An Upside Down World

We're living in a make-believe business world. Business news reports that AIG stock was up 264% in the month of August on reports of profits and a new CEO at the helm. But, here's the thing, none of it is real:

Since the government holds its 79.9% interest in AIG in preferred shares, taxpayers don't stand to gain from a steep rise in the company's common stock price.

Instead, the preferred shares pay a dividend. But the dividends on the TARP part of the bailout -- $41.6 billion, or about half of its overall loan -- are "noncumulative." That means that the company can skip dividend payments without the obligation to make up the difference later.

And that's just what AIG did on Aug. 3, failing to declare its dividend payment to Treasury. Should AIG miss three more dividends, the government will have the right to nominate two more directors to the insurer's board.

Despite Benmosche and investors' enthusiasm, AIG is still a very troubled company with a sizeable debt to repay to the government.

Think about this for a moment. You've got a company that doesn't have to pay dividends to 80% of it's owners (i.e. U.S. taxpayers), yet it gets to pretend it profitable. This is all surreal. What I don't understand is why this is being reported in the business news. A company that is 80% owned by the federal government is for all intents and purposes a government entity, not a business entity.

You disagree? Well, think about who is hiring the new CEO and approving his salary:

In the Securities and Exchange Commission filing, AIG also said that Kenneth Feinberg, the Obama administration's pay czar, "expressed approval in principle" for Benmosche's compensation package. Feinberg still must formally approve the new CEO's compensation.

By the way, the compensation package for running this bailout created government agency is really pretty impressive:

AIG, the bailed out insurer whose pay practices sparked outrage earlier this year, has agreed to a $10.5 million pay package for its new CEO -- a stark contrast to his predecessor's $1 pay but drawing zero outcry from politicians or regulators.

The approval for a package, with a cash component that dwarfs what many competing insurers' CEOs have received, may be a sign that the Obama administration and lawmakers have begrudgingly accepted that even firms that took federal funds will have to pay top dollar to attract, and keep, executives.

Who are we trying to kid here? This is no longer a firm that took federal funds. This is a federal firm. The CEO of this firm does not create shareholder value. The CEO of a company like this should be on a government pay schedule.

Congratulations Governor Bill Richardson!

Congratulations Governor Richardson! Your success in avoiding being indicted is undoubtedly the most impressive accomplishment of your two terms as Governor of the Land of Enchantment. In case anyone questions just how impressive an accomplishment this is compared to everything you've done as Governor, I'm providing this link for your use:

Governor Bill Richardson's Greatest Accomplishments

Energy Lessons for Healthcare

What, you weren't persuaded by my Clunker Lessons for Healthcare post? Ok, how about we look at another one of government's "great ideas" put into action:

Researchers used to agree that farm-grown fuels would cut emissions because they all made a shockingly basic error. They gave fuel crops credit for soaking up carbon while growing, but it never occurred to them that fuel crops might displace vegetation that soaked up even more carbon. It was as if they assumed that biofuels would only be grown in parking lots. Needless to say, that hasn't been the case; Indonesia, for example, destroyed so many of its lush forests and peat lands to grow palm oil for the European biodiesel market that it ranks third rather than 21st among the world's top carbon emitters.

In 2007, researchers finally began accounting for deforestation and other land-use changes created by biofuels. One study found that it would take more than 400 years of biodiesel use to "pay back" the carbon emitted by directly clearing peat for palm oil. Indirect damage can be equally devastating because on a hungry planet, food crops that get diverted to fuel usually end up getting replaced somewhere. For example, ethanol profits are prompting U.S. soybean farmers to switch to corn, so Brazilian soybean farmers are expanding into cattle pastures to pick up the slack and Brazilian ranchers are invading the Amazon rain forest, which is why another study pegged corn ethanol's payback period at 167 years. It's simple economics: The mandates increase demand for grain, which boosts prices, which makes it lucrative to ravage the wilderness.

Classic. Of course, what is most amusing to me is the article embraces the idea of global warming as fact, and does propose, as a means of achieving efficiency, the use of alternative energy such as wind farms. Truth of the matter is that we know that wind farms also introduce their own set of problems.

Avoid Jobs that Require Multitasking

Looks like multitasking isn't all it's cracked up to be:

A new study suggests that people who often do multiple tasks in a variety of media -- texting, instant messaging, online video watching, word processing, Web surfing, and more -- do worse on tests in which they need to switch attention from one task to another than people who rarely multitask in this way.

Specifically, heavy multitaskers are more easily distracted by irrelevant information than those who aren't constantly in a multimedia frenzy, according to the study in the Proceedings of the National Academy of Sciences.

That's it, looks like no more checking my email on the golf course. Apparently, multitasking is also detrimental for those in politics:

Last spring, a judge ordered that [state Public Regulation Commissioner Carol] Sloan's wages as a PRC member be garnisheed so a bank could recover more than $39,000 from the commissioner. The garnishment came more than three years after a judge ordered Sloan to pay the judgment.

Another financial services company is now seeking to garnishee Sloan's wages to recover a judgment of more than $1,000. A judge ordered her to pay that money in 2005.

Sloan filed for bankruptcy in 1997 to discharge debts owed at that time. She listed liabilities of more than $40,000 and assets of nearly $5,400, according to an Internet service that compiles bankruptcy data.

The commissioner, who earns $90,000 in the job, couldn't be reached for comment on the bad-debt lawsuits and bankruptcy.

She's not alone

As you probably know, Sloan is part of a bigger personnel problem at the PRC.

Commissioner Jerome Block Jr. was indicted in April on embezzlement, conspiracy and other charges related to the finances of his campaign last year. Also charged in the case is his father, former PRC member Jerome Block Sr. Both have pleaded not guilty.

Two years ago, a jury awarded a woman more than $840,000 in a sexual-harassment lawsuit against a third PRC member, David King. Taxpayers footed the bill.

Obviously, a bunch of multitaskers.

Clunker Lessons for Healthcare

Beware the government's next big idea. This should be our motto after watching how the the $3 billion dollar Cash for Clunkers fiasco has panned out:

But why did taxpayers, having already bailed out GM and Chrysler once, have to do so again to the tune of $3 billion through the $3,500-$4,500 C4C incentives? This taxpayer money simply enabled the dealers to avoid having to offer discounts off sticker prices and to extract higher profit margins than they would have otherwise obtained on the qualifying new cars. The program proved so popular that inventories of the qualifying cars soon dwindled, further boosting the dealers' negotiating leverage and unit profit margin.

Did C4C sell more cars? Maybe in the short term but, in reality, the promotion stole largely from future sales with taxpayers subsidizing over half a million new car sales that would have occurred anyway.

Did the consumers win in this game? No, we did not. Was this a good deal for the American taxpayer? No, it was not. So, who are the beneficiaries of this latest round of bailouts? The same big businesses who have already gone to Congress with one hand out and the other in our back pocket. Of course, the taxpayer ripoff is only half of the story. I mentioned that consumers didn't win either in the Cash for Clunkers debacle:

Like hundreds of thousands of folks this summer, Anna Causey knew a deal when she saw it. Enticed by the rebates offered under the cash for clunkers program, the Summerville, S.C., resident ran her 1986 Buick Century down to a local dealer last month, scrapped it for a 2009 Dodge Ram pickup, and scooped up a $3,500 government discount for the trouble.

A month later, it doesn’t seem like such a great bargain.

Causey’s trade, it turns out, didn’t qualify for a rebate based on the cash-for-clunkers’ mileage requirements. Though she’d signed all the papers, swapped the tags and updated her insurance policy, Causey was called back to the dealership shortly afterward and presented with two options: either accept a new contract — one that would grant $1,000 for the old Buick and require that she pay back the $2,500 difference — or give up the truck. Thinking a deal’s a deal, Causey and her husband chose a third route: they stormed out, and hired a lawyer instead.

Now, consider this was a rather straightforward program that went through billions in weeks. You have an old car with high gas mileage, and you bring it in and get $4,500 off a new car. Should have been simple, but instead, the execution has been a total disaster for everyone involved. Yet, there are still some of you out there that want to put these same people in charge of administering your healthcare program?

I don't get it.

The Healthcare Paradox

This weekend, Congressman Martin Heinrich and a panel of experts spoke to an overflow crowd on the topic of proposed federal gift to the health insurance industry:

Several members of the audience asked about costs and how they would affect a rapidly growing federal deficit, now projected to reach $9 trillion over the next decade.

Heinrich said much of the more than $1 trillion in estimated costs would be funded through provisions in various bills that would tax certain employers who do not provide health insurance to employees. Other costs would be paid for by eliminating "waste, fraud and abuse," he said. The congressman said he would remain open to other ideas on paying for health care changes.

A gift to the health insurance industry is in fact what we are talking about here. This is another classic example of taxing one form of business to give to another. In this case, every business that does not now pay for health insurance will have to pay for health insurance. We're also going to find in the long run that everyone's personal income taxes are going to go up. Because, let's face it, government can't control costs either:

State government's largest health care program faces a serious budget shortfall that could balloon to $300 million next year, forcing Gov. Bill Richardson's administration to start planning for cutbacks in Medicaid.

Options range from reducing or eliminating benefits, such as dental care for poor adults, to lowering the reimbursement rates for doctors and other providers, according to New Mexico Human Services Secretary Pam Hyde.

If drastic cost-cutting becomes necessary, she said, the state might need to scrap entire portions of Medicaid, such as a program to help low-income workers with insurance coverage, or revamp Medicaid to provide a minimum amount of services.

Mind you, this is what it looks like when state government is receiving $3 billion dollars of federal bailout money for services. Oh, I know what you're going to say. That's a state problem. We're talking about the a federal healthcare solution. The federal government can control costs:

Millions of older people face shrinking Social Security checks next year, the first time in a generation that payments would not rise.

The trustees who oversee Social Security are projecting there won't be a cost of living adjustment (COLA) for the next two years. That hasn't happened since automatic increases were adopted in 1975.

By law, Social Security benefits cannot go down. Nevertheless, monthly payments would drop for millions of people in the Medicare prescription drug program because the premiums, which often are deducted from Social Security payments, are scheduled to go up slightly.

Yeah, right. The federal government is great at balancing a budget and projecting the ultimate costs of a pie in the sky program. If you believe that, please send me an email regarding the ocean front property I have for sale in Arizona.

UPDATE: To help illustrate my point regarding the federal government's success when it comes to cost projections:

The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters on Friday.

The higher deficit figure, based on updated economic data, brings the White House budget office into line with outside estimates and gives further fuel to President Barack Obama's opponents, who say his spending plans are too expensive in light of budget shortfalls.

The White House took heat for sticking with its $7.108 trillion forecast earlier this year after the Congressional Budget Office forecast that deficits between 2010 and 2019 would total $9.1 trillion.

Ethics Reform Doesn't Work for Criminals

Advocating ethics reform legislation to solve the problem of criminality among our elected officials is just foolishness. It's a blatant bait and switch tactic by politicians who don't have the backbone to blow the whistle on their own:

The state Democratic Party’s vice chair, Annadelle Sanchez, declined to talk about the potential political fallout from the corruption scandals, but released this statement:

“The people of New Mexico deserve a government that is open, honest and transparent. Good government is not a partisan issue, so instead of pointing fingers, Democrats and Republicans should work together to bring about the type of reform our system needs. I’m proud of Democrats like Diane Denish and (state Auditor) Hector Balderas that are leading that fight.”

Richardson has not released a statement about the indictments. Denish on Wednesday renewed calls for ethics reform, but her office said the Democrats’ likely 2010 gubernatorial nominee was not available for comment Thursday on the political aspect of the indictments.

First things first, Hector Balderas, our State Auditor, is leading the fight to get criminals behind bars. He seems to be doing his job well and with little concern whether the elected criminals have an R or D attached to their name.

As much as I personally think Lt. Governor Diane Denish is a nice lady who has done a lot for New Mexico through her association with the Daniels Fund and other not-for-profit organizations, when it comes to leading the charge for rooting out corrupt politicians, she gets an "F" on her report card.

Let's face the facts:

• She was the Chairman of the Democratic Party at a time when many corrupt political criminals were at their strongest.
• She has been silent about the rampant pay-to-play of the Richardson administration
• She has not stepped and asked for an investigation into a single incident of corruption

Do I think Lt. Governor Denish has been robbing New Mexicans like many of her colleagues? No. But, nor do I think she has stood up for us either. "Renewed calls for ethics reforms" is nothing but smoke and mirrors designed to take our eye off the ball.

North Koreans Come to the Rescue

You've got to love the timing of the thing. Conspiracy theorists could have a field day. Former Democratic Secretary of State Rebecca Vigil-Giron is indicted on 50-counts for laundering millions of dollars, and Governor Bill Richardson holds "productive talks" with the North Koreans.

I can't help, but feel the need to take a trip down memory lane back to April 30, 2007:

Oh, and it looks like the newly elected Democratic Party Chairman, Brian Colon, is already going to have his hands full trying to keep some folks from getting back into office:

Former Secretary of State Rebecca Vigil-Giron wants to be lieutenant governor.

You might be thinking that she’s looking to get on a ticket in 2010. Vigil-Giron, however, is thinking about next year.

She told me that during the Democrats’ convention in Las Cruces today.

Rebecca Vigil-Giron back in office. It's like a dream come true for Republicans. Remember, this is the lady whose fiscal mismanagement of the Secretary of State's office was so severe that it resulted in a Richardson job offer being revoked put on hold:

Richardson said he wasn't aware the shortfall was that big.

"I was not aware of the size of the deficit," he said. "I was aware there was some expenses that hadn't been paid but when I learned that was $3 million, I think it's important we get all the facts and we make sure a proper audit is done."

The governor's announcement [regarding Rebecca Vigil-Giron's appointment being put on hold] followed Sen. Shannon Robinson, an Albuquerque Democrat, yanking his sponsorship of an administration bill this week that would create the Media Arts and Entertainment Department, of which the film museum would be a part. Robinson was the only Senate sponsor.

House Republicans tried but failed to stop a similar bill in that chamber.

Even with his call for an audit, the governor defended Vigil-Giron.

He said she "has served the state, she's been an elected official, she's contributed to state government in New Mexico and I believe she deserves an opportunity to stay in state government."

Of course, you've got to love the Governor's logic in that last paragraph, "[Vigil-Giron] contributed to state government in New Mexico and I believe she deserves an opportunity to stay in state government."

Hmm, I wonder... let's try that a few different ways...

"Manny Aragon contributed to state government in New Mexico and I believe he deserves an opportunity to stay in state government."

"Robert Vigil contributed to state government in New Mexico and I believe he deserves an opportunity to stay in state government."

Michael Montoya contributed to state government in New Mexico and I believe he deserves an opportunity to stay in state government."

That about sums up the problem with New Mexico politics. Now, I'm sure that the timing of the Governor's meeting with the North Koreans was just a fortunate coincidence.

Leadership. Vision. Results.

Our friends over at the Errors of Enchantment blog have picture perfectly captured the summation of Mayor Martin Chavez's leadership:

The signs which tout the Mayor’s “Leadership, Vision, and Results” are mostly located in open fields and other “public property” locations. But, as I was driving downtown the other day I noticed a sign in a rather unusual place, especially for an incumbent Mayor. I saw a sign in front of a boarded up hotel, the “Silver Moon Lodge” which is just west of downtown on Central.

Now, you have to appreciate the irony of Mayor Marty's campaign sign in front of a boarded up business in light of this claim from his campaign website:

While we're all aware of the nation-wide economic hardships so many people are facing, Albuquerque has been able to fair better than most urban area in the country.

But wait, it gets better. Mayor Marty actually has down as his number one claim to fame in his list of accomplishments: Public Safety. He even spells out how he has improved public safety.

Albuquerque is virtually graffiti and litter free due to Mayor Chavez' strict zero tolerance policies.

Wondering what zero tolerance for graffiti looks like with Mayor Martin Chavez leading the city?

Kinda brings the Mayor's other claims of accomplishment into question doesn't it?

State Representative and mayoral candidate Richard Berry has some additional observations, photos and videos on the success (or more appropriately lack thereof) of Mayor Chavez when it comes to public safety.

We're Going to Put Who in Charge of What?

It's an interesting news day in the Albuquerque Journal. It looks like a compromise to the public option for healthcare insurance is making its way through committees:

The public option is a provision in the House and Senate bills to establish a government-operated insurance plan designed to be funded by its customers' premiums and compete against commercial insurance companies.

Over the weekend, Obama administration officials hinted that state and regional nonprofit insurance cooperatives might be an acceptable alternative to the government-run plan.

Oh yeah, that's a much better way to go. Phew, what a relief. Now we can have state government administer the health insurance program public option. Remember that is what we are talking about here. We are talking about health insurance program redesign, we are not talking about healthcare.

Think of it this way. The state administers an unemployment insurance program. That program pays unemployed people a certain stipend, but it is not near the same amount of money they would earn if they were gainfully employed. Moreover, receiving unemployment insurance benefits does not mean that the recipient will receive better employment the next time they get a job. One has nothing to do with the other. Same is true with the the great "healthcare" reform of 2009.

Speaking of unemployment benefit insurance, which is administered by the state, let's see how that is working out when the system is in high demand:

For the second time in two weeks and the third time this year, thousands of New Mexicans expecting to find their unemployment payments in the bank first thing Monday morning discovered the money wasn't there.

This time, a computer glitch on the Department of Workforce Solutions' end of the process delayed deposits until about 1 p.m., spokeswoman Carrie Moritomo told the Journal.

Hmm, and we want to put these guys in charge of healthcare? I wonder how those system glitches might delay the approval of some life saving medical treatment. If you think that's totally different, you've got another thing coming.

I know, I know. It doesn't have to be a state run program. It could be a regionally run government program. You know, like the schools are a regionally run government program:

Hundreds of APS teachers were underpaid last month due to a computer glitch.

About 300 teachers were affected, and when some of them notified the school district, officials launched an investigation, Albuquerque Public Schools chief financial officer Dupuy Bateman said Monday.

"Some employees notified us," Bateman said. "We did research to find that there were others and continue to do that ourselves."

It was unclear how much money was missing from the individual paychecks in late July. Employees were given the option of getting a check for the missing amount or having it added to their next paycheck, he said.

I don't know why, but I'm really not feeling a lot of confidence in the proposed health insurance solutions.

Will Bob Dylan Get a Beer Summit?

I'm not sure if someone has notified the White House, but it looks like President Obama might need to hold another Beer Summit at the White House:

Bob Dylan was detained by police in Long Branch, N.J. last month, when a young officer failed to recognize him, police said. The officer proceeded to go to earnest lengths to ensure the hooded, disheveled, rain-soaked music legend was, in fact, who he said he was.

The great lengths included putting Dylan into the back of the police car and driving him to a hotel to verify that he was who he claimed he was. Just how did Dylan respond to this oppressive profiling by police (the police officer assumed he was a homeless vagrant):

"OK Bob, why don't you get in the car and we'll drive to the hotel and go verify this?' " she said she told him. "I put him in the back of the car. To be honest with you, I didn't really believe this was Bob Dylan. It never crossed my mind that this could really be him."

Buble made small talk on the ride to the hotel, asking her detainee where he was playing, she said, but never really believing a word he said.

"He was really nice, though, and he said he understood why I had to verify his identity and why I couldn't let him go," Buble said. "He asked me if I could drive him back to the neighborhood when I verified who he was, which made me even more suspicious.

Huh. I guess you probably don't get a beer with the President for being nice and understanding that a police officer is just doing their job. Otherwise, the President would probably have to buy the vast majority of us a beer. Come to think of it, that's a stimulus package I could probably get behind.

Waiting for the Other Shoe to Drop

I can't help being pessimistic about the direction our economy is taking. I've watched in absolute amazement as the market has climbed over the last few months on better than expected earnings that in reality are just less than expected losses, or make believe "profits" from government bailouts.

I'm normally a glass is half full kind of guy, but I'm also not blind. Everyday I see more and more space available signs in office and commercial buildings. A week doesn't pass that I don't hear of a friend that has been out of work for more than six months. At one point, it was friends in homebuilding that were losing jobs, now it seems the job losses are happening in every sector.

The rate of bank failures hasn't really slowed either. BNO News the Breaking News Wire's late Friday afternoon tweets are now called BANK FAIL FRIDAY as it seems that every Friday sees another three bank collapses. We're up to 77 so far this year. And, it's not just the little guys anymore that are collapsing:

The Federal Deposit Insurance Corporation seized the struggling Alabama-based lender Friday and sold it to BB&T Corp.

Late Friday, the FDIC announced four other banks had been closed: Community Bank of Nevada and its Arizona subsidiary, Community Bank of Arizona; Union Bank, Gilbert, Ariz; and Dwelling House Savings and Loan Association, Pittsburgh.

The Colonial BancGroup deal will knock roughly $2.8 billion off a pool of money, known as the Deposit Insurance Fund, which the FDIC maintains to guarantee bank customer deposits.

BB&T /quotes/comstock/13*!bbt (BBT 27.02, -1.19, -4.22%) agreed to assume all of Colonial's deposits, which totaled about $20 billion at the end of June, the FDIC said. Depositors of Colonial will automatically become depositors of BB&T and customers can continue accessing their money by writing checks or using ATMs and debit cards, the regulator stressed.

Colonial had $25 billion in assets at the end of June. That makes it the largest bank failure this year, exceeding the collapse of Florida's BankUnited Financial /quotes/comstock/11i!bkunq (BKUNQ 0.25, -0.05, -16.33%) , which had less than $13 billion in assets. See full story.

This morning the DJIA took a dive. It may recover, but I don't understand what that recovery could possibly be based upon. Moody's Consumer Flow Update show consumer spending virtually non-existent:

Consumer sentiment slipped in August, according to the University of Michigan as key positive drivers of confidence have yet to fall into place (see: Michigan Confidence Not Improving).

In line with weak consumer sentiment and weak spending, consumers' financial situation remains weak, as indicated by soaring bankruptcy filings (see: Bankruptcy Filings Still Soaring). Dismal consumer fundamentals are also making consumers more hesitant to take on additional debt (see: Declines in Consumer Credit Accelerate).

A key driver behind the spending recovery will be the job market recovery but the outlook suggests that this process will be painfully slow (see: Unemployment Will Remain Elevated for Years to Come).

Whereas New Mexico has traditionally been insulated from these up and downs because of the reliance of federal spending in this state, this year that does not seem to be the case:

New Mexico's revenues will fall more than $400 million short of what's needed to cover spending in the current budget, lawmakers were told Friday as they received a bleak new financial report.

Revenues are down more than $700 million over two years, and the shortfall is large enough to wipe out the state's cash reserves if the Legislature doesn't cut spending and take other actions to balance the budget.

According to the latest financial forecast, revenues will drop to about $5 billion in the current budget year, which started in July. That's $433 million less than what had been anticipated when lawmakers enacted the budget.

Revenues also came up short last year, about $309 million below what had been previously forecast. Final revenue figures for the just-ended 2009 budget year won't be available for several months.

Most of the revenue decline over the two years is from weaker income and sales tax collections that economists blame on the national recession.

I'm still sticking with my prediction that the critical fall and holiday retail sales of 2009 will be one of the worst on record. We'll have some more big name national retailers and thousands of Mom and Pop shops close their doors for good. Which means that sales tax and income collections will be even worse going into next year as more people lose their jobs and find their income and credit simultaneously slashed.

Whole Foods Absolutely Packed

First, let me say that I almost never go to Whole Foods. It's just not close to where we live or shop. However, today our oldest had a soccer tournament right up the street from the Whole Foods on Wyoming. We were tight on time to grab lunch, so we decided to run into Whole Foods to grab a quick lunch. The place was packed. Now, I don't think it has anything to do with the CEO's recent stance on healthcare in the Wall Street Journal:

While we clearly need health-care reform, the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system. Instead, we should be trying to achieve reforms by moving in the opposite direction—toward less government control and more individual empowerment.

However, it was also seem that threats of the demise of Whole Foods as result of Mr. Mackey speaking his mind also seem to be premature:

Less than two days after the editorial appeared, the protest and boycott group organized on Facebook is up to more than 4,000 members, and pundits seem to be scratching their heads as to whether Mackey's missive was a bold entrance into a polarizing political debate, or a shortsighted business blunder that will only alienate his customer base. What do you think?

Well, I think that the people that love to shop at Whole Foods regularly will continue to do so, and I wouldn't be surprised if the stores find a whole new clientele as a result of Mr. Mackey's refreshing willingness to speak his mind. After all, it's not like the guy just hired Michael Vick.

An Observation About the Changing Paradigm

For many people, Republican policy has always been seen aligned with business, and Democratic policy has been equated to big government. Now, with the Republicans out of power and the Democrats firmly in control, it has been interesting to observe the shift that is occurring.

President Obama and the vast majority of congressional Democrats are proposing big government solutions to every problem from the economy to healthcare and everything in between. Of course, that's exactly what was expected. What wasn't expected, at least not by me, is that the these same Democrats are not only out there promoting big government solutions, but the big government solutions have all been crafted in a way to put the interests of big business first.

Consider the bailouts, they have all gone to the biggest of the big businesses. The biggest banks, the biggest insurers, the biggest automobile manufacturers are the beneficiaries while the small businesses that drive our economy are left to languish with programs that are nothing but smoke and mirrors. Now, I've never thought of big businesses as evil empires. After all, as a small business owner, my goal is to one day become a big business. But, I've always been against legislation that specifically benefits one industry over another, or puts a competitor at a disadvantage.

Yet, this is precisely what is occurring on the federal level. A recent Business Week Behind This Week's Cover Story podcast examines the ways that UnitedHealth has been a key player in crafting the healthcare legislation, and how at the end of the day, it is the giants of the healthcare insurance industry that are going to be the big winners:

As the health reform fight shifts this month from a vacationing Washington to congressional districts and local airwaves around the country, much more of the battle than most people realize is already over. The likely victors are insurance giants such as UnitedHealth Group (UNH), Aetna (AET), and WellPoint (WLP). The carriers have succeeded in redefining the terms of the reform debate to such a degree that no matter what specifics emerge in the voluminous bill Congress may send to President Obama this fall, the insurance industry will emerge more profitable. Health reform could come with a $1 trillion price tag over the next decade, and it may complicate matters for some large employers. But insurance CEOs ought to be smiling.

This is a theme that is being repeated over and over since the Democrats have taken full control. However, as a result of continued economic pressures, more and more people are finding themselves being laid off from large companies. More and more people are struggling to ensure their families have the basics. The Democrats in control may talk on the stump about being the advocates for hard-working Americans, but their actions speak louder than their words:

Missing from Washington's health-reform discussion is a simple change that would make insurance more affordable for millions of the nation's smallest business owners by letting them fully deduct the cost of their health insurance premiums.

By a quirk in the tax code, self-employed workers who buy their own health insurance essentially pay an extra tax on their premiums. They're the only taxpayers in the system who pay taxes on premiums, which count as a business expense for corporations and pretax income for employees. Because self-employed workers have no corporate employers to match their payroll tax contributions to Social Security and Medicare, they pay double the rate of wage and salary workers in a levy known as the self-employment tax equal to 15.3% of their net earnings. That's on top of regular state and federal income taxes, and the income they spend on health premiums is not exempt.

The nation's 9 million self-employed—sole proprietors with few or no employees, contract workers, and freelancers—constitute about 8% of the total U.S. labor force, according to the Bureau of Labor Statistics. (The Census Bureau counts 22 million sole-proprietors, but it's not clear how many of those may be payroll workers as well.)

Healthcare is just one example where inequities like these exist. Right now, there is a large section of the population that is not being represented by our elected officials. There is an opportunity for leaders to emerge that represent our interests. Those leaders will find their support crosses party lines. Their supporters won't be made up of the radical fringes of the left or the right. Their supporters will not look for big government solutions to their problems or to further their pet causes, anymore than they want big business to solve their problems. It's time for these leaders to step forward.

Balancing State Budget Without Taxes or Cuts

A special session of the New Mexico legislature will be called to address an expected budget shortfall. Governor Richardson had this to say:

Richardson blamed the shortfalls on the national recession, and he urged lawmakers to avoid layoffs, repealing tax cuts or "drastically cutting services."

Ok, we're going to balance the budget without increasing revenue, and without cutting spending. Hmmm... I guess that leaves... um... magic?

And, for Governor Richardson's next trick, he will attempt to hypnotize the entire state (or at least the voting population and media) into forgetting that a spending spree on steroids is what caused our financial budget crisis in New Mexico.

"Because our budget deficit is directly related to the national recession, I want to make sure that we don't take any action that might cost jobs or adversely affect the state economy," Richardson said in the release.

Wow. What an act!

Before You Vote in the Poll

This week blogger Heath Haussamen has a poll on his site which asks, "Do you approve or disapprove of the job Mary Herrera is doing as secretary of state?" Now, if you're thinking of selecting approve, I would imagine you are basing your decision on the fact that, unlike her predecessor, Ms. Herrera is not under investigation for mismanagement of federal funds. But, I'd challenge you to base your evaluation on a slightly higher bar.

Granted, the level of corruption has become so commonplace in New Mexico elected offices that we might be tempted to think that a lack of corruption means someone is doing a good job. But, I'm here to remind you that there are still places in this great country where a lack of corruption is assumed, and job performance is actually based on the ability to manage the office in question.

To this end, let's take a look at the July 17, 2009 LFC Staff Hearing Brief on the status of information technology (IT) at the Secretary of State (SOS) office which came about in response to the numerous articles regarding the inaccessibility of the SOS website.

Outcome. The evaluation found that SOS

• Does not have the technical capability or capacity to manage IT projects;
• IT staff support infrastructure or legacy applications;
• Has outdated hardware, software and systems; and
• Does not have a disaster recovery plan for all its missioncritical systems.

Mind you this is for a system for which over $7 Million has been spent in the last nine years. Okay, now that you armed with some information, you can go ahead and vote on the job performance of the SOS.

Couldn't Have Said It Better Myself

This from a recent New Mexico Independent post:

And Bingaman also weighed in on his so-far unsuccessful push to include obesity prevention and treatment programs as part of a major health care reform bill — NMI’s Gwyneth Doland talked with him last week about that effort. In a response to critics who argue that the government shouldn’t have a role in combating obesity, Bingaman continued his push in the interview:

Well, I think frankly we’ve got this weird view in the country that if a person comes down with Type Two diabetes because of being overweight, and there’s a pretty good correlation there — I think most physicians would agree with that — and they need dialysis, that the government should step up and provide the resource of that dialysis. I agree with that. If the government is going to be involved in the far end… I don’t see why it’s inappropriate for the government to encourage healthy behavior up front.

See, I don't agree that the government should pay for a patient to get dialysis for Type Two diabetes that is the result of being overweight. Mind you, I write that knowing full well that diabetes runs in my family.

Aside from the issue of personal responsibility, my other reason for being against this is the very sound logic put forth by Senator Bingaman. Hey, if we're going to pay for it later, we should be involved in the decision making process before. The path we're on is for government mandated exercise and government mandated diets. Remember, the government never mandates for some, it mandates for all.

The Ugly Truth About ARC Loans

The federal government under the Obama Administration and the Bush Administration before it has bent over backwards to bailout America's largest mismanaged companies from banks to automotive makers to insurance companies to investment houses. And, when they're not bailing out big business, they're bailing out mismanaged states. The latter is why the vast majority of the Recovery Act dollars are being floated through states before... never mind, there is no before. The dollars are just flowing into state coffers, period.

Now, maybe you're thinking that small business is getting a piece of this stimulus spending. After all, you've heard the countless news stories about that great SBA program, the American Recovery Capital (ARC) Loan:

ARC loans can be used to make payments of principal and interest, in full or in part, on one or more existing, qualifying small business loans for up to six months. ARC loans provide an immediate infusion of capital to small businesses to assist with making payments of principal and interest on existing debt. These loans allow borrowers to redirect cash flow from making loan payments to investing in their businesses, to help sustain the business and retain jobs. For example, making loan payments on existing loans with proceeds from an ARC loan can allow a business to focus more funds on core operations, such as buying inventory or making payroll.

ARC loans are interest-free to the borrower, carry a 100 percent guaranty from the SBA to the lender, and require no fees paid to SBA. Loan proceeds are provided over a six-month period and repayment of the ARC loan principal is deferred for 12 months after the last disbursement of the proceeds. Repayment can extend up to five years.

Hey, I own a small business, actually three, and wow, what a great deal. After all, I'm part of the original MTV generation. "Money for Nothing" was practically a theme song of my high school years. So, forget my limited government, no bailout philosophy. Sign me up for the free money. After all, look how quickly the federal government has been able to put billions upon billions of dollars in the pockets of big business. How difficult can it be for me to get my hands on a small $35,000 loan? Well, it turns out very difficult.

Diego Iorio sounds like the kind of small business owner the government's new ARC loans are made for. His two-employee audio gear retailer, SIRS Electronics, had been profitable through last year, with 2008 revenue nearing $500,000, but his projections for this year are down 40% to 50%. Although he has not missed any payments yet, SIRS, based in McAllen, Tex., has $140,000 in debt split among credit cards and payments owed to vendors. "We are in a very delicate situation right now," the 41-year-old Iorio says.

He prepared 200 pages of paperwork, including financial statements and tax returns going back three years, and applied for an ARC loan through Wells Fargo (WFC) just after the program launched June 15. The loans, made by banks and fully guaranteed by the government, give small businesses up to $35,000 interest-free to pay off other debts for up to six months, with repayment deferred for a year after that. But Wells Fargo rejected Iorio's loan application because his personal credit score, at 649, was below the 680 the bank requires. To Iorio, it's a catch-22: His score had been above 700, but it suffered when he took on debt to support the business.

Let me bring this to a more personal level. I called a business banker in town I've known for years when this money finally became available. He told me his bank would only be considering making the loans to current bank customers. Okay, fair enough. So, I called one of the banks with which I have a business account. As luck would have it, it was none other than Wells Fargo.

Wells Fargo told me they couldn't give me information over the phone or email me about the program, and that I would have to stop into a branch. Okay, no problem I had a deposit to make anyway. So, off I went to my local branch. I made a deposit into my business account and when the nice lady behind the counter asked me if there was anything else. I said, "Yes, I'd like to apply for an ARC loan." She looked at me quizzically. So, I explained what an ARC loan was. She thought she might have heard of that. Unfortunately, she said she'd have to take down my name and number and have someone get back to me later that day about how to apply for the loan. So, off I went.

Well, two and half weeks went by and I still hadn't heard anything back. I decided to go back into the bank. I signed the book, took a seat and waited 30 minutes for a banker to become available to see me. She called my name, and we sat down at her desk. As luck would have it, it was the same nice lady that had taken my deposit during my previously mentioned visit. I told her why I was there, and her response was, "Oh right, I remember you."

She then took out a piece of paper and said, "You're going to have to call this number and talk to a business banker. We don't have a business banker at this branch, so no one here can actually give you information on ARC loans." I asked if I was going to have to go into that branch and repeat the process, and she said, "Oh no, he'll be able to tell you over the phone whatever you need."

Hmm, couldn't help but wondering if he could help me over the phone, why I ever had to go in to the branch in the first place. Well, I called the guy and got voicemail. No surprise. He did return my message that same day, and after I told him what I was looking for, he said, "I can send it to you, but you should know it's a 25-page application."

"No problem," I thought. Although, since I'm in the business of billing for my time. I was beginning to doubt this whole money for nothing concept. I'd already spent a couple of hours looking into this thing. Heck, I was thinking this might take less of my time if I could just be called to testify in front of Congress and then walk away with a much bigger check. I would even know not to take the company jet. Granted, I don't own or have access to one, but I still would know not to take it.

So, the guy emails me the ARC application. Hmm, they could answer my question over the phone and email the application. Still wondering why I had to go into a branch. Sure enough, it was 25 pages long. But, I actually didn't have to spend too much time filling it out because I didn't get past the first page, which contained this fact listed under the section, Facts about the ARC Loan Program and Wells Fargo::

ARC loan funds are to be used for payments of principal and interest for up to six months on existing, qualifying small business loans, capital leases, business credit cards and vendor loans. Wells Fargo will only fund Wells Fargo business credit cards transactions of $5,000 or higher.

As luck would have it, I don't have business credit cards with Wells Fargo. But, this all got me to thinking. First, why couldn't Wells Fargo include these facts on their website? Next, exactly who is this loan fund supposed to benefit?

Apparently, it's not intended to benefit me the small business owner. In fact, it looks like another gift for large banks. Specifically, it looks like a way for a bank like Wells Fargo to convert their unsecured credit card debt of $5,000 or higher to a 100% guaranteed loan backed by the SBA at prime, plus two percent. Not a huge profit by credit card standards, which is probably why the bank is only interested in converting their own credit card debt.

Despite the lip service paid over and over again to small business driving the economic engine needed to bring us out of the deepening recession. Nothing could be further from the truth. When it comes to small business, the only interest the federal government has is how to increase taxes on those businesses.

An Exceptional Excel Worksheet

If you didn't catch Secretary of State Mary Herrera's column on Heath's blog, take a moment to read it. It is an attempt by Ms. Herrera to explain how inadequately funded her technical needs are. For example:

Thanks to Sen. Dede Feldman, who reinstated her capital outlay money from prior years, we received a $70,000 appropriation. We used that to create an Excel spread sheet and update the forms for that year for candidates to file their campaign reports. This amount only allowed us to do minor enhancements.

Wow! It took $70,000 to update an Excel spreadsheet, and a couple of forms. I'm really trying to get my head around that one. That must have been one heck of a spreadsheet. I'm kind of thinking that sounds like a pretty nice job for a programmer. A $70,000 salary and you get to focus on updating a few forms and building a spreadsheet. If I had that job, I'm pretty sure my golf score would be much, much lower.

Of course, it gets better. That $70,000 was only the beginning:

The following fiscal year we were appropriated $176,500 for additional enhancements. Rather than spending any more funds on a 14-year-old system that is outdated and that FileOne (the company that makes the software) has advised us they will be doing away with in the next two years, we went to the Legislature to ask for a change in the language that would allow us to use these funds to pursue another option.

The Legislature allowed us to do that effective July 1 of this year.

We are now moving forward on utilizing these funds to purchase the Washington State system. Due to the funds available, we will have an improved system, but not a new system.

Ok, let's see. That puts us at just under a quarter of a million dollars for a "14-year old system" that still doesn't work right. But, like a Ginsu knife commercial, wait, there's more.

You might remember that the previous Secretary of State also spent hundreds of thousands on the broken campaign reporting system. I was so troubled by this ongoing process at the time that I went ahead and built a site that allowed for instant reporting and searchability of campaign contributions and expenses. The total cost: $200 and twenty hours of work.

Unfortunately, I only had two takers, so I've long since taken down the website, which had garnered some attention at the time. What's the point of all this? Well, it's to make a simple point. The current Secretary of State, like her predecessor, has absolutely no good reason for not having a functional website. Saying that she isn't spending as much as other states is a cop out too. Just because other states have overpaid for their campaign reporting websites, doesn't mean that we have to as well.

Heck, the federal government spent over $27 million to redesign a website. For those of you who have no idea whether that's money well spent. Let me say unequivocally that is the Web 2.0 equivalent to hammers and toilet seats that cost hundreds of dollars. But, maybe Ms. Hererra, would like to use that benchmark to explain away her failures.

A Plan for Education

I was taken to task yesterday in a comment for not providing a plan for education. Now, it is true that I've spent a lot of time on this blog over the years bemoaning the constant increases in education spending. But, let me clarify my position for a moment. I don't actually have a problem with making large investments in education. However, I expect those investments to yield results. If you ask me for more of my money, it better improve student performance. To date, this hasn't happened. Nor do I believe under the current system it ever will.

So, what's my plan. Well, it basically boils down to five points. I'll try and make my points and give you some insight into the thinking behind them. Keep in mind, that aside from having children currently enrolled in public school, I also have ten years of experience in education. Five as an educator in the classroom, and five running a not-for-profit organization that brought economic education programs into schools.

1. Parents need to take responsibility for the quality of their children's education. That means attending school meetings. Finding time to help out at schools. Acting as their child's advocate. Turning off the T.V. and video games and making sure their children are reading and doing their homework. Schools for their part need to provide opportunities for parental involvement.
   
   For those of you who think this is only something the wealthy can do, think again. I've worked in schools serving some of the poorest communities, and have seen parent involvement that would rival any private school. What's always amazed me is that a great many private schools (and charter schools for that matter) require parent involvement as part of attending the school. Yet, so many public schools do not.
   
   Here's another thing to consider. Go watch children's competitive sports one weekend. I don't care if it's soccer, baseball, football, or whatever. You'd be amazed at what parents do to get their kids on a "good" team. They'll drive from the mountains to the Westside, or vice a versa. They'll ask time off from work, so they can take their child clear across the state to that important competition. Again, not an income dependent situation. You'll find the poorest and richest side by side. They're all hoping their child is the next fill-in-the-blank star. Of course, we know very few will be. More importantly if they put that effort in supporting their child's education, they're children are more likely to succeed.
   
   
2. Let good teachers teach, and fire the bad ones. People who are lousy educators don't belong in the classroom. If they fail to perform at one school, they should not be moved to another. Teachers' unions top priority are protecting teachers' jobs, increasing teachers' pay, and getting the best benefits package they can for their members. Okay, fair enough, that's what unions do. But, please note, improving student performance does not enter the equation. Everyone likes to talk about the need (or failures of) business and industry to police their own, it's time for teachers' unions and education systems to do the same and remove the non-performers from their ranks.
   
   As to letting good teacher's teach, how long has it been since you've actually observed the inner dynamics of schools? If it's been awhile, you'd be amazed. Schools get their reimbursement from the state based on the number of bodies they have in the seats on a given day. Student performance is irrelevant. In fact, the worse the performance, the greater inflow of dollars into a given school. What is it they say happens when you reward bad behavior? That's right, you get more bad behavior. Ask any great teacher, and they'll tell you that. This is a broken system.
   
   There was a time when a disruptive child was sent out of the classroom and to an administrator's office for discipline. The administrator would in turn call the child's parents, and there would be consequences when the child got home. Those days are long since gone. Teachers are strongly encouraged to manage the behavior of disruptive children and keep them in the classroom. This is not conducive to teaching, nor does it prepare the child to be a contributing member of society.
   
   Along this same lines, we need to change how public education is perceived. The benefits of a quality education is a privilege. It is not an inherent right. Children and families from all backgrounds are given a unique opportunity in this country that can level the playing field for the rest of their lives. If they don't take advantage of it, then they don't belong in taxpayer funded schools. By the way, get great teachers in the classroom, re-introduce discipline, and you'll be surprised how many kids opt on their own to take advantage of this privilege.
   
   
3. Pay teacher's based on performance, not based on artificial tiers or longevity on the job. In every other profession I'm aware of paying on anything but performance results in mediocrity. Why is education any different? It's not. Yet, a high performing teacher can't make more than a poor performing teacher. You can thank the unions and the poor performing teachers for that.
   
   How do you measure student performance? Simple. You measure what a student knows when they enter the class. You establish an individualized educational plan (IEP) for every student (for the life of me I never understood why only special ed students get these), and you measure what that student knows when they leave the class compared to that IEP.
   
   
4. You eliminate waste. School budgets operate under the rule guiding all governmental budgets - use it or lose it. This is a practice that encourages waste. If you've got children in public elementary school in APS, I'm willing to bet any amount of money that the school has adopted at least two different math curricula between the time your child entered 1st grade and left at 5th grade. Each time they do this, they buy all new textbooks. Do you have any idea how wasteful this is. The irony is if you walked into a given classroom of any great teacher, you'll see that they pull different lessons from different books. Why? Because contrary to whatever the popular text is that year, one size does not fit all, and great teachers know this.
   
   
5. Allow all families to take advantage of school choice. The wealthy already do. Is there any reason that poor and middle income families shouldn't be given choice? I don't think so. Moreover, give people choices, and you'll be surprised at how involved they become. Take away their choice, and they will quickly lose interest. Give the money to the parents in form of vouchers, and guess what? We solve three problems all at once.
   
   We have a proven means of involving parents. We make schools accountable for student performance in order to receive funds. We break the cycle of use it or lose it.

Come to think of it, maybe we don't break the cycle of use it or lose it. We just change the "it." It now becomes the actual education. Use the vouchers to get the best possible education for your child, or lose it.

Another Year of Dismal Education Results

The test scores are in and once again the vast majority of New Mexico schools are failing to make the grade. In fact, in what is quickly becoming an annual tradition more schools failed this year than last year:

Schools repeatedly failing to meet adequate yearly progress could face sanctions, including restructuring. Results released Monday are preliminary and school districts have several weeks to appeal their designations.

The results show that for the 2008-09 school year:

• 69.3 percent of New Mexico's schools were labeled as failing to meet AYP, up from 67.7 percent the previous year.
• 124 out of 147 middle schools failed to make AYP, meaning a failure rate of 84.4 percent.
• Of the state's 157 high schools, 129, or 82.2 percent, failed to make AYP.
• The results are based on standardized tests taken by about 162,000 students in third through eighth grades and in 11th grade.
• Schools are judged in 37 categories, including whether English language learners, students with disabilities and different ethnic groups are meeting standards. If a school misses even one of the 37 standards, it is labeled as failing to meet AYP.

Now in all fairness, when it comes to numbers, there are many different ways to look at them (e.g. investment houses which report record earnings in a declining economy after taking taxpayer dollars to avoid failure and the "paying it back", but I digress.). Another part of this annual tradition involves educator Scot Key's post after post after post after post analysis of the numbers. Expect more posts Scot - someone for whom I sincerely have the utmost respect even if he is to the left of the left - on the topic.

However, I'm a simpler kind of guy, and I prefer executive level summaries. I also prefer to take numbers and reports at face value intertiwned with a little old-fashioned common sense. The way I see it no matter how the folks in charge try to spin it, our education system in New Mexico is failing our students at an alarming rate:

Roughly half the students who should have graduated with the class of 2008 failed to do so, prompting a call to action by the state's education secretary.

"It is alarming," Education Secretary Veronica Garcia said during a news conference Monday at which the state unveiled its four-year graduation rate, along with results of the latest round of tests required under the federal No Child Left Behind Act.

New Mexico's cohort graduation rate for the class of 2008 is 54 percent compared to the national average of 70 percent, according to the Public Education Department.

The cohort rate tracked individual students from the ninth grade through the summer after their senior year in 2008 to show how many graduated.

For Albuquerque Public Schools, the state's largest school district, the 2008 graduation rate was 46.2 percent, according to the state report.

Of course, we can all take comfort in the fact that the recipient of this year's America's Greatest Education Governor Award has a plan:

Gov. Bill Richardson, who has made education reform a priority during his 6 1/2 years in office, plans to unveil another batch of reforms as early as this week.

"We will push very hard so that the main legislative agenda item in January and in my remainder of the term will be education, to finish what I believe is a good start and good progress," Richardson told the Journal last week. "We recognize that we still have a ways to go."

Hmm, let's see if we can follow the logic here. The Governor has made education reform a priority for 6 1/2 years, and each year we fail to make any progress. Heck, we actually lose ground year after year. I don't know about you, but as the parent of school age children, I don't think I have the stomach for any more of Governor Richardson's style reforms.

Democrats to Blame

Going into last year's legislative session all anyone could talk about was the budget shortfall. The spending party that has been the cornerstone of the Richardson Administration was over - sort of. What do I mean?

Well, during the 2009 legislative session the people in charge (read: Democrats) didn't really slice the budget the way it required in light of decrease oil and gas revenue and declining tax revenue. Instead, they just kind of froze spending - again, sort of.

Consider that the vast majority of New Mexicans are cutting our annual spending, and you'd think that state government would try and do the same. But no, they want to get creative:

State government spending has grown by about 40 percent during the past six years. Smith and other lawmakers might focus on alternatives to new revenues to pay for the state's nearly $5.5 billion annual budget, such as shifting money from stalled infrastructure projects, shortening the government's workweek or furloughing state employees, should a special legislative session be called this fall by Gov. Bill Richardson to address budget problems.

Here's an idea. Instead of looking at sources of new revenue (read: taxing struggling families) or looking at creative ways to shuffle funds and pretend we're not in a zero sum game, how about you just cut all the recently added programs and return them back to 2002 levels?

Think about it. We significantly increased our investment in education and have seen continued declines in student performance. We've increased our investment in economic development and seen increased job losses. We've funded pet projects like spaceports and trains to benefit a select few without any significant benefit for the majority of the population.

When are we going to finally acknowledge that the government is really good at making grand promises, but comes up awfully short on delivering on results? The spend, spend, spend experiment of the Richardson Administration and a rubber stamp legislature has been a horrible failure. But, here's the absurdity of New Mexico politics:

If taxes were to be raised, Democrats, who control the executive branch and both houses of the Legislature, could face the lion's share of the blame, Sanderoff said.

Really? The Democrats "could face the lion's share of the blame." You think? Only in New Mexico could those in charge of everything only potentially face the blame. How about we stop the spin here? The Democrats should face the lion's share of the blame.

• They should be held accountable for out of control spending with nothing to show for it.
• They should be held accountable for every and any tax increase .
• They should be held accountable for an education system that costs more and more and delivers less and less.
• They should be held accountable for the institutionalization of corruption.

Unless we start holding them accountable, we will go from bad to worse.