Responsible Capitalism

Responsible Capitalism




Are we capable of responsible capitalism? A definition of terms is in order. Responsible capitalism is defined as capitalism performed in such a way as to perpetuate the system as a whole as well as create profit for the individual. Reliance on short term thinking is a sign of decadence and eventual decline if the future is not considered when making present profits.

In the vernacular, "I got mine!" The carnival atmosphere of the Boom has now given way to sober reflection of how to cope with the aftermath of overproduction and subsequent surplus in the housing market. Derivatives are now known to be gambling but how the taxpayer ended up paying for losses incurred is beyond comprehension.

I have not read the new financial regulation legislation. It does look as if investigations for fraud are just beginning. The raters will now be rated and schemers will keep company with Madoff. Do the regulators and the appraisers really work for the lenders? This cozy relationship needs to be dismantled, distanced, anything to remove them from such proximity.

So the scheme unravels to begin with easy money pumped into the system from the government. Developers seize on this opportunity to get loans to build houses that were then sold to people who previously could not get credit. Since credit standards were apparently nonexistent why not charge more for the units and get more money on return? All they had to do was find an appraiser who would raise the appraisal on demand in order to facilitate more profit per unit.

This was a good deal for everybody, the developer, the builder, the broker.....These became the fodder of the subprime mortgage derivatives. Empty calories were these 'investments' touted to be good returns for investors, but were actually just failing vehicles for hedge funds to bet against. Who was not surprised when these derivatives failed?

But to forge ahead, we must plan for the future. We have Ponzi schemes and now we have Subprime schemes, both of which will be run by outlaws. At least we can now identify the scams. I can't help but wonder what the next scam will be. We can all pray for some morality to continue this economic system.

Profits expectations remain too high, with incredible luxury demanded, not just a comfortable living expected. In this world of excess human population, every rich man can be viewed as having the portions of many. I think some luxury is deserved for work, but not deserved for social manipulation resulting in profit, like the subprime scandal that morphed into an insurance scam betting on failure. So they created a scam and hit it big for a while. Clawbacks are hell. How about rebating the money cities, counties and states lost in the housing market crash instead of paying off foreign bankers and irresponsible moneylenders and brokers? The boom debt needs to be paid off. Who owes whom? Let the courts decide.

TO THE ARIZONA LEGISLATORS

SOLVING THE ARIZONA BUDGET CRISIS

As with any problem solving set, the solution can only be achieved by a structured approach. Begin with the definition of the problem:

The state of Arizona is obligated to pay out more than the revenue amount.

Various approaches to solving this problem have been forwarded:

Spending must stay as is so we must raise the amount of revenue.
a. raise taxes
b. increase business activity and thus revenue through taxes
c. sell off assets
d. increase debt by borrowing to spend

Spending can be cut back and less revenue will be needed
entitlements take large part of revenue
constitutional amendment needed to change entitlements
cutbacks in discretionary programs
cutbacks in police and fire
cut salaries/pay

A new budget can be formed from scratch, using ‘necessary services’ as criteria earmarked for funding.
a. freedom to fund what is needed.
b. if default is declared, contracts are voided.
c. after basic needs like water, police, fire, sanitation are funded, then discretionary
spending for the remainder of the funds, if any.


The first two approaches have been melded and used. The net result was a continuing budget deficit and heavier debt load. The Constitution of Arizona is now a parody, as the debt load exceeds the stated limit. Permanent overrides are now discussed, yet nothing can be done about the mandated spending.

Bankruptcy. What will be paid first with cash? Police? Probably.
Will it ruin our credit rating? Should we worry about that? Didn’t somebody sign an agreement that our interest rates on borrowed money would go up if our credit rating slips?

Instead of wasting time trying to make taxpayers pay for what is forbidden to fund in the constitution of the state of Arizona, why not focus efforts on another referendum? How about a referendum to amend the referendum/initiative laws that requires a sunset clause of no more than 5 years of financial obligation with a specific project stated, instead of the current version of pure permanent entitlement, with no strings on the funds. A change in the law could also sunset all existing permanent entitlements.


Before voting anything budgetary, think does this add to entitlements, does this raise what we are obligated to pay out? Amending the constitution to allow for tax money to go to private religious schools will increase the educational obligation where none exists today. Not a good move. We can’t afford it and it is against the constitution. We can’t put teaching religions at the tax trough. Isn’t it against the Federal Constitution?

You can’t afford to pass legislation that increases spending. If this tax increase does not pass, more cuts must be made. A recent article in a local paper said that not passing this tax increase will result in the loss of x number jobs. This would not be necessary if all took a pay cut to allow for fellow workers to share in what funding there is. It used to be a game to see who would get the raise, it’s now not a game to actually have to cut back because the money is not there. The boom is over, the money and equity is gone and too many workers were hired then for to be paid now with the current revenue. It will work if they all take a pay cut. This will cut down on benefits costs. Should everyone’s taxes be raised in order to furnish high benefits for city workers?

Debt loads must be defined and prioritized. Water must be paid, because it is a source of revenue and a necessity. Default must be discussed.

Departments must be defined and prioritized into
a. nice to have
b. could survive without
c. necessary

Retaining those departments that bring in revenue might not be the cheapest in the long run, if ultimate social costs rise. Tax collectors never lose their jobs, I guess. It is still not obvious to me how paying more license fees, taxes and mandated insurance frees up more money to purchase inventory or spend on the open economy. Higher taxes and government fees take money out of circulation, leaving less to be spent elsewhere. The tendency of the Tucson solution set is towards higher taxes in the city, which will drive buyers elsewhere. The least mobile will be the hardest hit by higher city taxes. The net result might be less revenue. Businesses might leave Arizona if taxes go up.

As a finale, you have a huge job to do. I suggest that the bodies meet without all the hangers on. Meet among yourselves and discuss this budgetary problem the state is facing. Exclude the lobbyists, special interests, department heads and others with skin in the game. You have a huge responsibility and it is yours to handle alone.

Political Vandalism

I watch the news regularly and recent reports of violence towards congressional offices have been the subject of much comment. Apparently both political parties have been hit with vandalism.

Finger pointing has been rife since the first incidents occurred at Democrats’ offices, including house member G. Giffords of CD 8 here in Pima County and Tucson. Mr. Limbaugh and Ms. Palin use unfortunate phraseology like ‘wipe them out’ and ‘reload’, causing a spate of complaints from those who think they are inciting violence. Ms. Palin has denounced violence. I think she may have meant ‘If at first you do not succeed, try, try again’.

I have no idea who did the violence. Perpetration is difficult to prove. But I do wonder why it was so easy to stir up the violence. Ms. Palin verbally attacks the media, directly challenging their power. Bias appears to be the norm, both in the press and on the podium. With the internet, it is becoming more difficult to slant reporting, since there are so many sources of data. Perhaps perception of bias provokes violence if coupled with economic inequities. People understand bias.

The internet article in the Arizona Daily Star was blatantly biased in saying Cindy McCain was ‘lukewarm’ in her introduction of Ms. Palin. A biased interjection of opinion into what should have been a factual report of a political event, things like crowd size reported accurately, who was there, interviews with local organizers, etc. etc. I don’t really think people are interested in a reporter’s opinion disguised as fact.

So what is the source of the violence? Maybe people don’t like the attitude of the politicians, the lack of jobs, the level of public debt, mandated insurance costs, higher taxes, cuts in public services, more regulation and loss of freedom in the name of protecting us. Take your pick. We have an educated populace, phenomenal communications and an attitude of lifelong learning. A large number of people know a great deal about what is going on in the government, from the internet and a cadre of dedicated media. This educated electorate sees what before was hidden and slow to disseminate. The electorate is perceptive of a lack of accountability in our elected officials for the bailouts, tax rebates and lobbyists.

Perhaps reflection on how action creates reaction, the role of government, the constitution and the freedom of the American people should be required of our elected officials. Did any of them thoroughly survey constituents concerning the important issues of the day? Should all elected officials understand and act on voters’ interests and needs? I think so.

TAX REBATES AND HEALTH INSURANCE

So the interstate homebuilders are bailed out by refunding tax money they paid during the boom, as if these people really deserved to get this windfall? The moneylenders are bailed out in direct payments to them from tax money that had to be augmented by borrowing. Essentially our government is borrowing money from foreigners in order to rebate money to the homebuilders. Our government borrowed money to give to the banks. Convenient that the bill excludes TARP recipients from these rebates. That would be a little too over the top.

What I see here is that the same people who created the boom are still in power and will still control too much of the money supply, using machinations available to them through political campaign support and lobbying. Why should those who caused the bubble end up with more power?

The Federal Reserve is lobbying to get more power and a court order must be obtained in order to obtain information from them. This all powerful, unelected bureaucracy makes choices that benefit special interests over the economy in general. Names are concealed from the public record. Payments are concealed. Less power needed, not more here.

The interstate homebuilders get tax rebates? This is incredible. I would like to see the end of cookie cutter home construction brought in by these ‘too big to fail’ homebuilders. I can see it now. They get their taxes rebated, they hold the money until the housing market is deemed cheap enough to snap up properties at a bargain, betting that the market will upswing instead of continuing to lose value. A false bottom would relieve them of their cash with diminishing returns. Why should they have the cash? They can ride out the recession on this cash while the smaller businesses are squeezed out.

Favoring interstate firms over locals is ruining the economy. Requiring millions in contracts awarded with borrowed money in order to interest the interstate firms wastes money. Go local. Go incremental. Stop the borrowing. The moneylenders are reaping 40 cents out every tax dollar spent on borrowing here in Tucson. Incremental financing as the funds come in would give taxpayers 40 cents more for every dollar spent. Better the taxpayers have the material value increase, than the moneylenders. If a default spawns ‘poor credit ratings’, then go incremental. Live within the income.

So now the IRS is getting a $20 billion dollar makeover and a drastic increase in their power to punish and collect money from citizens. The tenth amendment is ignored as the Federal legislatures deem it legal to require that citizens buy a money handling service in order to obtain health care. This is a violation of our personal rights to decide how we will spend our money. So now the health insurance firms will have a permanent sellers market, illegally mandated in violation of the tenth amendment. The federal government is creating and controlling economic activity instead of only regulating economic activity interstate.

I feel that we need reasonably priced health care, not a series of mandated brokers handling our money for us.