Chris Tomaras / Straight Talk / February 21, 2009

Have you ever heard the phrase “scared money never wins.” I remember as a young Wall Street hot shot in my twenties, taking a trip to Las Vegas with my buddies and gambling away more than I could afford to lose, so I then borrowed money trying to quickly win back my losses. Well I probably don’t need to tell you how that turned out. There was a lot of pain to be had following my youthful indiscretion.

How on earth can our government gamble and spend away our country by implementing a program which rewards bad behavior and sets the worst example for our young people that I have ever seen? When people in private life do the things that our government is doing, they put them into alcohol, drug and gambling rehabs or commit them to asylums.

We are attempting to put an unhealthy economy back together by doubling down hoping to get lucky. Why don’t we just go to Las Vegas and put 3 trillion dollars on red and spin the wheel.

On Nov 15th of last year I made the following remarks:

I said I felt that 3 critical mistakes were made by our past administration which are as follows:
1) As soon as the government said it was going to bailout homeowners and financial institutions it opened the flood gates. Everyone lined up with their hands out and ….. homeowners upside down on their mortgages no longer had an incentive to make their mortgage payments.
2) Purchasing stock in the banks to stimulate the economy without specific requirements in place saying they must use the money to make loans was dumb.
3) The automakers while employing millions of people created an entitlement system dictated by the unions. They’ve made a lot of mistakes having nothing to do with the economic crisis. They need to clean house and start over. Giving the auto industry 17B was throwing good money after bad and I promise you that’s just the beginning.

This brings us to where we are today…. 3 months later.
 
Now President Obama and his Congressional cronies are going to take this enormous risk, while quietly slipping money into their personal agendas and pet projects and if the stimulus package doesn’t work, telling everyone that they inherited the problem and then blame it on George Bush. Don’t even begin to think about transparency – remember the campaign promise – it’s not going to happen at least not on a timely basis. What good is transparency after a new bill has been passed and enacted?

What we’re going through is a slow and arduous dismantling of our financial system with the largest tax and spend package in our history. We are told that a large part of the stimulus package is made up of tax cuts. That is such a bunch of poppycock. They have created tax incentives based on performance not tax cuts as much as they want us to think they are tax cuts. If businesses are not making money what good are tax incentives. These guys are magicians when it comes to the slight of hand. Now you see it, now you don’t. The tax incentives will have no impact on the economy until if and when the economy turns around and at that point we won’t need them.

• Please listen carefully to what I am telling you. We have just been saddled with the largest tax increase in our history disguised as stimulus and we will be paying off this ludicrous multi trillion dollar debt for decades. Since they can’t get consumers to go out and spend, they are going to spend for us – let me repeat that – since they can’t get us, the consumers to spend, they are going to spend for us and then send us the bill after the fact.

At the same time we are seeing a major shift of social welfare to millions of lazy and irresponsible Americans and illegal aliens who have a sense of entitlement by which they feel society owes them a living. We’ve worked very hard in the past to rid the country of the wasteful spending on welfare programs and in just a few weeks our newly elected President and Speaker Pelosi have thrown us back into the dark ages.

This stimulus package is nothing but a well hidden spend and tax boondoggle turning the country into a social welfare state. Get used to it. It makes me absolutely sick to my stomach.

I received a list this week of some very alarming statistics from a recent article in the LA Times which said that
1. 40% of all workers in L. A. County (L. A. County has 10.2 million people)are working for cash and aren't paying taxes. This is because they are predominantly illegal immigrants working without a green card. 
2. 95% of warrants for murder in Los Angeles are for illegal aliens. 
3. 75% of people on the most wanted list in Los Angeles are illegal aliens. 
4. Over 2/3 of all births in Los Angeles County are to illegal alien Mexicans on Medi-Cal, whose births were paid for by taxpayers. 
5. Nearly 35% of all inmates in California detention centers are Mexican nationals here illegally 
6. Over 300,000 illegal aliens in Los Angeles County are living in garages. 
7. The FBI reports half of all gang members in Los Angeles are most likely illegal aliens from south of the border. 
8. Nearly 60% of all occupants of HUD properties are illegal. 

Less than 2% of illegal aliens are picking our crops, but 29% are on welfare. Over 70% of the United States annual population growth (and over 90% of California , Florida, and New York ) results from immigration.  29% of inmates in federal prisons are illegal aliens.  And then we wonder how CA has a 42B budget deficit.

This is not only a financial disaster of catastrophic proportion but at the same time we have totally lost sight of our sense of right and wrong.

What amazes me is that most sensible people realize that what is going on is nuts, yet we let it happen, the same way we let the housing bubble blow up in our face as we were mesmerized by all of the money that was being made.  We’re told that if we don’t like it, we can vote them out of office the next time around. In the meantime the checks have been written and cashed and the liberal press is continuing to try and turn Barack Obama into some sort of a rock star at our expense.

The one thing I can tell you for sure is that the original bailout of the automakers didn’t work and the original stimulus plan for the banks didn’t work. How many hundreds of billions did we spend? So I guess if at first you don’t succeed, try and try again or do we simply revert to the definition of insanity – doing the same thing over and over expecting a different result.

Did you ever think that maybe people don’t want to buy new cars and maybe people don’t want to buy new homes and maybe people would like to save money for a rainy day and not spend it on frivolous things  and maybe people see the dysfunction of the past and do not want to go back there.

The airline industry is a prime example of an industry that went through its share of bankruptcies and pain and were forced to consolidate and size down. The government didn’t bail them out.

The auto industry borrowed several billion dollars a few months back and now their back again whining and crying for more. The UAW is finally willing to renegotiate their contracts and agree to other concessions. I’m really shocked given that the industry is broke. They’re just trying to get what they can while the Whitehouse and Congress are willing to throw good money after bad. When an industry goes broke exactly what are their employees entitled to. They negotiated all sorts of fringe benefits through their unions and now they want us to pay for them seeing as how their pension funds are way underfunded.

General Motors Corp. said it needs as much as $16.6 billion in new U.S. loans, more than doubling the aid to date, and must get some of the cash next month to survive. When’s the last time you went to the bank telling the banker your broke and would like a loan?

Chrysler, propped up like GM with federal assistance, said it’s seeking $5 billion more from the government.
A request for more aid “was inevitable,” said Jim Hossack, an analyst at a consulting firm in Tustin, California. As he goes on to say that “It’s because sales in January were less than anyone expected.” Whoa – than anyone expected? If they check their notes I think they will see that most people expected the automakers to fail and that they would have to come back begging for additional funds.

The biggest U.S. automaker said it examined three bankruptcy scenarios, with price tags of as much as $100 billion, and that all were less-favorable options than a rescue. The problem I have with that is the automakers themselves did their own examination. That’s like Bernie Madoff auditing his own books.

At least $9.1 billion more in loans is needed to finish restructuring, according to GM and that sum could rise to $16.6 billion should the economy worsen. No likelihood of that, right?

Chrysler said it needs an additional $5 billion by March 31 after receiving an initial installment of $4 billion.
The worst U.S. auto market since the early 1980s helped drag GM and Chrysler to the brink of collapse and now is hampering their recovery, with domestic sales last month plunging 49 percent at GM and 55 percent at Chrysler. Should the loans be recalled, the money could be used to force the companies into restructuring in bankruptcy.
 “All research indicates bankruptcy would have a dramatic impact on GM sales and revenue,” DUH! GM said in its plan, citing a study that concluded 80 percent of consumers wouldn’t buy a car from a bankrupt company. “A restructuring process outside of bankruptcy is highly preferable,” GM’s report said.

Now unless I am mistaken, people are not buying GM cars before a bankruptcy. What does they’re report say about that? As I recall several airlines declared bankruptcy and people are still flying.

All of a sudden these auto companies are forced to sober up and come up with plans in order for the government to bail them out. What were they doing the last five years and why is that our problem?

GM’s pension plans were underfunded by $12 billion to $13 billion as of Dec. 31, according to the company’s report. Once again, I ask you why is that our problem?

The truth of the matter is this. The auto industry, right along with the housing industry over expanded and the music stopped. They are now out of money and stuck with a bunch of obsolete inventory that does nothing for car buyers who have just gotten over the shock of $4 per gallon gasoline. Yes, gas prices have fallen but isn’t it interesting that crude oil prices continue to decline while gas prices are on the rise? Another mysterious economic phenomena that instills confidence and trust in the American consumer.

I feel badly that autoworkers have lost jobs but you know what? Many other industries have lost jobs. They just weren’t as large and unionized. Have you ever questioned why politicians cater to the whims of large organizations like the labor unions. I’m sure it has nothing to do with campaign promises in exchange for their votes.
OK so here’s my bottom line when it comes to autos. We have a bunch of obsolete, energy inefficient, high maintenance  automobiles and trucks sitting in dealer lots. These are autos and trucks where the demand is minimal. At the same time we have a government and congress that are throwing billions of dollars at the auto industry to keep autoworkers employed, who make cars that people don’t want, but for the sake of their jobs government keep showing them the money. If that is not socialism at its best what is it?

The next time the auto CEOs go to Washington they might want to think about traveling by horse and buggy instead of on their fancy jets or in their hybrid cars.

So much for autos, now let’s talk about housing.

Pres Obama pledged up to $275 billion on Wednesday to help stem a wave of home foreclosures, part of a broad effort using massive sums of government money to lift the country out of recession.

Up to 9 million families would be given the chance to refinance their mortgages under the plan.
The stock market was certainly excited about the plan. The Dow rallied 3 points on the day of the announcement and has continued to crater every day since. What does that tell you about consumer confidence?

We gave $17.4B to the automakers, and again they’re  broke and they’re back for $21B more. We gave the banks huge amounts of money to help stimulate the economy and they hoarded it, and we don’t know which banks are solvent and which banks are not because they’ve not opened up their books but I can tell you that it won’t be long until more banks close their doors. Now we’re going to give them more money to continue to try and save the housing industry. Let’s take a closer look at what is happening. The problems are these.
You have homeowners who cannot afford to make their mortgage payments because of the structure of their mortgages.

You have homeowners who cannot afford to make their mortgage payments because they have lost their jobs.

You have homeowners who must sell their homes but they are facing unaffordable losses.

As a result, they are being forced into foreclosure and being evicted in record numbers.

So what is the government trying to do to resolve the housing problem? Until I heard the President’s housing stimulus plan and after listening to Treasury Secretary Geithner, I didn’t think they had a plan. Well I was  wrong. So let me help you understand what the government just did. They put a plan in place providing $275 billion in the form of a bailout. The result being that hundreds of billions if not trillions of dollars will have to be repaid by ourselves, our children, our grandchildren and our great grandchildren.  Not good.

Let’s look at a best case scenario. Utopia would be this. First, the government would have unlimited funds to spend the nation into prosperity. Second, they would use some of the funds to buy up all of the bad loans in the country from the banks. Third, they would make sure the banks are flush with cash to make loans to consumers at attractive rates. Fourth, they would restructure all of the loans so that homeowners could afford their payments and reduce the size of their mortgages. Fifth, they would pull homeowners out of foreclosure. Sixth, they would provide unemployment benefits for an extended period of time to all those who are out of jobs. Maybe they could throw in unemployment benefits for a few illegal aliens while they’re at it. No big deal.  And finally, after doing all of these things, the trillions of dollars of debt that they have incurred would amazingly disappear into thin air with taxpayers not owing a thing.  Just imagine that.

As I think about this however, there seems to be a minor fallacy hidden somewhere in this plan, but I will let you figure what that fallacy could possibly be.

And that’s this week’s Straight Talk.