For the week 2/23-2/27

Brother, Can You Spare A Trillion? 

So are you dizzy yet? Is your head spinning from all the programs that have been announced in just the past ten days; the $787 billion stimulus, the $275 billion housing stabilization plan, the $410 billion omnibus spending bill passed by the House, and the $3.9 trillion budget (including further potential bank funding of $250 billion) for fiscal 2010, and a bank stabilization plan, details of which are still forthcoming, but that we know could run in excess of $2 trillion? It’s certainly bold and audacious, but so was the Yankees’ initial acquisition of Alex Rodriguez and they haven’t been to a World Series since. It does appear, however, that the government has borrowed A-Rod’s steroids dealer because the Obama administration has come into office juiced! 

Here are some of the facts about the budget proposed by our president. The size is at least $3.9 trillion, all in, for the fiscal year beginning 10/1/09. The projected deficit is $1.75 trillion this year, or over 12% of GDP, the highest since World War II. The budget addresses the three themes President Obama discussed on Tuesday in his address to the Joint Session of Congress; Education, Energy and Health Care. $634 billion is the down payment on the latter as Obama begins to follow up on his campaign promise of universal health coverage. 

Of course, there should be no mystery to any of this. Obama told us what he was going to do and thanks to an incredibly poor campaign run by the Republicans, some of us get to yell and scream but really don’t have a leg to stand on. And remember, sports fans, President George W. Bush went six years before vetoing one spending bill. Republicans as fiscal conservatives? As Dick Vitale would shout, “Are you kidding me?!” So those of us who are a little distraught over certain aspects of the budget and the other plans that have been rolled out thus far can only ask, ‘Who the heck is leading the Republican Party?’ 

Let’s just say for now that President Obama gave an effective speech on Tuesday, he worked in some Reaganisms, even if he was loath to use his name (or that of any other president for that matter), it’s his sandbox and he gets to play in it. 

But also understand that this budget, while far from dead on arrival, has many aspects to be debated over in the coming weeks and we’ll have ample time to cover them. For now, hopes that the budget deficit will be halved in Obama’s first term seem like a pipedream, just as projected 5% growth in the economy beginning in 2011 appears to be; plus, the oil industry is taking a $100 billion hit to its pocketbook that will lead to layoffs in that high-paying sector; the administration is looking for $600 billion in revenues from a new carbon emissions, cap and trade, regime; and, the rich, defined as singles earning $200,000 and families over $250,000, are getting socked. Regarding this last statement, if it was just about increasing tax rates, beginning in 2011, to Clinton-era levels, well, that would be one thing. But to then lower the mortgage deduction for these same folks, and hike the capital gains rate, that’s a little too much as one of the below Wall Street Journal editorials best points out. It’s also disturbing that the deduction for charitable contributions is cut at the worst possible time. 

For now, as more of the details are fleshed out, Republicans and Democrats will duke it out. And there will be internecine squabbles as well. Already, Obama’s plan to eliminate farm subsidies has struck quite a nerve among farm belt senators of both parties, for example. The battle is joined… ‘trickle up’ vs. ‘trickle down.’ Reagan was all about limiting government, Obama wants to expand it. Seeing as government appears to be the rescuer of last resort these days, Reaganites are licking their wounds. 

Following is all manner of opinion on the Obama stimulus plan, the budget, and other issues from both sides of the aisle. 

Robert Samuelson / Washington Post…on the stimulus 

“Judged by his own standards, President Obama’s $787 billion economic stimulus program is deeply disappointing. For weeks, Obama has described the economy in grim terms. ‘This is not your ordinary run-of-the-mill recession….(It’s) ‘the worst economic crisis since the Great Depression.’ Given these dire warnings, you’d expect the stimulus package to focus almost exclusively on reviving the economy. It doesn’t, and for that, Obama bears much of the blame. 

“The case for a huge stimulus – which I support – is to prevent a devastating downward economic spiral….If the economic outlook is as bleak as Obama says, there’s no reason to dilute the upfront power of the stimulus. But that’s what he’s done…. 

“The purpose of the stimulus is to keep declines in one part of the economy from dragging down other sectors. The next big vulnerable sector seems to be state and local governments. Weakening tax payments create massive budget shortfalls. From now until the end of fiscal 2011, these may total $350 billion….Required to balance their budgets, states face huge pressures to cut spending and jobs or to raise taxes. All would worsen the recession and deepen pessimism. 

“Yet, the stimulus package offers only modest relief….Congress might have done more by providing large, temporary block grants to states and localities and letting them decide how to spend the money. Instead, the stimulus provides most funds through specific programs….More power is being centralized in Washington. 

“No one knows the economic effects of all this; estimates vary. But Obama’s political strategy stunts the impact from what it might have been. By using the stimulus for unrelated policy goals, spending will be delayed and diluted. There’s another downside: ‘Temporary’ spending increases for specific programs, as opposed to block grants, will be harder to undo, worsening the long-term budget outlook.” 

Lawrence B. Lindsey / The Weekly Standard…on the stimulus 

“During the transition, Team Obama surveyed the agencies for ‘shelf ready’ spending needs and found them woefully inadequate as a credible stimulus package. The incoming Obama policymakers had been focused on spending, not tax cuts, because they wanted to draw a line between themselves and their predecessors. But, faced with the facts, they made a virtue out of necessity by having the president call for taxes to be 40 percent of the package. This annoyed the more left-leaning Democrats of Congress, who were then appeased by being given the power to craft the spending. 

“The legislation was written by Democratic committee chairmen with no Republican input. The president covered this up by going to the Hill and meeting with the Republican caucus. But, since Obama had no direct role in writing the package, the signal to congressional Republicans was twofold: Bipartisanship was just a façade the president needed to maintain his approval ratings, and Nancy Pelosi and Harry Reid were the ones with the power, not Barack Obama.” 

“Speed is crucial. Ideology has to be junked. The question is simply pragmatic. What is the best way to get the credit system working again? How can we stop the foreclosures, tragic in themselves but adding to the burden on the banks? 

“How long this credit crunch lasts will determine the course of our nation’s economic life, not just for this year or next but for decades. It is a chicken-and-egg problem: The banks aren’t lending because of the weakening U.S. economy, and the economy is weakening because the banks aren’t lending. 

“Beyond housing, there are many other lending bubbles in danger of bursting. If they all go bust, the overall credit losses could reach as high as $2 trillion. So it is imperative we ensure that these losses do not mount faster than the companies can replenish their balance sheets. 

“The ultimate key is to break the psychological feedback loop and restore the confidence of business executives and consumers. This is President Obama’s toughest task. Fortunately, he embodies confidence. He comes equipped not just with a gift for oratory but with a keen, rational intelligence…. 

“To shift from despair to hope, from downsizing to expanding, will require a vast program. The usual bag of tricks will not suffice: President Obama’s stimulus package is big, but it is very likely that even more will be needed. The patient is flat lining. There is no time to lose.” 

“President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end ‘tax breaks for the wealthiest 2% of Americans,’ and he promised that households earning less than $250,000 won’t see their taxes increased by ‘one single dime.’ 

“Consider the IRS data for 2006, the most recent year that such tax data are available and a good year for the economy and ‘the wealthiest 2%.’ Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That’s about 7% of all returns; the data aren’t broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% – about 1.65 million filers making above $388,806 – paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income…. 

“But let’s not stop at a 42% top rate [ed. including hidden deduction phaseouts]; as a thought experiment, let’s go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That’s less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010…. 

“Fast forward to this year (and 2010) when the Wall Street meltdown and recession are going to mean far fewer taxpayers earning more than $500,000. Profits are plunging, businesses are cutting or eliminating dividends, hedge funds are rolling up, and, most of all, capital nationwide is on strike. Raising taxes now will thus yield far less revenue than it would have in 2006…. 

“The bottom line is that Mr. Obama is selling the country on a 2% illusion. Unwinding the U.S. commitment in Iraq and allowing the Bush tax cuts to expire can’t possibly pay for his agenda. Taxes on the not-so-rich will need to rise as well…. 

“Mr. Obama is very good at portraying his agenda as nothing more than center-left pragmatism. But pragmatists don’t ignore the data. And the reality is that the only way to pay for Mr. Obama’s ambitions is to reach ever deeper into the pockets of the American middle class.” 

“On Tuesday night, President Obama talked about a national culture of irresponsibility. He talked about the way Americans have sacrificed the long term for the short term, spent more than they could afford, and how the country’s leaders have broken promises and delayed reform. Obama described a rot that was ingrained and pervasive. 

“On Thursday, he offered a budget of his own, and the question arises: Will he really change all that? 

“The answer is somewhat, but not enough. Obama’s budget is far more honest than the ones that preceded it. It imposes real pay-as-you-go rules on future outlays. Intellectually serious efforts are made to pay for at least half of the cost of health care reform. 

“But the ingrained habits are still there, and the rot is not expunged. Obama enthusiastically perpetuates the myth that the American people have everything they want without a dose of shared sacrifice. They can have health care, education reform, even a cure for cancer, and 98 percent of them need pay nothing. The burdens of progress will be borne by the rich while everyone else can enjoy their tax cuts and go shopping. 

“Obama perpetuates base-line gimmickry. He claims to save hundreds of billions by drawing down forces in Iraq. But even the Bush administration was going to draw down. Obama is claiming bogus savings by not spending money that never would have been spent anyway…. 

“The greatest shortcomings are sins of omission, not commission. If you watched Obama’s magnificent speech Tuesday night, you got the impression that he bestrides Washington like a colossus. He imposes his authority in ways large and small, purging old habits. In reality, the situation is messier. At times, there is a weird passivity emanating from the White House, a deference to the Washington establishment. Almost no sacred cows are cut from this budget. The president is now engaged in an argument with Democratic appropriators about whether to strike earmarks from the omnibus spending bill. He’s apparently getting rolled even on a matter as easy and clear-cut as this.” 

“Elections have consequences. President Obama’s new budget represents a huge break, not just with the policies of the past eight years, but with policy trends over the past 30 years. If he can get anything like the plan he announced on Thursday through Congress, he will set America on a fundamentally new course…. 

“(Fears) that Mr. Obama would sacrifice progressive priorities in his budget plans, and satisfy himself with fiddling around the edges of the tax system, have now been banished. 

“For this budget allocates $634 billion over the next decade for health reform. That’s not enough to pay for universal coverage, but it’s an impressive start…. 

“On another front, it’s also heartening to see that the budget projects $645 billion in revenues from the sale of emission allowances. After years of denial and delay by its predecessor, the Obama administration is signaling that it’s ready to take on climate change…. 

“Many will ask whether Mr. Obama can actually pull off the deficit reduction he promises. Can he actually reduce the red ink from $1.75 trillion this year to less than a third as much in 2013? Yes, he can. 

“Right now the deficit is huge thanks to temporary factors (at least we hope they’re temporary): a severe economic slump is depressing revenues and large sums have to be allocated both to fiscal stimulus and to financial rescues. 

“But if and when the crisis passes, the budget picture should improve dramatically…. 

“So if Mr. Obama gets us out of Iraq (without bogging us down in an equally expensive Afghan quagmire) and manages to engineer a solid economic recovery – two big ifs, to be sure – getting the deficit down to around $500 billion by 2013 shouldn’t be at all difficult.” 

Editorial / Wall Street Journal…on the cap and trade provisions of the Obama budget 

“That didn’t take long. The same week that President Obama promised (again) that ‘95% of working families’ would not see their taxes rise by ‘a single dime,’ his own budget reveals that taxes will rise for 100% of everyone for the sake of global warming. Ahem. 

“You don’t even have to burrow into yesterday’s budget fine print to discover the ‘climate revenues’ section, where the White House discloses that it expects $78.7 billion in new tax revenue in 2012 from its cap-and-trade program. The pot of cash grows to $237 billion through 2014, and at least $646 billion through 2019. If this isn’t tax revenue, what is it? Manna from heaven? The offset from Al Gore’s carbon footprint? 

“If it brings in revenue that the government then spends, it’s a tax, and politicians should start referring to it as such…. 

“By the way, the Congressional Budget Office estimates that cap-and-trade taxes would actually throw off as much as $300 billion every year – not merely $78.7 billion – and in a footnote the Obama budget implicitly acknowledges that its $645.7 billion estimate is a lowball: ‘All additional net proceeds will be used to further compensate the public.’ No doubt.” 

“In the closing weeks of last year’s election campaign, we wrote that Democrats had in mind the most sweeping expansion of government in decades. Liberals clucked, but it turns out even we’ve been outbid. With yesterday’s fiscal 2010 budget proposal, President Obama is attempting not merely to expand the role of the federal government but to put it in such a dominant position that its power can never be rolled back. 

“The first point to understand is the sheer magnitude of federal spending built into this proposal…federal outlays will soar in fiscal 2009 to $4 trillion, or 27.7% of GDP, from $3 trillion or 21% of GDP in 2008, and 20% in 2007. This is higher as a share of the economy than any year since 1945, when the country was still mobilized for World War II. It is more spending by far than during the Vietnam War, or during the recessions of 1974-75 or 1981-82…. 

“Democrats will want to rush all of this into law this year while Mr. Obama retains his honeymoon aura and they can blame the recession on George W. Bush. But Americans are only beginning to understand the magnitude of Mr. Obama’s ambitions, and how much of their own income will be required to fulfill them. Republicans have an obligation to insist on a long and considerable debate on all of this, lest Americans discover in a year or two that they live in a very different country.” 

So what happened in the real economy this week, both here and abroad? What more did we learn about this global near-depression? 

In the United States, jobless claims hit a level not seen since the depths of the 1981-82 recession, 667,000, with continuing claims now running at a record 5.1 million. January durable goods (big ticket items) were down a far worse than expected 5.2%. Two readings of consumer sentiment remained at putrid levels, as did the Chicago manufacturing index. And we had a revision of fourth quarter GDP downward from -3.8% to -6.2%, the worst since 1982. 

The week also saw a slew of data on the housing front. January existing home sales came in at 4.49 million, dismal, while the median price of $170,000 is at a level not seen since March 2003. That’s why so many are now underwater. January new home sales came in at just 309,000, the worst level ever (at least since they started tracking such data) and the median price in this category fell a whopping 10% from December to January.  

Then there was the S&P/Case-Shiller housing index for 20 major metropolitan areas that showed an 18.4% decline for the fourth quarter over a year earlier, with prices now down 26.7% from the 2nd quarter 2006 peak. 

Company specific, you had the likes of Macy’s and Home Depot reporting dismal same-store sales figures for the quarter ending Jan. 31, off 13% in the latter, while JPMorgan slashed its dividend to a nickel, 87%, and announced that total job cuts (including through attrition) as a result of its acquisition of Washington Mutual will be 12,000. 

Then you have the case of Citigroup, which will now be 36% owned by Uncle Sam after it increases its equity stake (thus diluting existing shareholders by 74%), the third time since October that Washington has come to the rescue of The House that Sandy Built. Between actual cash injected and insuring against losses on Citi’s books, the exposure is in the $370 billion ballpark, though one would hope the government’s losses on the $300 billion of assets it is backstopping can be minimized. Then again, AIG, which is in essence fully nationalized already, continues to hemorrhage losses. Bloomberg has calculated that more than $11.6 trillion has been pledged by the U.S. government in the past 19 months on behalf of American taxpayers to both bail out the financial system and stimulate growth. Thus far it hasn’t worked. 

And General Electric cut its quarterly dividend from 31 cents to 10 cents to save $9 billion a year and maintain its top credit rating. Just a month ago, CEO Jeffrey Immelt wagged his finger and said the dividend was secure, a la Rafael Palmeiro when he told Congress he never did steroids. 

Globally, Singapore’s fourth quarter GDP was revised downward to -4.2%, while industrial production declined 29% in January. GDP in Hong Kong fell 2.5% for the quarter. 

But the big loser in Asia was Japan, with exports plunging a stupendous 46% in January as industrial production for the same month plummeted 10%, both records. Toyota saw its global production decline 39% in the month, while Japanese households reduced spending 5.9%, a huge sum for this data point. Japan’s gross debt as a percentage of GDP is now 173%, which is where the U.S. is headed, sad to say, from its own current 75-80% level…though I hasten to add this is seemingly increasing daily. 

In Europe, Germany, the lender of “last resort” for Eastern and Central European countries it would seem, told the European Commission and Central Bank it was prepared to step in and fill the breach but governments must first tighten their belts and reduce spending. In Germany itself, business confidence hit an all-time low, while industrial production in all of Euroland fell 5.2% in December. 

Then you have the United Kingdom and its ongoing bank nationalization saga, including the disaster that is Royal Bank of Scotland. RBS had been 68% nationalized, but now after the latest rescue plan is closer to 90% under government control. Just to give you a sense of the staggering numbers involved, RBS is exchanging $9.2 billion for government insurance on $462 billion in assets (through the creation of a bad bank), with the taxpayer being on the hook for 90% of losses over $27.7 billion, after RBS reported the largest corporate loss in British history, $34.2 billion, thanks to its ill-timed acquisition of Dutch bank ABN Amro. 

“A mysterious thing happened in that speech Tuesday night. By the end of it Barack Obama had become president. Every president has a moment when suddenly he becomes what he meant to be, or knows what he is, and those moments aren’t always public…. 

“(With) Obama, (it was) about four-fifths of the way through the speech. He was looking from the prompters to the congressmen and senators, and suddenly he was engaging on what seemed a deeper level. His voice took on inflection. He wasn’t detached, as if he was wondering how he was doing. He seemed equal to the moment and then, in some new way, in command of it…. 

“In terms of policy, the jury not only is out but will be for some time…. 

“But the larger point that Mr. Obama has to communicate, and it’s something forgotten or overlooked by political sophisticates, is this: Someone’s in the kitchen. Someone’s cooking. In a time of crisis, someone’s in charge. That’s what he had to demonstrate Tuesday night. And he did. This will do him good…. 

“I think the president, politically, has three big things going for him as he faces this crisis. 

“First, legitimacy. Our last two presidents were haunted by the circumstances of their election, and significant swathes of the country never fully accepted them. George W. Bush had the cloud of the 2000 recount, and his loss that year of the popular vote; Bill Clinton won in 1992 with only 43%, in a three-man race in which the other two were, essentially, Republican. But no one doubts Mr. Obama’s legitimacy. He won by seven points, with 53%. He’s the first president without the illegitimacy cloud since Bush I. 

“Second, we’re in the middle of an emergency. In times like this, Americans want their president to succeed. Politically the crisis works for Mr. Obama. 

“Third is an unspoken public sense that we cannot afford another failed presidency, that we just got through one and a second would be terrible. Americans know how much good a successful presidency does for us in the world, in the public mind. The last unalloyed, inarguable success was Reagan. We need another. Liberal? Conservative? That, to the great middle of America, would, at the moment, be secondary. They want successful. They want ‘That worked.’ They want the foreign visitors to say, ‘I like your president.’ They want to respond, ‘So do I.’” 

–Stocks plunged yet another week as the Dow Jones fell 4.1% to close at 7062, its lowest level in 12 years. The loss for the month of February, 11.7%, was the worst since 1933 and the Dow has now declined six consecutive months. The S&P 500, off 4.3% for the week and at its lowest level since December 1996, has completed its worst six months since 1932. Nasdaq fell 4.4% to 1377. Friday’s announcements pertaining to Citigroup and General Electric didn’t help the mood after the ugly revision on fourth quarter GDP. 

–U.S. Treasury Yields 

Under the Obama budget, the federal debt could soar to $23 trillion, not including unfunded liabilities such as for Social Security and Medicare, though if you grow the economy the former is manageable. The latter is an issue regardless of the economic environment. 

–Fannie Mae reported a loss of $25.2 billion for the fourth quarter as homeowner defaults continue to increase even as Fannie and Freddie Mac (which will report a similar loss shortly) are expected to be focusing their attention on preventing foreclosures and propping up housing. 

–The House passed the $410 billion omnibus spending bill by a 245-178 vote, with 16 Republicans voting ‘for’ and 20 Democrats ‘against.’ The Senate will vote next week and it will be approved. Republican Congressman Jerry Lewis of California said, “I’m embarrassed by this bill and the process that created it. Even while the president talks about the need to put our fiscal house in order, this House continues to spend and spend and spend and spend.” 

–General Motors posted a loss of nearly $31 billion on Thursday for 2008 and said its auditors were likely to cast doubt on its viability, this as GM has requested $30 billion in aid, $9 billion immediately, while burning through more than $5 billion in the fourth quarter. GM also warned its pension plans were underfunded by over $12 billion. GM has now lost $82 billion over the past four years and cut 92,000 jobs during that period. The automaker has been slashing costs but it’s the collapse in sales that continues to impede any dreams of recovery. 

[In a Washington Post/ABC News poll, 7 in 10 oppose giving $14 billion in new loans to GM and Chrysler.] 

–Ford Motor Co. lowered its U.S. sales outlook for 2009 to as low as 10.5 million vehicles for the entire U.S. car and truck market, a reduction of 1 million. 

–In Consumer Reports’ new listing of automaker reliability, Honda took first place for the third-consecutive year, followed by Subaru, Toyota and Mazda. Then it was Mercedes-Benz, Nissan, Volkswagen and BMW, among the 15 rated. Chrysler and General Motors took the bottom two spots. 

David Chapman, the magazine’s auto testing chief, said, “Chrysler is a sad story. The new models have missed the mark in terms of our testing and consumer appeal.” 

Honda Accord was deemed the most reliable model. Your editor, a four-time Accord owner, can vouch for this. 

–The FBI arrested the chief investment officer of Stanford Financial Group, accusing Laura Pendergest-Holt of obstructing an SEC fraud investigation, while R. Allen Stanford was accused by the SEC of executing a Ponzi scheme, along with his partner, James Davis, the firm’s CFO, to the tune of $8 billion. Some investor accounts could remain frozen for more than two years. A few high-profile baseball players are among those having to deal with this. 250 advisers who work for Stanford companies are also ensnared in the “massive, ongoing fraud.” Incredibly, many of the advisers received a 1% commission when they sold Stanford CDs, and they were eligible to receive as much as a 1% trailing commission throughout the term of the CD. Folks, this is for a product that normally pays out a few pennies (basis points) to the rep. It just doesn’t make economic sense. 

It turns out Stanford and Davis reverse-engineered Stanford International Bank’s statements so returns would meet a pre-determined target, the SEC said in its complaint. Pendergest-Holt facilitated the fraud by telling investors she managed the investment portfolio. [Bloomberg] 

But get this. Kevin Eason of the London Times detailed Allen Stanford’s relationship with the cricket world. 

“It was an iconic and now infamous moment as Allen Stanford’s helicopter touched down on the perfectly trimmed grass of Lord’s, the home of English cricket. But the alarm bells should already have been ringing in the ground’s paneled corridors as the aircraft, with its gold flashes and the Stanford name emblazoned along its flanks, emerged from the clouds over London. 

“Despite its impressive logos, there was no Stanford company helicopter. Nor was there a $20 million jackpot in the treasure chest that the beaming Texan showed off to the world – the ‘prize money’ that he had pledged for the first in a series of Twenty20 matches between his own West Indian Stanford Superstars and England. 

“The helicopter had been hired for the day and the Stanford logo added by the hire company. 

“There could have been as little as $100,000 in the box that had been driven into Lord’s in an armored security van with a phalanx of burly guards…. 

“Mr. Stanford never said that it was his helicopter but the battalion of cameramen and journalists from around the world simply accepted it was part of the machinery of the Stanford empire.” 

As for the $20 million in cash that he claimed to display, “Sources confirmed yesterday that there would have been huge problems insuring such a vast sum and that there could have been as little as $100,000 in the chest, padded out with plain paper. The money, like the helicopter and the glitz that surrounded his trip to Lord’s, was no more than another remarkable Stanford illusion that fooled so many and for so long.” 

–Back to General Electric, prior to the dividend cut it continued to trade below $10 on fears involving its GE Capital arm. Some say, well, we’ve known of the issues here for some time now, but do we really know just how dangerous its exposures are? Peter Eavis of the Wall Street Journal reminds us that GE Capital has $133 billion in debt coming due over the next two years, while it also has $37 billion in commercial-real-estate investments, mostly on the equity side (and thus the first to absorb any losses). Eavis points out that whereas Goldman Sachs took a 25% writedown on its commercial-real-estate equity investments, GE thus far has only written off 1% on its similar exposure, even as GE Capital has taken substantial hits on its book of securities backed by commercial real estate. 

The other day some CNBC anchors admitted they had just received a letter explaining that the options they have held for the past ten years, with a $35 strike price, are about to expire. A little gallows humor followed on the set. 

–Yet another huge scam was revealed, Westgate Capital fund, run by former New York Islanders co-owners Paul Greenwood and Stephen Walsh. As much as $900 million may be missing from what the SEC describes as “an egregious fraud of immense proportions.” Among the known victims thus far are Carnegie Mellon and the University of Pittsburgh, which collectively lost in excess of $100 million. 

–Bank of America CEO Ken Lewis refused to turn over the names of Merrill Lynch executives who received $3.6 billion in yearend bonuses, as requested by New York Attorney General Andrew Cuomo, so he was subpoenaed. Bank of America said it would not provide the names because Cuomo wouldn’t guarantee their confidentiality. But earlier, former Merrill CEO John Thain evidently did supply names and details of the shady payouts less than a month before the company completed its sale to BofA. Investors were not properly informed before they voted, as seems clear to anyone with half a brain, though BofA says Merrill was still an independent company at the time and its board had ultimate say over how much to pay employees, not BofA. 

–Citigroup traded a record 1.74 billion shares on Friday on the New York Stock Exchange, besting WorldCom’s 1.51 billion share day on July 1, 2002. Not exactly great company for Citi. 

–I spent part of the week in the Charlotte, N.C. area. Talk about wealth destruction. It’s all about Bank of America and Wachovia Corp., which helped turn Charlotte into the second-biggest bank town by assets, second to New York. Bob Morgan, president of the Charlotte Chamber of Commerce, said, “There’s a bit of a state of disbelief. We are seeing things happen that no one else has contemplated before.” Wachovia has 20,000 employees in Charlotte and Bank of America 15,000. Needless to say all are unnerved and businesses are closing left and right. 

–PGA Tour sponsor Northern Trust, which received $1.6 billion in TARP funds it was forced to take by the government, was excoriated by the likes of Barney Frank and John Kerry for wining and dining clients at its recent event at Riviera in Los Angeles. [Friday, Northern Trust said it was returning the TARP funds.] Morgan Stanley then announced it won’t entertain clients as part of the June Memorial tournament, while Wachovia’s parent, Wells Fargo, has pulled the Wachovia name from an upcoming event because of appearances. The banks haven’t used their heads recently, but the flip side is also getting way out of hand.  

[Needless to say, the PGA Tour is scared to death these days, while the LPGA Tour is already in deep trouble after losing some sponsors prior to the start of their season.] 

–California Gov. Arnold Schwarzenegger has declared a water emergency due to the years long drought in the state.  More on this next week.

–This is disturbing. Bloomberg reports that at least 29 luxury automobiles have been torched in Berlin as protesters rage at their economic plight by going after symbols of wealth and power. If I’m a Berliner, I’m on the lookout for a crazed figure, a poor artist, with a bad mustache. Time to pull out my copy of William Shirer. 

–As part of its nationalization, RBS is pulling back from half the 60 countries it operates in, while up to 20,000 positions will be eliminated (9% of the global work force). 

–Home prices in the U.K. fell 17.6% in February vs. year ago levels, a record decline going back to the time of The Plague. 

–During the height of the real estate bubble, some believed that only in the U.S. were home buyers offered 100% loans. Au contraire, I would write. You have the same situation in Ireland and the U.K., I said. And so this week British Prime Minister Gordon Brown is seeking to ban 100% mortgages. At the height of the boom, November 2007, there were more than 150 products with no deposit, while Northern Rock, since nationalized, offered “cash-back” mortgages of up to 125%. 

–In Ireland, construction spending will fall to a $13.5 billion pace by next year from a peak of $50 billion in 2007, this as welfare lines continue to mount. Protests are also growing over the centerpiece of the government’s economic recovery plan which includes a tax on the pensions of public servants…a pay cut for 350,000 state employees. Last Saturday, 100,000 hit the streets, a huge sum for a country with only a little over 4 million in total population. 

–And on the Anglo Irish Bank front, it having been nationalized, bad debts are now estimated at $7 billion, even as directors borrowed over $200 million, including the former chairman who took a loan of $100 million. 

–IBM reaffirmed its profit forecast for 2009, saying service orders have increased this quarter as the company profits from $1 trillion in global stimulus spending by governments to expand in software for managing equipment and infrastructure, such as power grids and phone lines. 

–As part of the Obama budget, subsidies to student loan providers like Sallie Mae would be ended, with the government becoming the sole provider of federally backed college lending. Monies now spent would be shifted to direct student loans, saving more than $4 billion a year according to administration officials. President Bush had previously cut subsidies to loan providers. 

–The Rocky Mountain News, the oldest newspaper in Colorado, published its last edition on Friday as the sickening slide in the industry continues. Any news junkie should be depressed by this development, even as some idiotic commentators say things like ‘well, they’re all liberal mouthpieces so who cares…the blogosphere can do just as good a job.’  Oh brother. Plus you have the same advertising issues plaguing much of the Net today so the Web won’t be able to fill the void, anyway, certainly not to the extent the newspapers could. As advertising has dried up, newspapers have closed or are on the verge of doing so in Seattle, Detroit, Minneapolis, and Philly, with countless others on the brink.  

[As for the magazine business, I picked up BusinessWeek on Friday and it was as thin as a credit card.] 

–When it comes to media in general, it doesn’t help when a major player like GM is slashing marketing expenses by $800 million as part of its massive effort to reduce costs. For the first nine months of 2008, GM shelled out $1.6 billion. 

–The Treasury Department’s inspector general issued a report saying the Office of Thrift Supervision should have taken enforcement action against IndyMac more than two years before the bank was finally seized by the FDIC on July 11. An FDIC examiner had warned the OTS in a 2005 review that the assets were shaky, yet OTS failed to do anything until June 2008. 

–Microsoft asked some laid-off workers to return a portion of their severance pay due to a computer glitch that led to paying them too much. Those affected pretended not to receive the request. 

–Macau revised sharply downward its view of visitors for 2008 to 22.9 million from a supposed record 30.2 million after adopting a new counting method. It seems a worker who crossed the border 200 times from the mainland was counted as 200 tourists. 

–One of the fears of the Chinese mega-stimulus plan is that a large percentage of the funds could be embezzled by unscrupulous businessmen, and so I read a story that a Shanghai tycoon who made his fortune building highways has gone on trial for stealing about $50 million. Back in 2003, Forbes had named Liu Genshan one of the 15 wealthiest men on the mainland. 

–Ah, the power of being a big player in fixed income. PIMCO Funds saw its assets increase from $197 billion in 2007 to $208 billion in 2008, while every other major player in the asset management business suffered asset declines of 23% to 46% (save State Street’s 3% decline) due to their heavy equity exposures (and subsequent redemptions). [Source: Financial Research Corp. / Investment News] 

–The other week I noted that Lebanon’s banks had recorded sizable profits for 2008, a rare exception, globally. I then read a piece by Borzou Daragahi of the Los Angeles Times that explained why. It seems it was all about one man, Riad Toufic Salame, who is governor of the central bank. 

“In 2005, he defied pressure from the Lebanese business community and bucked international trends to issue what now looks like a prophetic decree: a blanket order barring any bank in his country from investing in mortgage-backed securities, which contributed to the most dramatic collapse of financial institutions since the Great Depression. 

“So as major banks in America and Europe were shuttered or partly nationalized and thousands of people in the U.S. financial sector were laid off, Lebanon’s banks had one of their best years ever. 

“Billions in cash continue to pour into the relative safety of Lebanese savings accounts, with comfy but not extravagant yields of 6%….A nation shunned for years as the quintessential failed state has become a pretty safe bet, or as safe a bet as investors are likely to find in this climate.” 

But I’d add, be careful. The coming parliamentary election could change the mood here, particularly with regards to relations with Israel. 

–Dell Inc. raised its cost-cutting target to $4 billion by 2011 as its quarterly profit fell by half and revenues declined 16%. Notebook PC sales plunged 17% and desktops a whopping 27%. But the stock rallied some on the aggressive effort to pare expenses. 

[A Morgan Stanley analyst is forecasting global PC sales will decline 11% this year, while Gartner Group is now projecting worldwide semiconductor sales will tumble 24%.] 

–Micron Technology is eliminating 2,000 positions, a big blow to hometown Boise, Idaho. Nortel is laying off another 3,200. 

–Office Depot’s CEO, in announcing revenues declined 15% for the quarter, said “our customers simply can’t buy.” Meanwhile, Home Depot is eliminating 7,000 jobs. 

–Only 5% of the banks receiving government aid have responded to requests about what they have done with the funds. 

–Deflation Alert: NFL Commissioner Roger Goodell is taking a 20% pay cut (and laying off 169 in the league office). 

–Deflation Alert, part deux: In a study on the potential impact of Wall Street’s implosion, the average comp for various levels is expected to look like the following. 

Incoming MBAs…From pay of $150,000 to $105,000 after the crash
Vice presidents…From $300-$500,000 to $150,000
Secretaries…From $45-$50,000 to $35,000 

–In July 2005, Google was ahead of Yahoo in search market share by just six percentage points, 36.5 to 30.5. Today the margin is 63-21. As Randall Stross of the New York Times points out, however, at some level you’ll see serious anti-trust concerns. 

–USA TODAY reports banking Trojans “are more advanced and evolving faster than antivirus solutions,” according to an IBM security expert. The new programs are attacking online bank accounts at a soaring rate. Do not click on links to greeting cards or videos unless you are certain of the source. You can also pick up the virus by clicking on Web pages that have been corrupted. 

–Even sales of digital cameras are plunging these days, off 12% in the fourth quarter in the U.S. Eastman Kodak, though, reclaimed the No. 1 spot in market share. 

–A new USA TODAY/Gallup Poll finds that 58% of people who normally take an annual vacation away from home will shrink their vacation spending this year – or just not go. 

–If you watched President Obama’s address to Congress the other night, you saw him single out Miami-based banker Leonard Abess Jr., who took $60 million he made as part of a merger of his City National with a Spanish bank and paid it out to 399 employees and 72 retirees. Well, in case you were wondering the specifics, this equated to an average $127,000 payout.  Abess told the Miami Herald: 

“Those people who joined me and stayed with me at the bank with no promise of equity, I always thought someday I’m going to surprise them. I sure as heck don’t need” the money. 

–Bill Maher: “These banks are hurting so bad, I opened a new account and the lady asked me for a toaster.” 

–“The Simpsons” has been renewed for another two seasons, which will take its run to a record 22 years.   Woo Woo! 

Iraq: President Obama has given the order that all U.S. combat forces will be withdrawn by Aug. 2010, leaving 30-50,000 for training and security. All of these would then exit by Dec. 2011, as mandated by the security agreement reached between the Iraqi government and the Bush White House. 

This week was another stark reminder that Iraq is still a most dangerous place as four Americans were killed in two incidents, and a number of others were wounded as a unit was attacked by soldiers in Iraqi Security uniforms, which has been a troubling trend the last few weeks. 

“The Iraq war isn’t over. And while President Obama’s apparent decision to withdraw the bulk of American troops by August 2010 is not necessarily a mistake, it cannot be carried out rigidly. If all continues to go well, it should be eminently feasible; if not, the administration will have to show the strategic wisdom to slow down as needed to deal with problems…. 

“Iraq has several important challenges that could strain its political system over the next year. They include the return of up to four million displaced people to their homes; the release of thousands of people detained by coalition forces, some of them surely dangerous; the continued search for permanent jobs for the largely Sunni Sons of Iraq, whose actions against the insurgents in Anbar Province were a key to the success of the ‘surge’; falling oil prices that will hamper the government’s ability to pay its workers; and the more general tasks of increasing oil exports, employment and the quality of life for Iraqis. 

“Perhaps the most vivid demonstration of the problems Iraq faces is the enormous tension brewing between the autonomous Kurdistan Regional Government, led by Massoud Barzani, and the central government led by Prime Minister Nuri Kamal al-Maliki. During the years of warfare between Sunni and Shiite Arabs, the Kurdish issue lay dormant. But now it has roared back to the forefront. Nearly everyone we spoke with in the area this month – Kurds, Arabs, Americans and others – described the situation as explosive and the enmity between Mr. Barzani and Prime Minister Maliki as ferocious…. 

“Given Iraq’s strategic significance, the mission ceased to be a ‘war of choice’ the moment American forces crossed the border in March 2003. Now we have no choice but to see Iraq through to stability. 

“It is worth remembering that our current economic disaster started with a great rise of oil prices from 2004 to 2007, which then helped set off the mortgage and credit meltdowns. Although the increase in oil prices had more to do with inadequate refining capacity and increased demand from China and India than with instability of the Middle East, previous recessions have resulted from the area’s political calamities; it is easy to imagine others in the future…. 

“In the end, it is up to the Iraqis to make their nation peaceful and productive – we should not baby-sit Iraq through all of its problems as a young democracy. But it faces one last crucially tense period in the coming 12 to 18 months. American interests argue strongly for using all the leverage we have gained among Iraqis during six years of intense partnership to help Iraq through its ‘year of transitions’ – then we can bring our troops home quickly, but responsibly.” 

On the above mentioned spending front, due to falling oil prices, Iraq’s parliament is considering budget cuts of 7%, including in a key food-rationing program. 

Afghanistan / Pakistan: Violence has picked up in a big way here, with at least 29 U.S. soldiers killed the first two months of ‘09, compared to 8 in Jan. and Feb. last year. Four were killed in a roadside bomb attack, and the next day four British soldiers were killed in similar fashion. 

On the issue of the “permanent cease-fire” in the Swat district of Pakistan, a safe haven for the Taliban, it now appears it is only temporary, according to the pronouncements of a leading Taliban figure. 

“Last year, Pakistanis in the northern Malakand district voted overwhelmingly for the country’s secular parties, including the Pakistan People’s Party of President Asif Ali Zardari. Last week, Mr. Zardari repaid the favor by agreeing to the imposition of Sharia law in the area and suspending military operations against an encroaching Taliban. 

“We would call this terrifying, but that may understate matters for the people of the region. For several years the Taliban and its allies have sought to gain control of the district, particularly its scenic Swat valley, once a popular tourist destination…. 

“Yet no sooner was the deal signed than a Pakistani journalist was murdered while covering a ‘peace march’…the 20th journalist killed around Swat in two years.” 

This week protests sprung up over the decision by the Pakistani Supreme Court to keep opposition figure and former Prime Minister Nawaz Sharif from running for elected office. This particular issue has legs and presents a real challenge to President Obama. 

Iran: Tests at the nation’s first nuclear power plant at Bushehr have commenced and Iran chose the event to announce it would sharply increase the enrichment of uranium. Vice President Aghazadeh said “America should face reality and accept living with a nuclear Iran.” Israeli Defense Minister Ehud Barak said, “Time is running out. Clear and decisive sanctions against the Iranian regime alongside readiness to consider necessary actions – in case the sanctions don’t work – are necessary.” The Obama administration, though, doesn’t seem to be in a rush to deal directly with Iran, though it has been soliciting Russia’s help, even as Russia aids Iran in the initial testing at Bushehr, a plant built with Russian assistance. Once the plant is fully operational, months from now, Iran has agreed to return the spent fuel to Russia to ensure Tehran doesn’t reprocess it into plutonium. 

Meanwhile, the presidential election is slated for June 12 and an ominous sign for the candidacy of former Prime Minister Mohammed Khatami emerged as two Web sites promoting his bid were blocked. Khatami, while overrated as a “reformer,” nonetheless represents a serious threat to President Mahmoud Ahmadinejad, thanks to the sick economy. So will the Guardian Council block him as they have thousands of reformist candidates in parliamentary elections in 2004 and 2008? We should learn shortly. 

Israel: Likud leader Benjamin Netanyahu is having problems forming a government in this 42-day window granted for the purpose. Kadima and Labor will remain in the opposition, with Kadima leader Tzipi Livni insisting on a land for peace negotiating stance with the Palestinians as part of an eventual two-state solution, while Netanyahu refuses to talk about two states before there is an “economic peace.” Under this plan, Israel would control the West Bank’s border and airspace, while Palestinian police controlled their own towns, though Israel could launch raids against terrorists as it saw fit. For its part, the U.S. position, as espoused by envoy George Mitchell, is for Israel to pursue a political track first. 

But Netanyahu needs a moderate presence in his coalition or he risks losing the government to hardliners, and to this end, Israel Beiteinu leader Avigdor Lieberman, who wants to hold a prominent role in a Netanyahu cabinet, has been moderating his tone on a number of fronts this week. 

There was an interesting poll that revealed only 17% of Israeli voters are satisfied with the election results, 43% dissatisfied. Yet 90% would vote for the same party if given the chance. 36% want a national unity government, 22% want a right-leaning coalition. 

With the U.S. position on negotiating with the Palestinians (and the Obama administration has given its approval to unity talks between Fatah and Hamas), the Defense Ministry is concerned about cuts in military aid, currently set at about $3 billion a year per a memo of understanding in 2007. The White House could cut the level over the issue of the settlements (as I’ve argued) while at the same time claiming the reduction is due instead to the economic crisis as a way of masking the true intent. 

As for Iran, Netanyahu has long called it the greatest existential threat since Israel’s creation and a “red line” has been passed with word Iran has enough nuclear material for a bomb. 

Lebanon: The international tribunal looking into the 2005 assassination of former Prime Minister Rafik Hariri is slated to commence shortly, a critical time ahead of the June 7 elections, as the eye will be on the Syrian connection. While Lebanon released three men who had been imprisoned for three years in connection with the murder of Hariri, four senior pro-Syrian generals remain in custody. 

Syria: The Syrian ambassador to the U.S. has been invited to meet with the State Department; a sign of a potential thaw in relations between Damascus and Washington, as reported by the Jerusalem Post; this on top of three recent congressional delegations that have visited Syria in recent weeks. 

North Korea: Should the North proceed with its long-range missile test, the consequences could be all bad. If it’s shot down, North Korea could overreact and go after South Korea or drop out of arms talks. Either way it has lost face in that instance. If it’s allowed to proceed with a test, what if it actually hit U.S. territory? So obviously the second option is a risk the U.S. can’t take. Secretary of State Hillary Clinton is scrambling to restart negotiations as a new envoy, Stephen Bosworth, becomes point person for the task. 

Pyongyang is now claiming they are preparing a satellite launch and we’ve learned it has an underground fueling station that makes it more difficult for spy satellites to gauge when preparations have been completed. 

Separately, a biannual defense report by the South Korean Defense Ministry concludes the North has boosted the number of its special operations troops by 50 percent to 180,000, “focusing on night-time and mountain and urban warfare based on ‘the lessons it had learned while watching the war in Iraq.’” [Choe Sang-hun / New York Times] 

Russia: Tensions between President Dmitry Medvedev and Prime Minister Vladimir Putin continue to increase as Medvedev has become bolder in his criticism of Putin’s handling of the economy. “We are working very slowly, simply unacceptably slowly for a crisis,” he told a meeting of regional governors. 

Jackson Diehl / Washington Post 

“With Kremlin funding drying up, regional governments are showing signs of rebelliousness. And in Moscow itself there are hints of an ugly debate among the competing political clans around Putin over how to divide what money is left. 

“These are all familiar symptoms of the political and economic ‘chaos’ of the Russian 1990s, the rescue from which has been the foundation of Putin’s domestic popularity. Little surprise then, to hear a seasoned foreign businessman here agree with the almost universal assessment by Moscow’s small democratic opposition movement: ‘Putinism as it has existed until now is dead.’ Former chess champion-turned-dissident Garry Kasparov said, ‘The situation will inevitably lead to political change. What kind of change? I don’t know.’” 

But in the meantime, as Diehl writes, “there are the disturbing signs that Putin’s ambition to subjugate Georgia – manifest in the hysterical rhetoric with which officials here continue to describe its democratic and pro-Western government – remains very much alive. Pavel Felgenhauer, a respected military reporter for the independent newspaper Novaya Gazeta, offers a detailed case for his conclusion that the possibility of a Russian military operation this summer ‘to finish the job’ of toppling Georgian President Mikheil Saakashvili is ‘frighteningly high.’” 

Felgenhauer had predicted the Russian invasion of Georgia last year and was dismissed from his position at the paper. 

On the Ukraine front, its debt rating was slashed to that of Pakistan in another concession to the political turmoil in Kiev that the Kremlin will continue to exploit. The European Union understands this, and has extended aid to Ukraine, but the problems may be too deep for recovery and the people could turn to the East. Half the country is already there. 

And we note that our friends up north intercepted a Russian bomber approaching Canadian air space the day before Barack Obama visited Ottawa, as we learned this week. The Russian plane turned around after being signaled by the Canadian pilots, “very clear signals,” according to an official with Norad. 

China: Human rights groups are upset with Sec. of State Clinton for putting aside their issues on her trip to Beijing as she sought Chinese cooperation on the economy and climate change. Sorry, China’s $700 billion-plus holdings in U.S. Treasuries takes precedence. 

Japan: A senior leader with the opposition Democratic Party of Japan, which is slated to take power later in the year, has said they would break with the policy of unquestioning support for the United States. 

“Japan now needs to make a clear shift from diplomacy that follows the U.S. lead to diplomacy based on multilateral cooperation,” said Yukio Hatoyama. “We must view the Asia-Pacific region, where we have increasingly close ties with other countries, as the place where Japan will live as a nation,” adding he foresaw “the end of U.S.-led globalism.” 

Bangladesh: At least 50 died, including scores of army officers, in a mutiny staged by a paramilitary unit over pay and command structures. The rebels handed over their weapons following an amnesty offer in what was the first test for democratically elected Prime Minister Hasina after two years of emergency rule by an army-backed government. Newspapers praised her performance in what could have been a far worse disaster. 

Mexico: Homeland Security Secretary Janet Napolitano said the Mexican government’s fight against the drug cartels demands the “utmost attention” of U.S. officials. The backlash against Mexican President Calderon’s crackdown on the traffickers has triggered a desperate backlash of violence “of a different degree and level than we’ve ever seen before,” said Napolitano. For its part, the State Department continues to warn against travel to certain areas of the country.  

This week, 52 with ties to the deadly Sinaloa drug cartel were arrested in California, Minnesota and Maryland. Attorney General Eric Holder, in announcing the arrests, said this specific group is “a national security threat.” 

Ireland: Owing to its economic crisis, there is a new exodus of new graduates out of the country, after about 15 years of a reversal of a historic trend, as more understand “there are no jobs here.” 

–A slew of polls were taken before Barack Obama’s address to a joint session of Congress and the American people, and they showed him with strong job approval ratings after his first month in office; 62% in a USA TODAY/Gallup survey, 63% New York Times/CBS News, 68% Washington Post/ABC News. But be careful. The 68% in the Post poll is on par for the past 8 presidents after one month. 

The Times’ survey did say 88% of Democrats approved of Obama’s early performance and 44% of Republicans, but as I described in the opening, it’s this 44% that is going to change in a big way over the coming weeks and months. 

The ratings for Congress, out of nowhere, at least in the opinion of your humble scribe, skyrocketed higher in relative terms. Congressional Democrats now have a 50% approval mark (it was 35% in July), and Republicans are at 38% (25% in July). So the talking heads need to be accurate in this regard. It’s been ingrained that Congress’ ratings are in the teens, which was the case about a year ago when President Bush was still outpolling it. No longer. Count me, however, as still wildly disapproving. 

And back to the Obama poll numbers. I said the honeymoon was over. It is, despite what Peggy Noonan implies up top. All that means though is that Obama is simply president, which was also her point, and that he’ll be judged on policy success or failure from here on. 

For instance the same polls referenced above also reveal that 51% believe the Obama homeowner plan is “unfair,” [USA TODAY/Gallup], while 2/3s still believe the country is seriously on the wrong track [Washington Post/ABC].  

William Kristol / Washington Post 

“After Tuesday night, no one should doubt Barack Obama’s ambition. His silent dismissal of the efforts of his immediate predecessors – he mentioned none of them – is only one indication of the extent to which he intends to be a new president breaking new ground in a new era. 

“George W. Bush defined his presidency by his response to the terror attacks. Obama didn’t discuss Sept. 11. And by relegating foreign policy to the status of a virtual afterthought, Obama indicated that he doesn’t think his presidency will rise or fall by the success or failure of his diplomatic or military endeavors. Bill Clinton told Congress in 1996 that the era of big government was over. Obama withdrew that concession to conservatives and conservatism. George H.W. Bush worried in 1989 that we have more will than wallet. Obama has no such worries…. 

“For Obama’s aim is not merely to ‘revive this economy, but to build a new foundation for lasting prosperity.’ Obama outlined much of this new foundation in the most unabashedly liberal and big-government speech a president has delivered to Congress since Lyndon Baines Johnson. Obama intends to use his big three issues – energy, health care and education – to transform the role of the federal government as fundamentally as did the New Deal and the Great Society. 

“Conservatives and Republicans will disapprove of this effort. They will oppose it. Can they do so effectively?” 

–I wonder how many of my fellow Republicans would like to give John McCain a piece of their mind about his veep selection last year, having witnessed some of the policy decisions of the past month. I want my money back. 

–So much for Bobby Jindal and his run for the GOP nomination in 2012. His performance on Tuesday night was rather underwhelming. As Olivia Smith of the New York Daily News put it: 

“Jindal singled out $140 million to the U.S. Geological Survey for volcano monitoring as an example of the (stimulus package’s) excessiveness. Someone whose own state rightly received a massive influx of government cash after Hurricane Katrina, and is still struggling to recover from that natural disaster more than 3 years after the fact, might have pinned his critique of Obama’s plan on a different issue. 

“His remarks provoked steam from at least one politician who lives in the vicinity of a smoldering lava-filled summit.  

“ ‘Does the governor have a volcano in his backyard?’ said Royce Pollard, the mayor of Vancouver, Washington, which is dangerously close to Mount St. Helens. ‘We have one that’s very active, and it still rumbles and spits and coughs very frequently,’ he said Wednesday, as reported by CNN.” 

–I’ve been pounding the table that President Obama should seek John McCain’s help on the military procurement front and he has, as at the end of the fiscal summit on Monday, McCain weighed in, bemoaning cost overruns, including on a new fleet of 28 Marine One helicopters being built by Lockheed Martin Corp. – now overbudget at $11.2 billion – that will cost more than Air Force One. I must say, Obama nailed it. 

“The helicopter I have now seems perfectly adequate to me…Of course, I’ve never had a helicopter before. Maybe I’ve been deprived, and I didn’t know it.” 

A funny moment. The helicopters are designed to be “flying Oval Offices,” with Obama and future presidents having all the communications necessary to wage a war from the air. 

But the main purpose of them is for the 10-minute flight from the White House to Andrews Air Force Base, where the president would hop on Air Force One. So for now it’s up to Defense Secretary Gates as to whether the chopper plan should be scrapped, much to the chagrin of Lockheed Martin. 

“Perhaps the biggest factor behind the new pessimism is the knowledge that the crisis is not only economic but political, that we’ll have to change both cultures, economic and political, to turn the mess around. That’s a tall order, and won’t happen quickly. One thing is for sure: Our political leaders for at least a decade, really more, have by and large been men and women who had fortunate lives, who always seemed to expect nice things to happen and happiness to occur. And so they could overspend, overcommit and overextend the military, and it would all turn out fine. They claimed to be quintessentially optimistic, but it was a cheap optimism, based more on sunny personal experience than any particular faith, and void of an understanding of how dark and gritty life can be, and has been for most of human history. 

“I end with a hunch that is not an unhappy one. Dynamism has been leached from our system for now, but not from the human brain or heart. Just as our political regeneration will happen locally, in counties and states that learn how to control themselves and demonstrate how to govern effectively in a time of limits, so will our economic regeneration. That will begin in someone’s garage, somebody’s kitchen, as it did in the case of Messrs. Jobs and Wozniak. The comeback will be from the ground up and will start with innovation. No one trusts big anymore. In the future everything will be local. That’s where the magic will be. And no amount of pessimism will stop it once it starts.” 

–It’s been a tough stretch for America. A $280 million satellite designed to track greenhouse gases in the atmosphere, crashed after launch on Tuesday into the ocean near Antarctica, startling seals and penguins who jammed the 911 lines. 

–Roland Burris refuses to step down from the senate. This guy is amazing. He really belongs with Blago in a burlesque act. 

–William J. Stuntz, professor at Harvard Law School, had an interesting piece recently in The Weekly Standard concerning the case for a police surge. The stimulus package has funds for more police but not nearly as much as the “modest” version – $8.8 billion in federal money over six years – that was enacted as part of the 1994 crime bill, “and it contributed to the second-biggest crime drop of the last century.” 

“Most of our dangerous communities have two things in common: They are poor, and a large share of their population is African American, as one more pair of statistics suggests. In the United States in 2005, the homicide rate among whites stood at 3.5 per 100,000. Among blacks, the figure was 26.5. Urban homicide rates are strongly correlated with the size of cities’ black populations. 

“This is the core of 21st-century America’s race problem. The poorest black neighborhoods are frighteningly crime-ridden. The social cost of that crime, and of the criminal punishment that seeks to hold it in check, is colossal, measured in families never formed and investments unmade, lives ended murderously and other lives slowly crushed by long prison terms. Plainly, the public policy status quo is not working. To stay the course – to resist change in a setting that so needs changing and in which so many lives are at stake – is morally indefensible. That proposition holds true for those of us on the political right as well as for those on the left. Conservatives are not anarchists; we believe governments should be small, not absent. Even the smallest governments seek to maintain a decent level of order and safety in public places. Today, in much of urban black America, that goal is not being met…. 

“Again, we live in strange times. Over the next couple of years, money will be spent in fantastic sums, and much of it will leave nothing good in its wake. All the more reason to invest in a service that makes life better for those whose lives most need help. That is the liberal thing to do – and also the conservative thing to do. More important, it is the right thing to do.” 

–The Turkish Airline plane that crashed near Amsterdam’s Schiphol Airport, killing 9, including three crew members and four Americans (Boeing employees), had engine trouble as the plane fell almost straight down with both engines having stopped. Survivors said the engine noise seemed to stop, the plane shuddered and then simply fell out of the sky tail-first, dropping from abut 300 feet on approach. There is another possibility…it may have just run out of fuel. 

–New York City Catholics have a new leader, Archbishop Timothy Dolan of Milwaukee, who replaces Cardinal Egan. Dolan seems destined to be a crowd favorite, being a real sports fan for starters. The story is told of his second week in Milwaukee, “where the Green Bay Packers are themselves a religion, Archbishop Dolan began his homily at an outdoor Mass by donning one of the ‘cheese-head’ hats worn by Packers fans. It produced laughter, and a photograph that led to some criticism from church traditionalists who accused him of defiling the Mass.” [New York Times] 

–I was in Davidson, N.C., home of Davidson College, on Wednesday to see Stephen Curry in a basketball game, Curry being a future NBA star, I’m convinced. But what a great town Davidson is and what a great place to live, it would seem, what with the resources of a beautiful school at your fingertips, as well as the proximity (25 minutes) to a major city, Charlotte. If you are looking to retire to a college town, check out Davidson’s Harbour Place and ask for Robert Tremblay, the developer. I have to admit I was intrigued. 

–Finally, I added a little tag line below after viewing an HBO film, “Taking Chance,” on the true story of the return of Lance Corporal Chance Phelps’ body from Iraq. It is a deeply moving account of the process and the respect Americans showed along the way as Phelps was taken to his final resting place in Wyoming by a Marine officer, Lieutenant Colonel Strobl (played by Kevin Bacon). It’s a bit ironic that within a week after its showing, the Defense Department relaxed media rules against photographing flag-draped coffins. Please watch this film…buy the DVD when it comes out if you have to. 

Returns for the week 2/23-2/27 

Returns for the period 1/1/09-2/27/09 

Have a great week. I appreciate your support.