Connects Dots While 'Dashes' Off To Play Golf?

TIGER SHARK!

Obama connects dots while 'dashes' off to play golf?

A Wall Street Journal editorial drones on in praise of Obama's drone warfare.

The editorial does not deny the fact that innocent civilian casualties, including children, are also victims of this type of warfare but go on to suggest such are difficult to verify and hail drone effectiveness.

Now let me pose this question. Suppose it was Israel that was constantly engaged in this type of warfare - do you think Israel would get away with it as Obama is? Do you think the U.N. would remain mute as it has or the various peace groups that scream every time Israel seeks to defend itself. What about the world's media and news lemmings?

The U.S. is engaged in drone warfare away from its shores claiming it is defending itself from radical Muslim terrorists and I concur. Israel, on the other hand, is defending itself from next door neighbors who constantly rocket it and yet, the world is up in arms with Israel.

I am certainly not opposed to killing terrorists - the more the better. What I am suggesting is bias on the part of the press, media, U.N. and Carter types is nauseating.

Keep up drone targeting of radical Muslim terrorists and clamming up about it. Just show equal restraint when Israel seeks out and kills terrorists. (See 1 below.)

After Enron, Capitalism became easy prey. The period of Golden Parachutes and excessive pay and bonuses simply added more logs to an inflamed public's view.

Hank Greenberg, the short executive who built AIG into a giant, now suggests the former Secretary of Treasury and former Chairman of Goldman Sachs, Hank Paulson, along with some Goldman "sharpies,' sought to liquidate the company. Greenberg quotes Paulson's own words.

Those who have tried to strong arm Greenberg have been burned in the process - E. Spitzer (who prostituted himself), the SEC (which tried and failed in their prosecution) being among the more prominent. Those who have erroneously hurled charges against Greenberg have all fallen on their swords.

In an interview, Greenberg lays out his case and urges investigative reporters, worth their salt, to follow the evidence being uncovered.

Greenberg always played hard ball and was shoved out by lessers at the behest of government but this feisty 80 year old refuses to go down without a fight. It would be a positive sign if more courageous reporters took up Greenberg's challenge.

Once again, the heavy hand of government seems to have favored nefarious actions and possibly this time by one of the nation's most prestigious investment banking firms. It would be tragic indeed if the truth was allowed to remain buried. Did Goldman Sachs make untold fortunes at the expense of innocent stockholders and taxpayers? Plenty of smoke suggests it may have. At the very least Greenbergs view deserves a fair laundering.

I still own shares in AIG. A must read. (See 2 and 2a below.)

Job recession editorial and the prospect of a bubble. (See 3 and 3a below.)

If it is appropriate for GW's goose why not for Obama's gander? (See 4 below.)

A little humor. (See 5 below.)

Finally, a powerful message:http://www.youtube.com/watch?v=662R2awSwPQ&feature=player_embedded

I do not mind paying taxes because they are a necessary evil. What I do mind is theft of my taxes, waste of my taxes, mismanagement of my taxes, contempt for me as a taxpayer and corrupt politicians who pass laws to which they themselves are not subjected and when they are they cheat lie and steal - Rangel, Dodd etc.. (See 6 below.)


Dick




1)The Drone Wars : Weapons like the Predator kill far fewer civilians.

. Text .
The Obama Administration has with good reason taken flak for its approach to terrorism since the Christmas Day near-bombing over Detroit. So permit us to laud an antiterror success in the Commander in Chief's first year in office.

Though you won't hear him brag about it, President Obama has embraced and ramped up the use of unmanned aerial vehicles, or drones. As tactic and as a technology, drones are one of the main U.S. advantages that have emerged from this long war. (IEDs are one of the enemy's.) Yet their use isn't without controversy, and it took nerve for the White House to approve some 50 strikes last year, exceeding the total in the last three years of the Bush Administration.


From Pakistan to Yemen, Islamic terrorists now fear the Predator and its cousin, the better-armed Reaper. So do critics on the left in the academy, media and United Nations; they're calling drones an unaccountable tool of "targeted assassination" that inflames anti-American passions and kills civilians. At some point, the President may have to defend the drone campaign on military and legal grounds.

The case is easy. Not even the critics deny its success against terrorists. Able to go where American soldiers can't, the Predator and Reaper have since 9/11 killed more than half of the 20 most wanted al Qaeda suspects, the Uzbek, Yemeni and Pakistani heads of allied groups and hundreds of militants. Most of those hits were in the last four years.

"Very frankly, it's the only game in town in terms of confronting or trying to disrupt the al Qaeda leadership," CIA Director Leon Panetta noted last May. The agency's own troubles with gathering human intelligence were exposed by last week's deadly bombing attack on the CIA station near Khost, Afghanistan.

Critics such as counterinsurgency writers David Kilcullen and Andrew Exum allege that drones have killed hundreds, if not thousands, of civilians. The U.N. Human Rights Council's investigator on extrajudicial executions, Philip Alston, has warned the Administration that the attacks could fall afoul of "international humanitarian law principles."

Civilian casualties are hard to verify, since independent observers often can't access the bombing sites, and estimates vary widely. But Pakistani government as well as independent studies have shown the Taliban claims are wild exaggerations. The civilian toll is relatively low, especially if compared with previous conflicts.

Never before in the history of air warfare have we been able to distinguish as well between combatants and civilians as we can with drones. Even if al Qaeda doesn't issue uniforms, the remote pilots can carefully identify targets, and then use Hellfire missiles that cause far less damage than older bombs or missiles. Smarter weapons like the Predator make for a more moral campaign.

As for Mr. Alston's concerns, the legal case for drones is instructive. President Bush approved their use under his Constitutional authority as Commander in Chief, buttressed by Congress's Authorization for the Use of Military Force against al Qaeda and its affiliates after 9/11. Gerald Ford's executive order that forbids American intelligence from assassinating anyone doesn't apply to enemies in wartime.

International law also allows states to kill their enemies in a conflict, and to operate in "neutral" countries if the hosts allow bombing on their territory. Pakistan and Yemen have both given their permission to the U.S., albeit quietly. Even if they hadn't, the U.S. would be justified in attacking enemy sanctuaries there as a matter of self-defense.

Who gets on the drone approved "kill lists" is decided by a complex interagency process involving the CIA, Pentagon and White House. We hear the U.S. could have taken out the radical cleric Anwar al-Awlaki after his contacts with Fort Hood shooter Major Nidal Hassan came to light in November, missing the chance by not authorizing the strike. Perhaps al-Awlaki's U.S. citizenship gave U.S. officials pause, but after he joined the jihad he became an enemy and his passport irrelevant.

Tellingly, after the attempted bombing over Detroit, the Administration rushed to leak that Yemenis, with unspecified American help, might have killed al-Awlaki in mid-December in a strike on al Qaeda forces. Al-Awlaki, who also was also in contact with the Nigerian bomber on Northwest Flight 253, may have survived.

While this aggressive aerial bombing is commendable against a dangerous enemy, it also reveals the paradox of President Obama's antiterror strategy. On the one hand, he's willing to kill terrorists in the field, but he's unwilling to hold these same terrorists under the rules of war at Guantanamo if we capture them in the field. We can kill them as war fighters, but if they're captured they become common criminals.

Our own view is that either "we are at war," as Mr. Obama said on Thursday, or we're not.

2)Can AIG Be Saved?: The former chairman wonders why Goldman Sachs got paid in full on its AIG exposure while AIG itself was forced into slow-motion liquidation.
By HOLMAN W. JENKINS, JR.


Goldman Sachs has a new enemy—as if it needed another one.

Hank Greenberg, as we sit in his Park Avenue office, is telling me how to do my job, saying reporters need to get to the bottom of the events that preceded and followed the government bailout of AIG, the insurance company he built into a global giant.

In particular, they need to get to the bottom of the part played by the investment bank of Goldman Sachs. He waves a sheaf of press reports from the New York Times, Washington Post and McClatchy papers about the firm's doings before and during the subprime meltdown. "We're dealing with a jigsaw puzzle where all the pieces are not in the box. Bit by bit, we're getting the pieces. The pieces are failing into place and the picture on the face of the puzzle is not a pretty picture."

Let me get this straight. Is Mr. Greenberg saying the machinations of Goldman Sachs were responsible for the disastrous failure of AIG amid the recent financial crisis? "Well, it certainly wouldn't be difficult to come to that conclusion."

Until a few years ago, Mr. Greenberg was enjoying a stellar career as an insurance CEO, but not a melodramatic one. That all changed in 2005 when he became one of several business titans turned into unwilling stepping stones for the advancement of an ambitious New York attorney general named Eliot Spitzer.

Mr. Greenberg, a genuine captain of industry but little known to the public, had built AIG over 30 years to become the biggest and most admired company in the global insurance industry. Then Mr. Spitzer, riding a wave of righteous distrust of business after Enron, accused him and AIG of accounting fraud. Mr. Spitzer, on national television, pronounced Mr. Greenberg guilty even before any evidence had been presented to a jury.

AIG was on the rack, its business about to be destroyed if Mr. Spitzer criminally indicted the firm. So the board jettisoned its long-serving chief to appease the crusading attorney general. Mr. Greenberg, at age 80, settled in for what he must have known would be a long siege of lawsuits and regulatory investigations to occupy his declining years. He couldn't have anticipated, though, that the drama of his non-retirement was only just beginning and would lead to a fight in which something even bigger than his reputation would be at stake—the very survival of the firm he'd built and been ousted from.

That's exactly what came to pass. In the months after he left, AIG amped up its bets on the housing market by writing what where, in effect, insurance policies on derivative securities backed by subprime mortgages. These securities were created by Wall Street firms, notably Goldman Sachs, and held on their own books or sold to investors. AIG, in turn, had committed not only to insure them again eventual loss, but to make cash payments in the meantime to compensate for any drop in price or downgrade of their Triple-A ratings by credit agencies—both of which promptly happened as housing collapsed and panic spread about the possible failure of large financial institutions.

Suddenly, AIG was bleeding vast amounts of cash at a time when a spooked market was increasingly unwilling to lend to the firm. Finally, Washington stepped in to prevent AIG's bankruptcy, fearing the alternative was an economic meltdown.

How did it all come apart so quickly? Here are the pieces Mr. Greenberg says he sees falling into place. In 2005, a trade group called the International Swaps and Derivatives Association got together and drafted new standards for the kinds of credit default swaps AIG had been writing.

Previously, Mr. Greenberg explains, losses to the underlying securities were paid off at maturity. Now, cash payments would have to be forthcoming to cover any drop in value or credit downgrades even before any losses were realized.

"I don't know whether Goldman Sachs was the force behind the ISDA change or Deutsche Bank," Mr. Greenberg concedes. "That's something investigative reporters are going to have to spend time digging out."

The next piece fell into place, he says, with recent reports in the press about how, at the top of the housing bubble, "a couple of people there [at Goldman Sachs], bright guys, decide the housing market is going to collapse." Goldman went to work creating new subprime housing-backed derivatives , Mr. Greenberg says, and "began marketing the hell out of them and at the same time shorting them" (or betting they would fall in value).

Bingo. When the housing boom imploded, Goldman demanded giant cash collateral payments from AIG on a "mark to market" basis for housing-backed securities whose price was plummeting even if the underlying payment streams were intact. True, Goldman was hardly the only one demanding cash, but Mr. Greenberg is suspicious about the size of the payments Goldman demanded based on Goldman's own "marks" (i.e. estimate of the securities now-depressed value). "Goldman had the lowest marks on the Street by everything I hear," he says. "There was no exchange. Where was the price discovery? It was all in the eye of the beholder."

In short, it added up to a perfect trap for AIG. As panic spread through the financial sector, impossible amounts of cash were required of the firm under insurance contracts that had years to run and (as Mr. Greenberg argues and events seem to be showing) would likely end up performing adequately in the long run.

But this is just half the puzzle, he says. When the government took over AIG, why did it insist that Goldman and other firms receive 100 cents on the dollar on their AIG exposure, while the terms of AIG's own bailout were so onerous as to force the firm into slow-motion liquidation? When the government's bailouts of Citigroup, Bank of America, GM and Chrysler were clearly designed to restore the firms to health, why was AIG's apparently designed to create a wasting asset that would wither and die in taxpayer hands?

Most of all, he cannot fathom why Treasury and the Federal Reserve let billions of dollars in taxpayer cash fly out the backdoor to Goldman and other firms. Washington could simply have ordained that AIG's debts were the government's debts and so no collateral was due give Uncle Sam's bulletproof credit rating.

Mr. Greenberg has no doubt the destruction of AIG was the politically-dictated goal at the time. He points to Treasury Secretary Hank Paulson's statement on Sunday morning television shortly after the rescue, saying the purpose was to "allow the government to liquidate" the company.

Mr. Greenberg invokes the loaded constitutional word "takings" for the government's seizure of a 79.9% stake in AIG as part of the package dictated to the company's board. "They just took the goddamn thing. What's the basis for taking it? You gotta explain, How did you get to 79.9%? I'd be curious to know."

From his present perch, he sees only three ways the AIG mystery will ever be plumbed. "Either investigative journalists continue to add the missing pieces of the puzzle," he says. "Or, two, members of Congress call for an investigation and put people under oath. Or, three, if these two things fail, aren't there likely to be class-action suits that put people under oath in depositions and discovery?"

Mr. Greenberg recognizes he's playing a dangerous game here, since his goal ultimately is to coax Washington into softening the terms of the AIG bailout.

For one thing, the obvious party to lead a class-action shareholder lawsuit is none other than Mr. Greenberg himself, in his status as chief of Starr International, a company that for decades has been the largest single holder of AIG shares (and a whole other story in itself). Indeed, he acknowledges that he and other large shareholders have batted around the idea of a lawsuit. Fellow investors wanted him to take the lead, but he demurred, saying his other AIG-related litigation at the time and his Spitzer victimization had made him too much of a lightning rod. His fellow investors, however, were no keener on serving as lead plaintiff, fearing to antagonize the government and not wishing a distraction from their main business of portfolio management.

For the time being, then, a lawsuit challenging the AIG takeover is not in the cards, but Mr. Greenberg hasn't given up on political suasion. His goal is a major revision of the terms of the bailout to put private capital back in charge—a goal he quite evidently believes can be advanced by airing the secret history behind the AIG debacle.

"There's too much smoke, too many smart people asking questions that deserve an answer. I would hope that investigative reporters do the job they love to do and bring out the truth. I would hope that Congress would then say we must do something about this in all fairness. The American people should know about this and then bring about the changes necessary to avoid the total destruction of a great company that was the pride of America in the insurance industry."

To that end, he has drawn up (with the help of investment banker Joseph Perella) a plan that's now in the hands of Treasury and the Fed. He wants the government's $112 billion loan stretched out to, say, 20 years and the interest rate slashed to something closer to the government's own cost of borrowing.

He also wants Washington unilaterally to dial back its 79.9% stake in the firm. Taxpayers would be better off, he says, effectively returning a big chunk of the government's stake to AIG's existing shareholders. Majority government ownership only serves to scare off the private capital that could revive the firm as a taxpaying and job-creating corporate citizen. "In fact, if the government owned 15% or 20%," he says, "that would probably be worth more in the marketplace than the 79.9%."

Finally, he wants reform of Maiden Lane II and III, the Federal Reserve vehicles that relieved AIG of some of its subprime exposure and have been reaping the lion's share of the gains (75%, compared to 25% for AIG) as the securities rebound in value now that the economy is mending and the crisis has passed.

Of course, any softening or forgiveness of the AIG "rescue" terms would be politically fraught at this point. But if Mr. Greenberg is right, attitudes may evolve in the months ahead given public receptivity to a new storyline that AIG was a victim of Goldman sharpies. Hence another of his proposals—to have Goldman and other counterparties who seemingly profited from AIG's troubles return some of their taxpayer-subsidized winnings in the form of low-interest loans to help the insurer back on its feet.

Mr. Greenberg has been to the White House three times since Barack Obama became president, and not on social calls. But the discussions revolved around North Korea and foreign relations, issues of interest in his role as a leader of the organization Business Executives for National Security. On AIG, however, he keeps plugging away. "I don't give up easily. What was done, in my view, was done, as Paulson said, to liquidate the company. I think that was wrong. And I think it's important to fight against things that are wrong. A lot of people at AIG lost their life savings. They spent year after year building the greatest insurance company in history and we owe it to them to fight to help make the company great again and get back some of the value that was lost."

Mr. Greenberg has already got his reputation back. Mr. Spitzer was forced to leave office under shameful circumstances, and his supposedly open-and-shut case against Mr. Greenberg vanished. An SEC complaint was settled without Mr. Greenberg admitting guilt (and in fact denying it vehemently). A jury handed him a victory in a recent trial in which AIG claimed he and Starr International had improperly come by Starr's large holding in AIG stock.

But he's got at least one more battle to fight. As he points out with unimpeachable accuracy, politicians in Washington may hope the AIG situation will somehow take care of itself, but it won't. Sooner or later, the government will either have to give the firm its life back or pull the plug.

Mr. Jenkins writes the Journal's Business World column.

3)The Jobs Recession


Economy: Most economists agree the U.S. left its recession sometime last summer. Yet with each passing month, the employment news remains grim. Looks like we're in a jobless recovery.

The December job numbers released Friday were of little comfort. True, November's payroll loss was revised upward to show a minuscule gain of 4,000 jobs. But December's loss of 85,000 was about twice what Wall Street expected, and the unemployment rate remained at 10%.

For key groups, the news is far worse. Teens, for instance, suffer a 27% unemployment rate. If you're a construction worker, it's little better — one in four workers in that industry are without work.

Overall, those "underemployed" — lacking either a job or not working full time when they would like to — now stands above 17%. Also last month, emergency filings for jobless benefits surged 43% nationwide — a scary statistic if ever there was one.
Since the start of the recession in December 2007, we've seen eight million jobs disappear — four million in the last year alone. The last decade was the first in memory to show no job growth at all — and that includes the Great Depression decade of the 1930s.

It's not for nothing the National Association of Business Economics now calls the recent downturn the "Great Recession." It fits.
House Speaker Nancy Pelosi last month said Democrats will measure their success by "jobs, jobs, jobs." So far, things aren't working out. It may be, as some economists believe, that job growth will resume soon. But the bar is a bit higher than many suppose.

Each month, the U.S. adds 110,000 to 140,000 new employees to the work force. Monthly job growth, therefore, must average more than 100,000 just to stay even. And even at that pace, it'll take six years just to get back to the number of jobs the U.S. had in 2007.

Last February, after the Congress and President Obama triumphantly passed their $787 billion stimulus program, we were told it would mean 3.5 million new jobs over two years. Unless something unforeseeably dramatic happens, there's no way that will occur.

Yet there was Obama on Friday, doubling down, getting serious one more time about jobs, jobs, jobs. His answer? More stimulus funding for clean technology manufacturing.

That might be funny if people weren't hurting so much already from the administration's focus on government make-work. For the record, every program the government put in place in 2009 has failed. Yet, we keep doing the same thing, at a cost of literally trillions of dollars. This is madness to the nth power.
The real reason for the dearth of jobs isn't, as some suggest, "insufficient stimulus." It's that small businesses, the real job creators in our economy, are scared half to death of what may come next.

With expectations the Bush tax cuts will soon expire, and the possibility of a raft of new taxes on businesses ranging from cap-and-trade to health care, businesses have stopped investing and hiring. There's only one answer to our crisis: Taxes must be cut, spending must be slashed and the regulatory siege on business must end.
Sure, we may get some positive GDP growth in coming quarters. The fourth may see growth of 4% or better. But without jobs, it won't be meaningful to most Americans.
Since 2006, when Democrats retook Congress, the economy has crashed as the party has made mistake after mistake.

All that's left after the $3 trillion already spent by Congress, the Fed and the Treasury on "stimulus" and other foolishness is a sprawling, sloppy leviathan of government, consuming trillions yet unable to stop a lone terrorist from boarding an airplane.

This is not an era of hope and change, but a time of almost unimaginable policy incompetence. If Democrats don't reverse course, and soon, never mind a jobless recovery — we may lapse back into recession. And for that, voters will be very unforgiving.

2a)Time for Geithner's Accountability Moment
By John Nichols

If Secretary of the Treasury Timothy Geithner abused his former position with the Federal Reserve Bank of New York to encourage the American International Group (AIG) to conceal essential information regarding inappropriate activities from the Securities and Exchange Commission, Geithner should not merely be removed from his Cabinet position. He should be prosecuted.

There are serious suggestions that Geithner may have urged AIG officials to hide controversial and perhaps illegitimate payments that were made using taxpayer dollars. As Congressman Darrell Issa, R-California, says "Inadvertent reporting errors are one thing. Directing a bailed-out company to withhold crucial information from a government agency in order to keep the American public in the dark is another."

There is mounting evidence that Geithner engaged in precisely the sort of behavior he is supposed to be regulating – and preventing. If he has engaged in it, then the treasury secretary is entirely without credibility.

Issa says, "Secretary Timothy Geithner needs to start giving some answers."

That's right. And it should not just be Republicans who are asking the questions. Wise Democrats, including Oregon Congressman Peter DeFazio and Washington Senator Maria Cantwell, have been in the forefront of demanding full accountability from Geithner.

Their message must become the message of party's congressional caucuses.

The White House, which put the wrong man in the wrong job at the wrong time, may try to defend Geithner. Congressional Democrats should not.

If the Treasury Secretary cannot answer the questions that have now been raised in an entirely satisfactory manner, Geithner should be removed from his position. Then, if the wrongdoing merits, he should be prosecuted.


3a)Bubble warning
From The Economist


Markets are too dependent on unsustainable government stimulus. Something’s got to give


THE effect of free money is remarkable. A year ago investors were panicking and there was talk of another Depression. Now the MSCI world index of global share prices is more than 70% higher than its low in March 2009. That’s largely thanks to interest rates of 1% or less in America, Japan, Britain and the euro zone, which have persuaded investors to take their money out of cash and to buy risky assets.

For all the panic last year, asset values never quite reached the lows that marked other bear-market bottoms, and now the rally has made several markets look pricey again. In the American housing market, where the crisis started, homes are priced at around fair value on the basis of rental yields, but they are overvalued by almost 30% in Britain and by 50% in Australia, Hong Kong and Spain.

Stockmarkets are still shy of their record peaks in most countries. The American market is around 25% below the level it reached in 2007. But it is still nearly 50% overvalued on the best long-term measure, which adjusts profits to allow for the economic cycle, and is on a par with two of the four great valuation peaks in the 20th century, in 1901 and 1966.

Central banks see these market rallies as a welcome side- effect of their policies. In 2008, falling markets caused a vicious circle of debt defaults and fire sales by investors, pushing asset prices down even further. The market rebound was necessary to stabilise economies last year, but now there is a danger that bubbles are being created.

Forever blowing bubbles?

Aside from high asset valuations, the two classic symptoms of a bubble are rapid growth in private-sector credit and an outbreak of public enthusiasm for particular assets. There’s no sign of either of those. But the longer the world keeps its interest rates close to zero, the greater the danger that bubbles will appear—most likely in emerging markets, where growth keeps investors optimistic and currency pegs import loose monetary policy, and in commodities.

Central banks have a range of tools they can use to discourage the growth of bubbles. Forcing banks to adopt higher capital ratios may curb speculative excesses. As Ben Bernanke, chairman of the Federal Reserve, argued this week, the rise in American house prices could have been limited through better regulation of the banks. The most powerful tool, of course, is the interest rate. But central banks are wary of using it to pop bubbles because it risks crushing growth as well. And, with the world economy in its current fragile state, they are rightly unwilling to jack up interest rates now.

But even if governments judge that the risks posed by raising rates now outweighs that of keeping them low, investors still have plenty of reasons to worry. The problem for them is not just that valuations look high by historic standards. It is also that the current combination of high asset prices, low interest rates and massive fiscal deficits is unsustainable.

Interest rates will stay low only if growth remains slow. But if economies grow slowly, then profits will not rise fast enough to justify current share prices and incomes will not rise far enough to justify the prevailing level of house prices. If, on the other hand, the markets are right about the prospects for economic growth, and the current recovery is sustained, then governments will react by cutting off the supply of cheap money later this year.

It doesn’t add up

But the more immediate risks may be posed by fiscal policy. Many governments responded to the crisis by, in effect, taking the debt burden off the private sector’s balance-sheets and putting it on their own. This caused a huge gap to open up in government finances. Deficits in America and Britain, for instance, stand at more than 10% of GDP.

Most developed-country governments have managed to finance these deficits fairly easily so far. In the early stages of the crisis, investors were happy to opt for the safety of government bonds. Then central banks resorted to quantitative easing (QE), a polite term for the creation of money. The Bank of England, for example, has bought the equivalent of one year’s entire fiscal deficit. There are signs, however, that private-sector investors’ appetite for government debt may be just about sated, as they contemplate the vast amount of government bonds that are due to be issued this year and the ending of QE programmes. The yields on ten-year Treasury bonds and British gilts have both risen by more than half a percentage point since late November.

Investors (along with this newspaper) would like to see governments unveil clear plans for reducing those deficits over the medium term, with the emphasis on spending cuts rather than tax increases. But politicians are nervous about the likely reaction of electorates, not to mention the short-term economic impact of fiscal tightening, and are proving reluctant to specify where the cuts will be made.

Markets have already tested the ability of the weakest governments to bear the burden of their debt. Dubai had to turn to its wealthy neighbour, Abu Dhabi, for help. In the euro zone, doubts have been raised about the willingness of Greece to push through the required austerity measures. Electorates are likely to chafe at the cost of bringing down government deficits, especially if the main result is to repay foreign creditors. That will lead to currency crises and cross-border disputes like the current spat between Iceland, Britain and the Netherlands over the bill for compensating depositors in Icelandic banks (see article). Such disputes will lead to further outbreaks of market volatility.

Investors tempted to take comfort from the fact that asset prices are still below their peaks would do well to remember that they may yet fall back a very long way. The Japanese stock market still trades at a quarter of the high it reached 20 years ago. The NASDAQ trades at half the level it reached during dotcom mania. Today the prices of many assets are being held up by unsustainable fiscal.

4)Is Gruber the Armstrong Williams of the Obama administration?posted at 9:25 am on By Ed Morrissey

When it turned out that Armstrong Williams took money from the Bush administration to espouse its education policies in his columns, a torrent of condemnations resulted for his failure to disclose his financial relationship with the White House. That scorn came from both Left and Right, including myself, and I made the point that government-paid shills hiding in the media amounted to a propaganda campaign that Americans should never tolerate.

But what if the propaganda artist didn’t just hide in the media, but also in government statements supporting its policies? Last night Allahpundit noted that MIT economics professor Jonathan Gruber made media rounds to espouse ObamaCare without ever mentioning to reporters that he was getting a cool $300K from the administration for the kind of work normally done by the Centers for Medicare and Medicaid Services (CMS) . As it turns out, the OMB didn’t see him much as a competitor, as Megan McArdle reports at The Atlantic. They posted his supportive quotes without any indication that Gruber was a paid consultant, instead casting his statements as independent analysis:

The standard is even higher for people who are taking public funds, and not only Professor Gruber, but the administration had a responsibility to disclose the relationship. Yet a post on the OMB blog signed by Peter Orszag cited Brownstein’s Gruber quotes without mentioning the relationship.

Not only did Orszag tout Gruber on his blog, but he also touted Gruber to other reporters while scolding them for their skepticism over ObamaCare. The Hill reported this six weeks ago, when Orszag griped about “loosey-goosey” criticism of the Senate’s bill just before Thanksgiving:

“The folks who have done that kind of reporting come to a much different conclusion instead of a kind of ‘loosey goosey, let’s talk about things in the air instead of what’s in the legislation,’” Orszag said. …
Orszag’s push back against the GOP attacks came ahead of next week’s Senate debate on the healthcare bill.

Orszag touted the praise for the bill from health economists in academia, a former Congressional Budget Office director and economists who worked in President George W. Bush’s administration. The health experts were all cited in recent stories by The Atlantic’s Ron Brownstein and the Times’ David Leonhardt.

In Brownstein’s story, Jonathan Gruber, an economist at the Massachusetts Institute of Technology, said he had been a skeptic of past health reform bills but that he found the latest Senate legislation to be the “best effort anyone has ever made” at reining in costs.

And speaking of Orszag, did anyone notice that Gruber’s CV shows four separate papers the two have written together? Could that be the reason why Gruber won this consulting contract with HHS, which duplicates work that taxpayers already fund by the CMS, on a no-bid contract? The rationale from HHS is:
Dr. Gruber is uniquely positioned to provide the analytic work ASPE requires based on over 15 years of experience in health care and health policy. Dr. Gruber is a recognized expert in health policy in economics including being widely published in peer-reviewed academic and health policy literature on the effects of changes in health benefit designs on the cost of enrollment in health insurance. Moreover, in order to estimate the impacts, Dr. Gruber developed a proprietary statistically sophisticated micro-simulation model that has the flexibility to ascertain the distribution of changes in health care spending and public and private sector health care costs due to a large variety of changes in health insurance benefit design, public program eligibility criteria, and tax policy. This model has been used for other health reform proposal. Finally, Dr. Gruber’s ongoing work with ASPE, using these proprietary models to help inform the Office of Health Reform, strongly positions him to meet HHS’ requirements the most efficiently, which is a key requirement in order for well-developed legislative proposals to be put forth for Congressional consideration as soon as possible.

Apparently, no other economist in the US has ever studied health-care costs in depth, according to HHS. Or, perhaps as likely, Orszag arranged a $300K no-bid contract for a buddy, then hid the relationship in order to promote him as an independent voice that just so happened to support administration policy.
Heads should roll for this, and Orszag’s should be the first, and that’s not just because he’s managed to screw up for the entire year. This is not incompetence —
it’s corruption.

Update: That wasn’t Gruber’s only federal contract, either. Gruber had a $284,000 project with NIH to study Medicare Part D, a follow-on from a 2008 contract on the same topic.

Update II: The work done by Gruber is normally done by CMS, not OMB; I’ve corrected it above. It’s worth noting that CMS had a different opinion about ObamaCare than Gruber did.

Update III: Tom Maguire looks at faux disclosure at the New York Times.

5) A son, who was a famous physician, was preparing to operate on his father. The fater was nervous so he said to the son: Remember if things don't go well your mother is coming to live with you and your wife.

Doctor Bloom who was known for miraculous cures for
arthritis had a waiting room full of people when a little old lady,
completely bent over in half, shuffled in slowly, leaning on her cane .
When her turn came, she went into the doctor's office, and, amazingly,
emerged within half an hour walking completely erect with her head held high .
A woman in the waiting room who had seen all this walked
up to the little old lady and said, "It's a miracle! You walked in bent in
half and now you're walking erect . . What did that doctor do?"
She answered, "Miracle, shmiracle ... . . he gave me a longer cane."


Morris returns from a long business trip and learns his wife has been
unfaithful during his time away. "Who was it!!!???" he yells . "That alta kakker Goldstein?"
"No," replied his wife . "It wasn't Goldstein . " "Was it Feldman, that dirty old man?"
"No, not him . " "Aha! Then it must have been that idiot Rabinovich!"
"No, it wasn't Rabinovich either . . . " Morris was now fuming . "What's the matter?" he cried. "None of my friends are good enough for you?"


6)New Year. Your tax bill just went way up.
By STEPHEN MOORE

When the clock hit midnight on Jan. 1, some 70 new taxes on the middle class and small businesses went into effect, thanks to Congress's failure to prevent the expiration of popular and economically vital tax breaks on time. So some 25 million middle class Americans are now slated to get hit with the alternative minimum tax (AMT) this year. Remember: This is the tax that was originally supposed to only hit the richest 100 Americans.

This year, the alternative minimum tax will gather $63 billion from American families with an income of as little as $75,000, according to the Senate Finance Committee. The AMT may now hit tax filers who are school teachers, construction workers and bus drivers. Call them the new rich.

The middle class will get soaked other ways, too. The new home buyer tax credit goes away. That will hit working families with a $10.8 billion tab. The tax deduction for state and local taxes also disappears, so shoppers of all incomes will cough up $1.85 billion more.

Got a kid in college? The federal tax deduction for college tuition and fees has disappeared. That's another $1.5 billion tax hike on the nonrich.

The nation's employers are none too happy either with Congress's failure to extend these tax cuts before the New Year. The research tax credit, which businesses depend on for new innovation and R&D, has been suspended. This will raise R&D costs by more than $7 billion in 2010.

The 50% write-off for small businesses for capital purchases—such as expanding their facilities, purchasing new equipment or machinery, or building a new plant—has vanished. Without those tax incentives, small businesses are likely to put any plans to expand their operations on hold. That means less jobs and fewer pay raises. A study by the National Center for Policy Analysis found that about 90% of the benefits from capital investment goes to workers in the form of higher wages due to increased productivity.

But the biggest debacle is the estate tax. On Jan. 1 it fell to zero for the year, and then in 2011 it goes back up to 55%. Estate tax attorneys are full of stories of wealthy heirs with living wills that ask their dependents to take account of the estate tax when determining when to pull the plug on the life support system. Don't be surprised if death rates of wealthy Americans rises substantially this year.

Sen. Max Baucus has vowed to raise the estate tax back to between 35% and 55% this year, and to make that change retroactive to Jan. 1.

But this will be of questionable constitutionality. Can Congress impose a new estate tax, say in April, on someone who was already dead and buried in February? Let's hope not.

Sometime within the next few months Congress promises that it will enact a new tax law to reinstate many of the tax breaks that have expired. It's highly doubtful that in an election year this Congress is going to hit 25 million Americans with a surprise AMT bill. But where is House Speaker Nancy Pelosi going to find the $63 billion in revenues to "pay for" that tax cut is anyone's guess.

What no one in Congress seems to understand is that there is a very real economic cost to constantly tinkering with the tax laws. Uncertainty is the enemy of investment. Do businesses want to make major investment decisions based on congressional promises of a future tax break? Likely not. So right now millions of businesses and tens of millions of individual tax filers are stranded in a tax purgatory.

All of this only makes the case stronger for a simple flat-rate income tax with a low rate below 20%, no deductions and no double taxation (i.e. the termination of the death tax forever). The tax rules should be simple, nonintrusive, pro-growth, and set in stone.

Congress's failure to settle the tax laws for 2010 is an unforgivable dereliction of duty. The federal government isn't so understanding when American citizens are late paying their taxes: The IRS imposes strict civil fines and even criminal penalties. We should hold Congress to the same standards.

Mr. Moore is senior economics writer for The Wall Street Journal.