AIG Executives

Remember those much maligned AIG executives who got the big bonuses that Congress wants to tax at 90%? Well, apparently at least some of them, like Jake DeSantis, had accepted a salary of $1 per year in exchange for a chance to earn those big bonuses. And their AIG divisions had nothing to do with “the credit default swap transactions that have hamstrung A.I.G.” They are totally innocent of wrongdoing. And they are leaving AIG. The best and the brightest at AIG are leaving. Congress is clearly pursuing a destructive policy of imposing a 90% tax on the most productive executives. This may sound outrageous to some, but for this economy to recover, we need the best and the brightest reaping huge rewards for their efforts.

Dow Jones

Wow, what a day on the stock markets. The Dow Jones Industrial Average hasn't been this high since, um, well, February 13, 2009.

Unpopular Opinion?

I'll bet I am out of step with most in this country, but I think that the idea of Congress crafting a bill to tax the AIG bonuses after the fact was just plain MEAN!

AIG approved the bonus program a long time ago, and the managers worked hard to earn those bonuses (not all AIG managers got them, only those who met their goals).

Thanks to Chris Dodd, Congress and the President approved the bonus program when they passed the $787 billion (pork-laden) bailout bill. Now, after they earned their bonuses, Congress wants to change the rules and tax those bonuses at a 90% rate? That is MEAN to use the power of Congress to attack a very small number of individuals. It is unconstitutional in my mind, and it might well be worthy of a court battle that goes to the Supreme Court.

About Social Security

It hit me today. Shazam! I know what the Democrats are going to do to solve the Social Security crisis. Bush tried to get privatization started, but the Democrat shut that down. And now no one is talking about it. The problem has not gone away, and I have been wondering if and when the Democrats were going to do something.

And today it hit me! Means testing! The same way we presently determine how much financial aid to give to college students. The same way we presently determine how much a person has to pay for living in a nursing home. The Democrats will simply require every person eligible for Social Security to file a report on their net worth. When the annual FICA tax revenues become lower than the annual financial obligation, they will simply select a net worth cut-off point, and if your net worth is above that cut-off point, you don't get any Social Security. It is the only way to help the truly needy with the limited FICA revenues. And it allows the Democrats to avoid making unpopular and difficult decisions today.

Way to go! Procrastinate until the problem is so huge that the only solution is to cut off payments to the wealthiest among us.

How Much is a Trillion Dollars?

There just over 100 million households in America.

A billion dollar government program costs about $10 per household.

A trillion dollar bailout package costs about $10,000 per household.

The nominal national debt, about $10 trillion and climbing fast, amounts to $100,000 per household.

So when a young person gets a college degree and gets a good job that pays an average income, they begin paying on this $100,000 loan through their taxes (on top of their college debt and their own retirement savings and social security). No wonder they have a hard time saving money for other things.

Igloo Building

I missed my annual igloo building trip this year. Here is a photo of an igloo we built last year.
That humble structure represents about 2 hours of hard work by two guys. It is big enough to sleep two adults and keep them "warm" (35 F) no matter how cold it is outside.

So this year, one of my star pupils (who has helped me build four igloos) built an igloo with a new fellow. They had some challenges, but they finished it, and the new fellow and his son slept in it. My pupil had a blast, and I was happy for him, and pleased that I had passed on my skill at building igloos.

Funny story. In the morning, a teenage boy who had slept in a tent nearby was given permission to knock down the igloo. After watching the precarious construction process the day before, he figured he could take a good run at it and throw his body onto it and knock it down. He tried it, crashed hard into the igloo, and bounced off. :)

He did not know that igloos freeze up solid over night. Soon they had three large kids standing on top of it, kicking holes in it to weaken the structure, before it finally collapsed.

Obama Mortgage Relief Plan

President Obama has announced a plan to keep 4 million homeowners from foreclosure on their homes for not making the payments. He has allocated $75 billion for this plan.

Let’s do the math. 4 million homes with an average mortgage of $200,000 is $800 billion. If the average interest rate is 7%, the total monthly payment on those 4 million homes is about $5 billion. If we ignore the cost to administer the program, the $75 billion might be used to cover their loan payments for about two years. Wouldn’t that be nice? But it would be a temporary stopgap.

However, another part of his plan is for each of them to go to court to get their loans revalued downward, meaning that the principal of their loans would be reduced. For round numbers, let’s assume that each judge reduce their principal by $100,000. But wait, 4 million home loans reduced by $100,000 each, adds up to $400 billion. What does it mean to have the principal of the loan reduced by a judge? When the loan was set up, the lending bank gave the loan amount to the previous owner. It is gone. When the judge says the principal is $100,000 less, the bank will be forced to write it off as a loss. The banking industry cannot afford to write off $400 billion in bad debt, not now. Therefore, Congress will have to bail out the banking industry again to the tune of $400 billion, as a result of Obama’s $75 billion relief plan.