Saturday, November 1, 2008

Here's your CHANGE!

CHANGE is in the air - "Change we can believe in" and "Change we need" from one side of the political divide and "Change is coming" from the other.

Here are some changes I'd like to see over the coming four years:

Executive Salaries

I am not one to favor government limits on private sector salaries, but I am appalled by the millions earned by executives while the corporations they directed lost gobs of money. Even more eggregious are the "golden parachutes" some executives got when they were forced to leave their posts. We need to put some accountability into the executive suites and some lead into those "golden parachutes"!

If any of these executives acted illegally, such as falsifying acounts or knowingly releasing false information I hope they are sued by shareholders and prosecuted to the full extent of the law. However, most of them have excellent legal advisors and, while what they did was immoral, it was probably legal.

CHANGE ITEM #1: Any salary or bonus or "golden parachute" in excess of 40 times the lowest pay of any employee in the corporation shall be paid in STOCK OF THE COMPANY that cannot be sold for FIVE YEARS. That will prevent executives from profiting from flim-flams that yield quick returns but are losers in the long run.

Rating Agencies

I listened to the Congressional hearings on Standard & Poors, Moody's, and Fitch, the agencies that do some 90% of the ratings on financial instruments. One of them rated AIG as AA two days before it imploded!

It turns out these agencies are paid for their ratings by the very corporations that issue the financial instruments. The corporations shop around for the agency that will give them the best ratings and, naturally, the agencies adjust their rating formulas to gain the most business. How can we make the rating agencies more accountable without imposing some unwieldy bureaucracy on them?

CHANGE ITEM #2: Fifty percent of the fee to a rating agency for rating any financial instrument (stock, bond, derivative, etc.) shall be paid in the FINANCIAL INSTRUMENT THAT HAS BEEN RATED that cannot be sold for FIVE YEARS.

Home Mortgages

It used to be that the bank that accepted your home mortgage would hold it themselves. No more.

To encourage home ownership, Congress created Freddie Mac and Fannie Mae as quasi-government agencies to buy mortgages. Congress passed laws and government departments made rules that encouraged banks to give loans to people who had poor credit and employment histories.

That was good for the constituencies of both political parties: developers and the building materials industry loved it, as well as workers in the building trades and unions and the people who were enabled to buy homes beyond their creditworthiness. Freddie and Fannie executives made generous political contributions to both parties as did the building industry and unions and politicians got lots of votes from happy beneficiaries.

The banks had nothing to lose - they processed mortgages and sold them off to Freddie and Fannie and others. The more mortgages they processed the more money they made. If the mortgages paid off - great, if not, not to worry, the government would take the loss.

CHANGE ITEM #3: Require banks and other mortgage-issuing entities to retain at least 25% of the mortgages they issue on their books. That way, when a mortgage is not paid off the banks have their own skin in the game.

CHANGE ITEM #4: When the current financial crisis settles out, bust Fannie and Freddie up into a half dozen or a dozen separate private corporations and make it clear that they are to compete with each other in the marketplace and that, after a grace period of five years, they will no longer be regarded as quasi-government agencies.

Alternative Carbon-Neutral Energy

Previous Blog entries cover the reasons. We must reduce our dependence on burning sequestered carbon (oil, gas, coal) and instead conserve energy and obtain a greater percentage from carbon-neutral nuclear and renewable sources such as wind, water, direct solar and biofuels. During the primaries, when Sen. McCain suggested temporary elimination of the federal gasoline tax (18 cents/gallon), and Sen. Clinton went along, I expressed my agreement with Sen. Obama who wisely objected to the plan.

However, I went further, calling for a punitive "carbon tax", increasing yearly until our dependence on sequestered carbon is significantly reduced and conservation and alternate energy is allowed to grow and mature under the economic "umbrella" of increased costs for coal, oil and natural gas. Although I oppose excessive taxation, in this one case, it is important to do what is possible and practical to reduce global warming, and a "carbon tax" is a lot easier to implement and administer than directed subsidies to specific forms of alternative energy.

CHANGE ITEM #5: Impose a "carbon tax" of $1/gallon of gasoline (and proportionately on coal and natural gas) and increase it yearly by an additional $1/gallon until sequestered carbon usage is halved and carbon-neutral alternative energy usage doubles.


The above items cut across party lines and gore everybody's goat about equally. None of them require significant increase in government or bureaucracy. All are easy to compute and hard to cheat on.

Of course, that is the problem! Politicians on both sides gain power by imposing complex laws that virtually require corporations and unions and other interest groups to continue giving political contributions to assure they are treated better than other interest groups.

The laws are administered and interpreted by government "civil servants" :^) who benefit from complexity and ambiguity to make themselves important and keep their jobs and expand the bureaucracy further.

Everyone argues for exceptions to the rules! "Oh, you've got to exempt milk as a taxible item because babies need milk to live! Who could deny that?" "Yes, and bread as well." "Well, ice cream is made from milk and jelly is put on bread, so exempt them too." ... "Right, and ketchup is made from a vegetable, so exempt it ..." (Technically, tomatoes are fruits and bananas are vegetables but why let a technicality interfere with the growth of government? :^)

We need more laws and rules that apply across the board and are easy to interpret and enforce and hard to avoid or exploit. We need government regulations that reduce the influence of well-connected industries and unions. Sadly, that kind of CHANGE goes against the interests of most influential people and politicians of all stripes.

Ira Glickstein


Howard Pattee said...

Well, I agree with everyone that changes should be made! And I agree that Ira’s changes are helpful, but I doubt that more laws just about money will cure the root of the evil.

Here is the unlikely change I'd like to see:

I would like to see a political philosophy that cultivates the love of learning more than it cultivates the love of money.

Unfortunately, I see no way to be party-neutral here because conservatives tend to be more business and profit-oriented than liberals, and measure their success by the accumulation of wealth. I think Ira even suggested that wealth is a measure of fitness. This money-based culture breeds acquisitiveness rather than inquisitiveness. More students today are asking their advisors what major will make them the most money.

Conservatives also argue that only technical and professional skill is necessary for competitive success. They regard a liberal education as a kind of sophistication because it threatens their basic conservative values and encourages social decadence.

Currently the most popular media voices among conservatives in America are openly anti-intellectual. Many conservatives regard liberal education and expertise as a form of special privilege. They see intellectuals as a small arrogant elite who are pretentious, conceited, and snobbish. A cultured view is seen as impractical, and ineffectual. Geniuses' are viewed as eccentrics.

Instead, these conservatives promote the plain sense of the common man as adequate, and even superior to the knowledge of experts. They believe the old-fashioned principles of religion, character, instinct, and morality are sufficient guides, and these are threatened by cultural education. The “self-made man” is the idol of conservatives. They trust military ability as the test of character which is viewed as good for political leadership, and conservative voters view with suspicion a candidate with a show of intellect.

This conservative anti-intellectual faith is not new. The founding fathers were sages, scientists, and knowledgeable men of cultivation, yet the Federalists attacked the brilliant Thomas Jefferson by portraying the curiosity of his active mind as too trivial and ridiculous for important affairs. In the same way, modern conservatives believe that business success is the only test, and are indifferent to, or derisive of, cultural knowledge and the liberal arts.

This anti-intellectual trend has corrupted our schools below the college level. The first nationwide science test administered in five years shows that achievement in math and science among high school seniors has declined across the past decade. In the U.S. a third of those who accepted teaching jobs in math and science abandoned it within five years, because conservative school boards interfere with curricula, teachers are not respected, discipline is poor, smart kids are shunned as geeks, and the pay is less than they could get elsewhere.

The conservatives are well-organized and are politically very effective. Their fight against Darwinian evolution has made the subject so controversial that it is not taught well, if at all. More than 60% of conservatives do not believe in evolution. Civilized nations are appalled at this ignorance in the U.S., and we lose respect because of it.

Compare this with China, our chief competitor. There, Darwinian Evolution is regarded as fully established, and is accepted just like the laws of physics. In China, teachers are highly respected. Mathematics and natural sciences are seen as the most prestigious of all academic disciplines. Mathematics tends to attract the best students, and math teachers tend to be among the best trained and most competent. A study of elementary school mathematics teachers in China found that many Chinese teachers possessed “a profound understanding of fundamental mathematics.” Not so in the U.S. Most teachers in China are highly proficient in their subject matters and enjoy teaching them.

In no other developed country has anti-intellectual conservatism come even close to the influence it has in the U.S. on culture and education. Fortunately, there are enlightened conservatives along with liberals who believe that our survival as a powerful and respected nation will depend largely on eliminating this influence. We shall see if the tide can be shifted. New laws won't do it.

joel said...

Wow! I'd like to thank Howard for his thoughts on education. I think we can learn a lot by figuring out why he and I think alike concerning classical curricula, but attribute the opposite point of view to liberals and conservatives. Surely it's a matter of experiences, which must be quite different.

The first source of confusion I'd like to try to clear up is the entanglement of religious zealots. I was on the PTA board at the several public schools that my daughter attended in Hawaii. It was leaked that a large number of candidates for the state board of education were stealth Christian fundamentalists who wanted to take over the board. I attended each public meeting at which candidates presented their agendas. None mentioned anything controversial. I asked each candidate if they believed that evolution should be taught. The fundamentalists had to reveal themselves. None of the fundamentalists were elected after the newspapers reported the results. Most elected were educational conservatives (to be defined in a moment). My point is that religion and conservatism have incorrectly become entangled in our minds. From a political point of view, each of our parties is by necessity a coalition. It would be a mistake to characterize an entire party by the views of a single element, even if it is forced to bow to certain of their wishes in order to win elections.

My acquaintances who were political conservatives had in common that they believed in the priority of reading, writing and arithmetic in the first few grades. In the grades up to high school they believed in a classical approach to math, science, social studies and literature. The people called liberals (and the teachers' union) believed in the priority of new subject areas such as cooperative problem solving, relationships, creativity and personal experimentation. From middle school into high school, the liberals followed John Dewey's view that modern education needs to be tailored to the needs of industry and the modern world.

The battle lines became very clearly drawn when a national committee under the Reagan administration condemned the degeneration of education in the report entitled "A Nation at Risk." There was nothing in the report about evolution. It was a condemnation of "cafeteria style" education that permitted lazy students to avoid hard classics like Shakespeare in favor of comic books or pop psychology. The teachers' union and the educational establishment fought tooth and nail against any reforms that might make students unhappy, while the parents lined up for a tougher curriculum. I think Howard would have been very popular among the parents, but he would have been termed an educational conservative.

My experience here in Florida is different, coming much later in life. Reform of the lowest-common-denominator educational system seemed to have its best opportunity when Republicans took over both the governorship and legislature for the first time since reconstruction in 2000(?). Reform and accountability took hold quickly and curricula tightened up. A high school diploma had to be earned much to the fury of students. However, I was close enough to the system at the first-grade level to see sabotage go to work. The liberal educational establishment was still filled with devotees of the Rousseau-Dewey view of children no matter what the governor or the legislature might do. For example, in the first-grade, conservative reform took us back to the classical reading system called phonics (as opposed to "whole language processing"). This worked well for a few years. However, now, by demanding that each student read and computer test on four books per week, liberal school principals force students to guess at words by non-phonetic cues such as pictures and plot direction (that's called whole language reading). Teaching many students to "sound out" their words is virtually impossible, because they are desperately guessing in order to go to the computer, take the test and meet their quota. The children have become so focused on speed and computer testing that when the computers are shut down for maintenance near the end of the semester, they cannot be convinced to read for pleasure. The conflict between liberal an conservative views of education has thus produced the worst of all possible worlds.

Considering Obama's debt to the liberal NEA, don't expect the education situation to get better any time soon.

With respect-Joel

Howard Pattee said...

I agree completely with Joel that : “It would be a mistake to characterize an entire party by the views of a single element, even if it is forced to bow to certain of their wishes in order to win elections.”

As I concluded, “enlightened conservatives along with liberals” hope to eliminate this intrusion of religious dogma into education.

What stimulated my post was the money-culture and Ira’s “hope for change” that was mostly about money. My hope for a culture change is that the love of money is replaced by a love of learning. Admittedly, this is idealistic and more difficult than writing new laws. I have spent my life trying to instill love of learning, so when more students began asking advice on what studies will get them the most money I would tell them to find another advisor. But that doesn’t solve the problem.

Our educational system has lots of problems, including unenlightened liberals, political correctness, postmodernism, and inexpert teachers. But the fact remains that nothing will improve if the current anti-intellectualism among the most influential conservatives continues.

I think my summary of their views is not far off. My point is that it's knowledge, not money, that is required for survival.

Howard Pattee said...

A favorite conservative anti-intellectual complaint is the liberal bias of professors. This is supposed to brain-wash their students. In my own experience I never saw evidence of this.

Now there is some good evidence that liberal professors don’t have that much influence. The comments of students and professors are also very interesting.

Ira Glickstein said...

Thanks Howard for your link to the NY Times. They state that college students typically slide leftward in their political views during their years in college but deny that is due to what they admit is an overwhelmingly liberal faculty. They say the real cause is that that age group typically moves leftward. Has anyone compared the left-shift of college students to their age cohort who do not go to college? Do both groups shift leftward by about the same amount? I doubt it, but I could be wrong.

As for your other posting about love of money being less desirable than love of learning, I think it is clear from the evolutionary history of our "big brained" primate ancestors that the main purpose of the extra brainpower was to help us obtain resources (water, food, shelter, land, ...) that were the ancient analog of what we call money today.

I really have a love of learning and appreciate your help as a student of yours. You are one of a long line of adults who taught me to love knowledge and the enjoyment of seeking it. My parents, elementary school teachers, library books, and so on.

Therefore I agree that MONEY (i.e. resources) IS NOT EVERYTHING.

However, it is a long way ahead of whatever is second!

I suspect sexuality may be second, followed by territoriality and the tribalism and spiritual belief systems that support acquisition of land and power.

Learning of traditional crafts and customs are somewhat down the list. Somewhere below that is creative learning!

Beneficial mutations are few and far between, yet they are responsible for evolution in the genetic world. I do not think that a substantial increase in the rate of biological mutations would be good for evolution. (If you think they would, hope for a nuclear war and radiation-induced mutations.)

I would judge that beneficial creativity events that change memes are also rare. Do you think a sustantial increase in the rate of meme mutations would be good for cultural evolution? Perhaps the rapid evolution of our technological memes (modern weapons of mass destruction, computers, the internet, ...) is destructive? And liberal professors want us to make comparably drastic changes to our cultural mores? Can civilization survive such disruption?

What do you think?

Ira Glickstein

Howard Pattee said...

Some purely speculative answers to IRA’s questions:

IRA: “Has anyone compared the left-shift of college students to their age cohort who do not go to college?”

HP: I don’t have statistics, but I’m quite sure that both wisdom and conservatism increase with age for both. College is a time of testing ideas, and is often youth’s escape from parental authority. This makes them appear liberal.

IRA: “Do you think a su[b]stantial increase in the rate of meme mutations would be good for cultural evolution?”

HP Answer: No! Technology is moving much too fast to be selectively assimilated. Our techno-culture is unstable.

IRA: And liberal professors want us to make comparably drastic changes to our cultural mores?

HP: This implied generalization unfair. You are stereotyping maybe 300,000 U.S. professors with wildly different ranges of ideas. Many liberal-minded professors support specific conservative policies. Most professors are not viscerally interested in politics. Open-mindedness and tolerance of opposing ideas is a characteristic of liberal professors. Did your liberal professors at BU want to "make drastic changes in our culture mores"?

IRA: Can civilization survive such disruption?

HP: Not indefinitely. The question is what is civilization’s half-life? I would not give you more than even odds for 1000 years until a “dark ages” after a nuclear or biological catastrophe.

joel said...

With respect to Ira's suggestion for limiting executive salaries, here's part of a recent article From The Los Angeles Times.

......But the history of attempts by lawmakers to corral CEO pay has shown it's difficult to accomplish -- and sometimes can have unintended consequences.

In 1984, Congress tried to limit executive severance by adding what was known as the "golden parachute" provision to the tax code. It changed Internal Revenue Services rules so that any payment more than 2.99 times an executive's annual salary was subject to a 20% excise tax.

At the time, most companies provided a severance of one year's salary, said Bill Coleman, chief compensation officer for, which helps companies set employee salaries based on their performance. But companies interpreted the rules to mean that anything up to three times the salary was permissible, and severance packages began rising to that level, he said.

"It was intended to be the ridiculous maximum possible anybody could pay, but it eventually became the benchmark," Coleman said.

In addition, companies that exceeded the severance level for an employee simply provided a bonus payment to cover additional income taxes, a practice known as grossing up.

"It did not have the effect of reducing severance pay," Hodgson said. "It had the effect of increasing it."

Seven years later, when Bill Clinton was running for president, he seized on executive salaries as a campaign issue. Graef Crystal, a former executive compensation consultant and author of six books on the subject, said Clinton called him with an idea to limit a company's ability to deduct more than $1 million in salary for top executives from their taxes. Crystal said he told Clinton it wouldn't work.

In fact, it may have backfired.

The resulting law, which was passed in 1993, is widely believed to have led to the explosion in stock options for executives as companies sought ways to avoid the salary restriction. Total CEO compensation surged through the rest of the decade, to 300 times the average worker's salary in 2000 from 100 times the average in 1993, according to the Economic Policy Institute, a liberal think tank.

According to another advocacy group, United for a Fair Economy, the average annual CEO pay for top companies in 2007 was $10.5 million, or 344 times that of the average U.S. worker.

"The people on Wall Street may be greedy . . . but they're very smart," Crystal said. "I'm sure the consultants can hardly wait to get their hands on these restrictions and figure their way around them."


joel said...

Howard said:
Unfortunately, I see no way to be party-neutral here because conservatives tend to be more business and profit-oriented than liberals, and measure their success by the accumulation of wealth.

Joel responds: Are you talking about the millionaire liberals in the US Senate? ..or perhaps the millionaire liberal movie stars? ...or maybe the millionaire liberal business men like Warren Buffet, Lee Iaccocca, Jack Welsh, Martha Stewart and George Sorros. I think you may be oversimplifying. Considering the strenuous efforts and money expenditures made in this election cycle, maybe liberals are more interested in accumulating power rather than accumulating wealth. An unbiased study would be welcome, but very difficult. With respect -Joel

joel said...

Correction: Oops! I said Jack Welsh was a wealthy liberal, when he is not. No matter. There are plenty to choose from. How about Bill Gates?

Howard Pattee said...

Ira, you say, “Therefore I agree that MONEY (i.e. resources) IS NOT EVERYTHING. However, it is a long way ahead of whatever is second!”

I would even say that money as a productive resource used for the exchange of things of value is as vital to modern civilization as language. However, I think that for most people, once they attain some level of financial security, simply acquiring more wealth is no longer their first priority.

Joel, you correctly remind me that there are rich liberals, some of whom, like Soros and Buffett, began by making money their first priority. However, their first priority changed to philanthropy many years ago. I don’t think Gates ever had the love of money as his motivation. I don’t see acquiring more power as a reasonable motive for their support of a liberal candidate who will raise their taxes.

In any case, what I was objecting to was a business culture that promotes ”the love of money”, as a motive. This Biblical phrase refers to “coveting only money” for no other purpose than to just get richer as the root of many evils. The problem is that love of money easily becomes disconnected with actual worth. (Econ 101: The measure of what money is worth is determined by what material goods and services it can purchase, and this should be decided ultimately by consensus with those who are paid to provide the goods and the services.)

Free-market capitalism has undergone collapse repeatedly because of this love-of-money culture with its consequent loss of trust in its real productive worth as a resource. With insufficient government regulation, what begins as trustworthy productive money eventually ends up under the control of what Marx called “financial capitalists.” These are the money holders and manipulators, the banks, brokers, insurance companies, and market speculators of all types, none of whom directly produce anything with inherent value. What happens for them is that money accumulation becomes an end in itself, and they see their success as measured by only money tokens that are just numbers with no common defined value. Trust and value are lost.

In this situation, competition only makes matters worse. At this level, the love of accumulating money becomes a competitive sport played with ”virtual money”; that is, with speculative financial instruments—stock futures, derivatives, repurchase agreements, credit-default-swaps, and “bundled” mortgages to name a few — that are far removed from the value of productive money. Most economists, like Paul Krugman, agree that it is these virtual instruments that triggered our current financial crisis.

These token manipulations amount to playing with counterfeit currency that subverts free-market productive capitalism. In effect, these are just high-risk gambles with productive workers’ money. Government regulation has always been necessary to correct these crises, often with unintended consequences, as Joel points out.
Of course, this is putting up a fence after the fox ate the chickens.

In our present case, the unregulated gaming of relatively few greedy money lovers has caused a disastrous failure of the entire world’s economy.

Ira Glickstein said...

As usual Howard and I agree more than we disagree. However, I do take issue with the following:

"With insufficient government regulation, what begins as trustworthy productive money eventually ends up under the control of what Marx called 'financial capitalists.' These are the money holders and manipulators, the banks, brokers, insurance companies, and market speculators of all types, none of whom directly produce anything with inherent value." [Emphasis added]

I agree that some "money holders and manipulators ... and market speculators" do distort the market, particularly when they conspire together to artificially drive it down or up. That type of manipulative "financial capitalism" is destructive and must be regulated by government.

On the other hand, responsible speculators (such as those of us who own stocks and 401-k accounts, and so on) are what make for efficient markets that allow us to conveniently sell these financial instruments when we need the money.

Our major disagreement has to do with "banks, brokers, [and] insurance companies". These entities DO produce a valued service that is necessary to modern civilization.

Banks, in addition to providing safety deposit boxes to protect things of value, provide loans to creditworthy individuals and businesses who need to buy productive items but do not have sufficient cash on hand. Banks also produce interest income to those who have earned the money in the past and need it to live a comfortable retirment. Absent banks, most of us would have to live in apartments until we saved enough to buy a house. Businesses would have to get along with old, less productive tools and cramped facilities until they could scrape up enough money to upgrade and thereby produce their products and services at lower costs and for their customers.

Brokers help sellers and willing buyers find each other and come to mutually beneficial contracts. Absent brokers, sellers would have to waste their time seeking buyers and buyers would have less variety of choice and price comparisons.

Insurance companies distribute the risk of financially catastrophic accidents. These negative events have low probability of occurance to any given individual but are virtually certain to happen to some of us, who, in return for paying a relatively low premium, will be made whole. Absent insurance companies, some individuals would be permanently deprived of their homes or health or both due to a stroke of bad luck.

Don't "throw the baby out with the bathwater"!

Our current financial mess is partly due to the risky speculation by major fginancial institutions. However, they were encouraged (even required) to give loans to uncreditworthy individuals. It was the government that created Fannie and Freddie for the very purpose of buying up these loans on the theory that real estate, on average, always goes up. These quasi-governmental companies and their supporters in Congress and the Administration to whom they gave larger political contributions established the playing field where banks could make loans with little or no downside risk.

Each of my suggested CHANGES addresses the situation by assuring the people and institutions involved in our capitalist society each had "some skin in the game".


Ira Glickstein said...

A friend, "billlifka", sent the following detailed and thoughtful comment on this Topic and has given me permission to make it public.

In general, I believe your five change items are worthy of consideration in anyone’s list. As usual, I agree with your viewpoints. You must be a very bright guy.

Executive Salaries.

I’ve held your view for at least 30 years and have had the opportunity to apply it on a few occasions, although for companies much smaller than those you have in mind. However, it’s out of the authority of government to manage such details in the private sector and it would cause all sorts of mischief if this were changed. In cases of fraud, of course, there is room for SEC and Justice Dept actions as well as shareholder suits. In general, I think that Board members of publicly held corporations could be held to tighter oversight standards. Some of this could be affected through SEC disclosure requirements. Thinking about such matters, it would be well to separate financial corporations from those that really make products and services that people use and, in the latter category, the top 500 (or so) from the remaining 1 million +/- corporations.

Rating Agencies.

This is another worthy idea. It might well be expanded to be more restrictive. I despair of our getting any meaningful regulation from government. Legislators are too conflicted in their ties to Special Interest Groups. Conservatives push to avoid regulation. Liberals push to regulate everything in fine detail. Neither works well. A central bank (and all the financial companies kind of appended thereto) works best if left alone to establish and enforce its own standards. Along with this, the financial sector and investors would need to understand that the whole bloody industry would be allowed to go under if they didn’t do this well. In my radical view, this would work well once everything crashed and it took a decade or more for the world to recover.


I always applaud the “own skin in the game” motivation as basic to Capitalism. In the short run, we do have a problem with the many defaulting mortgages that resulted from the Democrat’s housing welfare scheme. The best idea I’ve heard of so far is to have the Federal government grant 1st mortgages to all qualified comers up to $80K at 2% for 5 years. (payments as if it were 20 year paper) Anyone could use this for a new home or to refinance an existing mortgage. Banks could come in behind with 2nd mortgages for those desiring and qualifying for larger homes. If one thinks this through, it would solve many current problems and eliminate many complaints attendant to government intervention as being unfair to certain demographic sectors.

The F Twins.

Absolutely, the federal government should get out of these so-called businesses. If it could be done sooner than your five years it would even be better.

Carbon Tax.

I have no objections to well thought out “carbon taxes” providing legislation includes:

Congress can’t touch the tax; it must be applied as noted in later points.
No cap and trade nonsense.
One third the taxes raised go for research on nuclear waste conversion.*
One third goes for research on clean coal technology.*
One third goes for research on electric car batteries, solar, windmills, etc.*
*These are determined by qualified, objective entity; results available to all.
Capital investment by energy related companies can be expensed as paid for.
Rational approval practices for offshore and onshore drilling and refining sites. The measure of “rational” is that some number of barrels increase be realized.

I’m seeing this as a five year program that could be reworked for another five years based on initial results. The first five years is inclined to favor energy sources that are closer to providing real increases. After these five years, it should be clearer which of the further out technologies are worthy of a greater piece of the pie.

General Comment.

Unfortunately, I think that debating changes like this are useless until deficiencies in federal governance are addressed. Does any thoughtful and honest person really think that Obama and a Liberal dominated Congress will work this out objectively? McCain and the same Congress might have a better shot at it through compromise, but I think they would still fall short. I think the kinds of governance changes I’m proposing would be rejected like rational energy policy, even more so. However, I can visualize a means of bringing pressure that stands a better chance of overriding natural legislative opposition.


Ira Glickstein said...

THANKS billifka for your detailed and thoughtful comments on the five specific CHANGES in the Topic I posted.

Executive Salaries

I know you are much more familiar with corporate management and finance from your professional life. I would hate to see the government limit the amount of salary, but I believe this will happen unless corporate boards of directors rein-in salaries or voluntarily impose the kind of delay I have proposed.

Your say that financial corporations and the top 500 should be treated differently and I agree. The current bailout is specifically directed to corporations in these categories.

If a new law was limited to financial and top 500, would you favor my proposal to delay compensation in excess of some amount for five years and link it to long-term performance to assure that management has some skin in the game?

Rating Agencies

Since all three ( S&P, Moodys, Fitch) screwed up, and there is no viable alternative, it seems none of them will suffer from their overly generous rating errors. I also despair of government doinug the rating (and worry that any government action will be in exactly the wrong direction).

Do you have any ideas on what may (and practically could) be done by government or the private sector to make ratings more valid?


You suggest the government heavily subsidize mortgages for the first five years at below market rates for the first $80K to "all qualified comers".

This would help less qualified buyers of lower cost homes get mortgages. The subsidized interest rates make it likely they will be able to keep up payments, at least for the first five years. Over that period there is a good chance they will not go "upside down" on their mortgages.

I hate to get the government involved in deciding who is qualified and if the house is assessed correctly, but this would help stabilize the housing market.

Anything over $80K would be a second mortgage from a private source at market rates.

Under your idea would the banks be able to package and sell the second mortgages and thus remove their skin from the game?

Fannie/Freddie and Carbon Tax

We see these alike, but will they happen?

Ira Glickstein

Ira Glickstein said...

President Obama has adopted one of the ideas I proposed in early November last year (see Here's Your CHANGE!. He is limiting executive salaries to $500K/year and requiring any additional compensation to be in company stock not redeemable for an extended period of time.

While Obama's order applies only to corporations receiving extraordinary public bailouts and execs cannot cash out until the money is repaid, I think it should be extended to the top 500 corporations and, as I wrote:

"CHANGE ITEM #1: Any salary or bonus or "golden parachute" in excess of 40 times the lowest pay of any employee in the corporation shall be paid in STOCK OF THE COMPANY that cannot be sold for FIVE YEARS."

There were four other change items in my posting and it will be great if they are also acted upon in some form - and soon. The current exonomic crisis provides the excuse and opportunity.

Ira Glickstein