Credit Default Swaps & The Financial Crisis - A Simple Explanation
I’m sure many of you are wondering just why in the world the government is giving AIG $150 Billion dollars. And you probably keep hearing the term Credit Default Swap and how it is destroying our financial markets but don’t really understand what it is. If that’s true then read on because I’m going to explain CDS’s, why they’re a problem and how it relates to AIG.
Just what exactly is a Credit Default Swap?
Congress fails to provide ANY oversight on financial bailout so far
While Congress was debating the 850 billion financial bailout bill 6 weeks ago we repeatedly heard about the changes that were made to that bill that would provide Congressional oversight. We heard this from Republicans and Democrats alike.
Well, there is currently no oversight at all. Zero, nada, nil, zilch. Per this piece:
Along the way (Editors note, in the last six weeks), the Bush administration has committed $290 billion of the $700 billion rescue package.
Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.
“It’s a mess,” said Eric M. Thorson, the Treasury Department’s inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. “I don’t think anyone understands right now how we’re going to do proper oversight of this thing.”
Boehner leads on transparency
The Federal Reserve has recently made emergency loans of 2 trillion dollars and has taken troubled or “risky” assets as collateral. These loans have put the US taxpayer at risk and threaten to increase budget deficits and ultimately the national debt.
The Federal Reserve is currently refusing to disclose this information.
Congress completely fails on financial bailout
As you know I have opposed the 850 billion dollars financial bailout for Wall Street since it was proposed a few weeks ago. I opposed it then and I oppose it even more today.
Daily Kos has a great post about this issue that is worth your time. Kos sums it up pretty well. I especially enjoy the part where Kos said:
Yet anyone who opposed this boondoggle was accused of wanting us all to DIEEEEEEE! It was the Iraq War Marketing Plan redux.
I am sure that all of you remember when the Bush Administration proposed a 700 billion dollar blank check from the Congress to the Department of the Treasury and when they told Congress that their solution was the only possible solution and that anything else would result in complete financial Armageddon?
State Board of Accounts Audit Report - 2007
Following up on the
subject report #B32815 dated September 29, 2008, today a request was made from to Allen County Prosecutor Karen Richards asking that an investigation and subsequent prosecution be undertaken by her office due to charges itemized in the subject report on page 8 under the heading”Conflict of Interest” and the denial of these charges by Pat Roller, City Controller after the “exit conference” on August 21, 2008. (Her official response is pages 14 through21 of the subject report.)
In addition, Fort Wayne City Common Council President, Tom Didier, was requested to place an item covering the approval by the Common Council of both the original contract dated December 27, 2007 and the revised contract dated in September of 2008 between the City of Fort Wayne and the High Performance Government Network Corporation as per the finding in the SBOA audit on page 10 under the heading of “City Code Section 38.03″ Such finding “recommends this approval BEFORE any additional payments to HPG Network are remitted” (emphasis is mine).
Since the County Prosecutor is the person charged with the upholding of State and State political entities in our county, she must resolve the conflict between Controller Roller’s position and that of the State Board of Accounts.
Also, the City Common Council must follow through on the request of the SBOA.
Canyon Cliffs press release
For Immediate Release 11/12/08
Site work on Canyon Cliffs has begun. Today bulldozers and earth movers from Scheidleman Excavating (5727 County Rd. 11 Garrett, IN 46738 260 637-4545 http://www.scheidleman.com) are expected to break through into the area that lies just north of the great blue heron rookery. Today’s activity will take place in a location easily viewed from a prominent hill on adjacent property, and some of the remonstrators who spoke at the 5 hours of testimony back in June will be keeping vigil today.
Three Options To Balance The City Budget
At the last city council budget meeting councilwoman Karen Goldner presented a chart that showed we didn’t need to make significant cuts in the near term if we committed to limiting the growth of our expenditures to between 1%-2%. This alternate approach inspired me to take a look at a few different scenarios for solving our budget problem and I came up with 3 options - all of which I think are achievable and acceptable to the taxpayers.
First, controller Pat Roller’s assumptions are a non-starter. She is assuming 4% growth in expenditures but only 3.2% growth (after 2010) on the revenue side. Obviously that’s unsustainable and no amount manipulation is going to make those numbers work. So the idea that all 3 of my ideas are based upon is that we must limit future expenditures to 3% growth over the long haul. If the revenue base grows (without an income tax!) then fantastic - that will put us in an even stronger position. Here are my options:
Streamlined Modification Plan, socialism expands in the United States
Well the Federal Government has finally unveiled a plan to subsidize homeowners who willingly and purposefully entered into mortgage agreements that they could not afford.
This plan is socialism at its worst. It rewards people who entered into mortgage loan agreements they could not afford and penalizes the rest of us. This program will be paid for by future taxpayers and so penalizes everyone for the actions of a few.
This program is from the Department of the Treasury, Freddie Mac, and Fannie Mae. It will apply to all loans held by these organizations and some other lenders. Since the taxpayers now own Fannie and Freddie the losses this program generate will be directly paid for by current and future taxpayers of this country. The program works as follows:
Federal Government likely to give up to 200 billion MORE dollars away
Per reuters the Federal Government is considering injecting another 100 billion into both Fannie Mae and Freddie Mac.
Please realize that these companies were nationalized less then three months ago and they already may need up to two hundred billion dollars to keep operating.
You big government types out there need to wake up and realize that these bailouts are not working and that they are going to create a much larger problem “down the road.”
Mike Sylvester
Increase Sales Tax To Pay For Combined Sewage Overflow
City Utilities’ customers could potentially see their sewer rates triple in order to fix the $240 million combined sewage overflow problem. However the idea of instituting a sales tax to pay for the work was floated at a recent meeting on the topic:
The group Tuesday discussed the possibility of a local sales tax to help finance the project. A half-cent increase could pay for almost the entire project, without forcing the city to borrow most of the money
Let me just say that I think this is a fantastic idea and I’ve seen such a plan actually work. Last year in Wichita, Kansas, a 2-year 1% sales tax just expired after raising $200 million to pay for a downtown arena. And yes, in an unprecedented move for local government, the sales tax did actually expire.
But for a tax that at one time was much debated — and narrowly passed — Wichita business owners are offering little more than shrugs about its departure.
“We never felt an effect on it,” says Tom Baalmann, owner of B&B Lumber in Wichita.
Noticeably, Wichita car dealers — who seemingly would have taken the brunt of the tax — say they didn’t see a drop in business when it came into play 30 months ago. Sales tax data from the state backs that up, showing steady increases in automobile sales.
“I really didn’t hear people complain about it,” says Dawson Grimsley, president of Davis-Moore Auto Group. “I just expected people to do business in a normal fashion, and that’s what they did.”
Now I would not be in favor of such an increase to pad the general fund or to pay for a downtown arena but the truth is this CSO fix is federally mandated and we have to find the revenue somewhere. We can either dramatically increase everyone’s rates for 20 years or institute a consumption tax for 2-4 years (UPDATE: 4 YEARS WON’T GET US THERE - SEE COMMENTS).
The other question is whether or not we can trust our elected officials to truly make the sales tax temporary. I believe we can trust this city council and mayor to keep their word. If it were county government I would say no way in hell considering they’ve never rescinded their “temporary” 1% food and beverage tax…
