Government Has A Role

Yes government does have a role, but I think the bigger question is how we make government do what it is supposed to? How do we change an inefficient and incompetent government or a government that has been co-opted by corporations, unions, and special interests for their benefit? What is the mechanism to make government better?

Elections only replace the top level of government, it doesn't do anything to change the bureaucrats and lower level employees, what if they are incompetent and fail consistently to do their jobs? The SEC and their counterparts like the Commodities and Futures Commission (CFC) are good examples. We're told they were at MF Global overlooking the company weeks before they went bankrupt and stole over a billion in customer funds. How do we get these regulators to actually do their jobs? Unsurprisingly, no one has been fired from the regulators, how do we make them accountable? What is the incentive for these agencies to do better?

How do we determine if a government service is a good value? The TSA is a good example. How do we figure out if the benefits of their service outweigh the costs, both in dollar terms and time spent?

People are frustrated because we don't seem to be able to change government and make it better. With a private enterprise, we would just stop being customers and they would either have to shape up or go bankrupt solving the problem and another, better company would rise in its place. We have no such mechanism for government. Mark Thoma and others here make too many assumptions, especially about the efficiency of government and that government will operate as it's supposed to. What happens if it doesn't?

Health Care Needs Real Reform

Look, the way health care works now is a fee for service process. That, along with malpractice lawsuits, creates a huge incentive for providers to give you as many services (such as tests, medication, etc.) as possible so that they can list them and charge for them. If there is the slightest reason for a service, it will be provided and charged. Patients do not understand medicine enough to refuse certain services that are probably unnecessary and since the insurance company pays, there's no incentive for patients to refuse all the services that are given to them even if they were educated enough to understand which is ridiculous.

What are the profits to insurance companies as a whole? From http://opinionator.blogs.nytimes.com/2011/11/03/less-than-26-billion-dont-bother/?ref=opinion

According to many on the left, health insurance companies are sleazy and unethical, making obscene profits by charging high prices to sick people, giving physicians and patients the runaround to avoid paying bills, and rescinding policies just when people who paid in good faith get cancer, while their executives often walk away with millions in compensation. Last year, health insurance companies did rack up big profits, but it turns out that the combined profits of the country’s five largest for-profit health insurance companies — United, WellPoint, Aetna, Humana and Cigna — were $11.7 billion, only 0.5 percent of total health care spending. Even confiscating every penny of those profits would add up to less than half of the cost-saving threshold. And even not-for-profit insurance companies need to have an operating margin — a profit by another name. There just isn’t enough money there to make a dent in health care spending.

It's not "greed" by insurance or phara or doctors, the problem is that there is no mechanism to restrict health care services on a cost/benefit level. This applies to doctors as well. A doctor never thinks about the cost of the care he recommends and if it provides enough benefit. That's just not the way they are taught, they are there to cure or fix your problem regardless of cost. That's why end-of-life care cost so much. A doctor will simply not say that it's not worth the hundreds of thousands to try and cure your disease when it's very likely, but not 100% certain, that you will die in 2 years anyway. That simply isn't done and so we have all these expensive treatments and surgeries and the patient dies in a year anyway.

People have to be made to accept that we need to do a cost/benefit analysis and start denying care if the costs aren't worth the projected benefits. Right now people are outraged when care is denied and it's understandable. People will want a treatment that extends life for an average of 6 months even if it costs $100,000 if the costs are paid by someone else. We need to move to a system where those treatments are denied unless the patient pays for the entire cost themselves. For those who want government control of the health care sector, that's exactly what will happen and what Britain already does. And you cannot sue the government in those countries if they deny you a service, such as a test, even if that test would have discovered the disease you eventually die of. That's what keeps costs down in those countries. We may have to move toward such a system if people cannot accept the cost/benefit method naturally.

Put it this way, NOTHING can prevent you from death. There is no cure, YOU WILL DIE EVENTUALLY. The goal is to get people to accept that it is not worth hundreds of thousands to try and extend your life by a couple of months on average when you are going to die anyway. This is a very harsh view and statement, but a practical one and one that needs to be adopted.

Michael Lewis and California's Budget Crisis

The reason states are having so many budget problems stems from their pension obligations which are coming due as more and more workers retire. The so called "cuts" we all hear about don't apply to pensions and generally apply only to newer, younger government workers even as a growing portion of state and local budgets are being allocated to pension obligations. Michael Lewis wrote a piece on this regarding California in Vanity Fair which is below. I suggest everyone read the article as it shows clearly how government workers have used the system to enrich themselves.

http://www.vanityfair.com/business/features/2011/11/michael-lewis-201111

From 2002 to 2008, the states had piled up debts right alongside their citizens’: their level of indebtedness, as a group, had almost doubled, and state spending had grown by two-thirds. In that time they had also systematically underfunded their pension plans and other future liabilities by a total of nearly $1.5 trillion.

In 2010, for instance, the state spent $6 billion on fewer than 30,000 guards and other prison-system employees. A prison guard who started his career at the age of 45 could retire after five years with a pension that very nearly equaled his former salary. The head parole psychiatrist for the California prison system was the state’s highest-paid public employee; in 2010 he’d made $838,706. The same fiscal year that the state spent $6 billion on prisons, it had invested just $4.7 billion in its higher education—that is, 33 campuses with 670,000 students. Over the past 30 years the state’s share of the budget for the University of California has fallen from 30 percent to 11 percent, and it is about to fall a lot more. In 1980 a Cal student paid $776 a year in tuition; in 2011 he pays $13,218. Everywhere you turn, the long-term future of the state is being sacrificed.

Below, Lewis continues with an interview with the mayor of San Jose whose problems are a microcosm of what local governments are facing.

He hands me a chart. It shows that the city’s pension costs when he first became interested in the subject were projected to run $73 million a year. This year they would be $245 million: pension and health-care costs of retired workers now are more than half the budget. In three years’ time pension costs alone would come to $400 million, though “if you were to adjust for real life expectancy it is more like $650 million.” Legally obliged to meet these costs, the city can respond only by cutting elsewhere. As a result, San Jose, once run by 7,450 city workers, was now being run by 5,400 city workers. The city was back to staffing levels of 1988, when it had a quarter of a million fewer residents. The remaining workers had taken a 10 percent pay cut; yet even that was not enough to offset the increase in the city’s pension liability. The city had closed its libraries three days a week. It had cut back servicing its parks. It had refrained from opening a brand-new community center, built before the housing bust, because it couldn’t pay to staff the place. For the first time in history it had laid off police officers and firefighters.

By 2014, Reed had calculated, a city of a million people, the 10th-largest city in the United States, would be serviced by 1,600 public workers. “There is no way to run a city with that level of staffing,” he said. “You start to ask: What is a city? Why do we bother to live together? But that’s just the start.” The problem was going to grow worse until, as he put it, “you get to one.” A single employee to service the entire city, presumably with a focus on paying pensions. “I don’t know how far out you have to go until you get to one,” said Reed, “but it isn’t all that far.” At that point, if not before, the city would be nothing more than a vehicle to pay the retirement costs of its former workers. The only clear solution was if former city workers up and died, soon. But former city workers were, blessedly, living longer than ever.

A lot of people are confused over why they are seemingly having to pay more than ever in combined taxes, yet are getting less and less in terms of services. It's time to wake up, there are special interests that are clearly using government to enrich themselves and they are not limited to corporations or banks. We are on a course for disaster.

What You Don't Understand About the Debt Ceiling Debate

What you don't understand is that spending is already at or near record levels. According to the White House, spending has more than doubled since 2000 and is due to increase yet again in 2011 to a record 3.8 trillion. If this isn't stimulus spending, I don't know what is. Yet I and many other common people, have absolutely no faith that this record spending is being spent wisely and will lead to future economic growth.


http://www.whitehouse.gov/omb/budget/Historicals

Year Receipts Total Outlays Deficit

2000 2,025,191 1,788,950 236,241
2001 1,991,082 1,862,846 128,236
2002 1,853,136 2,010,894 -157,758
2003 1,782,314 2,159,899 -377,585
2004 1,880,114 2,292,841 -412,727
2005 2,153,611 2,471,957 -318,346
2006 2,406,869 2,655,050 -248,181
2007 2,567,985 2,728,686 -160,701
2008 2,523,991 2,982,544 -458,553
2009 2,104,989 3,517,677 -1,412,688
2010 2,162,724 3,456,213 -1,293,489
2011 estimate 2,173,700 3,818,819 -1,645,119

The government sector is too large and needs to be restructured. People need to be shifted to jobs in the private sector, government needs to stop trying to be everything to everyone. The fact is that even with Boehner's plan, we would still have record levels of spending along with record projected deficits. That's why his plan is a huge compromise plan that is a win for Democrats already, asking for more is plain insulting. Look at the numbers and take $90 billion off of the outlays and off of the deficit. Does it even matter? Does it change the big picture? Be reasonable.

If these small cuts can't be enacted, what chance is there of real cuts in the future? No, people have been pushed against a wall and can't back up anymore. The fact that Boehner can't even get an agreement to freeze spending at 2011 levels shows how much he's backed down and enough is enough.

Government Today Incapable of Wise Spending

Government today is simply incapable of good spending, that is spending on projects that will produce a positive net benefit in the future. Projects are approved and denied for political reasons, not economic reasons, here's a good example...

http://mjperry.blogspot.com/2011/06/federal-governments-solution-to-non.html

Megabus provides low-cost, non-stop express bus service twice daily between Iowa City and Chicago for fares as low as $10 each way for service on some days, and $18 and $23 on other days. The single and double decker luxury buses offer free wireless Internet, convenient power outlets for laptops and cell phones, and panoramic windows (see photo above), and the one-way trip takes less than four hours. To provide this affordable, convenient, dependable and low-cost daily bus service between Iowa City and Chicago, Megabus receives no taxpayer funding, federal or state subsidies, loan guarantees, support payments, etc.

So what's the federal government's response to the "non-problem" of affordable public transportation between Iowa City and Chicago? At New Geography, Wendell Cox writes:

"The federal government is again offering money it does not have to entice a state (Iowa) to spend money that it does not have on something it does not need. The state of Iowa is being asked to provide funds to match federal funding for a so-called "high speed rail" line from Chicago to Iowa City. The new rail line would simply duplicate service that is already available (Megabus).

Perhaps most surprisingly, the luxury buses make the trip faster than the so-called high speed rail line, at 3:50 hours. The trains would take more than an hour longer (5:00 hours). No one would be able to get to Chicago quicker than now. Only in America does anyone call a train that averages 45 miles per hour "high speed rail."

The state would be required to provide $20 million in subsidies to buy trains and then more to operate the trains, making up the substantial difference between costs and passenger fares. This is despite a fare much higher than the bus fare, likely to be at least $50 (based upon current fares for similar distances). By contrast, the luxury bus service charges a fare of $18.00 (or less, see above), and does not require a penny of taxpayer subsidy.

Here in Los Angeles, we have the worst subway system in the world yet it was the most costly to build per mile. I have used the Shanghai, Paris, Hong Kong, Beijing, New York, and Bay Area subway systems more than I have used the LA one even though I have lived in LA for more than 30 years. The system could be made better if it went to more areas. Right now, the entire West Side and beaches are uncovered. Instead of spending money on projects that would reduce traffic and increase living standards, we have ridiculous projects like the one above along with another "high speed" rail project that proposes to link LA with San Francisco at some point. Yet this project will begin by linking two communities I've never heard of in the Central Valley. This is only the tip of the iceberg though.

http://articles.latimes.com/2011/may/16/opinion/la-ed-bullettrain-20110516

The train's biggest problems can be laid at the feet of the High Speed Rail Authority, which is overseeing its construction. Inexperienced board members appointed by the governor and Legislature on the basis of political patronage rather than expertise have made a host of poor decisions. Not the least boneheaded of these is the board's plan to take a circuitous route from Los Angeles to Bakersfield by veering through Palmdale and Lancaster. Compared with the more direct route along Interstate 5 through the Grapevine, this would add 30 miles to the trip plus $1 billion in construction costs, and make it all but impossible for the train to meet its promised travel time of 2 hours and 40 minutes from L.A. to San Francisco.

Instead of these stupid projects that will produce ongoing legacy costs forever, a better idea might be just to give people money to spend in the form of debit cards. These projects not only do not produce a positive net future benefit, they produce a NEGATIVE benefit as they will be in the red and cost government resources to maintain for as long as they operate. These are only some of the reasons why more government spending is so opposed at this time.

Reason Why Deficit Reduction Must Include Medicare

The discretionary budget is much smaller than the non-discretionary entitlements part which includes Social Security, Medicare, and Medicaid. Of those three, Medicare and Medicaid spending are projected to grow the most. So in order to "fix" the budget and get us to where we can run sustainable deficits of approx. -4%GDP, I see no way out other than to tackle Medicare and Medicaid.

I support ending subsidies for corporations including the green subsidies that are so favored right now along with all farm subsidies, but that's just a drop in the bucket.

I also support reducing the defense budget and eliminating costly weapons projects that deal with an enemy we don't have and won't get into a war with, such as Russia and China. Both have nuclear weapons and a war would end in mutual destruction. Due to the proliferation of nukes amongst high tech nations, conventional weapons such as fighters, bombers, and so forth are unlikely to be ever used so there is no need for them. Cutting defense spending would be a help in reducing the deficit, but again, not enough.

At least Ryan made a proposal. It's time for Democrats and President Obama to likewise, make a serious proposal that would reduce the deficit to manageable means. Constantly bashing Ryan's proposal gets us no further towards a solution, there has to be an alternative for the discussion to move forward and we haven't seen it yet. And to cut off the usual cries of tax the rich, that won't be enough either if Obama sticks to his promise that no one making under $250,000 will see a tax increase.

Greece Will Default

The biggest problem with Greece is that they are not competitive within the Eurozone. Iceland did not suffer as much because they were able to devalue their currency, making themselves competitive again. Greece has the Euro, so their only option is to undergo a long and sustained deflation until their wages and productivity become in-line with the rest of the Eurozone.

According to http://www.uncwlibertarians.com/2010/06/greek-public-sector-employment.html

"Approximately one million people, or one out of four working Greeks, is employed by the state. More than 80% of public expenditure goes toward the wages, salaries and pensions of these public-sector workers."

These workers only work 37.5 hours a week and the average retirement age is 61. It's not only that these public sector workers are unproductive, they also received massive wage and benefit increases within the past decade as Greece was able to reduce its debt interest payments costs thanks to joining the Euro.

http://www.telegraph.co.uk/news/worldnews/europe/greece/7646320/Greece-why-did-its-economy-fall-so-hard.html

"Greece went on a spending spree, allowing public sector workers' wages to nearly double over the last decade, while it continued to fund one of the most generous pension systems in the world. Workers when they come to retire usually receive a pension equating to 92 per cent of their pre-retirement salary. As Greece has one of the fastest ageing populations in Europe, the bill to fund these pensions kept on mounting."

http://www.bbc.co.uk/news/10099143

"The government is planning a pay freeze for all public sector workers.

Some pay cuts will also be implemented, and public sector contract workers are set to lose their jobs.

This follows several years of continuous increases in pay, with salaries rising by an average of 30% since 2006.

Annual bonus payments - paid as 13th and 14th month salaries - will also be scrapped for high earners and capped for lower earners."


This crisis didn't just come out of left field, it arose due to years of overspending and pay increases for an already under-productive government workforce. A 100% increase in wages over a decade without a corresponding rise in productivity is a recipe for disaster. Austerity, meaning a cut to reasonable wages and benefits is definitely called for.

However it will take time for Greece to restructure its economy and time is what they don't have. They dug a hole so deep that it's just not possible for them to continue on with the debtload that they have. I believe that they will have to default (restructure in PC speak). Another round of loans from the EU will just delay the inevitable, Greece needs economic growth to reduce their debt/GDP ratio, but it takes time for laid-off public sector workers to transition into the private sector. At this point, austerity measures will only decrease GDP making things worse. Unless Greece can get a large enough EU bailout that will finance all their needs for the next decade, they will have to default.

We're All Capitalists

Jonah Goldberg's article for the AEI neatly summarizes the problems with socialism and why we're all capitalists at heart.

If by "capitalist" you mean someone who cares more about his own profit than yours; if you mean someone who cares more about providing for his family than providing for yours; if you mean someone who trusts that he is a better caretaker of his own interests and desires than a bureaucrat he's never met, often in a city he's never been to: then we are all capitalists. Because, by that standard, capitalism isn't some far-off theory about the allocation of capital; it is a commonsense description of what motivates pretty much all human beings everywhere.

And that was one of the reasons why the hard socialism of the Soviet Union failed, and it is why the soft socialism of Western Europe is so anemic. At the end of the day, it is entirely natural for humans to work the system--any system--for their own betterment, whatever kind of system that may be. That's why the black-market economy of the Soviet Union might have in fact been bigger than the official socialist economy. That is why devoted socialists worked the bureaucracy to get the best homes, get their kids into the best schools, and provide their families with the best food, clothes, and amenities they could. Just like people in capitalist countries.

It's why labor unions demanded exemptions and "carve-outs" from Obamacare for their own health-care plans. And why very rich liberals still try their best to minimize their taxes.

The problem with socialism is socialism, because there are no socialists. Socialism is a system based upon an assumption about human nature that simply isn't true. I can design a perfect canine community in which dogs never chase squirrels or groom their nether regions in an indelicate manner. But the moment I take that idea from the drawing board to the real world, I will discover that I cannot get dogs to behave against their nature--at least not without inflicting a terrible amount of punishment. Likewise, it's easy to design a society that rewards each according to his need instead of his ability. The hard part is getting the crooked timber of humanity to yield to your vision.

continue reading the rest of his great article here.

Ratings Agencies: The Monsters Congress Created

It should also be noted that ratings are only important for regulatory reasons. Congress created the game, made these private agencies which are just companies issuing opinions on others, into God-like emperors who pronounce if some debt is worthy of inclusion in a pension fund or not.

Even more important is how AAA securities are treated under Basel and Basel II for capital requirements. AAA securities count 100% towards capital requirements while non-AAA securities start off at 50%. Again, Congress created their own boogeyman through bad regulations. It's important to get regulations right or else very unintended consequences can occur.

People should understand that no large investment or financial management company depends upon ratings to determine risk. Everyone from Fidelity to Paulson with his hedge fund has their own analysts and do their own research. No one except for maybe mom and pop (they probably aren't buying CDOs) use S&P, Moodys, or any agency to determine the risk level of default.

Then why are the agencies important? Because Congress made them so. They're part of the regulatory process thanks solely to Congress. And Congress has frozen out all other competitors, even those who have better track records, only a certain select few ratings agencies can issue ratings that "count" towards regulatory requirements.

Thanks to regulations, it was just too tempting for certain greedy institutions to hold AAA securities that count 100% towards capital requirements and pay a good yield over AAA US Treasuries. The very fact that CDO AAA always yielded more than AAA corporate bonds which in turn always yielded more than AAA US Treasuries shows that the market was aware that not all AAA were created equal. But since regulations treated them equally, we have a little discrepancy that ended up fueling (along with a bunch of other factors) the crisis. Now can people understand why regulations have to be very carefully crafted and the urge to just pass any regulation is probably very stupid?

Government Failure: Another Example

Regulations will not work if the regulators refuse to do their jobs. With regards to the massive $8 billion dollar Robert Allen Stanford fraud, the SEC did just that. An internal report released on the same day the Goldman case was filed (of course), revealed that the SEC knew of the fraud as far back as 1997.

The OIG investigation found that the SEC’s Fort Worth office was aware since 1997 that Robert Allen Stanford was likely operating a Ponzi scheme, having come to that conclusion a mere two years after Stanford Group Company (“SGC”), Stanford’s investment adviser, registered with the SEC in 1995. We found that over the next 8 years, the SEC’s Fort Worth Examination group conducted four examinations of Stanford’s operations, finding in each examination that the CDs could not have been “legitimate,” and that it was “highly unlikely” that the returns Stanford claimed to generate could have been achieved with the purported conservative investment approach. Fort Worth examiners dutifully conducted examinations of Stanford in 1997, 1998, 2002 and 2004, concluding in each case that Stanford’s CDs were likely a Ponzi scheme or a similar fraudulent scheme. The only significant difference in the Examination group’s findings over the years was that the potential fraud grew exponentially, from $250 million to $1.5 billion.

While the Fort Worth Examination group made multiple efforts after each examination to convince the Fort Worth Enforcement program (“Enforcement”) to open and conduct an investigation of Stanford, no meaningful effort was made by Enforcement to investigate the potential fraud or to bring an action to attempt to stop it until late 2005. In 1998, Enforcement opened a brief inquiry, but then closed it after only 3 months, when Stanford failed to produce documents evidencing the fraud in response to a voluntary document request from the SEC. In 2002, no investigation was opened even after the examiners specifically identified multiple violations of securities laws by Stanford in an examination report. In 2003, after receiving three separate complaint letters about Stanford’s operations, Enforcement decided not to open an investigation or even an inquiry, and did not follow up to obtain more information about the complaints.

It is any wonder why I am so cynical over government control and fixes for our economy?

More Thoughts on SEC vs. Goldman Sachs

Didn't ACA, IKB, and everyone else have the same information on the RMBS in the CDO as Paulson did? That the great Paulson wanted to bet against this CDO was of supreme importance, why? Because he's an omniscient god?

Goldman acted as a broker/middle-man. It's not their responsibility to advise against trades that they don't think will work out well. Imagine if you entered a market buy order for Goldman stock on Monday and it was canceled because your broker thought that would be a stupid move. I'd be furious.

My take is that Paulson thought the subprime real estate market was going to hell and he needed a way to make a bet. So he asked Goldman to find a manager, ACA, that would structure something he could bet against. Paulson could have been wrong, he had no special information on the RMBS he picked along with ACA correct? He was just smarter and better than everyone else who had the same information. The information included credit scores, loan-to-value, etc., Paulson's opinion of the mortgages and of the real estate market isn't relevant. Is he God?

People are looking at this in retrospect with perfect hindsight. I ask you all to come up with a list of 10 stocks that you want included in some sort of "sure to lose money" index. The point is that Paulson had nothing to do with the low yields the buyers were willing to take or the low payments the CDS issuer was willing to accept for writing insurance. The more I understand the situation, the more I think this is totally BS!

SEC vs. Goldman II

I was wrong and Goldman only acted as a middleman/broker in the transactions, they did not directly issue CDS and did not have positions in any of the transactions.

As I read more and more, it seems the SEC is really going to have a hard time proving anything. All Goldman did was find participants, they acted as a market-finder and had no skin in the game. Were they supposed to issue updates on what one of their customers, Paulson, was doing? Or basically say to the CDS issuer, "Hey, don't you know the great Paulson is on the other side of the trade? He's never wrong, and you're going to get taken!".


I think I understand the situation almost completely now. Paulson saw the crisis coming and wanted to bet against housing. But how? There isn't a subprime mortgage index or anything like that so he first had to create a reference index that he could bet against. That was the CDO made up of subprime loans rated Baa2 that he expected would be in trouble. So he asked Goldman to find someone who could act as an asset manager and structure such a CDO so that he could bet against it. Goldman did in ACA. ACA had all the information Paulson did on credit scores and so forth, and subsequent investors would also. After the CDO was structured, Paulson bought CDS on it and he turned out to be correct. Those issuing the CDS had the relevant information, that Paulson wanted to bet against this CDO all along wasn't relevant. It's like if I bought Goldman Sachs tomorrow and I didn't know George Soros was selling me his shares. So what? I'm buying because I see that the SEC has no case, who cares if Soros is selling?

If there is a culprit here, it is Paulson, not Goldman who only acted as broker. Still it is a stretch, Paulson didn't have any information that wasn't available to everyone else. He was just smarter and better.

Analysis of SEC's Case Against Goldman Sachs

Those who want to read the actual complaint made by the SEC should go here. After reading the complaint, the SEC's case can be split into two parts.

PART 1

Goldman mislead ACA, the third party picked to head selection of securities, that Paulson, a person also involved in the selection of securities to be included, would have skin in the game of the final CDO.

On January 10, 2007, Tourre sent an email to ACA with the subject line, “Transaction Summary.” The text of Tourre’s email began, “we wanted to summarize ACA’s proposed role as ‘Portfolio Selection Agent’ for the transaction that would be sponsored by Paulson (the ‘Transaction Sponsor’).” The email continued in relevant part, “[s]tarting portfolio would be ideally what the Transaction Sponsor shared, but there is flexibility aroundthe names.”

then

47.
On January 10, 2007, Tourre emailed ACA a “Transaction Summary” that included a description of Paulson as the “Transaction Sponsor” and referenced a “Contemplated Capital Structure” with a “[0]% - [9]%: pre-committed first loss” as part of the Paulson deal structure. The description of this [0]% - [9]% tranche at the bottom of the capital structure was consistent with the description of an equity tranche and ACA reasonably believed it to be a reference to the equity tranche. In fact, GS&Co never intended to market to anyone a “[0]% - [9]%” first loss equity tranche in this transaction

Considering that what Goldman described was a CONTEMPLATED capital structure, I think this alleged deception will be very hard for the SEC to prove. It's up to ACA to do due diligence as they were hired to do just that, act as a neutral third party analyst for the selection of securities to be included in the CDO.



Later on, ACA's parent company would write insurance on the CDO. The SEC claims that ACA wouldn't have done so if they knew that Paulson had gone short (bet against the CDO since he helped pick the underlying securities. However I think that's a very weak argument as ACA also helped pick and had ultimate say in that they could have refused to put their name on a CDO they didn't like.

61.
ACA’s parent company, ACA Capital Holdings, Inc. (“ACA Capital”), provided financial guaranty insurance on a variety of structured finance products including RMBS CDOs, through its wholly-owned subsidiary, ACA Financial Guaranty Corporation. On or about May 31, 2007, ACA Capital sold protection or “wrapped” the $909 million super senior tranche of ABACUS 2007-AC1, meaning that it assumed the credit risk associated with that portion of the capital structure via a CDS in exchange for premium payments of approximately 50 basis points per year.
62.
ACA Capital was unaware of Paulson’s short position in the transaction. It is unlikely that ACA Capital would have written protection on the super senior tranche if it had known that Paulson, which played an influential role in selecting the reference portfolio, had taken a significant short position instead of a long equity stake in ABACUS 2007-AC1.
63.
The super senior transaction with ACA Capital was intermediated by ABN AMRO Bank N.V. (“ABN”), which was one of the largest banks in Europe during the relevant period. This meant that, through a series of CDS between ABN and Goldman and between ABN and ACA that netted ABN premium payments of approximately 17 basis points per year, ABN assumed the credit risk associated with the super senior portion of ABACUS 2007AC1’s capital structure in the event ACA Capital was unable to pay.

Part 2

Goldman did not disclose to investors that the selection process involved Paulson who had a short position against some of the underlying securities or similar securities.

41.
On or about April 26, 2007, GS&Co finalized a 178-page offering memorandum for ABACUS 2007-AC1. The cover page of the offering memorandum included a description of ACA as “Portfolio Selection Agent.” The Transaction Overview, Summary and Portfolio Selection Agent sections of the memorandum all represented that the reference portfolio of RMBS had been selected by ACA. This document contained no mention of Paulson, its economic interests in the transaction, or its role in selecting the reference portfolio.

I think this is the only place where the SEC might have a case. But did Goldman have to disclose Paulson's role? After all, Paulson is just another client of the firm and so does it have to keep track of what each and every client is doing? What if Paulson had entered into short positions with another firm instead of Goldman, clearly then Goldman would not have known (but he didn't). It was known that the underlying securities would be based on subprime mortgages rated Baa2, does Goldman have to reveal that Paulson, who played a part in the selection of the particular mortgages, had a negative view of the mortgage market and bet against those securities?

In the end, a stupid German commercial bank, IKB, decided to purchase $150 million of the CDO in two tranches. They lost just about all of the $150 million while Paulson, who had purchased credit default swaps on the underlying securities, profited. The CDS was purchased through Goldman, which means that Goldman "lost" money as they had to pay out on the CDS. That will add complications to the SEC case, but the SEC claims that the money IKB lost went to Paulson which isn't directly true. IKB lost money through purchasing a CDO offered by Goldman. Paulson made a bet on securities that the CDO was based upon or similar securities and collected his insurance money from Goldman. Goldman "won" with IKB and "lost" with Paulson, it doesn't follow that IKB's money went to Paulson. We'll have to see what happens, but this is by no means an open and shut case.

SEC Has Weak Case Against Goldman

Today, the SEC filed civil charges against Goldman, a short summary from the NY Times reads,

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

After reading more details of this transaction, I'm not sure if the SEC has a case or not. ACA knew that Paulson was involved with picking the securities, they exchanged e-mails with him and both negotiated over which securities would be included in the CDO.

On January 22, 2007, ACA sent an email to Tourre and others at GS&Co with the subject line, “Paulson Portfolio 1-22-10.xls.” The text of the email began, “Attached please find a worksheet with 86 sub-prime mortgage positions that we would recommend taking exposure to synthetically. Of the 123 names that were originally submitted to us for review, we have included only 55.”

It seems the whole SEC case hinges on the fact that Goldman did not disclose Paulson had purchased Credit Default Swaps (CDS) on some of the underlying securities from Goldman, and was involved with ACA in the initial selection process. However someone else on Felix Salmon's blog raised a really good issue,

“After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure.”

In other words Paulson bought insurance for the underlying portfolio from Goldman.

If the underlying portfolio fails–or if it were to fail–Goldman will have to post collateral.

If Goldman knew that these are bad securities (implying that at some point it has to post collateral to Paulson & Co.) then why would GS structure them in a way that Paulson wants?

Even if for some strange reason GS did structure it the way Paulson wanted and got a fee in return, how can GS be held culpable, given the fact it is long on the underlying insurance?"

This will be a very hard case and is not a clear case of wrongdoing. Goldman was not an underwriter, they were just the broker in the deal. There's no guarantee that anything a broker sells has to be a "good" security in the eyes of the broker or the seller. It's like a yard sale, the buyer knows that the stuff there is junk in the eyes of the seller, but one man's junk is another's treasure. In the financial world, no one is omniscient, Paulson turned out to be right, but ACA had the opportunity to review the proposed list of securities, made revisions, and agreed to the final list. They could have rejected any of the securities on the list, and in fact did reject 21 out of the initial list as well as pick the replacement securities. It was a negotiation and ACA is a big boy who should have done better analysis (actually it's really the willingness of subsequent investors to accept risk for such a low yield). The fact that these were to be based on subprime mortgages at the Baa2 credit level underscores that this wasn't going to be as safe as a government bond.

This occurred on February 2, 2007: “Later the same day, ACA emailed Paulson, Tourre, and others at GS&Co a list of 82 RMBS on which Paulson and ACA concurred, plus a list of 21 “replacement” RMBS. ACA sought Paulson’s approval of the revised list, asking, “Let me know if these work for you at the Baa2 level.”

The only fault I can see is that Goldman didn't correct ACA's false assumptions that Paulson was long in the fund.

On January 10, 2007, Tourre emailed ACA a “Transaction Summary” that included a description of Paulson as the “Transaction Sponsor” and referenced a “Contemplated Capital Structure” with a “[0]% – [9]%: pre-committed first loss” as part of the Paulson deal structure. The description of this [0]% – [9]% tranche at the bottom of the capital structure was consistent with the description of an equity tranche and ACA reasonably believed it to be a reference to the equity tranche. In fact, GS&Co never intended to market to anyone a “[0]% – [9]%” first loss equity tranche in this transaction…

On February 12, 2007, ACA’s Commitments Committee approved the firm’s participation in ABACUS as portfolio selection agent. The written approval memorandum described Paulson’s role as follows: “the hedge fund equity investor wanted to invest in the 0- 9% tranche of a static mezzanine ABS CDO backed 100% by subprime residential mortgage securities.”

All the instant analysis on the mainstream news sites don't do justice to the complexity of the issue. It's a good thing there are blogs out there that will provide real analysis from people who understand the business, but that's bad for the SEC as the deeper you look into the case, the worse it appears for the SEC.

Difference Between Obamacare and Republican Proposals

Mark Thoma is the owner of Economist's View, a blog that i frequent. He's gotten quite a bit of attention thanks to the success of the blog and now contributes to Marketwatch as a commentator. Recently, he wrote this article comparing Obama's revised health care proposal to Republican proposals. I wrote the following response on his blog:


After reading the article, I see a fundamental difference between Republican proposals and Democrat proposals that Mark Thoma seems to have missed. The proposals favored by Obama and the Dems focus mainly on expanding coverage and establishing a system that will pay for the subsidies that are included with the expansion. Whether a person favors such an expansion along with the taxes and fees that must go along to fund it, is a choice that has no objective right or wrong answer. In my judgment and the judgment of most Americans, this is not reform, certainly it's not the reform we wanted. It is perfectly reasonable to oppose a costly expansion of health benefits and the creation of another social spending program when we face huge liabilities with Medicare and Social Security in the future. If expansion is the "reform" Thoma mentions, then I and the majority of Americans oppose reform.

The Republican plans mostly concentrate on cost reduction. This is the kind of reform I and most Americans had in mind when the health care debate first started. We want more affordable health care, we don't want a new program that will expand coverage to the uninsured, most of which are uninsured by choice or have no legal residence.

The public option is the only proposal by Dems that meet the cost reduction requirement of "reform". I'm not against the public option, but it depends on the details. The public option should not be subsidized or receive government funding beyond what private insurers receive. That is it must operate from the premiums it collects, otherwise it would mix in the expansion of coverage which is opposed. It also must operate under the same rules as private insurers, this shouldn't be hard, Congress can just change the rules for private insurers too if they wish, but for the public option to be a true competitor, it must not receive special advantages.

As an economist, Mark Thoma should realize that a public option with the conditions proposed has very little chance of reducing costs. I'm surprised Mark Thoma dismisses rationing so easily, I think rationing is the best and most effective way to reduce costs. The thesis is that we're paying for health care procedures that either aren't needed (all the tests) or aren't a good value (like giving hip replacement surgery to a terminally ill cancer patient with 6 months on average to live). A medical panel or board is needed to investigate and determine which procedures and medicines offer the best value. Insurance companies will tend by allowed or required to deny care based on those recommendations, I don't any other way that would reduce costs by a major amount. Of course liability would have to be reformed too.

Bottom line is that the administration's definition of reform is something that Americans don't want, an expansion of coverage. It's very reasonable to oppose this kind of reform without obstruction as the main purpose. Simply those who do not believe an expansion of health care services, along with the higher taxes and fees needed to fund such an expansion, is wise or beneficial at this point should oppose reform. Obviously Thoma is not one of those people, but he should not ocnfuse rightful and reasonable opposition due to disagreement with obstruction based on politics.

Commentary on Deficit Debate

The issue at hand isn't with the current budget and the huge deficits that may not be possible to cut in this time of crisis. It is with the continuation of these deficits for as far as the eye can see. Furthermore, the administration has attempted to enact additional programs that would be permanent and add to that already endless morass of large deficits. This is what people are concerned about.

There would be no issue if we ran -10%GDP deficits for 3 or so years, but the problems are structural and the current administration and congress refuse to acknowledge or deal with the long term problems that will impact us as soon as more Boomers begin to retire. No one wants to deal with tough issues and choices, but our leaders were elected for that purpose. The country has every right to be pissed, the buck has been passed for long enough, it can no longer be delayed for the next administration to handle.

We don't want to play the blame game. Fine past administrations and congresses put us in this place, but the current crop of officials were elected because we needed change. We needed people who would deal with the buildup of debt and crap and obligations. We didn't elect these officials just so they can whine and continue ignoring the problems of the country like past administrations. We expected real change, and change is difficult. These people who ran on change have failed to be different from the people we wanted to change. Enough excuses, it's time to deal with the situation at hand. Americans do not like whiners in our leadership, they expect decisive actions, not more finger pointing!

The F-22 vs. F-35 Debate And Government Waste

The US has been carrying the cost of defense for both Europe and Japan, the F-35 JSF was developed in order for our allies to share in the costs of defense.

Unfortunately, the defense department is a part of the government and thus, subject to all the waste and stupidity common to government entities. The F-22/F-35 conflict highlights the problem with having multiple goals.

The F-22 is an air-superiority fighter designed to take out tough defenses. With the F-22, there is no need for the F-35 since legacy F-16 fighters would be able to fly in unopposed and above short range SAM systems.

But then our allies wouldn't be able to share in the costs! So F-35 production moves on, but the F-35 is not as good of an air superiority fighter. It can't overcome tough defenses, but it can perform multi-purpose bombing and other roles and is a replacement for the F-16. The main advantage of the F-35 is that it is cheap, or is supposed to be cheap. But with cost overruns, it might cost over $100 million each when it's all said and done, which means POOR VALUE. No surprise that our government cannot get good value for the money.

http://www.f-16.net/news_article3370.html

The F-22 was designed to break stiff enemy air defenses long into the future. F-22 systems have truly no peer in lethality. The F-22 uses extreme altitude, high speed, high quality stealth, and leading edge sensors to kill and survive on its own terms.

What the two USAF leaders don’t understand is that once the F-22 has cleared the huge threats which are enemy long range super surface to air missiles (SAMs) and enemy aircraft, common legacy aircraft can do the rest of the bombing and not get touched by the lesser threats. In other words, current legacy aircraft that are in production now, the F-15, F-16 and F-18 can drop cheap near all weather precision bombs from high altitude and not get touched by shorter range battlefield SAMs, shoulder fired SAMs, anti-aircraft artillery ( “triple A”) and trash fire. “I can touch you, but you can’t touch me”.

Based on this, the USAF has not justified a reason to acquire the F-35. The F-35 is not interchangeable with the F-22. The USAF claiming that it needs an expensive all stealth fighter force isn’t practical.

With its limited funds, the USAF can rebuild its fighter force to meet requirements of expeditionary war and home air defense. This can be done by funding the F-22 to a proper number of aircraft and buying new build F-16s which still contain a significant war fighting capability.

All these issues show why it's so hard for government to get its act together and why it so often wastes money buying stuff that is not a good value. Obama would be lauded as one of the greatest presidents ever if he could only make government get its money's worth when spending.

Fixing Corporate America

What we need are interests of owners (shareholders) and managers to be aligned, and a mechanism for owners to enforce discipline on mangers. With alignment, fraud and taking huge risks would not happen, Enron and the housing mortgage bubble would not have happened. All government needs to do is to legally empower owners to have control over what they own.

Why have we not employed this solution yet? Because it benefits neither government nor the managers who donate money to government. There is huge opposition by managers who are able to game the current system, and government has no incentive to make the changes needed so only inferior reforms are proposed.

All the reforms so far being discussed focus on empowering the government to act on behalf of owners to discipline managers. However that solution is far inferior to giving owners direct power to discipline. With government, interests are still not aligned. Government has its own agenda, some of which do not match that of owners. Owners would trade one master for another, and with government, an even more powerful master.

Those who are truly interested in stopping the abuse and ending what John Bogle calls Manager's Capitalism, need only to increase the power and ease by which owners can set manager pay and replace bad managers. Right now managers set their own pay by stacking compensation committees with other managers, and by staggering board nominations and preventing alternative proposals from appearing on the official, company paid, voting documents sent to each and every shareholder. This sets a high bar for shareholders to organize and inform other shareholders of an alternate slate of management. It also makes it difficult to set pay, the very best that can be done is to reject a compensation proposal, but shareholders can never actually make their own proposal without using their own money to mail and inform other shareholders that such a proposal exists.

The current abuse of the corporate structure can be solved, but there has to be enough will to make the right choices, for government officials and politicians to actually want to solve the problem rather than just increasing their own power and importance. That is the high bar to jump, it won't be easy, which is why there are no proposals being seriously discussed that will actually solve what ails corporate America.

Conservatives and Liberals United Against Health Care Bill Madness

It's incredible that this piece of crap can be passed with everyone against it. Conservatives and liberals both hate it, but somehow it's going through? I don't think it's too late to mount effective opposition, it's time to call the Senators that were on the fence and encourage them to switch over to a no vote. Then the House members, only one Senator has to switch and less than 10 Representatives.

Democrats need to oppose this bill and make sure it never passes. Everyone is in agreement that this is a piece of crap and will fail spectacularly. Once it fails, Democrats will get all the blame, they're the ones who crafted it, who passed it, who control all the levers of government, the backlash will be enormous, the progressive movement will be set back ten years, just as the conservative movement was set back by the horribly incompetent policies of Bush.

You all know what will happen, there is nothing in this bill that will reduce or control costs, when Americans find out that their health care will cost more and be no better, only worse, there will be a lot of anger. We elect Democrats and this is what we get? You can expect another 1994, time for people to DO SOMETHING and voice your displeasure with Senators and Representatives, tell them that you're not in their district but this bill affects everyone in this country and so you are telling them to vote no. If they don't, you'll donate to their opponent come election time and do everything you can to make sure they are defeated. This is the only type of populism that works, the only threat that Congressmen take seriously and the only weapon the people have as powerful as the ones wielded by the large corporations and special interests that have inserted all they've wanted into this bill.

What's Wrong with California

What's wrong with California? I've collected a few articles that highlight the reasons why California is in such serious trouble. A couple of friends have already moved away, I'm thinking of moving myself. If you don't understand what is going on with California, the articles below will reveal the hellhole I call home.

City Journal says,

When I recently appeared on Glenn Beck’s TV show to discuss California’s dreadful fiscal situation, I mentioned that in Orange County, where I had been a columnist for the Orange County Register, the average pay and benefits package for firefighters was $175,000 per year. After the show, I heard from viewers who couldn’t believe the figure, but it’s true. Firefighters, like all public-safety officials in California, also receive a gold-plated retirement plan: a defined-benefit annual pension that offers 90 percent or more of the worker’s final year’s pay, guaranteed for the rest of his life (and the life of his spouse).

Government employees use various scams to boost their already generous benefits, which include fully paid health care and cost-of-living adjustments. The Sacramento Bee coined the term “chief’s disease,” for example, to refer to the 82 percent (in 2002) of chief’s-level employees at the California Highway Patrol who discovered a disabling injury about one year before retiring. That provides an extra year off work, with pay, and shields 50 percent of their final retirement pay from taxes. Most of these disabilities stem from back pain, knee pain, irritable bowel syndrome, and the like—not from taking bullets from bad guys. The disability numbers soared after CHP disbanded its fraud unit.

From the Sac Bee

Just days before Gov. Arnold Schwarzenegger and legislators finalized a water package, including an $11.1 billion bond issue, state Treasurer Bill Lockyer warned them not to do it.

California is already deeply in debt, Lockyer warned, has huge budget deficits and can't afford another big bond issue.

"The days of blithely heaping more and more debt burden on the general fund are over – at least they should be," Lockyer said.

The earmark-laden bond issue, the package's single most controversial element, raises an interesting question: Just how deeply in debt are our state and local governments?

The answer: No one knows for certain, since debt is scattered through myriad agencies in many forms, but well over a half-trillion dollars is a fair estimate.

Lockyer's warning pertained to the state's "general obligation debt," which currently stands at $59 billion, and there are an additional $50-plus billion in general obligation bonds that have not yet been sold. The biggest chunks of debt, however, are the unfunded obligations for pensions and health care of retired public employees.

The latest annual pension report from the state controller covers 2006, when the unfunded liability was $64 billion. But since then, state and local pension funds have lost at least $150 billion on investments, so a reasonable estimate of today's unfunded liability is $200-plus billion. A state commission, meanwhile, says the state-local liability for retiree health care is about $100 billion.

No one keeps complete data on local government general obligation debt, but it appears to be roughly the same as the state's, perhaps $50 billion, plus several billion dollars in debt incurred by local redevelopment agencies.

There are tens of billions in specialized state debt, such as veteran home loan bonds, "securitization" of tobacco lawsuit proceeds, and budget deficit bonds.

The interest that must be paid on all that state and local debt is probably an additional $100 billion, so we're already talking about well over $500 billion.

Forbes weighs in,

Right now California's economy is moribund, and the prospects for a quick turnaround are not good. Unable to pay its bills, the state is issuing IOUs; its once strong credit rating has collapsed. The state that once boasted the seventh-largest gross domestic product in the world is looking less like a celebrated global innovator and more like a fiscal basket case along the lines of Argentina or Latvia.

It took some amazing incompetence to toss this best-endowed of places down into the dustbin of history. Yet conventional wisdom views the crisis largely as a legacy of Proposition 13, which in effect capped only taxes.

This lets too many malefactors off the hook. I covered the Proposition 13 campaign for the Washington Post and examined its aftermath up close. It passed because California was running huge surpluses at the time, even as soaring property taxes were driving people from their homes.

Admittedly it was a crude instrument, but by limiting those property taxes Proposition 13 managed to save people's houses. To the surprise of many prognosticators, the state government did not go out of business. It has continued to expand faster than either its income or population. Between 2003 and 2007, spending grew 31%, compared with a 5% population increase. Today the overall tax burden as percent of state income, according to the Tax Foundation, has risen to the sixth-highest in the nation.

The media and political pundits refuse to see this gap between the state's budget and its ability to pay as an essential issue. It is. (This is not to say structural reform is not needed. I would support, for example, reforming some of the unintended ill-effects of Proposition 13 that weakened local government and left control of the budget to Sacramento.)

But the fundamental problem remains. California's economy--once wondrously diverse with aerospace, high-tech, agriculture and international trade--has run aground. Burdened by taxes and ever-growing regulation, the state is routinely rated by executives as having among the worst business climates in the nation. No surprise, then, that California's jobs engine has sputtered, and it may be heading toward 15% unemployment.

So if we are to assign blame, let's not start with the poor, old anti-tax activist Howard Jarvis (who helped pass Proposition 13 and passed away over 20 years ago), but with the bigger culprits behind California's fall. Here are five contenders:

continue reading

National Affairs writes,

It would be difficult to overstate the magnitude of California's troubles. In economic terms, the state is simply broke: issuing IOUs as payments for goods and services, begging the federal government to back state debt (a request the Obama administration denied), and watching its credit rating plummet. To address a $42 billion shortfall in February of this year, the legislature enacted a package that included the largest state tax increases in American history, leaving California with the highest sales and personal income-tax rates in the country (though Hawaii would supplant its lead in the latter category in May). When another $26 billion shortfall emerged by summer, lawmakers — chastened by the 2-1 rejection of further tax hikes in a May 19 special election — agreed on another package that featured more than $16 billion in spending reductions, including deep cuts to education, health, and social services.

That's not even the worst of it. For all of the high drama that has accompanied 2009's fiscal travails (a stunning populist backlash against high taxes, widespread public-employee protests over spending cuts), California's lawmakers let the crisis go to waste — failing to use the moment to improve the state's financial outlook. As the San Diego Union-Tribune's John Marelius noted:

[California projects] a deficit of between $7 billion and $8 billion for the next budget cycle. Plus, federal stimulus money, $5 billion of which was used to backfill education cuts this year, may not be available. And about the time the next governor takes office, $16 billion in temporary tax increases that were included in [the] February budget deal will expire.

As if that weren't apocalyptic enough, California's short-term ­financial difficulties pale in comparison to its long-term obligations. In the most recent fiscal year, the California Public Employees' Retirement System and the California State Teachers' Retirement System, the state's two largest pension plans, lost a combined total of nearly $100 ­billion — about a quarter of their value — in the market downturn. If legislators thought tackling a $60 billion deficit was trying, they are sure to love the challenge of making good on California's fixed pension obligations — which Governor Arnold Schwarzenegger has estimated are $300 billion in the red.

And fiscal troubles are just the tip of the iceberg. California's percentage of adults without at least a high-school education is the second-highest in the nation (and the fact that 72% of those without diplomas are immigrants only fuels the state's growing problem of social stratification). The Commonwealth Fund has ranked the quality of California's health care lowest of the 50 states. The state has the highest rate of criminal recidivism in the country. It has six of the ten worst cities in the country in air pollution. Los Angeles and San Francisco have some of the most congested roads in the nation, which costs the state's employers billions in lost productivity each year. The state is seriously discussing mandatory water rationing, and has in recent years experienced severe disruptions of its electricity supply. Unemployment is over 11%, and a recent survey of corporate CEOs ranked California the worst state in the country in which to do business. It is losing native-born ­citizens faster than any other state.

Finally, the New York Times offers another clue as to why California is imploding,

Still, what California does often takes on outsized significance because the state’s welfare rolls are outsized. In July, while looking for budget cuts, Mr. Schwarzenegger complained that California had 12 percent of the nation’s population but 30 percent of the people on welfare.

As elsewhere, California’s welfare rolls plummeted after the 1996 national overhaul of welfare, from 921,000 families in 1995 to 466,000 families in 2008, but they did not fall as much as in most states. In the recession, rolls have climbed and are projected to reach 557,000 families in 2010, or about 1.3 million individuals.

Parents with special hardships or the youngest babies have always been exempt from work requirements in California, but now two large groups making up one-third or more of all applicants can also opt out: single parents with a child age 1 to 2, or those with two children under 6.

Ms. Zendejas, 20, is the mother of two boys under 6. She has worked part time as a supermarket cashier, but under the old work-to-welfare rules she was supposed to spend an additional 15 hours in vocational training or searching for a more stable job, an effort that she found too hard to juggle, resulting in a financial penalty.

Now she needs to do none of that to get her check, and the penalty of more than $120 a month is ending, too. “It’s a relief,” she said.

The shit is hitting the fan. It won't be long now until the final confrontation between the various leeches who are sucking Californians dry and the taxpayers who have clearly reached their limits. After a record tax increase and already with the nation's highest sales taxes and second highest income taxes, the budget deficit will again be in the tens of billions. Stay tuned.