Mish's Global Economic Trend Analysis

Dysfunctional Oregon
LA's "Taj Mahal" $578 Million School Wins Dubious Honor of Nation's Most Expensive
Former Fed Governor Mishkin Paid $124,000 to Write Glowing Report on Iceland before its Collapse; Mishkin Never Disclosed he was Paid
Sunday Funnies 2010-08-22 Property Taxes, the Wisdom of Zsa Zsa

Posted: 22 Aug 2010 08:00 PM PDT

OregonLive continues to put out excellent articles on the sad state of affairs in Oregon. The question of the day is Can Oregon downsize state government?

Despite years of talk by Democrats and Republicans about the need to control spending, farm out work to private businesses and make government finances more transparent, the opposite has occurred.

Rather than becoming leaner, the state work force increased by 7.1 percent since 2005 -- outpacing Oregon's population growth.

The number of top state employees earning more than $100,000 a year more than doubled during the past decade. Lawmakers took no action on an urgent call by the governor to start paring government by eliminating dozens of boards.

This Thursday, Oregon leaders will get an update of the state's revenue outlook. State economists have already alerted Gov. Ted Kulongoski that the news isn't good, with projected revenues down by as much as $1 billion since the Legislature finished writing the 2009-11 budget in June 2009. The shortfall for 2011-13 is expected to be at least $2.7 billion.

In June 2009, with Oregon's unemployment rate among the nation's highest and the depth of the recession becoming alarmingly clear, the governor put his worries in a letter to Senate President Peter Courtney and House Speaker Dave Hunt, both Democrats: "We must accept that state government can no longer be all things to all people."

Attached to that letter was a list of 64 state boards, commissions and agencies Kulongoski wanted lawmakers to consider consolidating, suspending or eliminating.

That letter caused an uproar among people who sit on those boards or do business with them. They called the governor, wrote their legislators, put their lobbyists to work.

"When you create a new program, you create a new constituency along with it," says Mike Greenfield, who served as director of the Department of Administrative Services and in other state government posts. "What you have are a lot of constituencies for the status quo and very few constituencies for dramatic change."

Oregonians support about 100 state agencies, boards and commissions. Many have overlapping purposes. For example, the legislative fiscal office puts four state departments under the heading "Economic and Community Development," 13 agencies, boards and departments under "Natural Resources" and five under "Education" -- not to mention Oregon's 197 school districts.

During the 2009 legislative session, the Service Employees International Union lobbied for stiffer requirements for outsourcing state work. Over Republican objections, lawmakers approved, and Kulongoski signed, a bill that requires an extensive analysis on any contract job worth more than $250,000 to determine whether it could be done as cheaply in-house.

"I saw this as entrenching government jobs," says Sen. Rick Metsger of Welches, the only Democrat to vote against the bill. "It makes it harder to wheel back the government agency's size."

Vote Buying, Lobbying, Political Bribes

There is much more in the comprehensive article by Michelle Cole and Harry Esteve, including many paragraphs on how difficult it is to know who is spending what because of overlaps and accounting deficiencies.

The key idea is "When you create a new program, you create a new constituency along with it."

Add lobbying, political bribes, and union vote buying to the mix and you have a very toxic brew.

Tip of the Hat to senator Rick Metsger

A tip of the hat to state senator Rick Metsger for having the courage to vote against the wishes of the Service Employees International Union. No doubt the union will pour money to his opponent.

Please note that governor Kulongoski brought much of this mess upon himself. Only someone brain dead or beholden to the unions would have signed such nonsensical legislation.

The state desperately needs to dump unions and their bloated pension plans.

Oregon's Liquor Control Commission

Just to show you how silly things are in Oregon, please consider Oregon's money crisis: Should the Oregon Liquor Control Commission be eliminated?

The Oregon Liquor Control Commission warehouse stocks 1,700 different products and supplies 244 stores throughout Oregon. The state selects what private agents can own liquor stores as well as determines what can be sold in them.

2009-2011 budget: $134 million, generated by sales, fees and fines. Here's the breakdown: $9.7 million, 67 employees for purchasing, wholesale and support; $18.3 million, 104 employees for public safety; $14.9 million, 59 employees for support services, which includes administration; $82.3 million agents' compensation and $8.9 million merchant fees. OLCC returned $172 million in proceeds to state and local government for the 2009-2010 fiscal year.

Against privatizing:

Opponents argue that there's a public interest in regulating liquor sales. Diane Paulson, an Ashland microdistiller who makes and sells gin, vodka and whiskey under the Organic Nation label, says Oregon liquor stores have better selection because the OLCC makes room for small Oregon brands. Not so in California, she says, where Organic Nation has to compete for a distributor and shelf space.

How is this a question?

Excuse me for asking but how the hell is this even a question? Why can't stores decide what they want to sell?

Diane Paulson's argument for the commission amounts to begging for favoritism. If her product was any good (and perhaps it is) people would buy it. If she needs a liquor commission forcing stores to stock her product then she gets an unfair advantage over some unsponsored manufacturer that makes better products.

The whole setup has the potential for massive bribe taking to become sponsored.

Regardless, what right is it for some commission to decide what products anyone should carry? There is no right, thus the idea is lunacy.

Sight unseen, I am willing to state that Oregon should get rid of all 64 state boards, no matter what they are supposed to do. Sight seen, it's time Oregonian voters relegate Gov. Ted Kulongoski to the ash heap of history.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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LA's "Taj Mahal" $578 Million School Wins Dubious Honor of Nation's Most Expensive

Posted: 22 Aug 2010 06:13 PM PDT

At a time we are laying off teachers for lack of funds, building $500 million school mansions is simply outrageous. Those responsible should be fired.

Please consider LA unveils $578M school, costliest in the nation

Next month's opening of the Robert F. Kennedy Community Schools will be auspicious for a reason other than its both storied and infamous history as the former Ambassador Hotel, where the Democratic presidential contender was assassinated in 1968. With an eye-popping price tag of $578 million, it will mark the inauguration of the nation's most expensive public school ever.

"New buildings are nice, but when they're run by the same people who've given us a 50 percent dropout rate, they're a big waste of taxpayer money," said Ben Austin, executive director of Parent Revolution who sits on the California Board of Education. "Parents aren't fooled."

The RFK complex follows on the heels of two other LA schools among the nation's costliest — the $377 million Edward R. Roybal Learning Center, which opened in 2008, and the $232 million Visual and Performing Arts High School that debuted in 2009.

The pricey schools have come during a sensitive period for the nation's second-largest school system: Nearly 3,000 teachers have been laid off over the past two years, the academic year and programs have been slashed. The district also faces a $640 million shortfall and some schools persistently rank among the nation's lowest performing.

Los Angeles is not alone, however, in building big. Some of the most expensive schools are found in low-performing districts — New York City has a $235 million campus; New Brunswick, N.J., opened a $185 million high school in January.

Nationwide, dozens of schools have surpassed $100 million with amenities including atriums, orchestra-pit auditoriums, food courts, even bamboo nooks. The extravagance has led some to wonder where the line should be drawn and whether more money should be spent on teachers.

Connie Rice, member of the district's School Bond Oversight Committee, noted the megaschools are only three of 131 that the district is building to alleviate overcrowding. RFK "is an amazing facility," she said. "Is it a lot of money? Yes. We didn't like it, but they got it done."

I have a simple question for Connie Rice - "If you didn't like It, why the hell did you do it?"

The district builds a freaking $587 million school yet has a $640 million deficit. I don't care if this was planned long ago, this was idiotic in any instance. The school may be "amazing" but so is the district's lack of common sense. Unfortunately taxpayers have to put up with this stupidity.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Former Fed Governor Mishkin Paid $124,000 to Write Glowing Report on Iceland before its Collapse; Mishkin Never Disclosed he was Paid

Posted: 22 Aug 2010 12:11 PM PDT

Former Fed Governor Frederic Mishkin was paid $124,000 in 2006 to write a glowing report on Iceland. He never bothered to disclosed that fact.

Moreover, the title of his report has since been change from "Financial Stability in Iceland" to "Financial Instability in Iceland". What's up with that?

Watch Mishkin squirm in this interview.

I picked up that video from WC Varones who writes Incompetent paid shill Frederic Mishkin in his own words

In case you were wondering what kind of corrupt idiots are running our entire financial system.

Here's his 2005 take on Too Big To Fail: What, Me Worry?

Then there's his great housing bottom call in April 2007.

Mishkin Dismisses "Too Big To Fail"

The actual target of that first link above is "How Big a Problem is Too Big To Fail?"

What does the evidence tell us about whether the too-big-to-fail is a bigger problem now than in the 1980s? My reading is quite different than Stern and Feldman's. The evidence does not support a worsening of the too-big-to-fail problem. To the contrary, the evidence seems to support that there has been substantial improvement on this score.

As has been documented in Ennis, and Malek (2005), after FDICIA was enacted, the banking industry in the United States has returned to profitability, with return on assets that are even higher than in the 1970s . Even more telling is the change in the relative profitability of large and small banks.

In the 1983-1991 period, the largest banks had a return on assets which was less than half that of mid-size banks. After 1991, the return on assets has been quite similar for the largest and mid-size banks, with the largest banks having a slightly higher return on assets. This change could just reflect idiosyncratic features of the recent sample period relative to the earlier period, but an alternative explanation is that the passage of FDICIA has limited the too-big-to-fail problem.

Mishkin droned on and on about bank profits and capitalization ratios. He was hopelessly wrong about both. Miskin simply could not see the bubble in housing or the bubble in leverage and credit on the balance sheets of banks that was allegedly creating all that "profit".

In contrast, I offer this September 30, 2007 flashback: Bank Balance Sheets and Earnings

The above link contains many snips from "Minyan Peter" a former treasurer of a top credit card company and treasurer of one of the largest banks in the Midwest." Here is one such snip.

Bank Earnings 102: The Best of Times, The Worst of Times

As much attention as they will get, in the bigger scheme of things, their [the banks'] net incomes this quarter don't matter. And they don't matter because of one simple rule for financial services firms:

The income statement is the past. The balance sheet is the future.

Let me repeat it again. The income statement is the past and the balance sheet is the future, especially now.

At the top of a credit cycle, the income statement for a financial institution shows "the best of times", but buried in the balance sheet is "the worst of times" to come.

...

History repeatedly reveals the ability of highly profitable banks to go down in flames. How many of you remember Texas Commerce Bank – AAA at the top, but gone at the bottom of a severe credit cycle?

Anyone with an ounce of common sense should have known the "profit" was a mirage and the leveraged Ponzi scheme would collapse. However, Mishkin did not see this coming, nor could Bernanke, nor anyone else on the Fed.

The only potentially redeeming feature of Mishkin's "too big to fail" analysis is that he recommended that regulators read the book by Stern and Feldman that he rebutted in his article.

Lack of Common Sense, Lack of Ethics

Mishkin's Columbia Business School Biography is an impressive read but the man does not have an ounce of common sense.

It seems like you have to be an economic fool to be appointed to the Fed or be on the Fed's staff. Furthermore, Keynesian and Monetarist clowns certainly have an inside track at university professorships.

Unfortunately, being a economic fool, a Keynesian clown or a monetarist clown is not grounds for dismissal from either the Fed or Academia.

However, unethical actions are (or at least should be) grounds for dismissal. It is simply unconscionable for someone at that level to author an academic "research paper" without admitting they were paid to do so.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Sunday Funnies 2010-08-22 Property Taxes, the Wisdom of Zsa Zsa

Posted: 22 Aug 2010 09:20 AM PDT

The above in reference to Trends in School Supplies; Reflections on Property Taxes

Financial Wit and Wisdom of Zsa Zsa Gabor

For more lighthearted Sunday entertainment please consider the Financial Wit and Wisdom of Zsa Zsa Gabor

Hungarian actress Zsa Zsa Gabor, who has asked for a priest to administer the last rites, may not have looked like a feminist but had robust views about how women should stand up for themselves financially.

Zsa Zsa, 93, married nine times – mostly to very wealthy men – and distilled her wit and wisdom into memorable one-liners.

For example, she once said: "I learned in school that money isn't everything. It's happiness that counts. So Momma sent me to a different school."

She famously preferred divorce to legal separation from her former partners because, she said: "Legal separation gives the husband time to hide his money."

And there was more than a grain of truth in her claim: "I am a marvelous housekeeper. Every time I leave a man I keep his house."

When accused of marrying so often it amounted to serial polygamy she observed: "There is nothing wrong with a woman welcoming all men's advances as long as they are in cash."

See article for more interesting tidbits.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Sunday, August 22, 2010

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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