Romney's Top Economic Adviser

Both candidates for president have been light on details about their vision for the next four years.  We know who Obama’s economic advisors are, so we probably have a pretty good idea about their views on financial issues.  But what about Romney?

Romney’s “Go-To Economist” is R. Glenn Hubbard.  If his name sounds familiar, that may be because he is the dean of Columbia Business School.

He was also the chairman of the Council of Economic Advisers for George W. Bush, and the architect of the Bush tax cuts. 

Subsequently, he has championed the cause of the mutual fund industry’s approach to charging fees, stating that it was essentially impossible for mutual fund advisers to overcharge fees because the mutual fund business was so competitive.  For his advice, this industry has paid him over $1 million.

He testified for Fidelity in a case where company employees sued for excessive fees to manage their 401(k) plan.  He was paid $420,000 for that testimony, but Fidelity lost that case.

He has also worked for the insurance arm of the Investment Company Institute, a lobbying group that paid him $150,000 for an academic paper.

Hubbard co-wrote a recent position paper titled “The Romney Program for Economic Recovery, Growth and Jobs.”  In this paper, he favors,

• reducing federal spending, 
• cutting marginal tax rates 20% across the board, 
• reducing Social Security and Medicare benefits for wealthy seniors, 
• repealing Dodd-Frank financial regulation and 
• repealing the Affordable Care Act, sometimes called “Obamacare.”

While on Bush’s economic advisory team, Hubbard supported reducing dividend taxes to zero.

Other consulting/advisory positions held by Hubbard include Freddie Mac, Bank of America, JPMorgan Chase and Goldman Sachs.  In one paper that he co-authored, he opined that “credit derivative(s) have become an important element that helped protect bank lending portfolios against loss.”

As Romney’s likely nominee for Treasury Secretary, Hubbard provides ample evidence of what voters may expect from his economic policies.

As always, I welcome your comments.

A Grown Up Girl’s Guide to the National Debt

If you ask the average person the difference between the deficit and the national debt, you're likely to get a blank stare. While you are much smarter than the average Josephine, we'll go over that anyway, just in case you were asleep during that session of your Econ class.

The Deficit

The deficit is the amount of money we're spending THIS YEAR that exceeds the amount we brought in.    

The national debt is the sum total of all the deficits we've had.

To give you a little perspective, here’s are the deficits from 8 years prior to the Great Recession to the present. 

• 1999 - $125 billion surplus (Clinton)
• 2000 - $236 billion surplus (Clinton)
• 2001 - $128 billion surplus (Bush)
• 2002 - $157 billion deficit (Bush)
• 2003 - $377 billion deficit (Bush)
• 2004 - $412 billion deficit (Bush)
• 2005 - $318 billion deficit (Bush)
• 2006 - $248 billion deficit (Bush)
• 2007 - $162 billion deficit (Bush)                   The Great Recession begins Dec., 2007
• 2008 - $410 billion deficit (Bush)                  
• 2009 - $1.41 trillion deficit (Obama)              The Great Recession ends Jun., 2009
• 2010 - $1.29 trillion deficit (Obama)
• 2011 - $1.30 trillion deficit (Obama)
• 2012 - $1.09 trillion deficit (Obama)
• 2013 – projected $901 billion (Unknown)

Deficit spending grew by 620% from 1999 - 2013

Let’s compare those deficits to an analogous period for the 1980 – 1981 recession (the second worst recession in our history).

·         1973 - $14.91 billion deficit

·         1974 - $ 6.14  billion deficit

·         1975 - $53.24 billion deficit

·         1976 - $73.73 billion deficit

·         1977 - $78.97 billion deficit

·         1978 - $59.19 billion deficit

·         1979 - $40.73 billion deficit

·         1980 - $73.83 billion deficit

·         1981 - $78.97 billion deficit (Reagan)            Recession began Jul., 1981

·         1982 - $128 billion deficit (Reagan)               Recession ended Nov., 1982

·         1983 - $207.8 billion deficit (Reagan)

·         1984 - $185.4 billion deficit (Reagan)

·         1985 - $212.3 billion deficit (Reagan)

·         1986 - $239.6 billion deficit (Reagan)

Deficit spending increased by 1,507% from 1973 – 1986.

There are two factors that make up a deficit:  Revenues and expenses.  During a recession, revenues drop, as businesses lay off workers and less is collected in both a corporate and personal taxes.  Expenses also increase, as government spending in areas such as unemployment benefits go up.

The National Debt

From 1742 to 2010 (the last year complete data are available), we've had a total of about $8 trillion dollars in deficit spending. When you add interest paid on borrowing to pay that debt, it climbs to about $13.5 trillion.

Since 1900, we've had 31 years where our income exceeded our expenses. The other 82 years have had deficit spending.

Again, as a matter of perspective, here is the cumulative amount of the national debt for the last decade.

• 2000 - $5.628 billion (Clinton)
• 2001 - $5.769 billion (Bush)
• 2002 - $6.198 billion (Bush)
• 2003 - $6.760 billion (Bush)
• 2004 - $7.354 billion (Bush)
• 2005 - $7.905 billion (Bush)
• 2006 - $8.451 billion (Bush)
• 2007 - $8.950 billion (Bush)
• 2008 - $9.654 billion (Bush)
• 2009 – $11.88 billion (Obama)
• 2010 - $13.53 billion (Obama)
• 2011 - $14.76 billion (Obama)

All data compiled from http://www.usgovernmentspending.com/

Let’s look at our personal debt.  Total US residential investment is $10,081 billion.  Consumer debt is $2,725.6 billion.  That’s $12,806.6 billion, and there are currently 314,123,000 of us.  Each one of us holds, on average, $43,800.  Some, including homeowners, owe far more.  Renters owe far less.  Few would probably have the ability to write a check and pay off all their debt, including their mortgage.  Some debt, or leverage, is a good thing.

How Much Do I Owe?

Those who express outrage regarding the national debt sometimes express the debt in terms of the amount that is owed by every man, woman and child in the US. Currently, that amount is nearly $34 thousand. Again, to gain some perspective, let's look at a couple of facts.

In 1960, the national debt was $290 billion and the population was 179.3 million. Every American owed about $1620 - $5432 in today's dollars.

In 1970, the national debt was $380.9 billion and the population was 203.3 million. Every American owed $1873 - $4908 in today's dollars (less than the prior decade).

In 1980, the national debt was $909 billion and the population was 248.7 million. Every American owed $3665 - $7479 in today's dollars (+52% from the prior decade).

In 1990, the national debt was $3.206 billion and the population was 248.7 million. Every American owed $12,879 - $20,589 in today's dollars (+115% from the prior decade).

In 2000, the national debt was $5.629 billion and the population was 281.4 million. Every American owed $20,002 - $24,980 in today's dollars (+2% from the prior decade).

In 2010, the national debt was $10.526 billion and the population is 308.7 million. Every American owes about $43,800 (+75% from the prior decade).

Population information was obtained from http://www.census.gov/popest/archives/1990s/popclockest.txt

Debt as a Percentage of Gross Domestic Product

Realistically, the national debt will never actually be paid to zero. We've had debt since 1900. The way to evaluate debt is as a percentage of GDP.

• 1970 - 8.9%
• 1980 - 15.6%
• 1990 - 40%
• 2000 - 50.7%
• 2010 - 90%

Let’s put this in perspective.  In a corporate structure, about the optimal amount of debt is about 33%.  Here’s why.  If you invest $2 million in a company with no debt and that company earns $200,000, you earn 10% on your investment.  If you invest $1.34 million in a company, and have $660,000 in debt, and that company earns $200,000, you earn 15% on your investment.

Too much debt is not a good thing, and we all know very well that is true from a common sense perspective.  If you earn $100,000 and your mortgage and credit card payments are $100,000, you have no money.  You need to earn more AND cut your expenses.  You can’t have garage sales to raise money indefinitely.

It works the same way for the government.  We see the effects of immediate, draconian cuts in expenses into countries like Greece and Spain.  Too many spending cuts, or reliance on spending cuts alone, result in a decrease in earnings (taxes), which slows growth, which decreases earnings further, which slows growth further.  IMF Chair Christine Lagarde warned against this strategy as exacerbating the European Union problem.   http://www.reuters.com/article/2012/10/11/us-imf-economy-idUSBRE89A02O20121011  

A more rational approach is to both cut long term expenses and raise long term revenues by allowing the country to grow, creating new businesses and more taxpayers.  In other words, spend less and raise taxes, but enact changes gradually, so not to worsen the problem. 

As always, I welcome your comments and questions.

A Handy List of Question for Paul Ryan at his $25,000 Private Portland Lunch

Representative Ryan did not make himself available to reporters when he landed this morning at Portland's private aviation building, but for $500, you can attend his fundraising luncheon at the Governor Hotel today. It will be twice that for a photo op, and $25,000 for a private luncheon. Here's a handy list of questions for you lucky $25,000 ticket holders.
1. Your campaign policy director stated "A Romney-Ryan Administration will restore the funding to Medicare, ensure that no changes are made to the program for those 55 or older, and implement the reforms that they have proposed to strengthen it for future generations." Your health care policy adviser said, "Whatever you think of Obamacare’s cuts to Medicare, the fact is that a Romney administration would repeal them." How do you reconcile that with including those cuts in the House Republican 2013 budged which you authored?
2. Governor Romney has promised that federal spending will be below 20% of GDP by 2016, 4 percent of which will be defense spending. After 2016, federal spending will be capped at 20% of GDP. That will require spending cuts in excess of your budget proposal. By my estimation, that will every other program to be cut by 40% in 2016 and almost 60% in 2022. Do our numbers agree?
3. What kind of health coverage do you have? Would you consider your coverage to be superior to that of your constituents?
4. You look like a healthy guy. What kind of vegetable did you order with your lunch?
Be persistent with the first two.
So far, I haven't found any reliable answers. Enjoy your lunch.

The Other Side of the Job Numbers

Super Pacs have dolled out countless dollars to sway the few fence sitters in this endless presidential election. I have ceased to hear the Pacs. Like Charlie Brown's teacher's voice, both parties have become the "mwah mwah mwah mwah" trombone.

Now and then, a financial story will ascend above the din. Usually, it's a story about which everyone agrees. For instance, the job numbers.

They were bad - even worse than they looked on the surface.

Before we continue, allow me to give you some insight into my interest in security analysis and economics. I'm a math dork. I love math more than I love Republicans, Democrats, Independents, Green Parties, Libertarians, and other parties combined. I love the process of analysis, regardless of where it leads.
After decades of refining a macroeconomic risk model and investing and advising other about their investments, I have found three hypotheses to be very reliable

1. Don't follow the crowd.
2. If something is said often enough, most people will believe it.
3. Follow the money.

We'll start with 2 and 3, since it's Super Pac money that is financing the current endless blather about the jobs report. In 2005, well into the recent housing bubble, Barney Frank insisted that there was no housing bubble. Lots and lots of people signed documents that indebted themselves at ten times their annual income to buy a home because there was no housing bubble. I often wonder whether these were the same people who bought internet stocks in the 1990s when there was no internet stock bubble. Now, big money says the jobs report is bad. Over and over and over again.

As to not following the crowd, you may have heard Warren Buffett say, in his predictably folksy fashion, "Be greedy when others are fearful; be fearful when others are greedy." When everybody was buying and selling houses in the mid 2000s, that was a bad idea. When everybody was loading up on internet stocks, that was a bad idea. Now everyone agrees that the job numbers were bad.  As a personality type, it's easy for me to go against the crowd. And this is one of those time that the data supports it.

What factors contributed to a lack of job growth in the U.S.?

2010

1. First Quarter GDP was +3.9%
2. Second Quarter GDP was +3.8% – Beginning of European Debt Crisis
3. Third Quarter GDP was +2.5%
4. Fourth Quarter GDP was +2.3%

2011

1. First Quarter GDP was +0.4% – Egyptian President steps down, Libyan
2. conflict begins, President Obama ratchets up sanctions on Libya, Oil prices pass $90/barrel, Japanese earthquake/tsunami
3. Second Quarter GDP was +1.3% – Government shutdown narrowly diverted in Debt Limit debate, US Debt Rating lowered
4. Third Quarter GDP was +1.8% – Oil prices below $90/barrel, Debt Limit debate resolved
5. Fourth Quarter GDP was +3.0% – Oil prices again pass $90/barrel

2012

1. First Quarter GDP was +2.0%
2. Second Quarter GDP was 1.7%

The Debt Limit debate was a ridiculous example of Congress shooting the economy in the foot. Luckily, the Fed's QE program has ensured that our borrowing costs for our national debt did not increase because our Congressional representatives are unable to do their job, so that effect did more to make us look foolish than add to our borrowing cost.

Assuming that the European Debt Crisis shaves 1% from GDP growth, and oil prices account for -.2%, the effect of these two crises on 2012 growth total about 1.2%. Adjusting for these issues, 2012 growth would have been just over 3%, which would keep job growth about even with population growth.

This is sub-par for after a recession, but definitely a better picture than the one we see.

 

Second, there is the ubiquitous argument that the decrease in the percentage of unemployed from 8.3% to 8.1% was due to a decline in the labor force. That statement is not consistent with the measure of labor I use, which is its broadest measure. The U-6, published by the Bureau of Labor Statistics, showed a decrease in the percentage of unemployed in August. Even the Economics Editor of "Barron's Magazine" says he's not so sure that there has been a decline in the labor force, saying, "Follow-ups on declines in the rate of joblessness accompanied by the decline in the labor force generally show that the labor force has a tendency to bounce back, while the fall in the unemployment rate has a tendency to confirm."

8.1% unemployment is high. But to look at that number and assume that is it low because it doesn't include people who have dropped out of the workforce, is not supported by the data.

Even if you don't want to take the time to check out the links in this article, think about the wisdom of following the crowd.  Going your own way will shield you from dogma, and lead to unexpected, and hopefully accurate conclusions.

Economic Questions from Marcia Ball

Southern piano rocker Marcia Ball has done what many entertainers do:  Risked her popularity by taking a political position.  After asking her fans to support the President's reelection because of  her support of the Affordable Care Act ("Obamacare")'s coverage of children, she continues talking about politics..

"Call me kooky, but I'm kind of enjoying the dialogue that sprang up over my last political posting, so here's something else to mull over: My question of the day: how is the President supposed to create jobs? Isn't that what businesses do?
Well, maybe they just can't afford to hire anyone else. There's a recession, after all. Most people can't even imagine how the very rich live because 95% of us will never get close to the places where the 1% hang out and the 4% who aren't them but get in are serving them."

Let's take a look at what Marcia is asking.

First, "How is the President supposed to create jobs?  Isn't that what businesses do?"
There are two kinds of employers, Marcia.  One is the private sector, what you refer to as "businesses."  The other is the public sector, or government workers on the national, state and local level.  As of last June, public sector jobs during the Obama Administration have decreased by about 600,000.  By the way, if you put those lost jobs back into the job numbers, the unemployment rate would be about 7.8%, not 8.3%. 
The private sector, on the other hand, has created 780,000 net new jobs during the same period.

So, the answer is that the President has cut jobs, and businesses have created them.

Second, Marcia ponders whether businesses can't afford to hire anyone else.  There's a recession, after all.
Well, there certainly was a recession.  It lasted from December, 2007 through June, 2009.  It may feel like there is still a recession because the average growth in gross domestic product ("GDP") since that time has been 2.35%.  Let's take a look at that level of growth and see if we can explain why it has been slower than after most recessions.  

2009

1. First Quarter GDP was -6.7      
2. Second Quarter GDP was -0.7% - End of 2008/2009 Financial Crisis
3. Third Quarter GDP was +1.7%
4. Fourth Quarter GDP was +3.8%

2010

1. First Quarter GDP was  +3.9%
2. Second Quarter GDP was +3.8% - Beginning of European Debt Crisis
3. Third Quarter GDP was +2.5%
4. Fourth Quarter GDP was +2.3%

2011

1. First Quarter GDP was +0.4% - Egyptian President steps down, Libyan conflict                    begins, President Obama ratchets up sanctions on Libya, Oil prices pass $90/barrel, Japanese earthquake/tsunami
2. Second Quarter GDP was +1.3% - Government shutdown narrowly diverted in Debt Limit debate, US Debt Rating lowered
3. Third Quarter GDP was +1.8% - Oil prices below $90/barrel, Debt Limit debate resolved
4. Fourth Quarter GDP was +3.0% - Oil prices again pass $90/barrel

2012 

1. First Quarter GDP was +2.0%
2. Second Quarter GDP was 1.7%

Assuming that the European Debt Crisis shaves 1% from GDP growth, and oil prices account for -.2%, the effect of these two crises on 2012 growth total 1.2%.  Adjusting for these issues, 2012 growth would have been just over 3%, which would keep job growth about even with population growth. 

This is sub-par for after a recession, but definitely a better picture than the one we see.

Finally, Marcia says, "Maybe they just can't afford to hire anyone else.  Most people can't even imagine how the very rich live because 95% of us will never get close to the places where the 1% hang out and the 4% who aren't them but get in are serving them,"  

Job creation is a function of demand, not wealth.  Cash positions in businesses are at record highs, but hiring is slow because business is not convinced that the economy is growing fast enough to warrant the expense of expanding their staff.  How could the President change this perception?  

One way would be to create a more "business friendly" environment by resisting the urge to solve every problem with new rules.  While the administration boasts that it has passed fewer regulations than Bush, this is a misleading statement.  For instance, one of the regulations was the massive Dodd-Frank bill.  While no one argues the need for financial reform, this enormous bill has some unintended consequences that should be considered.  For example, small banks are unlikely to survive, as their regulatory compliance staff is inadequate to implement such complex reform.  Do we really want to eliminate community banks?  And, with limitations on fees that can be charged for certain services, banks are raising fees and minimum balances for other services.  Do we really want to drive the poor from access to banks to usurious charges made by check cashing services?

Overall, the President has done an above average job with the U.S. economy.  To improve that performance, he'll have to create a more business friendly environment.  That may go a long way toward improving private sector employment.

Let's Pretend

In order to survive the onslaught of political ads from presidential candidates and the SuperPacs with which they never coordinate, let's pretend that we're those few undecided voters that they're spending squillions of dollars to sway.  That way, we'll be far less apt to throw our television, computer, iPad, iPhone, or other device on which we're being tortured with political ads, against a brick wall with the craziness of Clint Eastwood and his imaginary chair friend.
Let's see what we've got so far.  Two nights ago, Paul Ryan carefully laid out spending cuts without a word about growing the economy.  We're seeing the wonderful results of that very tactic with Greece.  Draconian spending cuts with declining economic growth is making things worse.  Ask Angela Merkel.
At some point, revenues have to improve.  The supply side economic theory that posits that more money for high earners through tax savings will result in job creation was never mentioned once, even through the "Jobs, jobs, jobs" theme has been hammered on by both parties.
Last night, Mitt Romney, followed up by remaining silent as to how the 20% across the board individual and and 28%+ corporate tax cuts will prevent deficits from rising.  That is, as we all know, going to decrease revenues.  As to the goal of major deficit reduction or entitlement program reform, both of which will require trillions of spending cuts to prevent rising deficits, we have no details.
I heard the arguments that candidate speeches are broad-brush, platform related, goal oriented statements made to secure their base, but as a completely undecided person, am I being told to wait for details that will have an enormous effect on my life?
At what point will I learn from where the trillions will be cut?
At what point will I learn the methodology of the implementation of such cuts?
From the rhetoric last night, it appears that the defense budget is safe. 
If so, what isn't?
Here's an interesting exercise.  On this site,  all of us undecided voters can try to balance the budget ourselves.  See how it works out yourself by cutting no defense spending.
Remember, too, that we're cutting current Federal revenues by 20% as well.
I, the undecided voter for whom both parties are spending enormous amounts of money to secure my vote, need more information.
When can we expect to get it?

The Other Side of the Story: Ryan's Speech

People who balance their checkbook know it.
People who are bookkeepers and accountants know it.
Business owners and their finance people know it.
 But, apparently Ryan does not know it.

There are two sides to economic equation:  Debits and credits.

Last night, Paul Ryan talked exclusively about debits.  He's going to abolish "Obamacare."  He's going to decrease the rising cost of the Medicare program by raising the eligibility age to 67 and phasing in a voucher system.

This is not a discussion on the advisability of cutting or reforming these programs.  This is an observation that these represent what the government calls "spending cuts" and you and I call "less of an increase."

In a time when both parties seem to be emphasizing "Jobs, jobs, jobs,"wouldn't it be advisable to talk about pro growth measures, too?

What about the Romney Plan tax cuts?  His administration would propose a 20% reduction in marginal tax rates, and a 28%+ reduction in corporate tax rates. These supply-side, pro-growth measures are part of his plan and are aimed specifically to create jobs.

Are cuts more important that growth?

Every reputable economist agrees that the coming "fiscal cliff," where automatic draconian spending cuts coupled with tax increases will very likely result in a recession.  This is an area where Republicans, Democrats and Independents agree.  The strategy of cutting spending and raising taxes is unwise because it will depress growth.

Economic growth is the engine of job creation.  We all agree about that.

Why did Ryan fail to discuss the "credit" part of his pro-growth plan?

I'm puzzled.

The End is Near

A very smart woman I know asked me to review an article titled "Economist Caution:  Prepare for Wealth Destruction."  Most of the time, my smart friends' questions are more interesting than mine.  Let's see what this article says, and whether the purveyors of doom are correct in their assessment.
First of all, I get most of my information from the Wall St. Journal, Barron's and academic papers from the University of Chicago and Wharton.  Each of these sources has been reliable, unbiased (mostly) and seem to attract the best economic minds.  I know that Rupert Murdoch owns the WSJ and Barron's, but I also have followed and been in contact with high level contributors who have said that they have received no pressure to do anything other than outstanding reporting.  I've read these papers long before Murdoch bought them and agree that the reporting has been consistent over time.
It goes without saying that economic publications tend to take a conservative bent, if not politically, then definitely economically.  Newsmax, Inc., the publisher of the article that my friend ask be reviewed, actually characterizes itself as a "conservative publication."  Right off the bat, that takes the article from fact-based, to potentially biased.  Economic reporting should not be "conservative" or "liberal."
It should be accurate.
Next, I look at which economists are warning the rich that they're about to lose half their wealth.  The first is Marc Faber.  I am very familiar with him through CNBC and his participation on various "round table" financial discussions.  His nickname is "Doctor Doom."
As a writer of weekly financial articles, I find myself characterized as a "capitalist pig" about half the time.  The other half, I'm a "bleeding heart liberal."  In reality, I go where the data lead me.  I don't solve for a particular answer.  As long as this country is closely split politically and I make half my readers angry all the time, I feel that I'm doing my job.
Back to Marc Faber.  His nickname is "Doctor Doom" for a reason.  As a "contrarian" investor, or one who goes against the herd, some negative bias is understandable.  The market is up more than it's down.  But, to predictably land in a negative outlook makes his reasoning suspect.
Peter Schiff, another economist that agrees with Faber, is a strategist for a mutual fund.  His economic training is from the "Austrian" school of economic thought.   The financial aspect of Ron Paul's libertarian platform would be closest to describing this point of view.  We'll leave it at that, to ensure you will stay awake.
Robert Wiedmer manages a fund for investors with $200 million or more in assets, and accurately predicted the 2006 economic downturn.  He disagrees with Bernanke's handling of the economic crisis, and has been predicting a further, serious recession in his book "Aftershock."
And, finally, Donald Trump chimes in.  Donald is not an economist.  I'm not sure what Donald is, but I find myself almost never agreeing with anything he says.  Over time, that has worked out well for me.
So, four gloomy guys think the sky is falling.
Let's see if their reasoning holds up.
According to Faber, "somewhere down the line" we'll have massive wealth destruction where "well to do" people will lose 50% of their wealth.  I guess if you think that no one is going to do anything about deficit spending growth, the economy does not recover, the European Union dissolves and rattles the global financial markets and China's growth continues to fall precipitously, that is a reasonable assumption, but he places the odds at 100%.
I am not 100% sure the sun will come up in the east tomorrow.  I don't take people seriously when they present their probabilities as absolute fact.
Peter Schiff, says the crash we just had was not the real crash.  The real crash is coming. He bases his conclusion on the same data as Marc Faber.  We'll take absolutely no action on growing deficit spending, our economy is permanently stalled, and we won't reform Social Security or Medicare.  If you agree with the fact that we will take no action, he's probably right.
Robert Wiedmer, hawking his book "Aftershock," says “The data is clear, 50 percent unemployment, a 90 percent stock market drop, and 100 percent annual inflation… starting in 2013.”
Okay.  First of all, the data "are" clear.  Data is plural, unless he's only looking at one thing.
I look at 26 things.  From capacity utilization to durable goods orders to sentiment to valuation, I study the trends for a wide variety of economic indicators.  Nowhere do I see 50% unemployment, a 90% stock market drop and 100% annual inflation, much less next year.  I think this guy is trying to sell his book.
And the Donald.  Please don't ask me to respond to the Donald.  He's ridiculous.
So there you have it, Maggie.  Things aren't great, but the sky is not falling.
I'm in the camp that says the US will take proper action - once we've done everything else.

To the Surprise of No One, SEC Declines to Prosecute Goldman Sachs

You're steaming mad at those damned banks.  They caused this whole financial mess, and it seems like nobody's getting in trouble.  You'd have to be crazy to take their side of this argument.
Call me crazy.  I agree.  It's not the banks.
It's the ratings agencies and Congress.
Read on.
Back in April of 2010, I outlined the case against Goldman.  For those of you who may have missed it, here is the annotated version:
1.  Paulson & Co., Inc., a well known hedge fund, provided a list of residential mortgage securities to Goldman Sachs.  Paulson had a "short" position against these securities.  That means they thought the value would decrease.
2.  A Goldman employee asked ACA, Ltd. to rate the securities.
3.  That Goldman employee allegedly told ACA that he got the list of securities from Paulson. 
4.  ACA rated the investment as "investment grade."
5.  The derivative securities were sold to "sophisticated investors," like banks, pension funds and very wealthy people.
6.  The "sophisticated investors" (and Goldman, by the way) lost money.
Goldman was sued by the SEC.
Goldman lost that case.
I disagreed with the decision then, and continue to disagree with it now.
Here is a completely fictitious made-up story that may illustrate why.

THE PLAYERS
Warren Buffett:  A well known investor who has a history of making a lot of money
Kitty O'Keefe & Co., Inc.:  An investment banker
Standard & Poor's:  A rater of securities
You:  A "sophisticated investor."   You are an nvestor who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.  You have either a net worth of $2.5 million or have earned more than $250,000 in the past two years.

SCENE ONE
Dingy little coffee shop in Omaha, NE
Buffett:  Here's a list of companies I think are ridiculously overpriced.  I want to make money when they go down.
O'Keefe:  Okay.  I'll see if I can get someone to buy them and you can borrow them at today's price and buy them back when they go down.
SCENE TWO
Fancy coffee shop in Beverly Hills, CA
O'Keefe:  I got this list of securities from Buffett.  Will you rate them for me?
Standard and Poor's guy:  Sure!
SCENE THREE
Conference room at Standard & Poor's
Standard and Poor's guy and his bosses:  We LOVE these securities.  These are fabulous!  We rated them A-OK!  What's Warren Buffett like?  Do you think we could meet him?
SCENE FOUR:
On the phone with you
O'Keefe:  We have a group of securities obtained from a well known investor from Omaha that are rated A-OK by Standard and Poor's.  Want to take a look?
You:  Sure!  Are you buying them?
O'Keefe:  Yes.
SCENE FIVE:
Dingy little coffee shop in Omaha, NE
Buffett:  Thanks!  I made a bundle.
O'Keefe:  sigh.  I lost a lot.
THE END

Epilogue
Standard & Poor's should not have paid a bit of attention to where the securities came from.  A ratings agency is a ratings agency.  Rating securities has nothing to do with "star power."  It has to do with analyzing balance sheets and cash flow statements, which were provided to them.
Kitty O'Keefe & Co., Inc. made $15 million in fees for putting the deal together, but lost $95 million in investing in it.  She should have known better.  She's an investment banker. 
You are a sophisticated investor.  You are eligible to buy into investments like pre-IPO securities, that are considered "non-disclosure" or "non-prospectus" issues because you know what you're doing and have a lot of money.  Shame on you.  Do your research.

The "bad guys" here are the ratings agencies that didn't do their homework and were paid by the companies whose securities they rated.  SHAME!
Also, blame the politicians who encouraged home ownership for people who had no business owning a home.  They did this by pressuring Government Sponsored Entities Fannie Mae and Freddie Mac to purchase mortgages with increasing lax review of income and property values.  The mortgages were badly underwritten and sure to collapse.  SHAME!

Now you know.
Please confine your responses to hateful words - and refrain from physical violence.

A Brief History of the Death of Glass-Steagall

1933
LAW - Glass-Steagall Act prohibits banks from underwriting stocks and bonds.
1986
LAW - Banks may underwrite 5% of gross revenues
FED - Greenspan becomes Fed chair
1987
LAW - Banks may underwrite 10% of gross revenues
1996
LAW - Banks may underwrite 25% of gross revenues
1999
LAW - Glass-Steagall repealed
FED - "Risk of underwriting had proven to be manageable.  Banks now have the right to acquire securities firms outright."
BANKS - Quantitative Analysts conclude reliable US housing market pricing uptrend
BANKS - Mortgage underwriting standards loosened, demand increases, mortgages securitized, sliced up and sold worldwide, with AAA ratings from ratings agencies paid by security issuers.
2001
ECONOMY - Dot com bubble bursts.  Speculative investors out of stock market.  Recession.  Speculative investors into housing market.
2006
FED - Bernanke becomes Fed chair
2007
ECONOMY  - Housing bubble bursts.
2008
ECONOMY - Most serious recession since Great Depression
FED - Ex-Chairman Greenspan concedes that it was a "mistake believing banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions."
2009
FED - Short term rates set at zero to stimulate growth.
FED - Quantitative Easing ("QE") I & II, during which the Fed bought mortgage backed securities then short term Treasuries to lower rates and stimulate economy.
2010
FED - Short term interest rate policy set for a minimum of two years.
2011
FED - Operation Twist, where Fed exchanged short term Treasuries for long term Treasuries to lower long term rates and stimulate housing.

A Portland girl weighs in on the Hillary Rosen kerfuffle

Portland is a place where people go their own way.  That's one of my favorite things about this city.  Another of my favorite things about Portland is that we are proud and voracious readers.
It's not unusual to see a person walking down the street reading a book.  We read in coffee houses.  We read at Powell's.  It's a place where it's cool to be smart.
This Portland girl is therefore about to do two predictable Portland things:  1) Move outside the bounds of popular opinion; and 2) read about a subject before I open my mouth.
Mitt Romney, the inevitable Republican candidate for president, recently commented that he uses his wife, Ann, as his expert on women’s issues.  Ann is a stay at home mother of five boys, a breast cancer survivor and suffers from multiple sclerosis.  To the extent that she represents the interests of independently wealthy married women who stay at home to raise their children, breast cancer survivors who have access to the best health care in the country and those who fight to overcome an incurable autoimmune disease that affects central nervous system, Mitt's reliance upon his wife for advice about women's issues is relevant and admirable.

The totality of women's issues, however, are far more numerous than those in the realm of Ann Romney's experience.  For instance, the average American woman

• Lives longer than men,
• Earns about 20% less than men, and
• Spends eleven of her productive earning years as an unpaid family caregiver

In light of these facts, it's not surprising to find that twice the number of elderly women live in poverty than elderly men.
Hillary Rosen's comment that Ann Romney “never worked a day in her life” was admittedly inaccurate.  Any reasonable person knows that raising a family is hard work.  What is true, though, is that Ann never worked outside her home a day in her life.  That means that women's financial issues pertaining to half the US workforce, and over half of all women, are not shared by Ann Romney.  When Mitt seeks counsel from his expert on women's issues, his expert is one who is lacking in background and experience that pertain to a majority of other women.
Ms. Rosen's comment should not digress into a commentary about whether women who raise families are working.  They most certainly are.
But they are not experts in the issues faced by women who work outside the home.
That is the issue.