Education: Game Changers

We, the United States of America, have been talking about how something needs to done to change education for how long now?

There is no doubt that something needs to be done to help improve education, especially in math and science. But over the past 10, 20, and even 30 years it is just failing to make the broad enough strides necessary to really take America into the 21st Century in the field of education.

It has been kind of like a baseball game where there is only one-out per-side per-inning, instead of three. With only one out, we never seem to get into scoring position, second base, let alone actually scoring a run. The Republicans get half-way around the bases and then their half of the inning is over and the Democrats do the same. And neither side seems to come up with a home run to knock out of the park.

We need some game changers to get some points up on the scoreboard.

Here are mine:

1) Health Care: All educators (all teachers, administration staff, to janitors) in the United States are now part of the Veterans Administration, and the VA is renamed the Veterans & Educators Administration. Not only does this help bring more critical mass to the VA (lower there cost per patient), it; a) makes certain that all teachers have health care, and b) takes the bulk of the costs for health care away from the school districts, freeing up capital to go elsewhere. Educators can opt out if they want to either pay for health care on their own, or have it through their spouse/other family members program.

2) Green Homeowners: All teachers that are also homeowners are sent vouchers to install solar panels, wind turbines, and any other renewable equipment to generate electricity that will work in their area. These homeowners are given $30,000 vouchers to install this green technology equipment. Once the equipment is installed, this will act as a net pay increase for the teachers and at the same time take some pressure off their school district. Additionally they can set up zeroscaping in desert areas and install gray water systems with additional vouchers.

3) Adopt-a-District: A program is setup where each corporation in the Wilshire 5000 adopts a school district. And, that company is given two-times or three-times dollar-for-dollar tax credits for outfitting schools with solar panels, wind turbines, replace lighting fixtures (with ones like Orion Energy is installing), etc. They can also sponsor a math and/or science teacher, where they pay for a college students education and salary once they start teaching for a 2x or 3x tax credit for their adopted district. Companies can supply the school or district with the latest cutting-edge technology in the form of computers, white-boards, networking, etc. Additionally the companies can also put individuals through medical or nursing school and in return that person must give discounted service to educators.

4) Meet Mr. Ed U. Reit: Setup an EduREIT or EREIT, a real estate investment trust that does two main things (in addition to helping out the current oversupply in housing):

a. In the top 200 cities the EduREIT buys and rehabs or builds apartment buildings. It then offers educators, as long as they are teaching, to live in the apartment complex at half the normal monthly payment. The tenets run the complex by committee, all voting on policies like pets, etc. During their time at the apartment complex they must also take additional higher education classes or pay into a fund to eventually put a down payment on a house. A side benefit of these educator complexes maybe to bring them together ideologically, making for a tighter curriculum in the class room.

b. Additionally the EREIT buys distressed homes and finances teachers to get into those houses. Lets say a house was purchased in 2006 for $300,000, and the house is now worth $150,000. The EREIT buys the house at a negotiated price somewhere in between, for our example we will say $225,000, above the market price, but below the overpriced top in the market. This helps out the seller, the financier, and the educator. The home is then sold to the educator at very low fixed long-term rates, and at the current market price. The EREIT absorbing the difference of $75,000

c. In both cases the dwellings are made green tech friendly before occupancy. The idea of the EREIT is not to make a killing, but to be slightly profitable.

5) Education Transportation Fund (ETF):

a. Green tech-energy friendly (maybe natural gas) shuttles for educators are set up, kind of like the hotel shuttles, but to take educators from home to school to home. If they sign up for the program they help the environment and do work on the shuttle while someone else drives. This also sets up a new small business, or adds to an existing one to create, albeit few, jobs.

b. A program is set up to get teachers in electric and hydrogen vehicles. With “filling” stations at the school itself. There is a big debate about hydrogen cars because you would have to build filling stations, but if you built them were the driver works, this takes care of this debate. It also is a educational device to show the school children the future, the laboratory example is right outside in the parking lot. We have to start somewhere, why not with educators? The ETF pays the difference between what a normal vehicle would cost and the green vehicle. Educator pays the rest.

6) Concierge: Set up a “concierge” person with the school district to help educators get those little chores done during the day so they don’t have to, but can concentrate on educating the students instead.

With all of my examples above, they are done in stages: 1) Single parent math and science teachers get to go first in the projects. 2) Then all math and science educators. 3) Then all single parents. 4) Then open it up to every educator.

Now all of my ideas can be tweaked, but these are ideas that actually change the game of trying to improve both education overall, and math and science in particular. We need to come up with things that make teaching more attractive and also take some of the peripheral stresses off of those educators already in the system. Helping them with their health care, housing, power, transportation, and minor daily chores, just might be game changers. These ideas would also act as net pay increases without raising salaries, but lowering costs instead.

The ETF and Concierge programs could also be part of the Adopt-a-District program.

Additionally my ideas try to help out in lowering carbon output at the place that it can do the most good, teachers showing students how to help the environment. The program also helps out the current housing crisis by at least absorbing some of the excess.

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When Chicken Feed Isn't,...well, Chicken Feed.

The expression "chicken feed" used to mean that it was cheap and didn't cost very much.

But try and tell that to chicken and hog farmers who buy corn feed for their stock in the past year.

The policy by the Bush Administration and congress to support the use of corn in the production of ethanol caused the price of corn to go up to over $7.50 a bushel in July 2008. This was after averaging $2.28 for twenty years. Last year's price increase was so much that it hurt livestock growers.

There is a sweeter way for ethanol to go, and I won't sugar coat it for you. Oh, or maybe I will, it is sugar.

Corn is the second most used crop in the world for human consumption behind wheat. But, according the USDA, corn is "the most widely produced feed grain in the United States, accounting for more than 90 percent of total value and production of feed grains."

Sugar has gone up too in this decade, spiking to near $0.20 in December 2005, but not at the level of corn. And this was after languishing at 30-year lows. Sugar had traded in a $0.05 to $0.15 range (before that 2005 run up) for twenty years.

We need to repeal all the legislation endorsing the use of corn in the production of ethanol and switch that to sugar.

Here is why:

1) Sugar is closer to record low prices than corn
2) Hog, chicken, and beef growers are going broke and out of business (this leads to higher pork, beef, and poultry prices at the check out lane)
3) Sugar is a more efficient source of fuel in the production ethanol than is corn
4) The price of corn based products like cereal are up noticeably
5) As a country like China raises it's standard of living, the Chinese consumers will switch to more meat products from grain products (mostly rice) for their diet, pushing prices even higher
6) The American economy is also not as dependent on sugar as it is on corn
7) Using sugar for ethanol just might benefit the obesity problem with children in America
And my number one favorite reason to switch from corn to sugar:
8) Haiti

Haiti as been the ghetto block of North America for decades. And I for one have been ashamed at the United States' lack of effort to raise the standard of living in that country. We go half way around the world to do things, when we should helped have fixed this slum in our own backyard years ago.

I have a philosophy that I call "JOB ONE." The idea of JOB ONE is that you take the worst -what ever it is- and attack it first. If you are the police you go after the worst house in the worst neighborhood in the city. The one with the most police calls with drugs and/or violence. You go in, condemn it, clean it out or level it, then get a contractor to fix it or build a new one in its place. Then you move on to the next house. You start one house at a time. Narrow it down to one problem at a time.

Haiti is (or should be) North America's JOB ONE. The U.S. should find one country on each continent, the worst one, and then identify the worst city in that country, and label them JOB ONE. Then go in and clean up that city, then the country. Then move on to the next targeted JOB ONE.

While corn has backed off considerably because of the fall in the economy, back to around $3.50, feed prices to livestock farmers stayed high because of a lag in the pipeline. Feed dealers had paid the higher price for the corn back in the summer, but prices for pork, chicken, and beef fell along with the wider economy, causing a squeeze to farmers. Higher cost for feed and lower prices for stock. This has caused a rash of bankruptcies for the livestock farmer. I don't need to tell you about less supply and more demand from economics 101.

There is no doubt that when the economy improves, and the emerging countries like the BRIC (Brazil, Russia, India, and China) nations and their peripheral neighbors (Taiwan, Singapore, South Korea, Indonesia, Japan, etc.) start to improve their standard of living, that corn prices will head back to $6.00 dollars, and then more. When this happens we'll be back to higher prices for cereals and meat products again. Hurting the average American, but also hurting the livestock growers even more.

While I want the corn growers to have better in life, I don't want it to be at the expense of their livestock raising cousins, nor do I want it to be hurtful for all Americans, especially the poorest Americans.

Subsidies on corn must be replaced with sugar. Not only will it help us out, it will help out Puerto Rico, Jamaica, the Dominican Republic, and yes, dare I say it Cuba. But it also just might help that little country on our North American block that needs it the most, Haiti.

As we raise the level of income of the average worker in the Caribbean, they just might spend some of it with the United States? And buy a cell phone or an iPod.

DISCLOSURES: I am not a farmer of any kind. I have not invested in either corn, sugar, or ethanol. I do own 100 shares of the Rogers International Commodity Agriculture ETN (RJA), but this would actually be hurt by my policy because it has a larger weighting for corn (
13.61%) versus sugar (5.73%). But, I do eat pork, chicken, beef, and tortilla chips.

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Thinking Long Term: PART III > CEO to Average Worker Pay

This is part three in my series about thinking long-term.
I have been trying to think of ways to reward long-term investors and discourage short-term speculators.

I am not saying that short-term speculators shouldn't be allowed to do what they want to, but not to the point that they hurt the majority of the people and the country as a whole.

CEO to average worker pay has become ridiculous. This is greed, plain and simple.

I don't need to tell you that
CEO to average worker pay has gone from about 30 times in 1970, to around 40 times in 1980, to 400 times and even over 500 times in the 2000s.*

Should CEOs get paid more than the average worker? Sure, as I said before "Pure Communism" doesn't work. But neither does "Pure Capitalism" for that matter. CEOs are "supposed" to be brighter than 90% of average workers, and should be rewarded for both their ability and their willingness to take the weight of a company on their shoulders. But, at the same time there should be limits to this ratio for the entire sanity of the nation.

I propose that the Obama Administration and congress set the limit at:
50 times

But, why should the government step in to readjust this discrepancy? Why should it matter that CEOs are getting more in a year than the average worker will ever earn in lifetime?

For one thing it could lead to violence. If the pay ratio is so out of balance and the economy gets really bad, like the Great Depression, don't be surprised if some CEOs get murdered or there is violence against their families. Workers will get so frustrated that these guys and their families could be in serious danger.

But lets put that aside for a moment:

Let's look at professional sports, the National Basketball Association (NBA), the National Football League (NFL), Major League Baseball (MLB), and even the National Hockey League (NHL).

The major sports leagues have set rules has to how much a team can pay all of its players on a team (although I think many of these players are very overpaid and the leagues should have done more to cap their salaries. Sure, if a guy like Michael Jordan sells tickets and gets a team a bigger television contract, he should get a piece of that. But, giving a guy like Alex Rodriguez $25 million a year is over the top).

Why did the sports leagues make rules for teams to follow in player pay?

To protect the league as a whole. To try and insure the long-term viability of the league in the future. Around the end of the 1960s the leaders of the major sports realized that the league was also a "brand," and should be protected and nurtured. If the leagues didn't step in to protect the brand of league, the teams with the really big pockets would, 1) always win, and 2) keep putting the small teams out of business. Teams like the Boston Celtics, the New York Yankees, and the Los Angeles Dodgers would always get the superstars and the small market teams could never compete.

So, what has that got to do with all big corporations and the federal government?

The United States is also a brand. The federal government must step in and put restrictions on CEO pay to protect the entire "league" of companies that make the United States of America.

Why can't the corporation impose this themselves internally?

Because they know that without regulation that some teams will not play fair, they will break a "gentleman's agreement" and pay more. Only a congressional mandate can "try" and level the playing field. Of course some companies will find fancy ways around the legal restrictions like setting up secret accounts in Switzerland or the Cayman Islands. But hopefully those will be a small percentage and will be found out and prosecuted (like I needed to think of yet another thing to insure lawyers have more work!).

boards of directors will not fix this problem by themselves because they are so afraid that the really good talent will walk and go somewhere else.

Now no doubt that CEOs and boards of directors will scream about this, and if congress passed regulation, the boards will then scream that their CEO will go to Europe, Canada, or somewhere else.

But maybe that is not such a bad thing. If those CEOs are willing to walk then maybe their heart was not really in the company and their priorities were with their wallet. This will mean someone else will step in who really wants to be there in that job.

So, the 10% of CEOs that might flee the U.S., let them go, so be it. CEOs with their heart in the right place will, 1) want to stay, and 2) want to run the company they love, and 3) will think long term. (We could also work to get other countries to join in with us.)

Congress and the Obama Administration must step in and protect the "USA League." This is not only thinking long-term, but it is making it a little fairer for the little guy out there, the average worker. And, it may just save the life of a CEO or protect them from violence against them and their family if things get really bad. A side benefit of government imposed rules just might be that average worker pay actually goes up!

If CEO (and other executive) pay was capped at 50 times, then those dollars just might go to other workers and shareholders. Thus broadening the entire tax base, not just going to buy second homes for executive overseas.

It is time to protect "the league" for all of the teams and average workers out there. This is one other piece that can restore confidence and let the average worker, investor, and voter focus on the long-term. And not worry so much about the near-term.


*For further reading, see:

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Banking in America

Thinking about America's banks:

(This is further thought about this article: "Obama & Co. Invests Our Money in CitiGroup.")

With all of this talk about CitiGroup, Bank of America, Wells Fargo, and the like so pervasive in the news, I want you to think about this:

Start focusing on the GOOD banks and GOOD bankers for now. Then later go back and punish the bad ones.

Lets go back to 1970 shall we: A really good bank could only get so big. For one thing they couldn't cross state lines. So, to be a really good bank they had superior customer service, and because they were restricted geographically they had superior balance sheets. They were also hampered by the basic law of talent, "only 10% of any one group are really great managers." Next they were physically hampered because a good manger could only get so much done in a day.

The game changer: Technology. Technology allowed a good manager to manage more assets and also manage assets remotely. But, they still had their superior customer service in the lobby.

By 1990 the management at banks like NationsBank, Wells Fargo, Bank of America, Washington Mutual (a thrift), Bank of the West, US Bancorp, etc. thought that they could replicate what good banks were doing in a smaller geographic area all over the country.

Problem was, as they bought out the good managers in each state, the good managers eventually "retired" and took the buyout money and started another small bank, or bought into one, or really did retire.

A good group of managers back at corporate headquarters can only manage so many people, and if half of the original 10% of the talent matrix in each state quit (or heaven forbid, all 10%), then the game changed.

The corporate office only had one option left, technology. They shifted good banking from the lobby to the top of towers where they sifted through computer screens looking for an edge. The really good banks had four things; good technology, good management in the lobby, good management in the board room, and good analysis of the other three.

But, now the ability to have good managers in the lobby was gone. (One leg of a four legged stool.) The good managers that were left in the ivory towers knew that they were good bankers back in the day. But, they were so full of themselves and their self confidence, that the hadn't realized that the game had changed and one key component (maybe the one most crucial) was now gone: The GOOD managers in the local lobbies.

This has happened with a lot of consolidation roll ups. (Know the story of Miller Industries for one example?) The investment bankers find a good management team, and come calling on you. They fill your head with what 'geniuses you guys are.' They sing a song about how you 'have done so much, and you can bottle that and roll it out across the land.'

They were right of course, you were a good banker. But they were also trying to make money off of merger and acquisition fees, and/or IPO fees, or the game of growing earnings geographically, or the game of growing earnings by consolidation. But, those things are short term ideas. They only last so long. You were great an managing a 50 branch bank in one state. But, they wanted you to manage 500, or 5000 branches.

But after the buyouts, the other good bankers walked away and now you had to play narrower and narrower spreads on a larger and larger pile of cash. The Wal-Mart approach: VOLUME fixes everything. Or, the AT&T business model, you only make a dime on every transaction, but you have a huge amount of transactions. Problem is a $500,000 loan is not a t-shirt made in China nor is it a phone call. Applying the volume matrix to banking ignores the risk to the individual pieces of the pie. Do you think Wal-Mart would work if they financed that T-shirt for 30-years?

So now the good "lobbyeers" have gone, there aren't enough good managers to watch the berries in the pie. The pie is so large that nobody can watch it all. Nor do they notice that some of the berries put in the pie had turned and were spoiled. So you had rotten berries next to the good ones.

I have moved twice in the last 10-years. How I picked my bank each time? I picked the smallest bank in that market that was publicly traded. 1) Smallest for the "good lobby" model. 2) The extra scrutiny that being public brought. 3) The ability for me to scrutinize their quarterly's myself. 4) I also picked a bank that was primarily a bank focused on small businesses, but also had consumer accounts. And, 5) Easily invest in them if I chose to do so.

Bottom line: Not enough good bankers to manage the lobby of the local branches. Focus on the small banks. Superior M&A, IPO, LBO, etc., talents should not be co-mingled with retail outlets nationwide. This would be like your local family physician being bought out by a group of top flight laboratory researchers.

I'll leave you with a jingle:

"Let's all go out to the lobby,....."

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Health Care Reform and Competitive Advantage

Why do we need universal health care from a competitive business standpoint?

I blogged in "Air, Water, Food, Shelter, and.....," that we needed to nationalize heath care insurance. Let me refine my idea and better explain why:

To nationalize heath care insurance would be a competitive advantage for business, which if it is not now, will soon be a competitive dis-advantage if we don't do it.

Wal-Mart versus Joe's Variety Store:

First, lets looks at Wal-Mart versus Joe's Variety Store. Joe's only has 21 employees, Wal-Mart has 2,100,000. The same dynamics that put most of the stores like Joe's out of business a long time ago, volume, now can come to play in health care. When the Wal-Mart first came to town, Jane's Dry Goods could not compete on price and had to close up. But, Joe's was able to offer superior customer service, and although the prices were slightly higher, they had customers willing to pay the difference. Joe's even joined a purchasing co-op to get better pricing on some goods.

But now, after the cost of merchandise inventory, labor, and facility payments; health care has now past utilities and capital costs to become Joe's fourth highest business expense. And it looks to be getting worse. The store tried to band-aid this by switching to part-time workers instead of full-time workers. But the real good workers left to go work somewhere else, leaving Joe's with rest. So, not only have costs gone up, but productivity has gone down, hitting the store at both ends.

Now there is no doubt, by either Republicans or Democrats, the Right or the Left, Socialists or Capitalists, that the demographics going forward will mean employment shortages in the health care industry and more patients coming through the door. The retirement of the Baby Boomer generation has cemented this fact in stone. (I have advocated for a few years now that we bring females from places like the Philippines in and send them to nursing school, then they must work here for a time period to pay back their education. And then if they are productive they can stay if not, we send them back.)

There is no doubt, if the store were to hire all full-time employees again to raise productivity, that health care costs will soon pass facility costs at Joe's, if they haven't already, and become the number three fixed cost. This is something that they can't afford to do. They would have to close down.

Now Wal-Mart has the financial flexibility and size to help out its own fate. They could give scholarships to medical school students, then after med school and their internship, they must treat Wal-Mart employees for a discounted rate. (The government should give companies huge tax breaks and incentives to give math, science, and medical scholarships. I am talking like for every $1 put in a scholarship, the company should get $2 or $3 [or more?] in tax deductions. This would be better than collecting more taxes and then having the government give out the money because of their, the governments, high administration costs.)

So, just from just looking at Wal-Mart v. Joe's Variety, Joe's can no longer compete, it is either offer health care and hire full-time workers, or hire part-time employees and have poor productivity. In both scenarios Joe's goes Chapter Seven.

Now Joe has now closed his variety store and became a partial owner in the town's local steel mill, Springfield Steel, Inc.

Springfield Steel, Inc. versus Baosteel Group:

Springfield Steel is a very small steel mill, with 153 employees. Baosteel Group is China's largest steel producer, with 15,325 employees.

Now Springfield has remained competitive because of two things: 1) productivity through technology, and 2) the U.S. Dollar. The ratio of employee per ton was vastly superior for mills like Springfield over their foreign competitors with the use of the latest computers and machinery. The power of the U.S. Dollar also helped keep their prices level while other currencies fluctuated in wild swings, causing the foreign mills to mis-judge their capital costs and often be on the wrong end of a currency move.

Going forward these two advantages will evaporate. Baosteel will soon catch up with technology, all they have to do is buy it (or buy one and use reverse engineering to replicate). As the standard of living increases in the BRIC countries of Brazil, Russia, India, and China, and also South Korea, Indonesia, Chile, Taiwan, etc., go up, the U.S. Dollar (because of the debt, deficit, and mis-management) will continue to fall against these currencies. In addition commodity based currencies (countries with a more favorable ratio of commodities to population) like Canada, Australia, New Zealand, Norway, and even Russia, will also see their dollars go up versus the U.S. This will allow a country like China to move more people from an industry like steel production to other industries (their "service sector economy"), and keep overall employment in a narrow band.

As these factors occur, Springfield Steel must now adopt the same tactic that Joe's Variety Store tried. Part-time workers instead of health care costs they can't afford. This will lower production and the employee per ton ratio will narrow. Soon, Springfield Steel will go out of business.

Now is the Time:

Taking health care off of the table for businesses (and employees) is now no longer an option, it is a necessity. Just like debating what is causing Global Warming, it no longer matters. We have to fix it to remain. As I advocated in "Air, Water, Food, Shelter, and.....," taking health care insurance costs away from employers and employees is the best thing that we can do right now to remain competitive and have a future. (Next after that is using the smart-grid and net-grid positive technology to drastically lower energy costs for the same parties. Imagine if the average worker got paid from the electric company instead of paying them? This would have the benefit of higher net taxes and lower net wages for employer/higher net wages for employee, without giving them a pay raise.)

If we do not nationalize health care insurance this will continue to put small businesses at a competitive dis-advantage to larger ones, and then all U.S. companies to foreign ones. Nationalizing heath care insurance is the number thing that we can do to help keep all U.S. companies at a Competitive Advantage. Even a staunch Right-wing Republican Capitalist can see that a competitive advantage would be a good thing.

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Thinking Long Term: PART II > Executive Bonuses

On March 2, 2009, I blogged: "Thinking Long Term: Part I > Taxes on Dividends and Capital Gains," on the topic of, "how to reward long-term investors and discourage short-term traders."

Along that same line I have:

All bonuses paid to corporate executives over $1 million dollars must be put in an escrow account for a minimum term of five years.

If something happens between the date of issue and the date of delivery (that sheds a negative light on the revenues, earnings, moral code, etc., of the company) those bonuses are repealed and canceled.

Additionally, all bonuses paid and placed in escrow will be in the form of common equity (not cash, bonds, preferred stock, or other financial instruments).

This should make executives think long-term and protect the common equity of the company.

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Paulson's Pozole

The following is a work fiction (maybe), names are purely coincidental. Someday this truth will come out (maybe) .

Once upon a time, in a land far, far away, there was a big evil dragon who lived in a cave. The cave was located in the basement of a building between 14th Street, SW, and 15th Street, SW, in Washington D.C., and the building is know only to brave knights as the Bureau of Engraving and Printing. Most people dare not whisper the name of the evil dragon, know as: Inflation.

The knights Alan Greenspan and John Snow got out while the getting was good. They did not want to be Chairman of the Federal Reserve and Secretary of the Treasury respectively when the fungo hit the fan.

I felt that by the fourth quarter of 2007 (I said '07, not 08') that we were already in a recession. But every time I saw economic numbers coming from the Bush Administration I could not believe it. I really came to think that by the first quarter of 2008, they were falsifying the numbers. The numbers had to be worse than what the administration was saying.

Then, Paulson, seeing the cave paintings on the side of Lascaux, came up with this idea: Keep interest rates artificially low, always under 4%, but really try and shoot for 2.5%. Then at the same time, loan money (in the form of preferred stock) to the major money center banks who were in trouble, for 5% to 8%.

The idea was (for an old Wall Street guy) to play the spread between Treasury yields (that they were selling to China and friends) and the preferred stock ("loans") dividends. We'll borrow money for 3% and loan it for 6%, and ten years on, we will make money. The banks will survive, the U.S. Government will make money, we won't have to raise taxes, we will save the economy, and all of us will look like geniuses.

If John McCain somehow won the election, they would continue this policy as long as possible. If Obama (or Hillary) won, they would walk away and let him deal with it.

Of course as time went on, Paulson realized that the problem was 1) bigger than he had originally thought, and 2) was moving faster than he anticipated.

What is that hissing sound?

You remember the old Inspector Clouseau spoof where the villain knocks on the door, Clouseau answers, and the guy outside hands him a bomb with the fuse burning? Clouseau takes the bomb and politely says, "Thank you," and then closes the door. Timothy Geithner answered the door.

The problem with this "playing the spread," even had it really worked, would be to hide the true borrowing costs. The real borrowing costs for anything, a house, a business, what ever, would have been the two rates added together. So, instead of 6% or 7%, it would really be 9% or 10%.

'Why?,' I hear you ask. Because the money being loaned was "printing press" money, not "sweat production" money. If the money is earned through sweat and production, and then loaned, it is real money. But, if it is just printed with no real equity behind it, that money will have to be earned (or sweated out) somewhere else and at some other time. Otherwise this is called inflation. Printing press money in not really money until it is earned, down the road, by somebody else.

Remember that ancient parable: "Wealth is neither created nor destroyed, just moved." (or re-monetized in different forms. Taken from the Law of Conservation of Energy: "Energy is neither created nor destroyed.") That means if you print money, somebody must lose wealth somewhere else. Usually this means all of the taxpayers and then citizens of a country. The effect of loaning printed money is it will act like a coiled spring, and the longer you go, the tighter the spring will become, until you can't hold it any longer. Energy and knowledge (used in a wise and prudent manner) move wealth. This is translated as thus: "Someone will pay."

So, Geithner and Obama can do one of two things: 1) Add a longer fuse until the next administration comes along, or 2) let it go off, and then try to clean up the mess and fix things.

How much do you want to bet that the present administration and Ben Bernanke will do everything in their power to keep interest rates as low as possible as long as they are in Washington D.C.? Come on, bet me.

I still hear a hissing sound in the room that is the United States.

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The "Next Really Big Thing"

I just blogged in "Reagan, Inflation, and Technology," that technology saved Ronald Reagan's butt and put off the inevitable payment for the U.S. because of the high interest rates of the 1970s and 1980s. In that article I said we are paying now because technology does not have: the "next really big thing," ready at this time.

But, if we don't run ourselves completely aground and go broke, there will be a "next really big thing."

So, were with it come from?

In my opinion the next really big things are:

1) Nanotechnology
2) Renewable Energy
3) Stem Cell and new Microbiological Research
4) Off Site Data Storage and Computing (the latter is Cloud Computing)

In the short term, Off Site Data Storage and Computing is too small to keep us from a deepening recession. It would actually take money away from "on site" hardware and software sales, thus not really create many jobs. A computer salesman could shift over from selling computers to selling off site services. No net job gain there.

Stem Cell and new Microbiological Research is also to small right now, and to narrow of a skill set to really help the broad economy right away. You have to be a microbiologist with an advanced degree to really see any jobs here (or a small sliver of administration personal to help them).

Renewable Energy is the one that will employ the most bodies in the near term. From making wind and solar equipment to installing that equipment, it has the best hope right now of any major job creation.

Nanotechnology is the really interesting one. If it was farther along, it would actually aid Renewable Energy and Stem Cell and new Microbiological Research. Nanotech (I think) will really take those two industries to the next level. The level that we have all been hoping and waiting for. Once the nanotechnology industry is perfected and matures, it will revolutionize those and other industries (transportation; via all kinds of crafts-auto, ship, train, air, space, etc.) But, I fear that we are at least five years, and more likely ten, from any real major breakthroughs here.

Combining Microbiological and Renewable Energy is also showing some promise. For example the work being done with algae to produce fuel. Once again, nanotech might mean a major breakthrough here as well. Another area is ethanol, using microbiology to refine sugar to produce more torque than it does now.

As I blogged in "Air, Water, Food, Shelter, and.....," mass-high speed rail-transportation should be another "next big thing," but I am in the minority on this one. It would create a lot of jobs. But (I fear) we have not gone far enough down to convince the jacked-up four-wheel drive users that this is a necessity. To bad, it could answer short-term job creation with long-term conservation solutions and long-term infrastructure investment in one swift move.

So, short term it is Renewable Energy that only offers any sweeping solutions to adding payrolls and righting the sinking ship.

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Reagan, Inflation, and Technology

Back in the 1970s interest rates were high. Logic tells us: that means inflation, higher prices for everything, and those capital costs must be paid for.

But I always felt we got out of the high interest rates of the last half of the 1970s and the entire decade of the 1980s without really paying for it. Yes, we had a nice recession in the early 1980s, and another little one at the start of the 1990s, but with rates at such a high percentage, we should have had a larger one.

Ronald Reagan was Governor of California from 1967 until 1975. The defense industry was a large player in the California economy since early on in World War II. A side-effect of the this was the technology industry. Intel was founded on July 18, 1968, not long after Reagan got to Sacramento. Advanced Micro Devices would start up one year after Intel, May 1, 1969, and has been chasing them ever since. The first link for ARPANET (the Internet's father) was established in 1969. Intel released its first microprocessor, the 4004, in 1971.

Apple would start up April 1, 1976, not long after Reagen left the governorship and ran for president. During that time Hewlett-Packard (started in the 1940s) was making a larger presence in the California economic landscape. The basic technology and computer expansion was poring the foundation of its growth during the time that Reagan was governor, and much of that foundation in California.

By the time Reagan got the White House, the tech boom was starting, Microsoft was now operating, IBM (IBM PC - August 12, 1981) and Apple (Apple II - April 17, 1977) where both coming out with new and easier to use personal computers.

So, at the time when we should have been paying for the excesses of high interest rates, the technology boom exploded. It would move through microprocessors, computers (mainframes, minis, and PCs), software, Internet, mobile phones, email, GNU, GUI, etc. This technology revolution would mask the price that we were supposed to pay for high rates (and inflation) back in the 1980s.

Now Reagan must have seen what was happening in the California economy (in the 70s), and subsequently in the entire economy as a whole (in the 80s). But did he realize that it was helping him out at the time? Instead of paying for high interest rates at the time, it was shifted to new tech companies popping up like weeds, and absorbed by tending to those weeds (lots and lots of jobs and capital). Reagan did not need a New Deal, a Civilian Conservation Corps (CCC), a Tennessee Valley Authority (TVA), a Rural Electrification Administration (REA), and a Works Progress Administration (WPA), etc. The private sector in the form of technology was doing it for him.

Remember Michael Milken, KKR, RJR, and the LBO? These events where also occurring during Reagan's years in the White House. But, we didn't pay the piper for their full price tag (either), for what they were doing, back then. The market tried to collect in the fall of 1987, but somehow, like a bettor needing another fix, we talked it out making us pay up.

Since technology has not come up with the "next really big thing", we are now, finally, paying for what we should have years ago. It is kind of like a bookmaker or loan shark telling you, "I'll give you 20-25 more years." But, time is finally up.

Someone must pay for inflation, high interest rates, over-leverage, junk financing, etc. And, the bookie can wait no longer. Like the grim reaper with hooded-cloak and sickle, the reaper of high interest rates and junk financing is finally at the door.

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Three Complaints about the Internet

I have three big gripes about the Internet.


I am very anal about errors on the Internet. When I find an error on a website, I want to be able to report it, and have the site fix it. But, with these big websites, I find VERY annoying that there is 1) almost no way to contact them, 2) I never hear anything I want back, and 3) they don’t fix the error.

Yahoo! is at the top of my list. But, also eBay, Microsoft, Reuters, FBI.gov, MarketWatch, etc.

I think that this is something that these big entities are dropping the ball on.

So, here is what I want (maybe there already is one and I don’t know about it):

I want ONE central website to report errors too (fixweberrors.org or some such). To act as a central repository for errors. Then this site can work with those other websites to fix errors. So, if you find an error on, lets say FBI.gov, and you can’t find a way to contact them vie email (good luck trying, the only way to contact them is by phone or mail, which I won’t do, do not want to do) you can go to the site and report it, and the people at the site will have a contact with FBI.gov, and the error will get fixed.

Now maybe I shouldn’t worry about errors on the Internet, but it bugs the crap out of me. And, there has to be other anallites out there in surfland.

There is potential business model here for a website, and one that could help other entities with their sites.

Two, OUTSIDE SUGGESTIONS to improve their site/business, etc.:

And, when I do hear back, I sometimes get something like this: 'We can not take outside suggestions for our website.'

Well, to that I say: up yours.

Some guy suggested something some time back, and then when a company did it, him/her sued the company stating it was their idea. So, now there is a blank policy not to accept outside suggestions.

All you need to do is have a form on your website that the user must check giving up all right to the idea. The click "accept" and that is it.

If you have to, after you get a suggestion, mail them a release and have them sign it and send it back.

Three, LACK of DUEL SPEED sites:

I want websites to have two sites, low-band width and high-band width. There I sites that I refuse to visit and use because they offer no low-band width option.

I am out of work, have dial-up, and can not go to some of these websites. I can't afford it and will not pay to upgrade.

So, if you want me and users like me to frequent your site, you will have low-band width content. Have transcripts for videos. Have a way to download videos instead of watching it online. MSN Videos are especially annoying. You go to the site, and try to watch a video, and since you can't stand the nails-on-the-chalkboard choppiness of starting and stopping, you mute it until it is done caching it the first time. Problem, after it takes an hour to cache, it moves to the next video while you are not looking. Then you have to try and find the video again because you don't see it on the menu to the left. ARRRGGGG!!!!

I know that you want us to upgrade and you are secretly pushing us to do so. These websites are wanting users to upgrade with high-speed equipment (cable modems, DSL modems, etc.) and high-speed bandwidth service (cable internet, DSL, etc.).

But, as a little guy, I so NO. I'll just surf somewhere else, or do something else.




Thinking Long Term: PART I > Taxes on Dividends and Capital Gains

The other night, when President Obama was giving his Address to Joint Session of Congress, I started thinking on how to reward long-term investors and discourage short-term traders.

Peter Lynch and Warren Buffett have always espoused to think long term. Buy assets and hold them for a long time. Lynch has said that 'you only need-just a handful of really good companies in your lifetime.' Buffett has been an investor in The Coca-Cola Company and The Washington Post for years, and doesn't plan on selling.

I thought Washington Mutual (WaMu) was one of those companies in 1992 when I bought it. But, they became short-term traders while I was long-term investor. Apparently they had changed their philosophy (when they engaged in reckless leverage for short-term profits) and didn't let me know about it until my money was gone.

So, since we can't seem to change the tax code to a postcard size return with a flat tax, I want to change the way taxes on dividends and capital gains are calculated.

Here it goes:
Now these numbers could be tweaked, but you get the idea. (You could have an exemption in the early years if you had to sell your shares to pay for an emergency medical procedure [s], and your net worth was under a certain amount. You could also skew the rates based on a means test.)

If you are a short-term trader, you will pay dearly for it. But if you are a long-term investor, you will be rewarded for thinking down the road, and about more than just yourself.

The effect of this would discourage the short-term trading philosophies that helped get us into the mess we are in now. It would put a premium on thinking long-term. These hedge fund and leverage buyout firm guys who want to buy a company and then flip it would have to think twice.

I bought companies back in the 1990s to retire on, WaMu, Time-Warner, Tyco, WorldCom, etc. But then these monkeys started thinking short-term and severely damaged these companies (which were all good companies at one time).

Now Warren Buffett has enough money that he can dictate what the boards of these companies can do. He can set policies to be long-term. But, a poor shareholder like me, who is just trying to retire, and can only buy a few shares, has no say what-so-ever.

With a zero tax on investments held for 10-years and longer, company managements and boards just might help align themselves more with the little guy, and make decisions based on long-term wealth building, creating and keeping jobs, and making the country better.

Maybe changing the tax code to favor long-term thinking and investment will benefit not only me, and investors like me, but also the nation as a whole?

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