We are all Greeks

Black swans are flying, the big question is where they will land.

We know all about the optimistic talks taking place about the Greek debt negotiations.

To me, the present ¨all is good¨attitude is a sign to seriously worry.

SERIOUSLY.

Greece, as many small countries under the supervision of big countries, got out of hand and now needs a big spanking.

The problem is how hard this spanking needs to be to correct its bad behavior.

Today, I heard a father, until two years ago,employed in a large govermental entity, crying for food to feed his five kids.

Under fascist and later pseudo elected governments, the greek law makers and central bank machinists provided superior advantages to many citizens in Greece to live far beyong their means, and to a narrow band of its citizens incredible benefits for no work. In the process a few in the elite accumulated inimaginable personal wealth, a copy cat of the government induced class warfare American style. To top the ouzo cake they cooked the books like any well respected crook with power (not all cooks are crooks, nor all crooks are cooks).

This pernicious influence of malversing funds for self enrichement has created a social acceptance that percolates as easy thru Greek society as water does thru a tea filter.

Evading many of the basic social responsibilities of any civil society, are laking in Greece today. Paying taxes and fair minded pay for work rewards, are NOT accepted practices. Today Greece, Italy, Spain, Portugal, France, are not normal societies as a civil person imagines.

For many governments not paing its bills in a fair period say 90 days, has become normal practice, for local governments to keep employes working for months with no pay is normal. Thus young adults that are learning this behavior consider normal not to pay their bill for years, as I learned when I asked around. As an anecdote, I asked a small business person who continues to do work for a local government even if he does not get pay in twelve months, if he considers this payent delay a normal and healthy way of doing business, he answer was interesting, he thought it advantegeous for him becuase it makes it very diffult for others to compete in governments contracts, and he can do the work, also he does not fully pay his employees until the town pays him. As he said the employees come to work becuase eventually we all get paid. A very pernicious way to operate in society. He found this as normal as drinking water.

Many of present Greek social pratices have become laughing currency for comedians. In y opinion, for a good reason. Like, if you have enough money, your governement tax man will work for you, they will help you do not pay taxes, legally!!!

Who tells the truth!

Time as the truth teller!

Now that the truth about Greek book cooking its national debt is out, calculators cannot keep up running with the massive financial discrepancies encountered.

Here we have a country that was granted more than six billions euros in credit, and open more than 8 billion dollar of credit lines to build stadiums for the Olympic games, with full knowledge the Greek economy could not collect enough taxes to pay a third of the interest need it to cover the going forward costs of those bonds, let alone the principal amounts.

Who needs to pay, the borrower or the lender!

The borrower who does it with the understanding. I believe all those Harvard educated Greeks, must retain some knowledge from their days on elite schools, must have know that as borrowers they will have a difficult time to pay for the fun Olimpic party.

Or the lender who knows, if things get sour, eventually it will force the governement to fund any discrepancy with the borrower.

As the sour mash continued to ferment in Greece, money kept pouring into Greece as Ouzo in a weeding. The country continued expending and expanding, corruption keep growing, politicians and friends became very rich and people did see it.

To spalsh a little of hope to the populace, accounting practices advised by the best and brightest, gave a rosy picure of Greece, among those brilliant minds were global economic and investment policy consultants from Goldman Sachs, always magnificent and brilliant creators of cover ups for financial irregularities. Goldman did its deed for the Greeks and worked until the day of recokning arrived.

We should be glad Greece is a country with good mediterranean weather and many months of warmth, you will not need more than a tunic most of the year, so the emperor´s clothes if lost, should not be a big problem.

To spruce the good looks of the truth telling God´s who created such mess, beards and tunics can get a quick trim, we can give a power wash to Zeus and he will look like brand new, ready to toil for its 18 months of pay during a 12 month calendar year. Allt his without financial engineering, and no Gold man left behind.

Real bad numbers!

The financial numbers for Greece are real bad. Really.

Greece balance sheet cannot cope in any shape or form withe present paymentes. Even if the troika (German, French, FMI) forgave the present debt service, greece old debt service was already so large, still it would not be possible for greece to pay it back. Such immense mess was the reason why Greek central bank officials called upon Goldman Sacks to do the cover up job elegantly. Thus Greece could enter the EU and Goldman become the new Greek Central Bank.

For the past 30 years, Greece was barely covering up its debt service, for the past ten years the debt service is 25 times larger than 10 years ago.

All parties in present debt negotiations, have a strong self interest to get it right first, their banks hold most of the debt and the bail ot will go directly to them, and not the Greek governement.

At best, Greece will need to take 10 years of massive social distress, transfer the little they have to private banks, and suffer thru massive unployement until the national income is in line with countries of its caliber, in comparison to its neighbors Greece needs at least a 70% reduction in minimum wage pay.

Top that with the present revenue debacle, less than 20% of businesses are in compliance with their taxes, and most small businesses do not pay taxes, anthey prefer to bribe the local tax man than to pay taxes.

The pain is going to be similar to a hundred nail cruxifixion for most Greeks.

The next Greek governemet, the present impossed government by Germany France and the US will not do much to help most greeks, the next government should follow the play book of Iceland, let the bonds default.For Greece the pill also need to have a ¨get out of the eurozone¨ ingredient at least for next fiive years, inmediately devaluate their currency 80% and implement a massive tax collection reform.

The saddest story of the deficits and the real debt of Greece is that will have to put the country under massive social adjustments, that based on the nationalistic tones of the protests, a civil war should not be discounted.

Do Governments create jobs

In a single word, the answer is: yes.

In fact, good governments create good jobs.

The US with a superior educational system until the 80's hired very smart and able people to run tasks in its government that are complex and necessary for any society to function, in addition to operate at a global leadership level.

Still, today, the US government creates jobs, good jobs, but at a much smaller rate and in smaller fields of reach, like National Institute of Health or the National Science laboratories, and many other worthy entities, not yet destroyed.

When people get ticked-off about government overruns and other mismanagement blunders, what is left of the story is that those projects are outsourced to private companies, and politicians who scream the loudest about the blunder are the ones who allow those corporations to run amok and cover-up for them when the corporations rob the public treasure. Funny how hollow we are in reporting.

The National Institute of Heath, is a great example of government excellence. The VA Hospital system, maybe the best government run health system in the world, until politicians started to eliminate benefits for bounded veterans and its families, by under funding the VA system. So much for pandering to soldiers, chant them as heroes in all campaign speeches and forget about them when they wounded or in need help.

As politicians legislated and destroyed -by outsourcing government functions- jobs, the quality and decline of the educational system followed step by step.

You can thank for the destruction of social quality, now claimed to be some kind of worthy philosophy, Reaganomics. What this philosophy is, it is a bunch of propagated social fallacies, accepted in the politicians -democrats and republicans- corporatocracy rules of politics, that they claim to create healthy economics by each president since Ronald Reagan; nothing is more of lie. None of the two parties escape the big lies, democrats and republicans are as false as their ideas. Today, more radicalized advocates for smaller role of government are louder and more efficient. The problem with the idea is that it misses some components, that is, smaller is OK but it should also include smarter and competitive and well remunerated.

The advocates of the Reaganomics philosophy think that by eliminating government, the interstate highway system will be pay by Nebraskans or Okies, who received from the central government -they want to eliminate more than 20% of their unfair share of taxes- so they can have highways worth of riding, maybe they prefer to go back to dirt roads and schools with no heat, and educate kids only until 11 grade. One has to wonder what kind of screamers are those!

Political demagogues have grown their radicalism to extremes that are unhealthy, to have a healthy country. If a new debate and some strong positions are not taken, been ranked 29 in education worldwide will be an achievement and the ride towards lower quality so far is guaranteed.

The US started to destroy its educational system with President Reagan, today we have politicians with ridiculous demagoguery, the include statements such as the elimination of the US Department of Education. I assume its substitute will the department of idiots. Those screaming the elimination of central agencies, what they are saying is something much different. What they cry is about is simple, get rid of the people who do not look like me, if what it takes is falling behind as a country, who cares we are still "number one", the question is at what "we are number one"?

Bomb throwing and war mongering for sure.

One More Year, Lower Illusions

Since my last post, politicians keep doing their damage and keep fighting to the podium that awards the price of who is more conservative and destructive to America.

Bankers keep their robbers inside their combination safe and those who do not fit inside where sent to be employed in government posts.

Working people have lost another 3.5% of income, but the top 1% has gained 4.7%.

The level of employment has been nil, mostly the statistical reporting continues to "cook and bake" the data to make it look "decent", albeit its indecency.

Elected officials continue to borrow like drunk sailors, and the tea party goers seem to have stop drinking tea but keep enjoying their fallacies and delusions.

Obama has proven to himself a failure, he now admits he could become a one-termer president. He understands his lauded promises turned out so far to be nothing, empty rhetoric like his predecessor, proven to be "same old, same old", in fact it seems many now think president Obama has managed to improve his predecessor incompetence.

Two books appeared this year with the same title "Aftershock" one from former secretary of labor Mr. Reich and the other by economists Wiedemer's brothers, both worth reading.

Overall nothing has change.

If there is one book for your 2012 list consider Prof. Jeffrey Sachs latest "The Price of Civilization" he does not take a political stance, the book is a wake-up call via in-depth analysis of the state of the country, offering solutions to complex problems.

The Creation of Lawless People

Every time a law takes effect a behavior or action becomes forbidden and penalized.

We have forgotten that laws are not the solution to bad behaviors or bad actors.

Good education and direct responsibility are components of a respectful and evolving society, that intents to be better tomorrow that it is today.

Among the many human deficiencies is the deviation of greed one of the most dangerous character flaw.

It does seem greed it is one deficiency in character that it has become impossible to teach, or we have become callous about the need to be corrected.

It is interesting that most religions have some form of fix for character flaws.

One fix for this fault in most religions is a form of the following core statement:

"don't do unto others what you don't want do to you"

The amazing part about religions forming such thought, as a core thought, is the important part that takes place as an allegiance to the group.

If the religious groups will concentrate in following that simple idea and act upon it, greed will be eliminated.

Thus, due to the society present situation it will be fair to say that religions have fail most people. The consequences of covering-up and clouding arguments around the core, justifying what is convenient to justify, does not comply with such core believe. It is understood in all religions that it is the spirit of the letter what matters not the letter itself.

Today, it has become the most common approach to justify why is difficult to accomplish religious core believes.

The fact is that it is not easy to be a good faithful believer; the disturbing part is that no effort is been put in getting near the thought or the education that takes to be a believer of core believes.

More effort is put in justifying why "Thou should not kill" is better to be debated with its present caveats than its initial intent of respect for all life.

When money enters the process it seems that believers lose sight and money surpass all core believes, bulk majority set aside the core ideas of their believe in favor of greed for money. Money and its justifications has corrupted their religious believe system.

At present time, we are incapable of handling money without corrupting their own believe thought process.

Thus let's the conversation be not about convenient caveats but about the spirit of the letter.

Here We Go!

Up, down and here we go again.

The financial system is proven to be corrupted at its core, anywhere you look there is deception and government intervention to support with tax payers money institutions that are unwilling to confront their own inefficacies and misplaced purpose.

It is not that we do not know how to fix it. It is the greed of policy makers that is not allowing laws and decisions to correct the deficiencies of the financial system to be put in place.

Here the danger is the continues build up of wealth inequality. While tax payers get stripped of the assets to be directed to those int eh financial industry, the industry leaders continue to collect obscene amount of money for false and poor performance. Here is were the board of directors have proven to be allies of the problem, all regulatory entities have failed to take steps to put investors as owners with direct or indirect power to control corporate leaders abuses and deceptive practices driven (now clear) to self enrichment and failing their corporate duties.

As of late we have learn that Mr. Bernanke is an expert at tracking equities, and he values equities values as meter of his performance. See ABC interview last week.

Thanks to free cash provided to financial institutions, institutions that should be allowed to fail, the carry trade allowed by the fed and the treasury department is creating a monster of leverage.

If the Lehman and Bear Hedge funds collapse were the trigger of the past round of financial ineptitude, the present carry trade and governments push to create inflation has the potential to create the mother of all financial disasters. As they continue to deceit the rest of us, their assymetric knowledge is not as superior as they think.

What it came is not gone!!!!

Seven months since last post, no reason for such long leap.
After the economic debacle I continue to wonder why there is not will to tackle the obvious systemic problems build in the system and reduce risk of next economic failure.
The economic policies are broken and there is more will to pilfering than to fixing it by politicos, who dip in the cookie jar as soon as they can, and still they will get reelected at a ratio of 95%.
I might take another seven months to wonder....

Money sinners in 2008, same old, same old and two good advices

If hell exists and if some are fearful of going to be dammed in eternity, it seems that it misses the point with some of the “experts” that distribute ideas via the talking tube.
Let’s start by the outright liars of 2008, who happen to be the same of 2007 and I am confident they will be the same of 2009.
First the officials, those who are running the show:
The grand prize of misrepresentation and outright lies goes to Fed Chief Greenspan. It took a Congressional hearing for him to accept error. His following act Chief Bernanke is not doing better.
Chief Bernanke blunders with the economic status of the country and continued assertions of "everything is fine" until he got tomatoes thrown at him and had Cramer –also a sinner- screaming like a maniac, it was too late for the economic meltdown and actions to be put in place.
The Secretaries of the Treasury in unison were also big time sinners. The prize has to go back to the pernicious views of Robert Rubin who castrated any regulation with the help of the Senators from New York Schumer and Clinton. This triumvirate set the political doing for the present fiasco.
Secretary Paulson needs to get the prize for "idiocy in economics and purposeful erroneous public statements". The Secretary got caught in so many blunders that had to beg the Chinese and the Saudi clan every other week for a bail-out of the treasury debt, while telling everybody and Congress that he did not see any sign of distress in the economy. While the Secretary had his counter part saying the opposite! Bloomberg news found Mr. Paulson irrational talks funny; to the extent of creating headlines that were incomprehensible.

To the guy with the sign “the buck stops here”, well, no comment, I leave that one to your own assessment.

Big air heads with fancy titles in the talking tube:

Again the “you better ignore him or else” prize, for the past decade and for the next decade goes to the king of misinformation and intention to misrepresent the reality goes to: Lawrence Kudlow of MSNBC.
I am really sad for Kudlow and for having to live a life so full of air and deception to accumulate personal wealth at the expense of the less powerful.
Kudlow is the ultimate insider, whom benefits from others misinformation, he shows it every night. The power of deception in Kudlow’s TV show has no parallel.
Be careful about following Kudlow’s or his buddies forecasts, the probability of been is wrong is almost assured, not because they are not trained or uneducated, but because they are demagogues above anything else.

Cramer is the next in winning the “be careful how you interpret me” prize.
I like Cramer rants, he is sometimes too darn right that one has to wonder if it is his sanity or insanity talking.
The danger with listening to Cramer is that he needs to run a TV show and telling the truth will not gain him access to the people ne needs to get his business going. Cramer has the problem of "the happy herd" mentality, if Kudlow is goldilocks economy, Cramer is "there is bull market somewhere" . Cramer is is afraid the herd will disband if he cries wolf. If things are bad Cramer has the tendency to say is ok to keep saying something even if he is wrong. Think of the show as entertainment with the same purpose of any other TV show, that is to get you watching not matter the content.

To start the New Year after all the bail-outs etc., if you think this is not going to affect you, just wait and see.
So worry a lot about your own comfort level, and start to question how much you have been put to task with your future, and ask of your elected official’s questions, you might find the answers beneficial to have a better plan in 2010.

Now my personal and two best wealth building ideas of the next years:

First listen to a few honest people like Profesor Nouriel Roubini, economist Peter Shiff’s, and the foudner of Vanguard funds John C. Bogel forecasts and opinions. Over the years this trio are shown to be honest and truthful.

Second, be aware of all you buy, put your money to work with america. STrategy is to buy only if it is all “Made in the US” and your all staples should come from less than 100 miles radius from where you live.

If by the end of 2009 you have not save money versus 2008 and help your fellow citizens, throw me a note and tell me why you think it did not work.

Prosperous 2009 !!!!

Ponzi Schemes and Other Dreams of Fortune

Mr. Madoff has brought to the forefront, again, the sad reality on which the present regulatory and investment ethics are grounded, and teh sad acceptance by all.
If you think nothing can be done, I suggest you write a note with your feelings to the Senate Banking Committee.

Express to your elected officials a yawn, yeah or nay, for tough regulatory environment. Either way, let regulators know what you think of the present situation, at this point your opinion counts, amid the flagrant set of scandals they want to hear do people care or it is just another short memory whiohc people will forget.

Let’s give credit to Mr. Madoff.

It was himself who tipped his family and senior employee of the charade. No a single regulatory agency got even a whim of what was cooking, they were to busy covering up the “real” banks schemes.
Do not forget to send a kick in the butt to the SEC for failing to recognize most of the investment and bank practices are no dissimilar to Mr. Madoff scheme. Intentionally, I used the word scheme with pure intent as way to deceive others.
If Mr. Madoff is going to go to jail, thus, the same should occur to the rest of schemers in the banking industry. Those banks receiving billions of dollars in tax payers money are much not different, they too would have collapsed as Mr. Madoff scheme.
Government has failed to investors, citizens and the country. Elected officials continue to fail to stop tax payer’s money use in the cover-ups, from the bank industry too many obscure financial industry pyramid schemes.

The big difference here is that one is operating under the umbrella of regulation and this is only 20% as recognized by the SEC, and 80% is unregulated in many forms of schemes.

Mr. Madoff major case against him is that he ran and unregulated operations, the same were SWAP and many CDOS and off the books operations in most banks and investment houses around the country.

We only have a solution that is to replace in mass all head regulators for failing at their jobs. That must include the Federal Reserve chairman whom was a proponent of such unregulated instruments.
When you fail to discipline you end up with self-destruction and that is not a good path to follow.

We all have dreams of fortune.
It has become so prevalent to scam around investments that it is an ethical stand that is perceived as acceptable and to some extend considered as part of the “process” to the leaders of the country.
The latest research conducted at major universities from where the next generation of leaders will come such as Harvard, Yale and other Ivy League schools shows that we are in ethical trouble.
The latest study shows that most MBA graduates are willing to comprise their ethics for money. When money is so easy to take from others in a questionable and illegal way and the penalty is so lame, the risk-reward ratio is tilted towards the unethical. Who is going to take the task of reeducating and creating tough white collar penalties for people who affect social well been.

How Much Golden Garbage Do We Have?

So far bank and governments have bail out executive bonuses, golden parachutes, end of the year bonuses, but hey have left holding the bag to around 6,000,000 families.

The problem with the present situation and all the talk about recession and probably depression is that a massive amount of money has been redistributed from most people to a few using a system of wealth transfer that is based in ideological falsehoods.

How much financial garbage needs to be dumped to the always trusting and always unsuspecting citizen.
The math is quiet simple the governments around the planet allowed financial institutions to move out of their books trillions of dollar financial garbage in the form of products that were called investment s to a rate of 32 times the actual asset value of the investment.
So far we have siphoned around $6 trillion to $10 Trillion into banks and other institutions and the stock markets around the planet have eliminated around $32 Trillion of wealth. So how much more is left?
The answer common answer these days is: unknown the amount of leverage left in the system.
I think I have an answer based in the amount of financial garbage “exports” generated as part of the profits reported by Wall Street firms.
The magic number lay between $210 trillion to $250 trillion, so far of that amount 35% is consider to be “toxic” in other words worthless no even to profit as garbage dump, the rest has three components, and have been performing so far. First, is considered prime government debt obligations –here is where you are expected to pay your taxes to pay the bondholders-. Second, corporate operating debt –here is where workers are expected to work for less to pay bondholders. Third, is your mortgage and other consumer debt – here is where you are expected to pay your mortgage and credit cards as you have been doing all you life.
The scary Halloween components of such debt are the toxic part, so far we have only clean up around 20% of the considered toxic. We have around $22 to $25 trillion of garbage to clean up, basically the wealth accumulation of the country for the next 50 years or so as long as we do not get more in debt, in that case the USA will have to default on its debt obligations and more serious global disaster will occur. No a likely event in the next 20 years but a very probable event after that, unless a massive program of government intervention takes place around the planet.
Who in heavens would have ever thought that the right wing of the conservative party under Bush Jr. will make the global economic situation evolve into a massive interventionism that will create the largest socialization of the economy?

It started by the federal government under the auspices of the financial lending lobby, and continue with banking lobby to permit leverage of those assets more than the 12 times that the law had on the books and allowed to increased to 32 times leverage. Today there is not a single government in the planet who is not in the brink of disaster thanks to the control by lobby and the elected official’s lack of independence.

Selling Golden Garbage

How so many smart Ph.D.s MBAs and government institutions failed to control the amount of financial garbage sold to the public., destroying people's futures and pensions.
The answer is no simple, but the intentions are, the main intention was to create something that will generate commission thus bottom line profits from which those paid for running those outfits will get billions of dollars in pay.
Thus the answer is greed. Because greed is good for those who can have access to the money of people’s pensions assets, offered by the managers of those pensions, who usually are golf buddies of the sellers of financial garbage.
Here where is lies the problem to the potpourri of obsolete controls. When humans are left to run amok the results are obvious, they can range from plain thievery to noble laureates creating untested theories that can be catastrophic for the rest of society.

When Milton Freedman the economist Nobel Laureate in the 1950’s from the school of Chicago economics, started to launch his theories it took its laureate status for schools to start to teach the premises of government regulation was bad, and the market will be self-regulation mechanism will correct themselves. The problem is that both premises cannot work without allowing destruction and there is not will to allow destruction of capital when affect those who are the wealthiest and control 80% of the national assets of a country. Much less when there is no economic security for very large part of the population. Specially, for those who are over their productive life, most people after age above 65 to 70 is a very difficult endeavor to earn a decent living. When the Freidman theories are apply to society at large they fail to account for very large part of the population as variables. Politically they are theories that are easy to manipulate and create thriving fallacies that seem to be of pleasant tone fueling the need for greed.

Today, we are confronted with a massive privatization of risk driven under the Friedman economic theories, has made the speculative market a large part of the economic global structure, this risk pervasiveness is proving toe be pernicious to human lives and pursue of a society well-being at large and individual’s social development.

The solution is quiet simple, as Freidman pointed out let the consequences of greed be dire and stop the government intervention. Politics of convenience have allow Freidman be use when usurpation of wealth participation is convenient but stop the full application of the theory when is not.

It begs the question, why in heavens you want to elect politicians who are constantly working against your economic interests?

Where are we going

Without speculating much and looking at the sequence of present events, surrounding America’s foreign policy and its stand in the global market of power, one has to worry, seriously, worry about the present and future.

Most western countries have develop a culture that has eliminated ingredients to foster debate and dissent, to support a social format that support a class system that is probing to have more cracks than the present obvious crisis.

America has lost its capacity to foster varied views and debates and has entrenched itself in a very narrow set of views, this views are becoming every passing day more evident out of synch with the needs of most Americans.

There is not debate about the present standing of a America. It is an important piece of conversation to have a national level, for all Americans. Out the radical view it is America’s way or the highway, that was true ten years ago. Now it is no more a feasible and true view of acting, the marines cannot bring more contract to Boeing as they used to, of to Chiquita Banana a new banana republic with a corrupt dictator in charge to exploit the local assets to be brought back to America‘s shareholders and corporate bosses. The Chinese, The Russian, most of the European Union and in some cases the African union, are acting that indicates America power is not absolute anymore and needs to be share in all aspects. So far they have chosen to use the power of capitalism to put the brake on the United States, as the Chinese did with the bond market of the European Union with they currency policy, or Latin America asserting equal trade conditions and renegotiating past (most Latin American leaders agree to qualify those contracts as abusive) corporate contracts to exploit their natural resources.

In the eyes of citizens of the rest of the planet, there is a consistent view of disapproval of America.
It used to be that the populist line was “everybody complaints about America, but all want to come to America” that was true until ten years ago, now what we are seen is a major shift, mostly due to economic equality. As an example, the minimum wage in Portugal is 30% higher than in the US, and in Portugal with the minimum wage a family of two can be above poverty level, and afford a decent way of live, in the US with minimum wage you will need both members of the family to work and still be under pauper conditions. Those are hard facts and the adjustment is spreading to most Americans, and it is not been accepted as a new way of life.
Among leaders of the same people who disapprove of America present standards, there is consensus of approval, but it is for a very different reason.
Each country has a reason to go against the will of their own citizens, the most interesting is the present position of England. The English government continues to be label by Britons as a lap dog of the Americans, but there is more behind scenes that the eye can see.
British ruling class by aligning themselves, what it seems to many blindly, with America, they are actually doing something much more important. British rules are asserting their economic power in the form of a new renaissance of English colonialism, by accumulating political favors. Those favors are getting cash-out in the form of corporate favoritism and American military support to expand corporate penetration in countries in which England can exert very little influence by themselves, but they can assert and obtain trade preferences by using America’s military and in many cases dictator rules under the control of America’s protection. The list of those countries is large but the most important are those that separated from the former Soviet Union.
Other countries like China are using their fast gained economic power to assert preferential market access.

There must be a national debate about how to confront the next years in a world that is changing their economic structures from energy to currency formations and technological development. America’s ruling class is failing to bring American citizens to a higher level of competitive advantage and the price to pay is going to be dear and painful.

Liars, their lies and those who help them propagate

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080602&id=8712024

I open my news service I was confronted by headline that strikes “again” as the mulling of reality.
The head line read: “Paulson committed to dollar as reserve currency.”
It is true that the American Secretary of the Treasury is committed to have the dollar as reserve currency. I do not think that if the American Secretary was not committed to our dollar he might be suggesting switching to a stronger currency. This headline is the natural and poor reporting that the Reuters has to offer, but it has a deeper meaning, that is Reuters has choose to be a propaganda outlet to distribute so called news. No one with a straight face will put his or her name in such headline.
Any person will immediately recognize Paulson as the Secretary of the US Treasury and Ex-CEO of Goldman Sachs, also known for missing the mark and outright lying in a consistent basis and misinforming the people that granted his job.
The intent here of the editor clearly was to minimize the meaning of Paulson as Secretary of the Treasury and make the name to be some kind of abstract entity that chooses to make statements of profound meaning and solid.
By now, we know that Paulson is a crony elitist CEO for whom American citizens and well been is a peripheral thought part of the benign neo-fascist movement, that has arose in the past 30 years in the USA. Strong statements but the facts and situations we are living totally fit the definition.
Paulson and the media which provides the propaganda is very similar to any other benign fascist process in history. This is a natural evolution in America, by a large majority more American are more comfortable with pseudo-fascism that they are with a working Democracy. You can call any political ruling system anything you please and loudly defined, but the real measure is the inner workings of the system and how it affects the citizens under the system. Paulson like others whom are promoters of benign fascism are comfortable lying and manipulating the facts.

If you have not heard

*-If you have not heard we are in a recession.
*-If you have not heard 84% of Americans believe fairy tales are facts.
*-If you have not heard the cost of the cheapest 4 year college degree with room at board and related expenses is at $80K and climbing.
*-If you have not heard we do not have poor in America we have “Low Food Intake Families” in other words families in famine.
*-If you have not heard we have more than 10 million families in low food intake category.
*-If you have not heard the president’s approval ratings is at the lowest ever record.
*-If you have not heard 1 in every 32 Americans will file for bankruptcy in the period 2007-2010.
*-If you have not heard America is the only developed country that does not provide alternatives for Universal medical coverage.
*-If you have not heard the average savings rate is a negative 5%.
*-If you have not heard the Defense Department failed again to pass the most basic auditing of its accounts.
*-If you have not heard the war in Iraq costs $750 Billion and by some accounts can reach up to $2 Trillion by 2010, that is $61,500 per citizen.
*-If you have not heard Communist China owns more US debt than any other country in the planet.
*-If you have not heard Communist China has a total of $1.2 Trillion in US Treasury Debt and they receive $3.000 in interest per American citizen per year.
*-If you have not heard The US is the second to last of developed countries in Health Care development.
*-If you have not heard college graduates will have to pay debt for their schooling for more than 15 years.
*-If you have not heard minimum wage in America now is earned by more workers than ever in history, said, the working poor are the largest growing group.
*-If you have not heard 62% of all tax received by the IRS is spent by the federal government in military or pseudo military expenditures.
*-If you have not heard the federal government has cut spending in research and consumer protection by 92% in the last 15 years.
*-If you have not heard has failed to comply with 67% of its international agreements signed in the past 20 years.
*-If you have not heard, you better start pay to pay real attention.

Professor Elizabeth Warren

The Author of "The Income Trap" was the Jefferson Lecture in 2007.
The research presents what many knew already, we are in going in the wrong direction, it is something that has occurred in the past 30 years and we hare choosing to ignore at our own peril.
This lecture is a must share item with friends family and no politico should scape from the facts presented.

Here We Are! Now, What?

If you had read my posts in the past, I had postulated a view stating the present disaster was coming.
The labor department and the USDA, stated that more than 23 Million Americans are in need of Food stamps to be able to have a poor meal.
If you think that famine is not possible in America, you are not seen what is happening around you. It is not OK to be blind for political or philosophical reasons.
When people in Argentina started to die of famine was a disgrace for the country that was in 2003.Here we are 6 years later in America we are setting the seeds of famine. You might negated but you will read, that is not an arrogant forecast it is a reality that is happening around you.

The present government has brought down America supremacy in many areas. The most important one is the economic supremacy, today the financial system is been saved by foreign debt, that is floated in open markets, those markets want their coupons, so this time is different. The lenders will do two things: one ask for the interest the other is to demand the few assets left and a currency that at the present cannot compete globally.

It is sad but it is true.

Liars and the Liars Den

As I watched Secretary Paulson today describe the present economic crisis, I said to myself, he is not only full of it, but he was lying beyond the acceptable level for the last six months.
What is the difference today versus six months ago.
Simple, six months ago it was a sotto vocce agreement among big bankers that all involved will find ways to pump and dump their mess into the global markets.
What they -by they I meand The Fed, banks and politicos- have encounter is a disproportionate abuse of trust and greed that goes beyong any one acceptable actitude. This is the result of a corrupt set of values that assume that you can foul the people all the time. They might be right but th truth is catching up with them, but most people are not swilling to hold them accountable for thir lack of values.
This recession now is starting to evolve, some think we might find a worse situation going forward.
The facts all indicate that the US has lost its economic supremacy, and its social supremacy, and the only supremacy left is the military supremacy, and to conitunue this supremacy, it must generate enough business, as of today is not generating enough business to sustain the large expenditures to mantain such large amount of dollars need it to keep going in debt to levels that taxes cannot mantain.

Unless policy makers decide tocome up with a major shift in the economic paradigm. For example a shift in energy generation, we are so far behind in the solar and wind generation technology, that by implementing a national R&D ten year plan, to regaign leadeship in technology and energy it will be extremely difficult to compete in standard industry development with China, India and in the twenty years with Africa.

Report: Americans getting poorer

Report: Americans getting poorer
In a new analysis of after-tax income, the United States ranks 15th among the world's richest countries. But wage comparisons for 'average workers' are tricky.

By Christian Science Monitor
"Comparisons are odious," that is, hateful, according to a popular phrase about seven centuries old. Comparison, however, is one of the tasks assigned to the Organization for Economic Cooperation and Development, an international body of 30 of the richest countries. It tries to compare its members' economic and social data, a difficult, perhaps even odious, job.

Sometime back it broadened statistically (for comparison purposes) the definition of the average workers in its member nations while trying to examine relative tax burdens. The result was "monumental," reckons Jacob Kirkegaard, an economist at the Peterson Institute for International Economics.

The OECD ranked the after-tax income of the average worker in the United States as 15th among its member nations. The richest middle class, if measured in terms of the purchasing power of its income, was in Britain.

Video: Do Americans work hard enough?

That ranking would surprise most Americans, who likely consider their nation the most prosperous in the world.

In one fell swoop, OECD statisticians lowered the estimated income of the average American worker by more than 10% and raised average incomes of other rich nations by as much as 30%, notes Kirkegaard.

It may well be that the comparative U.S. standard of living is slipping. The price of oil has risen more dramatically in the United States than in other nations because of the dollar's large devaluation. The reason for the drop is also statistical. In the past, the OECD had been using a proxy for the middle class based on the "average production worker." This concept focused on full-time workers in the relatively declining manufacturing sector, which tends to be unionized in the United States and better paid on average. The OECD's new measure is based on the "average worker," which captures all sorts of private-sector jobs in mining, utilities, construction, retail, hotels, restaurants, financial services, real estate and other areas.

So this new system ought to provide a fairer comparison.

But 15th place?

Not likely, figures David Grubb, an OECD economist in Paris. He points out that the United States and Canada included in their statistics sent to Paris the wages of nonsupervisory workers -- and not those of higher paid supervisory workers and salaried professionals. When that statistical difference is corrected, the rank of the American middle class would move up from 15th. How far is uncertain.

Continued: Wages vs. income

In the newest OECD Economic Outlook, the average annual wage in the total economy of the United States was $45,563 for 2005. That's exceeded only by Luxembourg, a wealthy banking duchy, with $50,634. Britain, Ireland and Australia are not far behind the United States with incomes above $40,000.

The problem is that this is a measure of total wages, not just the middle class, and it includes the richest Americans whose incomes have risen enormously in recent years. Outside of Hungary, the United States has the most extreme income inequality in the OECD.

Video: Does money buy happiness?
Kirkegaard figures middle- and lower-income Americans are being squeezed by the flood of money going to the superwealthy. Democrats in Congress have the same view, and their tax proposals would shift the tax burden up the income ladder.

Wages vs. income
After the early 1990s, the incomes of "very well-off Americans increased much faster than those of both the middle class and the poor," figures Gary Burtless, an expert at the Brookings Institution in Washington.

For example, top corporate officers got pay increases of 9.5% a year in the 1990s, on top of high levels to start with.

This doesn't mean that Middle America incomes have been entirely flat. An analysis by Terry Fitzgerald, an economist at the Federal Reserve Bank of Minneapolis, concludes that a "broad swath of Middle America experienced notable hourly wage gains" since 1975. In other words, children can still assume they have a better living standard, on average, than their parents did. To reach that conclusion, Fitzger­ald had to disentangle a "confusing web of data." Two data series on individual hourly wage rates showed little, or even negative, growth over the past 30 years. But labor income for the entire national economy was shown to have grown 39% in that time span.

To square this apparent contradiction, Fitzgerald applied to the two wage series a broader price index (personal-consumption expenditures), which covers the basket of final goods and services that people consume each year.

The new result: Average hourly earnings rose 10%, rather than declining 4%, from 1975 to 2005. Median hourly wages also rose 20% rather than 12%. Then he factored fringe benefits into the wage calculation, since they have become increasingly expensive and "contribute to workers' well-being."

That combination accounted for 28% of the 39% growth of total labor income.

"This does not contradict the claim that wage inequality increased over this period -- it did," writes Fitzgerald in a bank publication. In other words, the rich are still getting proportionately richer.

This article was reported and written by David R. Francis for The Christian Science Monitor.

The Surprising Ignorant Class

As of January of 2007, it was obvious for most people who pay a little attention, the stock markets and debt market had something amiss. When bonds fund specializing in collateral debt packages with 6% to 8% yields are paying 30% to its investors, something does not add up, the math does not add up, the risk taken does not add up, and the ratings companies overrated the products in purpose, as we know today.
There is no need of a Ph.D. in economics to realize something is not straight.
To obtain those results superfluous risks were taking and all CEO’s and top management at major leading financial institutions were accomplices and enablers of the big con on the people. To add INRI at this problem the so call self-regulators justified the creation of so called “hybrid investments” for decades every single time we create the golden goose is all the old con of the pyramid and when the pyramid it falls, poor Ponzy schemers look like saints.
After their con gets discovered we realized who was on it, lets start by the Chairman of the federal reserve whom “we have no signs of the housing market affecting the financial markets’ or “our banking institutions are strong” that what they say in June thru August, Now in September after it was clear they could not hide behind their false statements and Congress decided to have hearings int eh subject – can you imagine for congress to arrive to have hearings and the fed is deaf- the federal reserve and the Secretary of the Treasury –ex-Ceo of Goldman Sachs, and part of the big con- continued to deny any contagion from the housing debacle to the financial markets, in the mean time, behind the scenes the Treasury was having frantic meetings with major banks trying to figure out how to resolve this debacle.
If you had picked Trades magazine in April/ May 2007 edition, the front page was about the bonanza that these hedge funds and other hybrid investments did for 25 year olds, show them making hundreds of millions of dollars using “unregulated techniques”. Well, those hundreds of millions have to come from somewhere they do not get made out of thin air.
The sad part of the history is that as any other abusive operation it came from the most vulnerable, mostly from pension funds of municipal workers, teachers, basically anyone with a pension public or private. That is the sad part. In this story there is not much good to tell.

As long as most people pay taxes the government decides so create a supra welfare package to bail out all those heroes of the financial markets. Remember while these shenanigans are going on, kids are going to schools with not heat and bridges are failing in major cities and more than 90 millions Americans are under covered for medical ailments.
One has to wonder if the loss of people’s will to protest has created a new submissive slave society that refuses to evolve.

Who Are The Stock Market Manipulators

As I wrote in the past, the bias is to keep the wheel of fortune spinning, it does not matter where it falls, the manipulator does not care, the idea is to keep it "all pink all the time."
Pink benefits them and makes those holding stocks feel pink. Their happiness it exposes them to a meager return of annualized 7% including dividends - as reported by Standard and Poor.
All is done using substantial amount of risk. Those risks shifts depending when you have to buy and sell stocks, and how much leverage those pools of pension money need to re float with extra leverage -thus increased risk.
The market operators have become extraordinary good at controlling public opinion and governments around the globe. Manipulators are confident -some say arrogant- to keep demanding the elimination of government guaranteed pensions, thus the risk is shifted to the individuals via “privatized pensions funds”, in other words they get people’s money to buy baseless assets. Thus a de facto transfer wealth towards those who control the access to debt and again sell back their liabilities to the pension pools.

The list of manipulators is short enough that can be compiled in one page.
To have an example how a market can be moved here is a press release on April 4 2007, that might offer some light.

“The indices are trading slightly higher midday as investors weigh more relief in the Middle East, a subsequent decline in oil prices, and upbeat analyst commentary against weak economic data.
The biggest headline today has been Iranian President Ahmadinejad announcing the release of the 15 British naval personnel captured nearly two weeks ago. The news has improved overall sentiment and pushed oil prices lower. However, given yesterday's sizable gains amid a lack of overwhelming news to support such a rally, it hasn't been overly surprising to see some hesitation on the part of buyers.
In fact, if it weren't for a 2.0% surge on the Nasdaq's most influential constituent and the third most heavily-weighted stock on the S&P 500 -- Microsoft (MSFT 28.43 +0.56), the indices would be exhibiting more noticeable consolidation. The Dow component is getting a boost after a Citigroup analyst raised his Q3 earnings estimates.”
In this case a major bank as Citigroup also one of the largest pools of pensions, issues a comments, that can be or not, but because it has under management and receives every day enough pension money to move the stock with a comments, not a fact.
As simplistic as it might sound there are some important mechanics behind issuing opinions with baseless facts.
If Citigroup knows that Microsoft is going to increase earnings, why do they need to tell the planet? Self interest? It can be broken down in two: one is sending a message to all other pension funds saying, we are not selling, for now; second to its fund mangers: reduce your selling of the stock. You might wonder why they do not send an email to all their fund managers, and keep it quiet having asymmetric advantage.
Well, that will have cross some many countries and at least thousands of fund managers that it will be a de facto stock manipulation. Because Microsoft float of share is so large it is easier to send the message in the open saying we are not selling, what about you?
Still this is an opinion that affects millions of people and around five trillion dollars worth of market capitalization.
That how big a comment like this is.

Stocks The Biggest Casino in Human History

As you hear the news and you might get the feeling that you are getting some part of the truth about the underlining rational why stocks go up or down.

The answer is not simple. It can be summarize in two parts one is the transfer of wealth from the poor towards those with the access to large sums of borrowing, this is a new and extremely sophisticated class warfare, that can be see as the super-wealth taking advantage of the rest of the population. Second, linked to the first is the shift of risk from government responsibilities to the unprepared workers. Pension allocations is the primary driver of stocks prices second is the speculators from hedge funds that work for all major banks.
If you pay attention fear is the number one driver of news. Second is the building on the sense of wealth by using the power of central banks to create interest rates that will re-allocate the value of assets, as the wealth effect create by home value increases, with no underlining reason other than cheap borrowing costs. The dichotomy of fear and wealth creates uncertainty and the need for personal assessment of savings and pension risks.
Imagine if two and half billion people will give you for the next thirty years the present average of $290 a year and you can keep at least .5% of that money as custodian. No a bad deal, and it gets better. It does not matter what happen to the actual returns and performance of that money your cut stays the same.

Clearly, this “all is good” creates a bias and that is to keep the money flowing and people believing the downside needs to keep growing like a pyramid scheme you need money flowing in to absorb the all those fees accumulated over the movement of the money from fund a to b and the rotation keeps the grease and those manager multimillion dollar salaries alive. If you wonder why all the financial news are biased in the optimistic the reason is simple they want your money.
If you think about why stocks should be sold above any other asset, well that is the dirty secret, they do not need, but the are enough suckers to keep the game alive, and the use of the free capital rhetoric is not other than taking the pension of other people and place it into stocks does not matter if those stocks any intrinsic worth.

I think that it will be interesting to address some of the fallacies and talking points that the talking heads use when they talk about stocks and other risk investments.

Part of the same process is the boom and boost process that occurs every four or five years in the prices of stocks and other assets as real estate. I leave that for a future commentary.

The big question is what one should do to have a more stable system. It is not hat easy anymore, but there are action that you can take and one is to find people in your community that care about their future and are concern about the risk that the present system represents.

Can the same Occur in Other Countries!

Calpers Pressed to Drop Iran `Terrorism' Investments
By Alison Fitzgerald
March 19 (Bloomberg) -- California lawmakers are considering legislation that would force state pension funds to sell billions of dollars of shares in companies doing business with Iran.
The California Public Employees' Retirement System, the largest U.S. pension fund, and the state teachers' fund would have to unload shares in companies including BNP Paribas of France, Siemens AG of Germany and Eni SpA of Italy.
``Who's funding terrorism? It sure as hell shouldn't be our public employees,'' said Joel Anderson, a Republican assemblyman from El Cajon who introduced the measure. ``When you're looking at the war on terrorists, this is one of the best weapons we have -- just defunding them.'' Anderson estimated his legislation would affect $24 billion worth of investments.
California, which last year directed state pension funds to drop investments in Sudan, is among a growing number of U.S. states, from Texas to Maryland to New Jersey, moving to embrace so-called ``terror-free'' investing.
The movement, which includes federal legislation, against nations the State Department says sponsor terrorism, may put public pension managers in a front-line role in a debate over international policy. Some critics say the effort is misguided and would hurt small investors.
Calpers and the California State Teachers' Retirement System control $388 billion in investments. The legislation would affect overseas-based companies, since U.S. businesses are already mostly barred from trading with the countries on the State Department list: Iran, Sudan, Cuba, North Korea and Syria.
Federal Action
U.S. Congresswoman Ileana Ros-Lehtinen of Florida, the senior Republican on the House Foreign Affairs Committee, introduced a measure last week that would require U.S. government pension funds to divest stocks of companies that invested more than $20 million in Iran's energy industry.
``This measure will serve as one more critical instrument to deny the Iranian regime the economic resources required to pursue its dangerous activities,'' she said in a statement.
William Reinsch, president of a trade group representing 300 multinational corporations, said the legislation would work against U.S. interests.
``We're going to destroy our relations with the very countries we need in a united front against Iran,'' said Reinsch of the Washington-based National Foreign Trade Council.
The council won a court challenge last month, overturning an Illinois law aimed at companies doing business in Sudan.
Heightening Tension
If public funds are forced to divest, he said, ``the real losers would be a bunch of retired policemen and firefighters.'' That's because pensions would have to sell international mutual funds, which have had high returns, he said.
The Bush administration has ratcheted up its criticism of Iran's government, accusing it of supplying insurgents in Iraq with weapons to kill U.S. troops.
Supporters of Israel, which has been the target of threats by Iranian President Mahmoud Ahmadinejad, are backing the move to pressure Iran.
The American Israel Public Affairs Committee, the main U.S. pro-Israel lobbying group, will support divestment efforts against Iran in 10 states this year, Howard Kohr, executive director of the Washington-based group, said in a March 12 speech. Divestment ``would have a crippling effect on Iran's economy,'' Kohr said.
Shareholder Activism
A campaign to force companies to divest may affect ``a significant number of the world's largest companies,'' said Roger Robinson, who heads a company that tracks investing in terrorist nations. Robinson, a National Security Council aide in the Reagan administration, said he has no position on the California bill.
Edwina Frawley, a spokeswoman for Paris-based BNP Paribas, declined to answer questions about Iran. She said the company complies with ``all current ethical standards and regulations.'' Munich-based Siemens didn't respond to an e-mail request for comment, and a spokeswoman for Rome-based Eni declined to comment.
The California legislation puts Calpers, a leading proponent of good corporate-governance practices, in the position of being criticized itself.
``They have historically prided themselves on being ahead of the curve on issues like this,'' said Reinsch of the foreign trade council. ``One would think they would be ahead on this one.''
No Direct Investment
Calpers spokesman Clark McKinley said the fund doesn't invest directly in Iran, and he couldn't verify how much of its holdings might be affected by Anderson's measure. The Calpers board hasn't yet reviewed the legislation, he said.
The teachers' fund, known as Calstrs, hasn't taken a position either, said spokeswoman Brenna Neuharth. Calstrs already screens investments for geopolitical risk, including human rights abuses and money laundering, Neuharth said.
When the California assembly approved divesting from Sudan last year, Calpers said it wouldn't invest in nine companies. Calstrs sold stock in a Russian and a Chinese oil company.
The U.S. Securities and Exchange Commission last year asked Ford Motor Co., Marathon Oil Corp. and six other companies to explain their activities in countries on the terrorism list.
The SEC asked Ford in a July 5 letter whether the company's ``reputation and share value'' were being compromised by its activities in Syria, Iran and Sudan. Ford said its business was limited and lawful.
Missouri, Georgia
Missouri has adopted a policy to require two state funds to divest from companies that do business with Iran, Sudan, North Korea and Syria. Georgia is also considering such legislation, and a bill will be introduced in Ohio next week.
Missouri State Treasurer Sarah Steelman said she made the decision after learning the state was using BNP Paribas, France's biggest bank, to place its overnight money. It had been named as one of several European banks that lent $1 billion to Iran.
``We kicked them off our broker-dealer list and put in place policies that said we won't do business with companies that do business in Iran,'' she said.
In January, Steelman sent a letter to every state treasurer urging them to consider similar policies. ``This investment strategy provides an opportunity for many of us far from the front lines of the war on terrorism to do our part,'' she wrote.
To contact the reporter on this story: Alison Fitzgerald in Washington at Afitzgerald2@bloomberg.net

Risk and Standard Deviations of Risk

The latest home mortgage worries have a very dangerous component to the stability of debt markets, that is the underlining risk regrading also commonly known as CDO's.
The algorithms that take 70% of a bundle of junk bonds mixed with 20% of AAA bonds or debt and 10% of AA and wiht a few stirrings of magic the whole package turns into AAA.
That is how big is the mortgage problem. I has touched from good to bad and worse stopping over all over the derivatives of merges and adquisitions to car financing, but lucky for us, the Chiense and Japanese pension system are the ones holding the bag. So you will be able to laugh out loud while you life under a 110% financed home, a 100% finanaced luxury car and maybe if you are lucky enough like The Donald 400% finanaced live style while claiming billions in assets.
(I personally know it. I worked for the Donald).

The dollar just hit and all time low against all major currencies, so here you haveit, a strong dollar policy, it means a real weak dollar, so every time you hear "we are commited to a strong dollar policy" it does not mean that "they" are doing anything to keep the dollar strong, is like been committed to rain in Las Vegas, it never rains. so spend five minutes and see what your dollar can buy around the planet, that might give you some food for thought why most people need to buy at Wal-Mart and not at Whole Foods or Carrefour.

Shameless Defiants

You might think the increase in news about ethics-related corporate wrongdoing will make some faces red -corporate leaders and politicos- hot. No luck.

Corporatists have found a new who-cares attitude, their shameless shenanigans can continue without much damage to their personal reputation or the corporate image. Sadly, they are right.
Most shareowners have decided irresponsibility is OK. Thus this new found arrogance is thriving in the corporate boards, and corporate directors find themselves better than ever in saint status.

But who actually support these un-ethical low-lifers.
The Answer can be found here:
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&Date=20070221&ID=6514348
These guys in teh article are only a couple of many hundreds that are supporting the whole mechanics of corrupting the savings of most citizens.
They follow a sacrosanct litany of “super-hero of the moneyed” to favor the pilfering of the average Joe savings thru abusive commissions on pensions and funds -money- management.
If you think that in a democracy you elect leaders to protect you from white glove robbers, tough luck, politicos have become part of the takers, you might call corrupted, and all this, is proven that system so much laud is becoming irreversely corrupted.
Lesson: Do not trust your shadows.

Your real tax rate: 40% or 46%

http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTaxRate40.aspx
Income taxes, sales taxes, property taxes, Social Security and Medicare taxes, 'sin' taxes and the rest add up to a virtual flat tax nationwide.
By Scott Burns
We have a national flat tax, albeit one with bumps and potholes.
The fact that the political parties won't acknowledge this is one reason they are doing a disservice to the voting public.
Instead, both parties have a vested interest in the theatrical possibilities created by the idea of graduated tax rates. Notice that I said "the idea of" graduated tax rates. That should not be confused with reality.
Democrats argue that taxes on the rich should be raised because others need the money. This wins votes from the legions of voters who aren't rich.
Republicans argue, with great piety, that high taxes crush incentives and should be reduced, and that only then will the American way see a new dawn.
Politicians talk this way because they generally talk about only one tax: the federal income tax, which offers graduated rates from 10% to 35%.
Politicians rarely talk about what real people experience: the true maze of taxes and government benefits. If someone put them all together, we could see what our actual tax burden was. We could see who pays at the highest or lowest rates. Discussions of tax policy wouldn't be a waste of time.
Well, two researchers did it.
In a study for the National Bureau of Economic Research, Boston University economists Laurence J. Kotlikoff and David Rapson have found that our all-in marginal tax rate is 40%, give or take a bit. Yes, you read that right: 40%.
Most workers will pay about that much on each dollar of income when all taxes -- federal and state income taxes, sales taxes, taxes for benefit programs, etc. -- are considered.
As a consequence, a 30-year-old couple earning only $20,000 a year has a marginal tax rate of 42.5%, while a 45-year-old couple earning $500,000 pays at 43.2%. There are some exceptions: A 30-year-old couple earning $50,000 a year, for instance, pays 24.4%, and a 60-year-old couple making $150,000 a year faces a tax rate of 47.7%.
The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points.
Video: Don't worry about an audit
That's not a big range, particularly when you notice that it covers an income rise of 2,500%.
So I have a modest proposal: Ask your senators or representative if they have a clue about this. If they don’t, regardless of party, they shouldn't be in office. Vote accordingly.

Best'O Greed Part 2

And a big "Boo-Yah" to you, too
Q: I'm trying to follow Jim Cramer and Mad Money to make big money in stocks. Will it work?
A: Fans of Jim Cramer and his Mad Money stock-picking television show on CNBC call in excited about stocks, usually starting their questions with Cramer's signature "boo-yah!" yell.

For an hour, Cramer plays up his hyperactive personality, barking out buy and sell recommendations on dozens of stocks. He is the evangelist of stock pickers and market timers. Fans see him as a fountainhead of information on gems other investors, traders, fund managers and analysts have somehow overlooked.

Is Cramer really a stock-picking genius?

When I asked Cramer for his picks, CNBC, after considerable prodding, provided a spreadsheet with Cramer's picks from two of the five segments of each show, excluding the lightning round, in which he answers questions from viewers.

Based on this incomplete list, Cramer's picks have gained 16.2%, on average, from the show's launch March 14, 2005, through March 27, 2006. That makes the Standard & Poor's 500 gain of 7.3% look pretty sad. Cramer says he's made his viewers lots of money. "I'm very proud of my record," he says.

I provided CNBC's list to third-party research firm Investars.com, which said, based on the incomplete list provided by CNBC, that the S&P 500 stocks picked by Cramer have performed much better than the S&P 500 at large and his picks of stocks in the small-cap Russell 2000 index have outperformed that index. Investars also found that small-cap stocks recommended by Cramer soar after being mentioned on Mad Money.

But before you get "Boo-Yah" tattooed on your forearm, let's take a closer look:

• Tracking the right benchmark. The median market value of the 606 stocks in the Cramer list was $6.8 billion, according to S&P's Capital IQ. Morningstar considers a portfolio with a median market value between $1.6 billion and $9.3 billion to be midcap. So it doesn't really make sense to compare Cramer's performance to the S&P 500, which is heavily weighted toward large-cap stocks.

What if we compare Cramer's results to a midcap index fund such as the iShares S&P MidCap 400 index exchange-traded fund (IJH)? Had you ignored Cramer and simply bought IJH on March 14, 2005 and held it until March 27, 2006, you would have been up 16.4%. That's dead even with Cramer's performance.

But it's not quite fair to compare Cramer to the IJH either. His picks include large- cap stocks and some foreign plays. So I asked IFA.com to calculate the return of the basket of index mutual funds it recommends for risk-tolerant, results hungry "mad money" type investors. The return of this portfolio, after fees, was 21.8%, trouncing Cramer's return. You can view the IFA portfolio here.

Cramer himself has described how hard it is to beat index funds. "After a lifetime of picking stocks, I have to admit that (Vanguard Group founder John) Bogle's arguments in favor of the index fund have me thinking of joining him rather than trying to beat him," Cramer said on the dust jacket of Common Sense on Mutual Funds, Bogle's 1999 book.

• Time. Don't forget the cost of the time it take to follow Cramer. IFA.com's President Mark Hebner breaks it down this way: Imagine having $100,000 to invest in a ten-stock portfolio of Cramer's stock picks. Cramer recommends spending at least an hour a week researching each stock. That translates to more than 500 hours of homework a year. Even if all that work pays off and you beat the market by two percentage points, that's a return of $2,000 or $4 an hour. "Was it really worth it?" Hebner asks.

Time also tends to be cruel to stock pickers. The chances of a money manager outperforming the market in the long term, especially after fees and other costs, is small, says Bogle, whose Vanguard Group popularized index mutual funds and who is acquainted with Cramer. "I wish him well, but I'm not investing with him," Bogle says.

• Fees. Had you followed Cramer's advice, you would have had to buy more than 606 stocks, according to the CNBC data. Even if you use an online broker that charges just $5 a trade, you would have spent $3,030 in commissions.

In an e-mail, Cramer wrote: "Transaction costs are always a factor whether they are done within a mutual fund, a hedge fund or by an individual himself. I believe strongly that my figures clearly beat almost every relevant benchmark by a mile and that even if you put in transaction costs you would be well ahead of the game."

To be fair to Cramer, one year of performance is not adequate to judge a stock picker. And CNBC spokesman Kevin Goldman wrote in an e-mail to USA TODAY: "It is overly simplistic to measure year-to-year comparisons. Cramer can change his mind on a stock depending on a number of factors. He says each investor should do his or her own homework about a stock."

What's the lesson here? Be skeptical anytime someone claims to have the ability to predict short-term movements in stocks or the stock market and make them prove their returns to you. Almost always, the best thing to do is plug your ears and run away, fast.

Best Of Breed Part 1

Great new indexing tool just needs a better wrapper
By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Titles and headlines sell stuff. In fact, my old marketing
professor told us that they are 88% of the reason why people read an advertisement or a column or pick
up a book. You gotta "GRAB!" your reader or customer. Make them stop in their tracks.
No grabber? No stop? No readers. No sale! Well, I just got a review copy of a new book by financial
adviser Mark T. Hebner, a colorful high-graphics beauty, loaded with fabulous charts, tables, data and
research. But the title is "Index Funds." I set it aside.
"Freakonomics!" Now that title's a show-stopper! The new "Bogleheads Guide to Investing!" Gotcha! A
must-read! But plain-vanilla "Index Funds?" Dull. Boring. A snoozer. So stick with me and read: For this
review I'm retitling Hebner's book "The Freakoindex Guide to Winning Portfolios!"
Folks, there's actually a big connection between the two: Freakonomic research says "experts" have an
"informational advantage" and use it against their clients. Which sure hints why index funds will never be
more popular than a mere 8% of the $8 trillion fund world, even though indexing consistently beats
actively managed funds. Index funds will always be the minority because the "experts" will invent jazzier
titles and headlines to sell nonindex funds that make more money for the "experts!"
So the media has a responsibility to get the indexing message out. And I believe Hebner's giving
American investors a great resource. Yet many will miss it because it lacks a jazzy "88%" title. And it's
pricey. But we've got a big surprise for you. After we review it we're going to show you how to get it for
free! So here's our summary of what we call "The Freakoindex Guide to Winning Portfolios:"
Step 1: Passive investors win
The game's fixed. Active investors try to pick the winners from among thousands of stocks and funds.
But prices are news-driven. And news is random and unpredictable. Worse yet, "experts" like Wall Street
brokers, portfolio managers and traders have an "informational advantage" that makes it impossible for
Main Street to beat them. They take advantage of naïve investors blindly throwing money at news tips.
Step 2: Nobel economists win
Hebner has the best survey I've seen of research by Nobel Prize-winning economists and other
academics. Unlike Wall Street plugging an IPO client or some brokers hustling commissions, they're
objective and unbiased. All this research proves conclusively that indexing and simple asset allocation
are the best way to win.
Step 3: Stock pickers lose
Wall Street brags about the stock-picking talents of active managers. Yet research says only 3% of them
beat their benchmark, and it's mostly luck. Stock-picking success is random. And today's winners are
rarely on top tomorrow.
Step 4: Market timers lose
Market timing is a fool's game. Over a 10-year period, 88% of your returns will come from a brief 40 up
days. Nobody can predict which 40 days. An academic study of 15,000 predictions by 237 timers
concluded: There's "no evidence that [market-timing] newsletters can time the market."
Step 5: Picking managers loses
Forget about picking next year's hot managers. You can't. The S&P 500 beat 97% of mutual fund
managers for a 10-year period ending October 2004. In two 30-year studies, the S&P 500 outperformed
97% and 94% of the managers. And only 12% of the top-100 managers repeated.
Step 6: Style drifters lose
Active managers love playing with your money, churning portfolios. They're gambling, it's fun. Their
average salary is more than $400,000 annually, even when they lose your money. One study proves that
40% of all funds drift from their stated objective. Reported holdings are months old, so you never really
know what's in any fund, or in your portfolio!
Step 7: Silent partners win
Before you make a dime invisible partners skim money off the top! They're silent because the SEC
doesn't require funds to disclose details about who's skimming: expenses, commissions, fees and taxes.
In one 15-year study of taxable accounts, actively managed funds returned 50% of the gross, while index
funds returned 85% to investors.
Step 8: Risk blindness
The sad truth is, most American investors don't know that what they're doing amounts to gambling. They
chase short-term returns, follow hot tips, never really understanding the impact that timing and risk-taking
have on their after-tax returns.
Step 9: History exposes
Managers come and go. Performance drifts unpredictably over the short term. Indexes are your only
reliable source going back 80 years. Raw indexes, not actively managed funds, are the best measure of
long-term portfolio risks.
Step 10: Risk capacity
What's your risk profile? Your risk "capacity" is a combination of five factors: Personal tolerance for risk
(anxiety level!), your investment IQ, net worth, income and savings rate, plus time to retirement or any
special withdrawal needs. This book has a ton of information on how to determine your risk profile!
Step 11: Risk exposure
Over 90% of a portfolio's returns are a function of asset allocation and not the specific funds, stocks and
bonds. Active management has a negative effect on returns, draining off a third or more. Over a 50-year
period, studies show that a diversified index portfolio will outperform the S&P 500.
Step 12: Invest and relax
Hebner says index and relax: The best way to maximize your returns is to avoid active trading, market
timing and actively managed funds. Create and build a portfolio of index funds that works for your unique
risk profile. Set it and forget it. Buy quality, rebalance periodically. And relax.
Now the best news of all: Hebner's hard copy is a museum piece, a work of art that ought to be on your
coffee table or framed on a wall. But if you think it's a bit pricey at $29.99, get it online free, right now!
See the virtual book.
You can return to this fabulous resource any time you need research, data (yes, Hebner's team does
update statistics regularily) and inspiration about investing, asset allocation and portfolio management.
So get it: "The Freakoindex Guide to Successful Portfolios" is perfect for America's 94 million Main Street
investors! Even if you only call it "Index Funds."

The Phelps Factor

Joseph E. Stiglitz

(NOBLE PRICE OF ECONOMICS)

On December 10, Edmund Phelps, my colleague at Columbia University, will receive the Nobel Prize in economics for 2006. The award was long overdue. While the Nobel Prize committee cited his contributions to macroeconomics, Phelps has made contributions in many areas, including the theory of growth and technological change, optimal taxation, and social justice.

Phelps’ key observation in macroeconomics was that the relationship between inflation and unemployment is affected by expectations, and since expectations themselves are endogenous – they change over time – so, too, will the relationship between unemployment and inflation. If a government attempts to push the unemployment rate too low, inflation will increase, and so, too, will inflationary expectations.

This insight holds two possible policy implications. Some policymakers have concluded from Phelps’ analysis that the unemployment rate cannot be lowered permanently without ever-increasing levels of inflation. Thus, monetary authorities should simply focus on price stability by targeting the rate of unemployment at which inflation does not increase, referred to as the “non-accelerating inflation rate of unemployment” (NAIRU).

But the NAIRU is not immutable. The correct implication, which Phelps repeatedly emphasized, is that governments can implement a variety of policies, particularly structural policies, to allow the economy to operate at a lower level of unemployment.

Policies that focus exclusively on inflation are misguided for several other reasons. As a practical matter, even controlling for expectations (as Phelps’ work insists that we do), the relationship between unemployment and inflation is highly unstable. It is virtually impossible to discern the relationship from the data except in a few isolated periods.

Changes in education levels, unionization, and productivity are part of the explanation for this instability. But, whatever the reason, policymakers face considerable uncertainty about the level of NAIRU. Thus, they still face a trade-off between pushing unemployment too low, and setting off an episode of inflation, and not pushing hard enough, resulting in an unnecessary waste of economic resources.

How one views these risks depends on the costs of undoing mistakes, which in turn depends on other properties of the inflation-unemployment relationship that Phelps’ analysis did not address. The weight of evidence indicates that the cost of undoing the mistake of pushing unemployment down too far is itself very low, at least for countries like the US, where the relationship has been carefully studied. In this view, the Federal Reserve should aggressively pursue low unemployment, until it is shown that inflation is rising.

By contrast, inflation “hawks” argue that inflation must be attacked preemptively. While most central banks are inflation hawks, this stance is a matter of religion, not economic science. There is simply little or no empirical evidence that inflation, at the low to moderate rates that have prevailed in recent decades, has any significant harmful real effects on output, employment, growth, or the distribution of income. Nor is there evidence that inflation, should it increase slightly, cannot be reversed at a relatively minor cost – comparable to the benefits of additional employment and growth enjoyed in the excessive expansion of the economy that led to the increase in inflation.

In the early 1990’s, the Fed, and many others, thought that the NAIRU was around 6%-6.2%. Based on changes in the economy, I and the staff that worked with me on President Bill Clinton’s Council of Economic Advisers argued that the NAIRU was considerably lower. We were right. Unemployment fell to 3.8% without any surge in inflation.

This matters because, as the great economist Arthur Okun argued, reducing unemployment by two percentage points would increase output by 2%-6%, or $0.5-1.5 trillion dollars in the case of America. Even for a rich country, that is a lot of money. It could be used to put America’s social security system on a stable footing for the next 75-100 years. It could even pay for a substantial share of the cost for a war like that in Iraq!

Phelps’ work helped us to understand the complexity of the relationship between inflation and unemployment, and the important role that expectations can play in that relationship. But it is a misuse of that analysis to conclude that nothing can be done about unemployment, or that monetary authorities should focus exclusively on inflation.

That view belongs to a school of modern macroeconomics that assumes rational expectations and perfectly functioning markets. In other words, individuals – usually assumed to be identical – fully use all available information to forecast the future in an environment of perfect competition, no capital market shortcomings, and full insurance of all risks. Not only are these assumptions absurd, but so are the conclusions: there is no involuntary unemployment, markets are fully efficient, and redistribution has no real consequence. But, while government policies, according to this school, are ineffective, that matters little. Because markets are always efficient, there is no need for government intervention. More perniciously, many supporters of this view, when confronted with the reality of unemployment, argue that it arises only because of government-imposed rigidities and trade unions. In their “ideal” world without either, there would, they claim, be no unemployment.

For more than three decades, Phelps has shown that there is an alternative approach. He has tried to understand what we can do to lower unemployment and increase the well-being of those at the bottom. But he has also striven to understand what makes capitalist economies dynamic, what lies behind the entrepreneurial spirit, and what we can do to promote it further. Phelps’ economics remains one of action, not resignation.

Joseph Stiglitz is a Nobel laureate in economics. His latest book is Making Globalization Work.

4 ways you can fight greedy CEOs

( Michael Brush is doing for the individual shareholder what the SEC should be doing.)

Don't just fume about grossly overpaid execs and other corporate scams. You can make a concrete difference. Here are the people to contact and steps to take to get reforms under way.

By Michael Brush
The boss has always made a bundle. In 1940, U.S. corporations paid their chief executives 48 times as much as the average worker, on average. No small gap.

But that doesn't come close to today's great pay divide. CEOs earned $11.3 million on average last year, a 27% increase from the prior year and a huge 262 times more than the average worker. Barry Diller, the chairman and chief executive of the IAC/InterActiveCorp (IACI, news, msgs), took home $295 million last year, including pay, bonus and options cashed in, according to the Corporate Library.

What's worse? The CEOs don't seem to see anything wrong with that type of compensation. Diller recently said critics of his pay and similar packages are "birdbrains."

The momentum of CEO pay, obviously, isn't headed in the right direction. But you don't have to be a Democrat to appreciate that the party about to take power may give the little guy a bit more say in how much the big guy gets paid.

In a minute, I'll give you a set of four steps you can take to help get executive compensation back under control. First, another quick look at why such action is needed.

According to the Corporate Library, a corporate governance research firm, here's what the five highest-paid CEOs made last year:

1. IAC/InterActiveCorp's Diller got $295 million.

2. Capital One Financial (COF, news, msgs) CEO Richard Fairbank got $249 million by cashing in options.

3. Nabors Industries (NBR, news, msgs) CEO Eugene Isenberg got $203 million in pay, bonus, cashed-in options and restricted stock.

4. Yahoo (YHOO, news, msgs) CEO Terry Semel pocketed $183 million in pay, cashed-in options and restricted stock.

5. KB Home (KBH, news, msgs) chief Bruce Karaz got $156 million in pay, bonus, cashed-in options, restricted stock and incentive grants.

If these kinds of giveaways to CEOs tick you off, you don't have to just sit and fume about it.

Congress, regulators and companies themselves are considering a slate of reforms that would go a long way to correct the problem -- and you can take several concrete steps to support these changes.

Here's a list of whom to contact (click a name to send an e-mail):

SEC Chairman Christopher Cox's office. (Click the name to send an e-mail to Cox.)

Your representatives in the U.S. House and Senate.

Rep. Barney Frank, D-Mass., who will chair the House Committee on Financial Services, and Sen. Chris Dodd, D-Conn., who will head up the Senate Committee on Banking, Housing and Urban Affairs next year. (Please, e-mail MSN Money a copy of whatever you send to any member of Congress.)

And here's my quick list of reforms that you can try and do something about:

Boot the directors
The real culprits behind enormous salary increases for CEOs are boards that approve these egregious pay packages in the first place. So it's important to vote against board members on pay committees that let these bloated pay packages through. "Unless you boot off directors who agree to these outrageous pay plans, there is no way to stop it," says Nell Minow of the Corporate Library.

"Don't just discipline board members, change them," says Patrick McGurn, special counsel for Institutional Shareholder Services. Shareholders may soon get more power to do so -- but you'll need to support reform efforts aimed at getting greater "proxy access" for shareholders, as the reform effort is called.

The Securities and Exchange Commission recently sided with a company that rejected a shareholder proposal which would have given shareholders holding more than 3% of its shares the right to nominate board candidates. But a federal court has told the SEC to reconsider its ruling, which may give shareholders more say in policing boards that play too loose with corporate checkbooks.

Get a clearer view
What you can do -- Step #1: Contact the SEC and tell them you support the rights of shareholders to use the corporate proxy machine to propose changes in the rules on how board members are elected. "This should be on top of the list," says McGurn. Tell your representatives in Congress, too, since they have the power to influence SEC policy. The case involves American International Group (AIG, news, msgs) and the American Federation of State, County and Municipal Employees (AFSCME), which wants the bylaws change.

The good news is that it will be much easier to see how much executives make come springtime, when companies file proxy materials -- the documents containing details of executive pay.

The SEC recently adopted rules calling for better clarity, and pay experts are expecting some big surprises. "That in and of itself will have a chilling effect," says Minow, "although these people seem incapable of embarrassment."

But there's still room for improvement in disclosure. One shortcoming is that the SEC doesn't require companies to reveal the targets (such as company profits, revenues, etc.) executives have to hit to receive performance-based pay. This is a problem, since options often account for the lion's share of bloated pay packages.

Outgoing UnitedHealth Group (UNH, news, msgs) CEO William McGuire racked up an awesome $1.6 billion worth of exercisable options and $174.9 million out-of-the-money options during his tenure at the helm. That's on top of a salary, bonus and "other pay" package worth $10.6 million in 2005 alone, according to the Corporate Library.

Unmask the consultants
What you can do -- Step #2: Tell the regulators and your representatives that you want more detail about what targets CEOs have to hit to increase the size of their paychecks.

Companies hire compensation consultants to help determine how much to pay their executives. The question is whether that advice is objective. For instance, those same consultants try to get business from the companies to advise on their employees' retirement plans. If they give the CEO a healthy pay raise, does that help them land or keep other consulting jobs?

What you can do -- Step #3: Ask the SEC and your representatives to require disclosure of all relationships between compensation consultants and the companies whose executive pay packages they design.

Fantasy shareholding
If you hold just $2,000 worth of a company's stock for over a year, you have the right to submit votes to fellow shareholders. "For $2,000 you get a seat at the table with the board of directors and the CEO," says McGurn. "It's like fantasy baseball."


You can't force companies to ask shareholders to vote on anything (see Step #1). One area that's strictly off limits: votes that would constrain management on day-to-day business decisions. (That's fair enough. You wouldn't want shareholders micromanaging companies.)

But you can get proposals that ask shareholders to vote on several changes that can improve the quality of boards and help reign in executive pay, says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

For several years, for example, Bristol-Myers Squibb (BMY, news, msgs) shareholder Dundas Flaherty filed proposals that asked shareholders if they wanted the office of chairman and chief executive to be split. Having the same person in both roles, some critics say, compromises board independence. About 40% of shareholders approved the proposal each time, says Cornish Hitchcock, a Washington D.C.-based attorney who helped Flaherty. In 2005, Bristol-Myers Squibb agreed to split the jobs.

What you can do -- Step # 4: As a shareholder, ask companies to put pay-related reforms to a vote -- or at least be sure to look for pay-related proposals from other activist shareholders and vote "yes."

For example, watch for proposals asking you to vote against excessive golden parachutes, excessive pay packages and the compensation committee reports that justify them, says Hitchcock, who also advises Amalgamated Bank's LongView index funds on how to use shareholder proposals.

Elson says proposals that require majority voting for directors are crucial. This change means that directors have to get a majority of all votes cast to win -- not just the largest number among several candidates. This makes it harder for boards and managers to get a rubber stamp on their favored candidates when the broader shareholder base is apathetic.

There are, of course, other steps to take. And anytime you go head to head with a corporation, it can be an uphill fight. But with the political winds swinging toward shareholders' favor, now's the time to give it a try.