MF Global, a commodities trading firm, went belly up after leading Democrat politician Jon Corzine (US Senator, Governor, and first choice to be the next Treasury Secretary) literally bet the company on the European countries’ sovereign debt. That was a huge bankruptcy and cost over 1000 people their long time jobs, but by itself is more an embarrassment than a scandal.

Gary Gensler, a Wharton graduate, spent 18 years at Goldman Sachs, joining just a few years before Corzine. Both rose to senior levels. Gensler left to become a senior Treasury official in the Clinton administration; short after Corzine was forced out and ran for the US Senate being vacated by a then retiring Frank Lautenberg.

The collapse of MF Global has become a scandal because $1.2B of customer funds are missing. Forensic accounting will find out what happened to them, but what ever happened is against long standing rules. Corzine is trying to position himself legally to stay out of jail, although that may prove difficult depending on what happened. Even in the legal MF Global operated in, $1.2B isn’t pocket change.

Gensler testified that his relationship with Goldman wasn’t important because he hadn’t worked with Corzine for 14 years. However, it seems more recently that he has had several meetings with Corzine, including with the CFTC staff, and was a guest lecturer at a course Corzine taught at Princeton November of last year.

Gensler recused himself from the CFTC investigation, ostensibly on Nov 3, 4 days after the bankruptcy filing. However, the issues will be around what happened before that, while a potential criminal investigation is involved. It is already messy, just not getting the press outside of the financial sector it deserves. That is unlikely to remain the case unless the $1.2B is found in tact in someone’s mattress.

While everyone was following the debt ceiling debates, that includes money the government owes itself; sort of borrowing from your own 401k. The part that really counts is the part that is owed to other parties. Under President Bush that went from $3.3T to $6.3T over 8 years, about $3T. Under President Obama that has gone from $6.3T to $10T in 32 months, about $3.7T. However, Federal Reserve Balances which had been trivial soared to $850B in the last 4 months of the Bush administration, and with QE2 are now at $1.6T, and additional $750B.

Should these amounts be subtracted from the publicly held debt since in all probability the Federal Reserve will hold them indefinitely; in effect having printed money to replace bonds issued.

In effect that means President Bush’s administration would have increased publicly held debt $2.2T and President Obama’s administration would have increased it $3T so far. However, since a $2.7T increase in the debt ceiling has been approved and virtually all new borrowing has been publicly held for the last few years, that would imply the debt will increase to $12.7T ($11.1T net reserve holdings), a total of $$6.4T ($5.7T net of reserve balances) under President Obama. Of course, a QE3 would increase the reserve balances further.

Since the bonds the Fed holds are unlikely to ever be net sold, the Fed is part of the federal government, and the interest over expenses is returned to the federal government, shouldn’t this be deducted from the public debt?

Note: this doesn’t include the approximately $1T held by the Fed in Fanne Mae/Freddie Mac debt and mortgage backed securities.

Summary:

The story in short:

• A new Israeli government under Benjamin Netanyahu took office in March 2009, just months after the new Obama administration took office. The new Israeli government had and it’s heart of conservative coalition although including members of the more liberal major party.
• At the same time at the start of his administration, President Obama began overtures to various countries in the Arab world. Part of those overtures included distancing his policies for the US from Israel’s own policies. This strained relations between the Israeli and US governments.
• A variety of pensions and competing objectives stalled any Israeli-Palestinian negotiations. Even when they occurred, they were between the Palestinian government on the West Bank and Israel and did not include the Hamas forces running Gaza.
• The Arab Spring so the collapse of a pro-US government in Egypt. There was a common misunderstanding in the US of how this may affect US-Egyptian relations. Some felt that Egyptian leader Hosni Mubarak wasn’t liked and that his pro-US stance course the US not to be liked; others understood and beyond economic issues one of the reasons the buyer wasn’t liked but Egyptian population was because of his pro-US stance.
• The collapse of the Egyptian government has already started to allow increased trafficking of military weapons to Hamas forces in Gaza and to hostilities in the area.
• This September the UN is widely thought to approve a resolution recognizing Palestinian statehood. This will almost certainly be opposed by both the US and Israeli governments increasing tensions and highlighting differences between them and other governments in the Middle East.
• As pointed out in the article, relations remain strained to the point that President Obama met with Israeli President Yitzhak Rabin rather than Prime Minister Netanyahu. At the same time, the Republican House leadership invited Netanyahu to make a speech before Congress.
• This now seems to have created a new tension between the Obama administration any Israeli government about who will propose a new peace plan to restart Israeli-Palestinian negotiations with the intent to present a plan prior to the expected UN resolution.

Boeing had tried to work with their unions in Washington State. However, the unions wanted a board seat and a commitment to build all future aircraft in Washington State. Over the past 22 years they had struck 4 times, once for 58 days. Boeing made a decision to move its manufacturing to South Carolina while also expanding in Washington State; the South Carolina factory opens this summer.

The union complaint, which the NLRB parroted, is that the move the South Carolina, a right to work state, was an anti-union move. In reality, the move was done because the union was anti-Boeing.

Had the union really wanted the jobs in Washington State with the additional membership and dues that would bring, they should have shown why it would have been good for Boeing. They should have given a 20-year no strike commitment. Agreed to flexible work rules.  Instead they were bullies, wife-beater. There problem is now the beaten wife is in a shelter for abused companies in South Carolina.

• $1-10 million: 45%
• $10-20 million: 46%
• $20-100 million: 47%
• $100 million to $1 billion: 48%
• $1 billion and over: 49%

The bill would also tax capital gains and dividend income as ordinary income for those taxpayers with income over $1 million.  If enacted in 2011, the Fairness in Taxation Act would raise more than $78 billion.

http://schakowsky.house.gov/index.php?option=com_content&view=article&id=2877&catid=22

While I agree that tax brackets should exist for the higher incomes than had been reached as a result of inflation, globalization, and the ability to run a business with a nationwide impact, there are two things very flawed in the Representative’s proposal.

First, a higher tax rate doesn’t necessarily mean higher revenues. This is especially true with very high incomes with terms of the income can be modified. For example, the income can be buried in capital appreciation that doesn’t show as income. There are many other ways of doing it also.

Second, the amount being talked about, $78 billion before anyone adjust their incomes to avoid taxes, is 5% of the deficit that the president proposed. Net of the effects of changes made to avoid taxation, this is on the order of magnitude of the 2011 budget bill that was recently passed: symbolic but otherwise useless.

The changes proposed also have two very negative effects. First, it adversely affects any stock that is used dividends since by making dividends taxable at a premium rate it makes equity back issue dividends less attractive. These are the utilities that we want to invest in new plant and equipment and manufacturing companies that we want to expand to increase employment.

Second, the high tax rates will adversely affect charitable contributions, especially in the years immediately after their enacted. The people were able to give large contributions will feel of significant decline in their income because of the increased taxation, and this will have the effect of less consumption. Other changes will include a decline in the businesses that provide services to these individuals.

There is a bit of hypocrisy there also among people who are wealthy and who claim the wealthy should be taxed more. These people already have the option of donating a larger share their wealth to the government or to charities. The president had an income of $1.7 million, paid less than the 30% income tax rate, donated about 15% to charity (up from less than 1% before he was president), however, he didn’t donate any of the money to reduce the deficit. Even under the current tax rates, the president’s actual income tax payments reflect significant deductions. Under the new proposed law, without deductions, a portion would have been at the higher rates.

The government has indicated it will sell it stake in GM this summer. The sale of the government’s GM stock will depress the price further. Presumably the government is trading as an insider. Is that legal? Does the government’s rush to sell at a loss of over $10B mean that it knows GM is going under? How much of this will be front and center by the fall of 2012? Will another GM bailout be front and center during the 2012 election?

The extension of the Bush tax cuts is first. However, the Congress will not have changed yet, and the nature of the compromise isn’t clear. A variety of ‘compromises’ have surfaced. In one, the rates below $250k income are made permanent, the others for two years. The assumption is that cuts above $250k income could never pass on their own. In the other the cutoff is raised to $1M. However, that doesn’t cover larger businesses reported on individual returns.

Next up is the deficit commission. Both sides already know what has been discussed. My guess is few items will have the required 14 of 18 majority. However, pass or not, its report will probably be the major focal point going forward.

In modern times, the first 6 years of the Reagan administration and most of the first two years of the Bush 43 administration had a split legislature. However, For Bush it was House that was the same party, the Senate majority was by one vote, and the 9/11 attack became the dominant issue. For Reagan, the situation was similar, it could even be argued that Tip O’Neill and John Boehner have a similar demeanor. However, Reagan and Republicans had a 26 year history where they controlled neither house of Congress, and started their administration with just Senate control. Obama started with both Houses and a rather arrogant attitude that shutout the other party, creating lots of animosity.

Another factor is the political philosophy of the members of Congress. To win their majorities in 2006 and 2008 the Democrats nominated many ‘moderates’ in districts that had been more conservative than the Democrat mainstream. This caused some contention within the Democrat party and caused the spectacle of backroom deals to force through legislation. In contrast, not only did the Republicans not nominate ‘moderates’, many more of the Republicans are economic ideologues that won’t compromise their principles.

In the end, Mitch McConnell may have had it right: it is about the 2012 election. The decisive Republican majority in the House will put a damper on spending. However, it is unlikely there will be significant policy changes. Just as in 2004, foreign policy issues unforeseen 2 years earlier may dominant the 2012 election.

Issa made his fortune in the 1980 making talking auto burglar alarms. First elected in 2000 and a conservative, liberals hate him. In the next Congress he will probably be chairman of the House Oversight and Government Reform Committee, with the ability to subpoena and shed light on all sorts of backroom operations in the White House that have hid in the background.

If Democrats control the statehouse and legislature, will they just try to remove his district causing him to lose re-election in 2012? Or will they blackmail him to prevent damaging investigations that may expose White House deals they would prefer to remain secret?

This is an AWFUL ad. It starts with her own negative. It has no energy. It tells the listener what they think. It makes her look simple and unintelligent. She says more in an ad hoc answer to a crowd than in this commercial. The set and wardrobe looks like it came from the opening scene in MacBeth.

Some had said the ad itself is getting her national attention. she could have had all of that she wanted. The ad needs to show Delaware voters she is up to the job; if she practice witchcraft for 10 years but was a Princeton grad with a Harvard Law Degree and clerked for Scalia she would be way in front in the polls and have all the nationwide support she wanted.

As evidence, I give you Alaska’s Jim Miller who is much less polished than Christine in his presentation and less articulate on issues off the cuff. O’Donnell is a clear and articulate speaker with moderate depth in her subjects.  In her Politically Incorrect appearances she was able to articulate her position without inflaming her opponents even if her science was as weak as those who claim ‘a overwhelming consensus of scientists” to justify their faith.

This ad accomplishes nothing that will help her image and makes the witchcraft the issue front and center. And then it shot in a color scheme that screams witch or funeral, which if anything makes her look more like a witch.

Its ‘I am You’ message is equally awful. It is telling people what they think. People decide that for themselves. This is a rule in advertising; the people who did this ad are incompetent.

If I was running this for her she would be shooting ads in front of small businesses, say around 100-300 employees, saying how her platform would help the companies and their workers. She would speak in a friendly, crisp manner, with authority and confidence in her voice.

In this ad she looked like a 14 yo apologizing for running over the cat with the car, or using the cat in a satanic ritual.