It's Not Inflation That is the Danger - It is Interest Rates

As reported on Bloomberg.com by Daniel Kruger and Bryan Keogh the government now has to pay a higher interest rate than the top U.S. companies. Obama Pays More Than Buffett as U.S. Risks AAA Rating.

Last year the money center banks could borrow from the Fed at rates below ½% and use that money to buy Treasuries and keep the 1% for nothing. Since the Fed has raised their discount window rate to 1 % some of the fun is out of the game but what-the-hell, where else can you get paid to take money. That’s why the money center banks have been cleaning up in a bad economy.
From the article:

“The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves.”

 “Last year’s $2.1 trillion in borrowing by the government exceeded the $1.08 trillion issued by investment-grade companies, the biggest gap ever, Bloomberg data show.

Moody's states that interest payments this year will be 7% of the governments revenues and will increase to 11% in three years.  That is a 63% increase in three years.  And that's assuming interest rates don't go crazy.

Social Security Goes The Way of China and Japan

At present the Social Security Administration holds 20% or $2.4 trillion of the $12 trillion that the U.S. now owes. That means that the government will soon lose its single biggest customer of U.S. debt. No one is saying exactly when this will occur but I’ll guess that the party is winding down and will end in the next two years. At the same time the next two largest purchasers of U.S. debt, China and Japan, are trimming their purchases of U.S. debt by 15% a year.


As I wrote last May in, The Honeymoon Is Over And I Want A Divorce - Obama’s Interest Rate Quagmire, there are pressures coming from all directions that will push interest rates up. The dollar has been losing value against all currencies except the Euro and the Pound, which are having their own fiscal problems. As soon as the problems in the EU start to subside the demand for the safe-haven dollar will also decrease.

When the above circumstances are combined with the need to fund an extra trillion a year in spending, interest rates have to move and move big. The first casualty will be a housing market that, because of government intervention, has not been able to work through its current downturn. Higher mortgage rates mean less affordability putting pressure on both home sales and home values that have little room for bad news.

The major money center banks like Goldman and Chase-Morgan have been thriving because the fed has kept the money flow to these guys at full blast and at little or no cost. They have been using that flood of short term money for everything but small business lending. For them it has been the perfect storm. When their interest rates raise the major money center banks will be in the exact place that stated this mess; an immediate cash squeeze.

As the government issues massive amounts of debt, corporate debt will also be entering the peak of their debt cycle. As stated in the Times article below, corporations will be bringing $700 billion of debt to the market. Competition for money is another factor for an increase in rates.

Currently the only positives for the future of interest rates would be if a if the U.S. has a phenomenal economic turnaround or if a war breaks out somewhere leading to another flight-to-safety.
 Posted on HOT AIR by ED MORRISSEY: Social Security starts cashing in US debt

An AP article by STEPHEN OHLEMACHER: Social Security to start cashing Uncle Sam's IOUs

An AP article by MARTIN CRUTSINGER: China trims holdings of Treasury securities

A New York Times article by NELSON D. SCHWARTZ: Corporate Debt Coming Due May Squeeze Credit

The Recession Of 2011 Caused By A Credit Bubble?

Two years ago I showed a small article in the WSJ to a friend, the article was about two unknown hedge funds that were failing. My point was that this was just the tip-of-the-iceberg, the first signs of a much bigger problem; the unraveling of the credit market.

Since then, the government has tried to fix the collapse of the credit market by re-inflating it with government debt. Every week the Treasury sells $10’s of billions of “Treasury Notes” to fund that debt. Insurance Companies, Pension Funds, and Municipalities that are required to invest in ultra safe bonds buy about 45% of these and the remainder is purchased by foreigners that need to find a safe place to park their money that they get from selling their goods to the U.S..

Increasing the money supply, cash in circulation, stimulates the economy. The more money out there the more it flows around.

The Obama budget spends more than $25,000 per every single person in the U.S. than they are going to take in. That works out to a deficit of $42,500 for every working American. That is $42,500 above what we already pay in taxes.

In the short term this is working, but there are several things that are also working against this vast expansion of the U.S. debt and money supply. As the government prints money the value of that money decreases, that is why Obama went to Europe urging them to step up their stimulus. If they also print money then our dollar wouldn’t shrink as far or as fast. The dollar versus the Euro hit a 6 year high in March but has shrunk 7% since then. It is still strong but as you keep expanding the money supply its value only has one way to go.

A weaker dollar also means higher prices. The big disadvantage here is that foreign investors are not going to buy Treasuries if they get paid 2% on the bond and lose 7% to 10% on the dollar conversion when they trade it in. Why not just invest somewhere else where you don’t have the threat of losing money caused by a dropping value in the dollar.

As the government pushes more Treasuries out on the market, the market will push back by demanding higher interest rates. This phenomenon started yesterday with a 30-year sale pushing the rates up to 4.25%. Still very low but it was the first sign that the Obama administration is going to have to pay a premium for their borrowing needs in the future. Interest on government debt was four times what they paid for education last year, that represented 15% of the entire budget and that was at a historically low interest rate. It’s not unconceivable that as borrowing and interest rates increase, that the cost to the budget will take a much larger piece of the pie.

As the interest rates for Treasuries move up so do the rates for other debt such as home mortgages, business loans, auto loans, credit card and school loans are all going to have to raise their rates to compete. Money will become expensive and as this happens business slows down. Even as the economy starts to pull itself out of the doldrums the system is working to take it back down.

The indiscriminant printing of money is inflationary, so far the dollar has been barely hurt because other countries have also fired up their printing presses but have since put on the brakes. This allows other countries to enjoy a stronger currency while the dollar will keep falling. Economists say that you can’t have inflation without strong demand, but if you look around the world, many countries have had extreme inflation in a terrible economy because their currency was debased.

Again this will take a couple of years to play out but I am seriously concerned for my grand kids and yours.

How Is Your 401/Retirement Plan Doing? Because It Is Still The Largest Pool of $$ Left to Raid

The American dream is under attack; better paying jobs are being shipped overseas, our larger companies and universities are contracting out jobs to companies that import H-1B Visa holders that receive lower wages and fewer benefits, the cost of sending our children to university often requires taking out a second mortgage, a major illness can wipe out 40 years of work and saving and now our retirement funds are disappearing.

Craig M. Douglas and Tim McLaughlin penned an article about Boston’s mutual fund companies with major stakes in Citi Group. The largest holder of Citi stock, which have fallen 68% just this year, is Fidelity Investments which purchased an additional 100 million shares in the last quarter of 2008. As I read this article I thought of my previous employer that had their 401k through Fidelity and my son who also has his 401k with Fidelity. At the end of 2008 his fund had lost more than 50%.

It’s more than plausible that a majority of Americans have lost as much as 75% of their retirement. Already we have seen our steel workers retirement being taken over by the government. The auto workers who have worked 40 years building for their retirement are watching as Congress and the media demonizes them for bringing down the auto industry. Wasn’t this accomplished by an auto industry that made promises to workers then failed to provide the funding needed to fulfill those commitments?

The private sector isn’t the only part of our economy that is reeling from the obligations made to future retirees. Many communities offered lavish retirement programs to their leadership only to find themselves under a burden that they are no longer able to fund. Communities have a severe need to raise capital for human services, infrastructure repairs, police and fire services only to find that any increase in revenues are being eaten up by retirement liabilities.

Every week we pay 14% of our gross income to Social Security and Medicare; our esteemed politicians and economists have told us that both will be bankrupt in twenty years. That is if the Federal Government pays back what it has borrowed from it. There has been numerous papers written stating that the retirement age has to be moved up while benefits have to be cut if the Social Security Administration is to survive.

Even the last bastion of retirement security is being taken away from us. With property values dropping in most areas of the country, the equity that many had planned on using for their retirement has disappeared. The family home is the single largest retirement saving investment that Americans have used, that investment has also taken a 25% haircut.

All of this is happening while the government is the only part of the economy that is growing. The future demands for our tax dollars also has to grow which means that we will have less to work with. Even as our weekly checks will grow by a massive $13, the government seems to be on a consumption tax spree. Proposed increases in our taxes are in the pipeline for everything from a 50% increase in the fuel tax, a 150% increase in cigarette taxes, a massive carbine emissions tax will cause our electricity costs to increase (again), water and sewer fees will have to increase as new mandates come on line and the continuing need for school and education funding will affect our property tax.

The only answer I have is counter to the advice of our government; not to consume, not to spend and become even more conservative than I already am.

What Is A Derivative

No one is asking the right questions.

Since the government has now committed to purchase $700,000,000,000 (I think I’ve gotten all the zeros right) in the toxic paper that the banks, domestic and foreign, are holding as assets on their books, I felt it was time to give my vast audience my view of what the government will be purchasing with our tax dollars.

Dictionary.com explains simply: a financial contract whose value derives from the value of underlying stocks, bonds, currencies, commodities, etc. Riskglossary.com defines derivative as: A derivative instrument (or simply derivative) is a financial instrument which derives its value from the value of some other financial instrument or variable.

OK, that tells us that a derivative is a contract-on-a-contract. But what is in these contracts that the average American will now own. Why have the banks cut the value in financial instruments to the point that causes them to go out of business?

Money was raised for home and commercial mortgages by issuing bonds. The banks that originated the mortgage would sell it to someone like Fannie, Freddie or one of the other commercial banks. They would bundle the mortgages and send them to the rating agencies. The rating agencies would rate the best of the bunch as AAA and the rest could be divided up into 15 lower ratings. Since many pension funds, insurance companies, financial institutions or investment groups require a AAA rating on the bonds they purchase, the lower rated bonds have to pay a premium interest rate to entice the sale of these bonds.

That’s where derivatives come in. Thanks to the Community Reinvestment Act of 1977 and its’ reworking in 1995, Congress allowed the banks to become more inventive with the way they sell and fund mortgages. The lower rated bonds are re-bundled with other contracts that could be anything from options and warrants (a contract allowing the purchase of stock at a future date at a specified price), or other types of debt obligations to other bonds themselves. This process snowed the rating agencies to re-rate 96% of the lower rated securities as AAA.

We don’t know what we’re buying. We don’t know what we’re paying for it. But we’re sure it is going to work and hey, we could even make something. This is from the people that voted multiple times against increased regulations to control Fannie and Freddie.

The point is that no one is asking the right questions. The banks and the rating agencies have records to show what is in each of these bundles, but I have not heard one banker or politician ask for that information. It’s time a little light is thrown on this stuff. How can we effectively regulate if we don’t know what we’re regulating. No more free passes.

Reservists And The Job Dilemma

Kathy Robertson, in a Sacramento Business Journal article, wrote about three reservists from the Sacramento area. An interesting story but it fails to present a real and ongoing dilemma that reservists face when searching for a job. Employers don’t want to be put into the position of hiring someone who may be called away at anytime and sometimes for years. Add to that the severe penalties that an employer may face if they try to do what is best for the business and the answer seems simple; an unspoken policy against the hiring of active reservists.

Instead of threatening and punishing employers who step up and take the added responsibility of hiring reservists, we should reward these companies with a tax credit that kicks in when the reservist is reinstated. Lets say a 1/3rd tax credit equivalent to the reservists salary and applied to twice his time of missed work should be sufficient to make a reservist a valued commodity.

Previous articles about jobs and reservists:

Practical Career Training For Ex-Military
Patriot Express Ignored By MSM
Renewed Call For Reservists Legislation
Employers Snubbing Reservists

Support John Kerry’s FORWARN Act.

Imagine that, I actually agree with Sen. John Kerry.

STEVE EDER and JAMES DREW staff writers for the toledoblade.com reports that Senators Kerry and Stabenow support Senator Sherrod Brown’s reform of the WARN Act.

I have often stated that employers are finding numerous ways around the reporting requirements of the WARN Act. I only hope that the final reform passes with solutions that closes the Bill’s loopholes.

I am usually against additional regulations on American employers, but if employers had to provide comprehensive reporting on layoffs and restructuring, we might see a little less of the under-the-table shuffling of staff to hide layoffs and offshoring activities.

Government, SCHIP And The Sin Tax Revisited

Follow-up to: Government Loves Cigarettes

The problem, as I see it, is that government feels that the pool of American tax dollars is bottomless and it is their “responsibility” to create a new tax to fund every altruistic concept. I just don’t believe that government has unlimited authority to take every noble motive and make it theirs. The government has to be given parameters and it’s those restraints that will always cause controversy.

My argument isn’t with the issue of smoking, it’s with the government. I’m just tired of the back door tactics they use to get programs funded and going that will not make it through the front door.

Our government is contentious on purpose; if an issue can’t gain consensus then it should not be ready for prime-time. By providing $35 to $40 billion in initial funding for the SCHIP program we’ll have another huge bureaucracy formed over night that will be in the order of Medicare and Medicaid. It’s the American way to build and grow and the SCHIP would become a launching platform for nationalized healthcare.

Since it’s the implied goal of these “taxes” to further the cessation of smoking, it’s also reasonable to assume that the programs funding will also dry-up. Exactly what form of funding will take place as the sin tax revenues disappear? What are the SCHIP mandates and how are they going to be implemented. How many children will be covered, what will be accomplished by this funding and what will their needs be 5 or 10 years out.

Are we just going to provide funding and then answer these questions based on Congresses directive to go forth and spend. No one wants to deny uninsured children healthcare, but this situation is far from critical and shows no signs of becoming one. There is plenty of time to do it right.

Chicago Transit Gives 1,000 A Free Ride To The Unemployment Line

From an Associated Press article reported on WQAD web site, the CTA took a shot at the Illinois legislature by threatening layoffs and service disruption if the state doesn’t fork over additional funds.

“In announcing the layoffs, CTA officials said the job cuts were part of a contingency plan that would take place in September if the Illinois legislature fails to increase transit funding.”

When digging through the CTA web site I found the “2007 Contingency Plan” (pdf and very slow). The plan offers five paths that the transit authority may take; Option A is a service cut only contingency illustrating total layoffs of 10,833. Evidently this plan calls for a combination of layoffs in August, and fare increases in September, to provide the board with time to determine how to cover the $110 million anticipated shortfall.

What I find of special note is that the first graph illustrates that “pension and health care cost increases” are identified as the principle cause for the anticipated shortfalls. There was no mention of the cost of fuel or the escalated cost of maintaining the 9.6 year old fleet.

Pensions should not be a problem if they were properly funded when the commitment is incurred. This is a significant problem in America today, businesses and organizations, like the CTA, have failed to adequately fund pensions and have put the problem off to-a-later-date.

Inadequate funding of pension responsibilities is going to become a major problem, you will see company after company shift the blame for poor performance on to their older employees.

Our Universities Have To Go Offshore To Find Talent

Are they kidding me that these schools and universities can’t find sufficient talent from their own ranks. If that is the case then what are they turning out???

Printed in BusinessWeek was a list of top 200 users of H-1B visas.

22 NEW YORK CITY PUBLIC SCHOOLS - 642
32 UNIVERSITY OF MICHIGAN - 437
33 UNIV. OF ILLINOIS AT CHICAGO - 434
34 UNIVERSITY OF PENNSYLVANIA - 432
35 THE JOHNS HOPKINS UNIVERSITY - 432
39 UNIVERSITY OF MARYLAND - 404
45 COLUMBIA UNIVERSITY - 355
55 DIS NATIONAL INSTS OF HEALTH DHHS - 322
56 YALE UNIVERSITY - 316
60 HARVARD UNIVERSITY - 308
69 STANFORD UNIVERSITY - 279
70 WASHINGTON UNIV. IN ST. LOUIS - 278
72 NYC-HHC HARLEM HOSPITAL CENTER - 276
73 UNIVERSITY OF PITTSBURGH - 275
74 INDIANA UNIVERSITY - 273
75 OHIO STATE - 271
77 UNIV. OF MINNESOTA - 269
79 UNIV. OF WISCONSIN AT MADISON - 268
82 CLEVELAND CLINIC FOUNDATION - 256
83 DALLAS INDEPENDENT SCHOOL DISTRICT - 255
84 UNIV. OF CALIF. AT DAVIS - 254
85 NORTHWESTERN - 251
87 UNIV. OF MISSOURI AT COLUMBIA - 247
91 UNIV. OF FLORIDA INTL. CENTER - 240
92 UCLA - 239
93 DUKE UNIV. MEDICAL CENTER - 238
94 MOUNT SINAI MEDICAL CENTER - 236
97 BAYLOR COLLEGE OF MEDICINE - 234
98 MASSACHUSETTS GENERAL HOSPITAL - 232
103 OKLAHOMA STATE UNIVERSITY - 223
109 CVS PHARMACY - 213
110 THE PENNSYLVANIA STATE UNIVERSITY - 213
111 UNIVERSITY OF WASHINGTON - 213
113 UNIV. OF CALIF. AT SAN FRANCISCO - 211
114 UNIVERSITY OF MASS. MEDICAL SCHOOL - 210
116 HOUSTON INDEPENDENT SCHOOL DISTRICT - 209
117 PURDUE - 208
119 EMORY UNIVERSITY - 207
120 UT HEALTH SCIENCE CENTER - 207
121 UNIV. OF COLORADO - 207
122 VANDERBILT UNIVERSITY - 205
128 PRINCE GEORGES COUNTY (MD.) PUBLIC SCHS - 203
131 TEXAS A&M - 198
134 UNIVERSITY OF IOWA - 194
141 UNIV. OF CALIF. AT SAN DIEGO - 185
142 WALGREEN'S - 184
143 HOWARD HUGHES MEDICAL INSTITUTE - 184
144 USC - 183
149 MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 175
150 CALIFORNIA INSTITUTE OF TECHNOLOGY - 174
151 CASE WESTERN RESERVE UNIV. - 173
152 UNC AT CHAPEL HILL - 173
153 UNIV. OF ALABAMA AT BIRMINGHAM - 172
163 UT SOUTHWESTERN MEDICAL CENTER - 163
165 MICHIGAN STATE - 161
168 VIRGINIA TECH - 160
171 IOWA STATE UNIVERSITY - 157
172 UNIVERSITY OF VIRGINIA - 157
183 UT M.D. ANDERSON CANCER CENTER - 149
186 WEILL MEDICAL COLLEGE OF CORNELL - 146
188 WAYNE STATE UNIVERSITY - 146
189 MAYO CLINIC ROCHESTER - 146
190 NORTH CAROLINA STATE - 146
194 MEMORIAL SLOAN-KETTERING CANCER - 143
198 LOUISIANA STATE - 142
199 FANNIE MAE - 141

Join The Immigration Reform Debate

As I wrote about before in, How Fortune 500 Companies Can Save $58 Billion a Year -- Just Send 1.5 Million More Jobs Overseas, and Trade Deficit and Exporting American Jobs.

Bussness Week has been publishing a series of articles (list at bottom of page) on immigration reform that is now before Congress. There has not been a better time to get real Visa reform accpmplished than now. Our Senators and Representatives need to demonstate that they are producing results on this front.

The problem is that our H-1B visas and L visas are being misused, with the result being lost American jobs. As an example; an employer will hire foreign IT workers after marketing the position, with a $35k annual salary, to IT workers that would normally start the same job at $65k. After not being able to find a qualified worker at the lower rate they can then qualify for a H-1B visa worker.

The L visa allows companies to bring foreign workers into the U.S., as a transfer, either replacing a American or for training to eventually replace U.S. when they go back to their original country.

What Senators Durbin and Grassley are looking into is the use of these visas by companies that are also laying off American workers. Most of the companies that are participating in “loopholing” the current visa law state that they need to do this to stay competitive. Do we really believe that Microsoft, IBM, Citigroup, Freightliner, Hersey or Washington Mutual wouldn’t find a way to be competitive if they didn’t send hundreds of thousands of jobs overseas. It is just a way to improve the bottom line. Everyone of these companies became who-they-are as American companies, with American workers.

BusinessWeek articles:

Salesman in Chief, January 24, 2007
Work Visas May Work Against the U.S., February 8, 2007
Fresh Ideas for the Immigration Debate, February 27, 2007
Gates to Senate: More Visas, March 8, 2007
Crackdown on Indian Outsourcing Firms, May 15, 2007
A 'Troubled' Immigration Reform Proposal, May 18, 2007
India Links Visa Flap with Doha Talks, May 18, 2007
Table: "Who Gets Temp Work Visas". May 18, 2007
U.S.-India Trade at Risk?, May 25, 2007
Immigration Fight: Tech vs. Tech, May 25, 2007
More Heat for Indian Outsourcers, June 27, 2007

Practical Career Training For Ex-Military

U.S. Department of Labor Veterans' Employment and Training Service, through its Transition Assistance Program, has initiated a test pilot program that provides computer training to ex-military. The training allows the person to obtain a certificate in CompTIA A+ and is currently being taught in Jacksonville, Florida.

A good portion of the initial funding for this program has come from the Hewlett-Packard Co., and CompTIA Education Foundation hopes to expand this training to New Horizons Computer Learning Centers across the country as additional funding becomes available.

This is a step in the right direction and we urge every ex-military person to apply. Even though the goal is to provide free training to 200 people per year, if thousands of applicants are submitted, I’ll bet that American tech companies will step up and provide the funding needed to get it done.

Patriot Express Ignored By MSM

Because of its far reaching implications to millions of Americans, this type of program should have received with a higher level of interest. Could it be that since this program is targeted towards the military that it has received minimal media attention? If this program were targeted towards minority funding, African-Americans or Woman, it would be a headline story with considerable commentary.

Last week the Small Business Administration announced a streamlined loan product, the Patriot Express Pilot Loan Initiative that is based on the SBA Express Program, but with enhanced guarantee and interest rate characteristics.

Another loan program is hardly a devastating news event, but as written about in Bush Abandons Manufacturing, the President and Congress is currently in an anti-business mode. Funding for programs and agencies that aid small business has been cut drastically while taxes and regulatory burdens have increased.

The funding amounts in this program are minimal, not sufficient to allow for a quality Real Estate purchase, it is available to millions of veterans, reservists and their spouses.

I’ve written in Employers Snubbing Reservists & Renewed Call For Reservists Legislation about the dire need for legislative change in the laws regarding reservists. The current law punishes small business and puts a reservist’s application at the bottom of the stack instead of the top, where they belong.

Unfortunately even the SBA Press Release is politically motivated:

"SBA thanks the Presidential Task Force on Returning Global War onTerror Heroes for its guidance and hard work and Veterans Affairs Secretary Jim Nicholson for his devoted leadership,"

Note the typo in their Press Release, they must have been in a hurry.

For information on the program, follow these links: Patriot Express Pilot Loan Initiative & SCORE Web Site

Politics In Maryland Cost Residents $5,300 Per Year

The Washington DC Examiner Newspaper (no author given) printed an interesting article concerning a $1 ½ billion shortfall in the states budget.

The article says that Maryland has a current budget of $30 billion and Gov. Martin O’Malley has ordered legislators to cut $200 million from it. The headlines showing that the Gov. has ordered $200 mil. in cuts looks like he is on top of things and is acting responsibly, when in fact, these cuts represent only 13% of the problem.

The estimated 2005 population of Maryland is 5,600,388, and the State will spend over $5,300 for each resident. My question is; what are you getting for that $5,300?

The GAO Should Apply GAAP At FNM

Back in April I wrote, The Mess Won’t Stop At Fannie Mae, in that article Fannie Mae announced that it would be trimming $200 million from its annual operating budget. After hiring an extra 1,000 staff to sort out the accounting mess that the Office of Federal Housing Enterprise Oversight ordered to be done, it looked like they were back on track. After all, why announce such drastic cuts if the job is not completed.

Washington Business Journal article by Neil Adler Fannie Mea didn’t file their 2005 financial report with the Securities and Exchange Commission until May, 2 and has until next Feb. 29, 2008 to submit the annual report for 2006.

If a public company handled their accounting this way, heads would roll and they would face strong regulatory discipline.

The Mess Won’t Stop At Fannie Mae

In a Washington Business Journal article by Staff Reporter Jeff Clabaugh FannieMae will be attempting to trim $200 million from its annual operating budget. There has been no statement made on where those cuts are to come from but $200 million equates to a lot of jobs.

The article states that FannieMae employs 6,500 with 1,000 of these staffers being hired from 2004 to 2006. That hiring window opened when The Office of Federal Housing Enterprise Oversight released a report on September 17, 2004 alleging widespread accounting errors, including shifting of losses so senior executives could earn bonuses from making earnings targets. Fannie Mae was then ordered to “uncook” their books for the previous 3 ½ years.

From the article:

“In December, the company (NYSE: FNM) announced a restatement of financial results from 2001 through mid-2004 that erased $6.3 billion in previously reported profits.”

Since the blame for this fiasco was directed at booted Chairman and CEO Franklin Raines, some have directed at him:

NLPC Says Stop Franklin Raines’ Rape of Fannie Mae — and Taxpayers

As usual politics make things worse not better:

Carl F. Horowitz is director of the Organized Labor Accountability Project of the National Legal and Policy Center, a nonpartisan foundation promoting ethics in public life wrote in a 2005 article:

“Chairman Michael Oxley, R-Ohio, is the prime mover behind a requirement to force the GSEs to devote 5 percent of after-tax profits to a proposed affordable-housing fund…”

“…That makes them vulnerable to shakedowns, especially by nonprofits that operate on a nationwide scale.”

Did You Get A Tax Refund

There are several issues before Congress that could cost you thousands. The current hot button issue is the AMT. The Alternative Minimum Tax is estimated to add $2,000 to 23 million Americans tax bill this year (2007 tax year).

Alexandra Marks and Ron Scherer, staff writers for The Christian Science Monitor write an excellent article that should be read if this interests you. From the article:

“An estimated 4 million Americans will be subject to the higher AMT this year. The number would have been 11 million, but Congress approved a temporary patch last year. Unless lawmakers apply another patch or pass a comprehensive reform, that number will jump to as many as 23 million people for the 2007 tax year.”

Over on the Captain’s Quarters blog, Chris Muir, who does Day-By-Day Cartoon Inc. pokes fun at the situation in Congress.

On the Heritage Foundation website, Andrew Grossman is Senior Writer and Editor at The Heritage Foundation, penned an article back in November, 2005, When Would the President's Tax Cuts Expire? The following is a list, from that article, of the taxes cuts that have already or will run out:

• Bonus Depreciation: This provision, which changes depreciation schedules for businesses in a way that encourages investment, expired on January 1, 2005.

• Alternative Minimum Tax: Exemptions will decrease by $6,500 per filer on January 1, 2006.

• Small Business Expensing: On January 1, 2008, the maximum amount that a business may deduct will fall from $100,000 to $25,000, which will not be indexed to inflation. Also on that date, the cap for the value of qualifying property will shrink from $400,000 to $200,000, making it more difficult for small businesses to take advantage of this deduction.

• Capital Gains: Rates will rise to 10 or 20 percent, depending upon income, on January 1, 2009.

• Child Credit: This credit will shrink from $1,000 to $500 per child on January 1, 2011.

• The 10-Percent Bracket: This bracket will be eliminated on January 1, 2011, raising the income tax burden of many workers by 5 percentage points.

• The 15-Percent Bracket for Joint Filers: On January 1, 2011, the upper limit of this bracket will shrink from 200 to 167 percent of the upper limit for single filers, creating a marriage penalty.

• Standard Deduction for Joint Filers: On January 1, 2011, this will shrink from 200 to 167 percent of the standard deduction for single filers, creating a marriage penalty.

• The Estate Tax: The top rate for this tax will increase to 60 percent on January 1, 2011, and the value of an estate exempt from taxation will shrink to $1 million, which is less than it is today.

• The Income Tax: Rates will increase between 3 and 4.5 percentage points in each bracket on January 1, 2011.

• Dividends: Rates will rise to match standard income tax rates on January 1, 2009.

Developmental Agencies Face The Music

An article in the Washington Business Journal by Senior Staff Reporter Joe Coombs describes some of the political problems that two local development agencies are having. It seems that the NCRC, National Capital Revitalization Corporation, and the AWC, Anacostia Waterfront Corporation, are under attack by several of the cities councilman. From the article:

“Legislation already has been drafted to eliminate the AWC and NCRC and fold their operations into the Office of the Deputy Mayor for Planning and Economic Development. That bill will come up for consideration "as soon as possible," says Councilman Kwame Brown, D-at large and chairman of the council's economic development committee.”

Across the country development corporations are popping up to act as a bridge between, the often cumbersome, local, county, borough, regional and state agencies that are willing to offer incentives to businesses, that bring jobs into their communities.

It’s been my experience that when governments think that they can “do it better” businesses tend to run. Politicians are only successful when they can introduce the active parties and then take the credit. When they try to deal directly with business, too many peripheral issues come into play.

Governments should have a clear outline of reasonable expectations for publicly funded development agencies to prevent politics, personalities and egos from entering into their performance review. We have seen to much self-serving politics and people have to speak out.

Tennessee Supporting Business

These are the types of programs we need to see more of. Preferably at the federal level.

I often have a problem the canned rhetoric that is constantly being printed about the need for higher education. That’s a nobrainer, what companies are very publicly calling for are highly skilled production workers. Those trained in robotics and engineering prints. Most companies are less than willing to incur the expense and time required to hire and send a new employee to specialized training only to have them leave for a variety of reasons.

From a Nashville Business Journal article by Gwenn Bradley, four years ago Tennessee started an Incumbent Worker Training Program as part of the Tennessee's Department of Labor & Workforce Development that aids companies in recovering the costs involved in that training. The success of this program is evident in the fact that it has grown 50% to 100% a year. This is type of program that all communities need to seriously look at because it creates a base of successful businesses with highly trained residents.

TENNSCO – More Uncommon Common Sense

In a Nashville Business Journal article by Josh Flory, Tennsco a Dickson, Tennesssee manufacturer of business filing and storage systems, needed skilled workers. Hiring people with the training needed was becoming increasingly difficult. Some manufacturers would use this as an excuse to move facilities overseas or to contract production. But Tennsco did the uncommon, the sent their staff to school.

When viewing the companies newsletter (pdf) I was impressed with the emphasis and pride they displayed in their staff.