Obama and the Powell Doctrine

It's a start.

Colin Powell's complicity in the run up to the Iraq war has never set well with me. He is a soldier's soldier and bucking the chain of command was not in the cards that fateful day in February of 2003. A courageous act like crossing party lines in a moment of attention grabbing honesty did a lot to bring people like me back into the Powell's circle of trust. Now that Powell has gone forward with his endorsement the dynamic of the race continues to change in Obama's favor. As I've been saying the way to win this election is through the Powell doctrine of overwhelming force.

The Powell doctrine in practice.
The Obama campaign has indeed continued to generate the momentum that will build into an overwhelming force come election day. It is fitting that the man who championed the strategy is adding to that wave by jumping party lines and endorsing Obama. Combine the nod from Colin Powell with the ginormous cash hall the campaign raised in September and the force grows. Add in the cascade of endorsements of major newspapers regardless of past political alignment of their editorial boards and the unstoppable nature of the force is apparent. By the time November rolls around an election victory will be inevitable. No matter what crack pot charges are lobbed by Team McCain and regardless of GOP attempts to suppress voter turnout.

Two questions arise from Powell endorsement
Will the McCain attack machine be rendered useless in the wake of Powell's support? If not will the attack dogs raise the question of why a four star general endorsed a terrorist for president?

In an unforeseen twist to the story did Powell just launch himself onto the short list of potential candidates for Secretary of State if Obama is elected? I may be half way to accepting Powell's mea culpa for his disappointing performance during the run up the Iraq war. I'm not sure if his credibility has been restored one hundred percent though. Still even the thought of Powell serving the Obama administration in some other advisory capacity is an intriguing thought. Maybe a role in unwinding the Iraq occupation would be fitting.

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Post Bailout: Thermometers and Barometers

It will take months to really know if the government plan to rescue our sick financial system is a master stroke or dismal failure.  For now any progress in improving the credit markets is not that apparent to the casual observer.   Some of the indicators that signal relief in the credit markets have shown some improvement.  As reported by Calculated Risk some signs of improving liquidity in the credit markets are popping up.  Most notably some spreads like the TED have improved and the yield on treasuries has increased a little.  Paul Krugman seconds the notion that things are happening.

Unfortunately the economic reality that you and I reside in is headed for a slide.  That sinking feeling was amplified by decline in retail sales (reported as a 1.2% decrease) weakening industrial production and the sorry picture painted by the Fed Beige Book.  The question amongst talking heads and economists is not if there is a recession but, how long and how deep the recession will be. I hope Wall Street enjoys their bailout because the rest of us will be hanging on for the rough ride ahead. 

There's a great new podcast from the elitists at NPR called Planet Money.  Check it out, they're doing a good job of disseminating information that is fit for consumption even if you're economically challenged.

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Quest For The Perfect Caging List

As sure as the leaves will fall off the trees this fall the Ohio GOP will strive to find ways to prevent a free and unfettered election process. The plan usually depends on carving out a large group of potential voters and finding a way to divert them into provisional ballot purgatory. As we have seen this year Bob Bennet et al have focused their energy on creating a court enforced caging list. Why spend untold dollars mailing out certified letters in order to identify potential victims of their age old suppression racket? The events of 2008 have given these creeps the perfect backdrop for asking the courts to do the work for them.

The tactics may differ but the strategy is always the same, divert as many potential voters to the confused path of provisional balloting and hope the election is close. Bill Boyarsky sums it up:

Republicans, as they did in 2004, can make massive challenges of voters in Democratic areas, creating confusion and slowing the vote. Challenged voters cast provisional ballots, which are counted later. But in 2004 many potential voters walked away from long lines created by the challenges. Some doubted that their provisional ballots would be counted.

The histrionics over the ACORN voter registrations and the new focus on getting Jennifer Brunner to employ cross matching have provided the poor slobs on the right the latest method to create that special underclass of voters. The key to this year's scheme is getting a court to enforce the tactics. The corollary to the plan is to turn up the heat on the ACORN story by drumming up white fear and relying on law enforcement to legitimize the fear about the group's activity. And yes, I said white fear. There are reports on numerous threats and racial slur laden emails the group has been receiving since the fear has been ratcheted up.

After losing 9-0 in the US Supreme Court the GOP re-modulated faster than the Borg and filed a new challenge with the Ohio Supremes. This latest filing should worry anyone concerned about the real integrity of this election considering the heavy conservative leaning of the Ohio court. A victory for the GOP will enshrine their caging tactic as version 2.0 and keep the tactic alive for future elections. If the SCO sides with Brunner then the chance to see a fair outcome in the Ohio becomes more of a reality. In the end the only real hedge for winning this election is an overwhelming force of support for the Democratic candidate.

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Talk to Krugman's Hand

I'm one of the many Paul Krugman acolytes who is thrilled over his winning the Nobel Prize. I'm an avid reader of his columns, blog and books. I even manage to peruse some of his academic stuff when I'm feelin' wonky. He of course won the prize for his work on international trade patterns and economic geography not the column. Although most of the attention he has received in the popular press is for his regular column in the NYT and the complimentary blog where he has offered scathing reviews of the Prez and his people.

Krugman has been able to train his analytical thought processes and liberal philosophy on the destructive inclinations of Bush era policies and create a narrative for what went wrong in the intervening years of the Bush presidency. He was just on This Week with George S. and was forced to match wits with that well known economic genius George Will. Dr. Krugman somehow managed to rebut Will's assertion that the troubles in the financial markets are attitudinal not systemic.

His brutal honesty in assessing the dismal failures of movement conservatism as exercised through the current occupiers of the administration has made him a lightning rod for the wrath of conservative bloviators. I've lost count of how many times Bill O'Reilly has referred to Krugman as a socialist. I'm sure there will be plenty more howling from right wing pundits that were already reeling from Al Gore's Nobel Prize selection last year.

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Akron Sewer Lease, Vote Maybe

Signs for Issue 8 are appearing all over Akron pleading the passerby to consider the future of our children. The City of Akron's plan to create a scholarship program funded with proceeds from a public infrastructure lease has merit but questions remain on the funding scheme. Will we citizens inherit a plan with sound funding or one that smells like the composting plant in the valley?
Creating a fund for scholarships for Akron residents is an idea that has could be a boon for the city's future. Establishing a realistic baseline for the anticipated sources of funds hasn't been made very clear as of yet. I would feel more confident about the legitimacy of the plan in it's entirety, not just the uses side, if more information on the financing can be revealed. So far the Mayor has painted in broad brush strokes when it comes to the financial structure of the lease plan. I think a finer level of detail other than the current "sewers are worth some money" sloganeering is needed here. I checked the Akron Scholarship Plan website for more information on the mechanics of the funding and what lease would entail. After a read through of the proposed charter amendment I had more questions. Some things that I would like to find out before casting a vote on Issue 8:

What is the Akron Community Fund? I know what it is being portrayed as in the charter language. It's an organization that the Finance Director will contract out the management of the Scholarship Program/Lease Revenue. Will this group actually manage City funds? Isn't the City legally bound to issue a request for bids for this type of service? The fact that the City is using an outside group to manage the program and the fund raises questions on the administrative costs associated with the plan. Will teh contract be for a fixed rate with a not to exceed amount? It should be. Remember less savings equals less scholarship money.

The City will transfer all net proceeds from the lease agreement to Akron Community Fund. Will the lease payment be received up front? Normally lease payments are made annually. Is the City opting to take the net present value of all of the lease payments up front? What rate of return is being considered?

The net proceeds are transferred after all outstanding debt (bonds, notes, loans) is paid off. What is the amount of those obligations? That will lower the net proceeds available for the program. I am guessing the City doesn't have much in the way of outstanding sewer bonds since they raised rates to pay for the CSO projects like Rack 40. Like other sewer systems they probably have some EPA loans and OWDA loans to pay off. That amount of debt is an important piece of the puzzle.

Speaking of capital improvements, I'm still not clear on how these are handled. There is language stating that the lessee must comply with laws and regulations set by the EPA and standards set by the Director of Public Service. There is also language stating that improvements must be approved separately by the City? So who pays for the improvements? Wouldn't the hefty price tag on improving CSO problems scare investors away? The temptation to cut operating costs by shirking environmental laws has to be a plausible risk in leasing to a private operator. What type of oversight will the City maintain over the lessee?

What happens if the city inks a deal that generates a substantially lower amount than the planned $200 million that is being indicated? What is the city fails to attract an interested party because the terms are not favorable to a prospective lessee? What if the trouble in the capital markets scares everyone away? The charter amendment caps rate increases at 3.9% per year based on the current rate adjustment plan in place. The lease deals I've read about have allowed the lessee to raise user fees as they see fit to make the investment worthwhile.

And lastly, will the new operator be willing to do something about the smell out at the City composting facility? Just thought I'd ask.

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Seamore Butts Is Not the Problem

The latest hysteria over fraudulent voter registration cards is an overblown reaction to a minor issue. The stories about bad voter registration cards are hyped as indicators of insidious election fraud coordinated to tilt the election in one candidate's favor. The Plain Dealer and some other media outlets have been in a tailspin recently over problems with a small number of voter registration turned in to Cuyahoga County by ACORN.

A story in the PD about the voter registrations in question describes the situation but finally manages to provide some much needed context as to what is happening in Cuyahoga County. As you could have guessed the amount of names in question is minimal, the story by Joe Guillen indicates 50 out of 65,000 cards turned in have problems. According to my slide rule that would be a staggering 0.08% (I'm even rounding up) of registrations turned in to the elections board. The cards were already flagged by board employees so it's not a voting issue. Even the normally bitchy pants Rob Frost, Chairman of the Cuyahoga County GOP wasn't overly concerned, from the PD:

But even Chairman Rob Frost, the second Republican member on the county's election board, said the potentially fraudulent registration cards do not jeopardize the fairness of the election.

His opinion on the lack of severity of the matter was seconded by the other Republican member of the Cuyahoga County BOE, Jeff Hastings. The consensus seems to be that the bad registrations are a result of a sloppy operation on the part of ACORN's staff not a concerted effort to have everyone vote three times. That understanding over the ACORN voter card issue has been lost on the McCain Campaign. Seeing another line of attack McCain and his advisors have begun to link Obama to the group and it's alleged diabolical scheme to register fake voters. If you were part of the flailing John McCain campaign you'd probably do the same thing. Claiming that a few erratic voter registration cards threaten the election process isn't an honest assessment of the real problems facing voters.

A story written by Dennis Willard appearing in today's ABJ highlights the true threat to free and unfettered elections. In his account the Greene County (Ohio) Sheriff had taken up the banner of fighting election fraud. What made this case disturbing was the Jim Crowe era tactics attempted by a elected law enforcement official. As Willard points out Sheriff Gene Fischer took it upon himself with no evidence of apparent wrong doing (only rumors) to start investigating the names of the 300 or so persons who early voted in Greene County. Fischer's requests involved seeking the public and non public information of the people who early voted. Presumably the names would include some of the students attending two historically black universities that are located within the County. The arbitrary and seemingly biased way that this "investigation " was started is enough to sound the tocsin over voter suppression:

This ill-conceived act is enough to raise questions about Fischer's understanding of the law and his sensitivity to ensuring that voters —especially African-American voters — feel secure and not threatened by exercising their fundamental rights, but his ineptitude did not occur in a vacuum.

The context Willard refers to is the importance of Ohio in this election and the issues that demobilizing voters, be they black or white through intimidation and suppression could have on the outcome.

The real problem with elections in swing states like Ohio is and has always been voter suppression and purging of voter roles. Unlike registration drives from outside groups these two menaces are abetted by the government bodies charged with protecting our most important franchise. A dark and inequitable force that seems to gravitate around poor and working class citizens in economically depressed areas.

Just in the past few weeks there have been stories of attempts to purge voters from the rolls in Michigan, Colorado and even in Ohio (no way). The story is repeated every four years and the purging always seems to zero in on minority and poor voters. In fact Michigan officials were going to attempt to challge voters who's homes had been foreclosed on and thus had outdated mailing addresses. Who can forget the voter challenging drives and caging lists in Ohio in 2004? That round of voter suppression was brought to you by the Ohio GOP and the fomerly important Ken Blackwell. An exhaustive story by Robert Kennedy Jr. detailed the damage caused to the fairness of Ohio's voting system in 2004.

Clearly the likes of Seamore Butts, Hugh Jass, Heywood Jablome and the Dallas Cowboys pose only minor nuisance for election board staff trying to sort through voter registrations. Troubles from phony registration cards pale in comparison to the damage caused by system enforced voter purging and suppression that rears its head every four years. I've said before the only sure way of overcoming this undemocratic influence is through the Powell Doctrine of overwhelming force. The crushing wave of support for candidates like Obama and the disdain for more Bush era policies will provide that force on election day.

If you get the chance check out Greg Palast's new web site and comic book called Steal Your Vote Back. Vote early vote often once.

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Exclusive Summit Co. Moutain Lion Pic

Unconfirmed reports say that this guy can take down deer three two at a time.

Enjoy.

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McCain Needs Fiber Infusion

I didn't have the energy to do any fancy live blogging of last night's debate but a few observations are in order:

McCain and his people have been barking about the town hall format and how that's his strong suit. If that is the case then what the hell happened last night? Things went south as soon as McCain unleashed that dry retort of "not you" to Brokaw in response to his question on Sec. of Treasury picks. As the night dragged on McCain's lurking in the background as Obama answered questions just made things stranger. McCain's now famous "that one" quip coupled with ad nauseam use of the "my friends" technique all indicated a man teetering on the edge of senior citizenship. Add the long Christmas list style notes written with a Sharpie and it becomes clear that this guy should be thinking about hanging it up to enjoy his golden years in Sedona.

Seriously, when you start exhibiting overt signs of old age as McCain clearly is now is the time to ease back and take it easy. It's best to be relax, stay close to a bathroom and load up on plaid pants. This is not time to be running for president, just ask Bob Dole.

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49 Nifty United States

Sarah Palin has completely degenerated into self parody at this point in the race.  Could it be any more obvious that she serves no other purpose than to rile up the base at those creepy-ass rallies?  By now the media cycle has been permeated with this one liner:

"This is not a man who sees America like you and I see America..."

We sadly know the rest by now.  I wouldn't expect the MSM not to pick up this meme and repeat it,that's what they do.  What sticks in my craw is that I have yet to see one outlet at least come back and mention Saracuda's association with the secessionist Alaskan Independence Party.  When she says " the way you and I see America", does she mean one with only forty nine states?  Could at least one crummy news publication or cable show at least bring this up, just once? 

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Sewer Plan Oblivious to Market Woes

The City of Akron is moving ahead with the Sewer Lease for Scholarships plan despite the uncertain conditions in the financial markets for municipal debt. I'm sure the mayor would counter that this is a lease transaction but it will take place in the same arena that municipal debt and financial intermediaries do business. From what I've heard there is a bit of a credit crunch in this once thriving playground.

As has been the case from the beginning the Plusquellic administration has chosen to focus on the novel concept on how to use the $200 million that will theoretically flow from a lease transaction. I for one could draw up a great deck of power point slides that could layout my plans for spending $200 million. That wouldn't change the fact that I don't have it now and have much less chance of getting it that the financial markets are in a bad mood.

The Mayor will be submitting an ordinance to council Monday to lay out the requirements for the scholarship program. The story in the ABJ cites a press release that is not on the City's website yet that breaks out the main requirements of the program. The stated parameters call for the first scholarships to be allocated by fall of 2009. I understand that a measure will be on the ballot this November and time is a wasting but not enough attention has been paid (at least in public) to how a lease will raise the stated amount of funding.

There are already three factors that either potentially lower the net savings (money that will be gained from a lease) of the transaction or make it less likely to occur. Two go together and are already in the works. Council took up an ordinance that will transfer the employees of the Sewer Division to other City divisions. The dollars needed to pay those personnel costs will lower the net savings generated from the lease agreement. The City in choosing to forgo that potential savings will decrease the net savings of the deal. The second component is the rigid conditions the City will have to demand from the potential lessee in order to make the deal politically palatable. These include rate caps on user charges and continuing the capital costs associated with the CSO requirements for the system. These too will decrease desirability and net savings. Less savings less scholarship dollars.

The third sticking point is just that. The credit markets are stuck here in the U.S. and in Europe. Sure we enacted a bailout plan but that has yet to take effect. The financial system is still not moving at normal pace. Even if it were, the condition of the credit markets overseas is even more pertinent. There are numerous reports that the European strain of what ails American markets has that system in a bind also. You see, chances are the company that City leases to will be based in Europe. They will be required to pony up a large one time payment which they will have to borrow from a financial institution. If they normally borrow from a line of credit originating in the troubled Eurozone banking system then their ability to do so will be lessened. The problem has been and still is the sources of funds.

Council is meeting tomorrow to discuss the plan. Maybe some members will bring these points up. I'm still waiting for the City to release some basic numbers on how this thing will work on the financing side.

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The Dukes of Moral Hazard

I've been too busy enjoying the splendid early fall weather to comment on the new bailout law. I don't have much to provide in the way of insight now that we have officially entered a new frontier in American finance. Sure I'm fine that the U.S. Treasury is going to leverage hundreds and billions of dollars to unstick the financial system.

I like some other observers (Krugman) don't see exactly how buying the assets in question will actually work in the end. I also don't get the connection between the new found support from members of Congress and the billions of dollars of crazy tax breaks inserted into numerous sections of the final bill. Congress peoples from both ends of the political spectrum implored that doing the bailout would be an irresponsible use of taxpayer funds. Some of the staunch free market advocates in the house insisted that any government intervention would lead to that nasty old moral hazard condition. The market got us here and it would lead us out free of any socialized fixes. It's amazing what a subsidy for wooden arrow makers here and a break for race track operators there will do to bend those ideological leanings. The real travesty will of course be the lack of any tightening, no rethinking the way we regulate financial markets.

In the end the Treasury plan as passed may have an effect and start to loosen up the credit markets like a big dose of fiscal Metamucil. A quick check of the TED spread every week will verify if this is happening. That's great for the large financial firms (in college we referred to them as financial intermediaries) since they comprise the core of the financial monolith or shadow banking system.

What about all of us mortals that occupy the fiscal purgatory of the real economy? The bailout for us has yet to arrive. Unemployment is up (159,000 jobs lost last month), credit is drying up, and the rate of inflation has yet to show signs of subsiding. The fate of local governments as seen by their budget outlooks for next year is looking more grim. What will the Federal government do for them? Does our economy get an enema next? For now all we can do is hold on and hope for relief. I fear that the money for the Main Street bail out was already spent.

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VP Darn Tootin' Debate Lowlights You Betcha

I can't believe how little substance Palin provided in her "answers" to the foreign policy section of the debate.

My favorite higlight was Biden's rebuttal on meeting with Iran floored Palin. Spain, Spain! SP didn't even ask for a redirect after that. Next question please.

It can be surmised that the half life of schmaltzy debate soundbites appears to be much less than Palin's handlers expected. Not unlike the half life of her folksy nonsubstanative appeal to voters which has also fallen short of the expectations of the McCain people.

We can now sit back and listen to the insufferable storyline being propagated across cablenewsland. The one that says as long as she didn't implode or belch out loud she accomplished her mission. Palin must have cycled though her note cards at least twice. That's great. I agree with Andrew Sullivan she now should have no problem submitting to press interviews.

Oh and by the way it's General McKeirnan.

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Timely Fiscal Wake-Up Tour at CSU

Now seems like the right time to start talking about the financial future of government.

The Cleveland State University Levin College of Urban Affairs will be hosting the Fiscal Wake-Up Tour on October 2nd. The tour is a series of forums organized by something called the Concord Coalition. Included in that panel discussion are some experts from other think tank type organizations that work with the Concord Coalition, these include Heritage Foundation (righty), Brookings Institution (moderate to left) and the Peter G. Petersen Foundation.

Notice the event uses the word "Fiscal" in its name. This implies a focus on the other piece of the economic puzzle that will have to be addressed if this nation is able to regain its hope for future solvency. Sounds like an interesting concept to foster a grassroots level recognition and discussion of the looming crisis that is facing government at all levels. The Levin College is a respectable organization and the event holds promise to be enlightening. Details are here.

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Ole Miss Ramblings

Here we go. I doubt we'll get the same gems from this debate as we did from the 2004 debate. It seems so long since the words "hardwork" and "internets". Lehrer made the smart choice of including the global markets as part of the security of America so we should get some idea of where each guy stands.

Obama calls for oversight, taxpayer protection, limits on CEO pay and bascially the highlights of the Dodd Plan. He decides to get tough an call McCain on years of deregulation.

The political stunts never stop with McCain. He first announces that Ted Kennedy is in hospital. How wonderfully bipartisan of him. He goes to bat for the House Republicans and their crazy shock doctrine specimen of a plan.

Lehrer pulls them back to the question at hand, whether or not they support the bailout plan.

McCain compares the task at hand to the D-day invasion. Obama goes back to the lack of deregulation.

Okay we cold have spent more time on the financial bailout. Moving on to government spending.

McCain quickly gets the discussion to earmark spendings. Obama counters with McCain's support for corporate taxbreaks. The earmark things seems to be stickig, Obama looks like a deer in the headights.

***

McCain pulls out the inaccurate statement on high U.S. business tax rates paid as compared to other countries. Actually we have a higher statutory rate but pay less after all of the tax breaks. Thankfully Obama sets the record straight. McCain gets back on the sheriff of earmarks kick. Obama spars over the tax breaks to oil companies. McCain counters with the creepy laugh.

Back to the bailout and impact on the federal budget. So far I'm not bowled over. We've heard all of these points from both already. We will have to make changes blah, blah blah.

***

McCain calls Obama liberal, oohhh that's original. Jim still can't get traction on how the bailout is going to impact the federal budget. They both seem reluctant to acknowledge that the bailout and pending financial doom will severally cripple their attempts to implement their programs. McCain answers the question for Obama. Obama reminds McCain that he was present through the Bush years when the federal spending increased.

***

On to Iraq. McCain paints the predictable rosy picture. Quick! Is Al Queda shia or sunni?

Obama asks the question, has it all been worth the price. This will soon be a trillion dollar war

McCain unloads all of his ammo on Obama on his not believing in the surge. Obama reminds us the war didn't start in 2007. McCain continues to score points on his support of the surge. Obama does his best to counter. This point of the debate will be scored better for McCain. Who loves General Petraeus the mostest?

***
I have to say the debate is not that exciting but that is a good thing if you are Obama. Neither one of the candidates is running away with this thing. Such a difference when compared to the first debate in 2004.

Afghanistan is next. Obama gets a tongue lashing from McCain on being brash about military strikes in Pakistan. No mention that the current administration is already doing this! Obama hits back with a hilarious reference to McCain singing about bombing Iran. He then squares up the argument that as president you can't wait to take action if danger to U.S. troops is eminent.

Take a break, we're getting a long winded lecture from McCain on the grave nature of being commander in chief.

***

Let the Iran fear mongering begin. McCain proposes the league of justice or dmocracy or legion of doom, I'm not really sure. McCain suggests John Bolton be the first leader of this organization (not really).

Obama admits he buys into the Kyle Lieberman amendment, so sad.

Everyone agrees we can't tolerate a nuclear Iran. What is the approach to use in dealing with Iran? McCain uses about 200 too many words to explain why he will only meet with Iran only with preconditions.

Obama skillfully picks up that thread and makes his point on diplomacy with Iran much more easier to comprehend. A mcuh better counter than on Iraq or Afghanistan. Obama hits pay dirt with the McCain's Spain gaffe. They are a NATO ally.

Some one fact check the alleged Kissenger remarks on meeting with Iran.

***

McCain is certainly up on the events around the turmoil in the Caucuses. It helps when your campaign adviser lobbies for the Republic of Georgia. He just read every damn name that appears on the map of that region, what a great geography lesson.

Obama pivots very well from Georgia to the impact of prudent energy policy. I'll admit I wasn't to sure how he would handle that topic.

Are we safer now than we were after 9/11? Obama is willing to say somewhat but more work left to go.

The take away is that both candidates held their own in their own way. No one pulled away. McCain probably salvaged his reputation by showing up and debating in earnest. Obama kept McCain in his sights and did not let him get to far of an advantage. I agree with Bo Bo Brooks that this was not a game changer.

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My Proposed Addition To MOAB 2008

Let's be frank the House Republicans know that approving the President's Mother of All Bailouts plan is another stake in the heart of the free market bonanza that they so adore.  Why not just come out and state what this bailout says about the conservative view point of financial market regulation.

The original section 21- Definitions becomes Section 22.  My proposed new section is as follows:

Sec. 21  U.S. Government's Renouncement of Free Market Ideology

Recognizing the irreparable harm that deregulated markets have caused to the American financial system and taxpayer the United States government shall no longer adopt, emulate or embrace any of the following ideologies or principles in design or creation of subsequent laws governing financial or commercial activities:

1) Efficient Market Hypothesis or any other delusional belief that market prices always reflect an accurate value of an asset and that market players always act in a rational manner. 

2) Limitless use of leverage, speculation, arbitrage, hedging, short selling and securitization of debt in formulation of laws governing the financial sector or agency rule making.

3) Any other Friedmanite beliefs in weak regulatory frameworks, self regulated and self correcting markets and blind faith in an unchecked free enterprise system.  Any dependence on Reaganomics, Rubinomics or Voo Doo Economics in any shape or form.

This should dissuade the government from allowing us to get bit in the ass for at least another seven to ten years.  You know the adage, everything old is new again.

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IUOE Local 18 Loses Its Mind

The Plain Dealer covered John McCain's visit to the Cleveland area but the real story wasn't the actual visit or the prepared remarks:

Pool report: Republican presidential candidate John McCain spoke briefly this morning at a construction site at Interstate 71 and Ohio 82, where he promised to bring jobs to Ohio and accepted the endorsement of the International Union of Operating Engineers Local 18.

Unions typically endorse democratic candidates but that's quickly becoming the conventional wisdom these days. The Cleveland chapter of the International Union of Operating Engineers lent Republican John McCain their endorsement today. The sanction was given despite his party's track record of marginalizing unions and rampant support of free trade agreements. They appear to be an outlier unlike the large manufacturing unions like the UAW or other major players like the S.E.I.U. and A.F.S.C.M.E. who will most certainly put there muscle behind the Obama campaign this fall. One thing that makes the I.U.O.E different is that they are a construction union and per their website the contractors they are affiliated with are small family owned businesses. This is exactly the group of voters that McCain is trying to woo with his unrelenting "Obama will raise your taxes" mantra. That being said whatever happend to union brotherhood?

The blue collar tweekers are usually mobilized to help out the Democratic candidate but in Ohio in 2008 nothing can be taken for granted. Now I don't foresee more unions peeling off in great numbers to endorse a candidate that most likely does not have their best interest at heart but any movement from the norm is not a welcome sign. Obama will need all the support of the traditional Democratic base and then some if he thinks he is going to win the Buckeye State. Union Yes, McCain No.

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Wall St. Turd Could Sink Akron Sewer Plan

I really appreciate Michael Douglas' enthusiasm in yesterday's editorial on the bright prospects of the Akron Sewer system lease plan. Douglas whom doubles as the ABJ's editorial page editor when he's not extolling the virtues of the greater NEO region's economy thinks the time is right for leasing the City sewer system. Never mind that the financial markets are facing turmoil not seen in generations and credit is drying up faster than the Aral Sea. The Douglas piece actually points to the failing capital markets as a sweetener to completing a lease deal:

If anything, the arrangement is just the kind of pedestrian deal that investors could use, no credit default swaps, no derivatives, no financial instruments that baffle even Ben Bernanke. What appeals to investors is the steady flow of revenue, a chance to bolster the foundation of their operation.

Last I read and heard nobody wants to lend anyone money for any reason, no matter how "pedestrian" the project happens to be. As commonly mundane as public infrastructure appears to be the area of leasing public assets to private entities is still relatively new. Once again the allure of free education for Akron's youth (use of funds) has overridden the need to actually consider the potential pitfalls (source of funds) of a lease agreement.

The potential for a $200 million dollar fund that a lease deal would generate will continue to shrink as the concessions are heaped on to make it voter acceptable. The Mayor has already mentioned limiting rate increases, maintaining staffing and continuing capital improvements to the system as requirements for a potential lease deal. These will all detract from the ability of a private company to actually make money on their end of the deal and lessen the chance of finding a suitor.

Before the City can even get to the point of creating a higher education fund linked to a leasing deal the dynamics of the market will have to change considerably. Transferring public assets into the realm of private debt has already lost its cache after the events of the past week. Consider this observation from Naomi Klein writing on the condition of the free market ideology post meltdown:

For years, the global investment banks have been lobbying politicians for two new markets: one that would come from privatizing public pensions and the other that would come from a new wave of privatized or partially privatized roads, bridges and water systems. Both of these dreams have just become much harder to sell: Americans are in no mood to trust more of their individual and collective assets to the reckless gamblers on Wall Street, especially because it seems more than likely that taxpayers will have to pay to buy back their own assets when the
next bubble bursts.

In the end the idea of combining the Akron Sewer System with another regional governmental entity is the safest way to go. Not just safe but downright pedestrian.


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Throw a TARP Over It

The mania of self regulated markets is now history as the Federal Government announced the grand daddy of all bail out plans. Sec. Treasury Henry Paulson outlined with sparse detail this new tax payer funded catharsis and a asked Congress to act quickly on implementing the cleansing.

Historic Measures
All told the Temporary Asset Relief Plan (TARP) will utilize upwards of $800 billion (that's six and a half years of Iraq) to buyout bad mortgage backed paper held by the multitude of financial institutions. This doesn't include the hundreds of billions being dedicated to insuring the money market funds that are also exhibiting signs of strain despite the long held belief these funds where almost as liquid as cash.

TARP is a fitting plan for Paulson and Bernanke's attempt to cover up the carnage left in the wake of a decade of a self regulated maelstrom. Understanding the implications of this historic measure on the U.S. economic system is not easy to grasp. The plan will attempt to stanch the flow and get the markets back to terra firma. It is a rehabilitative measure not a stimulus plan for the greater economy.

The real economy has yet to stop shuddering. The indicators that us mere mortals are exposed to like unemployment and inflation are still blinking red. The just released unemployment rate for Ohio hit a 16 year high of 7.4% in August. Inflationary pressures still abound at the grocery store and the gas station. Local and state governments are all facing budgetary disasters in the next year or two if the economics that feed their coffers don't improve. My fear is that the TARP may have arrived just in time to cover the corpse of the greater U.S economy left slain on the ground. How much pain will we have to endure before it is revived?

Electionomics
I have one admonition for all of the talking heads in cablenewsland. Stop wasting time trying to determine if either Obama or McCain have offered any solutions to the current financial problems. It's not the job of a the president to personally concoct plans such as the rescue program announced this week.

What really matters is the candidate's philosophy on how the American financial system should function under a regulatory regime and what that regime (if any) should look like. We are looking for leadership under the current duress of our times not electing a newly anointed John Maynard Keynes of the 2000's. Who the next president taps to provide counsel on defining financial policies and formulating new frameworks for governance is the real indicator of economic wisdom. That's judgment we can bank on.

Which of the two men would make the right choices and pick somone like a Keynes to see past prevailing and failed philosophies (like self regulated markets) and work toward re-stabilizing the financial landscape? Everything I am observing and absorbing says that Obama is that person.

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Panic Free Market Malaise Roundup

Odds and ends on a day that hasn't stopped providing news on the financial melty-ness.

John McCain the self proclaimed ignoramus on all things economics assured us today that the fundamentals of the financial markets are sound. Why doesn't that remark provide me any comfort?  The Dow thinks otherwise and so do the employees of Lehman and the investors holding shares of WaMu and AIG.

The Dow of course is just one indicator of the health of our financial system.  Krugman and Calulated Risk are suggesting that we pay attention to the TED spread, an indicator of credit availability (liquidity).  Both agree the widening spread is an indication of more market malaise to come.

Angry Bear postulates why The Eurpoean banks don't go belly up in large numbers and at the same time.

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Fear and Loathing in My Sunday Coupons

Opening up the Sunday newspaper has never been so frightening. To my surprise the Sunday adds for Betty Crocker, Best Buy and Sears included a free DVD of the documentary movie smash Obsession: Radical Islam's War Against the West. The free sampler of the latest right-wing attempt to make us forget the other scary issues troubling Americans was apparently included in newspapers in various battleground states. I've read several posts in the blogosphere about the give away including this one at Popular Progressive that indicates up to 28 million copies were sent out in the morning paper.

Some simple checking of the movie credits on the internets reveals the backer of the project is 501(c)(3) group The Clarion Fund. The fund's website has very little information but, the motto of the group, "National Security Through Education" is prominently displayed. One only wonders what that could mean. Without having to delve any further than the movie website you can kind of guess the direction the producers of this "film" are going:

Almost 70 years ago, Europe found itself at war with one of the most sinister figures in modern history: Adolf Hitler. When the last bullet of World War II was fired, over 50 million people were dead, and countless countries were both physically and economically devastated. Hitler’s bloody struggle sought to forge the world anew, in the crucible of Nazi values. How could such a disaster occur? How could the West have overlooked the evil staring it in the face, for so long, before standing forcefully against it?

Even Glenn Beck is quoted as calling the film "...without exaggeration one of the most important films of our time". Sorry Glenn, they lose me the minute they parade out the case that radical Islam rivals the Nazi conquest of Europe and the Holocaust. Yes I'm concerned about Al Queda inspired groups and their resurgence in South Asia and the danger they pose to us at home and abroad. I'm not fucking stupid either. I'm not convinced that kaffiyeh-wearing men armed with Kalashnikovs are an absolute existential threat to the United States. That dubious honor may belong to our very own political leaders who have been frittering away our freedoms with flawed legislative maneuvers and numerous presidential signing statments.

Anyway we've seen this handy work before. Forget all the other issues that matter because certain death certainly awaits you if the Democrats win. In 2004 it was the "Al Queda wolves are hunting us down" commercial. In 2006 it was the infamous "stakes are high" nomenclature and complimentary televsion adds. Last year it was the Frank Gafney documentary that was rejected by PBS. This year's menu includes Obsession and the upcoming new release The Third Jihad. Can't wait for that one. It looks like fear is still the "little black dress" as Al Franken referred to it in his book The Truth. It goes with any occasion.

My curiousity may get the best of me and I may indulge it by watching the DVD. I may say "thanks but no thanks" and mail it back to the Akron Beacon Journal subscription office.

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Stickland's Reality Deficit

Governor Strickland announced $540 million in budget cuts to the State Budget to the chagrin of local governments and school districts all around the State. They know that the fiscal pain unlike Reagonomics will trickle down to bite them in the budgetary asses. Large counties like Cuyahoga are already contending with budget deficits in 2008 ($20 million) and onwards and this latest bad news will compound those troubles. These cuts are in addition to the first round($733 million) made this spring.

The state's Local Government Fund that reallocates State GF revenue down to counties, cites, schools and libraries is probably not in good shape. That translates into less dollars available for local services like public safety, education and social programs. According to the State Budget director, Pari Sabety all major revenue sources are off target (from GONGWER):

Director Sabety said that an ominous sign within the monthly revenue reports is the downward trend in personal income tax withholdings, which she described as "a significant negative indicator."

Ohio's dire budget predicament, while not unique among the states (see separate story), has also been underscored by recent reports on unemployment, the housing market, and other economic indicators.

"Every indicator we look at is pointing downward at this point in time," Ms. Sabety said.

The shrinking LGF allocations could be aggravated by reduced State funding in other areas to local governments and seriously hamper efforts to reign in budgets deficits at the local level. This could be referred to as a tail spin.

Our current governor is held hotage by a sinking economy and the bad tax policy choices of previous legislative sessions. One of the chickens that has come to roost is the 21% income tax reduction that was phased in over the past several years. Ted is now straddling the line between fiscal restraint and hard right taxcut mania. He has had to acknowledge the damage to the State revenue picture but admits he will not tamper with the near suicidal reduction in income tax rates, not even a temporary freeze.

"Without a doubt, if the tax reform had not taken place we would have had significant more resources for this biennial budget," he said, adding that under some estimates the cuts in that package may have reached $1.9 billion to this point. "Having said that, I have embraced the tax reform because I do believe that it is important to Ohio's future that our state be a state that is attractive to those who would invest and create jobs."

On top of that change the Commercial Activity Tax created to replace the tax on inventory and equipment lost a large chunk of its tax base last week. Raising taxes is not popular but the ability to cut State budgets will continue to negatviely impact local governments and their constituents (you and me). This puts the State's top Dem in a real bind. He will now have to fend off attacks from up and coming State Auditor Mary Taylor (again from GONGWER)*:

"The announcement today by Governor Strickland concerning the continued deterioration of the financial condition of the state of Ohio is troubling," Auditor Taylor said in a statement. She said that while the initial budget adjustments made last February entailed some cuts, "it also included a number of questionable fiscal management proposals such as Keno, delaying program expenditures from one fiscal year to the next and short-term cash management actions."

She and other top State Republicans will be prepping the battle field for the next round of state wide elections and the even the gubernatorial contest in 2010. This crowd is touting the Mechagodzilla of all tax cuts, a plan to eliminate the state income tax all together. This plan pushed by Blackwell et al at the Buckeye Institute has had some media exposure but limited examination of the consequences. The backers think the magic of the free market and the CAT (the one with an eroding base) will more than make up for the lost revenue.

Ted please come back to reality and consider freezing the income tax reduction. As unpopular and vunerable as it may make you, putting the brakes on for now could do some good. highlighting the weakness of the current plan could help demonstrate how supersizing the income tax cuts would be even more devastating to Ohio than the plan that is already in place.

* Sorry no links to GONGWER, it is a subscription only service.

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Charlie Gibson for a Day

The much awaited unveiling of Sarah Palin to the news media will begin tonight in a multi-part interview with Charlie Gibson. Now that the time of her confinement is over we can expect candidate Palin to offer up her real views on the most pressing policy questions of this election.

Is there anyone out there that doesn't think this won't be more than a " Meet the Palins" type affair? Fox News already ran one of these specials and CNN is planning to release one soon. The Associated Press has a story that touches on how ABC will package and commodify the Gibson interview into bite size ratings friendly pieces.

Gibson is having three separate interviews with Palin, ABC said. Parts of the interviews will be spread around other ABC news programs, including "Nightline" and "Good Morning America."

I'm not holding out for a hard hitting Russertesque scrubbing of her record but I can still dream. If ABC News sent the Bizarro Charlie Gibson to Alaska to interview Bizarro Hillary he would do the opposite of the real Gibson and ask hard questions that aren't about hockey or lipstick. Here are some of the questions in backwards order and quasi-Bizarro speak:

7. Will you try to have minutes of top secret Cheney Energy Task Force meetings released to the public? Why do you hate polar bears?

6. What should U.S. military do to reclaim control of Afghanistan? What is capital of Afghanistan?

5. Me want to know what contributions or edits you made to Op-ed piece on the GSE bailout that was in Wall Street Journal? Do you want to correct your statements about them being tax payer funded?

4. Me want to see if you know what the Fourth amendment (of U.S Constitution) says in regards to warrantless wiretapping. Would you ask a President McCain to revisit the FISA Reauthorization of 2008?

3. How many signing statements is too many? 800? 900?

2. How soon after December 2008 do Iraq have provincial elections? Me want to know if you think a referrendum on the status of the city of Kirkuk should be included in elections? Do you even know what that means?

1. Do you think me sexy?

Update: Andrew Sullivan links to a list of 20 questions formulated by the editors of Foreign Policy magazine. Add these to the no way in hell list.

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Lance Takes Note of Favre

It's official the boss is back. Lance Armstrong, Inc. has decided to return to professional road racing and will compete in Le Tour in 2009. The news was confirmed by LA in an interview with Vanity Fair magazine of all places. Seems fitting for the guy who always generates a lot of attention.

Rumors were abound in the cycling world that Lance Armstrong would coming out of retirement to ride with Team Astana in 2009. It looks the Favre effect is spreading to other sports, even Euro-wuss dominated road circuit. The momentum for this story has been building and started showing up in cycling mags like Velonews and amongst riders at the Vuelta (currently in its second week).

Lance Armstrong will come out of retirement next year to compete in five road races with the Astana team, according to sources familiar with the developing situation.

Armstrong, who turns 37 this month, will compete in the Amgen Tour of California, Paris-Nice, the Tour de Georgia, the Dauphiné Libéré and the Tour de France — and will race for neither salary nor bonuses, the sources, who asked to remain anonymous, told VeloNews.

Seems like a decent schedule to come back to although I don't think Paris Nice is all that exciting of a choice. As reported by Velonews yesterday he will be riding for his old team manager Johan Bruyneel. That doesn't necessarily mean the reincarnation of Lance will ride for Team Astana. He was part owner of Tailwind Sports the company that ran the Team Discovery outfit until 2007. So I think there's a good chance they will court a corporate sponsor and formulate a new team around Johan and Lance.

It would make for an interesting season. I'd never thought I'd see Contador, Cadel and Lance face off in the Alps. Of course I'll belive it when it actually happens. He may be serious about contending for his eighth Tour victory or he may crap his shorts at the top of the Col de Galibier. Either way it will be entertaining.

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GSE Bailout, the Quick Run Down

I was one of the lucky few to sit through the 11AM announcement on the 'Big Bailout' of mortgage lenders Freddie Mac and Fannie Mae. Treasury Sec. Henry Paulson gave a run down of the plan to force these two giant-ass financial institution into federal conservatorship and be privately run no more. This move represents the third or fourth wave in the housing crisis and there is more to come. As average Americans trying to enjoy the beginning of the NFL season we are left pondering the impact of this news

Here is a quick run down of the nine point plan that Paulson outlined during today's annoucement. I wrote them down myself as I listened so I'm not linking to any sources just yet. In no particular order of importance:

1. The companies will be open for business tomorrow albeit under a different structure.
2. Both GSE's can continue to issue MBS.
3. The FHFA, a newly created regulatory entity will assume oversight of both GSE's
4. The CEO's of both companies are out
5. New guys start tomorrow, they are from the financial sector.
6. Stock dividends are gone, duh.
7. A lobbying moratorium is in place, no more privte jets.
8. The Treasury will inject capital by purchasing new preferred stock and opening a line of credit.

I am missing one point in the plan from my notes but the details can be read here, here or here.

So what does this mean to the presidential election? It depends on your philosophy on private versus public enterprisewhen it comes to the housing market I guess. Maybe the real question on this dilemma can be summed up in one phrase, "it's the liquidity stupid". More on that later.

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Noun Verb Lie

I didn't think anyone could have topped the 2004 Zell Miller speech when it came to shear lunacy and a complete lack of sophistication. That feat was accomplished tonight by Rudy Giuliani's speech to the RNC. It will definitely hold a spot in the annals of GOP red meat.

A very effective delivery of insults, and lies all done with that artful lisp. Not bad for a guy who spent $48.8 million to win one lousy delegate. I also found his charges of sexism by the media ironic considering his record of marital infidelity.

Laura On George

Someone had to do it. Laura Bush was given the distinct honor of introducing her husband the Prez to the RNC tonight. I was curious to see what accomplishments she would highlight. She offered up the usual references to No Child Left Behind, African Aids Relief (PEPFAR) and some others.

There was no avoiding Iraq or Afghanistan so she used broad strokes when it came to this chapter in the Bush presidency:

"In Afghanistan and Iraq 50 milllion people are now living in freedom"

Yes freedom is certainly on the march. This report from the BBC today updates the story of a 23 year old Afghani student condemned to death for downloading an article about women and Islam from the internet.

I suggest the next president dust off copies of the books Ghost Wars and Imperial Hubris and read up on the region that will be occupying most of their time while in office.

Meet Bizarro Hillary

John McCain the maverick is back and has defied convention and the odds makers by picking Alaska governor Sarah Palin to join him on the GOP ticket. There are some risks with this pick but, it could be a brilliant move or come off as exceedingly calculated and condescending to voters. The McCain campaign certainly must be aware of the danger but had to weigh those risks against the long shot chance of winning this election. Defying convention with Palin is one way to shake up the race and create their own fate. I agree with Ed Shultz, it has the feel of a Hail Mary pass. It is telling about how hard they think it's going to be to win the election.

IOKIYAR Alert

Obviously her lack of experience in Washington in the foreign policy milieu is going to be hard to shake. Andrew Sullivan makes a good case for
not going the Palin route at the Daily Dish:

The first criterion for a veep - and I'm simply repeating a truism here
- is that they are ready to take over at a moment's notice. That's
especially true when you have a candidate as old as McCain. That's more than especially true when we are at war, in an era of astonishingly difficult challenges, when the next president could be grappling with war in the Middle East or a catastrophic terror attack at home. Under those circumstances, we could have a former Miss Alaska with two terms years under her belt as governor.

There's no easy way to predict what the McCain handlers were thinking. Here are some reasons that the McCain people must have used to rationalize the Palin pick:

The Bizarro Hillary

Attract the legions of disaffected Hillary supporters that supposedly have left the Democratic party. Have these guys read the latest polls? The massive carve out of Hillary supporters heading for the McCain camp looks more and more like a media concoction built up to attract
eyeballs to cable news channels. How many pant suits does this women have? She will need a lot of them to pull of the Hillary switcharoo if that's what she plans to do.

A Biden Factor

A perceived vulnerability of Biden by McCain could be a factor in selecting Gov. Palin. He will easily demonstrate his gigantic advantage in foreign policy over Palin during the VP debate. Biden has legendary loose lips and they may perceive a slight chance that he could mutter something condescending or rood during the debate. The echo chamber would cycle such caddy behavior and pull Biden down with it. On the other hand he may try to hold back and not completely school her to avoid looking like a jerk.

Bucking Party Orthodoxy - To a Degree

Palin has the appropriate bona fides. She is of course a pro-life evangelical, a lifetime member of the NRA, an advocate of small government, anti-earmarks, pro-drill-the-shit-out-of-everywhere and a defense hawk (how can you tell). She does however support some rights of gay couples, is an advocate of energy diversification and likes basketball. I think the McCain camp realizes the Republican brand is in shambles and introducing a female VP pick that has a mavericky edge like him could be effective in attracting independent and swing voters. This may not be 100% amiable to the GOP faithful but they will fall in line in the end of this pick pays off.

As much as he annoys me I think Romney would have been a better pick for McCain. He espoused all of the right conservative viewpoints on the primary trail as evidenced by the prattling done over him on right wing radio. He would also give McCain the edge in Michigan. And since he isn't a Washington fixture or a party insider he has some of the outsider cache that today's right wingers thirst for. Apparently the focus group horseshit conducted by Team McCain said otherwise.

Obama certainly has many angles to go after on the Palin VP pick and he should exploit those where possible. In the end I wouldn't underestimate Palin. She has risen in a meteoric fashion to get to the governorship of Alaska. I know it's only Alaska and not a mighty swing state like Ohio or Michigan but, her political achievements like those of Obama have come at a relatively early age which speaks to her determination and savvy.

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Big Dog Shows Ann Curry Some Unity

The Olympics are over and Ann Curry has been reassigned to asking every delegate and VIP at the Democratic National Convention about Hillary and party unity. The Today show host was apparently set loose on the convention floor with only one assignment, keep pushing the media theme of party disunity and the Clinton-Obama schism.

I've turned to MSNBC for some of my coverage mainly to laugh at Pat Buchanan's comb over and watch the commentary of Olbermann and Matthews. Ann was part of the mix from the mix from the beginning. On Monday night she accosted Nancy Pelosi and Jimmy Carter within the same hour and wouldn't let them go until they admitted Hillary was a ticking time bomb that was going to tear the Democrats apart. After the "sisterhood of the traveling suit pants" speech on Tuesday you would have thought Ann would give it a rest but she was at it again tonight going after more victims.

I think the speech by Bill Clinton may be enough to put the disunity storyto bed. Clinton was clear and concise on his support for Obama. His criticism of Republican policies and the damage to America as a result of those polices was strongly worded and direct. As effective as Hillary's speech was on Tuesday, Bill's was even better. He compared the story of his run in 1992 and the uphill battle he faced convincing voters he would be an effective president to that of Obama's quest to win the election in 2008. In doing so he helped dispel the effects of the 3AM adds that Hillary launched against Obama during the primary run. They may have had their fingers crossed behind there backs but Bill and Hill delivered the goods. Ann you are free to return to the Today show.

I've also watched the PBS coverage because they tend to focus on the actual convention and not media driven memes. Lehrer is always good and of course Shields and Brooks provide great analysis. Although David Brooks seemed to be more antsy than normal. Maybe he's regretting some of those NYT columns he wrote on Obama's candidacy.

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Finally a Foothold for Obama

The McCain house party has hit the news cycle and this should be seen as manna from heaven by the Obama campaign. With the polls looking tighter and the negative adds taking there toll on Obama the momentum was on McCain's side. Being able to counter the typical GOP attacks of 'Obama's an elitist" depends on taking advantage of the statements like those made by McCain this week. Being rich is one thing. Being so rich that you have houses laying around like dirty underwear just seems out of touch with average people. That's the theme that has to be replayed over and over in order to have an impact on voter perceptions.

Of course team McCain had to hit back and they came back swinging. Unfortunately for McCain they hit like a girl (not PC, I know) and appear to be desperate for any comeback. The latest counter attack goes for the old reliable Obama - Rezko association and all that stuff. It's kind of a curious move because the Rezko material is not easy to grasp and not in your face like actually not knowing how many homes one owns. And it won't be hard for Obama to see that Rezko and raise McCain one Charles Keating. Funny how years of inside the beltway dealings leave a residue on the Senator from AZ.

Anyway Obama needs to hold on to this foothold like grim death. Let the 24 hour news cycle work for us for once and drill this one into the popular lexicon. In fact why not carry the theme of an out of touch McCain right into the convention next week?

Akron Sewer Smack Down

The plan to leverage a lease of the Akron sewer system to fund a scholarship program still looks like a loser. After Monday's council meeting in which numerous proposed charter amendments were given up or down votes the odds of the proposal being implemented as envisioned have decreased. As reported in the ABJ the propsals veered of course at times. Council ended up voting down large portions of the Mayor's thrust to make the lease happen. The measure related to allowing the City to spin off city infrastructure to larger governmental entities actually fit into Plusquellic's vision of consolidating (read regionalizing) local governance. What we're left with in teh wake of the this latest round of bickering is a flawed approach to making the Akron education plan work.

Uses of Funds

The idea for an educational fund to enable the youth of Akron to attend college or vocational schools has merit. We all agree here that education is the great equalizer and the best economic development engine is job creation. The good mayor likes to refer to the Kalamazoo Promise as a way to move forward on meeting these needs. As his media release states even the crazies at the Wall Street Journal have admitted to the benefits of free college education plans like the one in Michigan. I would agree that a well thought out and extensive plan of this sort could be just as advantageous in Akron. There are two catches to the Akron proposal that are potential deal breakers. The first is the thirty year residency requirement for the students that use the plan to attend college. The plan stops being free if the participants take the money and run. Considering all of the issues around employee residency requirements and Ohio cities this feature may be troublesome.

The other sizable hurdle for the Plusquellic's plan is of course funding it. The Kalamazoo plan is funded through private donations from multiple sources. The Akron plan is not based on this concept. That leave the controversial approach of selling or leasing a public asset to generate the dollars to fund the program.

Sources of Funds

The concentration from the Mayor's office has been on the universally appealing aspects of providing higher education to our youth. The ability of a lease of a piece of public infrastructure (smallish in size relatively speaking, it's no PA turnpike) to generate the millions of dollars touted seems nefarious. I'm waiting to see an overview of a proposed financial structure that shows the net savings (which would be used for funding said plan) from lease back agreement would bring in enough. Has someone at Morgan Stanley (they love these things) provided the City with a viable financing plan? Have any of the companies, most of them foreign, that specialize in infrastructure leases expressed any interest?

Until there is more information provided by the City on the sources of funds this thing is not even realistically going to deliver as promised. There are plenty of us finance geeks out there that would love to see some numbers on the lease end of this proposal. For now I'll refer back to my previous posts and stick with the time tested free lunch limitation of all financial transactions.

Petroblogging: A Modest Proposal on Offshore

After several weeks of dueling on the supposed merits the political tide is turning for offshore drilling. The possibility of opening up most of the coastal U.S. for oil exploration looks more likely as of this week. This change in direction had nothing to do with sound economic strategy or a thorough technical review of the feasibility of increasing offshore drilling. The basis for the looming shift in energy policy is due to people (citizens, politicians, pundits) freaking out over a wrinkle (high gasoline prices) in their daily lives. As is often the case with wide reaching policy changes the patch for this problem is an over reach from policy actors who put offshore drilling into play.

Political Ramifications
At first the spillover from the offshore drilling debate was contained the floor of Congress and cable news shows. Then McCain took hold of the meme and sharpened his sword with it using it to go after Obama. The tactic has seemed to payoff. The latest round of polls from swing states in particular showed McCain gaining ground partially over the fear of high gas prices and Obama's lack of support for a supply side view of the oil world. Even polls on the average person's view of offshore drilling were working in McCain's favor. Who wouldn't take the advice of overly fanaticized and uninformed consumers looking for any magical form of relief from high gasoline prices. The Republican tizzy in the House of representatives on Friday afternoon was probably the last tipping point in the often ignored and seemingly mundane topic of drilling for oil out in the ocean.

The leading edge of the Democratic shift in offshore also came Friday when Obama announed he would suppport a compromise in lifting the offshore drilling moratorium. Obama made the policy statement to the Palm Beach Post in an interview and didn't sound to excited with the revised stance on drilling:

"Like all compromises, it also includes steps that I haven't always
supported," he said. "I remain skeptical that new offshore drilling
will bring down gas prices in the short-term or significantly reduce
our oil dependence in the long-term, though I do welcome the
establishment of a process that will allow us to make future drilling
decisions based on science and fact."

That last part about basing decisions on science and fact is a bit ambitious considering how the debate has transpired. Anyway allowing offshore drilling is not the end of the world. I think there is much to be gained in a compromise deal in the way of environmental protections and exploration related revenue.

Let Them Have It
So the oil companies will expand web of drilling platforms up and down the Eastern Seaboard. Does anyone think they are going to jump into the new exploration at full clip? Would it really behoove Exxon or Shell to layout perhaps billions of capital dollars in the near term and quickly begin delivering massive amounts of oil to the world market? Hell no. The last thing they would do is knowingly bottom out the market for crude oil by driving the price down. Did you see their quarterly earnings numbers that were announced last week? That's a cash cow that they aren't going to mess with. So give them a longer leash to explore and drill the entirety of the coastal waters of the U.S. They'll gladly accept the fortuitous turn of events and then sit on the newly available leases as they see fit.

The Compromise Is The Key
Both Obama and McCain are signaling that they would be agreeable to an energy compromise bill that lifts the ban on offshore drilling and throws in other policy objectives related to energy independence. My favorite is the requirement that all oil produced in the offshore sites be sold in the American market. Go right ahead and add that to the compromise. Any oil that does get produced (if they get around to it) will be used to supplant oil from other regions of the world that was destined for the U.S. I think a developing country like China may be interested in buying the redirected supplies of oil not destined to the U.S. markets.

The other key component that should be in the compromise would be the agreement to not open up ANWR as part of the deal. With the vastness of the offshore sites being offered dwarfing ANWR there may be some traction to keep the Alaskan wilderness untouched for the foreseeable future. I haven't heard any major rumblings about opening ANWR up as part of the latest offshore drilling proposals so maybe this would fly.

To achieve real compromise that is beneficial to the greatest number of stakeholders a deal on offshore drilling should include these nuggets:

Structure a revenue sharing system like that used between oil companies and other countries. These profit sharing agreements (PSA) devote a set rate of royalties that paid back to the Federal or state government for leasing the offshore sites for exploration and recovery. This would be on top of the normal leasing revenue.

The Federal portion of the PSA royalties would be directed to an alternative energy development fund. The dollars fed into the fund wold be dedicated to the ellusive Apollo type project for renewable energy that everyone keeps yammering about. The majority of the funding could be directed at spurring R&D through grants to public and private instituions.

The states that benefit from leasing offshore sites should sign a compact that defines their role in revenue sharing and use of the royalty payments. These states stand to benefit handsomely from the production of oil off their shores. Of course with that reward comes the risk of getting slimed and having beach tourism and fishing industry ruined by oil spills. The risk is commensurate with the return. This being the case the compact entered into by the states should require all costs related to oil spills be borne by those states. There should be no Federal bailout of an oil rich Florida or whatever other state decides to take a chance with oil drilling offshore.

Other odds and ends that could be included in the compromise would be requirements to offset carbon emissions from the additional exploration, revisiting CAFE standards and a review of any remaining tax subsidies oil companies are currently receiving to see if they can be phased out.

In the end a successful compromise package will remove offshore drilling from the arsenal of the McCain attack dogs during the campaign and they would be free to focus on other fluff material. The American people in turn get some temporary and psychological relief from their oil price angst. My guess is that in seven to ten years from now oil prices will not have subsided in the least and the once ballyhooed new drilling will not have delivered as promised. Most of the new leases will probably not be producing in the ten year time period. The good news is that the lack of production will have spared coastal states from nasty oil spills.