Archive Page 2

House Passes Stimulus Bill; Again

And no Republicans voted for it; again.  It seems that the  Republicans want President Obama to fail so bad that they are willing to let the country sink into an even deeper recession.  Or are they?  All Republicans know that their votes are not needed to pass the bill in the House.  So voting “nay” does not mean anything in the short term.  What they are hoping for is that the stimulus would not do much to uplift the economy over the next year and half — which would give them plenty of ammunition to shoot at thier Democratic opponents in the mid-term elections.  The Senate vote is more critical.

Dems need at least three Republicans to join them before the bill can pass.  This should not be a problem because they go the three votes when the bill was $838 billion.  Stay tuned.

To Infinity And Beyond (or Obama’s Stimulus Package)

It seems that the magic number for Presidnet Obama’s stimulus package keeps growing as each day passes.  It started at $500B, then $675, and now the media claims that Obama told Nancy Pelosi that $775B is the lucky number.  I think that he should take the $300B in tax cuts and tack them on-top of the stimulus plan and then round the whole thing up to $1 trillion.  This would eliminate the need to come back and forth to Congress for more cash.  Paulson asked for (and recevied) $750B last year from Congress.  Should not the President of the United States be allowed to ask for more?

Job Creation 2.0

When talk of jobs is mentioned, rarely do we hear President-elect Obama break down the different segments of his 2.5m (recently updated 3m) plan.  There are in fact three distinct segments that make up any jobs “creation” statement:

 

Jobs Retained: (my estimate through 2011 = 2.5 million)

This might be the most important segment and must take priority over the others.  With 2.7m+ jobs lost during the past year and 533k lost last month, there must be actions taken to stop the bleeding.  This is where tax policy will have its strongest effect.  Positive change to payroll/corporate and capital gains taxes will enable corporations and entrepreneurs keep the good people they have on board.  The situation in Chicago shows that an owner wants to pay his workers but is unable to thus they resulted in a lock-in.  Sometimes people are caught empty-handed by pure market factors and not by corporate malfeasance.

 

Jobs Filled: (my estimate through 2011 = 2 million)

There a millions of open requisitions at thousands of companies in America.  The problem is that there is no efficient and effective way to match the job seeker with the positions that match their skills.  Even the U.S. Govt has tens of thousands of job postings on Usajobs.com that have been open for months.  Hotjobs.com, careerbuilder.com, jobs.com and many others do not live up to their names for 80% of job seekers.  The Govt must first fine tune its own jobs postings, fill them, and then reach out to other databases and sources.

 

Jobs Created (new): (my estimate through 2011 = 1 million)

This is the trickiest segment of the three.  Even if billions of dollars are poured into highway infrastructure, will there really be new jobs created or will existing contractors use this “new” contract money to retain people?  It could depend on the size of the new contracts.  It could also depend on the contract language and terms that must be included.  I suggest new contracts be written with a clause that requires contractors to hire 1 employee per $200K of contract value.  This could be the silent hand that forces job creation.

 

Given those points, I expect a job target of 5-5.5m is necessary to restore economic confidence in America.  With 2.7m+ lost in the past 12 months, a 3m increase in the next 2 years will have a minimal effect.  I think that HBS Professor Jim Haskett is right in calling for “stretch” management to be instituted at American companies.  In this sense the Govt would be the beneficiary of this GE concept.

 

Your thoughts?

The Struggling States Need $40B for Healthcare and $136B for Infrastructure Projects

The Nation’s Governors met with President-elect Barack Obama today to try to get some of the proposed $500B plus stimulus package that he will sign when he is President. The problem is how do we hold these States, and their CEO’s, accountable for misaligned management of public funds? Why are they not looked at under the same light as the Wall Street CEOs? Neither group has been found to engaged in criminal activity. However both groups are partly to blame for not avoiding a financial meltdown. New Governors can get a pass but those that have been in office for more than 3 years should accept some reasonability for not preparing their states properly to whether a downturn in spending.

 

What will America get in exchange for the $176 billion these States are asking for? No preferred shares in the States themselves? No ownership of assets such as land or lottery income? Nothing. At best it will be a “loan” with 30 years to repay at 2-3% interest. This will not a sound investment if the State governments will not be held to similar covenants imposed on private companies receiving U.S. Treasury cash.

 

And where will the money go? To companies that already have contracts with the States?  Or will new relationships and bids need to be developed to accept U.S. Treasury cash. Is preserving existing jobs the same as creating new ones? No, but it’s a start. I say require the contract winners to hire 1 employee per $300k value on the contract. This is a two-pronged way to stimulate the economy.

Almost 1 Million Homes Lost to Foreclosure Since 2007

RealtyTrac reported today that more than 85,000 homes were added to the foreclosure list in October, bringing the total homes lost to foreclosure since August of 2007 to 936,439. Why did it take this long for Hank Paulson and Ben Bernanke to finally offer real help? Again, I believe that Hank and Ben were clueless to the real cause of the crisis so consequently they could not offer a proper solution. Or maybe is they stemmed the bleeding at the mortgage level, their friends on Wall Street would not have been able to get any money and would have to watch their “cash cows” die.

China Should Have Offered a $1 Trillion Stimulus Package

With the U.S. presenting $750B bailout package, the P.R.C. should have upped the ante beyond $586B to $1T and secure its place amongst world financial leaders. This number, although only $414B more than what was offered, would have made a strong impression on investors and importers around the world. It also would have said that China was going to stand behind its exports and ensure that any global meltdown will not be at the hands of the Chinese.

 

This is important for two because of two facts:

1)     China is the world’s largest consumer of natural resources

2)     China is the world’s 2nd largest exporter of goods

 

Even if China really does not care much about the rest of the world, increasing their bailout would secure their own interests. Domestic Chinese companies need the natural resources to produce their products and run their operations. If these companies have to scale back their operations then china’s domestic economy will sour. Most of these companies export between 70%-95% of their manufactured goods to the U.S. and other nations so China also has a vested interest in making the global economy stronger and more stable.

 

Despite what the world thinks about China’s development, if you look at the infrastructure, poverty level or quality of living for its residents, and the state of healthcare facilities, they are way behind developed nations like U.S., Germany and U.K. China needs to maintain a yearly growth of at least 8% for the next ten years in order to complete the transformation from Communist backwater to Pseudo-Democratic world leader. Unlike China, Japan is not taking any chances and has pledged to the IMF a record amount of $106B worth of aid if needed. They have been through a very rough financial crisis in the early 90s and they are not looking to repeat their mistakes. China easily dwarfs Japan’s $997B in Forex reserves with $2T reported back in September. (to place this in context, the U.S. has only $73B in Forex reserves)

Hank Paulson Now Moves to Bailout Credit Card Companies

Sectary Paulson announced today that he is no longer interested in purchasing “illiquid” assets from banks in the U.S. The problem is he warned us that if we did not buy these bad loans/etc from the banks that entire U.S. financial system would collapse. After spending $290 billion on buying up preferred shares in failing banks and AIG, Paulson changes his mind about the real cause of the recession. Could it be that he never knew what the real cause was and he was only stalling? Or could he have used the air cover of the bailout to help his friends in the banking industry in other ways? Only time will tell. What I can tell right now is Hank Paulson and his Goldman Sachs boys need to be shown the exit soon. (Well in advance of January 20, 2009)