Death and taxes

Okay, well not death really, but most certainly taxes.

From the NY Times:

From 2001 until 2004, when he received his final payments from the I.M.F., Mr. Geithner paid his state and federal income taxes but did not pay self-employment payroll taxes. The I.M.F., as an international organization, does not withhold U.S. payroll taxes for Social Security and Medicare from its American employees’ paychecks, so they are required to pay the roughly 15 percent tax on their own. The Obama transition is calling his mistake a common error for American employees of the I.M.F.

After a 2006 Internal Revenue Service audit identified the lapse on his 2003 and 2004 tax returns, Mr. Geithner paid tax and interest of $17,230 and the I.R.S. waived penalties, according to the transition.
But Obama vetters discovered the same lapse for 2001 and 2002 and brought it to Mr. Geithner’s attention last Nov. 21, after which he paid tax and interest of $25,970, transition officials say.

That leaves for Mr. Geithner the question of why he did not correct the earlier years’ non-payment of self-employment taxes after the 2006 IRS audit identified the problem for 2003 and 2004.

What really bothers me about this is that the last thing we, as a country, need right now is a dishonest, sneaky, tax-evading Secretary of the Treasury. We've had a bad enough time with Paulson, who I personally wouldn't trust with my money (if that were an option)--we don't need Geithner embroiled in a scandal the moment he hits the ground. Beyond the scandal, though, we don't want a man who can't be trusted to pay his own taxes running the Treasury Department during this period of turmoil. It sends the wrong message. Of course, with the inauguration only days away, we're awfully late in the game finding a new Sec. of the Treasury.

On the other hand, perhaps this is all much adieu about nothing...perhaps Geithner really is the man for the job, and he made honest mistakes, perhaps egged on by a willful subconscious.

Anything is possible.

And as I've argued in the past, I'm not in favor of disqualifying people based on suspicion alone.

Warren Harding Redeemed?

I've been wrestling lately with the concept of "free trade" vs. protectionism. Read Tom Piatak on President Harding:

Jin Powell of the Cato Institute has an interesting article at NRO arguing that Warren Harding, not FDR, has the best record of any president in leading the country out of a serious economic downturn. Harding inherited from Wilson an economy that had shrunk 24% from 1920 to 1921, as well as a federal debt that had grown nearly 25 times from 1916 to 1919. Harding reduced income taxes, reduced federal spending, and led the country to its lowest level of peacetime unemployment ever, 1.8% in 1926. Mentioned only in passing by Powell is the fact that Harding “supported tariffs.” In fact, Harding signed the Fordney-McCumber tariff, which doubled the average tariff rate to 38%. In asking Congress to raise tariffs, Harding stated, “I believe in the protection of American industry . . .it is our purpose to prosper America first.” It is thus clear that a high tariff is perfectly consistent with smaller government and strong economic growth, and Americans looking to Harding’s policies for guidance today should not overlook his administration’s trade policy.

This basically aligns with what I've been thinking lately. There is a damn good reason to protect American industry. It protects American jobs, keeps more Americans in a decent position to be good consumers, and keeps the profits and means of production in the USA.

I plan on expanding on this more later. For now, I thought Tom's little history lesson was an eye-opener.

Of course, what brought the Harding era to an end was bad finance, trading on borrowed money, and the eventual crash...but none of that is due to tariff policy.

We are all Ponzis now....

Peter Schiff takes a crack at the Bernard Madoff Ponzi scheme, and draws unsettling comparisons between it and the housing collapse:

Madoff’s inspiration came from Charles Ponzi, the Italian-born American immigrant who promoted an investment plan in the early 1900s’ that traded postal coupons. Rather than paying investors from legitimate investment returns, Ponzi hit upon the innovative idea of paying out early investors with money collected from new investors. By creating an illusion of success, interest in his investment plan ballooned. Over time the schemes have become known by many other names, such as chain letters or pyramid schemes. They are united by the fact that they always fail in the end.

When the influx of new investors inevitably slows to the point where distributions to current investors can no longer be maintained, investors look to withdraw funds. When this happens, the entire structure falls apart. The profits received by those who “invested” early as well as any funds skimmed off by the promoter, are offset by all the losses of those who came late to the party.

To a large extent, the same concept has driven the major asset bubbles of the last decade. Given the ridiculously high valuations seen by tech stocks and real estate during their respective booms, the only way the bubbles could be perpetuated was if newer “investors” could be found to pay even more outrageous prices (the greater fool). But when these new buyers balked, the whole structure crumbled. Although there was no Ponzi or Madoff to orchestrate these manias, the entire financial and economic apparatus of the country had successfully convinced the public that “investments” in tech stocks and condominiums were bullet proof and that the supply of new buyers was endless.

Schiff doesn't stop there, however. He takes it one step further, leveling the Ponzi scheme accusation next at Social Security:

The Social Security Administration runs its “trust funds” with precisely the same methods used by Madoff and Ponzi. As money is collected by from current workers, the funds are then dispersed to those already receiving benefits. None of the funds collected are actually invested, so no investment returns are ever generated. Those currently paying into the system are expected to receive their returns based on the “contribution” made by future workers. This is the classic definition of a Ponzi scheme. The only difference is that Ponzi didn’t own a printing press.

From there he tackles the national debt and the risk we run in this Ponzi economy of foreign creditors trying to sell of their investment in the US. It's pretty scary stuff.

I reccomend reading the whole thing, and everything else that Schiff writes on the subject. After all, he was right long before anyone else was. He saw this whole mess coming years ago, and said so unflinchingly, despite constant criticism.

What are the implications of this? Is our entire economy a house of cards? It seems more and more that way. And as much as I don't like the concept of bailout, I sure as hell don't like the concept of losing our last major manufacturing base.

A pound of flesh..

The brutal truth that no one in Washington dares acknowledge is that our systemic economic problems can only be solved by a reduction in consumer borrowing and an increase in savings. We must repair our national balance sheet and a painful recession is the only path to achieve this. By interfering with the market’s attempts to bring this necessary change about, all the proposals currently coming from Washington or bubbling up from think tanks and Nobel prize-winning economists, will only exacerbate the imbalances and lay the foundation for even greater losses and a larger crisis.

~Peter Schiff (right, as usual)

Sad in a way. It's like a lesson your dad gives you when you take out your first credit card. Keep your savings high and your spending low. Live within your means. "Neither a borrower nor a lender be."

The elites...

Ross says the elites that got us into this financial mess bear more of the share of blame than the rest. He makes the case rather eloquently, of course:

The mistakes that our elites made, and that led us to this pass, have their roots in flaws common to all elites, in all times and places - hubris, arrogance, insulation from the costs of their decisions, and so forth. But they also have their roots in flaws that I think are somewhat more particular to this elite, and this time and place. Flaws like an overweening faith in technology's capacity to master contingency, a widespread assumption that the future doesn't have much to learn from the past, and above all a peculiar combination of smartest-guys-in-the-room entitlement (don't worry, we deserve to be moving millions of dollars around on the basis of totally speculative models, because we got really high SAT scores) and ferocious, grasping competitiveness (because making ten million dollars isn't enough if somebody else from your Ivy League class is making more!). It's a combination, at its worst, that marries the kind of vaulting, religion-of-success ambitions (and attendant status anxieties) that you'd expect from a self-made man to the obnoxious entitlement you'd expect from a to-the-manor-born elite - without the sense of proportion and limits, of the possibility of tragedy and the inevitability of human fallibility, that a real self-made man would presumably gain from starting life at the bottom of the socioeconomic ladder (as opposed to the upper-middle class, where most meritocrats starts) ... and without, as well, the sense of history, duty, self-restraint, noblesse oblige and so forth that the old aristocrats were supposed to aspire to.

Indeed.

I'd add more but the cold I've been writing under these past few days is catching up with me. I fear I'm approaching total shut-down mode.

The Ultimate "I told you so"

Peter Schiff had it right. Everybody else? Dead wrong. Now, possibly due to my own poverty, possibly due to my disbelief at the rising home prices to such astronomical levels, I saw the bubble bursting. No, I didn't see the sub-prime mess coming. I'm not that savvy. But yes, I saw this whole thing falling out from under us. I wasn't wise. I didn't save every penny. So it goes...now just watch these Peter Schiff vids....awesome...





They laugh and scoff and shake their heads in disbelief. Ben Stein, who I think is very smart--lots of these commentators are very smart--gets it so wrong it's almost laughable. Schiff's predictions are uncannily on the money...

Blame Game

Klein v Sullivan

Free Market Socialism

I've been pondering the differences between free-market capitalism and free-market socialism. For a long time I've been a proponent of the .org way of doing business, emphasizing a belief in re-investment in companies and communities rather than pure profit. I would point to credit unions and community markets as examples of this sort of business. I see no reason why we cannot have successful non-profit gyms, theatres, and even grocery stores should we put our mind to it.

One advantage of the not-for-profit is the lack of investor pressure. For instance, a .org style clothing manufacturer would not have market pressures beyond simply breaking even. All profits would go into reinvestment in the corporation, salaries, expansion, etc. Companies would grow, but their growth would be contained. Certainly competition could still occur as well, as this sort of business would still operate within the free market. Two non-profit or community grocery stores could still compete with one another.

Of course, the problem with this model is getting any investment in the first place. Also, operating against for-profit businesses would be difficult, as those would likely pay their executives far more and gaining talent for the non-profit sector (which is already difficult) wouldn't be easy.

Then again, I feel that these sort of community businesses could be a good way to keep money in our local communities. I'm living in a perpetual state of alarm at the lack of community or sense of place anymore. Nobody goes to local theatre, or shops at the local farmers market, or buys local musicians cd's or pays attention to local politics.

We have lost our sense of being part of a local community, and it is much easier to find reality in the local rather than the national scene, at least for most of us. Hmmmm....

No Bailout for the Teachers

Dallas, TX school district is laying off nearly 400 teachers due to an $84 million shortage in the budget. Think any of those CEO's on Wall St. will bail them out? Sacrifice that $40 million dollar retirement package and you could make a lot of kids a whole lot better off...

Just a thought.

Europe takes action

European leaders have united in common action to help prop up failing banks. Indeed, the efforts of a dozen countries appear more unified and clear than the efforts of our United States government...

Paul Krugman likes the action, and especially Gordon Brown's leadership (a name not often associated with that term). You should listen to Krugman. He's a Nobel economist now.

Krugman writes that the US plan has been fickle and slow, whereas

the British government went straight to the heart of the problem — and moved to address it with stunning speed. On Wednesday, Mr. Brown’s officials announced a plan for major equity injections into British banks, backed up by guarantees on bank debt that should get lending among banks, a crucial part of the financial mechanism, running again. And the first major commitment of funds will come on Monday — five days after the plan’s announcement.

Visions of America

Rich old guy and wizard investor Warren Buffet urged the treasury to team up with private investors to buy troubled assets, saying the bailout alone will not be enough:

"It will cost more to solve this problem today than it did two weeks ago," said Buffett, referring to when Treasury Secretary Henry Paulson's first proposed that Congress help rescue Wall Street, which has seen the collapse of Lehman Brothers and Bear Stearns and the sale of Merrill Lynch. "It's that bad. If we don't get it solved next week, I may go back to delivering papers."

Now go read Glenn Beck's report from the future:

Dear America:

Happy 300th Birthday!

It's 2076 and we've just invented the time-fax machine. (Actually, "we" didn't invent the time-fax machine, the State did -- they pretty much control everything now.)

I'm faxing this back to you in 2008 because that seems to be the year we had the best chance to reverse our course and get back to the vision laid out by our founding fathers -- a vision that didn't include the government being in the insurance business.

I don't have a lot of time (the State only gives us one 30-minute break per day) so let me give you some advice: Stop worrying so much about who runs the country and start worrying about who runs your towns, your states, and your Congress.

Bailout Dies on the Vine

Well, the wildly unpopular bailout has died in the House, with 227 no's to 206 ayes (and one non-vote). Malkin has her "live-blogging" interpretation of events, plus a list of the members voting for and against. She sounds happy and pissed-off all at once. What a shocker.

CNN reports:

Investors who had been counting on the rescue plan sent the Dow Jones industrial average down as much as 700 points while watching the measure come up short of the necessary support, before rebounding slightly. The key stock reading was down more than 500 points.

The measure needs 218 votes for passage, but it came up 13 votes short of that target, as the final vote was 228 to 205 against. About 60% of Democrats voted for the measure, but less than a third of Republicans backed it.

President Bush is "very disappointed" by the House vote, his spokesman Tony Fratto said.

I, like many others, am not sure if this is a bad thing or a good thing. I would like to see some government intervention--enough to keep the wheel's moving, but I think artificially inflating a bum-market will have the reverse effect, just leading to a greater collapse later.

As we've seen recently, the private sector is coming along buying up failed banks. If the government wants to continue to assist in this effort, and perhaps get some new mortgage-refinancing laws in the bankruptcy books, fine. But $700 billion to the New York banks, virtually no strings attached, simply to inflate this beached whale of a market?

Oy vey. Why is this the only option? Why do we need to rush such a monumental bill through Congress? Is over-reacting really wise? I'd say it's not. It rarely is.

Jim Manzi says it should pass, because no other alternative exists. The question is, do we need an alternative? Or could we just scale back this bailout?

I may ask more questions than propose answers. But then again, this has the best economic minds in the country at odds with one another. I have trouble separating the wheat from the chaff on this one...

~cross-posted at NeoConstant