Borrowers Paying Price for Bush's Increased Availability of Credit

Over two years ago President Bush bragged on the just passed Bankruptcy Bill. "These commonsense reforms will make the system stronger and better so that more Americans - especially lower-income Americans - have greater access to credit." After signing the bill he added "By making the system fairer for creditors and debtors, we will ensure that more Americans can get access to affordable credit."

According to the BBC subprime loans ballooned the last few years. The quality of those loans is rapidly deteriorating according to another report. Loans made last year have nearly a 15 percent delinquency rate, a faster growth rate than any other year. An industry expert says the most recent loans in 2007 are not performing much better.

During the Bush years, mortgages changed dramatically. In 2001 roughly 85% of loans were the 30 year fixed rate kind. In 2006 ARM's or adjustable rate mortgages comprised 45% of housing loans. Subprime mortgages fall into the ARM category. according to the testimony of FDIC Vice Chairman Martin Gruenberg:

The subprime mortgage market accounted for a relatively small share of total mortgage originations until a few years ago. But at the same time that nontraditional mortgages began growing rapidly a few years ago, subprime mortgage lending also began to escalate. The subprime share of mortgage originations grew to over 20 percent by 2006 compared to 5 percent in 2001. Subprime mortgages account for about 14 percent of first lien mortgages outstanding and represent about 7.5 million loans.

The volume of dangerous loans tripled under Bush's watch. On top of the 2 million currently delinquent and facing foreclosure, some 2 million more subprime loans will reset in 2007 and 2008, with many expected to default. Mr. Gruenberg went into great detail regarding the structural problems with such loans. They include low teaser rates which can rise as much as six percentage points, not verifying the borrower's income, huge prepayment fees, not escrowing insurance and taxes, and piggybacking loans. Wouldn't one expect some of these practices to be addressed in a bill that "ensured more Americans can get access to affordable credit"? Apparently not, even thought the FDIC identified such predatory lending practices in 2001.

Until the bubble burst, who made out like bandits off these risky mortgages? Wall Street investment houses did via the securitizing of loans. Mr. Gruenberg stated:

In 2006, over 70 percent of the subprime mortgages originated were securitized. Most of these mortgages made their way into the so-called private label mortgage backed securities (MBS) market. Subprime MBS accounted for about 40 percent of private label MBS last year. The rapid growth of subprime lending and securitization helped drive the private label share of total MBS to 56 percent last year from 18 percent in 1999. This development represents another significant shift in the mortgage industry.

Wall Street investment houses expect their several year run of record profits and bonuses to come to a screeching halt. The BBC reported:

The credit rating agency Standard & Poor's estimates that investment banking revenues could fall by nearly 50% in the second half of this year because of exposure to non-performing mortgages and loans. In the case of Goldman Sachs alone, that would be a drop of $1.75 billion.

One can understand Treasury Chief, Hank Paulson's concern as ex-CEO of Goldman Sachs. An industry based on securitizing mortgages virtually vanished overnight. Who will fare better from government help, the investment houses, the individual mortgage holder, or the 40,000 people who lost their jobs due to the crash?

The relief President Bush announced today will help 80,000 mortgage holders refinance through the Federal Housing Authority. That addresses about 10% of the potential problem, but we're used to that given the President's efforts to reduce the number of uninsureds in our country. Homeless and without health insurance, that sounds like a double whammy...

Carlyle Doesn't Need Tax Breaks

Which level of The Carlyle Group doesn't need a tax break? We can start at the top where investment fund managers make huge incomes. According to Bloomberg News, top fund managers make more in ten minutes than the average worker does in a year. At $210,700 an hour they don't have to work long hours, unless they want to make a lot of money, which they do at $657 million a year.

Yet, Carlyle is worried about taxes going up for both the company as it is taxed at the lower capital gains rate and for fund managers who get the same break on any company returns they personally receive.

The private equity firm on Pennsylvania Avenue just closed another sale, this time a German human resources software company. How did they make out? They purchased 4.7 million shares or 61.3% of the firm for 7.40 Euros in 2004. While the story didn't indicate a selling price per share, it did show Carlyle got 4 Euros in dividends last year and this year. That means they only needed to sell for 3.40 to break even. Reading between the lines, Carlyle cashed out at 22 Euros or as Michael Wand said "a three-fold increase in share value to all public shareholders."

It looks like Carlyle got nearly 18 million Euros in dividends and 100 million in sale proceeds for a profit of 98 million. Converted to our currency that equals a $160 million take with $133 million in profits. How much did the Bush capital gains tax save them, assuming they repatriated the profits? It kept another $6.6 million out of the Federal Treasury, but Carlyle needs all the returns they can get.

Their European IPO, intended to let the smaller investor get a taste of big private equity returns, is faltering. Carlyle just injected a second round of $100 million into the investment vehicle. If they piss off the small guy, the big wigs just might lose their preferred tax breaks. We already heard the PEU's position on that, raising taxes could hurt! How about paying the same freight as other corporations and non PEU employees? Not under Bush's watch...

Bush Claims "State Secrets" on Bank Privacy Suits

The Bush administration invoked its traditional state secrets defense in response to lawsuits testing George's steps into uncharted spying territory. How can a legal determination be made if the case is thrown out for secrecy reasons? The latest case involves Bush's monitoring the SWIFT database for terrorist activity. SWIFT is a Belgium, bank owned cooperative that processes financial transactions worldwide. The NY Times reported:

The Bush administration is signaling that it plans to turn again to a legal tool, the “state secrets” privilege, to try to stop a suit against a Belgian banking cooperative that secretly supplied millions of private financial records to the United States government, court documents show.

The suit against the consortium, known as Swift, threatens to disrupt the operations of a vital national security program and to disclose “highly classified information” if it continues, the Justice Department has said in court filings.

The “state secrets” privilege, allowing the government to shut down litigation on national security grounds, was once rarely used. The Bush administration has turned to it more than 30 times in terrorism-related cases, seeking to end public discussion of cases like the claims of an F.B.I. whistle-blower and the abduction of a German terrorism suspect.

SWIFT defended its actions after they became public with the following statement:

Only governments can define the boundary between security and data privacy. Private companies, like SWIFT, can play their part by upholding the law, but they cannot make policy and cannot enforce compliance by others. Ultimately they are dependent on governments and elected officials to develop the legal framework in which they operate.

If the Bush administration gets its way, the legal framework remains unclear as it won't have survived a court challenge. If the case is tossed, who else benefits? Last year The Carlyle Group purchased FRS Global, a Belgium headquartered software company that specializes in bank government regulatory compliance. Might their software be mining the millions of transactions?

Michael Wand, Director, The Carlyle Group said, “FRS is the leading regulatory and compliance software vendor in the financial services industry. With an evermore complex risk and compliance market, driven by a continuous wave of regulation in the financial services sector, we believe this market is critical for the industry. FRS provides an outstanding technology-driven ‘knowledge’ service to enable financial institutions to manage their regulatory reporting and compliance activities, and we believe the business will continue to grow significantly in the coming years.”

Who is George Bush trying to protect with his state secrets defense? Time may tell, then again it may not.

Bush's Bankruptcy Actions Revisited

Now that America faces a crisis from people unable to afford their subprime mortgages, a quick look back is instructive. When the House of Representatives passed the Bankruptcy Bill the spring of 2005, President George W. Bush issued this statement:

I commend the House for acting in bipartisan fashion to curb abuses of the bankruptcy system. These commonsense reforms will make the system stronger and better so that more Americans - especially lower-income Americans - have greater access to credit.

A week later he signed the bill adding "By making the system fairer for creditors and debtors, we will ensure that more Americans can get access to affordable credit."

The problem came in the kind of "fair" credit the law allowed, rising variable interest rates with huge prepayment fees, usually hidden from the borrower. Fed Chief Ben Bernanke spoke to these problems the other day. Today he assured the public the Fed is in control.

President Bush just addressed the country from the Rose Garden on home ownership financing. I tried to listen to the webcast prominently displayed under the "Latest News", but the White House server couldn't find the file. I'll try again later to find out why so many citizens on Congress.org are hopping mad at George over those mortgage bailouts. They think he's trying to help deadbeats who overspent on housing. My guess is he's trying to help mortgage backed security holders recoup some of their losses. But either way, some 80,000 people could get help through FHA refinancing.

Bush Administration Concerned about Dubai?

President Bush and his staff spoke to an issue recently tackled on this blog, trade with the United Arab Emirates through its shining city by the sea, Dubai. The administration has deep concerns about products smuggled through Dubai to our enemies in Iran and Afghanistan. Yet, 30 days ago two U.S. aircraft service companies, Landmark Aviation and Standard Aero, were sold by The Carlyle Group to Dubai Aerospace with the full approval of CIFUS, a committee of the U.S. Treasury Department.

This morning the news reported:

The Bush administration is pressuring the United Arab Emirates to crack down on foreign companies the White House believes are smuggling equipment to nearby Iran to build explosive devices killing American soldiers in Iraq and Afghanistan."

The UAE is among the world's largest shipping hubs for international commerce, and is located just across the narrow Strait of Hormuz from Iran. The countries have been trading partners for centuries. Much of Iran's trade flows through Dubai, which also ranked as the top export destination in the Middle East last year for American companies with $12 billion worth of goods.

U.S. intelligence agencies have collected evidence that at least 11 individuals and companies operating in the United Arab Emirates are smuggling electronic components and devices - sometimes through Iran - to build explosive devices used to ambush American soldiers in Iraq and Afghanistan.

"The regulation of re-exports should be established by the UAE without the threat from the U.S.," the director general of the Dubai Chamber of Commerce and Industry, Hamad Buamim, wrote in a letter to the Bush administration obtained by the AP. "Only the UAE is able to judge the balance of concerns for re-export relative to national security against the risk of the trade moving to another re-export location."

The dispute highlights the conflicted relationship between the United States and the UAE. The administration considers the emirates a close ally, especially on military matters in the Middle East. But Dubai was forced last year to abandon plans for Dubai-based DP World to take over significant operations at six major U.S. seaports amid intense national criticism. (Yet, there was no public discourse on the sale of operations at some fifty U.S. airports. CIFUS analysis of the deal is not yet available on the Treasury Department website.)

"They have been getting a lot of pressure from the U.S. government," said Arthur Shulman of the Washington-based Wisconsin Project on Nuclear Arms Control, a nonprofit group that supports limiting shipments that could be used for nuclear weapons or missiles. "The UAE clearly have their own interests, and one of those interests is promoting trade and transshipments with few restrictions."

So CIFUS approved the sale of two aircraft operations companies in America to Dubai Aerospace whose interest is "promoting trade and transshipments with few restrictions"? I feel a Michael Brown moment approaching. Or should we call that a Lord John Browne moment?

Update 8-28-13:  In a Carlyle-like move Dubai Aerospace is ready to flip Standard Aero for a double.

Update 12-9-18:   Carlyle looks to buy Standard Aero yet again, this time from Veritas Capital.

What Didn't Make the 2005 Bankruptcy Bill

This week the federal government and the Federal Reserve Chief released information on two major causes of bankruptcy, subprime mortgages and high medical bills. Ben Bernanke spoke to ways policy makers can help, while the Census Bureau released data on the number of uninsured Americans in 2006. Neither issue was addressed in the most recent Bankruptcy legislation, passed by a Republican Congress in 2005.

The number of uninsured rose by over 2.1 million people to 47 million Americans. The largest jump came courtesy of employers who dumped the benefit or shifted jobs to non-benefit workers. The number of uninsured children rose by 700,000 to 8.7 million as President Bush did everything in his power to thwart state expansion of children's health insurance programs. High medical costs were the number one cause of bankruptcies in 2005 but the bill completely failed to address this issue.

As for mortgage failures, the words of Fed Chief Ben Bernanke are instructive.

Bernanke said the development of "a broader range of mortgage products which are appropriate for low- and moderate-income borrowers, including those seeking to refinance" might help the situation. "Such products could be designed to avoid or mitigate the risk of prepayment shock and to be more transparent with respect to their terms

Does that mean the 2005 bill didn't require transparency in terms or regulate prepayment penalties? Did that leave low and moderate income borrowers vulnerable to predatory loan practices? It appears leaving out two important causes of bankruptcies left the American public open to financial ruin. What will Congress do about it today? My bet is more of the same, companies get the presents, while the average citizen gets a lump of coal.

Pentagon Spin Machine in High Gear

The Iraqi bonanza enriching Pentagon contractors came under fire last week. An Associated Press article detailed the retaliation unleashed upon whistle blowers, people inside the firms or U.S. government that exposed abuses. In return they received harassment, firings, demotions and even torture (as previously defined by the Geneva Conventions). Their own Justice Department ignored them by failing to join the 'qui tam' lawsuits against unprincipled defense contractors.

So how did the Pentagon respond? First of all they said contractor abuses in Iraq are "not part of a broad conspiracy." There have been at least 73 criminal cases since the war began. Military sources say the cases involve $5 billion worth of contracts and allegations of up to $15 million in possible bribes.

Yet, these acts are broad enough for the Pentagon to consider changing the whole Pentagon contracting system. I'm confused. The Defense Department said the problem wasn't broad, so why look to change the broader system? I can't imagine the Pentagon contracting process mandates firms perform illegal acts, so why would the contracting system be the problem? The process specifies deliverables in return for a price. Or does it in the lackadaisical Bush administration? As a result of conducting compliance assessments, the Pentagon is now "concerned about the number of contracting improprieties."

Then there is the inconsistency between the government's shunning of whistle blowers and the Pentagon's intent to clean up the contracting system. Huh? Supporting qui tam suits would seem to be a useful tool in the Bush toolbox. Oooppps, I forgot. President Bush hates whistle blowers. He issued an executive order in May targeting fees paid to such people. Didn't you know? A Bush decree beats the law every time and it usually hammers the little guy or gal.

PEU Schooling by Carlyle: Ports vs. Airports

For a lesson in private equity influence in America, one need look no further than The Carlyle Group's recent sale of two aviation service companies to Dubai Aerospace. The public foamed into a lather over the sale of six port operation to a different Dubai company. The two companies Carlyle sold have facilities at some fifty domestic airports, some even service aircraft engines. Wouldn't this seem a bigger risk than ports given 9-11? Might a rich citizen of the Emirates have any jihadist relatives, like the Saudi bin Laden family?

Very little of this story made the news during the time it took to "announce" and close the deal, from April to August. Carlyle didn't put out any press releases on this $1.9 billion transaction. They normally brag about flipping companies for huge profits, but not this time. I can understand the seller wanting to keep it "hush hush", but someone tried to tell the story, didn't they? Surely the media, regulators, elected officials (who jumped on their high horse over the ports deal) spoke out. Sorry.

How did Carlyle pull it off? A little Washington grease always helps. The politically connected private equity underwriter (PEU) hired Akin, Gump to lobby for the Landmark sale. Their services for the first half of 2007 cost The Carlyle Group $400,000. Might another bill be coming as the deal didn't close until August 1st?

What else happened to seal the deal? Dubai Aerospace agreed to sell off Landmark's fixed based operation which include charter services. It wouldn't behoove them to hold on to a division that flew rendition flights. Someone might find out and want revenge.

The deal got announced as a $1.8 billion transaction, but closed as a $1.9 billion deal. Did Carlyle raise the price to pass on their lobbying and hush money costs? If Carlyle cleared a $1 billion dollar profit on the deal, the Bush capital gains tax cut puts and extra $50 million in the PEU's.

Given the recent data on the rising number of uninsured children, Carlyle would be happy to pay a little more so kids could be covered, right? Even though the President is against it, surely the super wealthy making money hand over fist, want to help out? Sorry.

Mitt Romney's "Shit Flows Express" YouTube Video

Mitt Romney joined forces with Jumpcut's video editing site for the Team Mitt Contest. People can create 27 or 57 second commercials touting Romney's qualifications for President. It's always good to toss creative ideas out for consideration, so here goes:

The scene opens with Team Romney, Mitt, the wife and young boys getting ready for vacation. They pack the station wagon with the last task of putting their Irish Setter, Seamus on the roof. During the trip the anxious dog "has an accident". Mitt looks into his rear view mirror to find feces dripping down the back window.

"Crap, honey. It looks like I have a mess to clean up." A picture of President Bush under the 'Mission Accomplished' banner flashes before his eyes.

While using a garden hose to clean both the dog and the wagon, Mitt finds his dog licking his balls. "Seamus, stop acting like an Idaho Senator! You'll shame us!" After hosing down both the dog and Larry Craig, Mitt turns to the camera. "That's what I get for looking in the rear view mirror. No Larry, no rear views for you. Where was I? Oh, charge ahead, I say. Look back at your own peril, especially if you have a wide stance in an airport lavatory. And that's why I'm touring the country in the Shit Flows Express Wagon, to share my lessons with the American public. Plus I have a quarter billion dollars to burn on the campaign."

The commercial ends with "Support Mitt's 'wide stance' on animal rights and stalwart Senator Larry Craig's 'not gay' position on homophobia. This message has been brought to you by Bain Capital and the PEU boys. Some things don't wash off."

Dance of the Madmen

The same day a blood red moon showed in the early morning sky, two madmen talked war in the Middle East. President Bush spoke to a group of veterans of the dangers of "nuclear holocaust" if Iran develops key nuclear enrichment capabilities and of his intent to "confront Iran before it's too late."

Iranian President Ahmadinejad did his best to keep the verbal battle going. "I can tell you there will be a power vacuum in the region," he said. "We are ready with other regional countries, such as Saudi Arabia, and the people of Iraq to fill this vacuum." Did the Shia leaders say Saudi Arabia, America's ally? Aren't they Sunni? Does this mean they want to manage their region without U.S. interference? Well, that means war and Bush knows how to start one. I'm not sure he knows when the "Mission's Accomplished".

I did wake up in the middle of the night to watch the lunar eclipse. The moon stood in the Earth's shadow with only red light waves bending around our planet to ever so lightly illuminate the lunar surface. When I awoke the next morning, I felt compelled to create a poem, not knowing saber rattling would happen hours later. Here it is.

This Morning the Moon Bled

Who took the light of the full moon last night?
For hours it shone bright enough to bait a hook.
Then with dawn but hours away,
a sneaking shadow crept down from the north
Like an invading army it slowly overtook the sphere,
robbing it of light

The tiny black arc turned to red as it advanced,
leaving the surface stained with blood.
Who do we blame for this?
Was it God, the leaders of shadow armies, or the victim itself?
As the first two are infallible,
I can only presume the moon deserved to bleed.

As my night time friend darkened crimson
The stars in the surrounding sky brightened
Is that the job of those far from the battlefield?
The next time blood pours across the ground
Are we to shine our light?

It will happen again,
The chatter ensures such a thing
Infallible, opposing Gods order it.
Leaders promise it.
Victims wait for their transformation to target,
while attackers line up the enemy in their sights.

The moon cries out in vain,
“Didn’t I just bleed enough for us all?”
But it is only a celestial object,
Ignored by opposing Gods,
and Machiavellian leaders intent on gaining prizes through overwhelming force.
Who can bleed enough for us all in such a system?
When the Moon fails, the billions and billions of stars must come through.

Health Insurance Like Baghdad Electricity to Bush

Despite the President's hard work, two indicators keep getting worse, the number of uninsured people in America and the average daily hours of electricity in Baghdad. The Bush administration already dropped the first measure. How long before they ditch the second?

The number of uninsured Americans rose over 2.1 million from 2005 to 2006. Over 700,000 of the newly uninsured are children. The number reached 47 million people. (It would have been worse but two reformulations that lopped off 500,000 and nearly 2 million the last few years.)

During Bush's term in office the number without health care coverage increased by 7 million people . Even with CHIP, more children are uninsured today than in 1994, the beginning of the Republican revolution. So what has George done about this for people struggling to afford health insurance? Very little, other than the reformulations to hide the staggering toll.

Through high deductible health plans, President Bush encouraged people to effectively self-insure for the first $5,000 to $10,000 of their annual health care bills. This coincidentally saved businesses providing health insurance as a benefit, 30 to 40% compared to traditional plans.

But he wants to do more. His $15,000 tax credit to purchase health insurance will drop the number of uninsured 5 to 10% based on his White House economic team's projections. The just announced rise wipes out most of the 5% improvement Bush projected months ago.

How can a bold plan that takes us back to levels experienced the last two years be taken seriously? It can if you're an employer wanting to ditch the benefit, or a well off person wanting an additional tax cut. Both groups should salivate over Bush's proposal. If the employee gets the tax benefit then they should pay the freight.

While businesses or unions could act as the group purchaser for health care, they won't pay the bill if the individual gets to write off the expense on their taxes. This could fuel the next cycle of profit growth for corporate America, so badly wanted on Wall Street (which happens to own many of our elected leaders on both sides of the aisle.)

In addition to dropping the number of uninsured by 2.2 to 4.4 million, Bush's plan provides tax cuts for 5 million people making $50,000 or more annually. Does it strike you odd that more people get a tax cut than get insurance coverage? So what's the real aim here, if it's not to cover more people?

The President's latest moves regarding CHIP could reveal one motivation, protect and grow the insurance franchise. Bush's lead economic advisor, Al Hubbard once warmed the board chair next to William H.T. Bush at WellPoint. The President affectionately calls William H.T. "Uncle Bucky".

For those who think Democrats are clean on this issue, look no further than the chair next to Uncle Bucky. There sits Susan Bayh, wife of Indiana Senator Evan Bayh. Their family has been enriched by her sale of stock options the last few years. One transaction in February 2006 enriched their household by almost $800,000. My guess is Evan doesn't want to cut that off. He might even appreciate that Bush 5% capital gains tax cut, netting the Bayh's an extra $40,000 on that one sale alone. Since then she twice flipped her WellPoint stock options for more ka-ching.

Despite having 8.7 million uninsured kids, the Bush administration unleashed a series of bureaucratic regulations handcuffing states who want to do more. One involves making uninsured kids wait a year for their coverage to kick in. I take it some compassionate conservative will foot the child's bills until that happens, that is if they aren't buying generators for the children in Baghdad.

Ex-Time Warner Chief Earns His Carlyle PEU Compensation

Maybe I can understand the White House leaving out the New Orleans hospital with the highest death toll Post Katrina, but CNN's glossing over important details? In their report on the grand jury's failure to charge a doctor with second degree murder, the pioneering 24 hour news network mentioned the LifeCare unit one time. LifeCare Hospitals is a chain of long term acute hospitals. The company was purchased by The Carlyle Group weeks before Katrina struck New Orleans.

What else didn't make the CNN article? LifeCare rented space from Tenet Healthcare, occupying the seventh floor in the Memorial Medical Center building. As a separate hospital organization, LifeCare decides which physicians are qualified to treat their patients and the company is responsible for ensuring some of those providers remain during a disaster. The hospital has a duty to protect patients in a disaster situation, at least until they can get them appropriately transferred to another facility. The news report states LifeCare's nurse executive allowed providers with ill intent access to her patients. This would be a failure of corporate responsibility, not the solo act of several renegade clinicians.

Tenet and LifeCare already divied up the civil liability between them, but the results of the legal settlement are sealed and not available to the public. Doesn't the public have the right to know "who they deemed responsible for what" in the aftermath, especially the relatives of patients who died?

LifeCare's defense is simple, blame the feds. The Carlyle affiliate asserts that as soon as federal emergency teams started evacuations in New Orleans, patients became "wards of the federal government". That same federal government couldn't mention LifeCare, Tenet or Memorial Hospital in its White House Lessons Learned Report.

The news piece focused on medical testimony, which likely was shared with the grand jury. Experts are disappointed they didn't get to make their case in person and are concerned about the result. I know how they feel, as none of my elected leaders have replied to my questions as to why Carlyle's LifeCare got a free pass in the Bush follow up investigation. Fran Townsend didn't have to go far to ask questions as Carlyle's office is just down Pennsylvania Avenue. Maybe, Carlyle's communications expert, former Time Warner Chief Norman Pearlstine was too busy protecting their good name to reply to any concerns. I wonder if he still has any influence at CNN?

Bush Blocks for Uncle Bucky

The Bush administration revealed yet another rule change protecting private health insurance companies at the expense of children. The rule handcuffs any states wanting to reduce the 8.3 million uninsured children in America (which happens to the be the same number of kids without health insurance when the Republicans took over Congress in the early 1990's). With the swipe of a pen George's bureaucrats imposed a year long waiting period for states innovating with CHIP to reduce the number of uninsured. This comes on top of the 95% coverage requirement announced days ago.

Who benefits from these protectionist moves? It's the usual suspects, Bush relatives, friends and high dollar donors. The President's Uncle Bucky sits on the Board of Directors of giant insurer WellPoint. The Carlyle Group purchased the country's largest PPO in 2006, Multiplan. We know President Bush's answer for all those kids under a one year waiting period for coverage. "Just go to an ER." Or better yet, "Get your parents to fund a health savings account. Oopps! That program requires people have health insurance!"

So why the lack of compassion for kids when the administration has all the compassion in the world for busineses that pay taxes? At the end of his first term President Bush effectively granted U.S. flagged shippers tax exempt status by enacting the tonnage tax. As children weigh little and don't vote, they don't get any benefits under the weight based tax. However, obesity is growing in America's youth. It may be but a matter of time before they accumulate the political weight to get legislation and regulations in their favor. But until then, I predict George will have Uncle Bucky's, The Carlyle Group's, and for-profit healthcare's back. Your franchise is still good, for now, Mr. Flip-flopper. These children might grow up enough to vote...

It Floats and Needs Flushing

After reading how the ballooning cost of shipping and logistics cut the amount of food aid to poor countries, I recalled The Carlyle Group's briefly owning a shipping company. They purchased CSX Lines in 2003, renamed it Horizon Lines, and flipped it for an easy double in just over a year's time. At the time I thought John Snow's CSX might have undersold at $300 million, but Carlyle's political influence may well have earned the premium resale price of $650 million. After announcing the deal, Standard & Poors put Horizon on credit watch. What did Carlyle do to earn the lofty price so worrisome to credit rating agencies?

First, they got Secretary of Transportation, Norman Mineta to sign a Capital Construction Fund Agreement with the company. The agreement provides numerous methods for Horizon to reduce their tax liability in order to fund new ships or other major capital purchases, perfectly legal under the law (last revised October 2006). While most companies have to generate sufficient income or borrow money to buy new assets, Horizon could use what they owed Uncle Sam to purchase new revenue generating vessels. The company received a reduction in their tax liability of $14.1 million in 2005 and $14.12 million in 2006 from this program according to their annual report.

The Department of Transportation made no public announcement regarding this agreement. Right after signing the deal, Sec. Mineta spoke in Hollywood, Florida. In his talk, the Secretary mentions two government efforts that help Horizon, the Jones Act and the cargo preference program. The Jones Act specifies U.S. flagged carriers must haul freight between Guam, Hawaii, Puerto Rico and the mainland. The cargo preference programs gives preference to U.S. flagged haulers on other routes.

In its annual report Horizon promotes itself as the number one Jones Act carrier. It also states on their corporate website it "serves several agencies of the United States government, including the Department of Defense and the United States Postal Service." How much of this business did Carlyle grow during their year and half of ownership?

Second, in 2004 President Bush signed into law a bill that granted even more preferential tax treatment to U.S. shippers. Taxes could be based on tonnage vs. the corporate income generated from vessels. Horizon jumped on this to drive taxes below zero. The British Treasury reported on such a tax. "A tonnage tax, which has increasingly been introduced, with some early success, by nations such as Norway and the Netherlands, creates an effectively tax-exempt fiscal regime for shipping companies."

The company had net income of $72.3 million in 2006, yet it has a net operating loss carry forward of $39.4 million for the same period? That is the result of two items, the Mineta capital construction fund agreement and the 2006 election of the tonnage tax enabled by Bush’s signing of the American Jobs Creation Act (of 2004).

The firm expects "future tax liability to be substantially lower than the 38% combined federal and state tax rate that the company would be at without the tonnage tax benefits". They calculated their tax rate to be an effective 9.5% based solely on the tonnage rules for 2006. Other tax benefits drove the number below zero, adding $43.5 million to their bottom line. Of the company's $2.16 earnings per share, tax benefits contributed $1.30. Who says there is no such thing as corporate welfare?

As for the American Jobs Creation Act, who knew creating jobs would cut corporate taxes dramatically and drive up corporate earnings? Remember this next time President Bush says there's no money to provide uninsured children with health insurance. Horizon's tax liability for 2006 alone would be $27.5 million without the Bush team shenanigans.

What happened to Sec. of Transportation Norman Mineta? He resigned from office on July 7th, 2006 and within six months snagged a slot on the Horizon Board of Directors. This after landing on the Carolinks Advisory Board alongside Senator Tom Daschle (formerly on the board of another private equity outfit). If we follow the Charleston, South Carolina connection it leads to another Carlyle sub, Vought Aircraft Industries. But that's another story of government largesse lavished on "strategic businesses". Two Carlyle subs have gotten Airbus like support from the feds. With two tax cuts and the board level appointment of an ex-Bush insider, it appears The Carlyle Group may have earned their double after all. It's a shame the children must pay.

P.S. Unfortunately the GAO report didn't identify the 14 haulers of food aid who comprise over 80% of the shipments. But in conducting my research I did find out about much about Horizon Lines! Could somebody please flush the floater...

Carlyle Hires Its Own Brownie

President George Bush had Michael Brown, now The Carlyle Group's energy and power subsidiary, Riverstone Holdings has Lord John Browne, formerly of BP as their new Managing Director and Managing Partner for Europe. Michael Brown had Lake Pontchartrain while Lord Browne had Prudhoe Bay. Micheal Brown allowed hospital patients to simmer in a toxic stew for up to five days. Lord Browne oversaw a company that underspent on safety, with numerous fatal accidents at its Texas City refinery.

Guess who headed up the private investigation into the BP refinery accident? That would be James Baker, also of The Carlyle Group. Guess what Brownie said after Baker's report?

"BP gets it, and I get it too," chief executive John Browne said yesterday in a teleconference with reporters. "I recognize the need for improvement."

So what did Lord Browne do to improve? The same article said "He now plans to leave in July and join a private equity firm." Join he did! It appears the upper crust takes good care of its own as the Baker investigation failed to cite any executives as responsible for the accident.

Leaving their friends out of reports isn't new. President Bush's White House Lessons Learned report after Hurricane Katrina omits the hospital with the largest number of patient deaths. Guess who purchased the facility weeks before landfall? That would be The Carlyle Group. Something stinks and its not getting better with time...

We Have a Leadership Situation!

CNN's The Situation Room poses questions to their viewing audience through their crusty reporter, Jack Cafferty. Today's 7:00 pm question struck a nerve and of course, I had to respond.

Q: How do you know when you have a bad boss?

A: You have a bad boss when you feel like a caged rat, pushing a pellet bar for rewards. Your boss created the experiment, but won't tell you what's going on. And people wonder why the rat can't give good customer service or make a quality product?

A few other replies went through my mind:

A: When your boss is named George W. Bush
A: When your second in charge of the quality of Chinese exports
A: When you no longer have a job as the work you did was contracted to China
A: When you got no raise but your boss cheated by backdating his stock options, landing him record executive compensation
A: When the boss won't answer your question but substitutes the question they wished you'd asked, even using this language in their response.
A: When your boss says they will follow up, but don't. Recall the litany of investigations George Bush planned to do?
A: When your elected representatives claim you're their boss, but instead they suck up to the people who donated to their campaign. Does that make the voter a bad boss?

A: When you boss contracts out everything because he/she is incapable of being anything other than a general contractor.

China Drives in Fear to Reduce Product Quality

Chinese officials announced several strategies to address their quality problems including a "war on tainted products". That involves identifying the enemy and taking them out. Here's a better idea China, don't build tainted products to begin with!

In addition to the war, Chinese officials are "embracing time tested campaign tactics to clean up the country's battered image." It will focus on the problem product areas to date, toothpaste, pet food, tires, seafood, and children's toys. Walmart a huge American purchaser of Chinese products announced it would ask suppliers to resubmit testing documentation for the toys it sells. If the initial inspection was flawed, how will resubmission make a difference?

Do you recall the other act China took to address its quality problems? It executed a top government official responsible for their drug industry. The mix thus far includes war, execution, and local officials focused more on economic growth targets than quality.

Given Dr. Deming's teachings on quality, utilized in Japan for over a half century, the Chinese efforts will not address the problem. Missing, profound knowledge! Poor management theory and practices will not solve the major problems China faces. The economic Red Storm is increasing fear, a known barrier to producing quality products and services.

And heavens knows, "campaign tactics" are not the answer. The Chinese Vice Premier blamed lax inspection and enforcement and failure of officials in rival agencies to cooperate. She vowed to whip them into line with a list of eight tasks and 20 specific goals. Cranking up inspection may catch more of the bad products heading out the door, but leaders need methods and resources to help their employees make good products. Cease dependence on inspection.

Executions, whippings? I guarantee the Vice Premier will get President Bush like treatment. No information contrary to her goals will make it to her desk. That doesn't mean the information is accurate. People know to deliver to the boss what they want in order to save their hides, literally. Drive out fear!

The U.S. government and China share a fatally flawed management style, top down, heavy handed, outcome obsessed, fear spreading and distorted by financial bribing or corruption. Neither will get better until their underlying management theory changes. There's hope, but it requires an openness to learning apparently missing at the top levels of government in both countries.

Who's the Big Money Behind Allawi?

While the setup for political change at the top in Iraq unfolds, the competition for those who want the Prime Minister position begins. Previous P.M. Ayad Allawi hired a high dollar, highly influential Republican lobbying firm to promote his occupying the top slot. President Bush supports current P.M. Nouri al Malaki in much the same soft shoe manner as he did with Defense Secretary Donald Rumsfeld. While George danced in different directions, the White House did comment on the matter. CNN reported:

Pressed on why allies of the White House would be contradicting the president publicly (by lashing out at al-Maliki), the senior administration official said of the lobbyists, "They're making a lot of money."

And National Security Council spokesman Gordon Johndroe told CNN the Bush administration continues to support al-Maliki and the Iraqi Presidency Council, "and we'll continue to work with them on the best way forward in Iraq." "I don't think they asked the White House before they signed their contract with Mr. Allawi," he said.

Asked earlier why Republican lobbyists would want to undercut the administration's public statements, Johndroe said, "Maybe it's a really good contract."

The lobbying firm boasts the services of two onetime foreign policy hands of President Bush: Ambassador Robert Blackwill, the former deputy national security adviser who was Bush's envoy to Iraq and helped form Allawi's interim government in 2004, and Philip Zelikow, former counselor to Secretary of State Condoleezza Rice.

People like this charge huge fees in America's influence peddling democracy. Assuming the White House is telling the truth, who is the big money behind Ayad Allawi? Does Mr. Allawi have some of the billions in cash CPA chief Paul Bremer used to stimulate the Iraqi economy? Is big oil supporting regime change to get the oil law (they wrote) passed by dictatorial edict? Have Republicans given up on spreading freedom and democracy and want to install a strongarm dictator to stabilize the country? I would ask the White House but they have a poor track record of answering my questions...

Future of Healthcare: Deal Making Millionaires & Hospital Closures

Distinguished speaker Denny Shelton will deliver the Community Lectureship in the Humanities at ASU on September 6th. The past CEO of Triad Hospitals will talk on "The Future of Healthcare". If he's the example, the future involves investment deals making millionaires out of insiders.

Triad sold out to Community Health Systems for $54 per share. Between his stock holdings and stock option rights Denny pocketed the big money. According to SEC filings, Mr. Shelton owned over 416,000 shares of Triad. This converts to over $22.5 million. He had the right to purchase another 877,000 shares via option grants. His net from exercising those amounted to another $20 million.

Denny's gain on the sale of his company amounted to over $42 million. How much did the Bush capital gains tax cut save him? From his stock options alone, Mr. Shelton pocketed an extra $1,000,000. Depending on the cost basis of his owned shares, Denny likely save another $500,000 to $750,000. I wonder if any of the 200,000 kids thrown off Texas Children's Health Insurance the last few years could have used that $1.5 to $1.75 million to pay their health care bills? Denny will have time to ponder the question in his retirement, funded by the company at $7.6 million. (Between May 8th and May 29th, Denny got an additional $3 million worth of stock and $500,000 added to his retirement. Not bad for less than a month's work.)

Fellow board member and health economist, Dr. Uwe Reinhardt also made millions off the Triad sale to Community Health Systems. The policy advisor to state and federal governments put himself in a sweet spot to benefit financially. But don't worry, Uwe has two more health care board positions to milk.

As for Community Health Systems, they see a different future than Denny. The company is dismantling Triad's for-profit joint ventures with nonprofit community hospitals. Leaving hospitals to struggle isn't new for either company. In 2004 Triad backed out of their hospital in Terrell, Texas under Denny's command. Earlier this year closure loomed for that ex-Triad facility. In yet another deal, the facility became Renaissance Hospital-Terrell.

It seems there are numerous crystal balls around. The common ground is making and breaking deals. Consider where many of the top 100 health care leaders in 2003 are today? Numbers 10 and 68 (mentioned above) are like many of their counterparts, swimming in ka-ching. So where are clinicians and patients in all this? Nowhere to be seen...

Update 8-16-19:  After making millions from America's high administrative overhead healthcare system Reinhardt cited such costs as problematic in his final book.  Reinhardt died in November 2017.  Philadelphia recently experienced deal making millionaires and the closure of safety net Hahnemann University Hospital.

Bush's Bureaucratic Weapon: Regulations

With the swipe of a regulatory pen, President Bush effectively blocked a number of states trying to cover more children under the Children's Health Insurance Program. This is not the first time President Bush used his executive regulatory power to implement policies Congress won't pass. George Bush manipulates the same federal bureaucracy he frequently lambastes to impose his will (or Karl's). Promulgating regulations is also a very effective tool and the latest example involves covering more people with health insurance in America.

While he did nothing to stop some 6 million people from becoming uninsured during his term as President, he will block state efforts to cover more children. Bush doesn't see it as a wise use of federal money. However, the President did unleash his regulators to help stop product liability lawsuits against drug manufacturers? Kids- no health insurance. Supremely profitable drug companies-insulation from harm their products cause patients. Total those and now, who's the Simon Legree? (The NYT ran a piece on another Bush regulatory move, freeing up coal companies to effectively strip mine)

MC Rove Rants and Raves

The man behind the curtain, Master Rapper Karl Rove ended his long term public silence by going on three Sunday morning political talk shows, just days after announcing his retirement. The political operative, normally seen only at Republican strategy sessions and high dollar donor barbecues, showed up on the TV screen. Does anyone find it odd that the man who won't speak to Congressional committees charged with oversight about his role in government operations, jumped in front of the camera three times yesterday morning? Why go on Fox, NBC and CBS?

It appears the Republican big business fundraising franchise is in jeopardy. The recipient of Rove's ravings was Hillary Clinton, who happens to be raking in the corporate ka-ching to date. He noted her high negativity rating, eclipsed handily by his current boss, George W. Bush. I found his comments on this topic interesting:

It's hard to change opinions once you've been a high-profile person in the public eye

So why does this apply to Democrats and not Republicans. Publicly shunned President Bush is a "great President" according to Rove. Why is the public right and unchangeable regarding Hillary but wrong and malleable about the man who consistently underperformed?

What's more interesting is Rove passed on the chance to comment on Barack Obama, the candidate running on much the same theme as Bush did in 2000, a different kind of leader that can bring people together. Bush shed his "Uniter, not a Divider" persona faster than a used condom once sworn into office.

Karl joined his boss in ignoring basic manners. Rude boy George refused to meet with a grieving mother spending the night in ditches in Crawford. Mannerless Karl saw no reason to apologize to the CIA agent he helped to "out" in a game of political payback.

However, the howler was Karl's blaming obstructionist Democrats for the failure to reform Social Security and pass Comprehensive Immigration Reform. Karl missed my Republican Congressman's Open House where he called a comprehensive bill "bad legislation". I believe Congressional leaders from both parties were overwhelmed by public feedback opposing both measures. So those of you who contacted your elected leader on these issues are at fault. Karl hates representative democracy! But then again, we already knew that.

I want to know why the man who won't speak about his public service work, a man who avoided the media for years at a time while crafting Machiavellian machinations behind the scenes, deserves any time on the airwaves? Does anyone else have such a concern about Karl's sudden desire to protect the Republican brand? A quick look at Hillary's vs. Mitt's top contributers shows why Karl is worried. There are only two parties and Rove wants his to have it all. "Show me the money!"

Congressman Mike Says You're Responsible for His Acts

West Texas Congressman Mike Conaway said during his recent open house he's frequently asked "what can the government do about people having to choose between their medicines and electicity bill?" The great deflector replied back to his constituent "What are you going to do about it? You're the one who knows who's in need. Local people know best who to help." One question is do they know how to do so? Are they willing to devote their time to such a cause?

What Mike didn't say is he put some 6,000,000 in this position with his vote for Medicare Part D, the prescription drug benefit. Conaway's Republican friends designed a bill that increased out of pocket costs for dual eligibles, the low income elderly and disabled. He even had a report available to him on the negative impact on the group as they shifted from no deductible, no co-pay meds provided under state Medicaid programs.

What do you think Mike Conaway did in preparing for his vote for higher out of pocket prescription costs for low income elderly and the disabled? Do you think he didn't read the analysis? Did he read it and not care? Or did he get joy in knowing that almost two years after starting Medicare Part D, he'd get a shot at transferring that responsibility to citizens with the wave of his hand during a public meeting in San Angelo? I report, you decide.

Bush's High Standards Lowered Yet Again

President Bush claims to expect much but continues to backslide on delivery. The latest example is the State Department's rule change relaxing delivery time on expedited passports from one to three weeks. Oh, the price for "fast tracking" remains the same, $60. Did they change the name to "two times slower than previous fast tracking"? Of course not. This is the same administration that dropped key measures of public service for the citizens of Baghdad. When you can't look good, lower the bar or drop the statistic all together.

The problem is management and system capability. If the current process is incapable of meeting stated promises, then change it. Didn't the old passport system deliver within 3-4 weeks? This looks more like a price increase of $60 for the same old service. Some might call that a new tax, but the Bushies hate the word, preferring service fee instead. What did the State Department say about the change?

Spokesman Sean McCormack said the agency changed its rules "to ensure that the department can continue to offer this expedited service consistent with its regulations despite increases in demand for expedited passport processing."

So they lowered the bar to be right. The State Department only has to deliver the service they promise. Who cares about the people needing passports? Welcome to customer service in America today. The current administration derides process, believing that barking orders or bribing people via incentives is sufficient for major and lasting change. Both strategies further distort the system that already needs work. As a result, many people lie or fudge to avoid the heavy hand of punishment or to garner the transitory sweet nectar of rewards.

Without knowledgeable leadership or the tools to change the system, cheating is a predictable response. Yet, leaders act surprised every time. Some thirty percent of publicly traded companies manipulated stock options to maximize their executive incentive compensation. Dell Computer is restating earnings over four years because people lied to achieve their performance targets.

Schools remain under suspicion for cheating on their No Child Left Behind tests. Teachers surely are as smart as American corporate CEO's. Yet the teachers union agreed to help spread the poison.

While the words "merit pay" drew hisses and boos at a recent teachers' union convention, educators are endorsing contracts that pay bonuses for boosting students' test scores.

How soon will it be before they lower the performance bar like Sean McCormack? Oh, and Medicare/Medicaid will soon pay doctors more based on certain measures and patient outcomes. With doctors in short supply, you better hope your condition is a gravy one and not a practice albatross. More distortions are coming courtesy of the Bush administration. Between education and health care they should impact just about everyone in some manner.

Scarecrow Returns to Oz as Dark Storm Clouds Approach from East

The man in search of a brain returned to Oz (otherwise known as Crawford) on Air Force One with Dorothy and Toto in tow. He plans to meet with the Wizard, the man behind the curtain who just announced his retirement as the Scarecrow's Senior White House advisor.

Why does this U.S. leader need a brain? A quick review of his Saturday morning radio address reveals some answers. He said:

"As reconciliation occurs in local communities across Iraq," he said, "it will help create the conditions for reconciliation in Baghdad as well." Bush cited Anbar province, where local sheiks joined U.S. forces in driving out terrorists. Bush said that today, the provincial council in Ramadi is back, and that last month, provincial officials reopened parts of the war-damaged government center with the help of a provincial reconstruction team. "Similar scenes are taking place in other parts of Anbar," the president said. "Virtually every city and town in the province now has a mayor and a functioning municipal council."

What Bush calls reconciliation in Anbar province is but Sunni's driving out domestic al Qaeda types, not reconciliation between Sunni. Shia and Kurds. And why did the local sheiks cut a deal with U.S. forces to use their militias to secure their towns? They want American troops to leave their country, plain and simple.

The President mentioned another Shia town council that pulled together to decide how to spend rebuilding money. In no case did he cite where Sunni and Shia have dropped their 4 year animosity to work on behalf of the greater good.

I found it interesting the President mentioned provincial reconstruction teams. Congressman Mike Conaway said these were only half staffed in his recent open house in San Angelo. And that leads me back to another half assed effort, Bush's albatross, Hurricane Katrina. As her 2007 counterpart Hurricane Dean roars across the Carribean, the Scarecrow might find himself flying back to Washington, D.C. to manage another disaster response. The last one was compounded by his disastrous investigation into his administration's performance. If one can't conduct a competent analysis/investigation, how can they do better next time? Time will tell. I wonder if the Scarecrow packed his guitar? Will he strum again as another city with huge medical complexes floods? Will he serenade stranded patients lucky enough to be alive? Stay tuned!

Yet Another Wall Street Bailout While Main Street Suffers

The pot of millionaires running for President divides themselves into those who care about the average American and those who don't, those who swim in the dirty water of campaign cash and those who pinch their nose allowing only the occasional turd of special interest money to brush up against them. If the public finds out the feces "accidentally stuck", they loudly return it. Meanwhile, the government these people lead pursues a different form of welfare in that same polluted mess. It's stench is just as bad, so hold your nose!

Big Wall Street firms are being bailed out by the Federal Reserve Bank and other government central banks. Recall those record investment house profits the last few years? It turns out they've been fueled in part by packaging and selling high risk mortgages into low risk securities. What happened in the process that turned them from high to low risk? Nothing changed. The Wall Street firms essentially lied to their investors.

Lying in big business is not new. Dell Computer just announced it would restate earnings for the last 4 years due to management misrepresentation, otherwise known as cooking the books or fraud. Why? The executives wanted to "achieve" their performance targets and get their rightfully earned incentive compensation. One foreign deal was totally falsified which brings to mind Enron's fake floating power plants.

Of course, Dell leaders blamed lower level people and a few bad apple senior executives. They've "fixed" the problem with "firings" when the cause, an extrinsic motivation system, remains in place. Over 2,000 publicly traded companies cheated on the most pure motivation system, stock option grants. When nearly one third of smart, intelligent business leaders fudge the option date to maximize their pay, something is fundamentally wrong.

The distortions of incentive or bonus pay are spreading through our federal government from the VA system to public education. Documented distortions include Veterans Administration senior executives serving on their own bonus panels, getting bonuses while the backlogs of veterans in need of service ballooned, and over 700 Texas public schools on a suspicion list for cheating to meet their No Child Left Behind targets. The state spends $500 million to analyze data to identify unusual performance changes. With no incentive system, there is no need to spend that half a billion dollars.

Money distorts and big money causes ripples in The Democratixx that only the central bank can fix. Meanwhile, the little guy or gal is needed only to pull a lever every two years. If you've taken out a bad loan and face foreclosure, tough luck! But if a big money investment house securitized your loan, well gosh darn it, they need help. But be sure to vote! Now which millionaire will you pick?

Congressman Conaway's "Open" House

U.S. Congressman Mike Conaway-R, TX hosted an open house last night in San Angelo. In his opening remarks he stressed a few things that shouldn't have surprised me, but did.

1. He put Osama Bin Laden, Ayman al-Zawahiri and Mahmoud Ahmadinejad in the same boat as planning harm to the U.S. and its citizens. Of course he mentioned the questionable translation of the Iranian leader's comments on Israel and stated the explosive devices coming from Iran are "a clear act of war". (He failed to mention armor piercing weapons going from the U.S. into Mexico and their deleterious impact on security.)

2. That we can't afford the promises we've already made and he wants to cut taxes. Huh? Isn't that illogical, unless he wants to make far fewer promises?
3. Mike cited all the bad things in Iraq that could happen if we left, (as if they aren't happening today). He seemed ready to jettison al Maliki or at least acknowledged he was on a thin rope. He talked about David Petraeus as the new savior, but skated when challenged about the White House writing the report, not the brilliant Petraeus.

4. He sounded rather pitiful in talking about all the difficulties of serving in Congress as a member of the minority party. In other words, he wants a Republican majority to do "the people's work". What happens when the people choose Democrats or Independents to do their work? He did speak honestly to Republican mistakes, about not managing the store during their twelve year run.

5. He spoke to a number of head fakes used by Congress. One, they sometimes posture to get other country's attention, ex. China, regarding their economic policies. And two, they pander to special interest groups at home with the intention of not doing anything. How does a constituent know when they're being treated seriously or being pandered to?
As for the Q & A portion of the event, I was surprised by the deep concerns people shared. It was no preselected Republican fest like President Bush engineers. Even a few long time Republicans shared their disappointment in the direction of their party. Conaway got hammered for veteran's care, struggles of low income retirees, earmarks, immigration, the SPP/American Union (US/Canada/Mexico), health care and China.

One gentleman pleaded the cause of independent pharmacists and durable medical equipment sellers. He shared how patients would get worse service, causing their health care problems to grow, thus adding more costs to the system. At the end someone asked about lowering business taxes and the agriculture bill. I asked a question about the impact of private equity buyouts and future lower tax receipts in the Treasury:

As an accountant you are aware of the need to balance revenues with expenses. What is the impact of the recent flurry of private equity deals on expected Treasury receipts in 2008 and beyond? In the case of recently bought out HCA and Triad Hospitals, the additional interest for their new owners is a combined $2 billion. As private sector companies have to balance the revenue expense equation, this means more health care price increases or significant hospital expense cuts. Spreading the new Community Health Systems debt over their facilities amounts to $2 million per hospital. The new debt taken on by SACMC’s corporate parent is enough to wipe out their merged company’s bottom line for all of last year. This would be a $200 million hit to the Treasury. HCA just announced their profits are down 50%, mainly due to increased interest costs. What are you as an accountant doing to monitor and address this, and specifically the revenue side of the federal government?

Conaway used it as a softball. "He trusts the capital gains from those sales make up for any decreased business income taxes." After a five minute answer, the end result is the federal government does not monitor major shifts like buyouts and their subsequent impact on tax receipts. There is nothing concerning about private equity firms in his mind. (Note: he does receive donations from PAC's of firms owned by major PEU's. Carlyle's Vought Aircraft Industries, WCAS's U.S. Oncology, and soon to be KKR's TXU. Vought benefited from the largest earmark to date, $2.4 billion to buy new military planes)
The Congressman was slicker than goose poop, frequently bear hugging the upset questioner with "that would be offensive to all of us". Despite all the deep concerns people shared, I believe he only asked two or three people to connect with one of his 5-6 staffers in the back. My friend who scored a big hit with an earmark question said afterwards. "He's good. I don't think he answered one question." Mike said his earmarks are available, he just didn't say where. I searched the web and found two, $5 million for brush eradication along the Rio Grand and $600,000 for an addition to the fitness center at Goodfellow Air Force Base. One might expect a Congressman who vilified the opposition on lack of openness and transparency to post them on his website.

After I left, I wondered if we'd been an exclusive Republican group what we might have heard. My guess is there would have been much less conciliation and a clearer delineation of the Republican stance. Would the crowd understand its underlying philosophy, "might makes right", "he who dies with the most toys, wins" and "you're on your own"? It doesn't resonate with this Independent voter...

Update 9-30-15:  Years of tax optimization shows how the PEU set lightened their tax load.  Still no word from CPA Congressman Mike Conaway on how the government tracks or forecasts

Which Border is Which?

Weapons and arms are smuggled across a long, difficult to control border into a country with no history of use. In the hands of bad guys, the deadly devices are used to kill officers and soldiers charged with keeping the law and securing the country. Is it:

a. The Iran/Iraq border
b. The Mexico/U.S. border
c. Both
d. None of the above

The correct answer is c. While the U.S. plans to declare all or portions of the Iranian military a terrorist group, we ignore the role American weapons play in destabilizing Mexico. Of course the world is still waiting on the proof that the Iranian Revolutionary Guard is behind the weapons smuggling. As for Mexico, an AP article had this to say:

Particularly worrisome are U.S. sales of Belgian-made FN-57 pistols. These fire bullets that "will defeat most body armor in military service around the world today," according to the Remtek weapons site on the Internet. They sell for $800-$1,000 each at dozens of gun stores within a day's drive of the border. The weapons were unheard of in Mexico until they were used to kill at least a half dozen police officers this year. Among them were Mexico City policemen Felix Perez and Jose Rodriguez, slain in May when a car full of suspected mobsters fired FN-57s whose bullets sliced right through the officers' body armor. In all, about 100 Mexican officers have been slain since President Felipe Calderon launched an ambitious nationwide crackdown on the drug trade this year.

"U.S. laws allow citizens to have guns that are authentically warlike," Attorney General Eduardo Medina Mora complained at a recent news conference. "We have to find a more effective way of stopping these arms from flowing into the country and giving these gangs such significant firepower."

What's been the American Congress' response? While the Legislature passed four measures on Iran, our elected leaders have played hot potato with our own role in cross border weapons prolifereation. The article said:

It's particularly easy to buy weapons at the thousands of U.S. gun shows held each year, where the Bureau of Alcohol, Tobacco, Firearms and Explosives stopped checking addresses of gun buyers after the National Rifle Association complained that sales plummeted. Mexico also wants lawmakers in Washington to loosen restrictions on who can see gun-purchasing data, but that's unlikely given the strong opposition from the NRA. The U.S. government is now restricted in many cases from sharing such information with local police departments, let alone the Mexican government, making it difficult to trace illegal guns or arrest weapons traffickers.

Is anyone else concerned about our ability to enter outrage over other's offenses whilst ignoring our own? Over time, this eats away at our country's credibility...