Archive for the ‘Finance’ Category

Senate Dems violate federal law: No plan for a budget plan

From Eric Odom, Liberty News Network

News is now breaking that Senate Budget Committee Chairman Kent Conrad (D) will refuse to draft a Democrat budget before the 2012 election. While it’s not surprising to see Democrats kick the can down the road, this move is likely to create a significant problem for Democrats attempting to run on the idea of leadership in government. A refusal to draft a budget before the November election is a confession that Democrats refuse to address our spending crises with any meaningful plan. Or any plan at all for that matter.

Even worse, this is an open announcement that if Democrats are allowed to stay in power, they will continue spending us into bankruptcy as a nation when they do not face immediate elections.

Private equity is essentially a way to invest in some asset that isn’t publicly traded, or to invest in a publicly traded asset with the intention of taking it private. Unlike stocks, mutual funds, and bonds, private equity funds usually invest in more illiquid assets, i.e. companies. By purchasing companies, the firms gain access to those companies’ assets and revenue sources, which can lead to very high returns on investments. Another feature of these private equity transactions is their extensive use of debt in the form of high-yield bonds. By using debt to finance acquisitions, private equity firms can substantially increase their financialPrivate equity is essentially a way to invest in some asset that isn’t publicly traded, or to invest in a publicly traded asset with the intention of taking it private. Unlike stocks, mutual funds, and bonds, private equity funds usually invest in more illiquid assets, i.e. companies. By purchasing companies, the firms gain access to those companies’ assets and revenue sources, which can lead to very high returns on investments. Another feature of these private equity transactions is their extensive use of debt in the form of high-yield bonds. By using debt to finance acquisitions, private equity firms can substantially increase their financial returns. The debt used in buyouts has a relatively fixed cost, so if a private equity fund’s return on assets (ROA) is greater than this cost, the fund’s return on equity (ROE) is higher than if it hadn’t borrowed money. The same principle applies in reverse, however, making these leveraged buyouts potentially very risky; if the acquired company’s ROA is lower than the cost of the debt used to buy it, then the private equity fund’s ROE is less than if hadn’t used debt. The firm would lose money on the investment and still have to pay back the loans, a situation similar to having negative equity in the housing market.
While private equity firms sometimes pay themselves back using the acquired company’s profits, this isn’t their principal moneymaking area. Actually, clauses in private equity deals known as covenants, which assure such repayment, have become increasingly rare in recent years. Rather than making money from guaranteed minimum dividends, etc., private equity firms have been generating most of their profit from the “exit event”, or the time when they either sell the company to another private entity or return it to the public markets, presumably for a higher price than they paid originally. Especially with their heavy use of leverage to acquire companies, private equity firms can make a substantial profit in this way. One example is the acquisition of Hertz Global Holdings (HTZ), the car rental company. When Ford Motor Company (F) decided to sell the company in 2005, private equity firms Clayton, Dubilier, and Rice, Inc., Carlyle Group, and Merrill Lynch Global Private Equity stepped in to buy the company. When the deal was completed in December of 2005, the firms had put up $2.3 billion in equity, and the acquired Hertz had taken on $12.5 billion in debt. Just eleven months later, Hertz was returned to the public markets with an IPO; even before the exit, Hertz paid $991 million to the firms in special dividends, $25 million to each for “acquisition services”, and $2.25 million in other various fees. After the IPO, the three firms received another round of special dividends valued at around $427 million and $15 million to terminate standing agreements. Now, the three firms hold a combined 91.9 million shares of Hertz, valued at almost $2.1 billion (up 43% since the IPO in November of 2006). Merrill Lynch made out particularly well; in addition to its private equity firm doubling its investment in a year, the firm itself collected advisory fees for both the acquisition and the IPO and now holds 75 million shares of Hertz in addition to its private equity division’s 32 million.
What drives private equity?
Raising Capital
Why would a company agree to sell a part of its interests to a private equity firm? There may be several reasons. First, the company may need a large inflow of capital for long-term productivity investments such as research and development. Rather than waiting several quarters (or years) to gather sufficient capital, the company may choose to sell part of its interests in exchange for the ability to pursue development projects sooner. This may be especially true of highly time-sensitive industries such as technology (e.g. software, telecommunications, and Internet services), where a few quarters may make a critical difference in a company’s ability to gain (or maintain) a market advantage.
Increasing Regulation of Public Markets
Second, given the increasing regulation and scrutiny in the public markets over the last several years, some companies may wish to avoid having their destinies controlled—or at least heavily influenced—by public shareholders. In a public company, shareholders have the right to cast votes with regard to any number of issues critical to the company. In a private equity transaction, such rights typically do not exist. Accordingly, a company can raise capital without relinquishing operating control to external shareholders. Nevertheless, a private equity firm does retain some control, such as the ability to influence the composition of management teams. Often, a private equity firm may take an interest in a company on the condition that the company install new management—which ideally will improve operating results and drive profits.
Effect on Public Markets
For stock market investors, the real question is how the private equity market has affected public markets and what its likely effects will be in the future. Many analysts argue that the increase in private equity deals has actually benefited some aspects of the stock market; the reason is that, with so many companies going private, it’s become harder for public investors to gain exposure to industries where private equity has been especially influential. Small- to mid-size firms in the energy and finance industries are prime examples. With the increase in private equity deals, the availability of publicly traded shares of such companies has decreased. This decrease in supply has caused the remaining shares to increase in price; as there are fewer available, each becomes more valuable.
Private EquityAlso, private equity can boost a company’s stock price if people think a buyout is likely. Companies that are perceived as likely targets of private equity buyouts have seen their stock prices rise in anticipation of the transaction. Given recent trends in the private equity industry, investors often feel safe in assuming that private equity firms will pay a hefty premium over a company’s market value. This drove up the stock prices for companies such as Martha Stewart Living Omnimedia (MSO) and Radioshack (RSH), which were commonly mentioned as buyout targets.

Financing the Private Equity Boom
One beneficiary of private equity’s strength is certain: the financial firms who structure the deals. Whether they’re lenders or underwriters (such as investment banks), a number of financial firms have used their market savvy and extensive industry contacts to ensure that they’re in the middle of what has been one of the most profitable trends over the past market cycle. That said, if long-term interest rates continue to rise over the next one to two years, it could become more difficult for financial firms to find the capital and participants necessary to keep private equity deals moving at the same rapid pace.
Has private equity reached its peak?
The subprime-inspired housing slump and its subsequent impact on Wall Street investment banks have somewhat diminished investors’ appetite for risk. While the potential returns from a private equity firm’s leveraged buyout of a company can be great, investors have begun to realize just how risky the highly leveraged transactions can be. This has been making it increasingly difficult for private equity firms and the investment banks that structure their deals to find people willing to invest in their risky, high-yield bonds.
A number of recent debt offerings, including the debt used in Cerberus Capital Management’s buyout of the Chrysler Group, have been postponed or abandoned due to deteriorating conditions in the U.S. debt market. On July 25, 2007, it was announced that Deutsche Bank AG (DB), J P Morgan Chase (JPM), and six other banks were stuck with around $10 billion of loans that they couldn’t sell; the debt was used for private equity firm KKR’s acquisition of Alliance Boots . This increasingly common occurrence is hitting banks hard; they can either cut their losses and sell the loans on the cheap or wait until conditions improve, neither of which is particularly appealing.
As the debt market contracts, companies that were previously touted as LBO targets, including Martha Stewart Living Omnimedia (MSO) and Radioshack (RSH), are seeing their stock prices plummet. The same logic that drove their stocks higher and higher also led to their fall; when investors heard the speculation about a slowdown in private equity, they realized that they might not be able to sell their shares at the premium price they’d been hoping for. Shareholders scrambled to sell their stock while the price was still relatively overinflated. Martha Stewart and Radioshack stocks plunged 25% and 30%, respectively, in just three weeks.

The fact that many members of Congress appear to have traded on non-public information in their personal brokerage accounts during the financial crisis is outrageous.
But since this bombshell news broke on Sunday night, the excuse has been that, however ridiculous it may sound, insider trading is legal for Congress.
This same assertion has been repeated for years, every time someone observes that Congress members do much better in their personal stock trading than average investors do. Unlike average Joes, the pundits explain, Congress has exempted itself from insider-trading laws, so Congress-people are allowed to trade on private information that they gather in the course of their work while other Americans can’t.
But at least one law professor argues that this is just not true.
Insider trading is just as illegal for members of Congress as it is for the 300+ million Americans, Indiana Law Professor Donna Nagy argues.
Congress never “exempted” itself from insider trading laws, Nagy says–because Congress has never actually passed a law about insider trading.
By trading on information gathered in the course of their jobs, Nagy says, Congress-people are abusing the public trust and violating a legal duty, just the way any other insider-traders do.
So the Congress people who traded during the financial crisis (and since) should be investigated and, possibly, prosecuted for their behavior.
The definition of insider trading is trading while in possession of material non-public information.
On September 16th, 2008, a new book by Peter Schweizer alleges, Rep. Spencer Bachus and other members of Congress attended a private, off-the-record (read: non-public) briefing from Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke about the state of the economy.
The next day, some Congress-people who attended the briefing, including Rep. Bachus and Dick Durbin, sold stocks or bet against the market. A few days later, after the market had tanked, Rep. Bachus cashed out his bet for a tidy profit.
Now, hands up, who out there thinks that a private off-the-record briefing from the two most important financial executives in the country would be considered “material non-public information”?
I certainly do.
“Material non-public information” is any information that a reasonable person might want to consider when making an investment decision.
And this reasonable person, anyway, would definitely want to consider the latest thinking and information of Fed Chairman and the Treasury Secretary when placing a bet on the market.
If a Wall Street executive had been at that briefing and then immediately dumped his/her stocks or bet against the market, you can be confident that Congress and the public would be screaming about corruption and unfairness and the shafting of “the little guy” and calling for the executive’s head.
The personal trading of Congress-people after this briefing is no different.
Bachus and Durbin (and others) got the information they traded in possession of because they were doing a job on behalf of their constituents. The information was confidential, and, in in all likelihood, material. And they appear to have immediately used it for their own personal gain.
Even if this behavior is not judged to be illegal, it’s certainly unethical. At the very least, the SEC should launch a full investigation.
By Henry Blodget

Yesterday, I wondered how Nancy Pelosi and her husband were able to participate in Visa’s IPO in March 2008. It is very difficult for an individual investor to participate in IPOs, especially those which are heavily ‘oversubscribed’ as Visa’s was. It was the hottest IPO of the year, drawing what one analyst described as “extreme demand.” So, this tidbit from Newsweek’s story on Visa’s campaign to curry favor with Pelosi caught my attention:
Separately, Pelosi’s husband, Paul, a major investor in California, got a lucrative phone call from his personal broker—a pre-screen invite in March 2008 to take part in Visa’s $17.9 billion public stock offering, at the time one of the hottest stock offerings in an otherwise soft market. The initial-public-offering price was $44 per share and was limited to institutional investors and a group of specially selected individuals. Almost $18 billion was made available in public stock to preselected investors. Paul Pelosi made the cut.
Wait, what? He was called and ‘invited’ to purchase shares in the IPO? Seriously? Let’s isolate one particular sentence from this graph:
The initial-public-offering price was $44 per share and was limited to institutional investors and a group of specially selected individuals.
Specially selected individuals? Selected by whom? And, for what reasons, specifically?
If you are John Bresnahan at Politico, this will all seem like a fortuitous coincidence. The Pelosis obviously have lots of money to invest and their broker may have been one of the few people empowered to select who was lucky enough to buy into the hottest IPO of the year. Although, individual investors with access to IPOs tend to be far more active and wealthy investors than the Pelosis, a ‘reporter’ at Politico could view it all as perfectly normal. But, let’s look at the larger context here.
As Newsweek notes, Visa was very worried about Democrat proposals to regulate interchange, or “swipe” fees. Late in 2007, they organized a campaign to “court” then-Speaker Pelosi to plead their case and block new legislation regulating their business. One of their lobbying firms even hired a former top Pelosi staffer, Dean Aguillen, and the company, its executives and lobbyists began donating to her campaign.
Dean Aguillen was prohibited from lobbying his former boss for one year, but, according to Newsweek he provided key strategic advice to Visa:
By law he was unable to lobby his former boss for a year, but he immediately registered to lobby Congress on the credit-card issue, offering guidance to other lobbyists on Visa’s team during strategy sessions, according to a lobbyist present in strategy deliberations.
In other words, the former Pelosi staffer was helping Visa figure out a way to win her support on their top legislative priority.
In Spring 2008, Rep. John Conyers introduces the very legislation that Visa feared most and just a handful of days later, Paul Pelosi is invited to buy shares in Visa’s IPO. Again, really? Who made that decision? Was it Dean Aguillen, perhaps?
If that decision was in any way related to Nancy Pelosi’s position as Speaker, she may run afoul of House ethics rules. As even Politico notes:
Under House rules, lawmakers are prohibited from using their official position “for personal gain.” This ban includes instances when a lawmaker uses “his political influence, the influence of his position … to make pecuniary gains” or take any official action that affects their own personal finances, the House Ethics Manual states.
Being part of Visa’s IPO, where the stock price rose 50% in two days, would generate a heck of a lot of “personal gain.” Was the invitation in any way tied to her position as Speaker? As Politico noted this morning, Nancy Pelosi really does have a ‘golden touch.’
By Mike Flynn

Bank Transfer Day, the movement that urged bank customers to close their accounts and instead deposit funds in credit unions on or before November 5, led to at least 650,000 new credit union members and a total of $4.5 billion in new deposits, according to the Credit Union National Association.

(Related: New Measure Puts U.S. Poverty Rate at 16 percent)

About 80 percent of credit unions in the U.S. saw an increase in accounts in October, with membership increases of 10,000 or more in 21 of the 50 states and the District of Columbia in the past month.

California credit unions saw the biggest gains, adding about 90,000 new members and $624 million in new deposits.

Texas came in second, with $326 million in new deposits from 47,000 new members.

Mary Beth King, communications director for the Credit Union Association of New Mexico, said that the association would be sending out surveys to its member institutions to gauge new numbers.

“Regardless of how many people joined credit unions Saturday, there is a big new awareness of credit unions as not-for-profit financial cooperatives owned by their members. That is the credit union difference we’ve worked to let people know about all along,” said King.

However, despite the loss of capital and customers, there are some analysts who argue that “Bank Transfer Day” was actually in the banks’ favor. How? Motley Fool columnist Morgan Housel explains (h/t Christian Science Monitor):

One of the drivers behind [Bank Transfer Day] is people trying to teach banks a lesson. The irony of that is since the financial crisis, and especially over the last three months as there has been a panic about Europe . . . banks have been inundated with cash deposits.

They’ve been seeing a higher inflow of deposits than they can turn into loans.
But how does that translate into “Bank Transfer Day” working in their favor? Apparently, the high inflow of deposits “puts pressure on their margins because banks have to pay [Federal Deposit Insurance Corp.] premiums and overhead costs.”

By removing hundreds of small-time accounts with low balances, they would actually be saving money on their premiums. Housel explains:

. . . in the past banks could earn money [from customers with lower balances] from overdraft fees and debit interchange fees and a lot of that has been scaled down through recent regulations…
People are going to be moving to credit unions, and that’s good for them because they’re going to have lower fees, they’re going to have better service, they’re going to have the feeling that they are investing in their community.
And then the banks are going to be better off because they are getting rid of their least-profitable or not profitable clients.
However, probably most important is the fact that the accounts appear to have had low enough balances that being closed did not turn into a financial nightmare for some banks.

As mentioned earlier on The Blaze, in events where customers panic and withdraw all deposits, the results can be disastrous. But this does not seem to be the case from Saturday’s protest. In fact, “despite news that the financial industry lost roughly 650,000 customers and $4.5 billion in deposits to credit unions because of Bank Transfer Day . . . some of the biggest U.S. banks moved upward today, outperforming the major indices.”

Therefore, because some of the biggest banks are moving upward on the market and that closing some of the accounts could actually save them money, in an odd way it would seem that everyone benefited from “Bank Transfer Day.”

The protesters felt a sense of accomplishment and some banks were able to offload thousands of reportedly low-balance, non-profitable accounts.
Original Link

‘The answer to the Kennedy assassination is with the Federal Reserve Bank. Don’t underestimate that. It’s wrong to blame it on (CIA official James) Angleton and the CIA per se only. This is only one finger of the same hand. The people who supply the money are above the CIA.’
- wife of accused assassin Lee Harvey Oswald, told to author A.J. Weberman

I am one of those who do not believe the national debt is a national blessing… it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country
.
Andrew Jackson, Letter to L. H. Coleman of Warrenton, N.C., 29 April 1824

Since I entered politics, I have chiefly had men’s views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they better not speak above their breath when they speak in condemnation of it.

Woodrow Wilson, The New Freedom (1913), Doubleday

“The Rothschilds introduced the rule of money into European politics. The Rothschilds were the servants of money who undertook the reconstruction of the world as an image of money and its functions. Money and the employment of wealth have become the law of European life; we no longer have nations, but economic provinces.” (New York Times, Professor Wilheim, a German historian, July 8, 1937).

“If you will look back at every war in Europe during the nineteenth century, you will see that they always ended with the establishment of a ‘balance of power.’ With every reshuffling there was a balance of power in a new grouping around the House of Rothschild in England, France, or Austria. They grouped nations so that if any king got out of line, a war would break out and the war would be decided by which way the financing went. Researching the debt positions of the warring nations will usually indicate who was to be punished.” (Economist Stuart Crane).

From the days of Spartacus-Weishaupt to those of Karl Marx, and down to Trotsky (Russia), Bela Kun (Hungary), Rosa Luxembourg (Germany), and Emma Goldman (United States), this world-wide conspiracy for the overthrow of civilisation and for the reconstitution of society on the basis of arrested development, of envious malevolence, and impossible equality, has been steadily growing. It played, as a modern writer, Mrs. Webster, has so ably shown, a definitely recognisable part in the tragedy of the French Revolution. It has been the mainspring of every subversive movement during the Nineteenth Century; and now at last this band of extraordinary personalities from the underworld of the great cities of Europe and America have gripped the Russian people by the hair of their heads and have become practically the undisputed masters of that enormous empire.

Winston Churchill, “Zionism versus Bolshevism”, Illustrated Sunday Herald (London), February 8, 1920, pg. 5

The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.

Henry Ford, My Life and Work, Doubleday, Page & Company, 1922

I am afraid that the ordinary citizen will not like to be told that the banks can, and do, create and destroy money. The amount of money in existence varies only with the action of the banks in increasing or decreasing deposits and bank purchases. Every loan, overdraft or bank purchase creates a deposit, and every repayment or bank sale destroys a deposit. …. And they who control the credit of a nation, direct the policy of Governments and hold in the hollow of their hands the destiny of the people.

Reginald McKenna, a former Chancellor of the Exchequer, addressing the shareholders as Chairman of the Midland Bank, at the Annual General Meeting in January 1924.

The present Federal Reserve System is a flagrant case of the Governments conferring a special privilege upon bankers. The Government hands to the banks its credit, at virtually no cost to the banks, to be loaned out by the bankers for their own private profit. Still worse, however, is the fact that it gives the bankers practically complete control of the amount of money that shall be in circulation. Not one dollar of these Federal Reserve notes gets into circulation without being borrowed into circulation and without someone paying interest to some bank to keep it circulating. Our present money system is a debt money system. Before a dollar can circulate, a debt must be created. Such a system assumes that you can borrow yourself out of debt.

Willis A. Overholser, A short review and analysis of the history of money in the United States, with an introduction to the current money problem (1936), p. 56

Posted: August 27, 2011 | Author: barenakedislam |

The Justice Department has agreed to end its investigation into an international Islamic financial network with ties to the Muslim Brotherhood and a Saudi prince in a settlement in excess of $37 million. You just haven’t heard about it. The Obama Justice Department has declined to release the settlement agreement, or even publicly acknowledge its existence.

Main Justice  (H/T Liana) -The Islamic Investment Co. of the Gulf (Bahamas) Ltd., which reportedly has ties to the Muslim Brotherhood, agreed to pay some $37 million to resolve an investigation into whether the firm structured its real estate investments to unlawfully avoid U.S. taxes on them, according to people familiar with the matter.

The first third of the settlement is already paid, these people said.

But the company inked a non-prosecution agreement with the government, which means the deal doesn’t require court approval and isn’t filed in public.

When asked about the settlement earlier this week, Justice Department spokesman Charles Millersaid: “I have nothing on this.”

The secrecy of the deal has prompted interest in Congress. Rep. Frank Wolf (R-Va.), chairman of the House appropriations subcommittee that oversees the Justice Department budget and author of  legislation that created the National Commission on Terrorism in the 1990s,  told Main Justice he planned to ask the department next week to release the documents.

“They’ve got to let this thing out,” Wolf — a persistent critic of the Barack Obama administration Justice Department — said in an interview, referring to the bank’s alleged ties to terrorism financing.

New York lawyer James J. McGuire, who is listed in court filings as a lawyer for the Islamic bank’s corporate parent, did not respond to a voice mail and a message left with his assistant seeking comment.

In a case that has had many strange twists and turns, the mystery surrounding the settlement is only the latest. The saga dates back to 2004, when two former employees of a related firm called Overland Realty Capital, LLC sued the company in state court in Texas and said they were fired for blowing the whistle on fraud.

In 2007 the Wall Street Journal reported that a federal grand jury in Boston was  examining whether the firms evaded taxes on complicated real estate deals.

A prosecutor from the Justice Department’s counterterrorism section first handled the case, according to a Wall Street Journal story from that year. But the original terrorism-related probe morphed into the same kind of strategy used to nab gangster Al Capone, who was eventually prosecuted not for the Prohibition-era crime syndicate he ran, but for the easier-to-prove charge of tax evasion.

The firm structured real estate investments through a network of shell companies in offshore tax havens including the Cayman Islands, the Journal reported in 2007. Such structures, while not necessarily illegal, become unlawful when designed primarily to circumvent IRS rules.

While the department is staying mum on the settlement, the company at issue is linked to the royal family in Saudi Arabia, a powerful U.S. ally. It is a subsidiary of Dar Al-Maal Al-Islami Trust, known as DMI Trust, which was founded by Saudi prince Mohammed Al-Faisal Al-Saud.

A Muslim Brotherhood leader, Yassin Qadi, came under investigation in the U.S. for allegedly using a DMI affiliate in the 1990s to transfer money to organizations affiliated with the Palestinian group Hamas and al-Qaeda.

Former Sudanese leader Hassan al-Turabi, an Islamist who gave al-Qaeda leader Osama bin Laden a base in Khartoum in the 1990s, spent a decade on DMI’s board. A spiritual leader of the Brotherhood,Yusuf al-Qaradawi, an Al-Jazeera television show host who has expressed support for suicide bombings, also served as an early DMI adviser.

The settlement was negotiated by the Justice Department’s Tax Division, which has been without a confirmed director since the start of the Barack Obama administration. Obama’s first choice for the job, Mary L. Smith, faced stiff resistance from Republicans for her lack of tax experience. The acting head of the division is a career Justice Department lawyer, John A. DiCicco.

Reagan inherited economic problems and fixed them. Obama’s strategy is to blame Bush and Standard & Poor’s.

The Wall Street Journal     August 8, 2011 

The state-appointed receiver overseeing the cash-strapped Rhode Island town of Central Falls has filed for bankruptcy on the city’s behalf in an effort to help it get back on its feet. Receiver Robert Flanders and Rhode Island Gov.Lincoln Chafee announced the step — which Flanders has described as a last resort — at a news conference at City Hall. Flanders filed the legal paperwork seeking bankruptcy protection Monday.

“From the ashes of bankruptcy Central Falls will rise again,” Flanders said.

Flanders had earlier indicated that seeking Chapter 9 bankruptcy protection in federal court might be the only option unless municipal retirees and city workers made major voluntary concessions. Retirees, for instance, were asked to take cuts of up to 50% to their pensions, a move they did not accept ahead of last Thursday’s deadline, set by Flanders.

With the city now seeking bankruptcy protection, Flanders said he plans to reduce pension benefits beginning in late August. He has asked the federal court to immediately reject collective bargaining agreements. He said the next set of pension payments will reflect at least the cuts he outlined to city retirees.

In addition, he said city workers will face layoffs.

Flanders called the step unavoidable, as taxes have already been raised and city services have been cut “to the bone.”

Bankruptcy will allow Central Falls to “reinvent itself as a viable community,” Flanders said

Chafee said the move is a “difficult” decision but that it’s needed in light of Central Falls’ “dire” financial outlook.

“We’re not going with a band aid-approach,” Chafee said. “We’re going to tackle this and that’s a positive.”

Flanders said he would hope to have a plan of recovery to present to the judge at the outset of proceedings in an effort to prevent a protracted bankruptcy.

“We need to come out of this with a sustainable plan for recovery,” he said last month after a meeting with retirees.

Central Falls, a city of 19,000 residents about a 15-minute drive north of Providence, has $80 million in unfunded pension and benefits obligations and $5 million deficits projected for each of the next five years. The city has found itself the subject of national headlines over its floundering finances and a high school so troubled that all its teachers were fired in one fell swoop last year, but eventually rehired.

The mayor, Charles Moreau, and City Council president, William Benson Jr., who were demoted to advisers after the state stepped in last year, have been critical of the receiver. They say it was clear long ago that bankruptcy was the only option.

“That’s what we wanted to do almost a year and a half ago,” Benson said Monday. “It can’t be any worse than it is. It just can’t.”

Moreau said the city has no choice. “Unfortunately this is the route we’ve got to go. At the end of the day, fiscal stability is of the utmost importance,” he said.

U.S. Bankruptcy Judge Frank Bailey of Massachusetts has been named the judge in the case.

Municipal bankruptcies are relatively rare, but several jurisdictions have found themselves on the cusp. Jefferson County, Ala., last week postponed a meeting to consider whether to go that route; officials will consider their options Thursday. Harrisburg, Pa., has also been flirting with Chapter 9 in the face of a fiscal crisis.

Vallejo, Calif., filed for Chapter 9 in 2008 and is only now ready to emerge from it. Those proceedings have cost millions of dollars.

Cruel history turned against the president and the left’s long-term spending dreams.

The Wall Street Journal Aug 4, 2011

Godfather Politics

July 26, 2011 by Pentangeli

Read more: Requirement to Vote: Pay Income Taxes | Godfather Politics http://godfatherpolitics.com/262/requirement-to-vote-pay-taxes/#ixzz1TEDNe51h

A welfare state that led to permanent austerity would betray the principles that have made American culture exceptional.

The Wall Street Journal         July 25, 2011 

By ARTHUR C. BROOKS

The battle over the debt ceiling is only the latest skirmish in what promises to be an ongoing, exhausting war over budget issues. Americans can be forgiven for seeing the whole business as petty, selfish and tiresome. Conservatives in particular are beginning to worry that public patience will wear thin over their insistence that our nation’s government-spending problem must be remedied through spending cuts, not by raising more revenues.But before they succumb to too much caution, budget reformers need to remember three things. First, this is not a political fight between Republicans and Democrats; it is a fight against 50-year trends toward statism. Second, it is a moral fight, not an economic one. Third, this is not a fight that anyone can win in the 15 months from now to the presidential election. It will take hard work for at least a decade.Consider a few facts. The Bureau of Economic Analysis tells us that total government spending at all levels has risen to 37% of gross domestic product today from 27% in 1960—and is set to reach 50% by 2038. The Tax Foundation reports that between 1986 and 2008, the share of federal income taxes paid by the top 5% of earners has risen to 59% from 43%. Between 1986 and 2009, the percentage of Americans who pay zero or negative federal income taxes has increased to 51% from 18.5%. And all this is accompanied by an increase in our national debt to 100% of GDP today from 42% in 1980.

Nicole Gelinas of City Journal and Jerry Kremer of the Huffington Post on the possibilities for a debt deal.

Where will it all lead? Some despairing souls have concluded there are really only two scenarios. In one, we finally hit a tipping point where so few people actually pay for their share of the growing government that a majority become completely invested in the social welfare state, which stabilizes at some very high level of taxation and government social spending. (Think Sweden.)

In the other scenario, our welfare state slowly collapses under its weight, and we get some kind of permanent austerity after the rest of the world finally comprehends the depth of our national spending disorder and stops lending us money at low interest rates. (Think Greece.)

In other words: Heads, the statists win; tails, we all lose.

Anyone who seeks to provide serious national political leadership today—those elected in 2010 or who seek national office in 2012—owe Americans a plan to escape having to make this choice. We need tectonic changes, not minor fiddling.

Rep. Paul Ryan’s (R., Wis.) budget plan is the kind of model necessary. But structural change will only succeed if it’s accompanied by a moral argument—an unabashed cultural defense of the free enterprise system that helps Americans remember why they love their country and its exceptional culture.

America’s Founders knew the importance of moral language, which is why they asserted our unalienable right to the pursuit of happiness, not to the possession of property. Similarly, Adam Smith, the father of free-market economics, had a philosophy that transcended the mere wealth of nations. His greatest book was “The Theory of Moral Sentiments,” a defense of a culture that could support true freedom and provide the greatest life satisfaction.

Yet today, it is progressives, not free marketeers, who use the language of morality. President Obama was not elected because of his plans about the taxation of repatriated profits, or even his ambition to reform health care. He was elected largely on the basis of language about hope and change, and a “fairer” America.

 

Alberto Ruggieri

 

The irony is that statists have a more materialistic philosophy than free-enterprise advocates. Progressive solutions to cultural problems always involve the tools of income redistribution, and call it “social justice.”

Free-enterprise advocates, on the other hand, speak privately about freedom and opportunity for everybody—including the poor. Most support a limited safety net, but also believe that succeeding on our merits, doing something meaningful, and having responsibility for our own affairs are what give us the best life. Sadly, in public, they always seem stuck in the language of economic efficiency.

The result is that year after year we slip further down the redistributionist road, dissatisfied with the growing welfare state, but with no morally satisfying arguments to make a change that entails any personal sacrifice.

Examples are all around us. It is hard to find anyone who likes our nation’s current health-care policies. But do you seriously expect grandma to sit idly by and let Republicans experiment with her Medicare coverage so her great-grandchildren can get better treatment for carried interest? Not a chance.

If reformers want Americans to embrace real change, every policy proposal must be framed in terms of self-realization, meritocratic fairness and the promise of a better future. Why do we want to lower taxes for entrepreneurs? Because we believe in earned success. Why do we care about economic growth? To make individual opportunity possible, not simply to increase wealth. Why do we need entitlement reform? Because it is wrong to steal from our children.

History shows that big moral struggles can be won, but only when they are seen as decade-long fights and not just as a way to prevail in the next election. Welfare reform was first proposed in 1984 and regarded popularly as a nonstarter. Twelve years of hard work by scholars at my own institution and others helped make it a mainstream idea (signed into law by a Democratic president) and perhaps the best policy for helping the poor to escape poverty in our nation’s history. Political consultants would have abandoned welfare reform as unworkably audacious and politically suicidal. Real leaders understood that its moral importance transcended short-term politics.

No one deserves our political support today unless he or she is willing to work for as long as it takes to win the moral fight to steer our nation back toward enterprise and self-governance. This fight will not be easy or politically safe. But it will be a happy one: to share the values that make us proud to be Americans.

Mr. Brooks is president of the American Enterprise Institute and author of “The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America’s Future” (Basic Books, 2010).

 

The Gang of Six puts forward some ideas worth pursuing.

•                By PEGGY NOONAN    

• The Wall Street Journal   JULY 23, 2011

It’s good, it represents progress, build from it. That would be a helpful approach to the Gang of Six proposal on the debt. Don’t deep-six it because it’s flawed. Flawless isn’t going to happen. There will be a big election in 2012. A lot can be settled then, and after.

The Gang of Six—three Democrats and three Republicans in the Senate—this week put forward a plan aimed at reducing the national debt by almost $4 trillion over the next 10 years. It includes $500 billion in immediate cuts, and it repeals a costly provision of ObamaCare. It would lower the top individual tax rate to 29%, push corporate tax rates down to 29% from 35%, and abolish the Alternative Minimum tax. On long-term spending, the plan includes a legislative supermajority and sequester feature. In the words of a senator involved in the bargaining, “For the first time, we have some real teeth” in spending controls.This is all pretty good. It moves the ball forward in the right ways.As for the flaws: A lot is left up to committees and future action. A lot is left vague. But a critic of the plan, the Cato Institute’s Dan Mitchell, highlighted with justice one of its central advantages: It “is not fueled by class-warfare resentment.” These days that always comes as a surprise and a relief. And it might have come at a cost to the Democrats in the bargaining sessions.The primary good of the plan is that it represents the work of three serious liberals and three serious conservatives who together are moving in the right direction, not the wrong one. They admit the spending crisis is a crisis; they appear to admit that we cannot, at least now, tax our way out of it. This seems small but isn’t. Agreement on these essentials is an antidote to feelings of widespread public hopelessness: “Washington can’t do anything.” That hopelessness damages us more than we know, both at home and in the world. We have to look competent. We have to look like we can reform ourselves. The other day there was an apparently incorrect report that the Republicans and the president had neared a debt-ceiling deal. The markets immediately jumped. Everyone wants Washington to work. People hunger for it.

The plan has already garnered a lot of opposition, much of it fair, but to quickly push it aside would be a real missed opportunity. Those who critique the plan can help it. Its cuts in entitlements and its attempts to reform them are unclear and appear insufficient. If the Senate passed a final proposal along Gang of Six lines, House Republicans would have to make the bill more concrete, more reliable in its mechanisms. And they’d probably have to make deeper cuts. Overshadowing all negotiations is the persistent threat of a credit downgrade. The senator at the bargaining table said that if a final bill doesn’t contain “at least $4 trillion in cuts,” we will get a downgrade, which would carry costs greater than the cuts in the Gang of Six plan.

Attempts to find a final compromise are delicate, with a lot of moving pieces. But the Gang of Six proposal is cause for encouragement. It could not be turned into specific legislation quickly. Gang of Six member Kent Conrad said Thursday morning it could take six months to get it all done and through the appropriate committees. But President Obama signaled this week, for the first time, that he might back a temporary debt-ceiling increase to allow work to continue.

That’s good. But a note on his efforts in the drama. It is time for the president to get out of the way.

For the longest time he wouldn’t engage, and now he’s engaged. For the longest time he didn’t care about spending, and now he cares about spending. Good, both in terms of policy and for him. But his decision to become engaged has become a decision to dominate, to have his face in front of the television cameras with his news conferences, pronouncements, and what his communications people are probably calling his “ownership” of any final agreement. He’s trying to come across as the boss, the indispensable man, the leader. And, of course, the reasonable one.

That’s all very nice and part of Political Positioning 101, but at this point it’s not helping. He’s becoming box-office poison. His numbers are falling. The RealClearPolitics composite job approval poll rating has him down six points since June 2, when the debt-ceiling crisis began. That fall, from 52% to 46%, exactly tracks his heightened media presence and his increased attempts to be seen as dominant. Public Policy Polling, a Democratic firm, said that if he ran for president today he’d lose, that his job-approval numbers are “worse than they appear,” and that he continues to have real trouble with undecided voters.

And if you’ve watched him lately, you know why. When he speaks on the debt negotiations, he is not only extremely boring, with airy and bromidic language—really they are soul-killing, his talking points—but he never seems to be playing it straight. He always seems to be finagling, playing the angles in some higher game that only he gets. In two and a half years he has reached the point that took George W. Bush five years to reach: People aren’t listening anymore.

The other day he announced the Gang of Six agreement with words that enveloped the plan in his poisonous embrace: “I wanted to give folks a quick update on the progress that we’re making.” We’re. He has “continued to urge both Democrats and Republicans to come together.” What would those little devils do without Papa? “The good news is that today a group of senators . . . put forward a proposal that is broadly consistent with the approach that I’ve urged.” I’ve urged. Me, me, me.

That approach includes “shared sacrifice, and everybody is giving up something.” He was like a mother coming in and cheerily announcing: “Dinner’s served! Less for everybody!”

We’re trying to begin a comeback, not a famine. We’re trying to take actions that will allow us to grow.

He’s like a walking headache. He’s probably triggering Michele Bachmann’s migraines.

The Gang of Six members themselves should have been given the stage to make their own announcement, and their own best case.

The president, if he is seriously trying to avert a debt crisis, should stay in his office, meet with members, and work the phones, all with a new humility, which would be well received. It is odd how he patronizes those with more experience and depth in national affairs.

He should keep his face off TV. He should encourage, cajole, work things through, be serious, get a responsible deal, and then re-emerge with joy and the look of a winner as he jointly announces it to the nation. Then his people should leak that he got what he wanted, the best possible deal, and the left has no idea the ruin he averted and the thanks they owe him.

For now, for his sake and the sake of an ultimate plan, he should choose Strategic Silence. Really, recent presidents forget to shut up. They lose sight of how grating they are.