Sunday, April 26, 2009

Sorting Out The Reality

I turned on the TV this morning and there is somebody from the Whitehouse discussing how things are under control. I’m wondering, "My god, what happened now." After a few minutes I figured out that they were talking about, Swine Flu. It seems like it is one crisis after another, those guys are running around with their rectal muscles in knots. Do you get the feeling that they are already in panic mode? A Presidential address day after day is getting incredulous let alone ridiculous. I wish someone would tell the guy to let up, he won the election. If you are busy talking to me, you can’t be working solving the nations problems, unless you’re trying to sell me something --- Hmmmm.

Bank of America CEO Ken Lewis is in hot water. Paulson told him to keep quiet about the Merrill Lynch deal if he knew what was good for him. Now the guy is being hung out to dry by the share holders for keeping his mouth shut. He can already claim that he doesn’t have a Porsche to piss in (he sold it to his CFO). This could be a real feeding frenzy for his lawyers; it could take years, before they spend his last nickel.

At first the banks needed a trillion dollars in TARP money and now they want to pay it back? It seems like no one wants to work for Uncle Sam. Maybe if the banks pay back the TARP, then they will get their bonuses and then they can send the Fed’s some jingle mail. There is nothing like telling people how much they can earn a year.

The bank stress test was a success. Everyone passed, what that means is anybody’s guess. They may have been checking for TARP money stashed at home.

The suicide of the CFO at Freddie Mac was kind of like touching off a nuclear bomb in the back yard, the neighbors, or what’s left of them are real quiet.

It appears that the focus of this administration is to fix everything at once, right now. They are going to stop Swine Flu, protect our borders, solve the banking mess, fix health care and lower taxes. This blather sounds more like an answer to a beauty pageant question. Where is the money, to do all of this, coming from? If we take a page from FDR, the fastest way to raise taxes like he did, was to promise Social Security benefits to the worker. This time, it will be free (socialized) health care.

Just for a joke, look at your tax forms that you just filled out and sent in. We paid $6,000 in Federal taxes, $1,500 in state taxes, $6,000 in Social Security taxes (your employer matches it) and $1,500 in Medicare (your employer matches it). Contrary to the way it is stated the employer doesn’t pay into Social Security and Medicare. It’s figured as part of the wage your employer offered to you, so you pay it all. My wife and I, paid $7,500 in Federal and State taxes and we also paid $15,000 in Social Security and Medicare.

So, when Obama says we’re not out of the woods yet, it means they need additional revenue (spending money). Figure they need a half trillion more in funds to run the government each year, the fastest way to get it on the books is as a health insurance benefit (AKA tax). The employee pays half and the employer pays half (yea right). Figure $2,500 for the employee and $2,500 from the employer. At the same time they can drop your income taxes $500 and fulfill an election promise.

So look for a new government benefit called health care. It will be run like our public rest rooms. Our government is desperate for cash. Remember this quote from long ago, “What’s good for General Motors is good for the country?” It kind of has a scary prophecy to it now. I'm reminded of a ditty from 1929, "Mellon pulled the whistle. Hoover rang the bell. Wall Street gave the signal. And the country went to hell." Looks like the ride has started, hold on!


AIM said...

Interesting how throughout history there have always been epidemics during economic crashes. The people get depressed, negativity reigns, immune systems drop and then illness enters. It is as if the masses create the influenza or whatever the disease from their collective mindset.

Jim in San Marcos said...

Hi Aim

That could be, but I think in this case, the administration wants to move the center of focus away from the banks (who are literally dying of plague) to something more benign like a flu epidemic.

Government health care will ruin this nation, but it could save the government from bankruptcy for another two to three years.

The real question you need to ask, is 100 dead in Mexico a reason to panic the United States. I think the answer is no.

If you haven't had a decent meal in three weeks, it wouldn't take much of a disease to kill you, Mexico could be in very bad shape economically already.

Tyrone said...

Unrelated... perhaps. But maybe not...

Obama stimulus included $780M for pandemic preparation:
Was it worth it?.

The video might be removed by now.

Anonymous said...


Geithner says the banks are capitalized and ok, but they need money... which is it?

There is no way the FDIC can handle the simultaneous collapse of 2-3 mid size or large banks.

The government hung Merril Lynch around BofA's neck and BofA is deeply invested in derivatives.

I have my money in BofA. Will it fail the stress test? Should I pull my money out now before it does and there is a run?

Jim in San Marcos said...

Hi Anon 11:58

I don't think you have to worry about your money, it should be safe. What you might have to worry about is trying to withdraw large amounts all at once. They could limit depositors to say withdrawals of say $5,000 per week. That did happen if my memory serves me right in the 1930's.

AIM said...

We have gov interference causing unpredictable and unknown long term negative effects as well as immediate ones.

Think about this...

We have GM going down. Bond holders are walking away from the negotiations. Now it has come up that a lot of the bond holders want GM to go into bankruptcy because they have credit default swaps and will make a lot of money as a result. So we have bondholders such as Goldman Sachs, Citi, etc. who are going to get paid from AIG on their CDS's when GM goes bankrupt.

The taxpayers give money to AIG... AIG gives the money to Goldman Sachs. The rip offs continue.

Will Geithner have egg on his face?

Wait til the public find out about this. This is the stuff that revolutions are made of.

I couldn't write a movie script as colorful and wild as this real life situation is.

Anonymous said...

[AIM said...

Will Geithner have egg on his face?

Wait til the public find out about this. This is the stuff that revolutions are made of.]

Even if he does it won't matter, the guy couldn't even come up with a better lie than... "turbotax ate it."
And he's the one that's gonna pull us thru this?????

I hope your right about the revolution

AIM said...

There is no one reality to sort out. There are many. Our leaders are either corrupt (manufacturing false realities) or lost in space (living in a delusionary alternate realities). One thing is for sure... none of our leaders are tracking with the actual situations that exist and are unfolding and doing what needs to be done.

Here is the logic. Before any chance of turning things around could occur, the first step is that JUSTICE must be enacted. We need a massive clean out. All the people in government, Wall St., Fannie and Freddie, banks, etc. that created this mess need to be located and held accountable. They need to be labeled for who they are and removed from the system. We are talking about major transgressions, major financial irregularities and fraud here. Heads need to go on a pike, heads must roll. We can't recover with this viral element in our government and financial sector.

All the self-serving and hidden agendas and counter-intention must be purged from the system.

And then the people need to be told of the result of these investigations so that they can understand what transpired and what the causes were.

And the Justice Dept isn't doing one damn thing about it. It is worthless (corrupt).

This isn't a credit crisis, a debt crisis, an economic downturn or anything else... these are symptoms. This is a moral crisis.

Integrity in government and business has left the house.

Technology and organization can never be effectively implemented and seen to work as long as JUSTICE and ETHICS are not addressed first and completely handled.

We need a righteous and just inquisition. We need to move up to the next rung of civilization where the honest and decent are no longer preyed upon by criminals.

ca said...

Jim --

When you speak of government default in two or three years, do you mean default through inflation or total default (i.e. Treasuries would have no value)?

Jim in San Marcos said...


I think that Geithner may end up having some AIG on his face. (I couldn't help it).

The way they are handing out our money, Bernie Madoff ought to get a good conduct medal. He was a real Robin Hood stealing from the rich (that's a stretch of the truth--the government does a lot of that too).

They interviewed an 80 year old woman who had 40K invested in GM bonds. She was a little miffed. No more dividend checks and her principle gets turned into worthless stock. Her comment of "Who ever would have thought of General Motors going broke," shows how conservative thinking is subject to the fickle of fate.

I do think that the main reason GM is going into BK, is to bust down the employee retirement benefits. The retirees will lose their health care and the retirement benefits could be cut by 60 percent if GM sheds off the retirement plan to the government. That's pretty much what put them under anyway.

GM bonds still might have some merit. Way back, I made a bundle on Public Service of New Hampshire bonds at 5 cents on the dollar and I got 20 cents on the dollar in the BK proceeding. It looks like GM holds a lot of patents that are worth big bucks. My thinking is that the smart money will short the stock and buy the bonds.

Normally the bond holders are first in line to be paid in a bankruptcy. With the Government inserting cash to keep them functional, can this be considered a claim against the bond holders? I think a court of law will have to decide that, and I would bet the government (AKA taxpayer) loses and the bond holders get a real slice of the pie.

Jim in San Marcos said...

Hi Ca

I am not sure of the consequences of the default. What the government would do next is uncertain.

We could be looking at an interest rate that could go to say 16% with a national debt of 20 Trillion dollars. At that point, tax collections would not be able to pay the interest on the debt. Technically the country at that point, is bankrupt.

The basic response in past situations in other countries was to reissue a new currency at a ratio of say 1:10 to the old--we are talking Banana Republics here. If you are a bond holder, you get a 90% haircut in this example.

Jim in San Marcos said...


Your second post snuck by me while I was posting to CA.

I totally agree with you, but there is one problem. Nobody is going to act.

What we are experiencing has happened before, many times in history. We will get out of it, but in the meantime it will hurt an awful lot of people, mainly retired people.

This mess is self correcting, we need to give it time, but I can guarantee, we are not going to like the results.

There is hope, I could be wrong, just ask my wife.

Shift said...

Your health care numbers look strange to me. Perhaps I am not reading this correctly:
"Figure $2,500 for the employee and $2,500 from the employer"

I read this to mean that the insurance costs will be a total of $5000 a year. I think that is very much on the low side. Currently My employer and I put in about $13000 for health insurance a year. If the costs can be lowered to $5000 a year, the American people should seriously look into doing this.

Please don't say anything about quality of care. The current health care industry is contemptuous of patients and is in serious need of cost containment.

My wife has some health issues and If I did not have good insurance we would have gone bankrupt several years ago. My biggest fear is losing my health insurance. If I lose my health insurance, it will not take long before I declare bankruptcy.

You should see how the medical bill are paid. Many times a medical cost (for example a blood test) will be some number (perhaps $200) and the insurance only needs to pay 5% ($10 dollars out of $200). The discount only applies to the insurance company that has a special deal with the hospital. If an individual is directly billed, that individual has to pay the entire $200. The whole game is rigged in the strangest, and meanest possible fashion.

I have great health insurance. It has paid out a tremendous amount of money. I hope that everyone reading this has great health coverage. All you need is ONE serious visit to the hospital to wipe out hundreds of thousands of dollars.

Take care

Jim in San Marcos said...

Hi Shift

The main thing I was alluding to was the the ability of the government to raise one half trillion dollars for health care and spend it somewhere else.

The government would give us free health care and tax us to raise the money and then spend it on what they currently need to pay for. Not one bit of it will go for health care.

You are right, health insurance is expensive for good coverage. There is no way that the average Joe can afford regular benefits. The government can't really afford to pick up the tab either.

There isn't enough money to provide benefits to everyone. Health care has limited resources. Having government pay for it, makes the lines longer.

It's kind of like giving everyone a free car. Everyone will want a Mercedes.

Anonymous said...

They are going to fast track socialized healthcare through congress! Obama is on his way to making us a diseased socialist state like European nations. Go to this link for info. I sent my own message and fax to all these Senators and my representative. You don't have to pay for it. Do it yourself or send an email.

Shift said...

I do not know how to fix the US health care problems. I do know that the current situation is not sustainable.

The main problem that is going to confront us is the Medicare and Medicaid future projected shortfall. It is projected that the Medicare/Medicaid hospital insurance trust fund will become insolvent by 2019. We are now at the point where more money is going out the the "trust fund" than is coming in.

The amount of money we would have to set aside today (collecting interest) to fund Medicaid for 75 years is $34 trillion. The largest portion of this can be attributed to the growth in costs.

Recently, we were confronted with an increase in the price of houses that was unsustainable. What happened? house prices were not sustained. It is very simple: If something is impossible, it does not happen. The current costs of medical treatment are unsustainable over long time horizons. This means that the current system will not continue in the same form as we know it today.

It is not reasonable to suggest that we get rid of Medicare/Medicaid. If the US does not have the stomach for letting the banks fail, there is no way that we have the stomach for watching our old people die without health care. It just won't happen. The only solution will be cost containment.

Cost containment WILL happen. It is impossible for it not to. The question becomes: How is cost containment going to be achieved? Those that offer no politically viable solution to the cost containment issue will have NO say in how costs become contained. If the republican party does not "gel" around an actual, politically viable, solution, then the democrats will get to nationalize health care. It is really that simple.

It is beyond "merely stupid" to defend the impossible. Those that said that house prices can outstrip peoples ability to pay are just as delusional as those that think our health care costs can continue on it's current journey.

We could let the problem "fix" itself. This, however, is not politically viable. We just need to look at how we dealt with the banking crisis to know that we will not allow "free-market" forces to brutally correct the problem.

The first step in addressing a problem is admitting that it exists. The US has many economic problem that need to be recognized, health care costs are one of the largest issues we need to recognize.

Sorry to be so boring and long winded. Reality is not as fun as complaining about possible future taxes.

Anonymous said...

Yeah, Let's hear it for the government. They're going to save us from 'swine flue'. I've got one question - who's going to save us from the government?

see Ron Paul's Comment:


Jim in San Marcos said...

Hi Anon 6:40

You have to figure that Swine flu is just some redirection away from the economy. Over100 people a day die in car accidents and we have had one death from Swine Flu. A real disaster!

Let's fly another jet through NYC and really shake some people up.

Anonymous said...

3,000 people die per day of malaria and it is called a health problem. A few die of "swine flu" and it is a pandemic. This same panic on this flu happened in the mid 70's and turned out to be nothing. The bird flu was a hoax as well.

Senate just passed the Obama budget with massive tax increases, doubling the national debt and fast tracking socialized health care.

The Dark Side think that they are winning. Soon the populace will be plenty pissed off enough and will take back this country and drive out destructive elements.

Jim in San Marcos said...

Hi Shift

Sorry I didn't get back to you sooner, I've been busy.

You are right the benefits are unsustainable.Health care cannot provide coverage to all that are entitled in a real world.

I have written several diatribes on this, this is the biggest bubble that still has time before it bursts!

Thank you for your imput.

Anonymous said...

There is some over-reaction to swine flu going on, indeed.

The way I think this will likely run its course is as follows:

A new flu has arrived to which everyone is immunovirgin, and it will become a pandemic, just based on the mathematics of disease spread. About 40% of the population will probably get this flu before there are enough immune survivors to naturally slow the spread.

However, the death rate seems small, so not a lot of people will likely die, unless for some reason everyone gets sick all at once, and the low percentage of very sick people is large enough to overwhelm the supply of ventilators in hospitals. Then this minority of very sick people will start to die in greater numbers.

If people can use their brains and avoid risky behaviors, and use hand sanitizer *most importantly*, this epidemic can be strung out over many months to avoid everyone getting sick at one time.

There is no reason to panic: just plan on getting a case of the flu for maybe a week this year, and surviving it, because that is what will happen to many of us.

If you can avoid getting this for 6-9 months, a vaccine should be ready for trials by then.

If you DO get this flu, keep yourself hydrated #1 with gatorade or other fluids/broths. Get rest. Take some vitamin D. Take Tamiflu or Relenza if you want. Try not to spread it. You should be okay.

--Mojo the Mellow, MD

Anonymous said...

Don't follow conventional medicine advice re: flu. And don't get vaccinated. See this link for the true data.

Jim in San Marcos said...

Welcome Mojo

Your comments make sense. The fact that half of us will end up catching this flu before it passes us by does face the reality of the situation.

We can't shut down the schools because of swine flu. But we may shut them down because of budget shortfalls. Go figure.

As for hand sanitizer, a pint bottle of vodka is cheaper and is probably more effective (as some research suggests). Plus you can sanitize your digestive tract while your at it;>)

Your suggestion to keep hydrated is a good one. I learned a very painful lesson that water will not hydrate you if you are suffering from intestinal flu or food poisoning. Gatorade or anything with salts and sugars like chicken soup work good.

Thank you for your comments.