I feel compelled to not be left out, and to describe what I think the next administration’s priorities should be also. So here goes:

Fiscal Stimulus Package
There seems to be general agreement that the economy is in a precarious state and needs a stimulus package. Lowering interest rates via monetary policy clearly won’t be sufficient in this situation. This is just basic economic theory. Robert Reich, an informal advisor to Obama states pretty much this in a recent article he authored. Further, I have no problem with how he intends to spend the money, essentially on infrastructure projects, which from an economic standpoint is probably the most direct way to put people back to work. His quote:

“infrastructure” — repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation

In addition, he mentions health care and child care as an appropriate way to stimulate the economy, which I also agree with.

One other area, that is mentioned in the comment section of the article, would be “technology infrastructure”, such as broadband to rural areas and computers to low income areas.

It is interesting that Reich doesn’t include bailing out homeowners or the auto industry as the correct use of money from a stimulus package. His quote:

This means bailing out Wall Street or the auto industry or the insurance industry or the housing industry may at most help satisfy creditors for a time and put off the day of reckoning, but industry bailouts won’t reverse the downward cycle of job losses.

This is a debatable point, but I will leave it for a later discussion.

But now, with the immediate crisis dealt with, what should Obama’s long term objectives be? Here are my ideas.

Renewable Energy
This has got to be on anyone’s short list. We should invest heavily in solar, wind, and very importantly, an upgrade of our electrical power grid. This compliments very neatly the proposed stimulus package mentioned above, which I also suggested previously in a post of mine on July 21, 2008. A point I also made in that previous post was that the rules regarding electrical transmission lines should be deregulated so that other small energy producers have a means to get their product to market. This should be done correctly, not like the past California energy deregulation fiasco. The exact mechanism I will save for another post. Now for the clincher, this should be paid for by a $1 to $2 per gallon tax on oil and gas. This might not be politically popular and possibly runs counter to the financial stimulus package concept, but it is truly necessary to make sure these alternative energy projects are economically viable and a gas tax is the best way to accomplish this.

Cars and Water
A by-product of our energy independence is that we can now have development in two other very energy hungry fields. With abundant electricity, we can concentrate on creating hybrid and all electrical cars. I’m sure Al Gore would be all for this. In addition, the shortage of water, which doesn’t seem to be discussed much, is a problem just waiting to happen. Desalting plants are an obvious solution, but are very energy intensive. With cheap electricity from renewable sources we could begin to address this emerging problem.

Financial System
Although curing the banking system may not be a solution to our economic woes, they sure were a contributing factor to the economic downturn. The essence of the problem is that people/institutions in the financial sector currently are not trusting each other to remain solvent. The solution is simply “send in the auditors”, with transparency comes confidence in each other. Obviously, our government regulating of the financial markets needs an overall, which I have confidence the Obama administration already has a fairly good handle on, something I wrote about in a previous post. The essence of his approach, which I agree with, is expressed in a direct quote from Obama’s plan:

Regulate financial institutions for what they do, rather than who they are.

Universal Health Care
It seems pretty obvious that some sort of health care reform will be passed with the next administration. I personally favor a simple plan where everyone pays into the same system and everyone is covered. This is the simplest, easiest, and cheapest. Political considerations, however, make me think that the eventual plan will be anything but simple. Too bad. Having health care covered by the government instead of individual companies is critical to having U.S. companies regain competitiveness in the international market, where companies from other countries don’t have this burdensome expense.

Immigration Reform
I’m not sure I have a solution for this quagmire, but the issue clearly needs to be addressed. Just yesterday I overheard a conversation with painters that just happened to be painting the outside of my office building which said it all. The owner of the painting business was berating his employee for lying to him about having a green card and social security number, when they were actually bogus documents. The employee was apologetic about lying, but was clearly forced into it when applying for the job. The owner was upset about being lied to and being vulnerable to losing his business license for hiring illegal workers. But most remarkably, they both dropped the subject and went back to work. They both needed each other, despite all the unnecessary controversy. Something is clearly wrong with this picture and it needs to be resolved.

International/Terrorism
This is probably too large an issue to be solved in a few sentences, but one idea which I’ve suggested in an earlier post, is to devote our resources to improving the economic conditions of the people in North West Pakistan, rather than just fighting them as adversaries. Just too simple to believe.

Legal Drugs
Now for the more controversial proposals. But just because it’s controversial doesn’t make it incorrect. We waste enormous resources fighting a victimless crime, that ends up funding all sorts of bad actors from South American drug cartels to the Taliban in Afghanistan . In addition, I take personal affront that those that insist on criminalizing drugs have the self righteousness to think that their judgement is better than others and should then tell others how to conduct themselves in society. The whole issue is wasted energy.

Election Reform
I may very well lose my readers on this one, but I have my own theory as to how to reform the national election process. I describe it in more detail in my wiki here, but the essence is as follows:

Changing via legislation the actual process that we elect the president I think would be too controversial to succeed. So I won’t even suggest that, but instead advocate one party becoming the dominant party, so that the nomination of someone by that party is by default the winner of the election. This could be done if the party’s selection process is vastly superior to any other party’s and consistently provides the best candidate.

The fundamental problem with our current selection process is that we select solely by popularity (much like creating a famous movie actor) and to create this popularity huge sums of money is required to sway millions of people. Instead, the candidate should be selected by those close enough to him to ascertain the person’s actual character but still have these people reflective of the collective will of everyone else.

My implementation of this would be to have all voters organized in approximately 100 people affinity groups, not necessarily geographically, but by their interests. The internet lends itself to this kind of organization quite naturally. In addition, Obama’s recent use of the internet during the election has already created a similar organization. Then each of these groups select a representative to a convention of about 1000 people, which then in turn select their representative. You now have something similar to Britain’s House of Parliament. (100 people x 1000 people convention x 1000 members of parliament = ~100,000,000 people) The parliament then selects the president. In this case, the parliament would just be members of the one political party. The advantages to this are:
-candidates are selected from peers that have personal knowledge of the person;
-the massive election campaign funds are no longer needed, thereby reducing the pressure for corruption;
-and the president is directly responsible to a small group of people with knowledge of his behavior.

**********

That’s my plan for the new administration. I’m sure there’s more, but I think that’s enough for now.

NOVEMBER 14,15, 16
& 21, 22, 23 ROCK ‘N ROLL REVUE.
Live! With Billy Schieve and Friends
Dance to the rollicking tunes of yesterday.
Eagles Hall
Benefit for Gloriana, $20. No host buffet and bar. 964-SHOW

November 12, 2008
This first in a series of public workshops is designed to create opportunities for community input and dialogue about future redevelopment of the 415-acre former mill property in Fort Bragg. The workshops are part of a comprehensive land-use planning process to develop a “Specific Plan” that will guide how and where future redevelopment occurs on the property.

Wednesday, 6 p.m. to 8 p.m.
Dana Gray Elementary School
1197 E. Chestnut St., Fort Bragg

Mendocino Theater Company Presents
The Cripple of Inishmaan
Thursday, Nov 6, 8:00 p.m.

Complimentary wine, coffee, hors d’ouevres at 7:00 p.m

Come enjoy an unforgettable evening at the theater, and help promote water safety education. The Mendocino County Water Safety Coalition, together with the Mendocino Theater Company in Mendocino, invites you to an evening of live entertainment among friends on Thursday, November 6. Your ticket includes complimentary wine, coffee and foods prepared especially to show our thanks for your support.

Tickets: $40.00 (Donors will receive tax-deductible confirmation of a portion of the proceeds.)

Call (707) 937-5804 for ticket information, or visit the office at the State Parks Mendocino District headquarters, two miles north of Mendocino on Highway one, across from Russian Gulch State Park. The office is open M-F
8:00-4:00.

About the play: The inhabitants of a small island in the west of Ireland are jostled out of their routine by the arrival of a Hollywood film crew making a documentary about the life of the islands. Billy, the ‘cripple’ of the title, seizes on this as opportunity to make his escape. The result is a black humor blend of Irish whimsy tempered with social insights into the mores of a community that may not be as remote as geography would suggest.

About the author, Martin McDonagh: Martin McDonagh was born in London in 1971 to expatriate Irish parents. He has been resident playwright at the Royal National Theatre in London, and has won numerous awards, including the Evening Standard Award for Most Promising Playwright, and four Tony Awards for The Beauty Queen of Leenane when it opened on Broadway. He lives in London.

About the Water Safety Coalition: The Coalition will use the donated funds for public education projects aimed at reducing water recreation accidents. The group is an affiliation of concerned citizens, government agencies, and non-profit organizations with support from county businesses that includes:
American Red Cross, Sonoma County Chapter
California Department of Forestry and Fire Protection
California State Parks
The Coast KOZT-FM 95.3 / 95.9
Mendocino Area Parks Association
Mendocino Land Trust
NOAA’s National Weather Service
Point Cabrillo Lightkeepers Association
Surfrider Chapter Mendocino County
United States Coast Guard
United States Coast Guard Auxiliary
United State Army Corp of Engineers
Mendocino Volunteer Fire Dept.

Yes–dancing will abound on Halloween….

At the Caspar Community Center: Kevin and the Coconuts will swing the steel from 8 to late
At Frankie’s in Mendo: Pura Vida and other features will rock the street
scene on Ukiah st. from 5 to 10
At the Arena Theater in Point Arena: Salvador Santana band–yes he is the
son of Carlos–playing funky Latin influenced Hip Hop with DJ Sister Yazmin
opening, 8 to late

Mendocino Land Trust Dine-Out Night
Hosted by the MacCallum House Inn & Restaurant

You are invited to support the Mendocino Land Trust by enjoying dinner
at the MacCallum House Restaurant!

Wednesday, November 5, 2008
5:30 p.m. to 9:00 p.m.

The MacCallum House Inn & Restaurant will graciously be donating all
profits from the evening to the Mendocino Land Trust, so gather your
friends and family for a wonderful dining experience in Mendocino.

Reservations are recommended - call 707-937-0289. For more
information, call Jenny at 707-962-0470 or email
jhall@mendocinolandtrust.org.

The MacCallum House Restaurant will serve dinner from its regular
menu. The MacCallum House Inn & Restaurant is located at 45020 Albion
Street, Mendocino, CA.

Pura Vida!–playing hot danceable Latin rhythms this Saturday, October 4
as part of the Mendocino Stories & Music Series

Bistro menu and drinks are available as soon as the doors open
at 6:30PM. Dancing starts at 7:30. Come early for best seating. Sliding
scale $5-15. For more info call Pattie at 937-1732 or
www.mendocinostories.com.

Mendocino Stories & Music series brings four women poets to the
Mendocino Hotel’s Garden Room on Friday, October 24 at 7:30PM. Open reading
follows. Join Devreaux Baker, Blake More, Lydia Rand and Toni Bernbaum for
an evening of “Voices and Visions”. Open reading follows.

Not to be wrecking everyone’s doomsday scenario, but the actions of the government and the market have largely already resolved the credit crunch.

The government has already admitted that it won’t allow the really big financial firms to fail if it will disrupt the market excessively. These firms have by definition now become quasi-government agencies, since they no longer need to worry about making a profit to stay in business. All that remains to be done is for the government to explicitly identify which firms that will be.

Once the government does this, other banks will be willing to lend and borrow from them, since they have the backing of the US government. This is exactly what happened with FannieMae and FreddieMac, and now needs to be done with the large banks. Voila, crisis solved.

There are of course political problems with this, most obviously with the political right, who will howl “socialism”. But really, it is just acknowledging what has already happened.

Following this line of logic, what next needs to be done is to regulate these “government” banks, since along with protection comes the loss of the right to do whatever you want. As a government agency, the banks principal motive is now to serve the public interests, not to make money. Step one, send in the auditors. Figuring out what their assets are actually worth would go a long ways to dispelling the uncertainty surrounding the credit crisis. And of course, no more outrageous pay packages for these newly minted civil servants.

Next, since the banks declaring losses no longer will shake the financial markets the government can now go in and buy up all the mortgages that they hold at their actual market prices. Thus, the government doesn’t lose any money on the transaction. There will be costs associated with recapitalizing the banks, but there’s nothing to be done about that unless you don’t want any banks to survive this crisis.

Now the government can spend the $700 billion where it should, by helping increase the % of Americans that own homes. The government should renegotiate the mortgages it now owns to allow, whenever possible, for the occupants to remain in their homes. This also will take the pressure off housing prices by reducing the number of homes that need to be resold as foreclosures, which is at the heart of the current financial problem.

I am a little upset by numerous articles I’ve read that suggest if you’re against the bailout then somehow you are just ignorant. The reality is that the current $700 billion proposal is just wasted money that will not solve the credit crunch, since other institutions will still not know if there are more bad assets lurking, and will give money to those that have already proven to not know how to manage their assets.

After watching the first presidential debate on Friday night, I was struck by how deferential Obama was to McCain. Why isn’t he attacking him on everything and letting everyone know how outrageous the Republican proposals are? I finally decided that Obama himself lacks conviction. He can’t attack them because he caves in and takes on variations of their positions himself, thereby destroying his own potential arguments.

The most disturbing to me was the subject of the bailout proposal. Here is my analysis of why the bailout is a bad idea. But Obama’s response to whether he supports the proposal was “yes of course”. What’s with that? That’s his response to the administration attempt to grab $700 billion and give it the banks? Then of course he can’t explain where this money is going to come from, which in turn destroys his argument that McCain’s tax cuts don’t add up to a balanced budget, which he should be attacking McCain about relentlessly.

A second topic, same scenario. In his energy policy he supports offshore drilling, nuclear power, and most repugnantly “clean coal”. He caves in on these issues either because he actually believe they’re good ideas or he’s just afraid to call the Republicans out and tell them how ridiculous their ideas are. Offshore drilling does nothing to solve our energy problems and nuclear power has the very real problem of no way to get rid of the waste from the power plants. These are battles that others have been fighting since the 60’s and he just tosses them out the window.

Again, the issue of Russia’s invasion of Georgia. He’s afraid to go against the pervailing mindset. Georgia, in fact, was the one who started the conflict and Russia was responding to the protection of people they consider to be Russian citizens. Obama misses an excellent chance to portray McCain as a war monger, a fairly accurate description.

Then again, on congressional earmarks. The Republicans succeed in making earmarks a big bad bogeyman, and Obama just plays along. Possibly, there should be more transparency in who is getting what in the budget process, but I don’t think there is anything inherently wrong with providing specific funds to constituents. The lawmakers from the particular district are obviously in a better position to know what is needed in their district.

And last, the negative campaign ads from McCain. McCain got some very bad press for some of his more ridiculous ads. But instead of taking the high ground and pommeling him for his lack of integrity, Obama is apparently merely trying to match the distortions in his own ads. (Disclaimer: I haven’t actually seen any of Obama’s supposedly false ads. I only know of them by references in articles I’ve read.)

In short, I fear that Obama won’t be capable of taking on the contentious issues that he will confront in January if elected, and if he losses the election it will be his own fault.

Here’s my analysis of the bailout before congress.

Surface Appearance

Jon Stewart makes a good case in this clip that it sure appears that were being tricked. In addition, this article in the New York Times notes that constituents are 95% against the proposal. Possibly, the average person doesn’t know what’s in the public’s best interest, but it does make one a bit suspicious.

Overview
At a Princeton Lecture (on YouTube), they note that the financial sector has grown to 25% of the total economy.

If the only function of this group is to provide liquidity (pass money around) , possibly we don’t need one out of four people doing this. At some point the group has to shrink. A second issue is that in the current situation they are refusing even to provide this function. Naturally, eventually a huge group of people behaving in such a dysfunctional manner is going to have problems. My opinion is that we are headed for some sort of disruption in the financial markets no matter what.

Paulson’s Plan
The rationale for this bailout is that the credit markets are frozen and we need this to restore liquidity to the markets. My guess is that this is trying to forestall the inevitable. The federal government doesn’t have the resources all on its own to keep the world financial markets liquid. A good example is the recent takeover of AIG, which is a major player in the credit default swap market, a $31 trillion market. The government now being 80% owner in AIG, is now on the hook to keep the credit default market from crashing, which is clearly beyond the federal government’s capacity. Once the dollar falls, the government has lost all it’s leverage of pumping the market with cash. We are rapidly reaching this point.

As for Paulson’ plan, his original plan was merely 3 pages long and included no provisions for oversight of the money, making it at least appear like a naked power grab. More importantly, the stated goal of taking the toxic securities off the books of the banks to solve the liquidity crisis, was a complete misrepresentation of what he was actually trying to do. There’s no problem with taking the loans off the books, the problem is doing so without the banks declaring a reasonable market value for them, which would cause huge losses and therefore a need for more capital to stave off bankruptcy. Paulson’s plan then, by definition, if it is to accomplish anything, is to buy these securities at above market prices, amounting to a direct infusion of capital to the banks, a huge giveaway to all the financial institutions that managed their money least successfully, Paulson’s friends I might add.

A side issue is the SEC’s recent actions. If the major problem is liquidity in the markets, their actions seem to be working in the opposite direction. Both their decision to ban short selling (needed in normal option trading) and to guaranty 100% of mutual funds (which in the long run would cause people with deposits of more than $100,000 to move their money out of banks into mutual funds) are exacerbating the liquidity problem.

Three Alternative Solutions
Weed out the Bad Banks
To address the liquidity problem head on, the fundamental problem is that banks are refusing to lend money. Since the banks are dependent on the Fed for their short term borrowing, which they then turn around and lend to smaller banks, etc., my solution is to simply bypass the banks that aren’t doing their assigned job in the financial system. As I see it, the Fed could just expand who it is willing to lend to, to include small banks and other institutions that are not afraid to lend the money.

Also, since the lack of transparency is an important reason why the banks are afraid of each other the Federal government should simply send in armies of auditors to figure out where everyone stands. The head of Pimco, William Gross, offered to do exactly this for free, in order to help loosen up the market.

Direct Capital Infusion
Even conservatives are derisive of Paulson’s plan. Glenn Hubbard of Columbia suggests that the money could be much better spent by providing direct investments in the banks for a preferred equity stake in the bank. Paul Krugman in his September 27, 2008 blog and Nouriel Roubini seem to agree with this approach. This would be a much more efficient way of providing capital without the problems associated with buying bad loans, which would reward only the bad players in the market.

Government Buys Loans Directly
This is the plan I favor, with Alan Blinder of Princeton and Frank Partony in Saturday’s September 27, 2008 New York Times both agreeing with me. The government should buy up the loans underlying these securities and then renegotiate them with home owners. This would alleviate the source of the problem and would put the government’s money more in line with providing for the general welfare of the public. Note that $700 billion dollars would provide 7,000,000 home owners with a down payment of $100,000 on a home. Theoretically increasing the percentage of households who own their homes appreciably. This is a much better plan than hoping that the banks, with their bailout, would then turn around and help the average person. We know how well the trickle down theory works from the Reagan years.

This New York Times editorial of September 25, 2008 makes a related point, that home owners are the only people who can’t challenge the terms of their loans in bankruptcy courts. This is an outrage and should be changed.

Conclusion
Don’t buy it. Paulson’s Bailout Plan is nothing more than a cynical way of cashing in before the administration leaves. There are much better ways to alleviate the stress in the financial markets than giving away money to imprudent investors. The Bush administration is determined to leave the government in ruins and it’s doing a pretty good job.