Friday, December 12, 2008

Republicans cut off our nose to spite unions and clean air

In case you didn’t notice, the loan package that GM and Chrysler requested from the Government collapsed in negotiations last night. The reason: Republicans in the Senate objected to Union workers not immediately taking pay cuts more than they wanted to (ahead of contract negotiations) and because there were requirements to clean up tailpipe emissions. Even the current President was in favor of this loan package.

And no, I won’t call it a “bailout package.” This was a loan package. What the financial sector got was a bailout package—money without strings attached or a need to repay any of it. I am against a bailout of the auto companies. I am not against a loan to them. There is a big difference.

As a devotee of Paul Krugman (economics editorial columnist at The New York Times,) when he mentioned an article at The New Republic titled “Panic in Detroit,” I went over there and read it. Here is (to me) the most important section of that article:

One reason for the casual support for letting GM fail is the assumption that bankruptcy would be no big deal: As USA Today editorialized recently, "Bankruptcy need not mean that the company disappears." But, while it's worked out that way for the airlines, among others, it's unlikely a GM business failure would play out in the same fashion. In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can't build cars without parts, and it can't get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

That's why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation. The company would close its doors, immediately throwing more than 100,000 people out of work. And, according to experts, the damage would spread quickly. Automobile parts suppliers in the United States rely disproportionately on GM's business to stay afloat. If GM shut down, many if not all of the suppliers would soon follow. Without parts, Chrysler, Ford, and eventually foreign-owned factories in the United States would have to cease operations. From Toledo to Tuscaloosa, the nation's assembly lines could go silent, sending a chill through their local economies as the idled workers stopped spending money.

Now do you understand why it is such a bad idea to let GM and Chrysler go bankrupt? Local economies would also feel the pinch of this kind of bankruptcy as auto dealerships immediately went out of business. Other, related industries would also feel the pinch, as local auto parts stores become unable to replenish their stores of parts, restaurants and entertainment venues start seeing fewer customers, stores and shopping malls make fewer sales, and all of them start going bankrupt. Some estimates for unemployment go as high as 5 million people just for the big three going out of business.

Why? Because Republicans want to crush the Unions, and you bloody well don’t have the right to breathe clean air, dammit! Nothing personal, it’s just business if you can’t work or breathe.

The Republicans keep saying that it’s to get the pay of the Union Auto Workers at domestic manufacturers here in the U.S. down to the same level that they are being paid at foreign owned plants in the U.S., but they aren’t mentioning the massive subsidies that they gave those foreign companies to locate those plants here.

Now that I’ve made all of that clear, do you feel any better about Republicans? I sure don’t. All they’re doing is making sure I never vote for a Republican again. It’s clear that you can’t trust them to make the right decision—even if the right choice is very clear.

And last night, was a very clear night.


“Panic in Detroit”, by Jonathan Cohn, published by The New Republic, 11-14-2008.

“$14B auto bailout dies in Senate”, by Julie Hirschfeld Davis and Ken Thomas, published by Associated Press, 12-12-2008.


Wednesday, December 10, 2008

Media Opportunity in Disaster

By Ed Smallwood

This is an expanded version of a comment I made in an Openthread on The Daily Kos recently. Even if you read that posting, you may want to read this blog entry to see what I’ve added and reorganized.

Editor and Publisher predicts that several cities will be without a daily newspaper by 2010. The Miami Herald may be the first to go, but papers owned by the Tribune Company could beat it to the punch with their bankruptcy filing this week.

Some of the problems that the media are having are due to the current economic situation—many companies do not have as much to spend on advertising. Some of it is due to lost viewership. This is especially true for daily newspapers, but also local nightly newscasts are feeling the pinch as well. My feeling is that much of the lost readership of newspapers and lost viewership of local news is not because of shifting media habits—that’s just the symptom. Media habits are shifting because people feel that they are not getting the information they want from traditional sources. When you put on a TV news program that gives give both sides of an issue equal time and equal say in order to seem fair and balanced (yes, I typed it), even when one side is clearly wrong, people lose respect for you. They wonder why you are wasting their time on some loony. The main stream news organizations have, to a large extent, been cowed by pressure from these loonies (not always Republicans, but often enough) to give them equal or even more access by using the argument that the media (often called “the liberal media”) is not being fair in their presentation. We need news organizations that are strong enough to actually BE fair. Being fair doesn’t mean that the person with one poorly-done study gets equal say to someone who has 500 well done studies saying the opposite thing. Sometimes being fair involves telling someone that they are a batshit loony (ask any judge).

Right now we are in the time of the biggest economic upheaval that anyone has seen since the Great Depression. I can only hope that my last statement will be proved wrong in a positive way. But, with this historic economic disaster looming, there is a historic opportunity. Remember the overused saying that the Chinese symbol for disaster combines the symbols for danger and opportunity.

For virtually my entire life (40 years next month) the main stream media has been consolidating into the hands of just a few people. Now is the first time that this can change. Many of the holding companies for these media sources are going to go bankrupt in the next year because of dropping revenue from advertising, and because they borrowed heavily against now non-existent equity in those holdings. This means that they cannot refinance their debt to meet their obligations.

This may be an opportunity for those of us who would like to see reporting of the truth in the media. I'm guessing that with expanding problems for newspapers, CNN laying off their science and tech reporting staff, the Tribune Co. filing for bankruptcy, and Sumner Redstone's problems being just examples of what will be coming, there are likely to be main stream media (MSM) outlets in many markets that will become available to buy at firesale prices, certainly the lowest prices adjusted for inflation since the rules of media ownership were relaxed.

Right now everyone is facing an economic calamity. However, the rich can find themselves at a bigger disadvantage than the rest of us in this situation. The rich are trained to leverage other people’s money, mostly banks money, by investing a little bit of their own money and borrowing the rest. We have numbers going for us. Even in a depression, there will be more people making a living wage than there are rich people. Many of those wage earners will have a little bit to give for something like this. That is a whole different kind of leverage where the rich don’t have an advantage over us.

Yes, I know that there are people reading this who will say "it can't be done" and come up with all kinds of excuses why it won't work. The advantage goes to those who can organize better, and that’s something we CAN do. You just have to pool together enough people and their money to do it. Organization skills are more important in this case than being rich, and we do have some of those organizations in place—think Unions, political groups, and liberal churches. If you are reading this than you are witnessing one way to organize this kind of media take over. It will take hard work, but I am not willing to say that the conservatives can do something we cannot. The conservative elite didn't buy all of the media outlets overnight, and I'm willing to work at it over time as well. But if we are to do it, there has probably never been a better time to start than now.

It's well past time for the mainstream media to do it's job. This may be the only opportunity in our lifetimes to wrest some of these outlets from the hands of the corporate/conservative powers that be. I would love to be watching the news on KKOS in my area instead of the fast-food preprocessed pap we're getting now. I'd love to get involved in this kind of venture. We are going to need all kinds of people to help with something like this. Who would like to join me?

-Ed “Edly” Smallwood


Editor and Publisher Article: “’Several Cities’ Could Have No Daily Paper As Soon As 2010, Credit Rater Says” by Mark Fitzgerald, Published Dec. 3, 2008.

Columbia Journalism Review Article: “CNN Cuts Entire Science, Tech Team” by Curtis Brainard, Published Dec. 4, 2008.

AP Article: “Tribune files for bankruptcy protection” by The Associated Press, Published Dec. 8, 2008.

Sunday, December 7, 2008

Article Update

I've got a bunch of articles you should read.

I'm sure you've heard that the U.S. posted a much higher than expected 533,000 jobs lost last month, bringing the unemployment rate to 6.7%. Now, if you count those who have left the workforce (willingly or not) the underemployment rate is 12.5%. That includes people who only have part-time jobs but want full-time jobs, as well as those who can't find jobs. More at the New York Times.

The Columbia Journalism Review notes how CNN just added to those unemployment figures by canning their entire Science and Tech reporting staff. Guess I won't be going to them for cutting edge science news.

Keeping that information in mind, the Boston Globe has a great article on what the next Great Depression might look like. People huddled around the TV's, long lines at the ER, soup kitchens getting hit hard (like they are already), Detroit a Ghost Town, and nobody willing to call it a Depression because nobody wants to define just what a Depression is. Another fact from the article: At the worst point of the Great Depression the unemployment figures (which were much more like our underemployment figures because there was no Unemployment Insurance then) was at 25%--roughly double our underemployment figures today. We may be getting there folks, even if the Boston Globe doesn't want to call it.

And with all of that, Mark Fitzgerald over at Editor and Publisher notes figures that show that many cities may be without a daily newspaper by 2010.

Randi Rhodes pointed out on her show a few days ago that druggie Limbaugh and other hot-air-wave conservatives are calling this "Obama's Recession." Yep, it's all Obama's fault for going out and getting elected. The Recession, which I might add was recently said to have started a year ago, is entirely Obama's fault, even before he's had a chance to take office. Just goes to show you how reality doesn't have any affect on them. It's always the liberal's fault.


Friday, December 5, 2008

A Fable for Hillary

I’ve been sitting on this story for about 6 years. I came up with it before the last recession, but never thought to publish it because the people who really need to hear it would have ignored it. We have a new administration getting ready to take the White House, and this fable is especially for Hillary. I hope she honestly takes it to heart and listens to the moral at the end.

There was an elegant party held in New York, and pretty much all of the ambassadors from the United Nations were in attendance. While the ambassadors were conversing in small groups, the United States ambassador spotted the ambassador of a smaller country that had been causing some trouble to U.S. interests.

The U.S. Ambassador strode right over to the ambassador of the small country, and virtually shouted out: “I’m watching you! You make one dumb move, cause any trouble here or anywhere, I’ll blow your head clean off of your neck! You do anything and I’ll make sure your country suffers for generations!” The entire room fell into an embarrassed silence. “Remember,” said the U.S. Ambassador, “I’m keeping an eye on you!”

While the room started milling about and talking about the U.S. Ambassador’s actions, the ambassador of a European country spots the ambassador of a small country causing problems for the interests of his country. Using the ruckus started by the American as cover, he sidled up next to the ambassador of the troubling country and said: “That was quite an outburst!” Pointing to an ambassador of a country neighboring the country causing trouble, he adds: “By the way, did you hear what that ambassador over there said about your mother?”

The moral of the story is that there is more than one way to skin a cat. America needs to learn how to take care of business without being forced to invade other countries.

-Ed Smallwood

Thursday, November 20, 2008

Deflation redux

Paul Krugman pointed out today in his blog one reason why deflation is bad for the economy-corporate cost to borrow money goes up. Read it at his site at The New York Times.

Wednesday, November 19, 2008

Economics and the Auto Industry Bailout

In case you weren't aware (and since I haven't mentioned this on my blog, why would you be?) I am becoming a devotee of Nobel Prize winning economist Paul Krugman. He writes a column over at The New York Times several times a week, and has written several books. He is a self-labeled liberal, as am I, which is somewhat rare amongst high-profile economists, ([Edited 11-21-08: as I am not.]

In addition to his column at the New York Times, he also has a blog over there that I check out several times a week. He usually posts short entries there daily, including links to other sites with good information. That is where the first of two topics I'm going to mention come from.

Johnathan Cohen over at The New Republic has published an article titled Panic in Detroit arguing that we should bail out the big three automakers. His arguments are persuasive: The big three aren't the dinosaurs they used to be--the Chevy Volt, slated to come out in 2010 is a good example. Nothing like it is scheduled to come out of Japan, or any other country on any timescale. He also argues that the big three are coming up with cars of better quality than they have in decades, and according to Consumer Reports, better than the Japanese. In addition he argues that allowing GM to go under means not that they would reorganize, that is unlikely considering their position, but rather that they would be liquidated, meaning a loss of jobs not less than 500 thousand, but probably closer to 1.5-2.5 million, increasing the jobless rate by about a third immediately, and forcing the other two automakers to go to sources outside the U.S. for parts. That's only counting the economic hit for GM and it's parts suppliers, not the surrounding businesses, such as restaurants, hospitals, etc.

I've gone on too long about the article. Check it out for yourself and see if it changes your mind about letting GM go down.

The second topic here is also from the New York Times. It seems that for the first time in recorded history, the U.S. is looking at deflation instead of inflation happening. Jack Healy writes a report titled "Consumer Price Decline Prompts Fear of Deflation." This article is shy of some background information, which I'll try to provide here.

Economists of all stripes consider deflation, the increased value of money, to be more damaging than inflation, the devaluation of a currency. In our case it means that the value of a dollar is increasing, rather than decreasing, as it usually does. Why would this be a problem? If you have a whole lot of dollars stuck in a mattress, it isn't much of one. However, if you are working for a living, or have your money saved in any kind of interest paying instrument, such as a savings account or bonds, it means you will be getting no interest paid on your money, and you are likely to take a pay cut. It also means that there is less investment in the economy. In fact, deflation usually means that the economy is shrinking significantly. In most situations the Federal Reserve could stop deflation by decreasing interest rates and loaning more money, but at this moment the interest rates are already as low as possible. Doubt me? About a month ago yields on U.S. government bonds actually went negative for a short while (interest rates of less than 0%.) An example of negative interest would be buying a bond for $100 that was only worth $97 (these numbers are illustrative only.) That might seem an odd thing to invest in, something you know is going to lose money over the long term, but investors were so worried about the money they were losing anyway that they were willing to lose a small amount over the long term instead of losing their entire fortune immediately.

Now you're ready to read the article. Go ahead and check it out.


Wednesday, November 12, 2008

Problems for Democrats

This diary/blog entry is for Democrats. Republicans can come back some other day.

I have some very bad news for Democrats: On November 4th we won. Big. We got an honest mandate from the voters. We won the Presidency by over 50% (compared to McCaint’s just over 45%). We have big majorities in both the House of Representatives and the Senate (okay, not Filibuster-proof, but big.) According to the AP, when asked if it was good for the country to have just the Democrats in charge of Congress and the White House, 42% said it was good, 20% said it didn’t matter, and 34% said it was bad. CNN got similar results. So 2/3 don’t care or like it. In the same AP article, 72% voiced optimism that the new President, Mr. Obama, would make the necessary changes to bring life back to our dying economy. That number includes 44% of Republican respondants.

You know what that means? Democrats don’t have any excuses anymore. Nope, none of that “The President will veto it,” no “that’s too liberal for the public,” and no “they don’t want us to do anything.” “The Republicans won’t let us do it” doesn’t work either. We have a clear mandate, clearest since Reagan got elected 28 years ago.

So all of that “We need to be bi-partisan” stuff needs to be forgotten. Why? The Republicans want to come back next Congressional term. The best way for them to do that is to make it look like we can’t get anything done. Many of you are thinking “Then we have to compromise with them!” That’s not entirely true. That attitude simply allows the Republicans to set the agenda, again.

We’ve had the majority in Congress for the last 2 years, and for that entire time we let the Republicans not only set the agenda, but have their way on everything. The Democrats were the ones who took impeachment off the table, not the Republicans. The Democrats were the ones that refused to set a timetable to get out of Iraq, not the Republicans. Why? Because we knew that Republicans wouldn’t like it if we did this. We let them set the agenda for what would be done. We let them lead.

Well, now the majority of the electorate, by a large margin, have told the Democrats that they want something done. If we let the Republicans cow us into refusing to even schedule debates on the issues then they are the ones leading the country, not us. And in the next election cycle, that is what the electorate will remember: Democrats are ineffective leaders.

So what do we do? We have a mandate to do something. With an electoral victory like the one we had, what are we waiting for? 100% of both houses, the Presidency, and all 9 seats on the Supreme Court? That’s never going to happen. We need to do what we can with what we have. We’ve been saying for a long time that we want single-payer health care. Do we? We’ve said for a long time that we need to get off of oil and onto renewable energy sources. Are we going to do that, or not? We’ve said repeatedly that we want to bring back regulations on industry, strengthen Social Security, improve the environment. Do we, or is all of that just hot-air? We’re never going to get a better chance to do any of those things than right now.

So, what of the Republicans? We don’t have a filibuster-proof majority in the Senate. Well, if the Republicans threaten to Filibuster a bill we call them on their threat. If they do it we say that they’re standing in the way of progress. Scream it to the hills! If they don’t then they look weak. If we refuse to bring up a bill that they threaten to veto then we’re the weak ones. Being bi-partisan in what we are willing to introduce gets us nothing. If the Republicans really want to be bi-partisan, let them be. If they are willing to make compromises then they are welcome to. If they do, we can do the same. If not, damn them to Hell.

The important lesson here is that we have a choice. Let’s say that whatever we do, next Congressional election cycle we lose seats. Would you rather say that we played it safe, got nothing we wanted, and lost, or say we tried? I know which one I would like to say. Carpe diem!

Tuesday, November 11, 2008

Reconciliation? Why?

Democrats won big on the 4th, and don’t let anyone tell you otherwise. Lots of people are trying to convince all of us that this country is “Center-Right” or slightly conservative. All you have to do is look at the results of this election to see that this is not true. Americans are pragmatic, and want what works. That is more important to Americans than party or political ideology. That is the message of this last election.

The Republicans took over our government by arguing that they were better at governing than the Democrats. They promised a better government, better economy, and a better, more moral, stronger America. In every one of these arguments they proved themselves tragically wrong.
So, now that the U.S. electorate has handed the Republicans their walking papers, what are they saying? They’re saying that the Democrats better quickly reach across the isle to them.

Say what?

Let me get this straight: For the last 20 years the Republicans have been openly lying about Democrats, from the Clinton health plan to the “Swift Boating” of John Kerry. They have been calling us “Socialists,” “Terrorists,” “Cowards,” “Traitors,” and I’m not exaggerating here. All of these terms have been used against Democrats repeatedly. Against going to war when the President openly lies about why we should? What are you, a terrorist-loving traitor? Sound familiar? Actually risked your life in Vietnam? Cowardly act, not worthy of a President. That’s what they said about Kerry. Is Obama a terrorist? Palin said we would have to decide ourselves. We did.

While the Republicans were in control of all three branches of government, about the only time they reached across the isle was to whack Democrats with a stick. Remember when they wanted to eliminate the Filibuster because the Democrats didn’t want certain Judicial appointments? Now THAT was bi-partisan. Really reached across that isle and hit us good there.

I have to be honest here: I feel absolutely no need to reach out to Republicans right now. They screwed up this country in more ways than I can mention here. They trashed our economy with their laissez-faire economics. They started a war with complete, bald-faced lies when we should have been paying attention elsewhere. They allowed thousands of people to die in preventable natural disasters and tried to convince us that they couldn’t have foreseen them coming when it was obvious to everyone what was going to happen.

They need to apologize to us. They need to reach across to us. I don't just mean Democrats, I mean everyone.

They must realize that cooperation is not the same as capitulation—they must give something up to cooperate. It’s not about them always winning. Reconciliation requires two sides, and they aren’t ready for it. Until they realize this, it can’t happen. And I see no reason to try to force it.

Thursday, November 6, 2008

Updating tomorrow

I'm still celebrating the Presidential Election Victory, and being disappointed over the loss on Prop 8. I'll update the site with another post soon.

In the meantime, here are a couple of articles you may want to read. I'll be commenting on them later.

The first is on how there is an upcoming problem with Private Equity Firms:

The second is on the damage Bush and his cronies are causing in their final days in office:



Tuesday, November 4, 2008

The game is on


All of the pre-game work means nothing. By tomorrow we will almost certainly know who won this election. I am not predicting an outcome like in 2000, when we didn't know who won for over a month. I believe we will know who our President-Elect is when we get up tomorrow morning.

All we can do is pray for our country. I am praying that Obama wins. If you haven't already voted, please do.


Sunday, November 2, 2008

What we need to do NEXT Part 4

This is the fourth part of my massive essay, "What we need to do NEXT." For the previous three parts, read them below.


In the 1960’s, the average college graduate had little debt when given their diploma. Most of their education was funded through grants or the GI Bill. Now, most students graduate with a minimum of $30,000 in debt, usually more. Most of the funds spent on tuition and books come from loans. This needs to end. With credit becoming scarcer, we need to start funding our higher education. This is where fortunes are started, through education. Businesses cannot produce good products without well educated people. Government doesn’t work well without well educated people. Money spent on education is not lost, it is invested, and we need to start treating it this way, instead of treating it like it’s money thrown down a well.

We need to support our troops by giving them a free education. Honestly, how can we say that we are supporting them when in fact all of the funds they are getting for education right now are a part of their pay? We need to do more for those who would sacrifice themselves for us.

Money paid into colleges also helps our country by supporting basic research. The more basic research that is done, the more our industry benefits and the more jobs that are created.

For primary education, we need to start the reforms by paying our teachers better. The starting pay for an elementary school teacher in California is about $24,000. That’s nothing. Two teachers together aren’t making $50,000 per year. That needs to be changed dramatically. You absolutely can’t get a first-rate education from someone who can’t survive on their pay, let alone pay off their college debt. It’s scandalous.

After doing this, we need to reform our textbooks, and how they are written and chosen. History text books are written as propaganda pieces, and chosen based on how much they project the way we wish our country had been, not on actual history. That’s nuts. Let our kids know what has happened in our country, or they might make some kind of dumb mistake, like allowing a depression to happen again.

None of this is optional. If we refuse to do these reforms we have in effect decided that our country will fade away into history.

Saturday, November 1, 2008

What we need to do NEXT Part 3

This is the third part of my work. This part focuses on Energy and the Environment, areas being neglected as the economy unravels.

Energy and The Environment
In the economic crisis that has finally gotten covered by the press in the last couple of months, we have somehow forgotten the environment. Global warming isn’t going away. Pollution isn’t going away either. For the last 8 years or more, both of these issues have gotten short-shrift from the Republicans. We need to get back on-track on these subjects.

The first thing we need to do is cut tax rates for green power companies. Specifically those that build and use wind turbines and solar power. Current tax breaks for these companies are set to expire this year, right when we need them the most, and Congress has yet to extend them. Not good.

Next we need to invest in research on these areas so we can introduce our technologies to the rest of the world. If we fail to do this, we will be buying these technologies from other countries instead of exporting them. The more of these companies that are producing green energy for us, the better. Not only will it create jobs here, but it will bring back wealth that we have been shipping out to other countries by the shipload. And we need it back, badly.

In my opinion, the Pickens Plan isn’t perfect, but it’s a really good start. Nobody in political power has come up with anything better that could be implemented. I strongly recommend we adopt it in some form.

I remember a study that was done sometime before I was born that came to the conclusion that nuclear power plants didn’t make economic sense. It cost more in energy to build and remove a nuclear power plant than the plant produced in its useful life. These power plants are being used for longer than was expected at that time, and for longer duty-cycles without incident. It’s time we funded a new study on this important question, and if the answer ends up being that the energy cost of building, fueling, and decommissioning these plants is still larger than the energy produced in it’s useful life, we need to bury this technology once and for all instead of bringing it up over-and-over again. If, however, it turns out that newer information shows the opposite, that a nuclear power plant produces a net-gain in energy, then we need to carefully implement them in a safe and secure manner. Either way, the debate needs to end.

Earlier this year we had a wake-up call over Peak Oil. Speculators pulled their money out of financial stocks and put it into oil futures and ran up the cost of oil, giving us a picture of what the world will look like in a few years if we don’t start cutting our oil usage. We really need to get off of oil as a fuel as quickly as possible. Not just because we use so much oil as fuel, but also because oil is our only feedstock for plastics and the only source of jet fuel. There is no biological alternative for either of those yet. Once oil is gone, so are single use medical items and jet airplane flights, including passenger planes and military planes. Don’t like sharing needles? You may not have a choice in the future. Unless we stop using oil and move over to alternatives, our future may start looking more like the past.

One of the best things we can do to fight the problem of peak oil is to stop burning so much of it for transportation. We can stop using nearly as much oil as we are by converting our fleet of personal cars to electric with diesel powered generators that kick in for longer trips. The conversion of our fleet to electric should be done by giving auto makers tax breaks and research dollars to move over to electric. Heavier taxes should be imposed on purely gas driven cars, which in my mind includes Toyota’s Prius and all other hybrids on the market today. Giving owners of electric cars breaks on solar power installations would also help get people to buy these vehicles.

Other things we can do to reduce our reliance on oil as fuel would be to start designing our cities so that cars were less necessary. Urban sprawl and suburbs are the real reasons most people have cars. If you live a long distance from where you work, a car becomes the best way to get to work each day. Design cities so that they are more compact, so that there are well defined living, working, retail, and industrial areas, and suddenly public transportation, bicycles, and walking become viable alternatives.

This also has the interesting side effect of stopping the conversion of farmland to paved-over housing subdivisions. I’ve been watching this happen to Silicon Valley (formerly the Valley of Heart’s Delight) all of my life. I live on a side street of Blossom Hill Road, named so because it used to run through orchards. Now it runs almost continuously through retail and housing areas from one end to the other, a run of more than 10 miles. I sense that we will probably want most of that farmland back at some point. It would be better not to pave it over in the first place.

Friday, October 31, 2008

What we need to do NEXT Part 2

This is the second part in a series. For the introduction and first part, read yesterday's entry. By the way, normally I include end notes for each individual blog post. This time I'm going to create end notes for the entire series. I should have mentioned in the first post that these suggestions are being posted in no particular order.

Wage Disparity

Now, once we have taken care of the coming credit crunches, we need to deal with a serious problem of income disparity. Are you aware that in 2005 the average CEO made over 821 times what the lowest paid employee that worked for him or her made? Ten years earlier it was about 275 times. So, if the average company has an employee making California’s minimum wage of $8 per hour, then the CEO of said average company was probably making around $6,568 per hour, and making around $13 Million per year (assuming 40 hour work weeks and 50 weeks per year.) That compares to the roughly $16,000 that the employee made. So the CEO made in less than 3 hours what his or her lowest paid employee made in a year.

I’m going to be honest. I really don’t believe that any CEO is worth that much. I might have a different opinion of this if executive pay rates went up only while a company was doing well. This has not been the case. Studies show that executive pay rates go up regardless of how a company is doing. Executive pay boards, which are used at most companies to determine how much company executives should be paid, are usually made up of CEOs at other companies. Imagine if you could have your friends decide how much you should get paid. That is exactly what these CEOs are doing, and it explains why executive pay can go up even when the CEO of the company is running the company straight into the ground.

So, how do we tackle this? Do we increase minimum wage to $400 per hour? Oh, heck no! That really would cause inflation and monetary devaluation. Let’s not go there!

I have a much better way of dealing with this.

Let me sketch this out instead of giving a detailed plan. You’ll see why later.

Instead of setting the minimum an employee can make, we set up a maximum disparity between the lowest paid employee and the highest paid employee or executive at a company. If the company goes over that multiple, then it forfeits all tax deductions.

Wait, what would be the outcome of that? Well, some companies would choose to increase the minimum pay of their employees to allow the executives to keep being paid well. That would increase the disposable income of those employees and increase the tax base simultaneously. Some companies would choose to pay their executives less, leaving more money for the company to invest in expansion, diversifying their product lines, or research. Some companies would choose to do neither. These companies would end up paying the government higher taxes, which could help offset tax breaks for individuals. Most companies would do some combination of these.

Now, how would we flesh this out? My first suggestion is to set the multiplier to 100 to 150 times the minimum employee’s pay. This ensures an executive pay of $1.6 to $2.4 million annually at a minimum. If the company wants to pay their lowest compensated employee more, then the executive’s pay would only go up. At $10 per hour the executive compensation goes up to $2-3 million.

Next, we count all compensation in this formula excepting only commission pay. Stock options? Count. Stocks? Count. Company condo? Count. Vacations? Count. Sold that multi-million-dollar super-computer to the government and got a $5 million dollar commission? Not covered. You made it, it’s yours. The best businessmen often pay their salesmen better than they pay themselves, realizing that a good salesman will bring in business that they can’t get themselves.

Now there are a couple of areas that I haven’t filled in yet even in my own mind. Do we want to implement this plan immediately, or phase it in over time? Do we want the cut-off point to be a hard cut-off, or do we want to phase-in the reduction in tax-breaks? How do we count contracted or temporary employees? Do we count the employees of a firm contracted to do certain kinds of services, such as janitorial firms? These can, and should, be debated at length.

One of the things I really like about this plan is there is so much room for compromise. Go ahead, change the multiplier! Count stock options differently than straight pay! Leave out corporate jets! Phase it in over time, or not! Allow companies to wait until the current executive contracts are over before it counts! All is negotiable!

It also allows every company the flexibility to determine what is an acceptable way to meet these goals. They can pay their executive less, or their employees more, or some combination. Maybe paying all of their corporate taxes is perfectly acceptable to some companies.

The upshot is that employees are going to be paid more, and more will be paid in taxes to the government. This is a win-win situation for our country.

Thursday, October 30, 2008

What we need to do NEXT

By Ed Smallwood

My most recent blog entry is so long that I'm going to have to divide it into several entries. I'll be posting one part per day until the election. First up is a quick overview, followed by what we have to do for the economy.

In the next several days we will have selected a new President. I can only hope at this point that good sense will take over and Senator McCaint will be shown one of the most humiliating defeats in U.S. History. I can also only hope that the Democrats get their Filibuster-proof/veto-proof majorities in both houses of Congress.

My biggest fear should this happen is that the Democrats will celebrate until late January, and then fall victim to infighting as to what should be done. This would be just what the Republicans would like to see. Divide and conquer. All the Republicans need is for the average citizen to believe that the Democrats are ineffective in ruling to take back Congress the following term.

This is what Congress needs to do in the next 4 years. If the Democrats take over, then we stand a chance of some of this being done. If the Republicans hold on just a little bit, our chances of this happening are slim.

The Economy

We must take care of the home mortgage crisis. This should be the number one concern of Congress right now—doubly so if we have to wait until late January. Corporations and the rich have had their bail-out, and its clearly not trickling down. In fact, in an article in the New York Times published on October 24th, Joe Nocera detailed an employee conference call he sneaked into with an executive of JPMorgan Chase where the executive stated pretty bluntly that the money they had received from the Federal Government was going to be used to purchase other banks, not to free up lending to individuals.

People have no money to buy things because they are paying so much of their income (more than half for some families in the Silicon Valley) for housing. This is leading to layoffs at companies because people aren’t buying products. If we don’t stabilize this now, we stand the chance of having a depression, not just a recession. Just ask the auto industry. I can’t keep count of the dealerships that have been going out of business around here lately, and Chrysler just announced that it would be laying off 25% of its staff, and is actively looking into a merger with General Motors just to survive.

The reality is that the banks are going to have to write-off some of the value of the homes they financed at exorbitant rates in the last few years. Nobel Prize winning economist Paul Krugman said last March that he thought home values in this country might drop by as much as 7 Trillion Dollars. You can make all kinds of arguments about who needs to pay for this loss from all kinds of angles, but the fact is the banks are going to have to lose some of the value on these properties. The government doesn’t bring in anything like enough money through taxes or bonds to cover these mortgages. This is, in fact, several times the annual GDP of this country, so nobody makes enough money to cover this loss. No reasonable suggestion as to how to deal with this has gotten around this fact. Yes, the government can buy up these loans, but if they buy them at face value, taxpayers are going to be stuck with a whopping big bill that could sink our government.

The best option, then, is for the banks to lose some of the value on the bad loans they made either from greed or stupidity, the homeowner should absorb some of the loss for taking out the loan they never would have been able to pay back anyway, and the government should absorb some of the cost as well. This frees up the maximum amount of capital to allow the economy to recover.

The alternative is to throw the homeowner out into the street, let the bank take the full loss on the loan when they sell the foreclosed property at distressed rates, and watch property tax rates plunge for the local government. Are you ready to watch crime rates soar because the city has to lay-off police officers due to declining property tax revenues? Meaning the former officers can’t make their mortgage payments. Making the economy worse. And so on.

I’m not depressing you, am I?

So, if we don’t take care of the housing mess quickly, we won’t have the ability to deal with the looming corporate credit crunch (which sounds like a name for a candy bar.) We also will not have the capital to do other necessary things, which will be covered later.

Friday, October 24, 2008

Palin is worse than we thought


I've resisted blogging about Sarah Palin in this election cycle, largely on the belief that you vote for the President, and not the Vice-President (which I think is a bad idea to begin with.) However, it has become plain that McCaint's choice of Palin was an absolute disaster. I obviously did suspect this from the beginning. The day her choice was announced, one of my co-workers asked me what I thought of her as a pick, and my response was: "I think McCain just lost himself the election." When he asked me why, I said: "He can't use the experience argument anymore. It's impossible to argue that she has more experience than Obama." We've watched them try to make that argument, but really what McCaint did was put a woman whose experience comes out to being a sports journalist, mayor of a town of about 6,000 people, and governor of a state of only about 650,000 people (about a third the population of my county) for less than 2 years up against a man who has a law degree from Harvard, was the editor of the Harvard Law Review, was a University Constitutional Law Professor, was a State Senator in a state with a population of over 12 million, and a Federal Senator for that same state, and then claim she has more relevent experience than he does. It would be comical if our future didn't depend on the outcome.

For most of the campaign we've been told how Palin is "one of us," and backs the same things we do, such as energy independence, ethics, America, and all things patriotic. It seems every single day something comes out to prove that sentiment wrong in every way.

As for her interest in energy independence, on October 21st the AP posted an article written by Martha Mendoza detailing how as Governor of Alaska, Palin backed shipping Alaskan Liquified Natural Gas to Japan, instead of using it in the U.S.

As for her ethics, she very obviously tried to get her former brother-in-law fired, and fired the man who refused to do it. Contrary to the reports from the McCaint Campaign, she was indeed found to be in violation of Alaskan Ethics rules, but the body making the report had no power to do anything about it. Then a few days ago it came out that she spent $150,000 of the McCaint campaign money for clothes in direct contradiction of what McCaint himself said 15 years ago. The campaign is gamely saying that the plan was to donate them to charity after the election. Does that suddenly make it ethical? I don't remember McCaint saying anything to that effect back then!

It's clear that she has no idea what the job of Vice President entails. Every time someone brings up the subject she either rebuffs the question, or gets the answer very wrong. The job of the Vice President has nothing to do with legislation. The Vice President has two tasks defined by the Constitution: 1. Cast a tie-breaking vote in the Senate (not write or debate legislation), and 2. Take over the job of the President any time he or she is unable to perform the job. This usually is interpreted to mean when the President dies, but it also comes up if the President is in surgery, or is otherwise incapable of performing his or her job. That's it.

Now, after telling us all along that she is one of us, and taking Obama to task over his connections to William Ayers, she makes a really boneheaded statement: She is incapable of calling those who bomb abortion clinics and kill doctors, nurses, staff, and patients of those clinics, Terrorists. That's right, the guy who didn't kill anyone in his bombings in the '60's is a terorist, but those who target and kill abortion supporters to suppress other abortion supporters through terror, well, she can't call them terrorists. I'm not exagerating this folks. She can't refer to extreme-right-wing terrorists as what they are. "My killers aren't terrorists," she seems to be saying, "because they are on my side."

This may seem difficult to believe, but it's true. I'm not going to make you take this on faith. You can click the link above or check out the embedded YouTube video below and see her refuse to call abortion clinic bombers terrorists yourself.

This is what she is, in her clearest sense. She is an elitist, not a bi-partisan. She believes that her needs come first, her ideas come first, her beliefs come first, and if she needs a terror squad to put down ideas she doesn't like, she will. This is not the kind of "change" we need in this country, and never did.

It is clear to me that she and McCaint would destroy all of those things that I think makes America great. Tolerance of differing ideas. The idea that anyone can make it in America. This isn't what we are all about.

If you agree with me on these points, please pass this on to your friends.


Tuesday, October 21, 2008

What needs to be done NOW

It’s clear at this point that things are bad and getting worse in our economy. The bail-out package that was touted by The White House and Congress as the way to fix our economy has had little, if any effect. While we have been told that it will open credit markets, the evidence we have right now is that, for individuals, it did nothing of the sort. Last week mortgage rates increased by 0.75 points. That is what we call a tightening of the credit market, not an opening of it.

So, giving hundreds of billions of dollars to big corporations and rich people didn’t trickle down. Who would have expected that? Considering roughly 75% of the U.S. population was against this bail-out package, I’d say most people.

Here’s the rough spot in all of this. We are right at the end of an election cycle. Politicians really don’t want to pay attention to any of this until late January, after the break and the inauguration of the new President. However, there is more than enough time between now and inauguration day for a person to lose their home through foreclosure. Actually, there’s more than enough time for quite a few people to lose their homes this way, possibly tens of thousands. So Congress just wants the kids to wait while the grown-ups take care of business-as-usual. But this is at the same time that the Democrats, whom I consider the good guys, are in position to win a veto-proof, filibuster-proof, majority in both houses. I would like to see this happen.

I just don’t want to see this happen at the same time they let a whole lot of people get thrown out in the street. In the interest of full disclosure, my family could be included in with those who lose their homes.

We need to get the attention of those in Congress and get them on this issue right now. We really can’t wait until a new President is in office. We let the Bush White House have their bail-out of the rich, and it’s not helping. We need to get a bail-out of the middle-class going now. This probably means we need to get in a foreclosure freeze while we debate the best way to help out people with these kinds of mortgages. But we must debate it and get it passed quickly. We can’t simply freeze the foreclosures and let it stay that way until Congress can get around to debating it in January. That will only push more banks into failure. If the Republicans refuse to let this happen, make sure everyone in the known universe knows that they won’t let it happen. Scream it to the hills, let them suffer and lose their seats in Congress.

In order to get their attention on this issue, we are going to have to call and email our Congressional Representatives and Senators pretty much constantly. We should also be calling up our news organizations, including local and national TV and newspapers. We can’t let them think that this news cycle is over, or nobody will pay attention to it until it is too late.

Wednesday, October 8, 2008

My Thoughts on California Proposition 8

By Ed Smallwood

I don’t like grapefruit. To me, it tastes horribly bitter. When I say bitter, I mean it tastes like someone distilled out the bitter chemical from broccoli and then added a little bit of sugar to it. Not “kind of bitter,” but “Good God, are you feeding me grapefruit?!?” bitter. It took me a long time to find this out, but there is a small percentage of the population that has taste receptors for bitter that work especially well with a chemical in grapefruit, and to these people it tastes unacceptably bitter. That’s me. It’s not that I don’t like the idea of grapefruit, it’s not that I have anything against grapefruit, its not that a grapefruit scared me as a child, it’s just that I would probably starve to death if that’s all there were to eat. It just tastes horrible to me.
Now, just what the heck does that have to do with California Proposition 8? Quick synopsis of “Prop 8”: Proposition 8 would put in a constitutional amendment that would overturn the recent Judicial ruling stating that homosexual people have the right to marry.
So, again, what would my dislike of grapefruit have to do with Prop 8?
There are a few reasons stated as to why gay people should not be allowed to marry. The first is that they are not able to naturally reproduce. The usual reply to that is: “Why do we not then require married people who do not reproduce divorce, or why do we allow sterile people to marry?” My thought instead is: Then why do we give extra rights, such as the right to determine what happens to a brain-dead spouse, the right to get medical coverage from an employer, or the right to visit a spouse in the hospital to married couples only? These rights have nothing whatsoever to do with reproduction.
There are a few other arguments that come out, but eventually you come down to a couple of final ones: Homosexuals choose to be that way. If we allow homosexuals to marry, it will destroy marriage.
I’m going to make an admission here: I’m straight. I’m heterosexual. In short, I’m like most people (except for the hating grapefruit part.) But why should that be? If gay people choose to be homosexual, then why did I not choose to be homosexual? Are they in possession of information I am not? Does food taste better when you’re gay? I seriously doubt it. So why would one choose to be a member of the last group it is okay to discriminate against when it is so easy to choose not to be?
I have found that I learn more about myself by turning these questions around: Why did I choose to be straight? I have had people try to convince me that I chose to be straight the first time I had sex with a woman. That is a classic case of putting the cart before the horse and ignores the important question: Why did I decide to have sex with a woman instead of a man? Was it because I would be part of the majority? Was it because I would get benefits from my employer if I married a woman? Was it because of some words written thousands of years ago? Did I flip a coin at some point and it came up “tails?” (Yeah, tails!) Was it because I’m a grapefruit-hating mutant? Could it be that it was because I’m attracted to women in a way I am not attracted to men?
Hint folks: The correct answer is the last one. Yep, it’s not even all of the above. That last answer so overwhelmed the others that I didn’t ever consider them (and I never flipped that coin—there was no point in doing so.) That might explain why I chose to marry a woman, even when it’s obvious that they carry cooties (just ask my boys.) I won’t go into the reasons I selected the woman I married now. That’s subject enough for a book, probably of poetry. (“There once was a man from…” Okay, what rhymes with “Santa Cruz?”)
So, why would someone choose to be gay? To me, the answer is simple: They don’t. I did not choose to be straight. I am straight. Just like I did not choose to hate grapefruit. I do not find men sexually attractive. There honestly isn’t any argument that would convince me to be gay, just like you can’t convince me that grapefruit isn’t bitter. So to me it naturally follows that gay men do not find women sexually attractive, and lesbians do not find men sexually attractive, and you cannot argue them into feeling otherwise. You may be able to cow them into behaving as if they do, but that is simply straight conscription, not honest, open debate. People will do strange things under pressure.
Now, what does that mean about those that think that being straight or gay is simply a choice? To me it means that either the person making the argument that a person chooses to live a “homosexual lifestyle” is a gay person living a “straight lifestyle,” or they really haven’t thought it through and were convinced that it is a choice by someone else who is gay and living a “straight lifestyle.” I’m thoroughly convinced that they are either na├»ve or closeted homosexuals. The only third option I see is that they may be bisexual and denying their homosexual urges. Not necessarily complimentary, but I honestly can’t come up with any other options.
So what about the idea that allowing gay people to marry will destroy marriage?
I’m going to state right now as fact that should Prop 8 fail I will not be divorcing my wife. I do not believe that she will be divorcing me for that reason either. Remember that admission earlier: I’m not gay, and there is no argument that will “turn” me gay.
Now, a couple of decades ago, I saw the marriage of a close family friend, who I consider a sister, dissolve. Her husband, the father of my niece (not by blood), came out as strictly homosexual. This was indeed a family tragedy. The divorce was not amicable. Baseless accusations were made. A few years after the divorce, my sister’s ex-husband died of pneumonia complicated by HIV infection.
So, this would seem to be a classic explanation as to why allowing gays to marry would wreck marriage. Except, this was twenty years ago. The debate had hardly begun, and homosexuals clearly did not have the right to marry. If gays had indeed had that right at the time, perhaps my former kind-of brother-in-law would not have married my sister, and that messy divorce would never have happened. Of course, I would have been denied a wonderful niece, but even she would not have endured the tragedy of being separated from her father for the last few years of his life. Their marriage was an unhealthy fraud in the first place, and shouldn’t have happened. The lives of three people, and the death of one, attest to that.
I do not believe that passing this law will cause people with homosexual urges to stop having them, or to ignore them. It is illogical to believe that this could happen, just as it is illogical to believe that passing a law that states that grapefruit is not bitter would change the tastebuds in my mouth.
So, passing Prop 8 will not defend even one marriage. The final argument is left in tatters, and I will be voting against it this November. And should it fail, I will not be toasting its demise with grapefruit juice.

Wednesday, October 1, 2008

Barack Obama's Same Path Ad

I'm not certain if I have mentioned that I am a supporter of Barack Obama. In case that isn't obvious, I am.

I do not believe that he is perfect. I'm not sure we share the same sense of urgency about the environment and alternative power, but I am very certain that McCain't and I are on different plains of existence about these subjects. Mr. Obama believes that something should be done, while McCain't thinks we don't have to change at all, except maybe by making it easier to pollute.

When it comes to the economy, Mr. Obama and I seem to be in greater agreement. I would like to see more details in his plan, like what he intends to do about the mortgage mess. Where McCain't is concerned, I would like to see him stay the heck away from the mortgage mess, since he obviously has no idea just what the heck he should be doing. Throwing money at rich people will only make them richer, not improve the economy. "Trickle-down economics," what used to be called "Reaganomics," has been an utter failure. That's what is responsible for our economic woes right now.

I'm not sure if Mr. Obama would agree with me about what to do to increase investment by rich people in America. Personally, I would tax those making 7 figures or more at a much higher rate, perhaps as high as 70%. No joke. That's still not the highest rate we have ever had. In the '60's the highest rate was 90%, and the net effect was that people who made the most money did what they could to stay under that tax rate. Think about that for a second. Imagine these CEOs suddenly trying desperately to avoid making tens-of-millions of dollars. Where do you think the money would go? Back in the '60's it went back into the business. Imagine just how solid American businesses would be if suddenly each one of these major companies had another $50-100 Million available per year, just from executives not taking such large salaries. Is it possible that this one change would fix our economy? Probably not, but it wouldn't hurt.

I'm certain that Mr. Obama agrees with me that education is the best buffer against a bad economy. McCain't clearly disagrees with us. Just this year, McCain't voted against a bill that would give Iraq War Veterans full tuition at any college or university in the U.S. because he thought it would lead to fewer soldiers re-enlisting. He didn't account for the fact that it could lead to more people enlisting in the first place. Right now, that's the problem our military is facing.

In any case, Mr. Obama has released a new short video on his economic plan. I'm including the link to that video here. Please take the time to watch it, and then read the comparison of his economic plan to that of McCain't's at


Wednesday, September 24, 2008

A Solution to the Current Financial Meltdown

By Ed Smallwood


We’re hearing a lot of talk about the bail-out of the financial companies on Wall Street. Both parties are weighing in, with most people (more than 70% of those polled) skeptical that giving almost a Billion Dollars of money without oversight to one person to dole out to the companies is a terribly good idea. The President and John McCain seem to be okay with it. Republican Representative Joe Barton from Texas (who voted with the President 96% of the time) called the bill “Dead on Arrival,” and stated that the bill “doesn’t have 40 votes in the House,” so someone is listening.

This is my take on the situation:

We are right to be skeptical. The way the bail-out has been architected, the executives of the companies are likely to keep their jobs and fat bonuses. The government will take a chunk of the shares in the company, diluting the value of the remaining shares and shafting the shareholders if the company recovers. It does nothing for the homeowners whose failing loans are causing the financial debacle in the first place. In short: The heck with your retirement or your home. What’s really important is saving rich people’s butts! Understand?

The really huge problem with this is that we are likely to see as much as (possibly more than) Seven Billion Dollars in losses through the mortgage meltdown. That’s Seven Billion Dollars in lost home equity. To put it another way, that’s more than half of the U.S. Gross Domestic Product. Imagine if your gross salary suddenly got divided in half for a year without changing any of your other obligations. That’s what we’re talking about happening to the economy of the U.S. And that’s not counting the amount of money that people put into their home and lost due to the home being foreclosed on.

Now imagine that the current bail-out doesn’t address any of the problems with the mortgage meltdown. Why imagine? It doesn’t. None of this money, not one single cent, is slated to reduce the damage to homeowners’ pockets. All the legislation does is make sure the mortgage company is still there to foreclose on the homes if need be.

Now, keep in mind that while that’s not good, the current bill also does nothing whatsoever to address the bad mortgage making decisions that got us into this problem. Nope, repealing Phil Gramm’s deregulation of the industry is not currently on the table.

So, here’s the deal: Executives keep their jobs, retirement savings invested in mutual funds get smaller, homeowners are out on the street, and taxpayers are left holding the tab. If that isn’t a Bush/McCain field goal, I don’t know one.

Here’s what we need to really be doing:

First, we need to bring back confidence in our financial institutions. Simply making sure that they continue to exist isn’t that helpful if they aren’t doing their jobs. That means they have to be lending money out to people who can afford it and collecting that money accordingly. In order to make sure they are doing their job we absolutely must at a minimum bring back the old regulations by repealing Phil Gramm’s (architect of McCain’s economic policy) deregulation bill. Creating a few new regulations might be useful as well, as long as they prevent this kind of mindless money grab.

However, that is nowhere near enough. We should also have the FDIC and SEC swoop in on banks and mortgage companies after closing on some Fridays for unscheduled audits that would take the entire weekend. Go over these institutions completely and with a fine-toothed comb. Then on the following Monday morning if the company doesn’t pass the audit, the government takes them over. If they do, then the FDIC or SEC should make a nice, loud public statement that the company is financially sound and ready to continue business.

That helps bring back confidence in our financial institutions, but doesn’t help the real backbone of our economy. In order to fix that, we’re going to have to relieve the homeowners of some of their burden. This is going to be hard and involved. My recommendation is to do something similar to the audit of the banks themselves. We’re going to have to freeze foreclosures for a time. Before foreclosing on a property, a financial institution will have to do the following: Attempt to contact the homeowner and offer to meet with them. This should be first attempted through the mail, followed by phone calls, and then home visits if necessary. The mortgage companies would not be able to foreclose on the property if they couldn’t prove that they had done this. If the homeowner agrees to a meeting, then they would meet at a neutral location with the mortgage company and a neutral mediator.

At the meeting, the mortgage company would have to present an honest assessment of the current value of the property, as well as the amount owed on the property. The homeowner would present documents showing their income as well as their financial liabilities. It is likely in many cases that the homeowner would not be able to pay back the entire amount of the loan. It’s probable that in many areas the home could not be sold for more than the loan amount for a decade or more. The mortgage company is going to have to take a loss in these cases. But, we can mitigate the loss if we’re careful. The loan must be restructured so that the payments are affordable and not for less than the reassessed value of the property, but if the homeowner sells for more than the loan’s restructured value for up to some specified time (I would say up to 10 years after the life of the loan would be reasonable), the mortgage company should be entitled to a portion (not most or all) of the profits up to the original value of the loan. This money going to the mortgage company would be used to offset any bailout funds given to the mortgage company by the government, and buy back shares in the company from the government, helping to keep shareholder equity. Any financial institution unwilling to do this should be excluded from bailout funds.

This idea has the merit of helping to free up funds for the homeowners to spend or invest and keep our economy afloat, while protecting shareholder value. However, in order for this plan to work it will have to be heavily promoted. It will do nothing if people don’t know about it. Is this idea perfect? No, it doesn’t really punish those who were greedy enough to get us in this mess. Is it simple? No, but the simple solution was to prevent this problem in the first place (and it was clearly preventable.) However, it is the best we can probably do at this point, and it would probably be enough to prevent a serious recession.

Anyone in Congress who wants to steal this idea and elaborate on it is very much welcome to do so.

Sunday, September 21, 2008

The Current Financial Situation, and Some Solutions

By Ed Smallwood

Yesterday I was watching CNN. Connecticut Democratic Senator Chris Dodd was being interviewed, I can’t remember who it was that was asking the questions. What stuck out in the interview was what he said about a closed-door briefing the Senate got from Federal Reserve Chairman Ben Bernanke. He wouldn’t comment on the exact content, after all it wouldn’t be terribly useful to keep the information in a closed-door briefing if it was all going to become public immediately afterward. What Senator Dodd said was that after Mr. Bernanke was done talking, there was stunned silence for 10-15 seconds in the room.

That’s significant. It’s also very frightening, either way you look at it.
I have known for some time that things were going very wrong with the economy. I remember an interview last March with Paul Krugman in Fortune magazine where he said that he thought we would hit 6-7 Trillion Dollars in capital losses in the housing industry this year, a 25% reduction in equity throughout the United States. That is what we are just beginning to see right now. Congress is talking about an 800 Billion Dollar bailout. You can see that what Congress is talking about is roughly an order of magnitude too small to cover what Paul Krugman was talking about. In short, 88% of the losses aren’t being addressed by Congress.

Now, we also have to take into account that the International Monetary Fund is estimating our GDP at roughly 13 Trillion Dollars. The losses we are talking about are more than half of the Gross Domestic Product of the entire United States. Nobody alive has ever faced a financial disaster of this magnitude.

Is that what Chairman Ben Bernanke was telling the Senators in that closed-door briefing? Numbers so large that it stunned veteran Senators into silence? I think that’s exactly what happened.

Here’s the real problem: The simple answer to this problem was to avoid deregulating the banking industry in the first place. Don’t let this debacle happen. Unfortunately several years ago the “Regulation is Bad for the Economy” branch of the Republican party got it’s way, with Senator John McCain cheering it on. The easy and simple answers to this problem are all gone now. There is no choice but to see our economy slide downward. It’s simply too late to prevent that.

So, what do we do now?

We’re going to have to bail out Wall Street. We don’t have a choice about this. That’s what Congress is doing to some extent now. The problem with how they are doing it is that they are diluting the shares that investors have by taking majority stakes of the companies they are bailing out and putting it under Government control. They are allowing the investors a chance to keep some of the value, but not most of it. This is unlikely to work in the long term. People’s retirement savings are going to suffer, even though it isn’t as much as they could. In short, the government is bailing out the executives of the companies more than the investors.

The landscape for homeowners is even bleaker. Nothing whatsoever has been done to address their concerns. Foreclosures are happening at an even greater pace than before. More properties are going “upside down” in value than they were before, and the Santa Clara County Association of REALTORS is estimating that this will be the case until at least 2010. Some estimates I have been reading put it at 2012 or later.

Now, with it harder than ever to declare bankruptcy (thank you Republicans,) and savings evaporating, the backbone of the American Economy, the Consumer, has almost no money to buy anything. We can see this through the fact that spending is decreasing while savings are simultaneously decreasing. Until something is done to address the concerns of the average person on the street, the economy can do nothing but spiral downward at an ever increasing rate.

This is where we stand now.

What are we going to have to do?

We are going to have to make peace with the fact that our economy is going to crash first of all. We can’t prevent it. Next, we have to do what we can to prevent it from crashing so bad that it can’t recover. This is a real possibility. There is nothing magical about the economy of the United States. Other countries in a similar state that did nothing saw their economies die outright. Most of them are third-world countries now, or failed states. That’s the danger.

We have to bring back the regulations that prevented this problem from happening decades ago. This is an absolute must. Doing any less than this means that nobody will trust banks enough to loan them money to make loans. That’s how the system works. Without that key part the system collapses and doesn’t recover.

We have to protect the money of the average person as much as possible right now. We can’t expect someone to pay back a bad mortgage at an ever increasing rate for the rest of their lives, tying up their spending power in servicing bad debt just because some company got greedy. If these homeowners decide to allow the banks to foreclose, they will find it harder to buy another home later. The inventory of foreclosed homes will increase, because there will be fewer qualified buyers (you can’t have a foreclosure in at least the last 2 years to qualify for a home loan). This is dangerous in several ways. First, unoccupied homes bring down property values. Second, they are fire dangers. Houses are fuel. If you have enough of them you can end up with a wildfire in the middle of a city. Oakland can tell you why this is bad.

This means we have to do at least one of two things, probably both: we will have to forgive at least part of the bad debt to keep people in their homes, or we will have to allow people with foreclosures on their record to get credit anyway. The former is preferable, and while the FHA is doing this to a small extent, the program needs to be massively expanded. The latter solution will probably have to be put into effect as well. Why should we do this? Why not let the people who took out these loans just hang? If we allow our spite to get ahead of our pity (or self interest), making sure these people pay back their loans, our economy suffers from having too little money left over to buy the things that we sell. All of us suffer if we make any one segment of the population suffer too much.

In addition, we really need to start working on our infrastructure, and I don’t mean just roads, bridges, ports, electricity grid, and communications grid. I mean the workforce as well. For most of my life we have seen a growing battle against the workforce. McCain’t has been talking a big game over how strong our workforce is, but the reality is he has actively been working on weakening it.

The big secret that allows the American economy to be so strong has been our educational system. Public education was invented here. We have expanded it ever sense the Brotherhood of Friends (often referred to as “The Quakers”) introduced the concept. All of my life the Republican Party has been trying to weaken it. Vouchers. Increasing tuition in Universities. Destruction of vocational schools. Even “No Child Left Behind” which is decreasing Federal funding to elementary schools. Recently when Democrats tried to bring back full tuition for all Iraq War Veterans, McCain’t voted against it. He said it would reduce the incentive for our Servicepeople to reenlist. This attitude is going to prevent our economy from recovering.

We need a top of the line communications grid to allow educated people to build products using electricity that will be shipped to the consumer through working ports and over working roads and bridges. If any one of those things isn’t working, our economy dies and stays that way.

Why wouldn’t our economy recover? Really, why would it? People with money are under no obligation to invest it in our country. If our economy is wrecked, they would be dumb to put good money after bad. They’ll invest it elsewhere, in economies that are booming. China is a good example. With no money being invested in our country, no educated people to design new products or services, a 20th century communications grid expected to help them design them, no energy to build them, and deteriorating ports, roads, and bridges to ship them our economy will stay sunk.

What we really need to get us through this crisis is a leader that believes in our future, not one that is trying to bring us back to a failed past, namely the “Roaring ‘20s.” Let’s all make sure we work toward our country’s future.


Fortune Magazine interview with Paul Krugman: March 17th, 2008 by Jia Lynn Yang

Friday, September 5, 2008

Save Gas, Be Patriotic, and Save Money (Version 2)

By Edward Smallwood

Every year or so I send out an email to all of my friends. In this email I detail ways to save gas, why, and how much you can save in your budget with relatively minor changes in behavior. This time I decided to completely revamp that letter to more directly address current concerns in this country.

I’m sure you’ve heard the arguments that the cost of gasoline is controlled by supply-and-demand economics. As the supply dries up, the cost goes up. As demand drops, the price drops. There is definitely an element of truth to this, but there is one other thing that can affect this price artificially—commodities trading. If you think that the price of oil is going to go up in the near future, you can buy it in a sense on the commodities market. This artificially pushes the price of a barrel of oil upwards because that barrel you bought isn’t going to be delivered to a refinery to be turned into gasoline, kerosene, or PVC plastics. Now that it looks like Americans can control their behavior a bit, driving fewer miles, investing in oil at $200 per barrel doesn’t look like such a good idea, and the price of oil dropped dramatically to below $110 per barrel—much more than the 4% drop in miles driven this summer. Now that hurricanes are headed to the gulf region, where oil is drilled, we’re watching oil prices start to go up to over $120 per barrel, and that’s before any drop in oil production. The hurricanes haven’t reached oil production or refining facilities yet. Supply and demand? Nope, commodities trading and speculation that the hurricanes this year might damage oil production or refining. That’s why you’ll be paying more at the pump today.

There are quite a few people out there trying to convince you to let the oil companies start drilling for oil in protected areas to bring that price down further, and make us independent of foreign oil. There are some significant problems with that argument. For example, the areas they are talking about hold only a small fraction of the world’s reserves. There isn’t enough oil in the areas that they are talking about combined to fuel the United States for a year. There is no energy independence to be had from drilling in these areas. And considering that it would be several years before any oil came from these sources, the White House estimates 10 years or more, there will be virtually no change now in the cost of oil from making this decision. We could make a bigger dent in the cost of gasoline by pursuing hybrid, natural gas powered, and electric vehicles for a similar investment, causing less damage to the environment in the process, and helping to make us more competitive in the world market for vehicles. That means more American jobs, folks. T. Boone Pickens the oilman (architect of The Pickens Plan), and Rep. Roscoe Bartlett (R-MD) understand this, and we need to get the word out. Using government funds to drill for oil instead of looking for alternatives is throwing good money after bad.

Also, there is no current biofuel or other alternative to jet fuel. When it costs as much to fuel a fighter plane as it does to buy one in the first place, we’ll be glad we didn’t use up all of our domestic oil reserves. Trust me folks. We can’t invade foreign countries to get their oil for our use if we can’t get there in the first place. So for national security’s sake, we need to keep our domestic reserves safe and off the market. If you support the military, you must be against domestic drilling right now.

There are other urgent national security reasons why we need to cut our consumption of oil. Iran is a major exporter of oil—85% of its income is from oil. According to the U.S. Department of Energy, it is not possible to buy gasoline that is guaranteed to be free of Iranian oil. Even if it were, when you buy gasoline, you are putting an upward pressure on the price of oil that benefits Iran. If you are at all concerned about the Iranian nuclear program building atomic bombs, then you should be concerned that you are directly funding the work on those same weapons that could be used against us every time you fill up your tank.

Saudi Arabia, nominally our ally in the Middle East, at one point created a special account in all Saudi banks called Account 98, and encouraged their people to deposit money into that account. These funds were dispersed to the families of suicide bombers in Israel. In addition, 15 of the 19 hijackers on 9/11 were from Saudi Arabia, as is Osama Bin Laden himself. Al-Qaida was founded in Saudi Arabia as an organization that was against U.S. military bases there. Saudi Arabia gets 90% of its export earnings from oil, so any funds from Saudi Arabian backers of terrorism are pretty much oil based. Considering the Saudi governmental connections to Account 98, that pretty much destroys any argument that the Saudis are not connected to terrorism.

Although Account 98 was closed due to international pressure, other private accounts have been opened for the same purpose since then. In short, Saudi Arabia is the source for much of Al Qaeda's funding.

If you are concerned with the environment, then you are probably concerned about Carbon Dioxide emissions. Every gallon of gas used puts almost 20 pounds of carbon dioxide into the atmosphere. If you’re driving about 12,000 miles per year (a good estimate for most folks) and getting 21MPG on your car, you’re putting out about 11,200 pounds (about 5 tonnes) of carbon dioxide each year from that car alone.

With these reasons, the old question from World War II suddenly becomes relevant again: “Is this trip really necessary?”

For those trips that are necessary, there are some ways to reduce your usage of gas. Keep your car in good shape, meaning that you should make sure your tires are properly inflated, that you have air, oil, and fuel filters in good shape, and make sure your car is properly tuned up. According to the EPA, this alone can save up to 19%. Fixing a faulty oxygen sensor can save as much as 40%! In addition, driving the speed limit (or a bit below) will improve your gas mileage, as will slowly cruising up to stop lights instead of keeping your foot on the gas until the last second. Rapid starts and stops at stoplights and stop signs waste gasoline and decrease your fuel mileage.

Now, there’s a trip that many people can cut out of their daily or weekly routine. It’s leaving your work place to get lunch every day. I’ve seen many people do just that at some of my jobs, and the cost really adds up. Here’s where you can save fairly dramatic amounts of money.

Let’s say you work 5 miles from the fast food place where you like to eat every day, and you own a Toyota Prius Hybrid. According to the EPA, you’re getting around 48MPG for that trip. I filled my gas tank at $3.85 per gallon a few days ago, so let’s use that price for gas. The total cost for gas each day is a whopping $0.32. Let’s say that your favorite value meal costs $5. Each day, you’re paying $5.32 for lunch (both food and fuel). That’s $26.60 per week, about $106.42 per month, or $1330.21 per year. Now, if you buy “Budget Gourmet” TV dinners for $1 at the supermarket each time you go, and get a soda from the machine for around $0.75 each day, you’re paying $8.75 per week, about $35 per month, or $437.50 yearly. The weekly savings is $17.85, monthly is $71.42, and yearly is $892.71. I don’t know about you, but I’m sure I could figure out what to do with an additional $893 per year.
Keep in mind those are the figures for the most fuel efficient gasoline/electric hybrid car you can buy today. You’re more likely to have something like a Honda Accord which gets around 22MPG. Your yearly savings by eating in jump up to $987.50 with this car. That’s enough for a decent vacation. And all of that is assuming that your car was getting its EPA estimated gas mileage already. If not, and you got it fixed up, all of that savings can be added in.
My dad used to brown bag all the time when I was a kid, and he had the right idea, didn’t he? We get to figure out what to do with our own money, instead of giving it to the heads of ExxonMobil and McDonalds. What a thought!
Now, when you have extra money to spend, most people will either spend it, or invest it. Either way, you’re helping the economy.
So, greater national security and an improved economy. All of that without us having to rely on people in Washington. Can anyone tell me what the down side is to all of this? So, we have to “sacrifice” a little by remembering to bring lunch instead of going out for a Big Mac? Not much of a sacrifice, if you ask me.

So, the next step is yours. You can help yourself and all of us by following these suggestions, or follow these suggestions and tell your friends so we can all do this together. The more people who join in, the better off all of us will be.

Tag, you’re it.

Sources of Gasoline:

EIA Primer on Gasoline Sources and Markets:

Cost of running a car for lunch:
Multiply distance to lunch place by 2, then multiply the result by the mileage of the vehicle, then multiply the result by the current cost of gasoline. Add the cost of lunch to the result (I assumed $5.) Multiply the result by 7 for the weekly cost, and so on for monthly and yearly costs (I subtracted out 2 weeks for vacation from the yearly result.)
Fuel mileage source:

Country of origin for September 11 Hijackers:

Saudi Arabia’s Economy:
CIA Factbook:

Iran’s Economy:

CIA Factbook:

Account 98:
Forbes Magazine, 10/18/04 Cover Article, “Terror Inc.”, by Robert Lenzner and Nathan Vardi:

The Pickens Plan:

Rep. Roscoe Bartlett (R-MD):

Friday, August 29, 2008

I’ve Seen the Real Competition

By Ed Smallwood

I found out who the real competition is last weekend. I was working at a Democratic Party booth at a local Home Design and Garden show in San Jose, CA. We had all kinds of Obama stickers, buttons, and shirts put out on the table. One of them has Mr. Obama and his family on it. It's a rather nice picture of them if you haven't seen it yet.

I should warn you that there is a very offensive statement coming up that came from one of the people visiting our booth. If you don't want to read anything that's offensive, you may want to skip the rest of this blog entry.

Before I got to the booth that day, a man came up to the booth, pointed at the family button, and said to the woman working there, "Oh, we can't have a couple of nappy-headed kids running around the White House."

I'm not joking. The lady working the booth at that time was stunned, and told him that was very offensive (as did a woman at another unrelated booth next to ours.) He replied, "Maybe, but a lot of us feel that way."

There isn't a single issue we can't beat McCaint over. None. He's on the wrong side of everything right now. He has no issue to attack with except "Obama is popular." That's pretty darn weak. His choice for VP completely disarmed his argument that Mr. Obama is too inexperienced to be President.

None of that will matter if we don't make sure we totally overwhelm the White Supremacist vote. They don't have have to be the majority to make a difference. Only a percent or two of the voting populace have to be this idiotic to give us more of the same. We must make sure they don't, or narrow-minded people who vote based solely on skin color rather than what is right or best for us will have decided our future for us.

Our best bet is to make sure we register to vote, our friends register to vote, and then make sure we all vote. If you can, register online to help with phone banks. Monitor voting if you can to reduce or eliminate voting irregularities. We can't afford another tainted election. It really is that important.