Mitt Romney on the economy

Mitt Romney wrote in an op-ed to the NYT regarding what to do about the auto-makers. It's a good read, but in particular this part stood out to me.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Beautiful words. It reminds me of business owners who are complaining about taxes being raised on companies who make really big profits. If they're so interested in the lower tax bracket, why don't they pay their employees a better wage? It sickens me to see executives exploit the productivity of their workers for their own personal gain.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

This is a great idea in theory, but capitalism is cutthroat in practice. Imagine for a second that you're a company and you're focused on long-term appreciation and watching your balance sheet. Now imagine that you have competitors, and they're focused on the short-term; they're leveraging their balance sheet and taking risky bets, and right now the bets are paying off. Suddenly, you start losing all kinds of market share because investors can get better returns somewhere else. If you don't lower your standards to that of your competitors, you risk going out of business.

That must be how Daniel Mudd felt when he took over Fannie Mae in 2004. He had the following conversation with the CEO of Countrywide at the time, Angelo Mozilo.

Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.

“You’re becoming irrelevant,” Mr. Mozilo told Mr. Mudd, according to two people with knowledge of the meeting who requested anonymity because the talks were confidential. In the previous year, Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors.

“You need us more than we need you,” Mr. Mozilo said, “and if you don’t take these loans, you’ll find you can lose much more.”

Then Mr. Mozilo offered everyone a breath mint.

An honest businessman cannot make a living in a capitalist society that encourages market participants to be no more honest than those with the least honesty and lowest ethics.
 

Financial crisis

Two videos from youtube with some nice animations and simple graphs.

America is a center-moderate country

House GOP leader John Boehner told colleagues Wednesday, "America remains a center-right country. Democrats should not make the mistake of viewing Tuesday's results as a repudiation of conservatism."

Americans have repudiated unbalanced conservatism. Republicans have tried to drag this country too far to the right, essentially placing the goal posts at "center" and "right". Mainstream America voted to restore the goal posts to "center-left" and "center-right". We do not seek to do away with conservative ideology...we just want people like Rep. Boehner to know that we are a center-moderate country, with a healthy balance of liberal and conservative ideology.

This graphic from the New York Times illustrates my point perfectly. Each precinct in America is colored according to how the voting percentages shifted versus some previous election. A precinct that voted more Democratic in 2008 than it did in 2004 is shaded a blue, and vice versa.



This is how precincts compared between the 2008 election and Bill Clinton's 1996 election. Obama still has many more hearts and minds to win.



Someone over at the Huffington Post links to a poll with even more proof that America is not a center-right nation.

Various items - money

So the bailout contained a hidden giveaway for corporations. The Washington Post has a lengthy article on Section 382, which was just modified by bailout legislation.

Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company's losses to offset their gains and avoid paying taxes. ...

The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.

The Jones Day law firm said the tax change, which some analysts soon dubbed "the Wells Fargo Ruling," could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article. ...

Jones Day released a widely circulated commentary that concluded that the change could cost taxpayers about $140 billion. Robert L. Willens, a prominent corporate tax expert in New York City, said the price is more likely to be $105 billion to $110 billion.

AIG needs even more cash.

American International Group Inc. got a $150 billion government rescue package, almost doubling the initial bailout of less than two months ago as the insurer burns through cash at a record rate.

AIG will get lower interest rates and $40 billion of new capital from the government to help ease the impact of four straight quarterly deficits, including a $24.5 billion third- quarter loss posted today by the New York-based company. ...

To make the bailout affordable, the U.S. will reduce the $85 billion loan that saved AIG in September to $60 billion, buy $40 billion of preferred shares, and purchase $52.5 billion of mortgage securities owned or backed by the company, the Federal Reserve said today in a separate statement.

I wrote earlier about disappearing economies of scale. I wonder, if the scale of their economy were larger, would Circuit City be filing for bankruptcy? The report alleges competition from Best Buy and Wal-Mart. However, I can't help but think that the loss of consumer spending doomed the relatively smaller retailer.

Various items - war

US airstrikes bombed another wedding party in Afghanistan.

Tensions between American forces and the Afghan government over civilian casualties from coalition airstrikes spiked again on Wednesday with a report by Afghan officials that a missile from a United States aircraft had killed 40 civilians and wounded 28 others at a wedding party in the southern province of Kandahar. ...

In one of the worst cases of civilian deaths by an American strike this year, an attack aimed at a meeting of Taliban insurgent leaders on Aug. 22 killed at least 33 civilians, according to a Pentagon inquiry. Other investigators said the numbers were much higher. According to an Afghan parliamentary investigation, an airstrike in July in the eastern province of Nangarhar also struck a wedding, killing 47 civilians, including the bride.

So much for respecting other country's sovereignty.

The United States military since 2004 has used broad, secret authority to carry out nearly a dozen previously undisclosed attacks against Al Qaeda and other militants in Syria, Pakistan and elsewhere, according to senior American officials.

It also appears that Georgia threw the first punch.

Newly available accounts by independent military observers of the beginning of the war between Georgia and Russia this summer call into question the longstanding Georgian assertion that it was acting defensively against separatist and Russian aggression.

Instead, the accounts suggest that Georgia’s inexperienced military attacked the isolated separatist capital of Tskhinvali on Aug. 7 with indiscriminate artillery and rocket fire, exposing civilians, Russian peacekeepers and unarmed monitors to harm.

The AP writes that Obama is planning on shutting down Gitmo.

President-elect Obama's advisers are quietly crafting a proposal to ship dozens, if not hundreds, of imprisoned terrorism suspects to the United States to face criminal trials, a plan that would make good on his promise to close the Guantanamo Bay prison but could require creation of a controversial new system of justice. ...

Under plans being put together in Obama's camp, some detainees would be released and many others would be prosecuted in U.S. criminal courts.

A third group of detainees — the ones whose cases are most entangled in highly classified information — might have to go before a new court designed especially to handle sensitive national security cases, according to advisers and Democrats involved in the talks. Advisers participating directly in the planning spoke on condition of anonymity because the plans aren't final.