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.

Links:

Fortune Magazine interview with Paul Krugman: March 17th, 2008 by Jia Lynn Yang http://money.cnn.com/2008/03/14/news/economy/krugman_subprime.fortune/index.htm

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:
Sources of Gasoline:

EIA Primer on Gasoline Sources and Markets:
http://www.eia.doe.gov/neic/experts/contactexperts.htm

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: http://www.fueleconomy.gov/feg/findacar.htm

Country of origin for September 11 Hijackers:
CIA: https://www.cia.gov/news-information/speeches-testimony/2002/DCI_18_June_testimony_new.pdf

Saudi Arabia’s Economy:
CIA Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html#Econ

Iran’s Economy:

CIA Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/ir.html#Econ

Account 98:
Forbes Magazine, 10/18/04 Cover Article, “Terror Inc.”, by Robert Lenzner and Nathan Vardi: http://www.forbes.com/business/global/2004/1018/016.html

The Pickens Plan:

http://www.pickensplan.com/

Rep. Roscoe Bartlett (R-MD):

http://www.bartlett.house.gov/energyupdates/

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.

Thursday, July 31, 2008

Has the McCaint campaign jumped the shark?

Folks-

Maybe it's just me, but it seems that with the most recent TV ads comparing Barack to Paris Hilton and Britney Spears that the McCaint campaign has hit a new low. The desperation is palpable to everyone. McCaint has no message worth listening to, so his campaign is going to throw everything they can at Barack in the hope that something sticks well enough to him, and doesn't bounce back at them.

TV fans hace had a term for a long time, called "jumping the shark". The term comes from an event on "Happy Days" where Fonzie jumps over a shark while surfing. It simply means that a show had an event that forever changed all episodes of that show afterwards. It is often interpreted as an event that pretty much wrecked the show. Although I have never heard of this term being applied to a political campaign, I do think the Paris Hilton ad is a good example of a campaign jumping the shark.

The level of desperation on display right at this moment from the McCaint campaign is incredible. He dared Mr. Obama to go on a world tour, visiting Iraq and Afghanistan, and other world powers, and he did so, looking much more Presidential than Mr. McCaint did on his trips. Mr. Obama attracted hundreds of thousands to his speeches overseas, when McCaint has a hard time attracting hundreds to his at home.

I won't say that Mr. McCaint doesn't have a chance, but his cances right now aren't good. We will see if their desperation can muster something that can prevent real change or not.

This blog entry is also available at my.barackobama.com. I recommend anyone who is interested in positive change in this country register at that location and makes a donation to Mr. Obama's campaign.

Thursday, July 3, 2008

A new Pledge

By Ed Smallwood

Here we are on the eve of Independence Day. I promised earlier this year to be more topical, and oddly, I found this one holiday easy to come up with an opinion over.

This is the time of year that we all show off our patriotism. We wave flags, we set off fireworks, we have concerts and barbeques. But how often do we think of the document that matters most to our country?

Yes, the Constitution. It’s not as old as the country itself or the flag, but it’s the document that defines our country. That has to be at least as important as the flag. I mean, without the Constitution, there would be no Republic for the flag to stand for.

So, why do we pledge allegiance to the Flag but not to the Constitution? No, I’m not against the Pledge of Allegiance; I’m just wondering why we don’t pledge to uphold and protect the Constitution and the Bill of Rights?

Honestly, I would feel much better about the education my children are getting if they had to pledge to uphold the Constitution on a regular basis. This would give their teachers a good opportunity to bring up the rights and limits afforded by the Constitution, and hopefully, improve their civics education well over that afforded to myself at their age. And honestly, isn’t that what we all want? A better education for our children than we ourselves got?

How do we get something like this started? Personally, I believe that it should be started at the school district level and then carried up to the State level. If Congress wants to get involved and standardize the pledges being used, that would be fine, but not absolutely necessary.

Really, this seems so obvious to me that I don’t understand why it hasn’t been in place for the last two-hundred years. Am I the only one that thinks this way?

If someone knows of a pledge already written, or would like to write one that would be appropriate for all age levels, I would love to hear about it.