Have you developed a hedging strategy to protect against America’s rapid decline? Or repositioned your portfolio to take advantage of orphaned Treasury securities? Or stashed some cash so you can buy distressed assets from the newly bankrupt?
If you’re like most Americans, the answer is, of course not. But if you work on Wall Street, the man-made debt crisis that’s brewing in Washington might represent a surprising opportunity to make money. As the whole world knows by now, the U.S. government will no longer be able to borrow money as of early August, unless Republicans and Democrats swallow their vitriol and come up with a compromise deal that will begin dealing with America’s oversized debt and allow the government to function normally. The nation’s mushrooming debt load is a big problem, but abruptly halting all federal borrowing would transform it into a disaster, since it would require vast government spending cuts that would promptly trigger another recession.
The ongoing assumption is that legislators will puff and posture until the last second, then congratulate themselves for making a deal that should have been in place months ago. But even if politicians avert the worst-case scenario, the size of the debt and the deep dysfunction in the nation’s capital are likely to cause other trouble. It’s increasingly likely, for instance, that rating agencies like Moody’s and Standard & Poor’s will cut America’s credit rating from AAA—the top rating, which the United States has held for decades—to a notch or two lower. That would force thousands of institutional investors to determine whether they can keep holding Treasury securities or whether they need to dump them. Even small spending cuts that come as part of a deal to raise the federal borrowing limit could cut into weak economic growth, especially if they go into effect immediately.
The knock-on effects of a U.S. debt downgrade, sharp spending cuts or a “policy mistake” in Washington could rattle financial markets, depress hiring and drive confidence back down to recessionary levels. But smart investors know that one man’s crisis is another’s opportunity, and the monied class is planning how to profit if America goes bust. As the New York Times reported recently, some hedge funds are stockpiling cash, to buy U.S. government securities at fire-sale prices if there’s a credit downgrade and conservative investing vehicles like pension or money-market funds are forced to dump Treasuries. Others are trying to identify institutions that might be damaged by a U.S. debt crisis and forced to sell assets that vulture investors could buy on the cheap. Another way to gamble on America’s collapse is to invest in credit-default swaps that would pay out if the United States defaults on its debt. The price of such insurance has doubled recently, indicating a lively market for bets against America.
The modern financial markets are sophisticated casinos that allow steely investors to gamble on almost anything, including gloom-and-doom scenarios that could potentially harm millions. Though it might sound unctuous, betting on the likelihood of adverse events is a healthy part of a free market, because it creates an even stronger incentive for those who would suffer from bad outcomes to prevent them—and punishes those who destroy value, such as CEOs who mismanage their companies. But it doesn’t always work that way, and besides, this kind of gambling is generally open only to professional investors or those wealthy enough to have experts handling their money.
In his 2010 financial disclosure forms, for instance, House Majority Leader Eric Cantor listed a small investment in a fund that bets against U.S. Treasury securities and would benefit if the U.S. government defaulted or something else happened that devalued Treasuries. That became controversial, since Cantor is one of the key Republicans involved in the debt negotiations and a conservative stalwart who insists there should be no new taxes as part of a deal. Cantor’s office says the fund is in his wife’s and his mother-in-law’s name and amounts to less than $4,000, while the vast majority of Cantor’s retirement savings are invested in conventional securities that would lose value if there were a true U.S. debt crisis. But Cantor’s portfolio is probably similar to those of other affluent Americans, with traditional investments offset by a hedging strategy meant to minimize losses if something profoundly bad happens.
Ordinary Americans who lack investment funds or live paycheck-to-paycheck don’t have much of a hedging strategy, however, which makes them directly vulnerable if Washington wrecks the economy and jobs gets even scarcer. Some economists think the drawn-out debt drama—and the near-total absence of action on other big problems, like the foreclosure epidemic or sky-high unemployment—is already causing harm. Businesses, for instance, have virtually stopped hiring while they await the outcome of the Washington Follies. A sliding stock market reflects jittery investors who can’t figure out if they should invest in a global recovery or gird for Armageddon. “Washington is locked in a budget war that will determine the U.S. economy’s fate, not only for this year and next but for generations,” writes economist Mark Zandi of Moody’s Analytics. “Lawmakers may well misstep on this path to fiscal sustainability.” If they do, many of them will no doubt have their own personal parachutes. If possible, get your own.
By: Rick Newman, Columnist, U. S. News and World Report, July 22, 2011
July 24, 2011
Posted by raemd95 |
Capitalism, Class Warfare, Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democrats, Economic Recovery, Economy, Federal Budget, GOP, Government, Government Shut Down, Ideologues, Ideology, Income Gap, Jobs, Lawmakers, Middle Class, Politics, Public, Republicans, Unemployment, Wall Street | Bankruptcy, Compromise, Credit Default Swap, Credit Ratings, Default, Hedge Funds, Investors, Money Market Accounts, Moody's, Politicians, Recession, Rep Eric Cantor, Securities, Spending Cuts, Standard and Poor's |
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In 1986, Grover Norquist and his organization, Americans for Tax Reform, created the “Taxpayer Protection Pledge,” which he describes as “a simple, written commitment by a candidate or elected official that he or she will oppose, and vote against, tax increases.” It has recently come under repeated fire: it became a tool for ethanol subsidy apologists, for example, and most recently, it emerged as a needless obstacle in negotiations over raising the debt ceiling.
Responding to his critics, Norquist has taken to the op-ed page of the New York Timesthis morning to defend his legacy:
Contrary to the hopes of some that I am somehow softening the pledge, it is stronger and more important than ever: it has made it easier for members of Congress to credibly commit to voters that they will refuse to increase taxes and instead focus on reducing the cost of government.
In fact, it is more important than ever to be rid of The Pledge, because it has been a colossal failure. Does anyone think that fiscal conservatives should be happier with the state of our nation’s finances now than they were when the pledge began 25 years ago? Does anyone still harbor the illusion that “starve the beast” is an effective method of shrinking the federal government?
Here is why The Pledge has failed. Time and again, it has contributed to the GOP tendency to make taxes their top priority, deficits be damned. As Kevin Williamson puts it at National Review, “Republicans led by naïve supply-siders are preparing, for the third time in my life, to sell their souls on spending cuts in exchange for tax-rate reductions that are small, ineffective, and sure to be temporary. Ronald Reagan got his tax cuts, but he went to his grave waiting for those spending cuts. George W. Bush got his tax cuts, and ended his presidency with spending soaring and his entitlement-reform program in the garbage. And now certain Republicans are starting to slobber over the Gang of Six plan.”
What Norquist doesn’t understand or won’t admit is that deficit spending is worse than a tax increase, because you’ve got to pay for it eventually anyway, with interest. Meanwhile, you’ve created in the public mind the illusion that the level of government services they’re consuming is cheaper and less burdensome than is in fact the case. If you hold the line on taxes but not the deficit, you’re making big government more palatable.
Back in 1986, if taxes had been raised every time federal spending had increased, and voters knew that taxes would go up again every time new federal programs or spending was passed, the backlash against big government that we’re seeing now would’ve started a lot sooner, and been much more broad-based. Had that been the policy, it’s doubtful that George W. Bush would’ve passed Medicare Part D. Instead, the Baby Boomers have borrowed a bunch of money that my generation and my children’s generation is going to have to pay back. But their taxes didn’t go up. Thanks for that, Mr. Norquist. I’m not sure what to call it, but fiscal conservatism isn’t it.
As the conservative movement laments our fiscal straits, and the dire situation the nation finds itself in, perhaps it is too much to ask that they assign Norquist a little bit of the blame. But surely they can at least recognize that the solution he’s been pushing since the Reagan Administration hasn’t worked.
By: Conor Friedersdorf, Associate Editor, The Atlantic, July 22, 2011
July 23, 2011
Posted by raemd95 |
Budget, Congress, Conservatives, Consumers, Debt Ceiling, Deficits, Economic Recovery, Economy, Elections, GOP, Government, Government Shut Down, Ideologues, Ideology, Medicare, Middle Class, Politics, Public, Public Opinion, Right Wing, Tax Increases, Tax Loopholes, Taxes, Teaparty, Voters, Wealthy | Americans For Tax Reform, Default, Fiscal Responsibility, Grover Norquist, GWB, House Republicans, Ronald Reagan, Spending Cuts, Tax Revenue, Taxpayer Protection Pledge, The Pledge |
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What if they yield, even a little?
Call it GOP Primary Fear. A major hurdle to breaking the federal debt-ceiling impasse is the worry by House Republicans that they will invite primary election challenges from the right if they give ground to Democrats on the issue of higher tax revenues.
There’s even a verb for it: being “primaried.”
The challenger would not be a Democrat. It would be a fellow Republican, in a spring or summer primary that most voters would ignore. That could leave the field mainly to ideological die-hards, often with tea party ties and little appetite for compromise.
It’s the atmosphere that many House freshmen rode to victory last year, and that cost two GOP senators their party’s nomination.
“They talk about it all the time,” said Mike McKenna, a Republican lobbyist who closely follows the House and politics. If the House cuts a deficit-reduction deal with President Barack Obama, he said, “you’re probably going to see a lot of leadership guys get primaried,” along with rank-and-file Republicans. “It could be an all-time high.”
Such worries are a key reason the GOP-controlled House has refused so far to accept Obama’s debt-and-deficit overture, even though it includes budget concessions that many people never expected from a Democrat. Friday evening, after House Speaker John Boehner abruptly broke off the talks, an exasperated Obama declared: “One of the questions the Republican Party is going to have to ask itself is, `Can they say yes to anything?'”
Boehner blamed Obama for insisting on higher revenues. The package they were closing in on would have cut spending by $3 trillion over 10 years, and slowly started to trim Social Security and Medicare benefits. But to get it through the Democratic-controlled Senate, the deal also needed to include some increase in revenues from taxes aimed mainly at the wealthy, and generating up to $1 trillion over a decade.
That’s the needle Boehner can’t figure out how to thread. He’s been unable to persuade enough fellow Republicans to give just enough on higher revenues, or “tax hikes” — there will be a fierce fight, too, over definitions — to keep Senate Democrats from filibustering the bill to death.
Boehner must also reassure colleagues that they could survive primary challenges.
Obama confronted the issue Friday, at a forum in Maryland. Many House districts, he said, are drawn to be “so solidly Republican or so solidly Democrat that a lot of Republicans in the House of Representatives, they’re not worried about losing to a Democrat. They’re worried about somebody on the right running against them because they compromised. So even if their instinct is to compromise, their instinct of self-preservation is stronger … that leads them to dig in.”
Nearly all congressional Republicans have pledged not to raise taxes, although lawmakers quibble about what that means. Many tea partyers say it bars any action that would lead directly to a net increase in tax revenues. The Senate is almost certain to reject that definition.
Tea party activist Lee Bellinger recently urged colleagues to put lawmakers on notice “before the disease of Republican compromise infects Washington once again.” As early as mid-April, Tea Party Patriots co-founder Mark Meckler told The Hill newspaper he was “getting emails by the hour from people talking about primary challenges” to Republicans who seek budget deals with Democrats.
Rutgers University political scientist Ross Baker said Republican primaries are dominated by “the most ideological voters.” They “track votes and are unforgiving,” he said.
GOP pollster and consultant Wes Anderson said, “If we pass some deal that includes some form of tax increases_ even if we try really hard to couch it in `tax reform, closing loopholes,’ etc. — there are going to be a number of our folks, especially freshmen, who will face primaries. It’s just going to happen.”
Anderson said Boehner’s top staffer is counting votes every day, asking “what kind of deal can we get without losing too many?”
For Boehner, the math doesn’t require reaching the minimum 218 votes needed to pass a bill in the House (or 217, given two seats currently vacant).
If Obama eventually endorses a compromise, it probably will draw scores of House Democrats’ votes. That would allow Boehner to lose 100 or so of his 240 Republicans, and still pass the measure.
But if Boehner wants to remain speaker, he can hardly afford a bigger defection than that. He needs to find the political sweet spot, a compromise that can win the votes of 140 or so House Republicans and most of the Senate’s Democrats.
McKenna estimates that about 40 pro-Boehner House Republicans are politically safe enough to vote for a compromise with no worries. Beyond that, he said, “80, 90, 100 are probably going to vote `yes’ on whatever comes out. And they will be exposed.”
By: Charles Babington (With Contribution by Jim Kuhnhenn), The Associated Press, Yahoo News, July 22, 2011
July 23, 2011
Posted by raemd95 |
Budget, Class Warfare, Congress, Conservatives, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Elections, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicare, Middle Class, Politics, President Obama, Public Opinion, Republicans, Right Wing, Senate, Social Security, Tax Loopholes, Taxes, Teaparty, Voters, Wealthy | Compromise, Default, Deficits, House Republicans, Lee Bellinger, Mark Mechler, Primaries, Rep John Boehner, Tax Reform |
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Wednesday was the anniversary of the day in 1944 when Democrats nominated Franklin Roosevelt for a fourth term. If he could see the wheeling and dealing in D.C. during the current budget deficit debate, FDR wouldn’t be surprised. Republicans are still trying to kill Social Security, and the GOP is still cozy with bankers, billionaires, and big business.
Tea Party House Republicans, under the leadership of Eric Cantor, are doing everything they can to protect their BFFs on Wall Street from paying their fair share of taxes. If majority Leader (and presumptive peaker) Cantor and the rest of the Tea Party types were really concerned about the budget deficit, they would support President Obama’s effort to save money by ending billions of dollars in wasteful subsidies to big oil and for corporate jets. Tax breaks for corporate jets with full bars don’t stimulate the economy, but they do stimulate corporate jet setters.
Republicans did score one victory this week which may come back and bite them on the butt. President Obama passed over consumer advocate Elizabeth Warren for the job of director of the new federal Consumer Financial Protection Bureau after Senate Republicans said they would filibuster her appointment. Warren’s crime was her fight to protect consumers from the big financial firms that rip off working families. Today is the first anniversary of the Wall Street Reform and Consumer Protection Act which Congress passed to curb predatory behavior by Wall Street.
Warren will return to her home in Massachusetts, and she may run against Republican U.S. Senator and Cosmo centerfold, Scott Brown. If the GOP has any hope of taking control of the Senate next year, Brown must win. But polls show that Brown is vulnerable, and Brown has the chops to show blue collar Democrats that Wall Street is the enemy of the working families who have lost their jobs and then their homes in the wake of the great recession, a downturn caused by big business and the bad boy bankers and billionaires that Warren has fought to regulate.
And one last date for all you American history buffs, Tuesday was the anniversary of the day in 1848 when a pioneering women’s rights convention met in Seneca Falls New York. The convention paved the way for way for women like Elizabeth Warren and Michele Bachmann to run for office. By the way, Representative Bachman, the convention was in Seneca Falls, N.Y., not Seneca Falls, N.H., if anyone asks.
By: Brad Bannon, U. S. News and World Report, July 22, 2011
July 22, 2011
Posted by raemd95 |
Banks, Big Business, Budget, Class Warfare, Congress, Conservatives, Consumer Credit, Consumer Financial Protection Bureau, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Democrats, Economic Recovery, Economy, Elections, Financial Institutions, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Middle Class, Politics, President Obama, Republicans, Right Wing, Senate, Social Security, Tax Loopholes, Taxes, Teaparty, Wealthy, Wisconsin Republicans, Women | Default, Elizabeth Warren, FDR, Rep Eric Cantor, Sen Scott Brown, Tax Breaks, Tax Revenue, Wall Street |
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Timing is everything.
With the legislative recall campaigns designed to dispose of enough GOP senators to return the upper body of the Wisconsin legislature to Democratic control well underway, attention is now turning toward the future of Wisconsin Governor Scott Walker.
Certainly, should the senate recall efforts turn out well for the Democrats, the excitement will be there to continue the process and take a shot at sending Scott Walker back home to Milwaukee.
The question is when to begin that effort.
Wisconsin law requires that once a petition drive to recall an elected official begins, those engaged in the effort have just 60 days to collect enough signatures to equal 25% of the total number of votes cast in the prior gubernatorial election.
That is a tall order- which is why many Wisconsin Democrats believe that they should get the Walker recall petitioning campaign going just as soon as the senate elections are wrapped up and while passions remain high.
In a normal situation, I think these folks would be right.
The problem is that any electoral strategy of this nature must rely on the election laws of the state when contemplating moves that work to the favor of one political party or the other. Unfortunately, the application of the law in Wisconsin – thanks to one of the most bizarre State Supreme Courts one can imagine – is anything but reliable.
Because of this unusual state of legal affairs, as we will see in a moment, getting the petition drive going sooner rather than later could result in a very unfortunate ending for those who would like to see Governor Walker go away.
First, an explanation of how things are supposed to work in the state.
Under Wisconsin election rules, once the recall petitions are turned in, election officials have 31 days to issue a “certificate of sufficiency” or “certificate of insufficiency”. Assuming the petitions are deemed sufficient, the Wisconsin Constitution requires that an election be scheduled on the first Tuesday six weeks following the certification of the election.
While the law appears completely clear that the only exception to the six week period would be where the party attempting the recall requires a primary to determine who their candidate will be- in which case the primary would be held six weeks after certification with the actual recall election to take place four weeks after completion of the primary- Wisconsin, as noted, does not appear to always operate to the letter of the law.
Thus, the Democratic concern is that were their recall petitions to be delivered for certification by the end of this year, or early in 2012, the GOP would work to move the statutory date when the recall election should take place to the date of the statewide election already scheduled for just a few weeks later.
That election happens to be the Republican presidential primary which is scheduled for the first week in April.
Obviously, if you’re looking to turn out Republican voters to support Governor Walker, the day of the Republican presidential primary would be about as good as it gets.
How, you might ask, could the GOP succeed in delaying an election that should take place no later than, say, the middle of February (assuming the petitions are in by the end of this year), until April?
Assuming that the Wisconsin Government Accountability Board, a non- partisan organization that oversees Wisconsin elections, would set the date for a statewide recall election according to the Constitutional requirements, the Republicans would likely engage in any number of challenges for the purpose of delay, including a court action(s) based on the argument that it is not in the best interest of the state to hold an election in February when one is already scheduled for the first week of April. After all, having to pay for two statewide elections when both could be held within a few weeks of the statutory date seems an unnecessary waste of state monies that are in short supply.
Never mind that the early April election just happens to be the GOP presidential primary.
Where would such a court action eventually be decided?
In the Wisconsin Supreme Court – the astoundingly politicized body where the friends of Scott Walker maintain a narrow majority thanks, in no small part, to the now infamous Justice David Prosser.
Maybe the Court would follow the law – maybe they would not.
Thus, were the Democrats to proceed with the recall effort shortly after the conclusion of the senate recalls next month, they may well be placing the future of Scott Walker in the hands of the Wisconsin Supreme Court – the last place they would like the matter to be decided.
The other option would be to wait until after the GOP presidential primary and try to time the recall election to take place on November 6, 2012, the day of the national elections. The strategy would be to pick that day based on the expectation that many Wisconsin Democrats will turn up to cast their vote for President Obama.
Of course, it would be impossible to pull this off given the state GOP’s willingness to get involved with dirty tricks. Were the Democrats to time things contemplating no primary election to pick the Democratic candidate, we can count on the GOP to run a ‘fake’ Democrat, as they did in numerous senatorial recall elections, to force a primary to throw off the timing. Were the Democrats to anticipate a fake primary, and time the recall election for 10 weeks following certification rather than six, the GOP would, no doubt, stay away from such a primary, resulting in the recall election happening a month before the November general elections.
Clearly, the Wisconsin Democratic Party finds itself in a very tricky position and one created by the uncertainty that comes when the state’s top judicial body cannot be counted upon to simply follow the law as written.
And therein lies the moral to the story. When we can no longer trust our judiciary to rule with fairness and according to law, democracy suffers.
While I may hold a few opinions, I really don’t know when the Wisconsin Democrats should seek to hold the recall election.
What I do know is that the Section 12 of the Wisconsin Constitution, drafted in 1926 and amended in 1981, is explicit and completely clear on the subject of how recall elections are to be handled and that no provision is made to alter the prescribed date of a recall election taking into consideration any factors other than those set forth in the state Constitution.
For Wisconsin Republicans -and supporters of Governor Walker- who would seek the political benefits of holding the election to recall Scott Walker on the day of the Republican primary rather than the day prescribed by their Constitution, I hope these people will bear in mind the deeply troubling hypocrisy of holding themselves out as ardent supporters of the Constitution only to turn their back on their own founding document when it is politically expedient to do so.
Personally, I hope the Wisconsin Democrats proceed immediately with the effort to recall Governor Walker.
If the state’s highest court -and those who believe that the Constitution trumps all- are prepared to throw their own Constitution overboard to save their governor, let them pay the price of such lawlessness that will surely come due for them.
If a Constitutional crisis is what it will take for Wisconsin citizens to understand what is happening to their state, I would also encourage Wisconsin Democrats to bet on their Constitution and see if your opposition is willing to pay the price for the sake of political expediency.
Let’s find out if Wisconsin Republicans love Scott Walker more than they love and respect their own Constitution. Let’s find out if they are willing to completely disregard the state’s moral and legal center all for the purpose of rigging an election to give the Governor the best possible chance of succeeding.
If Wisconsin Republicans wish to support their governor by coming out on whatever the legal election date works out to be, that is a valid exercise of their rights as Wisconsin citizens. But they should be willing to do it in accordance with the law of the State.
By: Rick Ungar, The Policy Page, Forbes, July 20, 2011
July 21, 2011
Posted by raemd95 |
Class Warfare, Collective Bargaining, Conservatives, Democracy, Elections, GOP, Gov Scott Walker, Governors, Ideologues, Ideology, Middle Class, Politics, Republicans, Right Wing, State Legislatures, States, Union Busting, Unions, Voters, Wisconsin, Wisconsin Republicans | Fake Democrats, Judiciary, Justice David Prosser, Petitions, Republican Presidential Primaries, State Election Laws, Wisconsin Constitution, Wisconsin Democratic Party, Wisconsin Democrats, Wisconsin GOP, Wisconsin Government Accountability Board, Wisconsin Legislature, Wisconsin Recall, Wisconsin Senate, Wisconsin Supreme Court |
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