I typically avoid large crowds. And the idea of being on my feet all day with visually obstructed views of a stage over a quarter mile away doesn’t sound like a recipe for a good time. But that’s not why I went. For me, attending this event was more about the experience of being there than having the best seat in the house. I wanted to be there in person to feel the energy of the crowd and to be a part of a message – even though it was never really made clear what the message was supposed to be.

The energy on the Mall was eerily calm. It was like something you would have hoped for but never expected from a crowd that exceeded 200,000. Everyone was nice to each other. No pushing or shoving. No yelling or cursing. I’ve never seen so many calm and happy people gathered in once place. It was as if everyone subscribed to the message from “Bill and Ted’s Excellent Adventure,” which was to “be excellent to each other.” (I saw at least two signs with that message but didn’t get a picture.)

For the few weeks before the rally, the main message from The Daily Show for attendees was “don’t be a douche.” Who knew so many people would comply? It was great to be there to experience it. As for the message…

Aside from the name of the rally, Jon Stewart (and Stephen Colbert) offered few details about any message they wanted to convey or what the show was to include. First and foremost, these guys are comedians and entertainers. However, Jon does have a reputation as a political satirist and I don’t think there is any question as to which way he leans politically. So, by having a rally on the National Mall near the heart of American politics, he must have had a message to convey. Anybody happen to catch what the message was?

The show itself focused more on musical guests than political commentary. In fact, there was practically no political commentary at all. There was no message for or against Republicans or Democrats. There was no call to action for or against any cause or hot political issue. To hear them explain it, their only goal was to entertain by putting on a good show. Jon did take a few minutes for some heartfelt thoughts near the end, but they were more observations than political statements. If there was an actual message I would say that it was a desire for the media and our politicians to be more constructive and less focused on sound bites and name calling. A desire for a little more… sanity.

As Jon himself pointed out, people came from across the county “even if none of us are really quite sure why.” For some attendees, the goal was simply to help create a bigger crowd than some guy named Glen Beck was able to draw last August. And those people should be proud of themselves, because by all accounts this event drew more than double what Beck got. (Estimates of 215,000 for Stewart/Colbert vs. 87,000 for Beck.) But this rally wasn’t just about trying to one-up a misguided cable pundit.

I’ve heard silly statistics that suggest that 10% of Americans get their news from Jon Stewart. Silly because Stewart is a comedian, not a journalist, and because it would be difficult to understand many of the jokes unless you were somewhat informed through more traditional sources. However, his show can be insightful in the sense that his satire can often bring home a point that many journalist miss or choose not to share. Whether it is about a community center in New York, patriotic homosexuals, or any other hot political topic, he very often finds a way to add value to existing news and a viewpoint that is often shared by many.

Mr. Stewart may not have had a specific purpose for the rally other than to provide entertainment, but the message from the attendees is that we applaud his efforts and the work that he does. Not just one day on the National Mall, but on his show every week.

A commentator on one of last Sunday’s news shows suggested that the size of the crowd was more a testament to Jon Stewart’s star power than any message, but that just tells me that he didn’t get the message. For me that message was this:

We are here, hundreds of thousands of us. We are not loud and we don’t even agree on everything, but we represent millions of Americans who would like to see a bit more common sense and a bit more sanity from our media and our politicians. Stewart and Colbert are entertainers, but mixed in with the comedy is a lot of truth. Pay attention sometime and you might learn something.

Even if that message has mostly fallen on deaf ears, it was good to get it out there and I was proud to be a part of it.

Check out some pictures I took at the rally by clicking this link: http://chrisozcpa.shutterfly.com/

Thank you to my friend Matthew for providing a weekend of ground transportation, rally companionship, and some nice Chianti. And special thanks to him and his wife for their hospitality, which included some awesome croissants on Saturday morning.

A small business owner is interviewing candidates to be his new tax advisor. He asks each accountant one simple question: What is the answer if you add two plus two?

The first candidate answers “four.” The second accountant pauses, thinking that it might be a trick question, but then answers “four?” The third interviewee, a CPA, leans back in his chair and asks “What do you want the answer to be?”

We CPAs may not be very good at simple math, but we are often very good tax advisors.

I’m not a Nobel winning economist and I haven’t studied all the data and models used by the Congressional Budget Office for projecting things like the effects of specific tax law changes or the effects of retiring baby boomers on the national budget. I’ll do my best to start with actual facts, but some of you may not like my math. (Story of my life… people only like my math when they get the answer they want.) Even if you don’t like my math I hope that most of you will acknowledge that I make some valid points.

Let’s start with some good news and happy thoughts before we address the potential post-election pain that may be on the horizon.

TARP

So many people freaked out when the government passed the TARP (Troubled Asset Relief Program). OMG!… $700 billion? It will bankrupt the country!

What most people didn’t understand was that this was an investment, not an expense. Even at the time it was passed, the actual cost of the program was expected to be about half of that amount – on the high side. At the time, I wasn’t concerned as much about TARP as I was about the effects on our economy if the government had done nothing. Financial institutions would have started falling like dominos. Bear Stearns and Lehman Brothers were already down. Even George Bailey wouldn’t have been able to stave off the run on the banks, which would have led to disaster at the FDIC and the collapse of our economy as commerce came to a screeching halt.

Still, people want to blame someone for pissing away a lot of money. It’s all people are focused on these days (perhaps rightly). So who do we blame? TARP was passed before Obama became president. Ah… but some of the money got doled out while he WAS president. Fine, let’s blame him for half. Half of what it will actually cost.

A lot of the “mistakes” that happened with TARP happened in the early days as money was thrown at banks without restrictions. Eventually, TARP money started getting “invested” with strings attached, such as equity ownership and board of directors seats. Essentially, TARP put the government in the position of being a venture capitalist. Guess what… sometimes venture capitalists make money.

As of earlier this month, the projected total cost of TARP is now expected to be less than $30 billion. On top of the money being paid back, interest and profits are offsetting a lot of the losses that occurred because not all of the “investments” worked out. We won’t know for several years, but that number could be modified down further. It may even turn a profit! It wouldn’t be the first time that a government bailout turned into profit. (Thank you Lee Iacocca.)

Clearly some errors in judgment occurred during the execution of TARP investments. (Several regarding AIG.) What did you expect? They are politicians, not ACTUAL venture capitalists. In the end, a program that probably prevented the entire collapse of our economy for the low, low price of maybe $0 doesn’t sound that bad.

So good job: George W., Republicans, Democrats, Barack, some guy named Ben, and probably a few other people.

Two final thoughts on TARP:
• There are those out there who have said “Let them fail – the banks, the insurance companies, the auto companies… They are all broken – it’s time to hit the reset button.” I can’t say I disagree with the thought in general. I for one hope that we, the taxpayers, are done bailing out the likes of Chrysler. However, our country was already in the depths of the worst recession since the great depression. I don’t even want to think about where we’d be had they done nothing.
• “Oh sure… banks are paying us back with interest – by getting it from taxpayers in the form of higher fees!” Yes, fees are higher because banks now have to operate as businesses by charging fees for the services they provide instead of gambling on derivatives to make money. Would you feel better about the higher fees if all the banks were owned by the Chinese or the Saudis?

Stimulus

OMG!… $787 billion? It will bankrupt the country!

Obama probably wasn’t even unpacked in February of 2009 when Congress sent him the American Recovery and Reinvestment Act, AKA – The Stimulus Plan. The Democratic White House/House/Senate combo hit the ground running and the first substantial act was an effort to get the economy on track with a shot to the arm. Umm… yea… We’re not getting that money back.

It’s odd to me that “stimulus” has become a bad word. For all the talk about how it didn’t do what they said it would do, it’s not like the money was all pissed away. Only some of it! (Oh come on… where are my “glass half full” people?) We’re only about two thirds of the way into the stimulus plan (it’s a three year program) and it’s already hard to find an economist who doesn’t think its working. The “jobs saved” and promise of lower unemployment was bad marketing. It set the expectation too high. What it really did was reverse the trend of monthly job losses and it has helped people who were already unemployed tread water for a bit longer.

Without the stimulus, unemployment would have gotten and would likely still be significantly higher. Was it worth $787 billion? I think it’s more important to look at how it was spent and determine if it was spent wisely. Here are a few thoughts:

• Infrastructure.  We were going to spend the money anyway, so why not do it now? Roads, bridges, public transit, electric grid, rail transportation… I’m not talking about bridges to nowhere. I’m talking about fixing stuff that we have that is crumbling and building stuff that we need to facilitate commerce. Well, maybe a bridge to nowhere or a stupid fence got snuck in, but most of the stuff was/is needed. I get frustrated when less important projects get done and desperately needed ones don’t, but in general it seems that infrastructure spending is well spent. The biggest beef seems to be that these dollars haven’t gone out fast enough.
• Aid to states.  With high unemployment and lower property values our states were not getting the revenues they expected. Sure they need to cut back. But some help for police, fire, education, and other programs seemed wise.
• Unemployment benefit extensions.  I’m not sharing an opinion on this one, except to say it probably would have been passed as a separate bill anyway. Just like the other unemployment extensions.
• Hey – how about cutting taxes and letting taxpayers decide how to stimulate the economy? What a great idea! Ahem… Over a third of the stimulus package was tax cuts for individuals and small businesses. What, you didn’t get your check? Sneaky how the government trickled it out a few bucks at a time so that you’d spend it (to stimulate the economy) instead of using it to pay down debt or save for retirement. Such as?
  • The biggest line item of the stimulus package, over $116 billion, was for the Work Opportunity Tax Credit. It’s as if Obama was pretending to be Oprah. “You get $400 and you get $400 and you…” You know that payroll tax holiday that Republicans are always saying we should have? Most of you got one. Check with your tax preparer, or me, to see where you got it or find out why you didn’t.
  • It seems like every year Congress puts a patch on the tax code to reduce the effects of the dreaded Alternative Minimum Tax. Last year’s patch was nearly $70 billion. Maybe someday they will fix the problem instead of burying patches for tens of billion of dollars into other bills. (I can dream, can’t I?)
  • Child tax credits, earned income credits, homebuyer credits, residential energy credits, bonus depreciation for businesses, NOL carrybacks for small businesses…

So, glass half-full people… forget that it was a huge price tag for one bill. Let’s think of it as an example of government efficiency. Some of it is crap, but most of this money was going to get spent anyway. Most of it we needed. Instead of dozens of small bills for things like infrastructure, tax breaks, tax fixes, unemployment benefit extensions and more – they did it all with one bill. Does $202 billion sound better? Only $202 billion was for the fiscal year that ended last year. $353 billion was for the year that just ended. The rest goes in the budget for the year ending September 30, 2011. Hey… how’s that budget looking?

2011 United States Budget

Funny thing… the United States is currently operating without a budget. I know that’s probably normal for most people – I don’t have a budget these days. I just hope enough comes in each month to cover what needs to go out. But this isn’t normal for the US Government. It is the first time since 1974 that we haven’t had a budget in place by the beginning of a fiscal year. Congress was kind enough to pass a “continuing resolution” on the last day of the fiscal year, September 30, so that government wouldn’t shut down until after the election. Without an approved budget or another continuing resolution we shut down on December 4. So what’s the holdup?

For starters, I’m guessing that no one in Congress wanted to put their name on a budget that projects a $1.3 trillion dollar deficit before the election. After the election I suspect we may have a similar problem. (Did you feel that cool shadow of doom start to creep into this blog post? I was so upbeat about TARP and Stimulus.)

In my mind, the two biggest problems are tax cuts and old people. (Who says I don’t know how to make friends?) Let’s look at some of that budget.

First the income side. Total income is project to be about $2.6 trillion, almost all of which comes from income taxes and payroll taxes. This figure assumes the extension of the Bush tax cuts for individuals with income under $200,000 and families under $250,000. I’m guessing it also includes some increases based on economic growth which is yet to be seen. If Republicans get their way, the Bush tax cuts would be extended for everyone. The price tag for that is an additional $700 billion over ten years. I’ll round off a little and suggest that if Republicans got their way it would drop the revenue side to about $2 trillion for fiscal 2011. But total expenses are expected to be $3.8 trillion – more tax cuts just made the problem worse. How do we fix that? Cut expenses!

Anyone else notice that all the politicians are talking about cutting expenses but none of them will be specific about where?

• Old people. I don’t know if we have final audited numbers for the fiscal year that just ended, but I think we spent about $1.2 trillion on Social Security payments and Medicare. Even if I’m off a hundred million, the number for this year will be a lot higher and it gets worse for the next several years as baby boomers flood into retirement. I’m the first to admit we need to start looking at some changes here, but find me a politician willing to cut payments to grandpa and a bunch of little old ladies. Death panels starting to look good? Hey, I saw a movie called Logan’s Run that had some ideas we could use. However I think we should assume that none of the politicians have the testicular fortitude to touch this hot potato and estimate $1.3 trillion for 2011. Where else can we cut?
• Defense and homeland security. Let’s call it $900 billion. (I was tempted to round up to a trillion, but that’s just rude.) I get it, we’re at war. But let’s play a little game. Let’s end the war, identify billions in other savings and cut the overall defense budget to say $500 billion. Hey that was fun – I think I just got the deficit under a trillion. Unless we extend Bush tax cuts to everyone.
• Everything else. Let’s see… Total expenses of $3.8 trillion, but let’s take out $200 billion for that stimulus bullshit and I saved $400 billion on defense a minute ago, so call it $3.2 trillion. Subtract $1.3 trillion for old people and $500 billion for the newer leaner defense budget because we miraculously and instantaneously ended the war. Probably need $200 billion or so for interest on the debt and some money for the VA since we take care of our troops. That leaves $1.2 trillion for everything else. Cut everything else in half and we still have… a nearly half trillion dollar deficit. Dammit!

Forget the silly math. My point is this: Extending the Bush tax cuts for everyone cuts projected revenue to about $2 trillion a year. We spend that much on Social Security payments, Medicare and defense. Even with planned defense spending decreases we still have increasing SS and Medicare costs because of an aging population. The $2 trillion isn’t going to get cheaper. Where does the money come from to pay for everything else?

Put everyone back to work and grow the economy as much as you want. Let’s say that increases government income by 40%, which I believe to be unlikely if you extend all the Bush tax cuts. You’d still need to cut the cost of EVERYTHING beyond SS/Medicare/defense by over half to balance a budget. No matter what you think about government waste, I submit that this would be impossible.

When Clinton left office we had balanced budgets and an economy that was working even if taxes were a little too high. Bush cut taxes too much and by the end of his presidency we were headed for trillion dollar deficits. I submit that tax rates belong somewhere in the middle. Not too high, not too low. Something Goldilocks would be comfortable with.

We need to cut government spending. A LOT. But taxes still need to go up and not just for the top 2% of taxpayers. We can’t hit them for the whole bill.  It’s simple math!

Don’t like that math answer?  Good thing  I’m a CPA.  Stay tuned after the election for some tax law coverage, including my 3-point plan to increase federal revenues without creating a new tax or raising rates beyond the Bush tax cuts.  I know I just said that it can’t be done, but I’m just that good.  Here’s a hint, Obama is actively working on two of them and I alluded to one of those in part 2 of this series.  Another teaser:  Some of you will prefer higher tax rates.

We still have some doom to talk about.

The Election and Extension of the Bush Tax Cuts

So here we are, days away from the election. We don’t have an approved budget, we have a government limping along with the help of continuing resolutions, and so far the Bush tax cuts are still set to expire on December 31. Any guesses on what will happen between next Tuesday and the end of the year?

Let’s say the Democrats keep the House and the Senate. (Bear with me.) Hurray – they won! The House passes tax cuts for individuals under $200k and families under $250k and sticks a huge tab to the top 2% of taxpayers just as Obama wants. Senate Republicans filibuster because they want all the cuts extended, nothing gets passed, they run out of time and we are looking at obnoxious tax hikes January 1. Hmmm…

Let’s say Republican’s take the House. (Pretty likely.) Hurray – they won! Bush tax cuts for everyone! Except the Republican’s don’t take control until January. We have a lame duck session of Congress to deal with. Fine… tax cuts for 98% of the people – Everyone wants that, right? Wrong. Republicans will fight it because they don’t want the Democrats to get credit for a tax cut when they will get control in a few weeks. Democrats theoretically might have enough votes, but a lot of those guys just got pink slips and won’t be motivated to vote. Let the new guys deal with this mess in January.

Run the scenario a half dozen ways and I see the large possibility that we don’t have tax law extensions until well into the new year. Scared yet?

If Congress can’t agree on the budget or tax law extensions then how about that continuing resolution to keep the doors open? Several of the conservative Republican candidates have flat out suggested that the government should shut down. No one to process tax refunds when people start filing tax returns. No one to process payments to government vendors. All national parks are closed. Certain construction projects stop. Do I need to go on?

Final Thought

No matter who wins next week I think we have a couple of scary months coming. However, at some point I believe that a modicum of sanity will be restored and our fresh batch of elected leaders will find a way to… not completely f*ck us over. It’s the optimist in me.
This concludes my three part series, but (as noted) I’ll be back with more commentary after the election. I welcome your comments, but I may not get back to you for a day or so. I’m headed to Washington D.C. for the Rally to Restore Sanity (and/or Fear). Tune in to Comedy Central on October 30 and watch for me in the crowd.

Please vote.

Politicians continue to lie on and on about what is and isn’t in the healthcare reform that passed earlier this year. Security along both sides of the Tigris River as it weaves through Iraq is now the responsibility of Iraqis. Threadbare rules on Wall Street that led to the near collapse of our financial system are being rewoven. A lot of things have happened over the last 21 months. Some of it is bad. But some isn’t as bad as detractors would lead you to believe.

Healthcare Reform

Several presidents have tried to tackle health care reform and failed. Health care was a cornerstone of Obama’s platform during the election and, to his credit, he got a comprehensive package passed. We must have wanted it or we wouldn’t have elected him. The status quo of double digit increases in health insurance costs and a growing class of uninsured (and uninsurable) had to be stopped, or at least slowed down. Even many Republicans acknowledged that, although half-heartedly.

From the beginning all options were on the table as far as Obama was concerned, even if his own party disagreed. He preferred a government option but didn’t require one. Tort reform, mandates, taxes, and more were all open for discussion. Obama, concerned with other matters as president, delegated the details and law writing to Congress. In retrospect, he probably should have been more hands on from the beginning. Who knew that the members of Congress would act like a bunch of school kids who don’t like each other?

About 2,400 pages later, we have healthcare, errr… health insurance reform.

Broad strokes, as confusing as it is, it does accomplish a lot of good things. A lot more people will be insured, costs go up but not as fast, and there is a lot of help for low/middle class taxpayers AND small businesses. Republicans didn’t get the tort reform they wanted but you would think they’d be happy that the meat of the law doesn’t include a public option and that it does have the mandate – which was their idea.

Confused? Stop listening to revisionist history and you’ll find that Nixon was a proponent of mandates. Oh, and most of the Republican party during the Clinton administration. Free market providers with tax related mandates were their ideas to fight against Hillary’s failed attempt to reform healthcare during the 1990’s. Too far back for you? Current millennium – Mitt Romney, with Scott Brown’s help, passed similar laws for Massachusetts.

Be careful what you wish for? Now that Republicans got what they wanted (without their actual help) they don’t want it anymore. Instead of trying to fix the flaws in the health insurance reform they perpetuate lies about what is in the law and talk about repealing it in its entirety. A few random thoughts:

• Tort reform.   It’s not too late. It has come up separately from healthcare reform many times. Pass some.
• Socialized medicine.  As passed, the law is far from it. And it won’t lead to the U.S. turning into a communist country. Am I the only one who was confused by the old farts who protested against a single payer system (which we didn’t get) because they didn’t want socialized medicine… but then they said “don’t touch my Medicare,” which is a single payer system? (It should be illegal to make chocolate – but don’t take away my chocolate?)
• Reporting requirements.   Don’t be scared into believing that the reporting of your health insurance costs on your W-2 is bad. It’s just a reporting item – it isn’t taxed and it shouldn’t be a burden for employers. What IS a reporting burden is the new requirement (starting 2012) that businesses issue 1099s to all payees of $600 or more. I get why it’s in the law, but there are other ways to accomplish some of the goals without being such a burden on small business. PLEASE FIX!
• Abortions.  Without getting into the whole pro-life/pro-choice debate, there is specific language in the law plus a presidential mandate that prevent government funding of abortions. If those aren’t good enough for the pro-lifers then maybe they should consider some additional restrictions. But don’t throw the baby, um… reform, out with the bathwater.
• Death panels.  Insurance provided counseling, which didn’t make it into the final bill, was denounced as “death panels” because of a perceived (erroneous) bias toward euthanizing the elderly. Some who continue to want a complete repeal still use this as a reason even though it didn’t pass. What cracks me up is the irony of it all. Insurance, by its very nature, is somewhat of a death panel in the sense that lines are being drawn at every level about what is and isn’t covered. If something isn’t covered and the person can’t afford to pay out of pocket for a treatment (that may or may not work) then the insurance company (panel) has sentenced them to death. “Sorry, not covered. Prepare to die. NEXT.”

Insurance can’t cover everything and in the end we all die. Preferably later than sooner. The whole idea of healthcare reform was to help provide a minimum standard of care available to everyone without regard to pre-existing conditions and without sending people into personal bankruptcy if they get sick. It’s not perfect, but I believe the health insurance reform has more good than bad. It’s unfortunate that it is so complicated and so misunderstood by the general public, but in time I think we’ll appreciate the benefits and legislative patches will mitigate some of the shortcomings.

And to those who would suggest that we “tear down those laws” I would say “Ney!” We passed these laws to help “promote the general welfare.” A Constitutional mandate long ignored.

War

What is the definition of “winning” these days? War, today, is not about taking over real estate and adding to our global footprint. It’s not about stopping Nazis from increasing theirs. It’s not about Borg-like assimilation of other cultures. And, post-Bush, I don’t think it’s about regime change. Isn’t it about security? Isn’t it about protecting the safety of our citizens? Not just in the United States, but British and French citizens on trains, people in Bali and India at hotels, and so many others. Christians, Jews, Hindus, Muslims, and even a few atheists… we are at war to create a safer world for all people.

So how do we win? How do you fight an enemy you can’t discern from the color of their skin, the clothes they wear or the religion they practice? This enemy doesn’t care about political borders or government or peace. We aren’t fighting the 1.5 billion Muslims on the planet, we are trying to protect ourselves from a few thousand (maybe less) radicals who claim to be Muslim but who are also willing to blow up other Muslims on a regular basis.

I don’t know the answer. But I hope, for the most part, that we are doing the right things at home, in Iraq, in Afghanistan and in other places around the world. A lot of people have criticized Obama for how he’s handled the war on terror. Shortly after taking office he more than doubled our troop levels in Afghanistan. In September of last year, after a botched Afghan election in August, the military recommended significant additional troop levels beyond what had already been sent. Because he didn’t quickly rubber stamp a report from a general he was accused of being a bad commander-in-chief who lacked the military experience necessary to understand what needed to be done. I think he knew more than the public realizes. For starters, he knew to ask more questions.

You can’t just call up the president of a sovereign country that you are trying to help and say “My generals tell me we need more boots on the ground. It’s for your own good. They are on the way.”

This war is unlike any other and no war is just about a military solution. There are many political and diplomatic factors in play – with allies and the leaders of the countries where the troops are to be deployed. It took about two months for the White House to publicly acknowledge the additional troops for Afghanistan, but a lot of diplomacy and additional research went on during those two months. And the influx of additional troops was to be faster than originally outlined in September, so don’t tell me that the delay caused the whole plan to be pushed out to the detriment of the soldiers already there because I’m not buying it.

Working to eliminate safe havens for terrorists to take root and multiply is our best option to increase safety. This includes military actions, diplomacy and (like it or not) some level of nation building. In the end, can we ever really “win”? There will always be some terrorists out there. Some Muslim, some Christian, and some just plain whack-a-doo. Reducing their numbers and their ability to inflict damage is all we can do.

A Mosque in New York

Unbelievable. Some politicians and conservative pundits have overtly created a negative campaign against all people of a specific faith. Even an old Jew from Jersey knows that we aren’t at war with all Muslim. The “Ground Zero Mosque” is a myth created to scare people into hating Muslims – apparently for political gain. A “myth” because a) it isn’t at ground zero and b) it’s actually a community center open to all faiths with a portion designated as a prayer room for Muslims. Is there a “no churches allowed in Oklahoma City” rule because McVeigh was a Roman Catholic?

On this same topic, if you haven’t seen the clip from The Daily Show about how the funding for the Community Center near Ground Zero can be traced back to Fox News then you should. Here’s the link:

http://www.thedailyshow.com/watch/mon-august-23-2010/the-parent-company-trap

Financial Reform

After years of hacking away at protections put into place after the great depression to reduce the risk of financial catastrophes we got… a financial catastrophe. Go figure.

In theory, I still believe in free-market capitalism, but we have two problems.
1) As we’ve moved toward a global economy, capitalism only works if everyone plays. Chinese flat-screens and tennis shoes are cheaper because they don’t play by the rules. This is just one example of why TRUE capitalism is probably dead.
2) Greed and stupidity. (Maybe that is two problems, making a total of three?) The last dozen years have proven that you can’t have unchecked capitalism. Enron, Worldcom, financial institutions leveraged 50 to one and lending 110% loan-to-value, some guy named Bernie…

A couple months ago we finally got some long overdue financial reform. I’m of the opinion that the reforms don’t go far enough to protect borrowers and investors, but they should curb some of the stupidity that turns financial thunderstorms into hurricanes.

John McCain still hasn’t learned from his involvement in the S&L scandal of the late 1980s and the rest of the Republicans haven’t learned from the more recent financial meltdown that you have to have regulations. These mouth pieces for Wall Street bankers continue to thwart attempts to create a stable financial structure by sticking to their theme of deregulation in the name of free-market capitalism. Maybe they don’t watch the news.

I think I can learn to live with the watered-down version of capitalism that we are ending up with. Promote business, innovation and success – but regulate for health and financial safety. Would a capitalist put seatbelts in every car? Hell no, they’re expensive. But we do it. Do we shun lead in out toys and paint? Yes (China will learn eventually). Do we require more transparency of derivative investment products? Hmm… still not enough.

 
So many more topics I wanted to cover with this article. Maybe I should have started earlier in the month and chopped this into a 5-part series instead of three. 
Gitmo – Still open? Don’t-ask-don’t-tell – Still not repealed?
Immigration reform, global warming, and math/science scores that are dropping in relation to other countries. So many hot topics, so little time.

Stay tuned for the third part of this October 2010 series, which should be out on Friday.
I’ll be attempting some math – not an easy task for a licensed CPA.

Comments or criticisms? Please share below or email your confidential thoughts to christopher@grasshutandcoconuts.com.
 

Over the last few months several people have asked me if I was still happy with my decision to vote for a Democrat in the last presidential election. And the question is often asked with a tone that suggests that I shouldn’t be. After all, with nearly 21 months in office he has failed to transform a country that was in the middle of the worst recession since the great depression into Utopia. Our streets are not paved with gold and there isn’t a unicorn in every pot. Indeed – How could I POSSIBLY be happy?

Admittedly, a few things haven’t gone as smoothly as hoped. But, unlike many, I think I had fairly realistic expectations when I voted for Barack Obama. Even before he was elected I accepted the fact that he is a mere mortal who would be taking over during troubled times. I also knew that there is only so much that one man, or even all of government, can do to turn things around. I expected setbacks and missteps. I hoped for a leader with a good message who could make tough decisions for the good of our country as a whole. I wanted things to get better.

And things have gotten better. Certainly not as fast or as well as many have hoped, but many key indicators are headed in the right direction. “Technically” the recession is over (if you believe the economists) and several stock indices are up over 30% since Obama took office. (Over 30% in 21 months – I wish I could do that EVERY 21 months.) Inventory levels, productivity, consumer debt… statistic after statistic we see things moving in the right direction.

But it doesn’t FEEL like things are getting better because the jobs aren’t coming back fast enough and that’s what everybody sees. Yet even with regard to jobs the statistics are at least headed in the right direction. We were losing about half a million jobs per month when Obama took office. It took a few months to stop the bleeding but we’ve seen private company payroll increases for 9 straight months – every month so far in this year. The gains have been minimal but it’s a start. Economists will tell you that employment statistics are lagging indicators – which is to say that they are some of the last to recover when recessions occur. They are certainly being proven right with regard to this recent recession.

While I don’t agree with all of the decisions coming out of Washington, I do think that White House policies have helped a recovery more than they have hindered. More importantly, some of the legislative accomplishments should have positive long-term effects. Stay tuned over the next few days for some specific thoughts on the following:

Part II: Obamacare, Financial Reform, War, and some miscellaneous random thoughts.

Part III: TARP, Stimulus, and extension of the Bush tax cuts.

With an election just over a week away, I’m not so naïve as to think that my ramblings on these topics will sway anyone from once side to the other. I just think it’s good to summarize some thoughts on the hot topics. Besides – no matter who wins next month and no matter which party controls the House and the Senate, we are in for more political stupidity from Washington. As for Obama…

After 21 months I see a president, not unlike many of his predecessors, who is discouraged by the lack of power to get certain things done. Apparently many things can’t get done without an act of Congress. Literally. And Congress, even if controlled by your own political party, isn’t always willing to play along.

I see a man who has stuck by his core messages and who has tried to govern from somewhere close to political center even when pundits try to characterize him as a liberal whack-job because of his political party affiliation. If you refrain from putting words in his mouth and pay attention you might notice that some of his ineffectiveness is attributable to the fact that his own party doesn’t think he’s liberal enough. In this political climate, there appears to be no room for compromise in the House or Senate because that is seen as fraternizing with the enemy. It doesn’t matter what is good or bad for the country. All that matters is pleasing your political base so that you can get votes and keep your job.

Some people like to blame the president for not bridging the gap, but the gap has never been this wide and I don’t think anyone sitting in the Oval Office could build a bridge big enough. Bring Reagan back from the dead and give him a ruler to slap wrists and you still wouldn’t be successful.

Speaking of Reagan, a final thought for today – When Ronald Reagan took office we were in a recession and he started with an approval rating somewhere around 60%. During his first two years in office the economy continued to struggle and his approval rating slid until it hit a low point around 40% early in his third year. About half way through his third year the economy and his approval rating began to recover. Anyone else see an eerie pattern starting to form?

Stay tuned for parts II and III of this series. I welcome comments and criticisms. Use the comment feature below or you can email your confidential thoughts to christopher@grasshutandcoconuts.com.

I’ve had a few people asking for my thoughts on the presidential election results.  I guess I’m a lousy blogger for having ignored the results for several days.  Sorry about that – I let my day job and social activities get in the way.

So how about that Obama win?  Who saw THAT coming?  Crazy world, huh?

Obviously, based on my previous posts, I’m pleased with the results.  I honestly do believe that he is the right choice and I was pretty confident that he was going to win.  I was nervous right up to the end that something stupid would happen, but for weeks I’d been thinking that the popular vote would be pretty close and that it would be an electoral blowout.  I wasn’t that far off. 

What is odd this presidential election is how depressed and scared a lot of Republicans seem to be now that it’s over.  As if they didn’t see it coming and an absolute disaster has occurred.  They think that all the things that Obama said during the campaign were lies and that he’s going to get into office and his head will start spinning in circles.  They don’t know what to do with themselves – even praying may not help this time.  HE’S THE ANTICHRIST AND ARMAGHEDDON IS ON THE HORIZON!

Ah jeez.

With the possible exception of John McCain, a lot of hard core Republicans need a face slap to bring them back to reality.  I say except for McCain because even he recognized that Obama is a decent person.  They disagree on how to approach some of to the problems we have, but McCain acknowledges that Obama wants what’s best for our country.  Obama is not a secret Muslim, he is not a terrorist, and he is not the antichrist.

Obama won’t keep all of his campaign promises – no politician can.  But he will stick to the spirit of his message and he will do what he can based on what he thinks is best for the country.  He is thoughtful and highly intelligent and he is known to collect the views from all sides of a situation before making a decision.

Take a Xanax and prepare for a bumpy ride.

In case you haven’t noticed, things are kind of shitty these days.  War, nuclear aspirations of dangerous countries, global financial crisis, rising unemployment, global warming, record breaking deficit spending, a $10 trillion national debt, lions and tigers and bears…

Mistakes will be made and things will probably get worse before they get better.  You can’t fix everything at once and some things (believe it or not) are beyond the power of the president of the United States.  Democrats can have their day to gloat and enjoy the win, but at the end of the day there is a lot of work to be done and more pain to endure.  Hopefully the changes that are coming will get this country moving in the right direction and I believe we will be moving in the right direction.

Now that the election is behind us, I’ll probably post more non-political stuff.  I know politics creeps into just about everything, but I’ll try to mix it up a bit more.  Before moving on, here are a few thoughts (some new, some old) about our President Elect and where I think we go from here.

Rezko, Wright and Ayres 

Sounds like a good name for a law firm, eh?  Except it’s a convicted felon, a bombastic preacher and a former terrorist.  A lot of people feel that I didn’t give enough weight to some of Obama’s past relationships while assessing his candidacy.  Truth is I did consider these relationships but I tried to put each of them in their proper perspective.

I have a lot of colorful characters in my past too.  Just in the last two months I’ve spent a weekend with an extreme right-to-lifer, I’ve dined with a convicted felon, and I’ve gambled in Las Vegas with a married woman who wasn’t my wife.  Sounds terrible on paper but I assure you that these are all innocent relationships and that nothing nefarious transpired.  I hope those relationships aren’t dug up and that these people don’t pop off when I’m trying to get my next job.

When I looked at the context of Obama’s relationships with these individuals I found no reason for concern.  I heard no evidence to indicate that these individuals led him to make poor decision in his job as a public servant and there is every reason to believe that he will choose knowledgeable advisors and make important decisions based on ideals he has campaigned on.  I don’t agree with all of his views but I’m sure he will seek out advice from qualified individuals.  We don’t have to worry about Larry, Curly and Moe even if he had a few meals, prayed or served on some committees with them.  Just like I won’t make any stupid decision at my job based on relationships with my crackpot friends.

Earmarks, Campaign Finance and Lobbyists

Certain things about how our leaders govern are broken and some of the things they do for the greater good of their constituents don’t make sense.  However, with a few exceptions, most politicians probably play by the rules even if the rules suck.  Earmarks are a problem, but it that is the currently available vehicle to fund an important project then use it to your advantage.  Campaign finance rules and influence peddling are problems, but you can’t get in there and fix the problems if you aren’t there.  So screw it – get those campaign donations however you can as long as it’s legal. 

I don’t fault Obama for sneaking in earmarks while he was a senator and I don’t blame him for ditching out on public financing for his campaign.  He did what was best for his constituents and what he needed to do to get elected.  Legally.  Want someone to blame?  How about a guy who’s been in congress for over 20 years without getting the system fixed?  Oh sure, he’s a maverick and he’s been working on reform.  Good for him, but I guess that makes him an ineffective maverick because these things are still a problem.  I’d rather have an ineffective senator continuing to work on needed reform than an ineffective president.

These are complex political issues and I don’t envy the job of trying to make the system more fair and transparent.  I’m being overly harsh when I call McCain ineffective because I know he has made some progress.  Hopefully our next congress and the next administration will put some more dents it these problems.  Come on Johnny – You can do it!

ACORN

ACORN is a community organization that has been around since 1970 with economic and social goals primarily for the benefit of low and moderate income individuals.  Whether you agree with their methods or not, many of their stated goals are admirable.  That said – it has become clear that over the years this organization has developed a few bad apples.  Or should I say nuts? 

Is it time to shut down this organization?  Maybe, maybe not, but if it goes away I hope that something fills the void to keep their good goals alive.  Maybe this tree just needs some major pruning and some pesticide.  It may not have to be cut down.

As for election fraud – I’m hoping that just because Donald Duck attempted to register to vote (in multiple states) that he didn’t actually GET to vote.  I’m hoping that, regardless of community group activities, election laws at the state level prevented most errors from occurring.  Where there are problems, we should work to correct them.  I know that a lot of Democrats are not in favor of this, but I am in favor of requiring photo ID to vote.  What if you don’t have one?  GET ONE, maybe while you’re signing up to vote.  Can’t afford the fee or can’t get to a state agency easily to do this?  Maybe ACORN can help you with that.

As for Obama’s relationship with ACORN – Just like his relationships with Huey, Louie and Dewey, I believe his involvement with ACORN was overblown and exaggerated by Republicans.  Believe what you want if it helps you sleep at night, but here is a summary of Obama’s actual relationship with ACORN: http://www.acorn.org/?id=17856

Oh, Sarah (Palin)

In an earlier post I wrote that I would try to write a more complete post about why I think Palin is a terrible choice for VP.  I’m sorry that I didn’t get to that before the election, but I sense we haven’t heard the last from her.  So here are a few thoughts:

• When she became mayor of Wasilla the city had zero debt.  6 years as mayor later, the so called “fiscal conservative” left the town with $22 million in debt.  Doesn’t sound like a lot, but when you consider the population was let’s say 7,000 – that’s over $3,000 for every man, woman and child.  Don’t let her near your checkbook!
  • Let’s see… $3,000 times US population of about 305 million people… about $915 billion dollars.  Let’s round off to $1 trillion.  Add that to the national debt after they cut taxes and invade Iran. 
• Or there is the reverse – She talks about not punishing “big oil” with fees and windfall taxes, but she takes their $ and doles it out to Alaskan citizens instead of sending back the check.  Alaskans don’t have an income tax – the get a check for being there.  Maybe if all Americans got a “big oil” bribe each year we would be more inclined to “drill baby, drill.”
• Some have suggested that she did a great job going toe-to-toe with Joe Biden in the VP debate.  I don’t think so.  The winking, the you betcha’s, the lack of pronouncing a “g” on words that should have one… I’ll bet she snaps her gum and chews it with her mouth open.  That 80% approval rating she supposedly has in Alaska probably has a statistical margin of error exceeding 20% and it’s probably on the decline.  Rapidly.
• And then there are her extreme conservative views on birth control, sex education, abortion and homosexuality.  I’m sure some of you will disagree with me on this, but I call this a cherry on top of a disaster sundae.  She’d be such a good influence on the next generation that they’d all be knocked-up unmarried teenager.
• It took her 5 universities to cobble together an undergraduate degree in journalism.  She has no experience with international politics, the military, or constitutional law.  Being a Washington outsider isn’t a plus if it means you have no concept of how Washington actually works.  She’s qualified to read the news – not make it.
• Did anyone else see the way her husband was eyeing her on stage while McCain gave his concession speech?  You KNOW he wants this mess to be over so he can get himself a little sugar.  Since they don’t believe in birth control, I’m guessing she might be pregnant again by spring.  If she were in Washington next year, all knock-up and hormonal, I would fear for her proximity to the red button. 

Some WAY OUT THERE Republicans have suggested that I’ve been a little too hard on Palin.  Maybe I’m not giving her enough credit when I refer to her as an incompetent bubblehead.  Heck, governor of Alaska has to be a pretty hard job.  However, at the end of the day I still don’t like her political views and I still say she’s not qualified to run this country. 

Hillary, on the other hand, would have done fine.  That woman has balls.

Final Thoughts for Today

So many topics I’d like to cover.  Let’s save some for another day.  Topics like: Drilling (we should), Windmills off Massachusetts’ Cape (we should), gay marriage (go ahead, I see no problem), and various tax law issues (I’ll try not to bore you). 

Plus, I have a few fun posts I’m working on and come February it’s time to talk about American Idol performances.  I’ll bet you can’t wait!

In the meantime – What are your thoughts and what do you want to discuss?  Please use the comment feature below or email me at Christopher@grasshutandcoconuts.com

Confused about campaign tax law rhetoric?  John McCain is.  So are Republican campaigners and the right wing version of “gotcha media.”  Heck – a lot of Americans are confused.  However this time all the confusion is not a function of dementia or general stupidity.  It’s a function of the complexity of our tax laws. 

My friend Ann Marie posted some comments and a link to an article in the comment section of my post titled The Fear Vote.   These comments express frustration with perceived inconsistencies flowing from the Obama campaign regarding proposed tax law changes.  I was going to respond with a comment myself, but this is such an important topic that I deemed it worthy of a separate post.  This way I can educate more people instead of having my thoughts buried in the unread annals of blog commentary.

This is important because the struggling global economy is one of the most important issues of this presidential election.  U.S. tax laws are a major factor affecting our economy.  Economics is an area where McCain has acknowledged weakness and he has a disturbing track record, so it’s not surprising that he is confused.  The Obama campaign didn’t do themselves any favors by choosing to highlight similar but distinctively different statistical tax law projections.  However, I submit that the Obama campaign has been consistent in their message.  You just have to pay attention.

I pay attention to tax law rhetoric in a way that the average person does not.  I’m guessing it’s a function of my day job.  The Obama campaign may or may not be able to clear up some of the confusion over the next couple of days because they are kinda busy trying to get their guy elected, so I’m willing to give it a shot. 

As noted in prior posts – I don’t agree with all of Obama’s proposed tax law changes, but I do think his proposals are far more responsible and better for the overall economy than the continued lunacy proposed by the Republicans.  Whether you agree with Obama’s proposals or not, the key to understanding them is to pay attention to some key words and phrases.  I’m not about to completely rehash the competing tax proposals, but I would like to help clear up the confusion regarding tax cuts for incomes under $250,000/$200,000/$150,000.  So here goes…

“FAMILIES” Making Less Than $250,000.  The key word is families.  Obama’s campaign has been consistent in saying that families making less than $250k will not see a tax increase and families making less than $200k will get a tax cut.  Families does not include single, middle-aged, curmudgeonly, balding men/women with cats.  (So I guess I’m screwed – and so is my friend Ann Marie.  Although she is not balding, so she’s got that going for her.)  Families implies dependents, which means a spouse or children.  The cuts they refer to are a function of increased exemptions and credits related to the children.  Also in the mix are increased credits for education and adjusted tax rates for all taxpayers.  Several of the proposed changes won’t affect people like me and they won’t affect seniors.  Furthermore, this statement indicates that families under $250k won’t see an increase.  They also might not see a decrease.  Under $200k – they would see a decrease.

“WORKING AMERICANS” Making Less Than $200,000.  Working Americans includes many families but it also includes people like me.  What about non-working Americans?  Buzzzt.  Not talking about you here.  So if you happen to have large amounts of investment income, passive income, retirement income or other income not associated with currently working then you aren’t in this category.  Working Americans addresses people with earned income subject to FICA taxes or self-employment taxes.  The demographics of this category are potentially very different from families. 

Ok, so far ALL families with income under $250k will not see a tax increase and ALL families AND working Americans with income under $200k will see a tax cut.  So who is left out?  Well, the biggest category that jumps to mind is senior citizens – but they aren’t forgotten.

“MIDDLE CLASS PEOPLE” Making Less Than $150,000.  This one bugs me a little because “middle class” is not necessarily a function of taxable income.  I believe you also have to look at assets, debt and other factors.  A non-working homeless person is clearly not middle class, but what about a nonworking individual with a beautiful home and significant assets invested in such a way as to defer most tax effects?  Are they middle class?  Maybe upper class?  My point is that you can’t just look at how much income someone makes.  And what about that word “making”?  Does “making” income mean “earned income” or does it include investment income and all the other subcategories of taxable income?  I will now stop being an overly analytical geek accountant. 

I believe the intent of this phrase was to include ALL TAXPAYERS with ADJUSTED GROSS INCOME under $150,000.  Families, singles, workers, non-workers, seniors…  EVERYBODY who files a tax return with AGI under $150k should get a tax break under the Obama tax plan.  Huzzah! 

So, there is the difference between the $250,000/$200,000/$150,000 figures the Obama campaign uses.  It depends on if you are talking about families, working Americans, or all taxpayers.

Roughly 95% of ALL tax returns show adjusted gross income under $150,000.  What about just the families?  I’m not sure, but I could see how 95% of that subcategory of taxpayers could be under $250,000. 

It’s all very confusing.  I’ve been preparing tax returns for over 20 years and tax law gets more confusing with each passing year.  Even in election years when candidates talk about tax simplification we don’t actually get any.  Interesting how both parties have given up on this concept for now.  I don’t think I’ve heard the words “tax simplification” from a politician in years. 

Earned income, investment income, passive income, capital gains income, adjustments, deductions, credits, AMT… ahhhh!!!  I doubt Barack Obama understands all the nuances of tax law.  Many tax accountants with years of experience sometimes have a hard time.  The promises from the Obama campaign are based on estimates, projections, statistical analysis and tax law proposals designed by learned advisors.  Obama just put his “okie dokie” on those proposals and promises to try to get there. 

Every American should know by now that the details associated with these types of election year campaign promises never actually become law in their current form.  Congressional subcommittees, special interests, lobbyists, and many others will stick their thumb in the pie.  However, Obama’s tax law proposals are more fiscally responsible than McCain’s and I do believe that he can get laws passed that will reduce taxes for families and working Americans with incomes under $200,000 and ALL taxpayers with incomes under $150,000.

Obama’s message on taxes is consistent even if it is sometimes confusing.  McCain is just confused. 

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Need help preparing your 2008 Income tax returns?  Michigan families, working Americans and taxpayers with income above or below $150,000 should contact me.  Click here for my current contact information. – Christopher Ozdarski, CPA

Where has the time gone?  I really did hope to post more thoughts about the upcoming election.  Now it’s less than a week away and I still have a list of good intentions.  I had no delusions that I would sway anyone one way or the other, but I do enjoy the discussions.  Let’s see what I can bang out on the keyboard between now and Tuesday.

New readers – be sure to read Disclaimer 2008 if you haven’t already done so.

Oh – and thanks for all the great comments on the previous posts.  Returning visitors should go back and check them out.  Now on to today’s musings…

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Like many, I have been watching this year’s presidential election unfold a lot closer than I’ve watched some in the past.  Historically, I’ve always tried to stay informed and I take my right to vote very seriously.  But this year it seems more important.  Maybe because I’m turning into a curmudgeon with nothing better to do than worry about national politics.  Or maybe it’s because this election actually is more important than the last six presidential elections.

It seems like it should be a slam dunk.  In my mind, one candidate is clearly better than the other.  Neither is perfect, but it has been boggling my mind that the polls are as close as they are.  Equally confusing are the views of some of my friends.  I’ve always had friends at both ends of the political spectrum while I’ve drifted somewhere in the middle, but this year it seemed obvious that we’d all drift to the same page.  Nope.

So where is the disconnect?  Why are people clinging to their Republican red or Democrat blue?  Why are these smart, educated individuals parroting half truths and flat out lies about the “other candidate” while ignoring certain facts about their own?  There are a few who cling to their hot button issues and ignore the rest.  Abortion, gay rights, drill vs. don’t drill, and others.  I’m not here to deny them their views even when I disagree with them.  But what about the rest of them?  Why are so many people focused on irrelevant minutia to justify their decision when some of it isn’t even true?

The answer is fear.  More specifically, fear of change.  Which is ironic since both candidates are touting “change” as the reason to elect them. 

Everyone recognizes the need for change but they fear the types of changes that will or won’t be made.  Republicans fear that the Democrats will raise taxes, take away their guns and allow homosexuals to get married.  Democrats fear that a Republican administration will result in more cowboy diplomacy (shoot first and ask questions later), slashed budgets for already strained social services, further invasions of privacy by the government and continued withholding of basic human rights for certain individuals who may or may not be guilty of an actual crime.  Oh, and that Rowe v. Wade thing.

Add on top of these fears the general fears about one candidate or the other that may or may not be justified and you can clearly see why fear is a large factor in this election. 

Here is where I would normally go into too much detail in a long and winding effort to justify my thesis that one candidate should be feared more than the other.  If you’ve been reading the political posts on the site then you know the end result.  So instead of my long boring shtick, today I will just bullet point out some of the fears and share my rationalization for choosing my candidate of choice – Barak Obama.

• Taxes
  • Fear:  Obama will raise taxes.  Good to start out with a fear based in some truth.  The tax plans he has outlined do increase some taxes on high incomes, but not any higher than they were before Bush went crazy with tax cuts.  Raising taxes on the rich is bad for business?  Yea that’s why all the businesses closed during those pre-Bush years when taxes where even higher.  Besides, who’s making money THESE days?  A higher tax on $0 income is still $0.
  • Fear:  More businesses will go overseas because taxes are lower over there.  Any good tax guy knows you can’t just look at the tax rates.  After factoring in credits for investing in research & development, green technologies and American jobs there should be plenty of incentives to stay here. 
  • Fear:  Obama is lying when he says he won’t raise taxes for households with income under $200,000.  First of all – shut up Joe the plumber and pay your OLD tax bills.  Secondly, if anyone is lying about what tax laws will look like if they are elected its McCain.  More on that later.
  • Fear:  Obama just wants to redistribute wealth.  This actually does concern me.  Playing Robin Hood by taxing the rich and giving to the poor rubs me wrong.  Reducing taxes on lower incomes and taxing incrementally higher incomes seems fair to me (there’s a whole other post), but refundable credits – essentially “negative taxes” trouble me.   Yes – these refundable credits are a part of Obama’s plans.  But I rationalize that (a) hopefully they are temporary and (b) they will help this country get back on financially solid ground by getting money flowing.  Remember those stimulus checks that lower income families got this year?  Same kind of thing.  Yea – I know it didn’t work.
  • Fear:  McCain will only lower taxes for the rich.  McCain actually has a few tax benefits for lower income families, although not as much as Obama.  My bigger fear is that his tax cuts are too aggressive considering the current deficit spending and the enormous national debt.  Cutting spending alone will not cure those problems.  But here’s a reality check – McCain will not be able to get all his tax plans passed.  He’s lying or delusional if he thinks his tax proposals will become law with a Democratic congress.  He can “reach around” the political aisle all he wants but I suspect that all he’ll get is a smile from Larry Craig.
  • Taxes?  They suck.  But Obama’s plans are more fiscally responsible and, in my opinion, better for the overall economy.
• Terrorists and International Diplomacy
  • Fear:  Obama is inexperienced and will not know how to deal with terrorism because he has no military background.  Yea, and George W’s Air National Guard service is why he’s done such a bang up job.  I’m not going to argue about whether we should have invaded Iraq or question why we don’t have Bin Laden yet.  Moving forward there will be more issues with terrorism – that’s a fact.  I am confident that Obama is aware of the responsibility that comes with this job and I believe he is plenty capable of dealing with emergency situations.  All presidents rely on good advisors and information from the military and intelligence communities.  We have the best in the world.  Let’s just hope that’s good enough – no matter who gets elected.
  • Fear:  Obama wants to sit down and negotiate with terrorists.  I’m a lover, not a fighter.  I believe that attempting international diplomacy is a good thing.  It’s not about negotiating away a position of strength.  It’s about discussing a way to co-exist in peace.  My fear is that McCain will skip right to the shooting like Bush.  Cowboy politics has bruised many of our international relationships.  Let’s talk to our friends and enemies and leverage international pressure on evil doers.  And if that doesn’t work then we bomb the hell out of them. 
  • Fear:  Obama is a terrorist and a secret Muslim.  Hogwash.  Drivel started and perpetuated by ignorance.
  • But what about Bill Ayres – he’s a terrorist and Obama is friends with him?!  OMG – maybe someone should alert Dick Cheney.  Let’s get to waterboarding Mr. Ayres down in Guatanamo Bay if he’s such a menace to humanity.  Except for the fact that he is a respected educator and member of his community.  Look – William Ayres is an idiot.  They were on a charitable committee together.  Not business partners, not vacation travel companions, not gay lovers.  He is not an advisor to Obama and their “friendship” has been overblown. 
  • But but but… his dad was a Muslim!  Really?  So what?  Colin Powell put it best a week and a half ago.  Obama is NOT a Muslim and it shouldn’t matter if he was.  Muslim is not equal to bad.  We have many Muslim citizens, members of the military and one U.S. Congressman.  Hitler was a Christian – should I be afraid of all Christians?   
• Economics
  • Fear:  Obama lacks executive experience.  Here’s a thought – maybe we should elect a Harvard MBA with experience running a business plus six years of experience as governor of the second largest state (by population AND square miles).  Except (a) that’s not one of our choices and (b) that hasn’t worked out so well for us these last few years.  As noted in my last post (The Financial Pain), Republicans and Democrats are all to blame for our current economic mess.  If Obama can balance his own checkbook (I’m hoping he can) then he’s as qualified as any other politician to get us out of this mess.  The key will be increased financial transparency and some good regulation (not bad regulation and definitely not deregulation). 
  • Fear:  McCain would continue to believe in an unregulated free market economy with blank checks to the Treasury Department and Federal Reserve to fix problems as they arise.  You should be afraid.  McCain has admitted that his knowledge of economics is weak and he was a proponent of deregulation even after being involved in the S&L Scandal of the late 1980s.  I know he changed his mind a few weeks ago when Lehman Brothers failed, but he still doesn’t seem to have a clue what to do.
  • Interesting that the stock market and general economy have historically done better during Democratic administrations.  I can’t explain it, but check it out.
• Death or Incapacitation
  • Fear:  Obama will be assassinated.   With terrorists, bigots and general stupidity at seemingly all time highs it’s scary to admit that this is a possibility.  This is a concern for any president – not just highly intelligent and charismatic African-American ones – which is why we have the Secret Service.   If I were a prayin’ man they would all be in my prayers.
  • Fear:  McCain will succumb to some medical ailment.  I know he’s only 72, but he’s put that body through hell.  Plane crashes, enemy torture, cancer, TWO WIVES… The human body can only survive so much.  He has more lives than a cat but eventually he’ll run out.  I’m sure there are 72 year old individuals capable of being the leader of the free world (Colin Powell), but lately McCain just seems to be feeble.  Eight years ago when Bush beat him for the nomination he probably would have been a great choice.  I don’t agree with all his views but I don’t agree with all of Obama’s either.  I can see why this election is a tough choice for some.  I am solidly in the Obama camp this election but McCain is (was) definitely qualified.  So I guess this leads into a bigger fear…
  • Fear:  President Palin.  If I find the time and energy I may write an entire post about why I feel that Sarah Palin is not even remotely qualified to be president.  Choosing her for the VP slot is a decision that makes absolutely no sense to me on any level.  I have nightmares about her winking and saying “you betcha” in meetings with foreign dignitaries then she goes all Sybil on us and pushes the red button when Ahmadinejad calls her a brazen hussy.  (He thought it was a compliment.)

We are going to have change regardless of who gets elected.  I am a set-in-my-ways middle aged male and I hate change.  But we NEED change.  Obama is thoughtful and is known to collect and weigh the views from all sides of a situation.  He is intelligent, charismatic, diplomatic, articulate and a respected politician.  I believe he will help get our economy back on track and improve our international relationships.  I believe he will be a good leader.  Not necessarily a great leader, but definitely a good leader.  I believe we have nothing to fear but fear itself.  Well, that and a Palin presidency.

Last week was historic – the worst week for the Dow Jones Industrial Average (DJIA) EVER.  It closed last Friday with the largest one week percentage drop in its history.  The S&P Index didn’t fair well either.  It had its worst week since 1933.  Worse yet, all of that happened AFTER third quarter broker statements went out showing gut wrenching year-to-date declines for most investors.  This week hasn’t been very reassuring either.

Words cannot express how sick I am over the financial crisis unfolding around the world.

I’m normally a gloom-n-doom kind of guy so that when bad things happen I’m usually more prepared.  When things go wrong I usually think “that sucks” but I also have a hint of “I told you something like this could happen” in the back of my mind.  I often have contingency plans mapped out in my head for what I’ll do when disaster strikes.  Pessimism has its advantages – it blunts the pain and increases preparedness. 

Apparently I wasn’t pessimistic enough.

I’m not suggesting that it’s time to panic because that doesn’t help anyone.  But I’m definitely having a Dr. Zackary Smith moment – Oh the pain… the pain.

As always, I try to make light of a bad situation because humor is good and sarcasm is my friend.  Somehow it isn’t helping much lately.  It’s like the weeks after 9/11/2001 when it seemed like there was a moratorium on humor. 

This week I had the fleeting thought that Al-Qaeda had finally achieved one of their goals when they planned the attacks.  The World Trade Center was one of their targets because, in addition to death and property destruction, they wanted to see widespread financial ruin.  They wanted to see capitalism on its knees.  Are we there?

People are losing their homes – in some cases leading to more death and destruction.  (Click here for a disturbing Associated Press article from earlier this week.)  Businesses are failing.  Credit markets are frozen.  Small countries are teeter on the edge of bankruptcy.  Nest eggs and retirement savings are being decimated.  Never have I imagined that things could get this bad on such a global scale.  I wish I was exaggerating to make a point.  I’m not.

I don’t actually believe that terrorists are responsible in any way for the current worldwide financial debacle, although I’m sure that some really warped individuals are taking a perverse pleasure in watching some of this crisis unfold.  There is plenty of blame to spread around, but I’m not giving terrorists any credit.

I’m also not going to blame any one person or any particular political party.  I believe they all played a role in this mess.  Republicans, Democrats, Clinton, Bush, Greenspan, Bernanke, bankers, hedge fund managers, bond rating agencies, and yes… even the occasional accountant.

What do we do now?  Well I think the first step is to mentally process what happened and how we got here.  This is the part where I give my semi-educated view of how this all happened (factually based, but slightly biased of course).  This part can be boring, so I’ll understand if some of you skip ahead to the end.  (Kitty – this means you.)

Many politicians and financial analysts trace the roots of this crisis back to the Clinton administration when he and many other key Democrats effected changes to rules that made it easier for Freddie Mac and Fannie Mae to make riskier loans.  The idea was to increase home ownership in our country, particularly in poor communities with high minority populations.  Perhaps they loosened a bit too much, but it was for the noble cause of helping more Americans own their own homes.  The next damage was done when these same Democrats loaded up the management of these companies with less-than-qualified do-gooders of their same ilk.  For this they, and many others, were rewarded with large campaign contributions and visits from lobbyists who regularly argued that there was no need to look behind the curtain.  Taking a look would have revealed problems and incompetence. 

Critics emerged who pointed out problems and issues regarding Freddie and Fannie – many, but not all of them, Republicans.  George W’s administration actually tried to pass significant overhauls that would have increased oversight early in his administration.  With Republican control of both houses at the time, nothing ever became of the tighter rules even after accounting irregularities were uncovered in 2003.  How is this possible?  Republicans were picking on a Democratic project that, in theory, was working.  Home ownership was UP in the targeted classes.  All is good, right?  Several less-than-brilliant Democratic congressmen and representatives from Freddie and Fannie shooed back the Republicans.  Campaign contributions and lobbyists were on the move.  Nothing to see here – really.

While many analysts had legitimate concerns, everyone seemed to be pointing at Freddie and Fannie and nowhere else.  Republicans wanted more oversight of these quasi-government agencies but more regulations for capitalist institutions were taboo.  (Perhaps because those entities make large campaign contributions to Republicans?)  They wanted to regulate the Democratic project that was helping low income people buy homes with almost no money down, poor credit and even sketchy employment histories.  Yet increasing regulation for bankers, brokers and insurance companies was somehow bad.  You would think that after the savings and loan mess of the late 1980’s the Republicans would have learned that some regulation is good, but deregulation continued.

With relaxed regulation, other lenders concluded that what was good for Freddie and Fannie was good for everyone.  New and crazy mortgage products popped up and now they were for everyone.  100% loan-to-value and negative amortization financing – yea, yea… that makes sense.  (We don’t even care if you have a job – just lie to us and tell us that you do.)

Then the use of derivative investment vehicles became more prevalent.  This gets confusing (even for an accountant) but collateralized debt obligations, credit default swaps and other creative ways to disguise and hedge against risky investments became all the rage.  In the post Enron/Worldcom world, the accountants started working on ways to shine a light on some of these new investments.  Before they could get mark-to-market accounting rules in place, something REALLY crazy happened.

Sometime after George W failed to get increased transparency at Freddie and Fannie some changes slipped by at the SEC allowing certain firms to start leveraging their assets at up to 40 to 1.  The danger of this concept can be hard to explain to those who don’t understand a lot of accounting lingo, but imagine you borrow $39 then add one of your dollars and invest it in a $40 stock.  Now the stock goes down to 20% to $32 but you still owe the $39.  Uh oh.  Now imagine it was publicly traded companies that did it and add a lot of zeros.  Owners of the companies stock now have a worthless investment and wherever that loan came from – many of them are screwed too.

Freddie and Fannie – they had different rules.  As of August 2008, Freddie Mac’s assets-to-capital (leverage ratio) was 70:1 and on the rise.  This, as we now know, led to a government takeover.

Let’s back up to those accountants for just a minute.  The new accounting rules started kicking in a while back and for the most part this would have been good.  Greater transparency of financial information so investors have a better feel for what they are investing in and CEOs that receive multi-million dollar salaries would have a harder time hiding some of their mistakes.  I’m sure that everyone expected a few hiccups as the new rules kicked in.  Unfortunately they kinda timed things poorly. 

Around the time that mark-to-market accounting rules were kicking in the real estate market started having problems.  Property values started dropping and foreclosures started going up.  With each passing quarter, the values of assets backed by mortgages were being written down and leverage ratios were going up.  Broker-Dealers started failing (Bear Sterns, Lehman Brothers, Merrill Lynch) and the rest of the dominos started to fall. 

Ok – for those who skipped the boring explanation, here is a recap: 

• Democrats tried to make it easier for financially underprivileged people to become home owners with help from GSEs (Government Sponsored Enterprises – specifically Freddie Mac and Fannie Mae).
• Democrats also put less-than-competent chums in charge of the GSEs and allowed them to run amok in exchange for campaign contributions and advice from GSE lobbyists.
• Republicans tried to raise flags and make new rules for the GSEs but they failed because they were too busy deregulating everyone else based on the advice of brainiac economists and high priced lobbyists for non-GSE financial institutions.  Oh, and they got campaign contributions. 
• Non-GSE institutions started making similar high risk loans and the use of derivatives exploded.  This, along with the collapse of several large companies earlier in this decade, led to new accounting rules that kicked in right about the time that real estate markets started to crumble.
• Leverage ratios went up, institutions started failing, fear permeating the financial markets, the availability of credit froze up, stock markets around the world started to crash and now we have a global financial crisis. 

So here we are – many of us in pain.  I know that for some it’s hard to imagine how we are going to recover from this financial train wreck.  It’s hard to know what to do.  Yet, as gloom-n-doom as I have been known to be, the one thing I know is that we can’t just give up.  Things are going to be tough, but we’re not doomed.  Well… yes we are, but not necessarily because of this financial mess. 

I have hope because a lot of smart people are starting to call a bottom and throw around words like capitulation.  They all throw in that caveat about retesting the lows, but optimism is on the rise.  Some of the richest and smartest investors, like Warren Buffet, are diving back into the market because they see incredible values in American companies.  Most of the really bad skeletons are out of the closets and governments around the world are stepping up to stabilize our markets. 

Other parts of the economy still have some hits to take.  Housing, unemployment rates, inflation… these need more time.  But the stock markets usually hit bottom first and start to recover while we still experience pain in other areas.   

Like many of you, I have my retirement savings invested in the market and I’ve seen large drops this year.  Are we at the bottom?  I don’t know, but I really believe we are close and I think it’s too late to bail out now.  Certainly we all need to re-evaluate our investment strategies and reallocate or rebalance as necessary, but if you’ve stayed in for the trip down then now is not the time to freak out.  History shows that the market always recovers from the bad times and it comes back stronger.  It may take a while, but after taking the beating you don’t want to miss the recovery. 

I want to ramble on about deregulation being bad and why we need to stop blaming the accountants, but I guess I’ll save that for another day.  I have things to do and I can’t spend all my time in my grass hut.  As for that pain?  Scotch helps.

Please click here if you haven’t read my Disclaimer 2008 for this blog category yet.

Why is it that so many Republicans are quick to point out that Obama was once chummy with Tony Rezko and that they were involved in a real estate deal together?  They get all high and mighty and wag fingers about the fact that Rezko is now a convicted felon.  “Oooh… Obama hangs out with felons.”

Seriously?  Do these people only read headlines and listen to sound bites?  Do they even know the details?  Can they remember anything from a year that doesn’t start with a Two?

But wait… I’m getting ahead of myself.  For those not familiar with the Rezko controversy, here’s a quick recap:

Obama met Rezko, a low-income housing developer, in 1990.  They were never in business together.  The real estate deal Republicans point to was an arms length transaction for the purchase of Obama’s principal residence.  Rezko was involved because his wife bought the adjacent lot, also in an arm’s length transaction.  Obama later bought a portion of the Rezko lot from Rezko to expand his yard.  Obama paid fair value.  Obama later called the deal “boneheaded” because people might get the impression that Rezko had done him a favor.

Over the years Rezko made a few campaign contributions and helped raise money for Obama campaigns.  Chumminess was a couple of lunches per year.  Obama was never connected to the case against Rezko and, after Rezko’s conviction on measly 16 felony counts, Obama said “I’m saddened by (the) verdict” and “This isn’t the Tony Rezko I knew…”

Obama was never implicated in any wrongdoing.  Sure, he got a few campaign contributions out of the relationship, but it’s hard to throw a cat in a room full of politicians and not hit one who hadn’t received a contribution from a less-than-upstanding citizen.  Besides, the contributions occurred before the conviction and Obama later gave some of that money to charity.

This is where I get the “where there’s smoke there’s fire” crap from certain right wingers.  Perhaps.

Ever hear of a developer named Charles Keating?

Fascinating story.  In addition to being a developer, Keating owned Lincoln Savings and Loan.  In 1987 Keating enlisted the help of several Senators to stave off some regulators from the government who were on the path to shutting him down.  Apparently he thought too much regulation was bad.  Some of those Senators were also proponents of less regulation for financial institutions.

The government eventually succeeded in seizing Lincoln S&L, but Lincoln has the distinction of being the biggest failure of the S&L scandal during the late 1980’s.  The Lincoln bailout cost taxpayers about $2.6 billion and investors lost an additional $190 million.  Keating was eventually convicted of 73 felony counts and he served more than four years in prison.  Some fancy lawyering got the conviction overturned, but he later pled guilty to a handful of charges in exchange for time served.

Guess who one of the Senators was.

During the 1980’s, Keating contributed to and raised money for some of McCain’s campaigns.  Not a big deal – as noted above.  Also, McCain’s wife was a business partner with Keating for a strip mall.  I guess that’s no big deal either since Johnny M. probably didn’t know about it.  Just like he didn’t know how many homes he and his wife own. 

However, McCain and Keating were more than chummy.  In addition to a few lunches, McCain accepted several trips at Keating’s expense.  Including three to Keating’s Bahamas retreat. 

See any smoke yet? 

Back to the S&L scandal.  McCain was one of the “Keating Five” – five Senators who were the subject of a probe by the Senate Ethics Committee into the failure of Lincoln.  The committee later found that McCain was guilty of nothing more than “poor judgment.”  McCain read that to be a “full exoneration.”  Interesting.

So, on the left we have a Senator who had a friendship with a now-convicted felon that included some campaign money and a few lunches.  There were no business deals.  There was no involvement with anything related to the charges against his former friend.  Bummer about that arms length transaction related to his principal residence that he now regrets.

On the right we have a Senator whose friendship with a felon included some campaign money and a relationship so strong that several vacations were included in the mix.  Add the business deal with McCain’s wife.  Oh, and that whole “Keating Five” thing that contributed to a $2.6 billion tab for taxpayers (1990 dollars).

Did anyone else notice that deregulation contributed to the collapse of the S&Ls in the late 1980’s?  Maybe that’s the “poor judgment” the Senate Ethics Committee was referring to.  Maybe McCain should have paid attention instead of fighting so hard for “exoneration.”  Maybe then he would have learned the lesson that deregulation of financial institutions leads to bad things.  You know, the lesson he finally seems to be learning now that our entire banking system is on the verge of collapsing.

Barack expanded his back yard to provide a better home for his family and learned to be more careful about who he does business with.

McCain watched from the front row while deregulation led to the collapse of several savings and loans costing taxpayers billions of dollars then continued to beat the deregulation drum.  Even after he was found to have exercised “poor judgment” by a Senate Ethics Committee he appeared to learn nothing from the experience until about two weeks ago. 

Where’s that fire?

Cleaning up my email in box after spending a long weekend in Las Vegas.  (I sure do love Las Vegas.)  Anyway, I came across a few goodies that were forwarded to me and wanted to share.  Check out these links:

ABC News: Match-o-Matic II.  Interesting quiz to see which candidate you favor.  I found that it validated my current position.  Check it out and see which side you land on.  (Thank you to Jeanne C. for the forward.)  http://abcnews.go.com/Politics/MatchoMatic/fullpage?id=5542139

The Birk Economic Recover Plan.  Here’s a blog post from a guy named T. Birkenmeier regarding the $85 billion bailout of AIG.  He acknowledges that it’s a crazy idea that won’t work, but I love the fun math.  (Thank you to Mike S. for the forward.)  http://www.offmadisonave.com/blog.php/2008/09/the-birk-economic-recovery-plan

Since we’re on the subject of current event links, be sure to check out the Mortgage mess link under Fun Links if you haven’t already done so.  This was originally forwarded to me earlier this year but is increasingly relevant for those who want a better understanding of our subprime mortgage disaster. 

Regards,

Christopher

A timely funny forwarded to me via email.  Original source unknown.  Enjoy.  Or, try not to cry because it’s so close to the truth.   – Christopher

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