Archive for April, 2010

The November elections are approaching, and the Democrats are tuning up their hype machine. Democratic National Committee Chairman Tim Kaine has recently taken to billing his side as “The Results Party” in an attempt to show all the stuff they’ve done over the past year. Unfortunately, “results” doesn’t tell voters very much. The economic downturn has “resulted” in millions of people looking for work. The housing collapse “resulted” in millions more having their houses foreclosed on. In fact, House Minority Whip Eric Cantor was willing to concede that Democrats are “The Results Party,” but not quite in the way that Democrats intended. As Cantor said, “

“They’re the party of results – it’s just the bad results. There’s a reason people are so dissatisfied with their incumbent in Congress, because the party in power has produced an agenda that is unacceptable to the American people.”

Nevertheless, Kaine keeps lobbing softballs. In listing some things that his party has done over the past year he says, “we have more accomplishments to run on than any Party in a long time.” The DNC Chairman then goes on to list them. Let’s take a look at that list:

“We’ve gone from recession to recovery.”

Have we? First time jobless claims have continued to rise and unemployment remains stagnant. As economist Joe Naroff said, “[w]hat this tells me is that the labor market isn’t necessarily deteriorating further, but it is not improving at the pace we hoped it would.”

An economy like the United States will not stay down forever and some encouraging signs have begun to pop up. But can Democrats really claim that they had a hand in this? The American people have said no. According to a new Pew Research poll, 62% of Americans, including 42% of Democrats, said that the stimulus had no effect on the job situation. Moreover, a mere 38% of people said that they approve of President Obama’s handling of the economy.

The nation has been hit hard by the Great Recession. The only accomplishment the stimulus can claim is adding another $800 billion onto our national deficit – a sum that will have to be paid for with job-killing taxes.

“We’ve strengthened our relationships with our allies around the world.”

Someone might want to tell Israel. The fact is that the Obama administration has done very little to comfort our allies. Consider the rain check we received from two of our best international friends – Israel and Great Britain – during the largest global summit ever on U.S. soil.

The list of slights is long and frightening. For instance, the administration unilaterally revoked a missile defense agreement that left Poland and the Czech Republican hanging out to dry. President Obama has taken such a harsh tenor with Israel that Congress sent him a bipartisan letter asking him to tone down the rhetoric. India has found itself “out of sync” with the Obama administration over its emphasis on building a strategic relationship with China.

As Michael Green, a former foreign policy adviser to President Bush said,

“It is a curious state of affairs when relations with our major democratic allies are all wobbly at once.”

“Two million people or more have jobs today who wouldn’t have without the bold action taken by this president and Democrats in Congress.”

Earlier this month, the Labor Department’s Bureau of Labor and Statistics released its monthly jobs report showing that the nation’s unemployment remained at 9.7% for the third month in a row. While the jobs report does indicate that 162,000 net jobs were created in March there are reasons to temper optimism. For instance, the number of people working part time for economic reasons has steadily increased to 9.1 million. The number of long term unemployed (those jobless for 27 weeks and over) increased by 414,000. Finally, 48,000 of those jobs were due to temporary stimulus jobs which will be over in a few months.

In total, the US economy has now lost a total of 3.8 million jobs since Barack Obama signed the $862 million stimulus plan. This despite his repeated claim that his stimulus bill would create 3.5 million new jobs by 2011. If we are on the right track, it is because of the resilience of the American private sector and its entrepreneurs – not because of the failed Keynesian policies of the Obama administration.

“We have the first Latina and only the third woman ever on the Supreme Court.”

Bravo. Racial and gender progress is a valid accomplishment. Hopefully we are on the road to breaking down any remaining stereotypes on a march towards a truly post-racial America. But as we approach that goal we must set aside skin color and ask for results. It is a phenomenal statement on our society that we have elected the first African American president in our history. But how far has that gotten us? Our nation’s policy makers, regardless of skin color, must show the fruits of their endeavors.

“We’re using science and fact in policy making instead of ideology and politics.”

Interesting perspective. Fact finders may disagree. Remember the health care debate in which Democrats sold their bill to the public based on the fact that it would bend the cost curve downwards. A recent Center for Medicare and Medicaid Services report showed that the bill will do just the opposite – actually raising health care costs over the next 10 years. The Obama administration also touted the bill as a way to reduce the deficit yet used every financial trick in the book to hide the bill’s true cost. Collecting 10 years worth of taxes to pay out 6 years worth of benefits is hardly using “fact” in policy making.

Health care isn’t the only example. The stimulus failed to spur job growth in the private sector and instead was geared toward helping Democratic allies such as the public sector and unions. The new Wall Street bill, rather than create real reforms to ensure that Americans are not on the hook for more bailouts, creates a too-big-to-fail apparatus for their friends in the financial sector. The bill also completely ignores one of the true drivers of the financial collapse, Fannie and Freddie, institutions which have lined the election pockets of both Chris Dodd and Barack Obama. It all sounds like politics to us.

“We have the most transparent Administration in modern history, with tough ethics standards, and we are wringing the influence of special interests out of the policy making process.”

The now infamous words of Nancy Pelosi, referring to the Democrats’ health care bill should tell you everything you need to know: “We have to pass the bill so you can see what is in it.” Thanks Nancy. At least you were honest.

One year into its promise of greater government transparency, the Obama administration is spending more time citing exceptions to the nation’s open records law than granting interviews. The administration’s strained relations with the media was even the heart of a recent Politico story entitled “Why Reporters are Down on Obama.” The article found that,

“Reporters say the White House is thin-skinned, controlling, eager to go over their heads and stingy with even basic information. All White Houses try to control the message. But this White House has pledged to be more open than its predecessors, and reporters feel it doesn’t live up to that pledge in several key areas.”

The article goes on to describe president whose day to day interaction with the press is “nonexistent,” whose response to press inquiries can “draw a string of vitriolic emails,” and who plays favorites among the competitors. The hostile relationship led one reporter to say that “[the White House] lost all that goodwill.”

Tim Kaine was technically right when he said that Democrats are the “Party of Results.” Unfortunately, he left out an important modifier. They are the “Party of Bad Results,” leading us into historic debt and deficits with little to show for it other than a future doomed by higher taxes. They are the “Party of Unwanted Results,” forcing Americans to swallow the bitter pill of health care while shrugging off Republican ideas to truly address costs. The whole election year strategy sounds a lot like the “change” we were promised in 2008. They delivered change, but it certainly wasn’t the change anyone was hoping for.

by Brandon Greife, Political Director

This past week, Harry Reid’s spokesman, Jim Manley, defined the GOP as “the party of Wall Street.” The carefully crafted story goes that Republicans are obstructing the financial regulatory reform bill in favor of big businesses on Wall Street at the expense of middle America. Believe the Democrat storyline and we are a bunch of Gordon Gecko’s. The party of rich financial insiders protecting the Wall Street mentality where,

“Greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.”

While Republicans are defending this anything-goes mentality, Democrats would have you believe they are the party of Main Street. The party who will come in guns blazing and defend Americans from ever being trampled on by evil corporations.

They’ve got the whole story wrong. Here’s some plot points that don’t quite fit the Democratic storyline:

• OpenSecrets.org found that in the 2010 midterm season Democrats have received $21.5 million while $12.8 million has gone to the GOP
• Senate Majority Leader Harry Reid held a fundraiser earlier this year that was attended mostly by Goldman Sachs executives
• The Federal Election Commission reports that Goldman Sachs’ and its employees were the second largest contributor to the Obama campaign
• Goldman gave nearly four times the amount of money to the Obama campaign compared to the McCain campaign
• Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi, Senate Majority Whip Dick Durbin, and House Majority Whip James Clyburn all count the financial sector as one of the top campaign donors
• Chris Dodd, author of the Senate legislation, was the second largest recipient of Fannie and Freddie campaign funds and had a fundraiser hosted by John Paulson who is currently answering questions in the Goldman Sachs hearings

Obama’s tough talk against Wall Street is a great media stunt. An easy to follow story with a clear villain (Wall Street) an easy to define enabler (Republicans) and a dashing hero (Democrats). It’s all bunk. The financial sector even supports reform efforts. The head of embattled investment bank Goldman Sachs, Lloyd Blankfein, recently told The Hill that,

“I’m generally supportive. . . The biggest beneficiary of reform is Wall Street itself. . . The biggest risk is risk financial institutions have with each other.”

The financial sector and its lobbyist have spend more than $20 million on ads urging some sort of reform.

All of this should not come as a surprise. What big Wall Street firm wouldn’t support creating a permanent bailout fund? Which financial sector business wouldn’t like the comfort of knowing that the Fed could step in to pay off its stockholders upon liquidation? Who wouldn’t support ceding a little symbolic authority to some a federal agency in return for the good PR that comes with supporting reform? Taking a little heat today from those who set up this plan will pay off with interest tomorrow, and if it gives a little more “legitimacy” to the Obama administration, then all the better, right?

Even if Democrats can pawn off the “Party of Wall Street” label do they really deserve to claim they represent Main Street. When Americans think of Main Street they think of small businesses, they think of the private sector, they think of entrepreneurs with ideas. The Democrats’ legislation encourages none of that. Rather than Main Street we’re getting Pennsylvania Avenue. We’re getting a huge new bureaucracy filled with new faceless unelected bureaucrats. With the public trust in government reaching all time lows, is this really what Americans want. If the bill passes, unprecedented regulatory powers will be granted to agencies. Although constrained with “factors to consider,” these new governmental entities will ultimately be given incredible authority such as:

• The power to identify firms that “pose a threat to the financial security of the United States”
• The ability to seize financial companies “in danger of default” that could have “adverse effects” on the nation’s financial stability
• Guarantee the debt of a bank if someone determines there is a liquidity crisis

Do we want the federal government (or worse, the party in power) to be making these decisions? Do we trust them with this kind of authority?

So don’t buy into the storyline. True reform doesn’t need villains or heroes. If Democrats’ represented real change then there would be no need for such showmanship.

by Brandon Greife, Political Director

After a difficult year which has seen his approval ratings fall through the floor the President is reaching bag into its bag of 2008 tricks to prepare itself for a difficult midterm season. The goal? Rekindle the grassroots love-affair that brought out unprecedented numbers of young adults and first-time voters. The strategy? Hyperbole. “This year the stakes are higher than ever” he said. If Republicans regain majorities they will “undo all that we have accomplished.”

The uphill battle President Obama now faces is convincing young adults that we shouldn’t undo those accomplishments. After all, heaping enormous amounts of new debt and deficits onto the nation’s bottom line should not exactly excite young adults. As President Obama returns to speaking directly to young adults what does he have to sell them? His spell has worn off as we have been shaken out of our entranced political state by the reality of our financial dilemma. Claims of “change,” the magic word in 2008, falls flat when 60% of Millennials are concerned with meeting their current bills and nearly half are concerned about staying in school.

Although Obama connected personally with young adults, we eventually need to see results. Moreover, this is not an election for Obama. We’re now being forced to decide whether Democratic representatives deserve to be reelected. Sorry Harry Reid, Alan Grayson, and all you other vulnerable incumbents, but unless you quickly develop the charisma of President Obama, convincing young adults to vote for you may be tough.

This trend plays out in the latest Gallup poll that indicates the party affiliation gap is at its narrowest point since 2005.

One of the primary drivers behind this trend has been the increasing shift in young adults towards the Republican Party. Obama won the youth demographic 66% to 32% – a staggering 34% margin. Republicans have since closed the Millennial gap. The latest Gallup poll finds that 51% of 18-29 year olds say they would vote Democrat while 39% say they prefer Republicans – a much more manageable 12% different. The good news does not end there. Every poll we have seen since 2009 has shown a steady narrowing of the gap, suggesting that the GOP could close these margins further prior to the November elections.

Seeking to stop the flow of young adults away from his party, President Obama is taking proactive steps. He recently issued a call-to-action video message, is increasing his presence on social media outlets, and is reengaging his sophisticated voter targeting technology. Nevertheless, Obama is facing challenges in the upcoming elections that he did not face in 2008. His primary challenge? The economy.

According to USA Today’s 2008 Election Coverage, 46% of young adults surveyed said that the economy was the most important issue determining their vote in 2008. Now, the Administration continues to put off the necessity of job creation in favor of political luxuries (and potential job killers) like health care reform and financial regulation. As a result young adults are more worried about the economy than ever before. For the first time ever a majority of a generation (ours) fears that they will not reach the American dream – being better off than our parents.

On a more personal scale, unemployment rates remain high, and young adults are not seeing the promised decrease predicted back in 2008. Stagnant wages, job insecurity, the decline in employer-sponsored health insurance and retirement benefits, the rapid increase in basic expenses, soaring debt and minimal savings have jeopardized the economic security of this entire generation. As Michael Franc, president of government relations at the Heritage Foundation explains,

Among Millennials who say they are very likely to vote, two-thirds believe spending and tax increases hurt the economy. Even higher proportions look kindly on tax and spending cuts, saying they will foster economic growth. Little wonder that, by a resounding 78 percent–17 percent margin, they prefer a government that provides fewer services and taxes us less to one that taxes us more and provides more services.

It seems that “hope” is now spelled “doubt.” Uncertainty with the current administration’s policies may give Republicans the opportunity to show the benefits of conservatism. Show them a future not burdened by debt and taxes. Provide them with the personal freedoms that come by paring back government. In other words show them what real change can look like.

By Brandon Greife and Adam Welsh

“We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises … I say after eight years of this Administration we have just as much unemployment as when we started. …. And an enormous debt to boot!” No, this is not Mitch McConnell railing against the Obama administration’s year long spending binge. No, this is not John Boehner lamenting the hundreds of millions of taxpayer dollars the government spent on the stimulus. This was Henry Morgenthau, Treasury secretary to Franklin Delano Roosevelt, describing the New Deal.

The New Deal was a Keynesian approach to solving the Great Depression in which the government implemented massive deficit spending in an attempt to kick start private demand. Whether or not it was a success has grown into a 50 year debate between conservatives and ilberals. Nevertheless, some typically undisputed statistics show the results are a little less exciting than you may have been taught in middle school: federal outlays more than doubled from $4.5 to $9.4 billion, taxes tripled, and unemployment never got close to pre-Depression levels until World War II.

Once again the country faced another major finical shock. History was repeated and the government again engaged in massive deficit spending in the hopes of restoring the economy.  The results were also similarly underwhelming.

That is not to say that everything is looking gloomy. There are some significant positive signs coming from the economy. According to the National Association for Business Economics, employment payrolls have been on the rise. There have also been raises in employment, demand, and profit margins during the last the quarter. But as to the $838 billion of taxpayer funds that was supposed to “stimulate” the government, 77% of business economists agree that the fiscal stimulus enacted in February 2009 has had no impact on employment to date.  The massive deficit we currently face is the only accomplishment that the stimulus can claim.

In addition companies who opted away from federal assistance have been more prosperous than those who received a bailout. The Ford Motor Company just posted a profit of $2.1 billion dollars. It was the only one of the big three to refuse assistance from the Federal government. General Motors and Chrysler are still facing major hurtles despite being bailed out. General Motors just repaid its $8.1 billion in loans to the Canadian and American governments, but that still leaves $43 billion in equity left to be repaid.

The government should have heeded to the words of Margaret Thatcher when she said, “you can’t buck the market.” Excessive intervention in the market has proven to be both a long and short term failure. Strong economies have been the result of innovation, hard work, and adaptation. No economy has ever become strong from the government throwing money at the problem. As an Investor’s Business Daily article presciently explains,

“In such a hyperpoliticized environment, the next generation of corporate CEOs won’t be capitalist visionaries eager to create wealth and jobs. They’ll be political lickspittles and well-connected rent seekers looking for patronage in Washington.”

Government engagement only leads to failure being rewarded, lingering problems, and dozens of mini-Fannie Maes and mini-Freddie Macs that destroy competition and threaten our economy.

It would be most prudent to learn from our mistakes rather than repeat them. The stimulus has failed in its objective to bring prosperity to the American people. The government should focus on creating laws that encourage businesses to innovate and invest. Trying to prevent business from accepting the consequences of their failures will not solve the problem.  We have to learn to pick ourselves up rather than depend on someone to do it for us.

by Brandon Greife, Political Director

There is a great editorial in the Las Vegas Review-Journal today discussing President Obama’s Debt Commission and government spending. Here’s the part that made my jaw drop:

The members of his bipartisan commission could recommend raising the Social Security and Medicare eligibility ages to 75, means-testing benefits, shuttering one-third of the federal bureaucracy, cutting military spending in half, creating a 10 percent national sales tax and slashing the salary of every federal employee by 15 percent and Washington would still have trillions of dollars in debt and unfunded liabilities.

With that kind of future, no wonder young people are increasing identifying with conservative politics and turning away from the spend-spend-spend policies of the Democratic Party.

Republicans recently sent a letter to the Securities and Exchange Commission wondering whether the Goldman Sachs lawsuit carried a political agenda.

It is a difficult assertion to prove, but the timing is curious. Just as President Obama makes a push to win passage of Wall Street reform aimed at curbing the abuses that led to the financial crisis a lawsuit is brought against a Wall Street institution that profited from the fall.

The letter, issued by Rep. Darrel Issa (R-CA) and eight other House Republicans, worried about the “commission’s independence and impartiality.” The letter states that,

“The events of the past five days have fueled legitimate suspicion on the part of the American people that the Commission has attempted to assist the White House, the Democratic Party, and Congressional Democrats by timing the suit to coincide with the Senate’s consideration of financial regulatory legislation.”

The letter carried serious risk. Republicans are having to fend off poorly articulated claims that they are the party defending big-bad Wall Street while Democrats fight for Main Street. This feint shouldn’t get far.

• Consumer Watchdog, a consumer advocacy group, just issued a report finding that seven of the top 10 recipients of campaign contributions from the financial industry.
• According to the Federal Election Commission, Goldman Sach’s and its employees gave nearly $1 million to Obama’s presidential campaign, the second highest contribution Obama received.
• The Huffington Post ran a story a year ago entitled “Dodd Looks to Wall Street For Reelection Bailout,” which described a fundraiser held by John Paulson, who coincidentally is the hedge fund manager at the heart of the Goldman Sachs legal complaint.
• Thus far in 2010, OpenSecrets.org finds that Democrats have received $21.5 million while Republicans received $12.8 million.
• The hypocrisy was enough for one financial lobbyist to say,

“I get so tired of eating steaks and drinking expensive wine with the Democratic members of Congress, they take our money, assure us that they’ll work with us behind closed doors and then run to the cameras and pretend they don’t know us and even loathe us.”

Democrats are gaming the system at every turn – creating a carefully crafted storyline to vilify the same Wall Street that paid for their elections. One would hope that the lawsuit against Goldman Sachs wasn’t part of the storyline. The independence of financial regulators is crucial to both ensuring justice in complaints but also in the health of the financial system. Independence, free of the partisan agenda that grips Washington, is especially crucial given that the Democrats’ financial regulatory reform bills provide sweeping new powers to government regulators. If a political agenda and concerted action can filter into the case against Goldman Sachs what assurances do the American public have that something similar wouldn’t happen in banking regulation.

It is sad that we have to ask the question whether politics is playing a role in the SEC lawsuit, but it is necessary. Americans must understand that this is not Republicans sympathizing with Wall Strett. This is Republicans ensuring that the reach of government doesn’t cross the line from referees to manipulators.

by Brandon Greife, Political Director

This Week’s Theme: Financial Regulatory Reform

The Promise: President Obama continues to push for regulatory reform saying that it is, “essential that we learn the lessons of this crisis, so we don’t doom ourselves to repeat it. And make no mistake, that is exactly what will happen if we allow this moment to pass.”

The Reality: The current reform package being debated in the Senate fails to address the major causes of the crisis. The President is more concerned with passing something quickly to score political points with voters in the upcoming elections than creating a workable policy that solves the structural problems in the financial sector.

Fact 1: Economists Agree – The Democrats’ Plan Doesn’t Work

A group of former regulators, left-leaning economists, and Democratic insiders have written a letter to Senate Majority Leader Harry Reid examining the myriad flaws of the current financial regulatory reform bill. The letter says that,

“Nineteen months after the most devastating financial crisis since the Great Depression, our financial system remains at risk. Neither the bill passed earlier this year by the House, nor the one currently under consideration in the Senate would have prevented the crisis. Without serious restructuring, they will not prevent a future crisis.”

The letter highlights eight things that the bill must do to thwart a future crisis. Among them:

“Eliminate a perpetual system of government sponsored corporate bailouts financed by the government or private industry.”

Unfortunately, rather than eliminate taxpayer bailouts of the financial sector the Democrats legislation institutionalizes the process. In addition to the letter an informal survey of economists and regulatory experts from across the political spectrum found that not one single expert of any party agreed the Democrats legislation would end “too big to fail.”

The debate over the bailouts has centered around the $150 billion in the House bill and $50 billion in the Senate bill used as a “liquidation fund.” However, this overlooks other provisions of the bill that would institutionalize “too big to fail.” For instance

• Section 204 authorizes the FDIC to “make available…funds for the orderly liquidation of a covered financial institution” which could be used to pay off the firm’s creditors
• Section 210(n)(9) the Treasury Department creates a line of credit for government funding to failing firms
• Section 1155 the FDIC is authorized to guarantee the debt of “solvent depository institutions” if regulators declare there is a liquidity crisis.

Little wonder then Brad Sherman (D-CA), Member of the House Financial Services Committee said, “The Dodd bill has unlimited executive bailout authority. That’s something Wall Street wants but doesn’t dare ask for.”

Fact 2: The Plan Ignores One of the Primary Creators of the Financial Crisis

Democrats’ anger has solely been directed at Wall Street but have failed to address their own role in the crisis. To that end Investor’s Business Daily recently wrote that,

“Democratic plans don’t address government’s fundamental role in the crisis. Politicians and regulators pressed lenders to vastly expand credit to shaky borrowers and looked the other way as standards went out the window.”

One of the largest governmental culprits have been Fannie Mae and Freddie Mac who made ever-riskier loans in the hopes of allowing more people to own a home. Laudable goal but fraught with risk, especially to the new homeowners who found it difficult, and ultimately impossible, to stave off foreclosure.

The worst part is that this crisis was predictable. In 1999 the New York Times wrote that,

“In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue…”

Nevertheless, Democrats continue to ignore Fannie and Freddie’s role in the crisis and failed to make it part of their reform plan. Barney Frank, chairman of the House Financial Services Committee, went as far as to say that “[Republicans] have not yet made a policy case why GSE reform needs to be a part of regulatory reform.” Unfortunately, for Mr. Frank, economists from his own party disagree with him saying that a reforms must be “considered incomplete” unless they “[e]stablish a timeline for the resolution of Fannie Mae and Freddie Mac.”

Fact 3: Big Government Only Adds to the Problem

The Federal Reserve is the centerpiece of the Senate legislation. Under the bill, the Fed would be the chief regulator of banks with $50 billion or more in assets. That would put hundreds of banks within the Fed’s authority, including banking giants Bank of America and Citigroup. It would also gain the authority to regulate, a whenever it deemed necessary to break up, corporations that are “systemically important.” Finally, the bill creates a Financial Stability Oversight Council that identifies and protects the financial system from threats. As part of the Council’s power it can enable the Fed to order financial institution to break itself up, stop certain practices, or even go out of business.

But is a new all-powerful government entity really the answer? Just last year a Wall Street Journal story called “Senate Democrats Seek Sweeping Curbs on the Fed” outlined Chris Dodd’s (D-CT) position on the Fed. In the article he is quoted as saying that,

“Over the last number of years when [the Fed] took on consumer protection responsibility and regulation of bank holding companies, it was an abysmal failure.”

In another story from earlier this year the Washington Post wrote that,

“the chairman of the Senate Banking Committee (Dodd)…unveiled a sweeping regulatory reform bill that would strip the Federal Reserve of nearly all of its power to oversee banks”

An enormous change in rhetoric over the past year. Essentially Dodd is giving enormous regulatory powers to a Fed he admits has a “dismal” record in regulating. This shouldn’t inspire a great deal of confidence. In fact the Federal Trade Commission has already said that result of the layers of new bureaucracy “could be less protection for consumers, and fewer ‘cops on the beat.’”

Bottom Line: The need for financial regulatory reform is something the parties agree on. However, true reform needs to be able to prevent the financial crisis that led to the outcry for reform. Democrats should work with Republicans to create workable legislation that ends bailouts and addresses the real structural causes of the financial crisis.

by Brandon Greife

The latest roundup of news, commentary and analysis from around the web

As the President considers the possibility of a value added tax and other tax rises to pay for an ever-fattening government, people are increasingly asking: why not spending cuts? Many nations have faced debt crises which forced dramatic spending cuts and came out stronger (Real Clear Politics)

Instead of responsibly reining in spending, the President created a $787 billion slush fund and called it ‘stimulus’.  73% of private sector economists surveyed said it had no effect on their hiring… (Fortune)

But in the topsy-turvy world of Obamanomics, such facts don’t matter.  In this world, a healthcare bill that is about to cause thousands of medical industry employees to lose their jobs, is a job creator (Orange County Register)

In the world of Obamanomics a company that pays back one government loan with another government loan is considered to have paid off its debt to the American people.  In the real world, it’s still Government Motors (Forbes)

It is a principle of Obamanomics that derivatives are always bad…unless it’s a prominent Democrat trading them (Wall Street Journal)

And Obama is whipping up seething hatred of America’s financial institutions while simultaneously backing a candidate for his old Senate seat who’s family bank has just been seized by the Feds and which has already cost the American taxpayer $394 million in FDIC payouts (Chicago Businesss)

The SEC is very devoted to stimuluation…just not the economic sort (ABC News)

It wasn’t enough for the Obama administration to insult Israel’s government, shun it on the world stage, and impose a set of impossible demands.  Now, Obama’s national security advisor is telling “greedy Jew” jokes in speeches about Israel (Breitbart)

If you think the world can live with a nuclear Iran, read this… (Politics Daily)

…But if you don’t have time to read it, just consider that radical Muslims like the ones who run Tehran are threatening to kill Trey Parker and Matt Stone for portraying Muhammad dressed in a bear costume (Ayaan Hirsi Ali)

As Election Day gets nearer, there are an increasing number of strongly Democratic seats in play (New York Times)

A poll in Washington state shows Republican Dino Rossi crushing Sen. Patty Murray (Survey USA)

But as the bad news piles up, the President refuses to consider that his policies are to blame.  He chalks it up to not campaigning enough (New York Times)

Bernie Madoff made the term “Ponzi Scheme” part of the national lexicon. In 2009 Madoff made off with $36 billion that he defrauded from investors. The plan works like this: First, you entice investors by offering a higher return than any other investment device. Second, you show that it is not “too good to be true” by actually paying out original capital plus a hefty return. Third, enticed by the incredible investment a cascade of new people buy into the scheme. Fourth, you use all the new money to pay out any withdrawals from investors while pocketing the ever-increasing number of depositors. Fifth, you generally go to prison.

A clever scheme, but one that is destined to collapse under its own weight. Unfortunately, the United States government finds itself in much the same quandary. A recent Washington Post article examines the unsustainable nature of the national government’s finances. The article examines Bill Gross, a founder of the investment company Pimco, and someone who is concerned about the future of the United States Debt.

“Gross is a bottom-line kind of guy; he doesn’t seem to care if the debt is the fault of Republicans or Democrats, the Bush tax cuts or the Obama stimulus. He’s simply worried that Washington’s habit of spending today the money it hopes to collect tomorrow is getting worse and worse. It even has elements of a Ponzi scheme, Gross told me.

“In order to pay the interest and the bill when it comes due, we’ll simply have to issue more IOUs. That, to me, is Ponzi-like,” Gross said. “It’s a game that can never be finished.”

The national debt has reached a staggering $12.8 trillion. Worse, the Government Accountability Office projects a total shortfall of $45.8 trillion over the next 75 years due to unfunded liabilities in Medicare and Social Security. In the 10^th year of President Obama’s budget we will be spending close to $1 trillion just on interest to our debt.

To pay for all of this the government is operating two Ponzi-like schemes. One involves foreign investors in which we use our great credit rating and historically strong economy to continue to borrow money to pay our continuously growing debts. The problem, as Gross pointed out, is that our national debt has gotten so unwieldy that tax revenues are no longer anywhere near being able to service our debt. In essence we are now borrowing money from foreign nations to pay off other debtors. If we fail to address federal spending a vicious cycle of borrowing at increasingly higher interest rates to pay off existing debt and interest will be created.

The federal government is under a similar dilemma with its own taxpayers. For instance, take the Social Security trust fund. For the past two decades Social Security has collected more in payroll taxes than it has paid out in benefits. Unfortunately, the good times are scheduled to end this year when the program will begin operating at a deficit. But with 20 years of surpluses in the bank no need to worry right? Wrong. The federal government has been spending that money as soon as it came in the door. Now, the only thing left are $2.5 trillion in IOUs backed by the full faith and credit of the US government sitting in a filing cabinet at the Bureau of Public Debt. In other words the government has been taken money you’ve been paying toward Social Security, spending it other to mask deficit spending, thus making it more likely they will have to borrow more from you to pay the debt.

True to form each of these budgetary problems are destined to collapse under their own weight. Eventually there will be no more foreign borrowers to turn to and our unfunded liabilities will grow beyond taxpayers ability to pay them down. Unlike Bernie Madoff we cannot send anyone to prison, but that doesn’t mean nothing can be done.

For too long we have elected lawmakers of all political stripes who have avoided making the tough decisions to get government spending under control. Voters (and young adults especially) must short circuit the scheme before it goes any further. As William Gale of the Brookings Institution explains, “this is all an exercise in current generations shifting burdens on future generations. Future generations don’t vote, of course.”

We can vote. And we must vote. Our nation is facing a fiscal collapse from the enormous weight of its own spending. It is our duty to vote in people who will make the hard choices to reform our entitlements and lower government spending. We must do something lest we find our generation defrauded.

by Brandon Greife, Political Director

In formulating their budget the White House wrote that,

“During these tough economic times, American families are forced to make tough choices about what they can spend money on and what they need to cut from their household budgets.

Through the course of the budget process we did the same thing.

The President believes we need to be honest about what is working and what isn’t and that making tough choices about which programs to fund and which to reduce or terminate is part of governing.”

Senate Democrats have now countered with their own five-year budget plan that accumulates $3.9 trillion more in government debt. But while the White House says their budget makes the “tough choices” some pundits disagree. David Rogers of Politico says that,

“Trying to survive the political storm around them, Democrats would postpone the tough decisions until after November’s elections, when a presidential fiscal commission is scheduled to make its report to Congress.”

Senate Democrats have recognized the political climate they exist in. Voters are focused on debt and deficits and worried about looming tax hikes that will be necessary to pay for the administration’s agenda. But Democrats cannot have it both ways. They cannot on the one hand tout being “honest” about making the “tough choices” while simultaneously “postpon[ing] the tough decisions.”  But don’t tell that to Democrats.

Their latest push has been,

“[E]ncouraging members to make the tax cuts they’ve delivered a key part of their reelection strategy.”

Democrats continue to gloss over the unsustainable fiscal path we are on. Rather than give solutions to a national debt that reaches a new historical high every minute of every day, they tout lower taxes. But with the budget proposals predicting hundreds of billions in deficits Americans simply won’t be fooled. The government cannot run deficits forever. The administration has quietly made clear that “everything is on the table” to pay for the rash of new spending and failure to address an existing entitlement crisis. The Democrats’ budget punts on the politically perilous decisions necessary to solve these problems, instead hoping that the political cover of a debt commission will solve problems such as Social Security and Medicare.

This is not the “open and honest” government we were promised. This is hiding the biggest problem facing our country to protect their chances in November. Moreover, touting their record on tax relief borders on misleading. One fiscally conservative Democrat felt the same way, questioning whether touting tax cuts while simultaneously creating a fiscal environment that may make them inevitable is a good election strategy.

“The worst thing we can look like is hypocrites,” the anonymous Democrat said.

In many Americans eyes, they already are.

by Brandon Greife