Debating Joe the Plumber

For a moment, while watching the debate, I totally related to McCain, because while he was spouting off lies about Joe the Plumber’s taxes going up, I was rolling my eyes and fuming, doing everything I could to not have a Wii moment and accidentally throw the remote through the screen. Talk about an anger management moment.

What I don’t understand about this issue is how the American people, the media, the various political camps, how they can let this go completely unchallenged. Joe the Plumber is not going to be buying a business that brings in $250,000 as a salary. Period.

Sorry to break this to you Joe Wurzelbacher, but in this economy, with building down, and people losing their jobs, if a person could purchase a $250,000 salary by buying a plumbing business it would have already been sold.

No Joe, you need to be aware, before you sign on the dotted light, that you’re buying a business that may “gross” $250,000. Then from that you take out your salary, the pay to your employees, gas, truck expenses, advertising, social security taxes, health care expenses, and in the end you’re going to be getting a nice little income of around $60-$80,000, maybe $100,000. And it’s on this $100,000 that you’ll be taxed.

So guess what Joe, you’re going to be paying more under a McCain presidency then under an Obama administration.

And even if this business you want to buy gives you this great salary of $250,000, you’ll only be paying 4% more on a tiny fraction of that money. Not all of it!!!! Do you not understand Joe, that inflation, and rising health care expenses, gas prices going up, the cost of people being laid off from their jobs - all of these factors act as a hidden tax on your profits?

I’m sorry Joe - you didn’t really ask for national attention - and likely never wanted to be in a debate - but if you do, please comment, defend how you feel you’ll be getting the short end of a plunger in an Obama tax plan. I’d love to hear your thoughts.

By the way, if you didn’t actually watch the full discussion Obama had with Joe the Plumber, you should, because it’s much more enlightening then the tiny soundbyte about “class warfare” McCain clipped out.

God Bless American Stupidity

No artist understood Main Street America better than Norman Rockwell. His painting, “The Connoisseur”, is a perfect analogy for Main Street’s understanding of economics. The average American thinks they understand economics. Why should the tax payer bail out the rich cats on Wall Street? It makes no sense to a sound bite mentality.

Now correct me if I’m wrong, but the $700 billion is intended to buy bad assets. This isn’t a handout. While it’s not a good deal, if you believe America has any kind of economic future, it should work itself out.

Let me see if I can explain this in as simple of terms as possible.

Imagine the hypothetical scenario where in three years ago, the Smith family, making $50,000, purchased their very first home. They’ve been told that home ownership is part of the American dream, and that real estate appreciation has historically meant that owning your own home is a great way to build up net worth. So set about and purchased this home at 2005 prices.

Now the Smith’s didn’t have a large down payment. They’re not rich. They had to rely on some creative financing to buy into the American dream. They did this by paying 80% with a conventional mortgage and financing the 20% down payment with a second mortgage (although at a higher interest rate, or what would be considered sub-prime).

For the next year they feel good. Home prices continue to climb, and although they show signs of tapering off, the future seems bright. Everywhere they look, they see signs of new housing development.

Then bad news hits. Home prices start to drop. For Sale signs in their neighborhood go up and never come down. It’s not long before these signs start getting “Price Reduced” stickers. Now it turns out the Smith’s house is worth less than they borrowed.

But the slowing economy isn’t the only thing worrying the Smiths. With a new kid on the way, the Smiths realize that the home they purchased won’t fit their growing family. They can’t sell because they can’t pay off the difference that they would owe. They are stuck.

Eventually they decide to let the house go back to the bank. They hate the fact that there will be a foreclosure on their record, but renting is the only way they get a bigger house. And when they look at the specifics, they’re really not out any cash because they didn’t put any down. You do what you have to do.

Of course, the bank now has two loans on a house that isn’t worth what they’re owed. Except, the bank doesn’t own the Smith’s mortgages any more. These mortgages were long ago sold off, and now belong to some investment bank that invests in real estate as part of their diversified portfolio. They’ve grown increasingly reliant on real estate for stable returns as other segments of the economy have never recovered. Now the real estate market is tanking and they’re worried.

And the investment banks are starting to realize that the real estate assets backing these investments are worth cents on the dollar. They’re in trouble. They can no longer borrow money backed by their collateral. Their ability to invest on margin freezes up. Gains diminish. The 401Ks and insurance companies, the investment banks big investors, want to know what’s going on. It turns out that they aren’t really sure, but it doesn’t look good. Who can help?

It turns out the only one willing to help - partly because the US Government isn’t required to report quarterly to stockholders, but can take a long term, 30 year perspective - is the US government. The US government can afford to purchase these assets and hold them until they regain some of their value. And by doing that, they then allow the focus to not be, how can some investment bank sell bad assets on the open market that no one will buy, leading to financial meltdown - but instead it can start making good investment decisions with regulation and oversight.

Now you could place blame on the investment bank that bought these bad mortgages, or you could place blame on the mortgage broker who lent the money to the Smiths who were really not in a position to own a home. However, in the end, all the blame in the US economy does not fix the problem of credit freezing. And when a credit economy has a credit freeze, everyone is worse off. No longer can the good business idea find money to launch. Or a new market can’t be explored. Or inventories for the Christmas season can’t be purchased.

So this is a plea to Americans - and hopefully Liberals can pull themselves away from their conservative bed buddies on this issue - and quit being so stupid and emotional and reactionary. Take some time to grasp that we’re in this situation equally, rich or poor, and its one of those instances where we’re going to have to get ourselves out of this, both rich and poor. And Obama is the only candidate who’ll make sure that over the next eight years, the rich pay their fair share for this mess.

That’s my final line on this “bail out”.

Since We’re Talking of Bail Outs, Why Not Bail Out Main Street?

I feel like I’m back in the fall of 2002, when George Bush and Team were painting a picture of urgency. The promise of a mushroom cloud blossoming on the horizon for anyone skeptical of going to war with Iraq. Now we’re being told of almost certain doom again, a financial crisis not seen since the great depression. We must act now.

Deja vu.

Now hold on a second. What is the urgency? No one can paint me a picture of what this gloom looks like? I’d like to know why we can go eight years with a Bush White House and nothing get’s done on health care because of the cost, but the financial crisis is something we need to rescue in the eleventh hour of a lame duck president’s term?

$700 billion. That’s a lot of cash. Why not skip the bail out of Wall Street and bail out Main Street. For starters, I have some lousy debt I’ve been paying on now for 10 years - it’s called student loan debt, and guess what? It’s such bad debt that despite making every monthly payment it never goes down? Wipe that out, and it would free up a nice chunk of my change that could start to lubricate the economy.

What Paulson Wants for Wall Street

I’m not a genius. My doctorate in economics from Stanford is a fake. Allen Greenspan is no hero of mine. He should be tried for war crimes - like every other Republican that profited from war and has sank the ship.

No, I’m just a pissed tax payer who’s spent the day listening to the idiot Paulson try to explain why he should be given $700 billion to bail out his friends, approximately $2300 of which will be mine.

Why don’t we just admit it right now, once and for all, we are not a capitalist society - not in the sense that you might think? In fact by the end of the week, the government very well may own a good chunk of the shitty finanical assets on bridges to nowhere for all we know. No, we are a socialist economy but one that operates on a fucked up model of rewarding a small 2% with huge bonuses, and screwing the other 98% with unstable job growth, no healthcare, no energy plan, and no retirement plan.

Here’s the basics of what it appears Paulson is proposing. I’ve broken this down into a simple, straight forward outline that makes absolutely no sense to me - and if it makes sense to you - then check in with your doctor.

Paulson wants…

You to feel sorry for the rich. Wall Street made a bad mistake - in fact a series of really bad mistakes. These mistakes made Wall Street very rich for a time. Hedge fund managers flourished in a world where they could move and grow money that they didn’t own, that had no assets backing them, all while avoiding paying any significant taxes. Now it looks like fate is calling. The house of cards is going to fall, and suddenly the prospect of these new rich bastards jumping out of their buildings - well, that reminds us just a bit too much of 9/11. 9/11 is something we want to avoid repeating. So we need to bail Wall Street out. Of course, this is preemptive. These rich bastards haven’t actually lost all of their money just yet, they just face the prospect that they will - by Friday of this week, if we don’t act now, on Monday. Paulson’s plan that he’s presented Congress, asks for $700 billion dollars. He wants no strings attached. He wants to be able to hire and award money to people based on his own discretion. Basically, he wants Paul Bremer powers to do to Wall Street what Bremer did to Baghdad. No one should be looking over Paulson’s shoulder. He’s terribly sorry that the taxpayer has to deal with this and of course, he can’t guarantee that this plan will work, but we have no alternative. If we don’t act now, every one’s 401K, money markets, retirements, insurance, life savings, bank accounts will all be down the drain. And if you’re not scared shit-less by the end of that list - well, Iran’s gonna get nukes and use them on everyone very soon. Now of course, Paulson is also warning against any restrictions that might say, if you get bailed out of your bad debt, the taxpayer might want the CEO to make no more than, say $500,000. No that would be unfair - to the CEO. A CEO of a company that hasn’t failed, but will fail if not bailed out, should be able to be paid whatever his or her board of directors feels is appropriate.

Here’s my thought - and this is why my major in economics is phony - why not let all of these guys go bankrupt. Keep our tax payer money for a few weeks, and then get an awesome deal in bankruptcy court as these assets get auctioned off? This means we avoid any issues of CEO pay. And everyone knows you get a much better deal at a bankruptcy auction, then you do the first day of the “Going Out of Business Sale.” With all of these huge corporations bankrupt, suddenly it might be easier for the little guys to compete. Capitalism is spread, and jobs are created. Now I realize this might hurt a lot of “rich” people but the truth is, there are already a lot of people hurting. And isn’t it time we spread a little bit of that hurt to Wall Street.

UPDATE: I just recieved an email from the people at ImpeachBush.org. Sign the petition at www.votenobailout.org and make sure Congress doesn’t just hand free money over to Wall Street.

The Fundamental Truth About McCain’s Economic Lies

McCain is a liar. I’m not referring to any attack ad he used against Obama. No, I’m talking about his statement today, when he stated, “…the fundamentals of the American Economy are strong.”

Ironically, McCain made this statement on the day he launched a new ad about the economic crisis facing the Americans, and when the DOW dropped 500 points. This follows a weekend when Allen Greenspan describe the economy as the worst in his lifetime, and the Lehman Brothers Bank filed the largest bankruptcy in US history.

To try and recover from his gaffe (if you want to give him that) McCain later clarified. By fundamentals, he meant the hard working, ingenious, American worker.

Whatever he meant, in both cases, its a flat out lie - and one only the most idiot of economic students would make.

The truth is, the American economy is fundamentally about regulated capitalism. Congress and the White House do the regulating. American businesses do the capitalizing. For most of the last eight years the congress and the White House has been controlled by Republicans. This economy is the fundamental result of their regulating making it easy for businesses to capitalize unregulated.

The American worker works just as hard in a good economy as a bad one - maybe even harder in a bad economy, because they don’t want to lose their job. However the fundamentals - money liquidity, inflation, unemployment, tax policy, spending, deficits, trade agreements - these fundamentals are not strong.

People can’t get money - not because they can’t pay it back, but banks are afraid to lend. Liquidity has tightened. The economy is slowing. Layoffs will follow. Interest rates will rise to combat inflation that’s been created by pumping billions and billions of new money into the economy.

More and more of America is actually owned by oil producing countries, and other economies like China.

These are all fundamentals, and they are not sound.

If we are to believe McCain, and take his word for it, that he really meant the American worker as the fundamental economic foundation, well where does he stand on that. Does he not know that over 600,000 jobs have been lost? These are jobs that belonged to hard working Americans? Jobs that are no longer here. That is not a sound fundamental.

Does McCain not understand that while the average American worker continues to lead in productivity, their actual income has dropped by nearly $2000 over the last eight years? And does McCain not understand that by deciding to tax health care benefits as if they are income, which is a tax most heavily on the middle class, that he’s raising taxes on the middle class, while asking little of the most fortunate (and hardly working) rich?

My Republican and Independent friends - what McCain means by the “fundamentals of the economy” is not the American worker. No, he means the fundamentals of the Republican economic policy are sound. This is a policy that reduces taxes, preaches about shrinking government, but really means, using government as a funnel for money to their lobbyists interests. Republicans believe that fundamentally, you are on your own, that regulation is bad.

No, I’m sorry, the fundamentals of the American economy are on shaky ground. The next president will face the toughest economic situation any president has faced since FDR. The one thing Americans need is a President that at least understands the fundamentals are not sound.

Got kids? You’re Rich Getting Richer According to McCain

McCain offered up his plan for a $7000 per child tax credit while debating the Holy Ghost back at the Saddle Back Farm. (It’s been pointed out he probably meant $7000 per child tax exemption…but who knows).

This is a good plan if either, you want free money, and debt for your kids, or if you’re rich. I don’t know which is the case, but do the math. It starts to look pretty profitable to pump out kids.

My problem with this plan…and I’m no tax accountant so correct me if I’m wrong…is that it benefits wealthier families more than those who need it most.

Let’s say I’m a median American family. There’s myself and my spouse making $50,000 a year together and we’ve got two dependents. Let’s say after I get done doing the front sheet of my 1040, I flip over the form and I have an adjusted gross income of $45,000.

Now comes the fun part.

$45,000 minus exemptions…ok line 49 take it to line 60..wow look at these tax credits here. I’ve got…wait…I don’t owe a dime in taxes…am I getting money from the IRS? if this doesn’t make sense, you’re following me, because it doesn’t make sense to me either. Either the government is paying money (rather then collecting money) from those with more kids, or (if the credit only works if you owe SOME taxes) this sort of policy only benefits the wealthy.

I’d love it if someone more familiar with tax law could explain this, but until then I’m going to hold my own misconceptions and see this for what it really is…a way to sock it to the childless and pad the pockets of the wealthier child rearing Evangelical and Mormon Folk. (Yes, I predict Romney to be McCain’s VP).

Credit Crunch on Middle American Dreams

Ah, if only the American Dream purchased on easy credit were so simple to leave behind.

With the previous tightening of the bankruptcy laws (aimed to protect big banks and their questionable lending practices) many American’s won’t find it so easy to excuse themselves of debt this time around.

The cycle of easy credit with an easy escape (either by refinancing an appreciated property or Chapter 7 bankruptcy that previously allowed many to walk away from unsecured debt for only a few hundred bucks) is no longer an option. It’s also a situation the economy hasn’t faced before and any recession caused by the current housing market slowdown, could be prolonged by the difficulty the middle class will have getting back on stable financial feet.

Of course, in a country where welfare is viewed negatively by capital idealists, there’s pretty much a guarantee that any trouble by the big corporations will find some sort of corporate welfare so they survive.

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