Armageddon California style updates for 02/09

Time to review the latest events in the California State Budget crisis. Notice I did not label this a progress report since there has not been enough of that to report. However, here are the highlights for this month.

First, John Chiang, the state controller announced suspension of all travel and per diem expense checks for all state employees including the legislators. They receive per diem checks of $173.00 to offset the expense of living in Sacramento. Let's do the math. 120 lawmakers times $173.00 a day is $20,760.00 daily savings. For a 5 day work week, that's $103,800.00 a week. This does not include the travel and per diem expenses for the rest of the state work force. Remember, this is just a suspension of payments due. When the legislators finally get around to passing a budget it will be paid.

Next, Governor Schwarzenegger tried to enact a 2 day a month furlough (days off without pay) for all state employees. John Chiang resisted the effort with the support of state employee unions, so Arnold had to take John to court to enforce it. The courts have already ruled that Arnold can do this since it is an emergency.

On February 10, Governor Schwarzenegger announced that the State of California will lay off 20% of its work force, letting go of those with the least amount of seniority. Wow, that's one out of 5 workers. California has about (for now anyway) 200,000 employees. I can't imagine that in a pool of 200,000 employees some wouldn't be willing to accept an early retirement if some of the payment reductions that usually apply to early retirements were waived. But then again, public employee pensions are very expensive. Maybe Arnold and the lawmakers made a good choice to let go of the least senior employees. If anyone has any thoughts on the subject, share them here.

Time for the USA to change its national bird.

US Treasury Secretary Timothy (doggone, I forgot to file my taxes!!!) Geithner announced a plan to set up a government and private investor partnership to buy up to $1 trillion+ (that's 12 zeroes and 4 commas) worth of troubled assets from the nation's financial firms. In Wall Street jargon this is known as a vulture fund. Since the distressed securities involved are close to dead, this moniker is very fitting, even explicit. Vulture fund investors take the risks involved with deeply discounted securities in hopes that the investments will eventually recover and then be sold at a profit. The biggest risk for VF investors is the market is right about the securities and they are wrong. Most VF investors minimize this risk by researching the companies in the VF to find out what the odds are of a recovery. They also make certain the fund is well diversified so that one failed security will not wipe out any hopes for future profits.
I just do not see how this $trillion+ vulture fund will work. The hope being that trading out these bad debt instruments with money or better debt instruments will encourage the firms to start lending to consumers and businesses again. First, where are the private investors going to come from? How many people will buy into the notion that a portfolio of mortgages issued to people who were not expected to afford them when they were issued has the potential for profit? Not many, that's for sure. Most investors would not touch these portfolios unless they were buying them at pennies on the dollar or if the government were to guarantee the investments in some way. (remember Bear Sterns, AIG, Citigroup, GM, Chrysler, Fannie Mae,Freddie Mac?)
Secretary Geithner's announcement was given a thumbs down response on Wall Street as investors voted with their wallets and sold off a lot of stocks. This in turn led to declines in world stock markets as well.

A Very Brief History of California State Budget Crises

Yes, folks, crises is not an error. It is the plural of crisis. Just since 1992 there have been 3. In 1992 the state funds ran so low that the state employees were issued warrants instead of paychecks. Banks honored the warrants and redeemed them later with a 5% premium. It took 2 months for the legislature to pass a budget.

In 2002, thanks to California's kinda sorta deregulation of the electricity market, there was another crisis. The legislature assumed the competition that(snicker snicker ha ha)deregulation brought would hold prices down until 2 weeks after Heck froze over. So they put a cap on how much electric companies could charge consumers. Yes, the politicos in Sacramento put a limit (AKA regulation) on how much electricity providers could charge their customers. They never thought that inflation would nudge prices up, that developing countries (India, China for example) would not want more oil for their expanding energy needs or anything else would drive prices for electricity production up. In other words, the legislature did not do much thinking at all when they set up this "deregulated" electricity market. When real life kicked in, California's electric suppliers were forced (by legislative fiat of course!!) to pay more for electricity then they were allowed to charge consumers. This brought on rolling brownouts and the recall of Governor Gray Davis.

Now, Arnold Schwarzenegger is Governor and dealing with the same problem. The state of California spends more money than it takes in. If California was a nation onto itself separate from the USA, it would be somewhere between the 5th and 10 largest economy worldwide based on gross domestic product. How does a state with a gross domestic product larger than lots of nations end up with such a deficit that a budget emergency needs to be declared and the state stops paying its bills ??!!! Truth is much,much stranger than fiction.

The First Lady is Smoking Hot!!!!

I saw a picture of President & First Lady Obama walking down Pennsylvania Ave on January 20. The Prez had his overcoat buttoned up, probably due to the ambient air temperature of 20 something fahrenheit. The First Lady had her coat open. Unless she had thermal underwear on, I don't know how she could not feel the chill in the air. Perhaps it has something to do with the fact that she was born and raised in Chicago, the windy city on the shore of Lake Michigan. President Obama was raised in much balmier climates( Hawaii, Indonesia & Kansas) so it would be natural for him to button up his overcoat. Oh well, just more proof that opposites attract! Maybe Barack's balmy nature and Michelle's Chicago heartiness will make for a winning team in the White House. Let's hope so.

Armageddon California Style!

Here's the latest news from the California State Budget Crisis:

John Chiang, Controller for the State of California, announced on Friday, January 17, 2009 suspension of some State debt payments effective Feb. 1, 2009. $3.7 billion will be suspended (AKA not paid) unless the governor and legislature can work together and put together a working budget in 2 weeks. At a news conference in his office Friday, Chiang said "It pains me to pull this trigger. But it is an action that is critically necessary."

The suspended payments include $2 billion in tax refunds, $13 million in student grants and $300 million for elderly, blind and disabled Californians. The tax refunds are actually excess collection of income tax payments to the state from the taxpayers wallets in the first place. This has got to hurt the taxpayers unless they are masochistic, suicidal or both. The $300 million for the blind and disabled may be a place to start trimming the budget. Here is a quote from www.news10.net, the website for News 10 KXTV in Los Angeles:

Also affected are an estimated 1.3 million blind and disabled Californians, like Kathy Hall, who's friend Lillian Duran explained the impact it could have. "She will not be able to pay her house payment, her VISA payment, her rent."

Only in California can the blind and disabled afford house payments and rent, not to mention a visa card. I don't mind a whole lot assistance for someone to pay either a house payment or rent but not both. I also find the visa a little too much. Maybe that statement needs some clarification.

While we're on the subject of clarification, let's review the budget crisis over the last 12 months. Governor Schwarzenegger declared a fiscal emergency for the state of California under the rules of proposition 58, which he sponsored and the voters ratified in 2004. Proposition 58 requires action by the legislature to correct the anticipated monetary shortfalls. 1 year later, they are still trying to resolve the shortfall. Most emergencies and crises have such urgency that 12 months with no resolution is unthinkable.

More on this later.

This posting is dedicated to all the men and women serving America abroad. Army, Air Force, Coast Guard, Marines, Navy, State Dept. and anyone else out there who is working to protect our freedom and interests. Thank You Very Very Much!!!


The week before Christmas 2008
(for Detroit and D. C.)

T'was the week before Christmas and all through the plants,
not a creature was stirring, not even the ants.
The assembly lines were shut down with great care
In hopes that Uncle Sam would soon bring repair.

From politicos in D. C. there rose such a chatter,
"We cannot allow Detroit's factories to be battered!!!"
The Motor City Magi hopped in their private jets
and flew to D. C. to beg for as much money as they could get.

They went to Congress with visions of C-notes in their heads
but were admonished "you should have driven instead!!!"
Back to the Motor City the Magi's chariot's did fly,
all so heartbroken they could have cried.

"Who are these wise-arses to treat us in this manner?
Fannie and Freddie prove us managers much better.
If we could only get back our campaign contributions
that would give us true problem resolution!"

The magi gave a collective shrug and dejectedly sighed
"It's back to D. C. we all must fly.. make that drive!!!"
They ordered their lackeys to acquire them good wheels.

"Get a Ford!! Get a Chevy!!!
Get a Chrysler! Get a Buick!!
No Navigators! no Suburbans!
No Vipers! No Vettes!!!
especially no Camry or Civic!"

The Magi dashed landward to the East this time
Hoping their gestures would work just fine.
Democrats vowed taxpayers they would protect
and still save the industry from its own neglect.

Republicans responded with "wait just a minute,
we can't protect taxpayers without taxation limits!!
We're not Santa Claus, nor the Easter Bunny
The taxpayers just don't have that much money!!"

This put the hot potato in the President's lap
He told the magi" this is the time to act.
I will authorize $14 billion to you.
In return this is what you need to do."

"By march 31 2009 you will have a plan in place
to reverse 30 years losses in the market share race
You must get all your stakeholders to work together
to make your companies a whole lot better."

The magi did thank him for the multitude of bucks
"It's nothing" he said "as Pres I'm just a lame duck.
This time next month you'll deal with a new president
who wants to spread the wealth to all US residents."

This thought made Mr. Bush look forward to Texas
and getting away from the city of taxes.
He was overcome by a flood of so much good cheer
He proclaimed "Merry Christmas and a happy new year!!"

The End (finally)

Why a car czar creeps me out.

During the oil embargo of the early 1970s, President Nixon appointed James Love as Energy Czar to head the newly formed Federal Energy Administration. Now we are stuck with a cabinet level agency, the Department of Energy in its place. Did we really need another bureaucracy in the first place? I don't think so.

My concern is a Car Czar will transform itself into another large bureaucracy. Thank goodness President Bush did not appoint a Czar for 31 days, he just left the responsibility with Treasury Secretary Henry Paulson. The Treasury Dept. is funding the auto bailout so they should oversee the use of the funds.

My advice for President Elect Obama is this. Make a list of all the government agencies that GM Ford and Chrysler have to deal with now. I'll get you started with the obvious, departments of Labor, Commerce, Transportation, EPA. These are just a few cabinet level federal agencies. Don't forget the various and sundry state and municipal governmental entities they deal with. Is another large bureaucracy going to make the Big 3 manufacturers into instant turnarounds? No, it will only strain their ability to turn a profit, the basic ingredient of a viable recovery.