Cutting your nose to spite your face?

Calls,and kudos, for cutting the budget annoy the heck out of me. Rarely do government expenditures fall. Instead, a politically-well-calculated shift occurs – from salaries, wages, and benefits to grandiose plans and projects. The winners: the consultants, developers, and politicians who get to parse the wealth around. The losers: the government employess, the services they provide, and the taxpayers dependent on them.

Now, Missoula Mayor John Engen is getting in on the game. His State of the City address (Feb.2nd) has every department cutting, saving and reorganizing in order to match the declining revenues of city government. This is as a result of him asking for 6.5% reductions in budgets. But, 75% of the city budget is in salaries. So, that means you either fire staff or delay cost-of-living adjustments and watch some good people leave the area for better paying jobs. Either way, its bad.

How about the Mayor stop the hemorrhaging of money that is going into various civic projects? I know the out-of-town consultants and various planners will scream, but these are tough times and somethings got to give.

Let’s put some things on the chopping block:

A new Missoula County Fairgrounds.

We’ve spent over $60,000 on consultants (Crandall Arambula) to be told it will probably cost around $19 million.

The Front Street Parking Structure.

Kimley-Horn & Associates were the consultants here, and it looks like it will cost $8.2 million. I can’t seem to get a straight answer from the Missoula Parking Commission, the Missoula Downtown Association, or the city on who is going to pay the costs, but I’ll bet the taxpayers won’t be completely off the hook. After all, Crandall Arumbula got paid nearly half a million via a “public-private partnership” for the Downtown Master Plan that prescribes provision of more parking. I’m guessing that means the city is going to borrow millions to subsidize the downtown merchants.

The Missoula Events Center.

Don’t get me started on the problems with this one. jhwygirl does a nice job over here. Suffice to say that Hunden Strategic Partners got paid $50,000 for the first phase of their feasibility assessment. They’re asking for a similar amount for the second phase, when they’ll tell us how much it is going to cost and who should pay for it.

Oh and by the way, have you ever looked at who is behind the MEC? Yep, many of the same people behind the ball park, which took at least $2 million in city funding and still isn’t finished. How’s that working out for ya?

So, instead of cutting firefighters, parks & recreation, and police officers, Mr. Mayor, you should take a closer look at some the grandiose projects that all these consultants say is necessary for you to spend money researching and building. Heck, you could also borrow back the nearly $4 million that the Missoula Parking Commission has in the bank.

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Hush, money

Scot Meader, manager of Missoula County’s fair and fairgrounds resigned today. Hopefully, this will stem the tide of complaints being leveled against him: alleged drunken groping, unethical and deceptive behavior, and a lack of being honest, ethical and forthright.

But, while Meader is going to cease representing the fair he will continue to receive his salary for the next year. $71,776 seems like a lot of money in Missoula, moreso when you’re being paid not to continue doing bad things.

Seems like in bad economic times that the County Commissioners should stand up to the weasel. Commissioner Bill Carey said he doesn’t “know for sure how we got to this point”. Well here’s a clue – you didn’t nip this thing in the bud when the original sexual harassment claim was filed. Now, you’re making us all pay for your efforts at trying to sweep this under the rug.

Sorry, but I think Meader should pay the County if he wants us to keep quiet about his unprofessional behavior. If he wants a job anywhere near Missoula then wouldn’t it be in his best interests to not be dragged through the arena of public scrutiny?

Something wrong?

There was an extraordinary hearing today at the bipartisan commission established to examine the causes of the current financial crisis. Jamie Dimon, CEO of JPMorgan Chase and commonly acknowledged as one of America’s most powerful and outspoken bankers, said this:

Regulators simply didn’t have the visibility, tools or authority to protect the stability of the financial system as a whole.”

Why not?

Big Banks. Fail.

Starting today four on the nation’s biggest banks stopped accepting IOUs from the cash-strapped state of California.

Check the list:

  • Bank of America,
  • JPMorgan Chase & Co.,
  • Wells Fargo & Co., and
  • Union Bank of California.

Recognize some of the names? Yep, they’re many of the same ones that you and I bailed out with federal loans, guarantees, and forgiveness.

Now I don’t much like seeing states issuing IOUs while they sort out their political goings on. And Professor Natelson ponders whether they might even be unconstitutional.

But watching big banks penalize small business and consumer recipients of IOUs not only seems like playing politics with the helpless citizens caught in the crosshairs, but it strikes me as exceedingly bad business. Watch all those customers head over to the local credit union or community bank. And never come back.

Tell us which bits you don’t like

Please, Mr. Rehberg, could you be more specific about what part of the Obama stimulus program you don’t like. Simply being critical of the federal spending, in general and on principle, isn’t good enough.

As Pogie (over at Intelligent Discontent) capably points out, Rehberg boasts all about the federal pork money he brings to Montana.

Perhaps Rehberg could tell us which of the following federally funded projects he doesn’t like. After all, he voted against the American Recovery and Reinvestment Act of 2009.

Here’s some of things he didn’t want to fund:

* Fixing Rye Creek Road, on the Bitterroot National Forest, was one of four water enhancement projects funded by the first allocation of federal stimulus moneys in Montana.

* Statewide, the American Recovery and Reinvestment Act will deliver $31.4 million in roadwork on national forests.

* $3.4 million has been allocated for energy efficient upgrades for Montana schools, including projects as lighting, boilers and heating-and-ventilation system upgrades.

* $77 million in federal stimulus funds will go to reconstruction or renovation of five of Montana’s border stations.

More examples and details of how the federal stimulus dollars are being spent in Montana can be found here. The State of Montana estimates that 11,000 jobs will be created or saved here, although they’ll never be able to prove those numbers.

Surely, Mr Rehberg isn’t against fixing up the old roads, school facilities, and border crossings? If so, perhaps he could clearly explain why government live up to its responsibility to be good stewards of these necessary facilities. Does he want rural residents to continue to drive on sub-standard roads? Does he want school kids freezing from poorly maintained classrooms, or does he want school districts to be frittering away their limited budgets on huge energy bills? Or does he want those of us who must cross the border on a regular basis (and that is mainly Montanans and Albertans) to have to wait while the border patrol works around an antiquated, cramped, and inefficient border crossing?

Perhaps Mr Rehberg would also like to explain why he doesn’t want us to spend money on hunting and fishing supplies. You see, in a similar vein, the Fed and the Treasury Department provided nearly $400 million to the Cabela’s credit-card operations through the Term Asset-Backed Securities Loan Facility, or TALF. That’s right – without the federal bailout moneys, Cabela’s, that well known outdoor retailer, would have canceled much of its credit card program. Surely Mr. Rehberg wants to explain what’s wrong with helping us buy all those guns, bullets, cases, rods, jackets and fishing flies?

Nationalize this! Part II

All around the world discussion now includes the distinct possibility of the U.S. nationalizing its top banks. Alan Greenspan no less suggests, “it may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring.” And it was probably Senate Banking Committee Chair, Christopher Dodd, who made us all stand up and take notice when he said, “I’m concerned that we may end up having to do that, at least for a short time.” The Wall Street Journal even gave their coveted prime position on their Opinion page to an interview with Nouriel Roubini, the famed Dr. Doom of NYU’s Stern Business School, explaining the inevitability of a Swedish style takeover within six months.

Gosh knows we need new management of our big banks. The vast majority of the American public seems to have lost confidence in the imperial bank executives, what with toxic assets, choked-up capital, inadequate reserves, plummeting share prices, remodeled bathrooms, and private jets. Government management, however temporary, will seem mild by comparison.

And now we hear that the Obama administration fears the bankers might reject the bailout money because of the $1/2 million cap on executive compensation! Will they not stand up for what this nation needs rather than their own personal gain? If the financial system collapses, then how could it possibly be in the best interests of their company, their stockholders, or their customers? Let’s stop this game of moral hazard with the bankers, throwing good money after bad.

So, ask yourself, would you bank with the government? Do you have confidence in this country’s ability to pull itself together and climb out of this mess? I do. I own treasury bonds. I do so, not because I feel I will get hugely wealthy but rather because they pay a comfortable return with a sense of security and national benefit. I like the sense of collective rescue instead of a culture of fawning obsequiousness and dependence upon unaccountable, unresponsive mega-bank CEO’s.

We’re all in the together, so let’s band together to fix it. As I’ve said before, it’s not like we’re going to stop saving and lending. Go get your money and put it where you think it will do the most good. That’s right – go down to Bank of America, Citibank, Wells Fargo, and First Interstate Bank and ask for your money. Tell them you don’t think they are managing this country’s financial system appropriately. You might then put your money in a local credit union or a community bank or in treasury bonds. (All of which are paying quite reasonable returns, I might add.) Because if we don’t take charge, then the government will be left with no choice.

Sorting through the mess

Like most folks, I don’t completely understand the financial crisis our nation is in. But, my lack of full comprehension doesn’t make the questions less compelling. No matter what you call it – a fiscal disaster, a banking crisis, a liquidity issue, or a banking bailout, the questions remain.

These days it seems like the solution is to “purge bad assets that are paralyzing the financial system“. Why is that? What is it about those assets that make them so toxic? Can the banks sell them, much as they bought them in the first place? Sure they are risky, but there’s always an investor willing to take that gamble providing the payoff is sufficient. Instead, the banks want our government to overpay for the loans, right?

As I see it, the plan is to establish a government fund (call it a bank if you like, though it is nothing like anything you’d recognize as a bank) to buy up all the bad investments and loans. It’s those bad calls that are causing banks to be losing money. But, isn’t that what banks are supposed to be best at (and far better than the government’s ability to pick winners and losers) – to judge the loanworthiness of a particular project and to calculate the reserves needed to cover the likely outcome of those loans? Why, then, when they got it wrong do they expect us, the taxpayers, to take responsibility for their bad calls?

Why are banks any different from any other entrepreneurial enterprise that takes a risk, backs their judgment, and goes into business the most efficient way they know how in order to provide the goods and services we demand. Because let us not forget that customers are still wanting to give banks money and that someone else is out there wanting to borrow that same money back. We are saving more than ever before (creating liquidity, right?) and we’re still taking out car loads, credit-card debt and refinancing our homes. We may not be doing that at quite the same rate as we once did, but today’s levels aren’t that far different from what they were five years ago. So, if banks were profitable five years ago, they should be able to profitable today. Lots of smaller banks and credit unions prove that as they are facing a good year of profits they can plow back into reserves, net worth, and available capital.

The smart folks at the Treasury, the Fed, and the Federal Deposit Insurance Corporation are worried that the only people left to invest in bailing out the banks is the government. Lender of last resort, right? But, don’t the big investment companies see the same systemic hazard that the regulators see? That is, don’t they see that a frozen market for capital is going to be their worst nightmare? If investors don’t bailout the banks, then those same investors are going to be a whole world of hurt. Maybe it is time for them to step up and take responsibility for the health of the financial system? After all they probably did as much, if not more, to create the mess in the first place.

Is the government going to pick winners and losers? Will the administration be deciding which companies survive (Bank of America, the new owner of Merrill Lynch) and which fail (the late Lehman Brothers)? Me, I don’t think they’re doing a very good job of it. Instead of rewarding the conservative, well capitalized regional banks and credit unions, it seems they are rewarding the aggressive, merger-hungry, behemoth banks.

Even if that is a strategy, which of course it isn’t, then it’s not being consistently applied. On the one hand we are giving Bank of America $20 billion to complete the purchase of Merrill Lynch investment company at the same time we are giving Citibank $10 billion to sell of its Smith Barney brokerage. Given that the government is now part owner of both B. of A. and of Citi, then we either want to own a bunch of investment gurus or we don’t. Or is there something about Merrill Lynch (which has lost $39.1 billion in the last year and a half) that makes it such a better deal than Smith Barney?

I’m beginning to see why the government makes such a terrible investor on our behalf. The Congressional Budget Office estimated that taxpayers could lose $64 billion on investments made just last year under the first third of the $700 billion financial rescue package we know as TARP. Maybe we should just leave government to do what government does best … spend money, not invest it!

No, none of this makes sense to me. And I think that that may be part of the problem – no-one completely knows what is going on. The banks won’t own up to how much they stand to lose on their bad investments. The economists keep changing their predictions, as they are want to do. And the politicians are afraid to admit that they don’t really know what they are doing, just making ad-hoc decisions as they bumble along.

It is the last group, our politicians, that we can hold accountable. The public needs to have faith in their elected officials, and so we deserve answers to our questions. We need to demand that the decision makers fully understand the consequences of their actions. Otherwise, we’ll be letting them off the hook. And when things get worse, we would only have ourselves to blame. Hmm, somehow I think it’s going to get messier!