What positive steps can we take? The energy that is now expended by well intentioned, freedom-seeking individuals on the destructive course of politics can be turned into powerful steps that will have a positive effect on the future. All are moral, right and just. None require aggressing. Consider the following...
The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk.
Politicians and bureaucrats are notorious for manufacturing euphemisms -- clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Some of our courageous friends in government couldn’t bring themselves to say “tax hike.”
“It is difficult to make predictions, especially about the future,” says a proverb often attributed to Yogi Berra. Imagine the world of freedom, or lack of it. Who could foresee the technologies that make our lives so rewarding and convenient? The same technologies have us all under the government’s giant microscope. Thankfully, the brave have turned the microscope around.
In the months since Edward Snowden revealed the nature and extent of the spying that the National Security Agency (NSA) has been perpetrating upon Americans and foreigners, some of the NSA's most troublesome behavior has not been a part of the public debate.
National Treasury Union President Colleen M. Kelly recently described the 2014 IRS budget allocation as “woefully inadequate.” But the agency has not proven itself to be an efficient steward of taxpayer dollars. Here are ten ways the IRS lost the trust of the American people.
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Given how poorly states like California and Illinois have funded the pension funds for their own employees, one would think that this would stop dead in its tracks any plan to have the government assist in managing private sector funds too. The spate of recent activity, however, suggests otherwise.
Facts are easy. You can check facts. What supporters of the Affordable Care Act are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.
The problem for NSA apologist is that when guys like Snowden disclose that the government conducts comprehensive surveillance in ways that would have made 1984’s O’Brien drool, it puts the entire progressive agenda in jeopardy.
The east coast and parts of the southern U.S. were to varying degrees paralyzed by blizzards a few weeks ago. The snow as expected rendered the roads treacherous, and in anticipation of slick streets, shoppers flocked to the grocery stores in advance.The rush into grocery stores, and its aftermath, offers worthwhile lessons in economics.First up, […]
The financial world is plodding along like a drunken sailor avoiding debt collectors by keeping no cash in his wallet. It’s not the kind of calm that’s going to last or end well. But the storm will have to wait until after the Olympics.What a game! We’ve never watched ice hockey closely before. But watching […]
“When they come for my gun, they will have to pry it out of my cold, dead hands,” is a common refrain I often hear from the Neo-Cons when there is a threat, credible or otherwise, that the U.S. government is going to take their firearms.And, when I hear this crazy talk, I agree with […]
The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self-sufficient.But our systems of state charity — aka welfare — have too frequently had the opposite effect: They have actually created dependency. It is time to rethink the way we help people.I’m going to […]
In times of war and national emergency, it’s sometimes necessary to sacrifice civil liberties to secure vital gains in public safety. In those cases, we may have to accept a loss of privacy or freedom rather than invite mass slaughter of Americans.The National Security Agency’s domestic phone records collection is not one of those.Never have […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the HealthCare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor supply issues. Given the mounting difficulties with and growing concerns about the […]
Amidst all the revelations about how the American people, many of whom are absolutely convinced they live in a free society, have their telephone calls, emails, website visits, and who knows what else under surveillance by their own government, let’s not forget the massive infringements on financial privacy that have gone on for decades.Consider, for […]
Image: ShutterstockBitInstant CEO Charlie Shrem, along with alleged co-conspirator Robert Faiella, was arrested by federal authorities last week for allegedly laundering more than $1 million worth of Bitcoins. This is a tiny amount compared to the largest drug-and-terrorism money laundering case ever. Yet when British bank HSBC was found guilty in 2012 of laundering billions, […]
Do you trust your doctor? Most patients assume their doctor is working in their best medical interests whenever he or she orders a diagnostic test or recommends a particular treatment. Customers might wonder whether an unscrupulous auto mechanic is being truthful when he recommends a brake job or a new transmission. But most patients trust […]
The exercise had an awesome name, inspired by the movies: “Quantum Dawn 2.”On July 18, scads of U.S. banks, stock exchanges and government agencies took part in a digital fire drill — a practice run in the event all of Wall Street came under massive cyberattack.This isn’t the first time banks have come under an […]
The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.The images of […]
So you’ve maneuvered the Obamacare website, plugged in your top-secret information and found out how much you are forced to pay to avoid a fine.And for some of you, it turns out you qualify for a government subsidy — making the premium sound like a bargain. But signing on that line to accept the government’s […]
“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”As the inequality gap grows, there is an ideological battle unfolding in the West.On the one hand, there are those who think government can fix things. It must do more, tax more, […]
On Feb. 7 the United States will once again reach its statutory debt limit, meaning it cannot legally borrow any more money. Since the obvious option of cutting spending to match the amount of revenue that the government collects is off the table for some inexplicable reason, Congress will have to pass a new, higher […]
The New York Times published an interminable article on health care recently. Plenty of facts — how scrupulous are these journalists! — but the article displayed absolutely no comprehension of the basics of cause and effect. I was left wondering about the whole point.The article details how the health care system rewards specialists to an […]
AIG, the mega-insurer that was bailed out by the government in 2008, wants to sue the government. People’s automatic reaction: How terribly ungrateful! The government saved this company’s bacon and now they want to sue?
Most people might have the reaction of Col. Nathan R. Jessup (played by Jack Nicholson in “A Few Good Men”): “I would rather you just said thank you and went on your way.”
But life isn’t as simple as people would like. AIG’s old boss Hank Greenberg is still a large AIG shareholder. He thinks his ox was gored by the onerous terms of the government’s rescue. He actually has a great point. AIG was one of many companies that could have found better buyers on the free market had the government been willing to let the market work in 2008.
AIG management wasn’t in a good negotiating position when the credit-default swap poop was hitting the fan in the meltdown. The government wanted what would eventually become 92% of the company. The managers at the time, thinking about their wives and mortgages, said, “Sure, why not?”
John Carney points out in a piece for NetNet:
“The government deprived shareholders of billions of dollars and violated the Fifth Amendment’s ban on the government seizure of property without just compensation to the owners, Greenberg['s] lawsuit claims.
“But can seizing control of a company that was on the brink of failure really be seen as an illegal taking? A judge on the federal claims court ruled last summer that if what Greenberg argues is true, the government may really have acted illegally.”
Greenberg’s legal beagles say the government elbowed out some sovereign wealth funds and other foreigners that would have recapitalized the company. When AIG couldn’t raise any dough, the vultures started circling. The ratings agencies started finding other letters in their alphabet soup with which to rate the company.
In the end, the company was stuck getting bear-hugged by Uncle Sam.
The AIG thing happened pretty fast. Obtaining a permit, or something similar, from the federal government takes months, years, sometimes decades. The nationalization of AIG? A matter of days. ProPublica provides a timeline, including:
- “Aug. 6, 2008: In its second-quarter filing, AIG ups its unrealized loss in 2008 from the credit-default swaps to $14.7 billion, for a grand total loss of $26.2 billion. It also discloses another impressive number: It’s posted a total of $16.5 billion in collateral
- “Sept. 15, 2008:Standard & Poor’s cuts AIG’s credit rating due to ‘the combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.’”AIG is forced to raise another $14.5 billion in collateral due to the rating downgrade. The company faces collapse
- “Sep. 16, 2008: The Federal Reserve Board saves AIG by pledging $85 billion. As part of the deal, the government gets a 79.9% equity interest in AIG.”
At that point, the government was given preferred shares for the $85 billion. And as Carney explains, in 2009, the government went to convert the preferred into common stock, taking 79.9% ownership. This was done by means of a reverse 20:1 stock split.
Why the reverse split? The company line said it was so the stock wouldn’t be delisted for trading at such a low price. The real reason is not enough shares were authorized to accommodate the government’s investment. “So when the government converted to common, it was issued unauthorized common stock,” Carney explains.
The company went to the existing shareholders for the required approval to authorize the additional shares that would greatly dilute their holdings. The shareholders, including Greenberg, voted no. So in a bit of boardroom trickery:
“another vote was held about the reverse split of all issued stock — including the government’s unauthorized shares. This time, the government got to vote its 79.9% stake on this question because its unauthorized shares were also affected. And so the measure prevailed. After the split, the total number of shares outstanding no longer exceeded the number authorized in AIG’s charter, so the government’s shares were now officially authorized.”
Greenberg’s lawyers claim this slight of ballot “was engineered to circumvent a Delaware court order meant to protect the rights of the common shareholders when the government took over the company.”
The courts had ruled that AIG shareholders couldn’t be diluted except by their consent. The judge that has upheld Greenberg’s right to sue said that “the government appears to have violated the spirit, if not the letter, of the order by not holding a common shareholder vote on the reverse stock split, which led to the dilution of the common shareholders’ equity and voting interests.”
Greenberg also questions AIG using buyout funds to pay par value for the CDOs insured by the company. Surely, they could have bought the paper at a discount in those troubled times. Carney is not terribly keen on that argument.
However, Neil Barofsky’s book Bailout lends support to Greenberg’s argument. According to Barofsky, the special investigator general for TARP, the New York Fed, under Tim Geithner, authorized $60 billion to buy bonds from AIG’s counterparties “that were worth less than half of that amount.”
Barofsky’s audit determined that Geithner never attempted to negotiate a discount, even when one of the banks had offered it upfront. When asked about it, the New York Fed’s general counsel insisted that banking laws required the payment of full price.
Carney points out that Greenberg’s claim that foreign white knights were on their way to save the company is unsubstantiated. They’ll figure that out in discovery. However, it’s turned out AIG is a profitable business, making billions since the bailout even after paying back Uncle Sam.
Surely, someone could see the potential as the company was circling the drain. Instead, government stepped in. Why would they, if there were private investors?
Perhaps what the Greenberg suit will reveal is that the AIG bailout was not to bail out the insurer after all. The private equity investors looking at investing in AIG likely had no intention of paying Goldman Sachs, for instance, 100 cents on the dollar for their CDOs. Is it possible that Hank Paulson and Tim Geithner knew that they couldn’t leave bailing out Goldman and others to the private equity market?
The AIG board has folded to the public pressure and passed on joining in Greenberg’s suit. That’s too bad. We’re rooting for Greenberg, or at least rooting against Uncle Sam.
Let this be a model and a lesson for the future. No bailouts ever! If something is valuable, markets will find it and take possession of that value. Government rescues are ruses and snares.