By giving the big banks every possible bailout with no concern for cost to taxpayers, Geithner, Summers, and Fed Chairman Bernanke, ignited a firestorm of popular anger – much of which got directed toward Obama – and rightfully so.

Volcker, who was initially appointed as Fed Chairman by President Carter but whose real influence came under Reagan, broke the back of the growing inflation of the 1960’s (that doubled prices in that decade) by raising short-term interest rates to unprecedented levels. This was the opposite of the zero-interest rate policy of Bernanke – and the effects on bank profits was opposite also. In the end, though, Volcker came to be regarded by the financial community as a hero.

Volcker has been a strong critic of letting banks get too big to fail and using that status to take risks that imperial financial stability of the world – with the banks reaping the upside and taxpayer and savers bearing all the downsides.

Let’s hope this is just the first round

Financial Regulation

Bank plan highlight’s Volcker’s new clout

Fri Jan 22, 2010 3:35pm EST

Related News

* Volcker had been outspoken on "too big to fail" concern

* Ex-Fed chief consulting about bank plan with lawmakers

By Caren Bohan

WASHINGTON, Jan 22 (Reuters) – When President Barack Obama launched a fight with Wall Street by announcing a new U.S. plan to limit banks’ size, the man standing at his side was former Federal Reserve Chairman Paul Volcker.

Volcker’s new clout on the White House economic team was on full display as the 6-foot-7-inch longtime adviser took the choice spot next to Obama, who named his proposal to restrict bank trading activities "the Volcker Rule."

The 6-foot-1 Obama referred to Volcker as "this tall guy behind me."

U.S. Treasury Secretary Timothy Geithner and senior economic adviser Lawrence Summers — who attended the announcement but at a greater distance from the president — still wield a tremendous amount of power.

Volcker, who commands respect on Wall Street and among both Democrats and Republicans, is seeing a resurgence of his influence after venting frustrations to friends that he had been left out in the cold when it came to economic decision-making at the White House.

The 82-year-old Volcker was one of Obama’s most influential advisers during his 2008 presidential campaign and now chairs a panel of outside economic advisers to the White House.

He had rarely been seen in Washington since the start of the Obama administration and made no secret of a difference in opinion with the White House over how to deal with the problem of "too big to fail" financial firms.

Volcker’s fear, shared by some other economists, is that newly consolidated U.S. banks might engage in reckless behavior on the belief that the government would never allow them to fail because of their sheer size. Such risky activity could put the financial system at risk of another crisis, these economists say.

CLOUT

Asked by the New York Times in October about reports he was losing influence with the Obama White House, Volcker retorted that he "did not have influence to start with."

That made Volcker’s presence at the announcement all the more significant to underscoring Obama’s commitment to push the new regulatory approach that Wall Street appears set to fiercely oppose.

"Volcker being there was huge," said Simon Johnson, a professor at the Massachusetts Institute for Technology and a former chief economist at the International Monetary Fund.

The bank announcement elated many of Obama’s liberal supporters, who have welcomed his tougher rhetoric in recent weeks toward the banking executives he referred to in December as "fat cats."

Geithner and Summers, who worked together at Treasury during the Clinton administration, have been criticized by some liberal supporters of Obama and view them as too cozy with Wall Street.

Legislation in 1999 tearing down the Depression-era Glass-Steagall law separating commercial and investment banking passed under their watch. Obama’s new bank rules would not bring back Glass-Steagall but would revive its spirit.

Volcker, who has been consulting on Capitol Hill about Obama’s bank proposal, could be an asset to the administration in selling the proposal, said Johnson, who shared Volcker’s frustrations that the administration had not moved earlier to limit the size of banks, which get an implicit subsidy in the form of federal deposit insurance.

"Volcker carries a cache that is unparalleled," said Johnson, noting the former central banker’s role in breaking the back of double-digit inflation in the early 1980s — a victory that came despite a huge popular backlash against the economic pain brought on by his interest-rate increases.

RIFT WITH GEITHNER?

In an indication of a possible rift, financial industry sources told Reuters on Thursday of some reservations Geithner had expressed behind the scenes about the new bank plan, which was not included in the original plan on financial regulatory reform that the administration unveiled last June.

Administration officials, while noting the importance of Volcker’s role, insisted the decision to go forward with the plan was unanimous.

Geithner and Summers worked closely with Volcker late last year on it and had largely finalized it by late December. They put the finishing touches on it on Jan. 13.

Aides said Obama personally felt strongly about moving ahead on curbs on the banks, in part because of concerns about risk-taking by banks after they returned to profitability in the wake of the 2008-2009 financial meltdown.

White House officials played down any talk of Geithner and Summers losing influence.

A trademark of Obama’s management style, which was apparent during the deliberations over his Afghanistan strategy, is to encourage the airing of dissenting views and then to work with his advisers to arrive at a consensus.

"He is concerned to make sure that he’s exposed to all points of view," Summers told a small group of reporters in a briefing last week when asked to describe Obama’s decision-making process. "So he wants to hear disagreement with things that he has said or advisers who have different perspectives to share those differing perspectives."

Also emerging as a bigger player in shaping economic policy is Vice President Joseph Biden, who devoted much of his time last year to helping to oversee the $787 billion stimulus program that Obama signed into law last February.

Biden feels "passionately about the same set of problems" of firms becoming too big to fail and helped to shape the proposal on banks, said one White House official.

(Editing by Howard Goller)

Perhaps the best news of all  is that he had Paul Volcker at his side when he made the announcement. More on this on the following post.

Investment sources clearly sees Obama’s new initiative as a serious threat to the financial sector and thereby the inflated values of stocks, sending the market down sharply two days in a row.  This may be the pin that pricks the latest stock market bubble.

Here’s a quick summary from Reuters. See related video at the end.

Obama threatens fight with banks on new risk rules

Jeff Mason and Kevin Drawbaugh

WASHINGTON

Thu, Jan 21 2010

WASHINGTON (Reuters) – U.S. President Barack Obama threatened to fight Wall Street banks on Thursday with a new proposal to limit financial risk taking, sending stocks and the dollar tumbling.

Obama, a Democrat who is struggling to advance his agenda after a key election loss this week, laid out rules to restrict some banks’ most lucrative operations, which he blamed for helping to cause the financial crisis.

"If these folks want a fight, it’s a fight I’m ready to have," Obama told reporters at the White House, flanked by his top economic advisers and lawmakers.

"We should no longer allow banks to stray too far from their central mission of serving their customers," he said.

Financial sources said Treasury Secretary Timothy Geithner had hesitations about the proposals, concerned that good economic policy was being sacrificed for politics.

But a White House official said the plan had the unanimous backing of Obama’s economic team.

"We should no longer allow banks to stray too far from their central mission of serving their customers," Obama said.

After a mixed first year as president, Obama took a tough, populist-tinged stance aimed at revving up his political base by exploiting anger over Wall Street excess.

The proposals, which require congressional approval, would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.

They would also set a new limit on banks’ size in relation to the overall financial sector that would take into account deposits — which are already capped — as well as liabilities and other non-deposit funding sources.

The proposed rules also would bar institutions from proprietary trading operations, unrelated to serving customers, for their own profit.

Proprietary trading involves firms making bets on financial markets with their own money rather than executing a trade for a client. These expert trading operations, which can bet on stocks and other financial instruments to rise or fall, have been enormously profitable for the banks but can hold huge risks for the financial system if the bets go wrong.

The White House blames the practice for helping to nearly bring down the U.S. financial system in 2008.

The White House said it wants to coordinate with international allies in its implementation of the measures.

POPULIST MOVE HITS SHARES

Big financial institutions criticized Obama’s move.

"Trading, proprietary or otherwise, did not lead to the financial crisis," said Rob Nichols, president of the Financial Services Forum, a lobbying group for CEOs of firms such as Goldman Sachs and JPMorgan Chase.

He said the government should be focused on better risk management, corporate governance and other forms of regulatory oversight, "rather than arbitrarily banning certain activities, or setting arbitrary size limits."

Obama’s move is the latest in a series to crack down on banks and follows a devastating political loss for his party in Massachusetts on Tuesday, when a Republican captured a U.S. Senate seat formerly held by the late Democratic Senator Edward Kennedy, potentially imperiling his domestic agenda.

Bank shares slid and the dollar fell against other currencies after Obama’s announcement.

JPMorgan fell 6.59 percent, helping push the Dow Jones Industrial average down 2 percent.

Citigroup Inc fell 5.49 percent and Bank of America Corp fell 6.19 percent while Goldman dropped 4.12 percent despite posting strong earnings on Thursday.

Ralph Fogel, investment strategist at Fogel Neale Partners in New York, said the move would have a major impact on big-name brokerage firms like Goldman Sachs and JPMorgan.

"If they stop prop trading, it will not only dry up liquidity in the market, but it will change the whole structure of Wall Street, of the whole trading community," he said.

Underscoring the high level of public anger at banks, a majority of 1,006 Americans surveyed in a Thomson Reuters/Ipsos poll said executive pay was too high.

White House economic adviser Austan Goolsbee said the proposals were not designed to be punitive. He said they aimed to end the concept that some banks were "too big to fail" and to show that when such firms "mess up, they die."

Before his announcement, Obama met with Paul Volcker, the former Federal Reserve chairman who heads his economic recovery advisory board and who favors putting curbs on big financial firms to limit their ability to do harm.

The House of Representatives approved a sweeping financial regulation reform bill on December 11 that included a provision that would empower regulators to restrict proprietary trading. The Senate has not yet acted on the matter.

(Additional reporting by Caren Bohan, Ross Colvin, Matt Spetalnick, Alister Bull and Karey Wutkowski; Editing by Will Dunham)

Related Video

Obama takes aim at bankers

Commentary

• Make that two cheers for Obama
• Obama escalates his War on Wall Street

I was amazed to find plans that offered both drug and supplemental coverage for $0.00 monthly premium. I have been paying Blue Shield $178 per month for my Part B coverage and Advantrax $25 per month for drug coverage. The Medicare website showed me that next year Advantrax would charge me $41 per month plus add a $100 deductible. I don’t know what my Blue Shield payment will be, but I’m sure it will be more.

Before I turned 65, I was covered by Blue Shield for my medical insurance. As I approached 65, their sales representative sold me on one of their plans. According to my records, I initially paid, in 2002, about $85 per month. The amount rose steadily to the present $178 per month.

I called one of the zero-premium plans and asked if it is really had a zero premium, and how could this be. Perhaps you are like me and don’t understand that everyone who elects Part B coverage already pays $96.40 per month (deducted automatically from one’s Social Security payment). The representative explained that the government paid this amount to their plan to cover its costs.

I have now signed up for a zero-premium plan that covers provides both supplemental and drug coverage. I can go to any doctor (not just a doctor in the Blue network) that accepts their reimbursement schedule. Most, including my regular doctor do. I will fill my prescriptions at my regular pharmacy as before.

What do I lose by moving to the zero-premium plan? I now must copay $15 per office visit ($35 for specialists), whereas after the deductible, I paid nothing under my Blue Shield plan. It would be unusual if I had one doctor visit per month (annual physicals and flu-shot visits have no copay). If I did have a visit a month, I would copay $180 during the year. Otherwise, there are no extra costs that I can see. The drug copay is $5 for generic prescriptions, which are all that I have, and this is essentially the same as the plan that I am leaving. The hospitalization benefit is actually a bit better, because under the new plan, I pay $275 per day up to 6 days, rather than a flat $1068 upon hospital entry, with no cost thereafter.

I expect that I will save about $2,400 in 2010 because I took the time to review the alternatives: 12x($178+$41) – $180 = $2448.

If you haven’t already done so, find out your potential savings at the Medicare website for comparing plans.

My experience is more strong evidence of the need for a universal coverage national health plan. I am both an economist and a skilled analyst; yet over the years I clearly paid thousands of dollars more than needed for insurance coverage.  If I am being “bilked” by the confusing array of insurance choices, how much worse off is the average consumer who likely buys what the insurance salesman recommends?

You must do this before December 31 or wait until next December.

Medicare maintains a website that lets you easily compare plans in terms of costs and customer satisfaction. It is completely simple. Put in all the prescription drugs you use regularly, and the site will show you the comparative cost under the available plans.

Check it out if you have or are eligible for Medicare Part D.

I saved over $400 dollars by doing this last year.

Below is what I found and told about in a post in December 2008:

Check Your Medicare Drug Plan Costs!

In 2007, I researched the costs of alternative Medicare Part D (drug coverage) plans. I found that Humana, which is somehow related to Walmart, offered by far the best deal for me. I take only one common generic drug regularly.

The Humana plan cost $15.70 per month, with $265 deductible, and 25% copay beyond that up to the "hole."

In 2008, the monthly cost went to $23.00 and the deductible to $275. I was shocked by the increase in monthly fee of nearly 50%. I thought, "This is the old lowball, and then sock- it-to-them tactic." However, I recalled that other plans I’d look at in 2007 were in the $20+ range; so I did nothing.

I just got a notice that my monthly cost for 2009 was going to $40.90! The deductible to $295. As my drug cost about $26 per month at the pharmacy, I was going to end up paying $790 for the year.

I thought, time to comparison shop again. I found shockingly different costs for Medicare approved drug plans. Annual cost to me for the plans plus out-of-pocket pharmacy costs ranged from $367 to $1672!!!

I ended up choosing one that will cost $402 using a local pharmacy or $366 if I use a mail order pharmacy, a savings of $388 to $424. The plan I chose had better customer ratings than the lowest cost plan.

Depending on your drug use, you may have chosen (if you are already enrolled) a different level of coverage, and the best plan for you will be different, but it is worth doing annual shopping.

You can change your plan once a year — and the window for changing it is open now until December 31.

Medicare maintains a website that lets you easily compare plans in terms of costs and customer satisfaction.

Check it out if you have or are eligible for Medicare Part D.

You will help others if you report back here in a comment the savings that you found by comparison shopping.

If that isn’t bad enough, Wall Street is poised to make billions of dollars in the “trade” part of cap-and-trade. The market for trading permits to emit carbon appears likely to be loosely regulated, to be open to speculators and to include derivatives. All the profits of this pollution trading system would be extracted from the public via increased energy prices.

Today’s Der Spiegel documents that fraud is not merely a possibility but already big business. The fraud detailed here is undoubtedly the tip of a large iceberg.

Fraudulent Emissions-Trading Schemes Rob German Tax Authorities

By Beat Balzli

12/07/2009 –Der Speigel

REUTERS

The Kyoto Protocol introduced a scheme for trading emissions certificates as a way to help reduce CO2 emissions. German tax authorities are now investigating almost 40 companies that traded certificates for allegedly taking advantage of loopholes in sales tax laws to bilk the taxman out of hundreds of millions of euros.

German Environment Minister Norbert Röttgen has hardly been in office for much more than a month, but he’s already choosing his words for dramatic effect. "It’s about the way we live, and it’s about survival," Röttgen said last Thursday before the German parliament, the Bundestag, referring to the climate summit beginning Monday in Copenhagen. At the summit, the nations of the world will search for ways to reduce the CO2 emissions behind global warming. One of the tools to be discussed is the trading of emissions certificates.

In Germany, though, it is precisely this instrument that is causing a huge headache for Röttgen, as dozens of tax offices across the country are investigating shady emissions trading companies. All of the companies in question maintain accounts with the German Emissions Trading Authority (DEHSt), an arm of the ministry Röttgen heads. According to DEHSt head Hans-Jürgen Nantke, since September, his agency has "received official requests for assistance in cases relating to suspected sales tax fraud from various regional tax offices and tax investigation offices."
…
Full Story

In an op-ed piece in Sunday’s New York Times, Hansen challenges the “cap and trade” route that is the favorite with Congress and the Administration to reduce carbon emissions. It is favored because it would create a cornucopia of special-inters benefits to dispense to the politically most powerful industries.

Every economist that I know favors a tax on carbon rather than cap and trade. Mr. Hansen proposes to couple the tax with an equal “dividend” paid back to the people – creating what could be a politically appealing alternative to cap and trade. He explains why this approach would be far superior to cap and trade. Unfortunately, economic efficiency and fairness to the common people seem to have little weight in our political system, even with Obama as the supposed head of our government.

Below are some excerpts with a link to the full story.

Op-Ed Contributor – New York Times

Cap and Fade

By JAMES HANSEN
Published: December 6, 2009

AT the international climate talks in Copenhagen, President Obama is expected to announce that the United States wants to reduce its greenhouse gas emissions to about 17 percent below 2005 levels by 2020 and 83 percent by 2050. But at the heart of his plan is cap and trade, a market-based approach that has been widely praised but does little to slow global warming or reduce our dependence on fossil fuels. It merely allows polluters and Wall Street traders to fleece the public out of billions of dollars.
…

Because cap and trade is enforced through the selling and trading of permits, it actually perpetuates the pollution it is supposed to eliminate. If every polluter’s emissions fell below the incrementally lowered cap, then the price of pollution credits would collapse and the economic rationale to keep reducing pollution would disappear.
…

To compound matters, the Congressional carbon cap would also encourage “offsets” — alternatives to emission reductions, like planting trees on degraded land or avoiding deforestation in Brazil. Caps would be raised by the offset amount, even if such offsets are imaginary or unverifiable. Stopping deforestation in one area does not reduce demand for lumber or food-growing land, so deforestation simply moves elsewhere.

Once again, lobbyists are providing the real leadership on climate change legislation. Under the proposed law, some permits to pollute would be handed out free; and much of the money actually collected from permits would be used to pay for boondoggles like “clean coal” research. The House and Senate energy bills would only assure continued coal use, making it implausible that carbon dioxide emissions would decline sharply.
…

There is a better alternative, one that would be more efficient and less costly than cap and trade: “fee and dividend.” Under this approach, a gradually rising carbon fee would be collected at the mine or port of entry for each fossil fuel (coal, oil and gas). The fee would be uniform, a certain number of dollars per ton of carbon dioxide in the fuel. The public would not directly pay any fee, but the price of goods would rise in proportion to how much carbon-emitting fuel is used in their production. [Emphasis added.]

All of the collected fees would then be distributed to the public. Prudent people would use their dividend wisely, adjusting their lifestyle, choice of vehicle and so on. Those who do better than average in choosing less-polluting goods would receive more in the dividend than they pay in added costs.

For example, when the fee reached $115 per ton of carbon dioxide it would add $1 per gallon to the price of gasoline and 5 to 6 cents per kilowatt-hour to the price of electricity. Given the amount of oil, gas and coal used in the United States in 2007, that carbon fee would yield about $600 billion per year. The resulting dividend for each adult American would be as much as $3,000 per year. As the fee rose, tipping points would be reached at which various carbon-free energies and carbon-saving technologies would become cheaper than fossil fuels plus their fees. As time goes on, fossil fuel use would collapse.
…

Full Story

Der Spiegel published a fascinating, in-depth review of the signals and confusion that confronted the colonel in charge that made the fateful mis-decision. It shows how easy it will be for similar tragedies to occur in the future, under US command, creating the same kind of furor here. 

Below is an initial excerpt, with a link to the full story. The in-depth review starts on page 2 of the article. Be sure to get that far. Links to more recent articles are in the left sidebar. These article show that this single incident is continuing to fuel the opposition to German involvement in Afghanistan. What lies ahead for Obama in the US?

The End of Innocence in Afghanistan

‘The German Air Strike Has Changed Everything’

By SPIEGEL Staff

The recent bombing of two tanker trucks in an attack ordered by a German military colonel has led to major international criticism of the Bundeswehr. The incident has given a black eye to a country whose politicians have never been shy of telling others what’s best in Afghanistan.

…

The commander of the German reconstruction team in the northern city of Kunduz is experiencing the most horrendous days of his life. His decision to order air strikes against two hijacked NATO fuel trucks on the night of Sept. 4 changed everything — him, his career, German politics, relations with the Americans and the deployment of German soldiers in Afghanistan.

…

[A] German officer has issued a devastating order to shoot, causing two US fighter jets to kill 50 to 100 people on the ground, including civilians. It was an unnecessary air strike, that much is certain. The village of Omar Khel, which lies in the vicinity of the air strikes, now stands for the end of the illusion that a country could keep its hands clean in a world plagued by military conflict.

Full Story

The latest development in this story in Germany was reported today.

I find in the headlines today that the Bush comparison occurred to others – the Huff Post and Der Spiegel, and I’m sure many others. Here is the Der Spiegel headline and summary. I highly recommend reading the whole article.

Searching in Vain for the Obama Magic 

Never before has a speech by President Barack Obama felt as false as his Tuesday address announcing America’s new strategy for Afghanistan. It seemed like a campaign speech combined with Bush rhetoric — and left both dreamers and realists feeling distraught. Full Story

Obama’s action on Afghanistan is certainly another nail in the coffin of my hopes the Obama would bring about positive change. Add his militarism to his “economic” (wall street bailout) policies and what is there left to give one hope?

I watched a very interesting Bill Moyer program that I highly recommend if you didn’t see it. He assembled audios of phone conversations of Lyndon Johnson when he was considering what to do in Viet Nam in the period after he assumed power. The frightening part of it is how much he wanted to avoid committing troops to Viet Nam and how the political forces and  calculations, the military, and American macho character steadily and surely sucked him down the road to war. As I watched it, I saw the inevitability of Obama’s escalation in Afghanistan.

A very sad day for me and and our country and especially for all those from America and in Afghanistan and Pakistan that will be ground up in the meat grinder of war.

In the next few days I will try to send several articles on an important news story in Germany that has received no coverage in the US but that foreshadows what is sure to emerge here as the Afghan conflict escalates.

If Obama is indeed a populist at heart, he is sure doing a good job of disguising it. A lackey of the corporations with the most money would seem to more accurately describe his actions. Government financing for corporations, but not for people in need of health care.

Home Builders (You Heard That Right) Get a Gift

By GRETCHEN MORGENSON

Published: November 14, 2009

ON Nov. 6, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009 into law, extending unemployment benefits by 20 weeks and renewing the first-time homebuyer tax credit until next April.

But tucked inside the law was another prize: a tax break that lets big companies offset losses incurred in 2008 and 2009 against profits booked as far back as 2004. The tax cuts will generate corporate refunds or relief worth about $33 billion, according to an administration estimate.

Before the bill became law, the so-called look-back on losses was limited to small businesses and could be used to counterbalance just two years of profits. Now the profit offset goes back five years, and the law allows big companies to take advantage of it, too. The only companies that can’t participate are Fannie Mae and Freddie Mac and any institution that took money under the Troubled Asset Relief Program.

Among the biggest beneficiaries are home builders, analysts say. Once again, at the front of the government assistance line, stand some of the very companies that contributed mightily to the credit crisis by building and financing too many homes.

This is getting to be a habit: companies that participated on the upside and are now reaping rewards from the taxpayers on the downside. The banks that underwrote so many dubious loans, for example, received government aid to get them lending again. Unfortunately, that hasn’t been the result.

One can make an argument that throwing money at the banking system is necessary if we are to jump-start the economy. And banks need a bigger capital cushion to protect against future losses.

But dropping helicopter money on the home builders — the folks who massively overbuilt in community after community — seems decidedly less urgent (unless you are one of these companies, of course). Given that the supply of housing far outstrips demand, it is unlikely that these companies will use these tax breaks to hire workers (unless they go into a completely new line of business).

“I AM surprised that home builders are getting hundreds of millions of dollars given that many have very strong balance sheets,” said Ivy Zelman, chief executive at Zelman & Associates, a research firm. “We question the public policy decision to gift home builders with capital that many will not use to create jobs, since they admit that job growth will be dependent not on capital, but on improving demand.”

When Mr. Obama signed the law, his administration said the tax break would help “struggling businesses.” But as Ms. Zelman pointed out, many large home builders are sitting atop mountains of cash. Pulte Homes, which will receive refunds exceeding $450 million under the new law, has $1.5 billion in cash and cash equivalents on its balance sheet, according to its most recent financial statement.

Hovnanian Enterprises is another big beneficiary of the tax break. It anticipates a refund of $250 million to $275 million next year. It had $550 million in cash in its most recent quarter.

Smaller recipients include Standard Pacific, which is poised to reap cash refunds of $80 million under the new tax break. According to its most recent financial filing, Standard Pacific held $523 million in cash and cash equivalents.

Finally, Beazer Homes told investors that it expects to receive a refund of $50 million. The company reported cash and equivalents of $557 million at the end of September.

Some of the home builders poised to receive tax refunds have even more cash today than they did last year. D. R. Horton, for example, has $1.966 billion in cash, up 45 percent from September 2008 levels. And some are healthy enough to have retired significant amounts of debt from their balance sheets this year. Pulte has bought back $1.93 billion in debt in 2009.

So what do these companies plan to do with their refunds?

Ken Campbell, the chief executive of Standard Pacific, said the money would allow his company to continue buying land. “Will we build more houses or will there be more people employed in the first quarter? Probably not,” he said. “Will employment accelerate when the market starts to grow? It will.”

Caryn Klebba, a spokeswoman for Pulte Homes, said in a statement that the company planned to use the funds it receives “to support its current operations and, when market conditions improve, fund future growth and expansion.”

In other words, job creation does not seem imminent, notwithstanding the claims of the administration or those in Congress who supported the giveaway.

Representative Lloyd Doggett, a Texas Democrat, has conducted a lonely fight against the tax break all year.

“Some have said this is like a bridge loan to these companies,” Mr. Doggett said in an interview. “Well if it’s a loan, it is like a no-doc loan, because the recipients provide no indication that they will create jobs or do anything other than keep the money. I just feel it is a total windfall.”

Unfortunately, this seems to be another example of an age-old phenomenon: Good Things Come to Those With Lobbying Power.

Securing this tax break was a top priority for home builders, lobbying records show. The Center for Responsive Politics reports that through Oct. 26 of this year, home builders paid $6 million to their lobbyists. Last year, the industry spent $8.2 million lobbying.

Much of this year’s lobbying expenditures were focused on arguing for the tax loss carry-forward, documents show.

Among individual companies, Lennar spent $240,000 lobbying while companies affiliated with Hovnanian Enterprises spent $222,000. Pulte Homes spent $210,000 this year.

That’s some return on investment. After spending its $210,000, Pulte will receive $450 million in refunds. And Hovnanian, after spending its $222,000, will get as much as $275 million.

Meanwhile, the bag that we taxpayers are left holding gets bigger and bigger.

THE problem here is that this public policy decision was made with little to no input from the public. Sure, tax rebates like these give a lifeline to companies that were about to sink beneath the waves, but would it be so terrible if some builders that lost their heads during the housing mania ceased to exist? It is not as if a housing shortage will result or that more jobs will be lost if these companies don’t receive these tax breaks.

Pretending to promote job creation, the government is dispensing cash to companies that either do not need it or need it precisely because they didn’t run their businesses prudently. Isn’t there something wrong with that picture?

What seems to be continuing its long-term strength is gold. Now, I for one, have always felt that investing in gold is like shooting craps, because gold has no intrinsic value. It is only worth what people are willing to pay at the moment, and this can change for many reasons. I’ve been reading those who are gold bulls for years, and for the most part ignoring their counsel. Now, I’m feeling that gold may be a reasonable place to put some of one’s money. The primary reason for this is that the US and other countries have “printed” so much money (in their efforts to prevent the financial collapse) that the future value of currency relative to gold seems likely to continue to fall (so the price of gold in currency terms will rise).

Aside from this argument, gold has quite steadily risen in the last year (as well as previous years) even when events would argue that it should be declining. This suggests growing underlying demand.

David Rosenberg, who is a great skeptic about equities and the economy, puts the case for gold well:

GOLD GLITTERS

While the gold purchase by India’s central bank is widely viewed as the trigger point for the latest jump in the gold price, there are good reasons why bullion is in bull mode. It comes down to a fiscal policy in the U.S.A. that will stop at nothing to ensure that the economy embarks on an uptrend. Even with a fiscal deficit north of 10% of GDP, the article from yesterday’s WSJ that was titled Job-Creation Panel Leery of Spending really resonated. To wit:

“So far, the White House and Congress have been weighing a range of short-term tax ideas to spur job growth, such as expanded refunds for big companies that suffered losses; extension of a first-time homebuyer tax credit; and a new tax credit for hiring.”

So the strategy remains on “short-term” tactics as opposed to any long-run measures to improve the capital stock, enhance skills and training, bolster education and enhance productivity growth. If Milton Friedman taught us anything from the permanent income hypothesis, it was that changes to income or wealth that are perceived to be permanent have a much more beneficial and enduring effect than measures that are only transitory. But of course the other problem is who will pay for this fiscal largesse, and the answer is that nobody —the Fed will simply monetize the debt. More dollars will be printed and that is bullish for gold whose production is in secular decline.

Then we saw this article on the WSJ yesterday too, titled Labor Gets Boost In Skies, on Rails. Anyone involved in the markets, has to read this article and understand the differences between what is happening now and when the secular bull market began under Reagan administration in the early 1980s. To wit:

“Organized labor appears to be gaining the upper hand in the skies and on the rails, as labor and business battle for influence under the Obama administration.

Another reason for our bullish stance on gold is that we are not seeing the onset of a secular bull market in equities like the one we saw in the early 1980s.

The National Mediation Board wants to make it easier for thousands of airline and railway workers to unionize under the Railway Labor Act by seeking to junk a 75-year old election rule, according to a proposal published Monday in the Federal register. The move comes after a White House appointment shifted the balance of the government agency’s three-person board. Linda Puchala, a former flight attendant union leader, was selected to replace Read Van de Water, a former Northwest Airlines lobbyist, earlier this year.”

To reiterate, this is not the onset of a sustainable secular bull market in equities as we had coming off the fundamental lows of prior bear phases, such as August 1982, when:

• Dividend yields were 6%, not sub 2% currently
• Price-to-earnings multiples were 8x, not 26x
• The market traded at book value, not over two times book
• Inflation and bond yields were in double digits and headed down in the future, not near-zero and only headed higher
• The stock market competed with 18% cash rates, not zero, and as such had a much higher hurdle to clear
• Sentiment was universally bearish; hardly the case today
• Global trade flows were in the process of accelerating as barriers were taken down; today, we are seeing trade flows recede as frictions, disputes and tariffs become the order of the day
• Unionization rates were on a secular decline; today labor power is clearly on the rise
• A Reagan-led movement was afoot to reduce the role of government with attendant productivity gains in the future; as opposed to the infiltration by the public sector into the capital markets, union sector, economy and of course, the realm of CEO compensation

FINAL WORD ON GOLD

Gold broke out to a new high yesterday of $1,084/oz (and continues to rally today). It did this despite the S&P 500 managing to tick up two points and despite the DXY index actually eking out an 8bps rise to 76.3. This is NOT just a U.S. dollar story — have a look at what bullion is doing in Euro terms. Very impressive. This is a broadly based breakout and that means a durable secular bull market.
Looking at the growth rates in fiat currency that central banks are creating to stimulate their economies and the amount of bullion that would be necessary to back up this massive global monetary infusion suggests that gold can at least double if not triple from here. If you missed the first 4x runup from the $250/oz lows a decade ago, don’t worry about it. It’s like worrying about how you would have missed the first half of the rally in the S&P 500 from 1982 to 1992 when the index was at 400 and still had 300% to go before finally peaking out and sputtering at the 1500+ highs eight years later. In other words, the cup is still half full — and still can be filled with gold eagle coins.

Another investment source, Prieur du Plessis, who I respect, makes the case for gold from another perspective:

Gold bullion surging in all currencies

I argued the bull case for gold in my posts over the past few months (see “Gold bullion – regaining its shine?“, “Gold bullion glitters bright” and “Gold bullion – challenging $1,000“. With the gold price scaling fresh peaks and closing in on $1,100, it would certainly seem as if renewed interest in the yellow metal is being stirred up, especially subsequent to the purchase by India’s central bank of 200 metric tons of gold from the International Monetary Fund.

As printing presses are running at full speed to produce ever-increasing quantities of fiat money as governments engineer the greatest asset price reflation in human history – and the US greenback is heading South – the longer-term fundamental case for the yellow metal is arguably positive.

“The gold bug has caught several big hedge fund managers this year including John Paulson of Paulson & Company, Kyle Bass of Hayman Advisors and David Einhorn of Greenlight Capital, who believe enormous monetary and fiscal stimulus that has been injected into the global economy will eventually result in hyperinflation,” said The New York Times.

The gold price is not only making headway in US dollar terms, but also in most major (and minor) currencies as illustrated by the table and graph below. This is a manifestation of increased investment demand, whereas the initial rise in the gold price from its low in 2001 ($250) was mostly a reflection of US dollar weakness.

…

The shorter-term technical picture is also looking interesting. This is explained by Adam Hewison of INO.com who prepared a short technical analysis of gold’s most likely direction and key chart levels. Click here to access the video presentation.

Seasonally, the period from November to December has traditional been good for gold, with average gains ranging from more than 1% to almost 2.5% since 1970.

Source: Plexus Asset Management

I remain bullish on gold in the medium term, especially as I believe the vast money printing by central banks could set off strong inflation pressures down the road. I will not be surprised to see bullion remaining in a secular uptrend in the medium term. Add bullion to your portfolios, but given the notorious volatility of the metal only do so on pullbacks. (Emphasis added.)

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I stress the last sentence in Mr. Plessis’s article, because even thought the trend is strongly upward, there is a lot of volatility in price. Buying now, after such a sharp rise entails the risk of a fall. On the other hand, gold fever seems to be spreading quite broadly, which could lead to near-term sharp rises.

The simplest way to invest in gold is the buy GLD through a stock broker. This is an exchange traded fund that holds physical gold equal to the value of the outstanding shares; so it is relatively secure, and it is very actively traded.

A final warning: my timing has been less than sterling in the last year; so my coming to feel gold is a reasonable investment (among a set of relatively bleak choices) could be a good contrary sign.