2015 Budget Deal: How You Will Pay for the Big Bank’s Gambles

(This article is written by Terry A. AmRhein author of “Democracy on the Edge, A Discussion of Political Issues in America” to be published in early 2015.)

 

Last week something unusual happened in Congress.  The Democrats and Republicans actually negotiated to pass the 2015 budget and avoided another government shutdown.  However, something very important was hidden within the budget deal that many people don’t know about or may not understand.  Let me explain.

 

The 2008 Financial Crisis occurred partly because certain big banks like Citibank, JP Morgan, Wells Fargo and Goldman-Sachs had been trading in risky forms of securities.  These securities are called derivatives because they derive their value from trading something else like credit cards or mortgages.  Before 2008 and the financial crisis, big banks bought thousands of mortgages, bundled them up into a huge packages and traded them to willing investors.  Mortgages were considered to be a good investment, people almost never default on there mortgages (right!) and the interest payments on the derivatives is much higher than interest on saving accounts.

 

After the Financial Crisis, congress passed the Dodd-Frank Act in 2010.  Basically the Act’s purpose was to institute regulations to prevent another financial disaster.  One provision, for example, was to prevent banks from using people’s saving accounts to invest in the derivatives markets for the bank’s own profit.  The problem with this is that savings accounts are insurance by the Federal Deposit Insurance Corporation, FDIC.  So if the bank’s investment in derivatives went “bust”, as it indeed did, the banks lose absolutely nothing because the saving deposit is insured.  The bank takes absolutely no risk.  Taxpayers who fund FDIC take all the risk and endure all the losses.  So this type of behavior was prevented by Dodd-Frank.  This portion of the Act became known as the Volcker Rule.

 

Another section of Dodd-Frank prevents banks from trading the riskiest derivatives, such as credit default swaps, as FDIC insured investments.  (Credit default swaps are basically insurance policies that banks can buy to insure the bank against loss of an investment. CDSs can also be treated as derivatives.)   What the banks were required to do was to pull out theses riskiest of investments and trade them through a non-insured affiliated bank.  Therefore if the bank lost these riskiest investments, they would not be FDIC insured and the public would not foot the bill.

 

Of course, banks hated this provision of the Act.  They complained that trading through an affiliate bank was too cumbersome and complex (poor banks!).  The provision of Dodd-Frank to trade the riskiest derivatives through affiliated banks, was exactly the provision that was eliminated by in the 2015 Budget.  Now, you may ask, what the heck has regulating how banks conduct business have to do with the national budget.  The answer is nothing at all.  Congress stuck this into the budget at the last minute because it could and because it would reduce discussion over the issue.

 

Abolishing the trade of the riskiest derivatives through affiliated banks represents a degradation in the authority of Dodd-Frank.  But is this a good thing?  Those who think that regulations on business is bad, may applaud the regulation reduction.  But I’d wager that most people belief that the tax-payer should not be responsible for the risky behavior of big banks, that the regulation was a good thing. After all, who wants to pay for banks to make more money?  Think about it, almost all business regulations, from fair pay, to work safety and work equality, to protecting our environment, result from big business’s unfair practices in the first place.  But of those who extol the success of big business, regulations are bad.  Now that the Republicans have taken over the House and Senate look for congress to slowly dissent Dodd-Frank.  Look for the Volcker Rule to be stripped out of the act: and for the teeth to be pulled out of the Consumer Financial Protection Bureau, an agency developed to protect consumers from unfair bank lending practices, and for regulations covering derivative trading to be reduced.  We will be plunging back into the era before the Financial Crisis and will be setting the stage for the whole episode to occur again.  Only when the American citizens realize that certain regulations are good and necessary and stop believing the myth that businesses should run without regulations, will we have a society where business can be trusted.       

 

There are more people collecting welfare than there are employed?

A conservative friend sent me an article entitled “Death Spiral States?” a little while ago.    The article claims that in 11 states there are now more people on welfare than are actually employed.  My friend than encouraged me to use this information in my blog.  So I think I will.

 

The article originated from a Forbes Magazine article by Bill Baldwin which purported to compare those who are dependent on the government for support from those who work for a private company.  Somewhere in the ocean of internet misconceptions, the idea of working for the government got interpreted as being on “welfare” (a la: Mitt Rommey probably).   

 

Never the less, my conservative friend, not realizing this misconception, apparently  believes that there are more people on welfare in the states of California, New Mexico, Mississippi, Alabama, South Carolina, Illnois Kentucky, Ohio, New York, Maine, and Hawaii  than are actually employed in those states even though there are no references, footnotes or authority provided in the article.  On the face of it, this smells like a dead fish to me but apparently not to my friend.

 

So I did some research on-line.  Politifact.com, a research organization that tests the truthfulness of statements made by political organizations, found that the statement regarding the 11 states was based on the assumption that people working for the government were basically “welfare” recipients, as they were not working for the private sector.  On this basis, members of the US military are on welfare, all municipal workers who repair bridges and roads, all teachers, all policemen, all air traffic controllers are on welfare.  Also government pensioners, Medicaid recipients and wounded military personnel are living on “welfare”.  In fact, the friend sending me the article would be classified as on welfare for most of his working life since he worked for a contractor with the US Nuclear Navy. 

 

Not only are government employees included as “welfare” cases but children are also included as welfare recipients for the 11 states.  Of course children are not employed and should not be included when comparing welfare beneficiaries with employed workers.   Today, what most people call welfare, is administered by the Temporary Assistance for Needy Families (TANF) initiated during President Clinton’s era.  TANF goes to families with children and to children directly.  (TANF limits the life time benefits to 5 years. During that time the recipients must be searching for a job).  According to Health and Human Services, of the 4.6 million people accepting TANF assistance nationwide in 2011year, 3.4 million (74%) were children.  Politifact than did a state by state comparison for 2011 between adults on welfare and employed adults.  The state with the highest TANF welfare recipients was in Maine where the 13,821 welfare recipients amount to 2.1% of the 643,000 employed workers.  In most states, Politifact found that welfare recipients constituted about 1% of the employed workers, no where near exceeding the number of employed people.  (see google “Politifact.com more people on welfare than employed”)

 

However, TANF is not the only welfare program that offers assistance to individuals.  There are other forms of welfare, for example, Supplement Nutrition Assist Program, SNAP, formerly called “food stamps”, is also available. Also Supplement Security Income supporting the elderly and disabled.  There are also housing subsidies, social services, training and education aid and Medicaid.  Many people may be on more than one type of welfare, so there is a high probability of double counting.  Also many, perhaps most, welfare recipients are the “working poor”, they are working but their income level allows them to qualify for additional assistance.  These individuals should be counted as both employed and receiving welfare.  Recipients of these services on a state by state basis are difficult to determine.  However, another fact checking organization, Factcheck.org, did a comparison for the 11 “Death Spiral States” of the numbers of TANF and SNAP (food stamps) recipients compared to those employed.  In the highest state, Mississippi, about 696,000 people receive TANF and SNAP out of about 1,100,000 employed workers.  However the number of TANF and SNAP recipients includes children.  Allowing that about 75% are children and only 25% are adults, Mississippi has adult welfare recipients equaling 16% of the employed work force.  This too is no where near exceeding the number of employed. (see google, factcheck.org, people on welfare exceed number of employed workers)

 

So the statement “there are more people on welfare than there are working”, is a total misconception; it is a rotten smelly dead fish.  

 

WHAT’S THE CONCLUSION?

 

There a several things that bothers me about this issue.  First, my friend, a college educated and experienced individual whom I respect in most cases, swallowed the bait along with the hook.  He clearly accepted the statement.  It astonishes me that an intelligent person can accept such a seemly ridiculous claim without question.  It also disappoints me that I haven’t become rich by selling shares in the new Mitt Romney Bridge that is being built in New York City between Brigham Young and Joseph Smith streets.

 

Another thing that bothers me is the insinuation that all poor people are “bums” or “freeloaders”, living off the efforts of others.  It apparently hasn’t occurred to some people that in a nation of over 300 million there is going to be people that have physical or mental handicaps or through poor life choices, just cannot support themselves without assistance.  This happens in every society.  People on welfare do not choose to be poor and, the vast majority of welfare recipients are truly poor and need assistance.  After all, the government just doesn’t hand out checks without insuring help is needed.  Yet the continuous complaint of conservatives is that we are giving too much money to the “freeloading” poor.   In America we are fortunate enough to be able to provide support for those less fortunate individuals, unlike India, Somalia or Pakistan for example.  Americans pride themselves in lending a helping hand to our neighbor down the street and to those less fortunate.  So how is providing a little help to our unfortunate neighbor through our tax dollars any different?

 

Another insinuation connected with welfare “bums” is that most are people of color.  So here’s the statistics from the US Department of Health and Human Services of the total number of people accepting welfare divided by ethic group:

Percentage of recipients who are white ……….… 38.8%

Percentage of recipients who are black ……….…. 39.8%

Percentage of recipients who are Hispanic ……… 15.7%

Percentage of recipients who are Asian ………….   2.4%

Percentage of recipients who are Other …………..  3.3%

Conclusion, welfare recipients represent people of all races.

 

As I showed above, about 75% of welfare recipients are children.  Giving my friend the benefit of the doubt, he may not have known this.  (But he knows it now!)  When conservatives berate welfare recipients and demand that the cost of welfare be reduced, they are literally taking food from the mouths of children.  Reducing the benefits of welfare will not reduce the number of those needing welfare, it will increase it!  Placing children in a perpetual cycle of hunger and poverty assures that welfare will continue into the foreseeable future.  What will reduce welfare costs though is paying people a decent working wage.  Today the minimum federal wage is $7.50 per hour which equates to $14,500 per year for a 40 hour work week, 50 weeks per year job.  Such a low income is nearly impossible to live on?  Increasing the minimum pay rate, to say $15.00 per hour, $30,000 per year, and the welfare roles will drop along with the crime rate which is indelibly tied to income.  Drop the welfare roles and the money paid out of people’s pockets for welfare will also drop.  Conservatives hate welfare but they aren’t willing to do what’s necessary to reduce it.  They’re going to “pay-the-piper” one way or the other, either they pay welfare and keep people dependent on the government or they are going to permit people to make a livable wage, give incentives for learning and promote decent income jobs so they won’t need welfare.

 

The orchestrators of lower minimum wages of course is business.  Businesses love low wages.  Business pays workers the lowest wage they can to increase profit and then let America support their employees with welfare.  Take Walmart for example, one of the biggest, most profitable retailers in the world.  According to PBS.com, many Walmart employees work less than 28 hours per week so they are part time and get no benefits.  Wages are slightly above minimum wage, but with only 28 hours per week, the annual income is even less than $14,500.  The American tax payer is, in effect, supplementing Walmart wages.  While there are NOT more people on welfare than there are working, I agree that there are too many people on welfare.  We’ve got to wise-up and do what it takes to reduce welfare dependency and get people working for a decent living.  This is the path toward fewer welfare recipients.

   

Budget Debate

Budget Debate

Early on Saturday, March 23, the U S Senate approved a budget for year 2014, the first budget approved by the Senate in 4 years.  The budget calls for about $1 trillion of tax increases and about $875 billion in spending cuts over the next 10 years.  The spending cuts come from reduction in federal health care programs, domestic and military spending and reduced interest on borrowed money.  This budget presents an obvious solution to our country’s financial problems, increased taxes while cutting spending.  This is what an American family would do if they faced financial difficulty, get a part-time job and lower the heating a little bit.  Americans know this, fighting two wars and a severe financial crisis without providing proper funding has resulted in big problems.  As unappealing as it is, most American are not free loaders and are willing to pay increased taxes if it will get us out of this mess.  Most Americans are not free loaders despite what Romney believes.

Unfortunately, Republicans, especially those in the House who must also approve a budget, do not see it this way.  The Republican plan calls for reducing spending only.  This is akin to solving your financial problems by turning down the heat, selling the house, stop buying food and eliminating 6 packs (a really drastic measure).  The Republican plan calls for major cuts to almost all programs in America.  The plan calls for transforming Medicare into a voucher program for the states.  This will effectively destroy Medicare as we know it.  Why anyone would suggest eliminating Medicare that  has helped almost all retired Americans, including the mothers and fathers of those in congress, over the last 60 years, defies reason.  But Medicare does have problems, it’s going bankrupt.  But rather than killing the system, let’s fix it.  People are living longer now, so why don’t we adjust the age of eligibility for Medicare from 65 to say 68 or 70.  This only makes sense.  Congress on the Democratic side should stop fighting an increase in the eligibility age and start fighting to save Medicare.  In addition, Medicare is paid for by a 1.45% payroll tax placed on employees and their employers.  This small amount used to be enough to pay for Medicare services.  Now though, with the high cost of medical care and fewer workers, 1.45% won’t cover the costs.  The answer should be obvious, even to a Republican Congressman, increase the payroll tax on the employee and the employer to say 2% or 3%.  This will still result in the best and cheapest medical service you can buy.  Let’s tell Congress on both sides to fix the system rather then destroy it.

Terry AmRhein

The Death of Twenty Children in Newtown, Connecticut

Yesterday, Friday December 14, 2012, 20 six and seven year old children and six adults were shot and killed at Sandy Hook Elementary School in Newtown, Connecticut.  Last night, merely one day after the murders, several acquaintances defended the right for Americans to continue carrying hand guns.  What on earth will it take for Americans to finally and forever band the possession and sell of hand guns, automatic weapons and extended clip magazines?  Those in Newtown must feel like someone has stolen the very essence of their being.  It is the most severe pain a human can endure.  Yet there is no reason or logic for the killings.  I have two grand children, a five year old and a three year old, one in kindergarten and one in pre-school.  They live near Richmond Virginia.   The senseless shooting in Connecticut could just as well been in Richmond or Wichita, Kansas or Sacramento, California.  It was just random probability that they were in Newtown.  And, as horrible as it is to say, I am so grateful that the random toss of the dice didn’t land on my grandchildren.  But what I fear most is that one day, it could.

Hand guns, automatic weapons and extended clips serve only one purpose, they’re used for shooting people.  Some say they’re used for hurting.  Bull!  Rifles and shotguns are used for hunting, but, hand guns and M-16s are not used for shooting game.  Some say they like shooting at targets.  Yes… so they can better and more accurately shoot people.  Some say that having a hand gun will help keep them safe if someone threatens them with harm.  Bull again!  A hand gun is ineffective to self defense.  If someone really threatens you to the extent that a gun is required to defend yourself, a shot gun is a much more useful weapon.  You don’t need to be very accurate with a shotgun and, even better, the barrel end of a shotgun is very intimidating and may even eliminate the threat of harm all together.  Other folks say that “if everyone carried a side arm there would be less crime”.  Bull! Bull! Bull!  I challenge you to name one crime that was stopped because someone carried a hand gun.  Americas have among the highest number of weapons of any country in the world.  Yet, the number of violent crimes in America isn’t down.  It is the highest in the world.  Wake up America!  Hand guns, automatic weapons and extended clips do not prevent violent crime, they cause it!  The second amendment of the Constitution of the United State guarantees the right for citizens to bare arms but it does not guarantee the right to bear any and every type of arm every invented.  It doesn’t guarantee the right for Americans to own howitzers or tanks or .50 caliper machine guns.  Ignoring the fact that this amendment was initiated while our country was at war with a tyrannical nation and the right to bare arms was really referring to defending ourselves against such a nation, our constitution does not guarantee the right to carry hand guns and automatic weapons.  If such weapons were illegal in America, most likely Adam Lanza, the shooter, would not have been able to carry out such an horrendous act.  It’s only through the vain and selfish obsession of the National Rifle Association, that such weapons are still allowed in the United States.  These people seem to put they own measly desires ahead of the lives of hundreds of people killed by gun fire including those twenty sweet little kids in Newtown.  Now is the time to band together and force a strong, determined and sustained effort to outlaw hand guns, automatic weapons and extended magazines for rifles.  Those in Newtown, Connecticut should take the lead.  A forceful determined effort by 20, or 40 or 100 or one million totally dedicated families can produce revolutionary results.

Introduction

9-11 changed my life.  I remember I was at work preparing for a meeting when I heard the news.  At first I thought it was an accident until the second plane hit the tower.  What on earth has happened!  I was totally distraught; how could anyone hate Americans so much that they would kill 3000 people?  Over the following months and years I began to gather information, to learn why Al Qaeda hates us.  I read many books.  One book written by Sayyid Qutb with a title that translates into English as “Milestones” or “Sign Posts in the Road” was particularly relevant.  Qutb was an Egyptian who was educated in the U. S.  He was a Moslem fundamentalist and was appalled at the decadence and licentious of American culture.  His book extracted excerpts from the Quran to prove that America is evil and that all good Moslems should fight against American culture at every turn.  Osama bin Laden was a disciple of Qutb.  I also read “Approaching the Quran” by Michael Sells which translated many of the suras (verses) into English and then explains their meaning.  The Quran is written in poetic verse and the meanings of the suras are not always obvious.  I learned that, just like the Bible, the Quran was basically a moral book that preached moral ideas.  Also, like the Bible, the Quran has passages that, if taken out of context and misinterpreted by religion fanatics, could be used to incite extreme violence and ultra-intolerance.  I learned that there are really many similarities between the Bible and the Quran; a belief in only one God, a kindness toward your neighbor, the celebration of holy days like Ramadan and Christmas.  Some Moslems extend the belief in one God to extremes such that they will follow the lessons only of God and not any other authority such as a regional or national government or ruler.  Hence, some Moslem governments are intertwined with the Moslem faith and the practice of Moslem law called the Sharia.  Obviously bin Laden believed in this “only one God” principle and was appalled at the United States intrusion into the Moslem holy land of Arabia.

When President Bush announced that Iraq and Saddam Hussein were preparing weapons of mass destruction and that Hussein had contacts with bin Laden, I knew this could not be true.  Religious fanatics do not violate their most sacred law and cooperate with a ruthless dictator.  The Bush administration was perpetrating a fraud on the American public.  There was never a “clear and present danger” to America from Saddam Hussein and Bush and his cronies knew it.  About 3000 Americans were killed in Iraq for no purpose what-so-ever and many books such as “State of Denial” by Bob Woodward confirm that Bush was predisposed to attach Hussein regardless of the facts.  After the invasion, Bush declared “Mission Accomplished”.  Then the special envoy to Iraq, J. Paul Bremer, dissolved the Baath party, effectively eliminating the Iraqi government, and dissolved the Iraqi military.  Benner had just created one million enemies, most of the people in government and all the military people, most of them armed.  It was the dumbest move I could imagine and extended the war for years and added significantly to the death total.

Then came the Financial Crisis at the end of the Bush Administration.  Again, I was astounded.  How would such as strong prosperous nation fall from the height of success and prosperity into the perdition of bankruptcy, foreclosures and massive deficits in only a few months?  Again I took to educating myself.  Much of the information was available on the internet (information is easily available these days although not all of it is true) such as Wikipedia, on National Public Radio and in written articles such as an article in the Rolling Stone Magazine by Matt Taibbi entitled “The Great American Bubble Machine” that describes how Goldman Sachs has been swindling America for decades. 

By this time I was getting sick and tired of lies and half truths, of statements by members of political parties without any proof of their veracity.  Statements such as “Enactment of Obamacare will lead to death panels that dole out healthcare”, to me, were patently absurd.  Any people who believed this, Sarah Palin apparently, has no faith in the American system of democracy and justice. Yet many Americans believed it! 

Well, I’m feed up!  As an engineer and scientist, I try to make my decisions based on facts.  So I’ve decided,  I’m going to investigate various political issues, starting with “healthcare” and “the financial crisis”, to find out the facts and to explain to those people willing to listen (or read) what the situation really is.  I’m not a political scientist, sociologist or politician but I have learned through the years to take complex ideas and break them down into simplified terms that can be understood by non-experts; this is what I intend to do, breakdown the “Political Topics Today” into easily understood articles.  I plan that these articles will be sprinkled with humorous and entertaining interludes as we progress though a topic as well as being informative.  Most of these topics may require some explaining, they are too big to present in one blog.  Therefore they will be broken up into many blogs presented weekly at the http://www.politicaltopicstoday.blogspot.com/ web site.  Next week, the first week, we will start on the topic of Heathcare in America, a timely subject.

This blog will not be effective if people are not aware of its existence or don’t read it.  SO PLEASE, IF YOU ARE INTERESTED IN “POLITICAL TOPICS TODAY”, TELL YOUR FRIENDS, WWW.POLITICALTOPICSTODAY.BLOGSPOT.COM.