Securing Our Children's Future?

We hear a lot of talk coming from the right about securing our children’s future.  They seem to be deeply concerned that if we continue to spend as we have in the past we will be saddling our kids with a mountain of debt that will bury their American dream forever.

 Point taken!  We agree that a balanced approach to fiscal responsibility is long overdue.  But what we have trouble understanding is how the conservatives can speak of preserving our children’s future while instituting policies that that doom the kids to failure before they even get started.

We’re talking about education.

The Republican Party is so hell bent on cutting spending that they have ravaged the very institution that provides the cornerstone for building our children’s future.  Republicans in Washington have spoken openly of downsizing or even eliminating the Department of Education.  At a time when every other industrialized nation is investing in education and finding innovative ways to get the most out of their children we are slashing funds and eliminating teachers in the name of fiscal responsibility. 

Slashing federal funds for education achieves the desired effect of reducing the debt and deficit.  But what are the affects as theses cuts trickle down to the state and local levels?  State governments were struggling to survive even before the economic downturn.  Now faced with the decline in funds flowing from Washington local governments are hacking away at their budgets with a machete.  First to go are policemen, firefighters and teachers.  Local governments run by conservative legislators have been particularly aggressive in eliminating those bothersome government employees and their burdensome benefit packages.  The result is overcrowded classrooms, crumbling and schools and tenured teachers who have long since lost the desire to teach effectively.    

The negative impact on our children is illustrated in every international study taken.  Among industrialized nations our kids rank anywhere from 17^th to 21^st in reading, math and science.  Our dropout rate is increasing as kids shun depressing classrooms monitored by disinterested teachers.  The dropout rate alone should be cause for concern. 

According to the National Center for education Statistics the median income for dropouts is $25,000 compared to $43,000 for those who graduate high school or get a GED.  The unemployment rate is 15.4% among dropouts and 9.4% among graduates.  And 75% of those currently locked up in prison are dropouts.

And now we hear people saying that maybe a college education isn’t worth the effort or the cost.  Millions of our kids are coming out of college saddled with tens of thousands in student loans and no prospects of employment to pay off the debt.  Yet republicans want to cut Pell Grants.  Mitt Romney’s simple solution is that kids should not take on student loans in the first place.  He says they should borrow the money from their parents.  Apparently Mr. Romney does not realize that most Americans are not financially able to float a six figure loan to their kids.

We understand that simply throwing more money at our education system is not the answer.  But slashing and burning our education system will not produce better students.  The key to the country’s future lies within our children.  If we cut the debt and deficit on the backs of our kids we will not only fail to secure their future we will have doomed them to failure. 

If we cannot find a way to efficiently and effectively enable our kids to compete on the world stage then all our boasting about being the greatest country in the world is nothing but hot air.                      

Republicans: Conservative In Word But Not In Deed

Republicans like to refer to themselves as “fiscal conservatives.”  You would be hard pressed in this election year hear a Republican deliver a speech that does not include the weeping and gnashing of teeth over the country’s debt and deficit.  If they are not railing against the President’s “reckless spending” they are comparing us to Greece and warning that we are mortgaging our children’s future with enormous debt.  Just the other day Speaker Boehner said that he had had enough.  He warned anyone who was listening that he would not allow any increase in the expiring debt ceiling unless Democrats agreed to spending cuts in an amount greater than the increase in the debt limit.

So one has to wonder why Boehner’s Republican controlled House just approved a $642 billion defense budget that is $8 billion MORE than the President and congressional Republicans agreed to last summer.

(You remember last summer, when Republicans were so doped up on “fiscal austerity” that they almost caused the country to default on its debts.  That was the same summer their reckless intransigence resulted in a lowering of our credit rating for the first time in our history.)

You have to wonder why that defense budget includes the construction of a missile defense site on the east coast THAT THE MILITARY DOESN”T WANT.

You also have to wonder why their presumptive nominee, Willard Romney, not only agrees with this unfunded increase in defense spending but he also wants to continue the Bush tax cuts and lower the corporate tax rates; all without providing any specifics on how he intends to pay for them.

The fact of the matter is that the Republican Party lost the right to wear the mantle of fiscal conservatism decades ago. Ronald Reagan was by today’s standards a moderate who actually raised taxes 19 times during his two terms.  George H.W. Bush told us to read his lips when he said: “No new Taxes.”  We all remember how that turned out.  And his son, Bush 43, led us into two unpaid wars, the aforementioned unfunded Bush tax cuts and the unfunded Medicare Part D prescription drug plan that was the largest social program in our history.  All in all “W” managed to increase the debt by $5 trillion all by himself.

Republicans like to talk about being fiscally conservative.  History tells us that have trouble practicing what they preach.  Recent events tell us that nothing has really changed.          

              

A Case Of "Google Envy"

The Facebook phenomenon reaches a whole new level of hype today as public trading on the NASDAQ exchange begins.  Facebook has priced its IPO at $38 per share…the high end of its expected range of $34-$38.  The IPO values the company at $104 billion; more than corporate icons like Amazon.com, McDonalds and Disney.  It is the third highest valued company to ever go public, falling between power company Enel and General Motors.  The largest US IPO was Visa, which raised $17.86 billion in 2008.  Facebook’s early investors could take in as much as $18 billion.

While there is no question that Facebook is one of the great American success stories of all time, the valuation of the company leaves many experts scratching their heads.  Although the company has changed the course of social media and boasts over 800 million users; many financial experts believe that the cost is too high for a relatively unproven company.  Last year, the company earned a $668 million profit on $3.7 billion in revenue.  If shares trade at $38, Facebook would be valued at more than 80 times it annual earnings compared with the 13 times earnings average of the S&P 500.

Many analysts believe the risk is too great and the valuation too high.  After all Facebook is a company that doesn’t make anything.  While the company has a vast number of active users, there are serious questions regarding the effectiveness of reaching those users through advertising.  GM recently pulled $10 million in ads stating that the ads failed to impact customers’ purchases.  Many view the company as little more than a platform where people can chat and post pictures of animals wearing hats…a platform that they expect will soon be surpassed given the rapid advance of technology.  Remember MySpace?

So why is there all this hype over a company that most seasoned investors view as an unproven and overpriced risk?

The answer is “Google Envy.”  Many investors see a similarity between Facebook and Google.  Those that missed the early boat on Google don’t want to be left waiting at the dock again when Facebook shoves off.  Google went public in 2004 at $85 per share.  As we write this Google is listed at $624.09 per share.  For investors to obtain the same return on investment with Facebook that they did with Google; Facebook would have to reach a valuation of approximately $1 trillion.

For Facebook to reach anywhere near those heights they are going to have to find a way allow advertisers to effectively reach their growing bank of users.  On the front burner is finding a way to post ads onto mobile devices…like iphones and ipads.  While that may appease prospective advertisers it is just a likely to infuriate mobile users who don’t want to see ads popping up at every turn.

Facebook, once but a dream concocted in a college dorm room, is now one of the highest valued companies in history.  Its founder, a 28 year old wunderkind, by day’s end will be one of the richest men on the globe.  Will this amazing story continue or will it be the tale of just another dot.com bust?

Google…or MySpace!       

 

     

Time To End the Clown Show

The Senate voted on five budget proposals yesterday. None passed.  In fact the President’s budget proposal was defeated by a 99-0 margin.  Not one Democrat backed the President.  These were symbolic, partisan budget proposals not designed to promote compromise but rather to cover their ass with their constituents. “We’re trying to get things done but we can’t get the other side of the aisle to cooperate.”

The President invited congressional leaders to lunch at the White House to discuss the economy and the debt.  Within minutes of adjourning the meeting both sides were telling the press how forceful they had been in making their ideological points to the other side.  

We wrote yesterday about the avalanche of critical economic events that are thundering down on Washington. Yesterday’s “show” demonstrated once again that these people, on both sides of the aisle, are not capable of effectively dealing with the serious economic issues facing the country.  Instead of having a thoughtful debate and constructive negotiations these people are floating symbolic partisan budget proposals followed by mind numbing recitations of their ideological talking points.

These are not serious people.

The country is in desperate need for leadership; someone with the political courage to put the country first and party second.  The President needs to fill that void. He needs to broker an economic solution that causes pain to both sides of the aisle for only then will it be both substantive and fair.

If he is looking for a place to start he might consider the proposal offered by his own debt commission all those many months ago.  The one he immediately discarded out of hand. 

Simpson-Bowles looks pretty good right now.     

    

Let's Get Ready To Rumble...

We are about to witness a confluence of events that will have an enormous affect our economy for the next several decades.  The manner in which the two political parties and their respective nominees are able to respond to these events will ultimately decide who will win the White House this fall.

Within the next ninety days the Supreme Court will announce its decision regarding the constitutionality of the President’s Affordable Health Care Act.  The ruling will have a dramatic effect on the distribution and cost of health care in this country.  The validation or defeat of the President’s signature piece of legislation will also have an enormous impact politically heading into the election.

Within ninety days the Supreme Court will also hand down its ruling on Arizona’s tough immigration law.  The effect of this ruling will determine how we police our borders and will go a long way to determining the future course of dealing with both legal and illegal immigrants.   How this plays out will have a direct effect on their benefits, voting rights and tax obligations.  Needless to say the economic affect on local, state and federal budgets will be substantial.

On October 1, 2012 the federal government will orchestrate across the board spending cuts totaling $1.2 trillion dollars.  This will include a $450 billion reduction in military spending. These automatic cuts are the result of the Super Committee’s failure to reach a deal on the debt and deficit.

On December 31, 2012 the Bush Tax Cuts will expire resulting in a substantial across the board tax increase for all Americans.

On December 31, 2012 the temporary payroll tax cut extension currently in place will expire resulting in another tax increase.

On December 31, 2012 the current extension of unemployment benefits will expire removing the primary source of income for millions of Americans.

The ultimate disposition of each one of the aforementioned events impacts the lives of millions of Americans and therefore carries huge political consequences in what promises to be a very close election.

House Republicans were first to enter the fray.  Speaker Boehner, addressing the Peter G. Petersen Foundation’s 2012 Fiscal Summit said that the GOP led House will vote to extend the Bush tax cuts and will act next year on “broad based tax reform that lowers rates for individuals and businesses while closing deductions, credits and special carve outs.”  He was not specific as to what those might be.  Regarding the debt ceiling, Boehner drew a line in the sand saying; “I will insist on my simple principle of cuts and reforms greater that the debt limit increase.”  You may recall that last year the Tea Party members of Boehner’s caucus forced him to walk away from a deal with the President.  The resulting impasse caused credit rating bureaus to reduce the country’s credit rating for the first time in history.

Republicans in the Senate are going on offense as well.  Today, no less than three Republican Senators will offer budget proposals for consideration.

The Democrats have been slow to respond.  Harry Reid and the Democrat led Senate have not put forward a budget proposal in the past three years; preferring instead to pick apart the Republican’s draconian offerings.  The President has offered bits and pieces of a proposal but has yet to list specifics while shying away from any mention of entitlement reform.

As we have said before this promises to be a very close race with the victor winning by a mere 2-3 percentage points.  The days of whining about social issues, dissecting income tax returns and questioning birth certificates is over.  It is all about the economy and the future of the country.  We believe that the candidate that can effectively communicate the most realistic, specific and sensible path through the events previously mentioned will win this election.  That proposal will have to include an overhaul of the tax code, difficult spending cuts and entitlement reform.  It will require a strong leader willing to take a political risk to do the right thing for the good of the country. It will require leadership. 

But that is what a President is supposed to do…lead.

     

            

Demonizing Romney Won't Work

Demonize Romney!  If the first salvo fired by the Obama Campaign is any indication of the strategy that lies ahead; “Demonize Romney” has replaced “Yes We Can.”

The Obama Campaign released a new television ad, website and online video which portray the presumptive Republican nominee as a cold hearted corporate pirate who got rich by cutting jobs and ravaging companies.  The story focuses on a Kansas City Missouri steel mill that Romney’s former company, Bain Capital, failed to restructure.  Jobs were lost and those workers who remained saw their pensions reduced while Bain walked away with a handsome return on their investment. 

The problem with this “Demonize Romney” strategy is that it won’t work.  For every example the Obama Campaign trots out showing Romney and his Bain Capital buddies cutting jobs or closing factories, the Romney Campaign can produce a half dozen success stories where jobs were created and companies flourished.  Romney’s job through Bain was to make money for its investors; investors that included non-profits, foundations and pension funds.  By all accounts that we could find, Romney/Bain were extraordinarily successful and played by the rules.  The American people understand how capitalism works and they are not going to punish a guy for making money while following the rules.  Demonizing Romney is a losing strategy. 

The pundits say that Obama cannot win by focusing on his record.  We disagree.  We think saving Wall Street, saving the auto industry, saving the economy, 29 months of continuous job growth, declining unemployment numbers, a health care bill, that while flawed, improves the quality of life for 40 million Americans, ending the war in Iraq and killing Osama bin Laden are all aspects of a record for which the President can be proud…especially given the state the country was in when he took office.  Were their setbacks under Obama’s watch?  Certainly!  But returning the country to the very policies that got us in this mess is not the answer.

Romney’s solution for fixing the country’s problems is to cut taxes, increase defense spending and eliminate regulations.  For those with a short memory; these are the very same concepts that the Bush administration followed which resulted in the destruction of our economy and the instigation of the two longest wars in our history.  If Romney has any other ideas he has yet to share them with the public.

This is going to be a close race decided by 2-3 percentage points.  All of the polls indicate that this race is tightening with the candidates polling within the margin of error.  Long forgotten are the missteps and misstatements Romney made throughout the primaries.  Republicans are lining up behind their party’s nominee.  They may not like Romney but they will take him over Obama.

As Americans sit around their kitchen table trying to figure out how to make ends meet their focus is on the economy and their paychecks.  Romney’s success in making huge piles of money is something most Americans aspire to.  If Obama wants a second term he is going to have to convince people that his policies give them the best chance to attain that type of success.  He’s going to have to convince them that Romney’ plan will only continue their struggle or make things worse.

The President can win on his record.  Demonizing Romney just won’t work.                    

       

Another Teachable Moment

The folks at JPMorgan Chase decided to play craps with some of their depositors’ money.  They ran into a bit of bad luck and lost at the tables to the tune of $2 billion dollars.  The market responded quickly. Chase stock plummeted 9% costing shareholders $14 billion.

Nothing to see here!  Chase CEO Jamie Dimon originally referred to the impending dust up as a “tempest in a tea pot.”  After all the $2 billion loss is but a fraction of Chase’s $9 billion quarterly profits and less that one tenth of one percent of the $2.3 trillion in assets.   

But as analysts dug deeper into the details of the trade strategy it became apparent that the loss could be much larger.  The once defensive Dimon admitted to reporters that the loss would likely increase but would not say how much.   On Sunday a contrite Dimon told David Gregory on NBC’s “Meet the Press”: “In hindsight, we took far too much risk.  The strategy we had was barely vetted.  It was barely monitored.  It should never have happened.”   

This is the very type of risky business that Dodd-Frank sought to prevent.  But conservatives on the hill fought tooth and nail to water down the bill in order to appease their Wall Street constituents.  The result was a piece of legislation that came out of the fight having lost its fangs. 

Now Washington is all up in arms.  Stunned that such recklessness could re-occur they are chomping at the bit to bring the hammer down on speculative trading.  “You can feel it” said Andrew Ross Sorkin bestselling author of “Too Big to Fail”.  Jamie Dimon, once one of the staunchest and most respected defenders of limited regulation has been relegated to the sidelines.

There are still a number of banks that are too big to fail.  JPMorgan Chase, Bank America and Citicorp come to mind.  Many of them are even bigger today than they were before the financial crash in 2008.  Their investment strategies remain as unchecked today as they were back then.  Transparency is but a pipe dream.  Washington is now ready act.  One congressional insider referred to recent events as a “teachable moment.” 

We thought the teachable moment occurred in 2008.