of amendments to the U.S. Constitution that would clarify and define the power of the federal government vs. the power of the states vs. the rights of the individual.

Here are several links with information about this proposal:

• Opinion piece in Wall Street Journal
• Brief description of proposed amendment(s) with links to video discussion and detail
• Proposed draft of amendment(s) text
  

The process for amending the Constitution is well-defined and fairly arduous. This was intentional - the founding fathers wanted us to be able to change the Constitution, but only after deliberation and with the support of a super-majority of citizens. For information on the process to amend the constitution, go here.

Congress Plans to Avoid Debate on Health Care Reform

The Democratic leaders of Congress are finalizing a plan so that the proposed health care reform will only have to meet 51 votes, not the usual 60 required to cut off discussion. The White House and Congress are using this technique to avoid debate on the matter (since Democrats have a majority in both the House and the Senate).

Health Care reform is an important and complex issue which should be discussed at length before being implemented. It looks like that won't be happening.

Obama Uses 9,000 Gallons of Fuel on Earth Day

President Obama flew to Iowa yesterday to make his Earth Day speech (I think because they have wind power there).

President Obama could have saved at least 9,116 gallons of fuel by giving his speech at the White House – but no wind turbines are manufactured here.

Another case of "do as I say, not as I do?"

Bailout Recipients Continue to Lobby Congress

From the Associated Press:

The top 10 recipients of the government's $700 billion financial bailout spent about $9.5 million on federal lobbying during the first three months of the year.

The biggest spender was bailed-out automaker General Motors Corp., which devoted $2.8 million to lobbying in the first quarter of 2009. It has received $13.4 billion in government loans and could get $5 billion more, according to a government report released Tuesday

It sure seems like our money just flows back and forth between Congress and the bailed out companies!

Your Tax Dollars at Work

One of the concerns about the $750 Billion TARP program (to help stabilize banks) was the difficulty in making sure that the money was spent well. It looks like those concerns were justified:

In the first major disclosure of corruption in the $750-billion financial bailout program, federal investigators said Monday they have opened 20 criminal probes into possible securities fraud, tax violations, insider trading and other crimes.

The cases represent only the first wave of investigations, and the total fraud could ultimately reach into the tens of billions of dollars, according to Neil Barofsky, the special inspector general overseeing the bailout program.

The disclosures reinforce fears that the hastily designed and rapidly changing bailout program run by the Treasury Department and Federal Reserve is going to carry a heavy price of fraud against taxpayers -- even as questions grow about its ability to stabilize the nation's financial system.

The Problem With Congress

Here's another example of how our government works....Congressmen and Senators get contributions from lobbyists and individuals who head companies that the Congress regulates, and then they steer earmarks (your taxpayer dollars) toward these companies.

It's legal as long as no one overtly says "give me this campaign contribution and I'll give you some government money" or "if you won't give me a contribution you won't get any government money"....something which former Illinois Governor Rod Blagojevich forgot.

John Murtha (D-PA) heads the House Appropriations Defense sub-committee and has long been known as someone who uses earmarks to their fullest. According to CBS News, he is currently funneling $31 Million in earmarks to 10 recent donors to his campaign.

The FBI is investigating several lobbying firms that are linked to Murtha.

And CBS News also reports this gem:

The contractor was set to receive $1 million tax dollars. He said the military told him the money would come through a company called Commonwealth Research Institute, whose parent company, Concurrent Technologies, ranked among the largest earmark recipients. Both were set up with Murtha's help in his own hometown. The defense contractor said Commonwealth officials told him to get the money, he should "consider opening an office" in Johnstown, Murtha's hometown, and chided his company for not giving "enough campaign contributions to Murtha," and not making "a showing at Murtha's annual defense contractor fair."

The contractor told CBS News: "I wouldn't do it. We're just not going to play." He didn't get the funds.

Murtha also got $150 Million in federal funding to build an airport near his hometown (newly renamed the John Murtha Johnstown-Cambria County Airport). Only three commercial flights leave the airport on a given day (all headed to Dulles Airport in Washington D.C.), and many of them are half-full. They recently got $800,000 from the Stimulus Bill to repave a backup runway.

School Vouchers Work

The D.C. voucher program has recently been dismantled by the Obama Administration, despite data that shows it is more substantially more effective than the D.C. public schools.

What happened, according to a Department of Education study, is that after three years the voucher students scored 3.7 months higher on reading than students who remained in the D.C. schools. In addition, students who came into the D.C. voucher program when it first started had a 19 month advantage in reading after three years in private schools.

Of course, President Obama's children attend a private school in Washington, and Secretary of Education Duncan did not move his family to Washington partly because of the poor schools.

Over and over again those who are supported by teacher's unions refuse to support charter schools and voucher programs, even though the data shows that students who use vouchers show significant gains over those who do not use vouchers.

Chrysler and GM Given More Taxpayer $$ Today

Chrysler LLC will receive $500 Million more in taxpayer bailouts, and GM will receive $5 Billion more between now and the end of May.

This is in addition to the $17.4 Billion taxpayer bailout last December.