Bain to His Existence --II

Barack Obama has chosen to ignore criticism by prominent members of his own party and continues to to demonize Mitt Romney's tenure at Bain Capital. That's fine, but if private equity deserves scrutiny, and the mainstream media has scrutinized Bain to death, then Obama's "public equity" endeavors also need scrutiny.

In an informative article in The Washington Post, Marc Theissen, outlines the President's amateurish attempt at equity financing and loan guarantees.

Since taking office, Obama has invested billions of taxpayer dollars in private businesses, including as part of his stimulus spending bill. Many of those investments have turned out to be unmitigated disasters — leaving in their wake bankruptcies, layoffs, criminal investigations and taxpayers on the hook for billions.

Thiessen provides the names of six "green" companies, all of whom have failed and put people out of work after the Obama administration invested over 4 billion dollars. That's billion with a "b" and that's your money, not investments from private individuals of organizations.

But that's not the big story. Thiessen continues:

Amazingly, Obama has declared that all the projects received funding “based solely on their merits.” But as Hoover Institution scholar Peter Schweizer reported in his book, “Throw Them All Out,” fully 71 percent of the Obama Energy Department’s grants and loans went to “individuals who were bundlers, members of Obama’s National Finance Committee, or large donors to the Democratic Party.” Collectively, these Obama cronies raised $457,834 for his campaign, and they were in turn approved for grants or loans of nearly $11.35 billion. Obama said this week it’s not the president’s job “to make a lot of money for investors.” Well, he sure seems to have made a lot of (taxpayer) money for investors in his political machine.

All that cronyism and corruption is catching up with the administration. According to Politico, “The Energy Department’s inspector general has launched more than 100 criminal investigations” related to the department’s green-energy programs.

Now the man who made Solyndra a household name says Mitt Romney’s record at Bain Capital “is what this campaign is going to be about.” Good luck with that, Mr. President. If Obama wants to attack Romney’s alleged private equity failures as chief executive of Bain, he’d better be ready to defend his own massive public equity failures as chief executive of the United States.

Looks like Obama's public equity funding of green companies was more about rewarding his bundlers that it was about protecting the taxpayer's money. But why would anyone be surprised—that's the Chicago way.

$42,054

This morning, USA Today reports:

The typical American household would have paid nearly all of its income in taxes last year to balance the budget if the government used standard accounting rules to compute the deficit, a USA TODAY analysis finds.

Under those accounting practices, the government ran red ink last year equal to $42,054 per household — nearly four times the official number reported under unique rules set by Congress.

A U.S. household's median income is $49,445, the Census reports.

The big difference between the official deficit and standard accounting: Congress exempts itself from including the cost of promised retirement benefits. Yet companies, states and local governments must include retirement commitments in financial statements, as required by federal law and private boards that set accounting rules.

The deficit was $5 trillion last year under those rules. The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government's books.

But no worries, the President and his supporters have the solution: First, submit no budget for over three years (the Democratic senate) or submit a budget that is so outrageously inflated that it is defeated 99 - 0 in the Senate (the President). Next, demonize those who do submit an actual budget (e.g., Paul Ryan) and suggest that maybe we should make some real cuts in spending and entitlements. Then, engage in class warfare by suggesting that all will be well if only "millionaires and billionaires" pay their "fair share," knowing full well that taxing the rich will not solve the problem. Finally, insist that "investments" (a.k.a. spending) must continue their upward trajectory because, well, "we can't balance the budget on the backs of those less fortunate," can we?

The sad reality is that the United States is in trouble. Our debt crisis has been coming for a generation. And the profligate spending of both Democrats and Republicans in Congress and the White House is the cause. But that's water under the bridge. The problem exists, and it needs to be addressed now!

It's truly unfortunate that President Obama is so ideological and inept that he refuses to address this issue in any meaningful way. Interestingly, he, more than any Republican, had an opportunity to make structural changes to entitlements that would have a meaningful impact on our budget crisis. Bill Clinton helped reform medicare as a Democrat, against his party's ideological preference but with the help of Republicans who favored it. Richard Nixon opened communication with China as a Republican, against his party's ideological resistance but with the help of Democrats who favored it. In the same way, Barack Obama could have actually made his mark on history by reforming entitlements with the help of Republicans who favored it. Instead, he began his presidency along a never-ending path of bad decisions—choosing to push a program, Obamacare, that would clearly increase the deficit, and at the same time, do little or nothing to improve the overall structural failures of our existing healthcare system.

But no worries, government accounting is different. Debt isn't debt, and the President's got a plan. Or does he?

Fantasy

As the mainstream media continues its week-long obsession with Bain Capital, they continue to do the bidding of their kindred spirits in the Obama campaign—that is, keep the focus away from the economy, from crushing national debt, and from the President's own failed policies to address these issues.

Case in point: One of the week's most under-reported stories was the President's poor showing the West Virginia's Democratic primary.* Almost 40 percent of the voters in the primary voted for someone else (a convicted felon, actually). But why? It would seem that the media would be curious. Instead we get crickets or weak excuses (e.g., the voters weren't paying attention or the evil GOP crossed over and voted against the President).

In fact, it's necessary to go back to 2008 and a meeting with newspaper editors. During the meeting with reporters, candidate Obama defended his Cap and Trade proposal (thinking back, that's the one that even Democrats in Congress rejected out of hand). During the meeting, Obama said:

You know, when I was asked earlier about the issue of coal, uh, you know — Under my plan of a cap and trade system, electricity rates would necessarily skyrocket. Even regardless of what I say about whether coal is good or bad. Because I’m capping greenhouse gases, coal power plants, you know, natural gas, you name it — whatever the plants were, whatever the industry was, uh, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers.

They — you — you can already see what the arguments will be during the general election. People will say, “Ah, Obama and Al Gore, these folks, they’re going to destroy the economy, this is going to cost us eight trillion dollars,” or whatever their number is. Um, if you can’t persuade the American people that yes, there is going to be some increase in electricity rates on the front end, but that over the long term, because of combinations of more efficient energy usage, changing lightbulbs and more efficient appliance, but also technology improving how we can produce clean energy, the economy would benefit.

Although President Obama failed to get the legislation enacted (thankfully), he implemented portions of it via executive fiat through the EPA. As a consequence, the coal industry (and West Virginia) took an enormous hit. Barack Obama is not popular in West Virginia, even among Democrats.

There are, of course, legitimate national security reasons for wanting to wean us from foreign oil, but an aversion to domestic fossil fuel sources is simply ridiculous in our current economic situation. Not only do the President's policies on domestic oil drilling, pipelines, natural gas exploration, and coal result in a loss of jobs, it also increases the cost of energy (and electricity, in the case of coal and gas). As energy prices rise, employers have to cut back and reduce new hires. But why worry, unemployment is low, right? The President "has created" 4 million new jobs, according to a campaign add running this week. Problem is, unemployment is high and has been above 8 percent for almost 30 months, and we've lost 7 million jobs while Barack Obama has been in office. The President's people may be mathematically challenged, so let me help: +4Mil - 7mil = -3mil, a net loss of 3 million jobs.

Finally, energy production and consumption is a major source of tax revenue, but President Obama seems to think that taxing "millionaires and billionaires" will somehow cover the difference. But that's a lot like the math on jobs. It just doesn't hold up to scrutiny -- or reality. Then again, the Obama presidency from the very beginning has been all about fantasy, so why worry?

*Update:

This morning, the DailyBeast reports:

It was a tough day in Kentucky for President Obama, as “Uncommitted” on the Democratic primary ballot registered 42 percent of the vote. While Obama won the primary with nearly 58 percent of the vote, the seemingly close race is another PR hurdle for his team to overcome as nearly 87,000 Kentucky voters appeared to voice their frustration with the incumbent.

Hmmm. Looks like even a few Dems are beginning to reject the fantasy.

Dragon

The dailybeast.com reports:

It’s official: Dragon has launched. The private, unmanned space shuttle built by a California’s SpaceX successfully launched early Tuesday morning from Cape Canaveral, Fla.—the first mission by a spacecraft not commissioned by the government. The Dragon capsule blasted atop SpaceX’s Falcon 9 rocket, and the space station was flying 249 miles above the north Atlantic Ocean as the rocket lifted off, NASA officials said. If the mission is a success, it represents a potential new stage in American space exploration: NASA hopes low-Earth orbits will be privately funded, allowing the space agency to focus on new spacecraft and missions to Mars, as well as asteroids and the moon.

This a significant achievement for SpaceX and for CEO entrepreneur, Elon Musk, who had the courage to fight conventional wisdom and create a private company that does things better and less expensively that a government agency.

In its own way, SpaceX bolsters the argument for smaller government and for the privatization of selected government functions. In the case of NASA, a bloated bureaucracy will slowly be replaced by private companies like SpaceX that can accomplish many of the same things as NASA, but perform them at less cost to the taxpayer. Sure SpaceX will make a profit (a dirty word among many on the Left nowadays) but the taxpayer benefits.

People like Rep. Paul Ryan suggest that similar solutions can be developed for some of the entitlement programs that will soon bankrupt our country. Those suggestions are demonized by President Obama and his supporters—people so entrenched in 20th century thinking that they can't get out of their own way. Their solution is the grow government, ensuring that it becomes integral (and invasive) in every aspect of our lives.

I would go further and suggest that we could easily envision companies like:

• PostalX, that would take over the role of the postal service,
• WeatherX, that might replace NOAA,
• BusinessX, that would eliminate the need for the commerce department,
• EdX, that would perform the limited administrative functions that should be (but aren't) the only provence of the Department of Education,
• HealthX, that would coordinate a national healthcare initiative that would do what Obamacare dishonestly claims to do, but with significantly less cost to the taxpayer and far less government involvement,
• MilX, that would take over many of the high cost logistical functions that are performed by the military,
• SeniorX, that would revamp social security, saving billions and allowing our country to remain solvent.

And that's just a beginning.

In an earlier post I argued that we've now reached the era of peak government. I hope that the success of SpaceX will lead competent political leaders of the future to consider other X's as government becomes smaller.

Pro-Growth

The Wall Street Journal reports that "Alexis Tsipras, the 37-year-old head of the Coalition of the Radical Left, known as Syriza, and potentially the country's next prime minister" is doing what those on the left always seem to do when faced with the reality of crushing national debt—they double down. Tsipras demands the Greece jettison its plans for austerity (note that austerity is planned only, none has yet taken effect) and instead adopt a "pro-growth" agenda, funded by other members of the EU. "Pro-growth" is simply a left-wing euphemism for increased government spending, let the national debt be damned.

"Our first choice is to convince our European partners that, in their own interest, financing must not be stopped," Mr. Tsipras said in an interview with The Wall Street Journal. He said Greece doesn't intend to take any unilateral action, "but if they proceed with unilateral action on their side, in other words they cut off our funding, then we will be forced to stop paying our creditors, to go to a suspension in payments to our creditors."

As long as other EU countries are willing to fund Greece's spending, there's nothing to worry about, right? And if they don't, Greece simply won't repay what they already owe. Like any (spending) addict, Greece demands more of other people's money to fuel its habit, and then threatens not to repay other people's money, as if that will somehow promote confidence among the lenders. But that's the through-the-looking-glass world of the Left.

Tsipras fervently believes that there's no need for austerity. Taxing "the rich," and increasing the country's already crippling deficits will somehow lead to "growth." Sadly, this delusional point of view is shared by other leftist politicians in Europe and the United States. Increasing the retirement age, reducing government benefits, shrinking real spending, and controlling entitlements are not an option. Sound familiar? It should. Our President and his supporters take essentially the same position.

There's only one real difference.No one will be there to bail us out when we approach national bankruptcy. But no worries. After all, Barack Obama and his supporters really care about those who are less fortunate. It's just that they never seem to consider what will happen to "those who are less fortunate" once the money really does run out. Pro-growth spending ... yeah, that's the ticket.

Peak Government

For at least two decades environmentalists have talked about "peak oil"—"the point in time when the maximum rate of petroleum extraction is reached, after which the rate of production is expected to enter terminal decline." (Wikipedia). Based on discoveries of new sources of oil, it appears that we have yet to reach the peak, but there is another peak that no discovery will postpone. Tyler Durden suggests that we are at the time of "peak government:"

... It’s not about government disappearing, it’s about government shrinking.

Central government -- the Central State -- has been in the expansion mode for so long that the process of contracting government is completely alien to the nation, to those who work for the State, and to those who are dependent on the State. Thus we have little recent historical experience of Peak Government and few if any conceptual guideposts to help us understand this contraction.

Peak Government is not a reflection of government services or the millions of individuals who work in government; it is a reflection of four key systemic forces that drove State expansion are now either declining or reversing.

The four "systemic forces" that Durden identifies are: cheap abundant petroleum-based energy, increasing numbers of working age citizens, "debt, leverage and institutionalized incentives for speculation," and "the State’s ontological imperative to expand. The State has only one mode of being, expansion. It has no concept of, or mechanisms for, contraction."

The debt crises facing the EU and the United States are in no small part tied to changes in all four of these systemic forces. Energy costs have risen dramatically, retarding the rapid expansion of industry that leads to employment and higher tax revenues. The number of working age citizens is contracting, and worse, the number of retirees is expanding dramatically, causing enormous stress on government budgets. In addition, public sector pensions, negotiated without regard to their long-term liability, have become a financial monster that cannot be easily tamed. Debt has become so large, and the rate of increase in debt under President Obama has become so significant, that servicing the debt will soon absorb significant percentages of the federal budget.

As the state grows larger, it begins to control larger and larger swathes of the economy (e.g., Obamacare will indirectly control 1/6th of the U.S economy). But as control expands, the state must transfer risk to others. Durden comments:

Put another way, once the State controls the entire economy and society, it can transfer systemic risk to others: to other nations, to taxpayers, etc.

In effect, the State’s prime directive is to cut the causal connection between risk and gain so that the State can retain the gain and transfer the risk to others. The separation of risk from gain is called moral hazard, and the key characteristic of moral hazard can be stated very simply: People who are exposed to risk and consequence act very differently than those who are not exposed to risk and consequence.

Every time the Central State guarantees something, it disconnects risk from consequence and institutionalizes moral hazard.

To take but one example of many, when the Central State guarantees mortgages so lenders and originators cannot lose and the borrower can’t lose more than his modest 3% down payment, then everyone in the chain is encouraged to pursue risky speculations because the State has disconnected risk from the consequence of a potentially large loss. The risk hasn’t vanished; it has simply been transferred to the taxpayers, who absorb the inevitable losses that result when speculation is encouraged.

Separating risk from gain inevitably generates systemic instability. The entire credit-housing bubble can be seen as proof of this dynamic.

The "instability" that Durden predicts is already here. The problem is that the country's current leadership doesn't have a clue why things aren't improving, why the economy is in the tank, why joblessness is distressingly high, why the mood is so poor. To Barack Obama and his ideological brethren, the solution is an expanding government, even though it will increase the instability and decrease the possibility of a recovery. A "contracting government is completely alien" to their world view. Although they rush to embrace "peak oil," they don't even understand "peak government." That's why the upcoming election is so important.

The Bain of His Existence

It looks like President Obama's re-election team has decided to continue the class warfare meme by demonizing Mitt Romney's time at Bain Capital, an private placement firm that invests in businesses across a broad spectrum of domains. Some of the businesses succeed and others fail, but the Obama campaign has decided to select one small steel company that failed (as opposed to a fair number that succeeded) and use the heart-rending stories of those who lost their jobs as an indictment of Mitt Romney.

There's only one problem. As the President's own press secretary, Jay Carney, blithely stated [paraphrasing], Investment in businesses is inherently risky, some companies succeed and some fail.

Carney made this statement when asked why the President pushed a very risky $500 million dollar loan to a campaign supporters against the advise of industry experts and his own people. The half-a-billion dollar loan went to Solyndra, a company that went bankrupt last year with the loss of 1,500 jobs. The Obama campaign didn't present any of the Solyndra employees heart-rending stories as part of their Romney ad, but I digress.

There is, however, one really important difference between what Mitt Romey did at Bain and what what Barack Obama did. The President did it with taxpayer money. Sure, Bain got tax breaks like all businesses, but the direct investment in the steel company came from private individuals and organization, not the taxpayers.

Unfortunately, the Romney campaign can't really respond with a critique of Barack Obama's private sector accomplishments or failures, because he has none. Jeff Carter comments:

Actually, you can’t attack Obama because he never was in the private sector. He never did anything of note before he was President. I call that a government bureaucrat or hack. My kids have contributed more to GDP already in their young lives than Obama has done in his.

But, if we look at some of the economic data from the last four years, we can discuss Obama’s record.

1. First time the US ever defaulted downgraded from AAA on debt.
2. Largest budget deficit in history
3. Largest increase in government spending ever
4. Highest prolonged unemployment ever since the Great Depression
5. Lowest percentage of people in the work force ever.
6. Most anemic GDP in a “recovery” ever.
7. Trampled on investors rights in government takeover of industries.
8. If re-elected, the highest tax increase in American history.

I'm really pleased that the President's team has decided to frame the debate on the topics of jobs and economics. That's a conversation that is well worth having. Though I'm not sure it will work out well for the President.

Scared

After the abysmal jobs report last week, President Obama walked onto the stage of one of his many, many campaign stops (oops, I meant to say "official visits" to a battleground state, paid for by U.S taxpayers). He flashed his magnetic smile and proceeded to tell us that we're making progress, that his economic plans are working, that the private sector economy is improving (despite dismal GDP numbers). Let's all move "forward."

The President's new campaign slogan is appropriate. The last thing he wants us to do is look backward at his performance over the past 3.5 years. Forward ... off a cliff!

What the President doesn't mention as he spins very bad news is the 340,000 workers who stopped looking for work last month. The Federal Reserve tells us that labor force participation under Obama administration policies has dropped from 68% to 63%. In real numbers, that's 5 million jobs lost during his administration! Richard Goldman comments:

About a fifth of working-age Americans aren’t working — and a fifth of all personal income is transfer payments. These numbers are astonishing and without precedent. If they continue, America will go bankrupt. Obama’s hope for re-election lies in dependency. No one could run for re-election as dogcatcher with this record — except for the cynical presumption that Americans have become so dependent on the state that they have lost hope of working again, and will vote for more state dependency.

If you’re not scared, you haven’t read the numbers.

But the President tells us that we should be scared, very scared about the election of his challenger—a man who has substantial private sector executive experience, a man who is well-versed in turnarounds, a man who has extensive legislative experience and has been demonstrably bi-partisan, a man who has all the critical qualities that Barack Obama lacked when he was elected and failed to learn on the job.

Look at the economic numbers, look at the rapidly growing deficit, and then be VERY scared of another four years of Barack Obama.