Other People’s Money
August 25, 2012
On the eve of the Republican Convention in Tampa, I keep thinking back to the movie, “Other People’s Money” which starred Danny DeVito in the role of “Larry the Liquidator.”
Larry was a Vulture Capitalist who was noted for buying up under-valued firms; then breaking them up into component parts; selling off the parts; and making lots of money for himself and his partners.
In this scene from the movie, the essence of the dilemma emerges: http://www.youtube.com/watch?v=p7rvupKipmY
Gregory Peck as the current executive in charge of New England Wire and Cable is immersed in a critical vote at the company’s annual meeting which could allow Larry and his Vulture Capital Firm to take control of the company, which would result in closing down the company and putting hundreds of people out of work. Permanently.
New England Wire and Cable was modeled on the many indigenous American family-owned small manufacturing companies which took root in New England in the 19th century. The inspiration for the theme of Other People’s Money was a real company in Seymour, CT which went through a fatal and permanent intervention by some Venture Capital Pirates around 1990.
Back in the Golden Age of Pirates (approx. 1650s to the 1730s), the pirates were self-declared. They typically didn’t dress up in suits, fly in private aircraft, or ride in chauffeured black cars. Today’s pirates operate openly in daylight; they pay taxes (albeit at greatly reduced rates vs. regular working people); and many own multiple mansions in delightful places around the world.
I imagine a shortened version of Other People’s Money (Part 1) where the name of Larry’s firm was changed to “Brain Capital.”
Then, I envision Part 2 as a take-off which is focused on ‘off-shore blocker’ strategies where the principals of Brain Capital explain their strategies:
http://news.yahoo.com/bain-documents-romney-offshore-investments-used-blockers-avoid-185957445–abc-news-topstories.html
Part 3 of the series could contrast one or more successful U.S. entrepreneur(s) who have invested their own money into a business that manufactures some product and where 50 to 500 people work full-time at decent wages with benefits, against a principal from Brain Capital. Part 3 would contrast the effective tax rate (and amounts paid) by the actual entrepreneur and all of the employees (year after year) vs. the tax rate (and amount paid) by the Vulture Capitalist in the current year. Don’t forget: once the Vulture Capitalist liquidates the company, there will be no further jobs; no further purchases; and no further local property tax, sales tax or income tax collections.
Part 4 of the series could be a lesson on the multiplier effect of all of those employees; the goods and services purchased by the manufacturing company; and so forth, vs. the absolute finality of the liquidation of a struggling but operating business.
To a great degree, the contrast between a real American entrepreneur and a Vulture Capitalist is very similar to the contrast between hard-core, tea-party conservatives and main-stream Democrats (plus what some might call ‘Centrist Republicans’).
The hard-core Right seems to be laser-focused on reversion to a society and economy that mirrors Medieval Europe and Feudalism, where the majority of main-stream residents in the U.S. seem to continue to favor the more egalitarian approach on which the United States was founded and has operated until very recently.
Through some very clever sound bites and an inordinate amount of attention on trivial but emotionally engaging issues, Tea-Party conservatives have polarized our society in an unprecedented way.
Best example of this would be Obama-care — which was inspired by the health care reforms enacted in Massachusetts under the leadership of former Gov. Mitt Romney.
Obama-care is not a perfect solution — primarily due to the amount of compromise that was required to get it passed — but the majority of experts tell us that it is a significant move in a positive direction.
Yet, there are a number of elected officials (and their disciples) — ‘Hard-Core Right’ — who continue to hammer on REPEAL!
What are their reasons, what are their real objections? Here is a synopsis: http://theamericandrivein.com/2010/11/21/why-repeal-obamacare/
As Jon Stewart may have already said — while stamping his feet and whining: “Just because!”
Special Education Problems We Aren’t Solving
July 23, 2012
In the New York Times on July 23, 2012, Laura Klein posted a very provacactive and strong op-ed piece on the failures of special education programs in NYC.
While I absolutely agree with Ms. Klein, I have some additional thoughts I want to share.
Our current K-12 education model was really conceived around an agrarian society and has not been updated (in New York State) since 1907, or so.
Many changes have occurred in our economy and society since then, with accelerated change beginning in the 1960’s.
Today, even in “traditional” 2-parent households, it is quite unusual to find only one parent in the workforce, and that poses a challenge where the K-12 model is 8 AM to 3 PM, and the workplace model is 8 AM to 5 PM.
Now, factor in the growing number of single parent households in America.
If we look back to 1965, we find that about 10 percent of American children lived in single parent households.
In 2011, the Organization for Economic Cooperation and Development (OECD) conducted an exhaustive study looking at changes in family structure in 27 industrialized countries.
That OECD study found that in the U.S., about 26% of children were being raised by a single parent, compared with an average of 15% across the other countries.
More telling: 72% of African-American children today grow up in a single parent household.
In the larger picture, females constitute about 83% of the total number of single parents, and single fathers around 17%, and years of evidence tell us that – although the wage gap has narrowed over time – today’s women earn 77.4 cents for every dollar earned by men.
Extensive research in child development over the past several decades has confirmed that the early years (birth to age 8) form the foundation for a full range of human competencies and are the time when young people are most receptive to the effects of both positive and negative experiences.
Researchers have identified several risk factors which – when present – predict adverse outcomes for children, and when absent (or carefully mitigated) can reduce or eliminate the long-term probability of negative outcomes for children, which include reduced economic success and lower quality of life in adulthood.
The single most predictive risk factor is poverty, which is often accompanied by limited parental education achievement; parental mental health problems; social isolation or neglect; and living in an environment where crime and violence regularly occurs.
Two widely-cited intervention programs, the Perry Preschool Program and the Abecedarian Program, used randomized child assignment and long-term follow up to study the effects of early interventions on social behaviors of severely disadvantaged children.
In both the Perry and Abecedarian Programs, there was a consistent pattern of successful outcomes for the children in the program compared with control group members.
Participants in the more intense Abecedarian Program had an increase in IQ which persisted into adulthood. This early and continued increase in IQ is important because IQ is a strong predictor of socio-economic success.
Effects of these interventions also reflected a wide range of positive social behaviors, including higher scores on achievement tests; achieving higher levels of education; the need for less special education intervention; placement into higher wage jobs; more likely to own a home; and less likely to go on welfare or be incarcerated (when compared to individuals from the control groups).
Many studies have shown that these aspects of behavior translate directly or indirectly into high economic returns.
One economist (Heckman) has estimated the rate of return (the return per dollar of cost) to the Perry Program is in excess of 17%, which is clearly higher than long-term returns on stock market equity and suggests that society at large can benefit substantially from these kinds of interventions.
It is my contention that investing in high-quality early education programs which are both reflective of the economic realities of today (read: 7 AM to 7 PM) and fully articulated with public schools and the expectations of kindergarten readiness will rapidly change the paradigm noted in Ms. Klein’s essay, and will also create a long term benefit to the U.S. economy.
If we continue to push children along through the K-12 system ill-prepared for future workforce opportunities, we will continue to wring our hands and despair that jobs are moving overseas.
In early July 2012, our national unemployment number came in at 8.2%, yet there were some 3 Million private sector jobs open and unfilled.
Why?
Jobs are open and unfilled for a number of reasons, often related to labor mobility and/or experience and training. A poorly educated individual is just not a good candidate to help bolster our domestic economy, and that is a tragic waste of our limited resources.
If even some of the research on the importance and economic return for investing in quality early childhood education is true, then why aren’t we demanding that our public school systems re-engineer themselves to address our 21st century economy?
Elected Officials
July 10, 2012
Back in 1776, our founding fathers felt that it was a good idea to have elected officials represent their constituents to do “the work of the people”.
There have been a number of transformational changes which have occurred over the last 236 years in our society, our economy and in technology.
Yet, we have not really stopped for a strategic planning session to see if our Federal (State & Local) governments are structured to meet the demands and needs of our current global society.
Is anyone else thinking that it might be time for some re-engineering in how our public sector is configured to give us optimum results at the most reasonable cost?
US Unemployment
July 8, 2012
There are so many ‘experts’ weighing in on the US unemployment rate, I find it’s increasingly hard to find thoughtful and objective opinions.
I feel that our domestic economy is doing pretty well, and that the White House has been more or less on-point, given the limitations imposed by folks like John Boehner and Eric Cantor.
The unemployment numbers released on July 6 painted a dismal picture to some, yet the facts reveal that some jobs have been created in the private sector each month since President Obama took office.
There are 2 issues no one seems to focus on. (1) Gross over-employment in the public sector, and (2) the 3+ million private sector job openings that are currently open and unfilled.
Jobs are open and unfilled for a number of reasons, often related to labor mobility and/or experience and training. (For example, a skilled manufacturing job in Raliegh would not be a good fit for a high school dropout living in Buffalo.)
Unemployment trends from April 2008 (@ 5%) to October 2009 (@ 10%), reflect that it took just 18 months for unemployment to double.
Who should we blame for that?
Since late 2009, we’ve seen a gentle but persistent upward trend in the overall employment rate, and during that time period the elusive cluster of unfilled job openings has grown steadily from around 2.6 million in 2009 to around 3.2 million today.
Following the release of June 2012 employment numbers, Governor Romney was heard to say this from the helm of his yacht on Lake Winnipesaukee, “The president’s policies have not gotten America working again, and the president is going to have to stand up and take responsibility for it.”
It is this sort of bad behavior that creates enough of a distraction to shield the real issues from the people.
A lot of blather with no constructive suggestions on how to move forward in a positive fashion, and a seeming unwillingness to look critically at the whole story.
This is very sad coming from a fellow who purports to be a leader.
Trouble in Paradise?
May 13, 2012
At an aggregate level, the population of Westchester County, New York is reasonably diverse: racially, religiously and economically. Get down to the details, and you will find classically segregated neighborhoods, towns and schools. There have been several attempts to break this socio-economic logjam, most recently a landmark consent decree between the U.S. Department of Housing and Urban Development and Westchester County signed in 2009.
It is now May 2012, and Westchester County is in trouble. The County is in trouble with the U.S. Department of Housing and Urban Development because of some alleged oversights in how the County managed federal CDBG funds. U.S. District Court Judge Denise Cote has ruled that Westchester County Executive Robert Astorino is required to promote ‘source of income legislation’, which would prohibit discrimination against tenants using Section 8, disability income or other government income to pay rent.
Mr. Astorino vetoed the legislation in 2010 and that veto was one of several matters the monitor assigned to the case was asked to rule by U.S. Department of Housing and Urban Development. The monitor sided with HUD but the county appealed that decision.
U.S. District Court Justice Cote said in her most recent ruling, “Under no reasonable understanding of the term can the County Executive be said to have discharged the obligation to promote source-of income legislation when he vetoed the legislation. The veto was an unambiguous breach of the duty to promote…The County Executive’s action constituted the very opposite of what was required under the Settlement, and placed the County in breach.”
County Executive Astorino has vowed to fight the federal government because – despite the written agreement and the court affirmation of his duties under the settlement – he says that he believes he is right.
HUD is withholding federal funding from the County until the County is in compliance with the settlement, an amount that has now reached $12 Million combined for 2011 and 2012, all because of this seemingly foolish ongoing legal stalemate.
Most unfortunate: The withheld money is for affordable housing; new sidewalks; and nonprofits including A-Home ($30,000); Westchester Residential Opportunities ($145,000); and the Housing Action Council ($120,000); each of which is working closely with Westchester County to meet its obligations under the settlement.
It is also money for homelessness prevention; scholarships for disadvantaged youth; summer evening programs for teens; and a medical van for seniors. It adversely affects communities that aren’t even part of the settlement.
The U.S. Department of Housing and Urban Development invests a great deal of time and resources each year to ensure that eligibility for various housing-related subsidies is carefully indexed to local markets.
In Westchester County, HUD defines a 2 person household as “low-income” if their gross annual household income is $58,250 or less. That is almost 400% of the Federal Poverty level.
One of the HUD programs available to low-income residents in Westchester County is the “Housing Choice Voucher Program” (a.k.a ‘Section 8’) which assists low-income households by limiting their contribution to their monthly housing expense to 30% of their gross monthly income. There are 17 Section 8 program offices in Westchester County. Each office is an independent program with its own waiting list for assistance, program guidelines and areas of assistance. The availability of apartments which accept Section 8 assistance for renters is limited due to the lack of non-discriminatory ‘source of income’ requirements for landlords.
Westchester County is also in trouble because it is planning to increase the amount that lower income working parents are required to pay for subsidized child care. Westchester County’s plan to increase this share from 20% to 35% of “above-poverty income” will severely and negatively affect many households which are already struggling with the high costs of housing and transportation. Safe, affordable and quality early learning is a societal mandate if we are to have a productive workforce today, and for the future.
We know from 2010 Census data that 30% of Black (or African American) households were headed by a female householder, no spouse present, three times as high as White alone households (9.9 percent), and the “majority of female family households with no spouse present contained own children of the householder…”
2010 Census data for Westchester County tells us that 36.9% of households headed by a single female with children under 5 years are living at or below the federal poverty level.
For a 2-person household, the 2012 definition of living at 100% of the Federal Poverty level anywhere in the continental U.S. is an annual income of $15,130. (Note the disparity between this definition of poverty, and HUD’s definition of “low-income” at $58,250 or less.)
Some will say that there is no connection or correlation between the housing case and the child care subsidy case.
What I see here are two seemingly unrelated actions which will have disparate negative impact on people of color, particularly single female heads of household.
This sort of behavior by an elected official is not only wrong, it seems to be a clear violation of the purpose and intent of federal and state anti-discrimination laws.
Our Congressional Representatives
February 12, 2012
Our U.S. economy is still shaky. A payroll tax cut was enacted to help increase the spending power of middle-class Americans, and it is due to expire at the end of February.
Class action lawsuits and medical malpractice lawsuits have driven up costs across our health care system, and could potentially be ameliorated through comprehensive tort reform.
There are dozens – probably hundreds – of serious domestic issues that our Congress could be working on.
Instead, they are currently focused on contraception.
Let’s set the record straight: Members of Congress who seek to limit the availability of affordable birth control all enjoy contraception insurance as part of the government managed Federal Employees Health Benefits (FEHB).
This benefit has been in place since 1998, and it “…ensures that federal employees participating in FEHB have insurance coverage of FDA-approved prescription contraceptives and related services.”
Former U.S. Senator Rick Santorum told an audience at the Conservative Political Action Conference (CPAC) on February 10 that ‘insurance plans shouldn’t cover contraception services because birth control “costs a few dollars” and is only a “minor expense” for women.’
Good to know.
In my job – in my life – I am forced to prioritize my time and my efforts. Wouldn’t it be nice if I could spend all my time focused on minor issues that I think are “fun”?
That seems to be what our leaders in Congress are all about these days.
To paraphrase an old fable, “Rome is burning while our Congressional leaders are fiddling.”
We pay each and every member of Congress a base annual salary of $174,000, plus deluxe health care and pension benefits, and perks for things like travel and mail. There are various stipends for leadership roles as committee chairs, majority leader, minority leader, etc.
Most recent estimates of the total annual costs of our federal legislative body – Senate and House of Representatives — are in the $5 Billion range.
Now, some might point out that spending for the House and Senate, which includes salaries, mailings, and committee expenses, represents only .07 percent of total federal spending. The entire legislative branch includes additional expenses for the Government Accountability Office, the Congressional Budget Office, the Library of Congress, and some other functions.
That seems like a really good deal — if we are getting focus on critical issues and real results.
There are some – including voters, political scientists and lawmakers themselves– who have said that the 112th Congress (which convened on January 3, 2011) was our worst ever.
The 2011 session began with a House vote to repeal President Obama’s health-care law and ended with a flip-flop over the 60-day tax-cut extender — with detours in between for the two parties to flirt with shutting down the government, jeopardize the nation’s credit and various assorted legislative mayhem.
As a citizen, a taxpayer and a voter, I don’t much care what political party a person claims as their own.
What I do care about is: When they run for public office and get elected, our representatives put aside their personal agendas and work for the best long-term interests of our country.
Is that too much to ask for?
Class Action Law Suits
February 6, 2012
Class Action Lawsuits really frost my windshield.
In November 2011, Senior U.S. District Judge James King approved a $410 Million settlement against Bank of America in a class action suit which alleged that the bank overcharged debit card users for overdraft fees.
It all sounds good and just – those greedy blood sucking banks! — until you get to the news that the Judge set fees for the class counsel at about $123 Million.
That is 30% of the award.
Maybe the bank was bad, and it really needed to be punished and to refund some excessive fees that were charged to customers.
But, for this law firm to step in and take $123 Million off the top? What in the world did they do to earn $123 Million? And how does this help any consumers who may have been victimized?
I’ve been waiting for the news on who will be litigating against that law firm for Piracy and Pillage! Haven’t heard anything yet, but I’m sure one of the other Class Action Conquistadores will step forward soon?
I recently was the beneficiary personally from a class action suit against an insurance company for some transgression that I don’t think really happened. Pretty sure I didn’t get any monetary benefit, maybe a coupon for a 10% discount on future premiums?
I do recall that the class action law firm received a 7 figure payout — not in coupons, but in real dollars!
Who pays for that? We do.
Over the years, I’ve read about proposals in Congress around “Tort Reform”.
I’ve read that some of the spiraling costs in our health care industry are in large part related to fear of litigation.
The Congressional Budget Office recently found that reforming the medical malpractice insurance system, a.k.a. “med-mal reform” — a.k.a. ‘tort reform’ — could save $54 billion over 10 years.
Other estimates are higher.
David Kendall, a senior fellow with Third Way, an independent ‘think tank’ recently said, “We found that roughly, between $92 to $207 billion dollars per year can be saved from reducing defensive medicine.”
My call: We are missing some real opportunities to reform our legal system and to save huge amounts in our health care system due to a continuing battle between Red and Blue.
Yet, if we look back in history, we would find that the Civil War was decided long ago.
Isn’t it time for each and all of us to find ways to find common ground and work together for the common good?
ObamaCare?
February 1, 2012
Members of Congress have the Cadillac health insurance plan.
Why should we expect them to understand the plight of average Americans?
When things got ugly in France, Marie Antoinette said, “Let them eat cake.”
What people didn’t grasp back then was that Marie wasn’t being mean or sarcastic, she just didn’t know.
She was so disconnected, she had no clue what it was like to be a peasant in France at the end of the 18th Century. In fact, some historians believe that something may have been lost in the translation, and that Marie wasn’t referring to what we today think of as cake, at all.
Even so…
My sense is that most of those sitting in Congress today are so disconnected that they have no clue what it is to be a regular American at the beginning of the 21st Century.
So, we need to give them a break, stop the rhetoric, and come up with a plan to help inform those who have the power that we — the people who are getting jerked around — are just not happy with the fat cats working in the private insurance industry who travel in their private jets and chauffeured black cars while denying us health care; that we are not happy with our Congresspeople and other ‘government workers’ — who now make up around 30% of the workforce — and who have lifetime benefits.
We are not happy because the rest of us — the 70% who work in the private sector — are getting screwed.
Some of us have been working as virtual slaves to a corporation which recently determined that health care coverage for retirees was too much of a burden for them to shoulder.
Or worse, the company declared bankruptcy or closed down, leaving workers and retirees with nothing other than bad memories.
Others of us were counting on some sort of group plan that has now disappeared.
We need access to a group health plan that spreads the risks and the costs across a broad cross section of the population.
If we take this to the extreme, let’s take a peek at K-12 public education, which is typically funded with property taxes, levied on all property owners whether they have children or not, and whether they send their children to public or private schools.
Everyone shares in the cost of public education. Everyone.
Some pay twice: they pay their taxes; then they send their children to private schools. That’s their choice.
With our healthcare system as it stands today, people have no choice. Either you are at the top of the economic pyramid and have the Cadillac plan, or you are uninsured.
Is that a Socialist issue?
Then what about roads? Sewers? Libraries? Public education? How about parks? Sidewalks? Public transportaion?
It seems that the USA may be the last of the economically developed nations to stop and recognize the need for universal health care.
Will this be the very issue that precipitates our demise as a sovereign nation?
Speaker of the House & Keystone XL Pipeline
January 18, 2012
Imagine if Ronald Regan were with us today, and what he might be saying to Speaker Boehner:
“If you seek oil independence, if you seek economic prosperity, if you seek good jobs in the United States: Come here, to this microphone. Mr. Boehner, open your mind! Mr. Boehner, tell us the whole story.”
There is an old saying, ‘…real success comes from good planning, carefully executed’.
The Alaska Pipeline — sometimes known as the “Alyeska Pipeline” – provides an interesting case study.
First proposed in 1968, it took about 6 years of pre-construction activities, including extensive soil surveys; archeological investigations; and significant government oversight and permitting to reach the point where preliminary construction began in 1974.
That pipeline was completed in June 1977, taking just over 3 years.
Despite what seems to have been great planning and very careful execution, there have been a number unfortunate and destructive failures and accidents
From 1977 through 1981, about 27,000 barrels – just over 1 Million gallons – of crude oil leaked from the pipeline at various places due to a variety of failures: accidents; pipe settlement; leaking valves; even sabotage.
http://alyeska-pipe.com/Pipelinefacts/Chronology.html
Running 800 miles across a very complex ecosystem and terrain, the Alaska Pipeline provides a great “cookbook” for what it takes to build a great pipeline that will stand the test of time.
The proposed Keystone XL pipeline, which would run some 1,700 miles from the Canadian border to the Gulf of Mexico, has generated a great deal of controversy, some pro, some against.
Some have claimed that the Keystone 1 pipeline, which began operations in June 2010, had more spills in its first year of operation than any in history – some very minor, some significant, thus creating some reason for reservation about the sponsor and operator itself of Keystone XL.
Others have claimed that the Keystone XL pipeline will be a salvation for the U.S. economy, creating an endless supply of petroleum while also creating thousands of jobs.
There must be some truth on both sides of these arguments, yet it seems we don’t have all of the facts quite yet.
Doesn’t it make sense to give a few more months so that a complete and independent assessment can be completed so that our elected officials and their independent advisors are able to make neutral and informed decisions?
If we leave the decisions to be made in the hands of lobbyists and insiders, will we get an optimum outcome?
Home Rule in a World Economy
December 4, 2011
I live in New York State, often thought of as the land of high taxes and the home of Wall Street.
Current debate in New York has to do with what is called a “millionaire’s tax” which is really just a graduation of income tax rates as incomes rise.
Today, the NYS income tax on a typical New York family is 6.85% on taxable earnings up to $300,000 annually.
The‘surcharge’ starts to kick in when taxable household income for a family exceeds $300,000, causing incremental taxable income over $300,000 subject to NYS Income Tax at a rate of 7.85%, and at $500,000, the marginal rate then rises to 8.97%.
Now let’s take a look at a family in New York State with an annual taxable income of $750,000.
That is about $14,400 per week.
If the “millionaire’s tax’ expires, this family will save about $7,300 at tax time, which equates to $140 per week.
Meanwhile, the Empire State is facing a potential $3.5 Billion deficit in the coming year.
Why would Governor Cuomo not support the extension of this surcharge on the highest earning households?
On another level, one danger of having an uneven income tax landscape in adjacent states is that these highly compensated individuals can easily relocate — note that Greenwich, CT has become the capital of the hedge fund industry; and that downtown Stamford, CT is home to several large investment banking operations (UBS & RBS).
There is currently an effort by the State of Ohio to bring the headquarters operation for Sears from the Chicago area where it’s been forever, to the Columbus area.
Illinois claims they are not in a position to offer hundreds of millions to Sears to retain their operations there; meanwhile, Ohio — with nothing to lose and plenty to gain — is willing to offer a $400 Million incentive package as an inducement to bring 10,000 jobs and all of the ancillary spending that accompanies such an operation.
This news made me stop and think — while our local towns, counties, cities and states are working hard to cannibalize each other, we lose sight of the world economy, and when jobs move overseas, citizens in the U.S. get up in arms, surprised and shocked.
I’m all for ‘home rule’ to a point — but when home rule decisions result in zero sum solutions which have short term benefit (offset by short term loss) to one local region vs. another– accompanied by serious long-term negative impact on our entire nation — we have a flawed public policy that needs immediate attention.
The Walrus thinks it is time to rethink our entire system in the U.S.A. to – hopefully – make it more relevant and competitive in our current world economy…..
walrus51 