Wednesday, November 26, 2008

Send the money to the people you fools, they can spend it better than you

The Emergency Economic Stabilization Act of 2008 also known as H.R. 1424 cost the American people $850 billion.  The population according to census estimates in the U.S. is 305,747,371. [2]  This means that the government's effort to spend $850 billion is costing $2780 for every man woman and child in the United States.  
The Emergency Economic Stabilization Act of 2008 originally was sold to Congress by telling our government that it would allow the treasury to buy troubled assets from struggling financial institutions. It would also establish a program whereby the government would offer insurance to companies for their assets rather than buying them. It would also establish "appropriate standards" for the compensation of executives at companies that sell assets to the government, create a congressional oversight panel and require the government to collect warrants from bailed out companies so they can collect part of any profits that may result from the bailout. The size of bank deposits that the FDIC can insure would also be raised, from $100,000 to $250,000. [3]

The bill has not bought troubled assets from struggling financial institutions.  Although this was the first thing that the bill addressed and we were told that the funds would do just that. 
The Treasury Secretary has invested in 53 U.S. banks in the amount of $161,471,163,000. [4] This spending was not part of what we were told.  Yesterday I posted details of the spending of $65 billion and the shares and warrants of each company that was purchased.   
Today Secretary Henry M. Paulson, Jr. discussed this week the announcement of $20 billion to back a lending facility for the consumer asset backed securities market established by the Federal Reserve Bank of New York.  The asset backed securities market provides liquidity to financial institutions that provide small business loans and consumer lending such as auto loans, student loans, and credit cards. It is beginning to look like the U.S. Federal Reserve and Treasury Department heads really are lost and that they do not know what to do. [5]

Now the U.S. Federal Reserve and Treasury Department announced November 25, 2008 that it had developed an $800 billion worth of stimulus measures to rev up three primary engines of the U.S. economy – homebuyers, consumers and small businesses.   [6][7] Are they selling us another smoke screen?

Where has the money come from to keep spending like we are?   Why has this global crisis occurred?  They say it was a housing bubble, maybe an oil bubble.  I think it is a masterful magician that holds his audience captive with his illusion.  If they really want to get the economy going the might want to consider giving they average size household a check call it a tax rebate.  The American household has on average 2.69 members. [8]  

If you take the population as a whole and then break it down there are 113,660,733 households.  Then pay each household $13975.64 which is the planned spending.  People that are facing foreclosure will be able to catch up or find a new home, others might buy a set of tires for the car because they need them, some might buy new carpet for their home and many other things.  More jobs producing the products,  people shipping them, more people working, and they all would be spending.  This makes more sense to me but I only write a blog.

Tuesday, November 25, 2008

Was the bailout as much of a scam as it looked.

Have you heard the Treasury Secretary Henry Paulson lately? If so he has been using the term warrants when he is talking about the governments investment into companies that claim the are in need of capital. 

The holder of a warrant does not have any voting, shareholding or dividend rights. The investor can therefore have no say in the functioning of the company, even though he or she is affected by any decisions made.[1]

If the Fed is indeed taking a 79.9 percent interest in warrants, A.I.G. still needs a sufficient number of authorized shares to make this share issuance. To issue enough shares to support the warrants, A.I.G. shareholders would need to approve an amendment to A.I.G.’s certificate of incorporation to authorize the issuance. [2

N.Y.S.E. Rule 312 requires that shareholders approve any common stock issuance when the common stock will have voting power equal to or in excess of 20 percent of the voting power outstanding before the issuance of such stock. [3

The Bank of America Corporation received $15 billion from the Troubled Assets Relief Program (TARP). In exchange Bank of America Corporation issued 600,000 shares to the Federal government these shares give the government voting rights during any shareholder process. They also were given 73,075,674 warrants and when converted to shares $30.79 would be their cost. The shares outstanding for Wells Fargo & Company are 3,325,244,000. The market cap for The Bank of America Corporation is $72,754,895,500. The government invested $15,000,000,000 into a failing company and we the tax payer received stock warrants that only give us a 1% stake in the company. When you compare the investment to the market cap you find out that our investment is 20% of the market cap. [4] The share price today is $14.59. 

The Wells Fargo & Company received $25 billion from the TARP. In exchange Wells Fargo & Company issued 600,000 shares to the Federal government. These shares give the government the same voting rights as any shareholder has. They also were given 110,261,688 warrants. To convert these warrants into shares $34.01 would be their cost. The shares outstanding for Wells Fargo & Company are 3,325,244,000. The market cap for the Wells Fargo & Company is $85,658,285,440. The government invests $25,000,000,000 into another failing company and we the tax payer receive overpriced stock warrants, when the warrants are converted into shares they only give the taxpayer a 3% stake in the company although our investment is actually 29% of the market cap. [5] The share price today is $26.98.

The JPMorgan Chase & Co. received $25 billion from the TARP. In exchange JPMorgan Chase & Co. issued 2,500,000 shares to the Federal government. These shares give the government and any other share holder the same voting rights during any shareholder process. They also were given 3,732,357,000 stock warrants to convert the warrants into shares the cost is $42.42 per share. The market cap for the JPMorgan Chase & Co. is $110,477,767,200. The government invested $25,000,000,000 into another failing company and all that we the tax payers have to show for it is some overpriced stock warrants. These warrants only give us a 2% stake in the company although our investment is actually 23% of the market cap. [6] The share price today is $29.63. 

Why did we pay so much for so little?  These figures don’t add up to me.

Friday, November 21, 2008

The new Treasury Secretary, he must know where all of the bodies are hidden.

Timothy F. Geithner is President of the New York Federal Reserve Bank and Vice Chairman of the Federal Open Market Committee.  Geithner was raised and educated in India with frequent visits to China.  The Chinese-speaking Geithner graduated from the International School in Bangkok. The future Fed banker came to Dartmouth and then to Johns Hopkins where he majored in East Asian studies. 

Geithner commands all expansion and contraction conducted by big investment banks either by buying securities from the Fed which shrinks money investment bankers had to invest in big corporations or loan to cities, states and the Federal Government or by selling securities to the Fed which gave the investment bankers more money to invest in corporations in the US or elsewhere.
Mr. Geithner served as Assistant Secretary and Senior Deputy Assistant Secretary of the Treasury for International Affairs. He joined the Treasury in 1988, and held a variety of positions, including the assistant attaché at the U.S. Embassy in Tokyo, Japan and the Deputy Assistant Secretary for International Monetary Affairs in the International Affairs Division.  Mr. Geithner worked for Kissinger Associates, Inc. in Washington, D.C. from 1985 to 1988 before joining the Treasury.  Mr. Geithner served as Under Secretary of the Treasury for International Affairs from 1998 to 2001 under Secretaries Robert Rubin and Lawrence Summers. In 2001 Geithner was employed by the International Monetary Fund. In 2003 Paul Volcker was one of those who recommended Geithner for the position of chairman of the New York Federal Reserve Bank, the position that he now holds.  Paul Volcker was the Fed Chairman who played out the last act of the S & L scandal, by tightening the money supply after Fed Chairman Miller had overseen the hyperinflation that forced the S & Ls to invest in junkbonds and forced the banking deregulation that made that possible.

Mr. Obama has reportedly chosen the Federal Reserve Bank of New York's President Timothy Geithner as Treasury Secretary.  

Thursday, November 20, 2008

Who killed GM? Will it rise again?

For years now, we've heard General Motors complain that it's being lapped in the United States by Toyota because it's got five retirees in the back seat for every two people actively building its vehicles, while Toyota's U.S. operations are virtually retiree-free.  GM is also weighed down by heavy "legacy costs" for pensions and health care, while Toyota has no pension plan, and its health care costs per vehicle are barely a tenth of GM's.  GM's $1.1 billion loss in the first quarter doesn't begin to tell the whole story. The carmaker is saddled with a $1,600-per-vehicle handicap in so-called legacy costs, mostly retiree health and pension benefits. [1

According to GM's annual report, it paid $73.26 per hour in wages and benefits to its hourly workers last year. [2]  GM will seek to reduce costs to about $48 per hour, about the average hourly cost incurred by Toyota, Honda and Nissan Motor Co., company officials have said.  [3]

This would reduce assembly cost for each vehicle of about $1,000.  In addition if legacy costs were reduced to that which Toyota, Honda and Nissan Motor Co pay it could earn an additional $24 billion each year.  

General Motors offered buyouts to all of its 74,000 US hourly employees as the automotive giant continues to downsize operations in response to declining US market share and massive financial losses. [5]  The head of the United Automobile Workers Union said it is expected 15,000 to 20,000 workers to leave General Motors during a new round of buyouts, and that G.M. would replace nearly all of them with lower-paid employees.  Including benefits and retiree health care costs, each worker who leaves under the buyout program and is replaced by someone on the lower pay scale would save G.M. about $48 an hour, or nearly $100,000 a year.  [6

If anything has killed GM it is its managements lack of vision and the UAW's not looking out for the best interest of its members.  GM could rise again if it is able to reduce compensation to its hourly employees.  The only question is wether or not it has the time and money.
Germany must have faith in GM and its management since it is ready to guarantee funds for ailing carmaker Opel but any money it provides to the General Motors' unit must stay in Germany, Chancellor Angela Merkel said on Monday[7]

Tuesday, November 18, 2008

A GM bailout makes no sense

The potential GM bailout doesn’t have a sugar daddy to fall back on like Delphi had, unless the tax payer steps in.  Before we do a little history would help.

GM took on $2.1 billion of unfunded hourly pension liabilities and assumed about $6.8 billion of Delphi’s post-retirement benefit liabilities.  GM, Delphi’s former parent, has taken on billions of dollars in financial obligations for the parts maker. However, in a regulatory filing, GM said Delphi is unlikely to emerge from bankruptcy protection in the short term and may not be able to emerge at all.  Delphi had many suitors during its early bankruptcy.

Delphi's bankruptcy began in 2005.  Its bankruptcy opened the floodgates for the buyout crowd.  Cerberus entered into negotiations with Delphi and in 2007 Cerberus dropped out of the bidding.  Cerberus dropped partly because of the hard stand its workers are taking.  To obtain UAW agreement for the 1999 spinoff, Delphi agreed to match the pay of GM factory workers. This averaged $73.26 per hour in pay and benefits last year. Most longtime Delphi workers have since taken buyouts.  The union has agreed that unskilled workers hired since 2004 will earn $27 an hour and $42 by 2011. Cerberus told the union it wouldn't pay that much, since it's double the pay at other U.S. parts companies.

The UAW needs a little tough love.  It derailed the Cerberus deal at Delphi.  Today GM suffers a loss of about $2,000 per vehicle sold.  On the other hand Toyota whose employees are not part of the UAW earns a profit of about $1,200 per vehicle sold.  If GM was able to operate with labor prices near Toyota’s it would have pocketed an additional $29,715,200,000.
If there is going to be a bailout the heads of the UAW, the Big 3, Treasury, the Fed and a few members of congress need to sit in a room and find a way to restructure employees pay to look more like that which Toyota has.  As painful as it might be for me a resident of Michigan where the auto industry began,  a bailout would only buy GM a little more time before it went into bankruptcy anyway.

Monday, November 17, 2008

Congressional Oversight - Troubled Asset Relief Program TARP - Emergency Economic Stabilization Act of 2008

The White House, spokesman Tony Fratto said that, “The Treasury Secretary Henry Paulson said he's working to continue to design and develop programs, and when it's the right time to use them Treasury will announce it. And if it then makes sense to go to Congress, he'll recommend we request to drawdown the second $350 billion,”  Last week the Treasury secretary announced he was abandoning his plan to free up the nation’s credit system by buying up toxic assets from troubled financial institutions.  Paulson wants to take a more direct action on the consumer credit front.  So far, the Treasury Department has pledged $250 billion for banks in return for partial ownership, a measure designed to encourage the institutions to boost lending and stabilize credit markets. 

The Oklahoma U.S. Senator Jim Inhofe told the Tulsa World that, “It is just outrageous that the American people don’t know that Congress doesn’t know how much money the Treasury Secretary Henry Paulson has given away to anyone,”
When the bill was enacted a Congressional Oversight Panel was created to review the state of the markets, current regulatory system, and the Treasury Department's management of the Troubled Asset Relief Program. The panel is required to report their findings to Congress every 30 days, counting from the first asset purchase made under the program. The panel must also submit a special report to Congress about regulatory reform on or before January 20, 2009.
The panel consists of five outside experts appointed as follows, one member chosen by the Speaker of the House (Richard H. Neiman), one member chosen by the minority leader of the House (Judd Gregg), one member chosen by the majority leader of the Senate (Elizabeth Warren Harvard Law proferson) one member chosen by the minority leader of the Senate (Jeb Hensarling) and one member chosen by the Speaker of the House  and the majority leader of the Senate (Damon Silvers), following consultation with the minority leaders of Congress. 
The Comptroller General (director of the Government Accountability Office) is required to monitor the performance of the program, and report findings to Congress every 60 days. The Comptroller General is also required to audit the program annually. The bill grants the Comptroller General access to all information, records, reports, data, etc. belonging to or in use by the program.

When Senator Inhofe said, “It is just outrageous that the American people don’t know that Congress doesn’t know how much money the Treasury Secretary Henry Paulson has given away to anyone.”  Is he not reading the reports from the Comptroller General the director of the Government Accountability Office or the reports of the Congressional Oversight Panel that was created as part of the legislation?  Did they get lost in the mail?  For God’s sake he is a member of the Senate if he is not getting the reports he should do something about it.

Reported spent under legislation $158,561,409,000

Friday, November 14, 2008

Fool me once shame on you. Fool me twice shame on me.

In the tax someone else mentality that we in the US find ourselves.  Why should we care about the craziness that we find ourselves in today.

As we all know the Treasury Secretary Henry Paulson announced the government will lend Fannie and Freddie money, will purchase their mortgage-backed securities, and will buy up to $200 billion in preferred stock to keep the companies afloat.  With the Treasury committing up to $200 billion of taxpayers’ money for direct investment in Fannie Mae and billions more for loans to the companies and purchases of their mortgage-backed bonds.  Freddie Mac is now asking for an injection of $13.8 billion in government aid after posting a massive quarterly loss.
We were told that TARP was essential if the American economy was to survive.  The US Treasury said that it had hired accounting firms PricewaterhouseCoopers and Ernst & Young to help with its emergency buyouts of toxic assets from troubled financial institutions.  The contracts were awarded as part of the government's new 700-billion-dollar TARP to bail out financial firms saddled with soured assets related to falling US home prices.  The Treasury Secretary announced that he has shelved the original plan to buy troubled mortgage assets via the recently approved $700 Billion TARP.  The Treasury said it had selected PricewaterhouseCoopers and Ernst & Young from a pool of bidding candidates and their contracts end on September 30, 2011.

Paulson is absolutely the most powerful person in the country, maybe the world.  "In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks," Paulson said.  Paulson is considering a new use for the TARP money: trying to resuscitate the market for securities backed by auto, credit card and student loans.  Recently Paulson's erratic behavior led to a 180-degree turn with money approved by Congress under the $700 billion bailout bill. 

Paulson has the ability to do so because once again Congress has failed to use its congressional oversight to protect the American people.  In many ways just like they did on the run up to the Iraq war.  In the aftermath of the 2008 congressional race only 21 incumbent members lost their seats in congress.  

The situation has once again failed us.  Maybe the situation can be summed up by the chinese proverb,  "Fool me once shame on you. Fool me twice shame on me."

Wednesday, November 12, 2008

If you give AIG a cookie

When the U.S. federal government initially invested in AIG with $85 billion it didn’t require any seats on the Board of Directors.  The AIG members of the Board of Directors retained their seats as members of the board after the bailout.  In effect this means that although the government owns 79.9% of AIG the U.S. federal government has no input as to how the company is ran.  The original investment was made on September 16, 2008.  There was a second bailout October 8, 2008 for another $37.5 billion.  The third bail out occurred November 10, 2008 for another $29.5 billion raising the total bailout to date of $150 billion.

If you give a mouse a cookie. 
He’s going to ask for a glass of milk.
When you give him the milk, he’ll probably ask you for a straw.
When he’s finished, he’ll ask for a napkin.

The childrens story, "If you give a mouse a cookie," goes on and on.  

Maybe the U.S. federal government should demand some resignations on the Board of Directors.  The democrat Rep. Elijah E. Cummings called yesterday for the resignation of American International Group's top executive after news reports of another resort hotel event involving employees from the giant insurance firm.  Notice he only asked for the resignation because of another resort hotel event and not the poor management of the Board of Directors and their incessant need for more.

If you give a politician reelection.

Tuesday, November 11, 2008

The AIG and Berkshire Hathaway scandal

We now have a government willing to "bailout" every overpaid blundering idiot who over-leveraged their company.  The federal government delved deeper and more intricately into the bondholder bailout business by announcing plans to goose its investment in American International Group (AIG) once again, this time to $150 billion.  Nine of the eleven AIG board members retained their seats after the Governments first intervention.  A former AIG CEO Maurice R. Greenberg of the scandal ridden company was forced out March 28, 2005, after four decades amid an accounting scandal.

The Securities and Exchange Commission and the New York attorney general's office poured over dozens of transactions with scores of reinsurance companies to determine how many transactions A.I.G. might have used to bolster its bottom line.  AIG acknowledged March 30, 2005 that its accounting for a number of transactions, including a deal with a unit of Warren E. Buffett's company, was improper.  Investigators focused on a 2000 transaction between A.I.G. and General Re, a unit of Mr. Buffett's company.  Investigators found that Berkshire Hathaway, artificially inflated A.I.G.'s reserves by $500 million.  Investigators interviewed the Berkshire Hathaway executive Mr. Buffett on April 11, 2005.  Investigators commented that it felt to them that they were only seeing the tip of an iceberg.
Billionaire investor Warren Buffett, who owns Berkshire Hathaway, is expected to keep an eye on AIG’s subsidiaries in case they come up for sale to pay off AIG’s debt.    

update --- Berkshire Hathaway owns 13.1% of American Express stock.  The same company that is now looking for a government bailout.

Monday, November 10, 2008

The Fed and irrational fear

The Federal Reserve (Fed) is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.  Ted Forstmann, senior partner of Forstmann Little & Co. in New York said “It's your money; it's not the Federal Reserve's money,” “Of course there should be transparency.”
The Fed is transparent in that it is subject to the oversight of Congress.  Periodically Congress reviews the Fed’s activities and can alter its responsibilities by statute.  The intent of Congress in shaping the Federal Reserve Act was to keep politics out of monetary policy.  Legislation requires that the Federal Reserve reports annually on its activities to the Speaker of the House of Representatives, and twice annually on its plans for monetary policy to the banking committees of Congress. 
The recently failed Franklin Bank which is based in Houston, described their founder Lewis Ranieri in a securities filing last year as "the father of the securitized mortgage market," during the 1980’s.  Today, we are in the midst of experiencing the consequences of the failure of a party that got way out of control.  The party was brought on by the geeks bearing formulas.  Their party gave us the credit default swap, mortgage backed securities and other structured investments that have pushed the global banking system into crisis.  One of the greatest of Federal Reserve chairmen, William McChesney Martin, once said that the job of the Fed is “to take away the punch bowl just as the party gets going.”  Washington Irving wrote about the Mississippi Bubble in his paper “Crayon Papers” from 1719 that common sense told him that eventually, the “short but brilliant” phenomenon of irrational exuberance bursts and is most often replaced by irrational fear. What was a sure thing yields to uncertainty; uncertainty undermines decision making; and the confident decision making that is needed to sustain the economy retreats into a defensive crouch. Counterparties come to be viewed with suspicion. No business appears worthy of financing. Cash is hoarded. The economy, starved of the lifeblood of capital, staggers and begins to weaken.

Now that the economy has weakened again the Fed has stretched out the terms with which we lend to bankers; accepted new forms of collateral; broadened access to our lending window to securities dealers and one particular insurance company—AIG—whose failure was deemed by the Federal Reserve Board to present a risk to the financial system; opened a window for financing commercial paper; backstopped money market mutual funds; and, recognizing that we are inextricably interwoven with a global economy, established swap lines to help meet the dollar-funding needs of 14 central banks, ranging from the European Central Bank and the Bank of England to the Banco de México and the Singapore Monetary Authority, the total of which now aggregates to hundreds of billions of dollars. The Fed's staff and policymakers have provided substantial intellectual input into activities of other regulators, such as the FDIC and the Treasury, as they develop innovative means and modes of recapitalizing the banking system, dealing with the mortgage crisis and restoring economic growth.

You can see the size and breadth of the Fed’s efforts to counter the collapse of the credit mechanism in its balance sheet. At the beginning of this year, the assets on the books of the Fed totaled $960 billion. Today the Fed's assets exceed $1.9 trillion. I would not be surprised to see them aggregate to $3 trillion—roughly 20 percent of GDP—by the time we ring in the New Year. The composition of the Fed's holdings has shifted considerably. Previously, almost 100 percent of its holdings were in the form of core holdings of U.S. Treasuries; today, less than a third are. The remainder consists of claims deriving from our new facilities.

The fourth President of the United States James Madison once said, “The circulation of confidence is better than the circulation of money.”  Madison led the unsuccessful attempt to block Hamilton's proposed Bank of the United States, arguing the new Constitution did not explicitly allow the federal government to form a bank.  While President in 1815, he supported the creation of the second National Bank.  James Madison also said, "Union of religious sentiments begets a surprising confidence."  

Friday, November 7, 2008

The post election economy ... UGH

The day after the presidential election of 2008 the democrats in congress pushed for a bill that would provide $61 billion in economic stimulus.  President Bush objects to the bill as it is currently written.  The continuing recession fears and worries about corporate profits have once again swept stock markets around the world.  As profits shrink most businesses tend to retract in order to remain afloat usually this means that the first thing to go is jobs.

The U.S. Department of Labor reported that the filings for state jobless benefits reached 481,000 for the week that ended November 1.  The number of people continuing to receive unemployment insurance jumped by 122,000 to 3.84 million, the highest since 1983, when the nation was coming out of a deep recession.  The nation' s unemployment rate for November bolted to a 14-year high of 6.5 percent, far worse than economists expected and stark proof the economy is deteriorating at an alarmingly rapid pace.

When economic conditions get bad, banks pull back and then the pull back tends to make economic conditions even worse, resulting in banks that pull back even more.  The Federal Deposit Insurance Corporation (FDIC), the federal agency that backs bank deposits, last week reported the biggest jump in "problem institutions" it has seen since the savings and loan crisis of the late 1980s.  The FDIC directly examines and supervises about 5,160 banks and savings banks, more than half of the institutions in the banking system. There are 1,479 FDIC member banks that are at risk of failure with total assets of $2.4 trillion.  The federal government has pledged as much as $3 trillion for the crisis. 

Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.

When these times are looked back on, maybe they will be called the period of a Humpty Dumpty economy.

Wednesday, November 5, 2008

What happened during the presidential election of 2008?

In the historic election of 2008 many people had great hopes yet others had a more realistic point of view.  We were told daily how this election was to have one of the greatest turn out efforts in history.  During the United States presidential election of 2004 there were 121,069,054 votes cast for George W. Bush and John Kerry.  During the United States presidential election of 2000 there were 101,455,899 votes cast for the major political parties.  The presidential election of 2000 had registered voters in the amount of 194,285,000 and the 2004 was 201,541,000.  The presidential election of 2008 had 231,229,580 potential voters.  In 2000 the voter turnout rate was 50.0% and the 2004 presidential election had a turn out rate of 58.2%.  The turnout during the 2008 election was          124,470,000 and the turnout rate was about 53%.  The weather across the United States was good and voting problems were very low.  Voter turnout 1996 was 51.7%.

The independent Pew Research Center's Project for Excellence in Journalism found that Obama's coverage in the media was more positive at 30 percent than negative at 44 percent, while McCain's coverage was 57 percent negative and 14 percent positive.  As discussed in an earlier post our hearing the same thing over and over again tends to impact our judgment and emotions.    

A study conducted by the Advertising Research Foundation concluded that “likeability” – a dimension of emotion – is the attitude measure which is the most predictive element of whether an advertisement will increase sales.  Emotions have almost three times more influence on purchase intent than does the content of an advertisement.  An election is really just a sale on a particular canidate.  According to the CNN poll, viewers found the Illinois Democrat more likeable by a margin of 65 to 28 percent--a far larger spread than either Reagan, Bush, Clinton or W. ever enjoyed in similar surveys. 

The economy was the overriding election emotion which may have led to anxiety, particularly among older voters.  Economic anxiety of middle-aged and the middle-class men were communicated through a relentless drumbeat of how bad the economy is.  This didn't seem to impact voter turnout either.  Even though Mr. Obama had more positive media coverage than Mr. McCain the voter turnout wasn’t impacted.  Like it or not, the presidential election is about 'likability.'  Even though Obama won the election the emotion of likeability didn’t impact on the voter turnout.  Anxiety on issues such as the economy, unemployment, energy, crime and terrorism didn’t impact voter turnout either. 
Maybe the most likely factor as to why voter turnout declined is that we really weren’t excited about either candidate.     

Monday, November 3, 2008

Income taxes DOWN but everything costs more

It seems to be a foregone conclusion that Mr. Obama is going to win the Presidency.  Too bad the major media hasn't asked him how much of his $4.3 trillion of new programs are going to cost the taxpayer.
Consider if you will that 2% of Americans filing income taxes are taxed at a 35% rate.  In 2006 they earned $ 1.3 million per filing and then they paid 39% of their adjusted gross income (AGI).  When you sum all the taxes paid by this group it totals to $1.14 trillion.  The next 3% of income tax payers’ pays at a rate of 33% of their AGI. This group earns $333 thousand per filing.   When you sum all the taxes paid by this group it totals to $410 billion.  These two groups are the top 5% taxpayers.

The sum of taxes paid by the top 5% adds up to $1.45 billion per year.  Under Obama’s plan your taxes will revert to the pre-2001 levels of 36 percent and 39.6 percent for the top 5% of wage earners.  Simply put the top 2% will pay an extra $150 billion of new taxes.  The next 3% will pay $37.2 billion of new income taxes.  So an additional $187.2 billion in new income taxes are paid.  Mr. Obama’s tax plan requires $430 billion per year.  Under Mr. Obama’s plan another $242.8 billion is needed to pay for his new programs. 

The shortage is to be paid by increasing corporate taxes by more than 25%.  Today most corporations pay taxes at a rate of 35%.  The new rate would be 43.75%.  A meal out with the family might cost $100 and of that $100 taxes are paid on profits of $33.  Under the current plan the meal has $8.25 built in.  Under the new plan the tax of $14.44 will still be built in.  The new price of the meal would be $106.19.  Let’s say that you go out to eat once a week you will pay $322 per year.  The corporations that make your food are taxed.  Consider that you buy $244 groceries the national average price for this example $80 is profit.  Under the new tax plan groceries will cost you an extra $364 per year.  The example can go on and on.  So just because you might get an income tax reduction your actual taxes will go up, just not your income taxes.