Thursday, October 25, 2012

Are We Governed by Our Inferiors?

This will complete my comments on Throw Them All Out—a well-researched book by a well-credentialed author. Tired of politics? So am I. But Plato said, "One of the penalties of not participating in politics is that you will be governed by your inferiors."

Yes, I know it is much easier to curl up with a good novel or watch a ballgame. But freedom is not free. The right to vote carries responsibility.

We have a president who talks a lot about a fair shake, a misnomer for redistribution of wealth. Whose money is going to be taken? How much? Who gets it and how much? And most important—Who gets to decide?

The answer is unelected bureaucrats and crooked and ignorant politicians.  Think about that before you support Marxism hidden under terms like “a fair shake”.  This has never worked at any place or time in history and never will.

To paraphrase Benjamin Franklin, “Those who would sacrifice liberty for a little security deserve neither.” 

If we really want a “fair shake” for everyone, how about starting with politicians? Let’s make them live under the same laws that the rest of us have to live under.

OPM (other people’s money) is the opiate of the masses. Congressmen and most bureaucrats believe that OPM is a limitless pit of treasure. But that treasure has to be continuously replenished, and when you force people to pour into the waste pit instead of using wealth to create jobs, the wage earner suffers the most.

Steps we need to take. (Some facts are from the book, opinions are mine)

Step 1. Term limits.  Yes, there are some honest and effective folks who have been in Congress for many terms. But they are scarce.

The system of seniority and doling out of favors makes it next to impossible to defeat an entrenched incumbent.  Term limits might attract more folks to run for office for the right reason—a desire to serve.

Step 2. We must free ourselves of the notion that people elected to Congress are intelligent and competent. “Reader, suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself.” Mark Twain.

Many run for office simply because they can’t make a living in the private sector. "I don't know who started the idea that a president must be a politician instead of a businessman. A politician can't run any other kind of business. So there is no reason why he can run the U.S. That's the biggest single business in the world." –Will  Rogers.

Most politicians never have to leave the DC bubble–never have to make a living under the laws they pass. Most never have to work again. And many are just plain dumb. If you don’t believe me, let me introduce you to Joe Biden, Nancy Pelosi, John Boehner, Maxine Waters and Harry Reid, just to name a few. Would you hire any of these folks if you were running a company that had to turn a profit to survive?  

Yet, they have risen to the highest pinnacles of power. How? Many are elected the first time because of family influence or money. A partner in a large law firm once told me they usually select their weakest attorney,  finance a campaign to get him elected, then send him instructions on how to vote.

By sending home pork, these unqualified folks get reelected; each reelection garners seniority and power (committee assignments and possibly a chairmanship), and results in more pork. And the vicious cycle goes on.

Then there is Barney Frank. If you had to name one individual most responsible for the 2008 meltdown, it would be Frank.

There is plenty of blame to go around, but consider this: A. Government forced banks to make bad loans. B. Banks knew they were bad, so they sold them to Fannie Mae and Freddie Mac (the government). C. Some were bundled into marketable securities. D. People placed bets on whether these securities would go bad or not.  E. Big banks found themselves on the wrong side of those bets and we bailed them out instead of letting them take their medicine.

Frank had covered up fraud at Fannie and Freddie and pushed to fund their mounting losses for years. Why? Because the two organizations were filling his and Obama’s campaign coffers. And whose name is on the bill that is supposed to stop (but won’t) this from happening again? Barney Frank.

Step 3 Stop former politicians and their families from lobbying (one third of the senate now has a family member who is a lobbyist).

Step 4 Abolish the tax code and institute the fair tax. I came to this conclusion after three decades of dealing with the code and observing how taxes affect individuals and businesses.

Step 5 Divest ourselves of the notion that politicians won’t tell blatant, bold, arrogant, corrupt, harmful lies that endanger our economy and national security if the lies keep them in office. Most of us know that politicians lie, but I don’t think we can fathom the extent to which some politicians will go.

The litany of lies in the current Libya scandal is appalling.  We have heard lie after unrepentant, unconscionable lie without the slightest twinge of remorse. It has been fairly easy to obfuscate these lies with the help of a pandering media, but it is not so easy to cover up bald-faced lies on simpler subjects.

There were at least four false statements made in the last debate that were quickly debunked by fact checkers. That usually stops them from being repeated. One stands out to me because it is so easily debunked. On the auto bailout argument, Romney said he said one thing in a NY Times Op-Ed and Obama claimed he said something just the opposite. One only has to read the piece to see that Romney was correct. Left and right sources agree on this because no sane person could read the article and come to any other conclusion.

One might forgive a mistake during a high pressure debate, but the president continued to repeat the lie on the campaign trail after being told he was wrong by his own advisors.  What kind of person does that in front of large audiences and cameras?

Most of us have been less than honest more than once in our lives, but the average person can’t imagine telling a whopper to millions of people—whoppers that can cause great harm. Every time I hear Jay Carney tell a lie, I wonder how he looks in the mirror to shave. And what does his mother think?

It seems they are able to rationalize, convinced that the ends justify the means. I can’t fathom that kind of narcissism. 
In 1887 Alexander Tyler, a Scottish history professor at the University of Edinburgh, had this to say about the fall of the Athenian Republic some 2,000 years prior:

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government.
A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury.
From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse over loose fiscal policy, (which is) always followed by a dictatorship.
The average age of the world's greatest civilizations from the beginning of history, has been about 200 years. During those 200 years, these nations always progressed through the following sequence:
From bondage to spiritual faith;
From spiritual faith to great courage;
From courage to liberty;
From liberty to abundance;
From abundance to complacency;
From complacency to apathy;
From apathy to dependence;
From dependence back into bondage."

"The only thing necessary for the triumph of evil is for good men to do nothing." Attributed to Edmund Burke.
So do something.


Thursday, October 18, 2012

How My Boss Got Fired and Went to Prison

Long, long ago in a land far away, my boss got fired and went to prison. Okay, maybe it was not a land far away and there were several thousand folks between his position at the top of a conglomerate and my lowly spot near the bottom. But he did go to prison . . . for trading stocks using information he had but the general public did not. 

This would not have happened if he had been a member of Congress. By the way, his stockbroker also went to prison.

Here’s a portion of a Q&A with the author of Throw Them All Out, Peter Schweizer, posted on Amazon:
Q: When did you realize that so many insider trading and sweetheart land deals were going on?
A: When I first discovered that members of Congress are exempt from insider trading laws, I didn’t believe it. Then, when I started to look at their stock trades and compare them with what they were doing in office, I was stunned.
Q: What do you mean by the "Permanent Political Class"?
A: I think politics in Washington has become a business opportunity. Republicans and Democrats work together to enrich themselves. They have designed the system to work so that they can make lots of money doing things that would get the rest of us sent to jail.
Q: Politicians are exempt from insider trading laws? You’re kidding, right?
A: No. They write the rules, and guess what: the rules that apply to us don’t apply to them. They are also exempt from whistleblower laws. If you see your boss committing a financial crime, you can report them and you will be protected. You can’t be fired. But if your boss is a congressman? You’re toast.

Many years ago, insiders could buy or sell at any time for any reason and just pocket the gains. This rigged the game in favor of those holding material, non-public information. The government now requires corporate insiders to file a Form 4 with the SEC any time they transact in their own company's shares, detailing how much they bought or sold, at what price, and when.

They have to file the form within 48 hours of the trade. Smart investors track those inside trades.

In my former life, I was a licensed securities principal.  I had all the certifications and licenses required to train and supervise registered representatives (stockbrokers). I was required to know insider trading rules as well as other regulations related to broker-dealers.

Insider trading would get a rep who worked for our company fired. Not so, apparently, for members of Congress.

The following are some of the insider trades listed in Throw Them All Out.

Melissa Bean (D) bought shares in the health care sector while Obamacare was being debated, earning as high as a 50% return.

Jared Polis (D) was a tireless advocate for Obamacare, bought a huge stake ($6 to $12 million) in BridgeHealth, a medical tourism company that specializes in providing less expensive medical procedures in countries other than America, clearly believing that the bill would increase costs here, making overseas medical procedures more attractive. He also invested heavily in biotech companies while voting on a bill that would provide a 50% tax credit for investments in such companies.

Senator John Kerry (D) bought at least $200k in shares of Resmed, a beneficiary of Obamacare, earning a quick 71%, and then worked to reduce taxes on Resmed and companies like it. 

He earned 40% on Thermo Fisher Scientific, also a beneficiary of Obamacare provisions. He dumped health insurance company United Health, which stood to lose from the health care bill, then introduced an amendment that would tax generous health care plans. He saved about $100k by dumping Amgen because Obamacare would reduce their Medicare reimbursements.

Johnny Isakson (R) and Sheldon Whitehouse (D) dumped shares on the same day Kerry did.

James Oberstar (D) (served eighteen terms) sold major holdings in two pharmaceutical companies just before the shares plummeted with the passage of the bill that established Medicare part D because the companies he sold stood to lose from the legislation.

Jeb Bradley (R), new to his job in 2003, invested just before the above bill was passed, reaping an instant 10% return.
But everybody pales in comparison to Kerry. He made 111 transactions in pharmaceutical and health insurance companies in one year, earning at least a half million from one company.

Max Baucus (D) and John Boener (R) actively traded health care stocks even as one pushed for Obamacare and the other against.

Jim McDermott (D) also bet big on big pharma when the Medicare part D bill was working its way through Congress, earning a tidy return of 180% in one year.
Spencer Bachus (R) made as much from option trading during the crash of 2008 as he did from his congressional salary. He was included in private meetings with the Fed chairman and Treasury Secretary and knew in advance what actions were going to take place.
Jim Moran (D) dumped shares in 90 companies after being in one of these private meetings.
Kerry, along with Whitehouse (D) and Dick Durbin (D) (about $115K) actively traded financial stocks the day after the meetings. Same for Shelley Capito (R) (about $200K).

Kerry once again dwarfed them all, dumping or shorting financial stocks before the clueless Treasury Secretary Hank Paulson and the equally inept fed chairman announced that the sky was falling. Kerry bought back just before the bailouts passed.
Rahm Emanuel, the president’s foul-mouthed chief of staff and now Mayor of Chicago, was appointed by Clinton to serve on the Freddie Mac board in 2003. He sold about a quarter million of stock just before the accounting fraud there was partially revealed (we may never know the total extent of the fraud since the major culprits now serve as White House economic advisers).
Nancy Pelosi (D) purchased between $1 and $5 million in Visa stock weeks before the rest of us got a shot at buying shares in the IPO (initial public offering)earning 50%. When a bill unfavorable to Visa passed out of committee with bi-partisan support, Pelosi made sure it never made it to the floor.

She and her husband received similar favorable treatment on at least ten IPO’s. She touted natural gas as an alternative to fossil fuels (apparently thinking the rest of us don’t know that natural gas is a fossil fuel) and earned a nifty 67% on a natural gas IPO.
The Pelosis are joined in the IPO Treasure Kingdom by Senators Torricelli (D) ($70K), Bingaman (D) ($378K) on one IPO in one day. Barbara Boxer (D) also earned returns from 184% to 200%. 

Maybe you didn't vote for any of these folks, but there are many more trades. And John Kerry did run for president. 
The stockbrokers in the firm where I worked would have been fired for engaging in many, if not all of the trades listed in this book.

I believe that legislation exempting members of Congress from insider trading rules is tantamount to passing a bill that allows them to rob banks. But the SEC will not move to punish them because Congress funds the SEC.

I also believe that the brokers who completed these insider trades and the firms who supervise them broke the law.

Legislation was working its way through Congress as I wrote this, but more rules won’t work unless we enforce them.

“There are two passions which have a powerful influence in the affairs of men. These are ambition and avarice; the love of power and the love of money.” Benjamin Franklin, 1878

Next week, a few suggestions as to what we can do about insider trading, earmarks, and cronyism.Then we'll go back to telling stories.

Thursday, October 11, 2012

Earmarks--not talking about Cattle

Continuing with Throw Them All Out, Peter Schweizer’s book subtitled How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison. I did not make up that subtitle.

Last week, we talked about how the stimulus money of 2009 was doled out to political cronies. This week, it’s earmarks. Congressional earmarks are loosely defined as guarantees of federal expenditures to particular recipients in appropriations-related documents. Members of congress add their pet projects to bills that appropriate money for what most consider essential government services. Therefore, they are almost guaranteed to pass and the money will be spent.

Most earmarks are for projects that probably would not be funded unless they were attached to a bill that provides funding for something most would consider essential (appropriations).  Politicians justify earmarks as their way of sending federal money back home to their districts. That money can mean the difference between winning and losing in the next election.

I’m sure that there have been worthwhile earmark expenditures, but if they are truly worthwhile, why not stand the test of an up-or-down vote. I am willing to sacrifice a few good earmarks to get rid of the wasteful ones. The folks we elect trade earmarks like we trade baseball cards.

Former Speaker Dennis Hastert (R) inserted a $207 million earmark into a highway bill that increased the value of real estate he owned. He made millions. This received a lot of national publicity, but most of the others in this book did not.

Carolyn Maloney (D) along with Senators Chuck Schumer and Hillary Clinton (both dems) secured three earmarks of $640 million (eventual cost: at least $10 billion) for a rail line that just happens to run a few blocks from a building Maloney owns.

Bennie Thompson (D) inserted an earmark ($800K) for a regional airport in California to move a flight path south of the airport instead of north. Bennie is from Mississippi, not California. Former Speaker Nancy Pelosi (D) owns a vineyard, a home, and an exclusive resort north of the airport. No more pesky flights over her properties. Bennie, of course, was just paying back a favor. He had his own earmarks in MS where he enhanced his personal wealth.

Another earmark paid for a new exit ramp off highway 101 in California. The ramp provides better access to a shopping mall Pelosi owns there.

Judd Gregg (R) obtained an earmark for $266 million for a new tech center at the Univ. of NH. The name of the new tech center? Gregg Hall. 

Ken Calvert (R) earmarked $1.5 million of our money to make himself about half a million in real estate profits. David Hobson (R), Heath Shuler (D), Jerry Lewis (R), all enriched themselves with earmarks. Maurice Hinchey (D) increased his net worth by 800% in just four years through earmarks.

Harry Reid (D) secured $18 million for a bridge across the Colorado River (there was already a bridge in place). He just happened to own 160 acres nearby. He also made $1.1 million after exerting influence in a rezoning case. The influence was powerful because of past earmarks and the likelihood of future ones. Again, earmarks are like currency.

The author did a good job of pointing out particularly egregious examples, but I know there are many, many more on both sides of the aisle. 

From the book: A young state Senator Obama (D) describes in his book, The Audacity of Hope about receiving a $112K “retainer” from a man named Blackwell at a time when he needed funds badly. As payback, Obama secured $320K in Illinois tourism grants for Blackwell’s company (for a ping-pong tournament).  He seems proud that he was able to fund ping-pong.

Most of our political leaders have been in office for so long that their war chests are full as a result of handing out our money and receiving political contributions in return.

We should stop all earmarks. Those who say that earmarks are a tiny part of the budget simply don’t understand how earmarks work. Stopping earmarks will save hundreds of billions more than their direct costs because without earmarks, a lot of wasteful pork just won’t pass.

And then there is the excuse most often used. It’s only _____% of the budget. That excuse is what got our government into so much debt and what gets a lot of families into trouble. Everything counts. As Everett Dirksen is supposed to have said, “A billion here and a billion there, and pretty soon we’re talking real money.” That same principle applies if you substitute million or even thousand for billion. Next, insider trading. 

Go Down Looking is a great novel. I read the other books of his series after reading this one. Jim has a great writing style, and his use of the metaphor and simile is exceptional. His characters are truly realistic--no super heroes--just folks living their lives the best they can with all the ups and downs of humanity. Real events and incidents are scattered throughout the stories. Anyone who is from a rural area or small town will immediately identify with his characters and with the settings he creates. Everyone else will be treated with an accurate and very realistic account of the joy & troubles, the dignity & shamefulness of rural folks of the past few decades all wrapped in a remarkable story. Without hesitation, I recommend Jim Ainsworth's River Series books, especially Go Down Looking. Listen for the music; search for the flow.
Ken Ryan, Lufkin, Texas