Las Vegas Now Wants Taxpayer Subsidies!

Las Vegas Sands owner, Sheldon Adelson, is criticizing President Obama for railing on bankers for holding meeting in Las Vegas.  Adelson, who not too long ago was once one of the wealthiest Americans, at least while his Las Vegas Sands enterprise was enjoying a sky high ride on the stock market.  Adelson's fortune is tied to the Las Vegas roller coaster.  The company's stock sold at one point for about $140 per share.  Today it is going for about $2.30 per share.  

Las Vegas is one of the most popular destinations for conventions and meetings.  Adelson played no small part in transforming the town from a mob-run laundering operation into the premier destination for meetings and conferences.  In fact, in terms of meeting space, Vegas can't be topped.  Only Orlando gives it a run for the meeting money.   When the economy causes businesses to tighten their belts it is understandable why attendance at meetings, conferences and conventions are cut back.  Las Vegas, like Orlando, is suffering from the poor economy.

The real question is whether taxpayers should subsidize lavish meetings and conferences.  Obama, understandably, does not want bankers who receive taxpayer funds to pay for lavish conferences and meetings.  We expect government funded groups to behave responsibly.  Adelson needs to understand that the taxpayers can't subsidize Las Vegas.  On the other hand, the government should not be in the business of playing favorites and moving meetings from Las Vegas to Obama's hometown of Chicago for example.  

The bottom line is that bonuses and conventions are not the type of spending that taxpayer subsidies should be used for.  If these bankers can afford a conference or bonus, they shouldn't be receiving our money.

CPAC Drifting In Search of Message

What's wrong with the Republican Party?  The GOP conservative CPAC (Conservative Political Action Committee) has been trying to re-identify itself.  The question is whether the GOP has any continued relevance after the Bush legacy.  Tim Pawlenty, the Minnesota Governor, says it is time to get over Reagan according to a Bloomberg story.

The Republican Party needs to do a lot more than move beyond Regan.  True he was a great orator and could unite America with his words of comfort, but after starting a revolution and, eventually in the Clinton years gaining control of both houses of congress, the Republicans forgot their values.  They became tax and spend conservatives.  Frankly, if we are increasing the size of government, I would rather have a government that looks out for the welfare of its citizens than the conservative Republican social agenda.

The fact of the matter is that if the GOP is going to have any relevance, it must focus on fiscal restraint, limited government and federalism.  It needs to stay away from social issues, which have no place in politics (other than to unite people to convince them to give money to a candidate).  The Republican party squandered an opportunity to demonstrate what principled leadership can do, and instead increased the size of government and used it as a vehicle to instill cronyism and redistribute wealth to the wealthy.  It is hard to see how those values resonate with anyone these days.  

AUTOS CONTINUE TO RUST IN PORTS

US Automobile sales are expected to continue to decline about 42% from last year at this time, Reuters reports..  That is only 685,000 cars and light trucks were sold in February, although that number should be up slightly  from January sales.  Annually, that projects to 9.5 million cars and trucks - that is the same sales level as in 1982.  Yikes.  

The decline, however, should not have been unexpected from the auto industry.  Over the past five years, the industry ramped up production and sold cars on credit to borrowers with lower risk profiles than normal.  The availability of credit and low interest rates artificially accelerated demand by a couple years.  The decline in auto sales is heading towards the mean, although as can be expected, the sales decline will need to overshoot the mean before coming back.  

This is not the first time in history that we have experienced such a cycle in manufacturing and in the auto industry in particular.  Granted, this occurs at the same time a global financial crises occurs (due in part to the auto makers' foray into the credit industry), but it is hard to have any sympathy for an industry who's business practices caused sales demand to increase beyond what was sustainable.  Instead of taking the profits and putting them to use restructuring the company and preparing for the inevitable decline in demand, the auto makers squandered the resources and find themselves begging Washington for more bailouts.  

Bailouts are not the solution to poor business practices.  Forced restructuring is the solution.  Chop the companies up into bits and sell off the parts to the highest bidder.  The industry won't go away, and will be much stronger  as a result.  Manufacturing can be profitable, and America can sell price competitive products once the legacy systems burdening the industry are put to rest.  

AIG BLACK HOLE - US CONTINUES TO POUR MONEY INTO SAVING THE INSURER

AIG the insurance giant "partially" taken over by the US Government (under the Bush administration) is getting another $30 billion of your tax dollars.  The Federal Reserve announced this morning that the terms of the bailout have been adjusted.

The company continues to face significant challenges, driven by the rapid deterioration in certain financial markets in the last two months of the year and continued turbulence in the markets generally. The additional resources will help stabilize the company, and in doing so help to stabilize the financial system. 

The New York Times stated that AIG plans to announce a $62 Billion loss last quarter.  Continuing to use taxpayer dollars to bailout AIG is simply throwing good money after bad.  AIG got into this mess because of its unfunded credit default swaps backed by no reserves.  The unregulated CDS market was (and still is) nothing more than a casino style sports book where the events being bet upon were the health and stability of the banking world.  Casinos stay in business because they balance their books with offsetting bets and make money on the vig.  A well run CDS game should have been done the same way.  Unfortuantely, AIG did not have a balanced book, thus with every bank failure and with every corporate failure that it bet against, AIG will have to shell out more and more money to pay off its losing bets.  The notional value of AIG's book is $300 Billion.  The losses could actually be much higher.

Ultimately, AIG will fail - there is no way we can continue to sustain these losses on taxpayer dollars.  While the government is trying to buy time in the hopes that the economy will turn around in time to minimize AIG's losses, our taxpayer dollars are being used to payoff bets AIG made on the health of the financial system.  The wisdom of the continued bailout is being questioned.  Peter Morici told Reuters that "[t]here's no amount of money that you can give (AIG), there are $2 trillion in losses out there."  Karl Denninger, who recently won an award for truth in journalism, even questioned the lawfulness of the Fed's investment.  His analysis is on target.  The gist of the argument is that the Fed is not empowered to make investments, but only to lend money on the best collateral.  What the Fed did with AIG is make an investment first into preferred stock and then converted that into common stock with additional cash.  The Fed isn't making a loan at all, but is shelling out taxpayer money to support an institution that is bound to fail.

The Bush administration made the argument that a takeover of AIG was necessary to prevent a siezure in the insurance industry - so that businesses on Main Street could maintain insurance.  Of course, that was pure rubbish, as all traditional lines of insurance are regulated by the states and require reserves to fund probable liabilities.  The CDS market was not regulated, required no reserves, and is irrelevant to Main Street businesses.  It was a corporate bet that made money for AIG's executives for years, and it is now loosing money for the taxpayer.  This silliness needs to stop.  The only reason to take over AIG in the first place is to assist an orderly liquidation so as not to shock the market.  I accept that as a legitimate function of government.  

Using taxpayer funds to prop up institutions is not a legitimate function of government, and will lead to disasterous consequences down the road.   We rightfully expect our government to be fair and impartial in its dealings with its citizens (including corporate citizens), and we have a right to expect prudence with our money.  The governement cannot bail out all entities.  By picking and choosing which ones to save and which ones it should let perish, the administration is playing favorites.  Playing favorites undermines confidence in government.  Just as Bush and his cronies were roundly unpopular because they blatantly used government power to favor a few at the expense of others, President Obama is heading down that same path.  It makes no difference that the Democratic favorites are different than the Republican favorites.  It is still choosing winners and losers and it is not being neutral.  Faith in government will continue to erode until the nonsense stops.  AIG will fail eventually despite the governments best efforts.  The question is, will the United States go down with AIG?