Health Care Bill Will Kill Private Insurance Industry

There are people outside Congress who are actually reading 1000-plus pages of the draft health care bill titled "America's Affordable Health Choices Act of 2009" (H.R. 3200). What they are finding out is the exercise in Newspeak - "choice" means "no choice", "protection" means "deprivation".

This is probably one of so many others, and it was picked up by Investors Business Daily (7/15/09).

"Congress: It didn't take long to run into an "uh-oh" moment when reading the House's "health care for all Americans" bill. Right there on Page 16 is a provision making individual private medical insurance illegal.

"The provision would indeed outlaw individual private coverage. Under the Orwellian header of "Protecting The Choice To Keep Current Coverage," the "Limitation On New Enrollment" section of the bill clearly states:

"Except as provided in this paragraph, the individual health insurance issuer offering such coverage does not enroll any individual in such coverage if the first effective date of coverage is on or after the first day" of the year the legislation becomes law.

"So we can all keep our coverage, just as promised — with, of course, exceptions: Those who currently have private individual coverage won't be able to change it. Nor will those who leave a company to work for themselves be free to buy individual plans from private carriers."

The section in question is below. Read it for yourself.

TITLE I-- PROTECTIONS AND STANDARDS FOR QUALIFIED HEALTH BENEFITS PLANS
Subtitle A--General Standards
SEC. 102. PROTECTING THE CHOICE TO KEEP CURRENT COVERAGE.

(a) Grandfathered Health Insurance Coverage Defined- Subject to the succeeding provisions of this section, for purposes of establishing acceptable coverage under this division, the term `grandfathered health insurance coverage' means individual health insurance coverage that is offered and in force and effect before the first day of Y1 if the following conditions are met:

(a) (1) LIMITATION ON NEW ENROLLMENT-(A) IN GENERAL- Except as provided in this paragraph, the individual health insurance issuer offering such coverage does not enroll any individual in such coverage if the first effective date of coverage is on or after the first day of Y1.

(a) (2) LIMITATION ON CHANGES IN TERMS OR CONDITIONS- Subject to paragraph (3) and except as required by law, the issuer does not change any of its terms or conditions, including benefits and cost-sharing, from those in effect as of the day before the first day of Y1.

(c) Limitation on Individual Health Insurance Coverage-(1) IN GENERAL- Individual health insurance coverage that is not grandfathered health insurance coverage under subsection (a) may only be offered on or after the first day of Y1 as an Exchange-participating health benefits plan.

What the hell is "an Exchange-participating health benefits plan", you may ask? That's in
TITLE II--HEALTH INSURANCE EXCHANGE AND RELATED PROVISIONS
Subtitle A--Health Insurance Exchange
SEC. 201. ESTABLISHMENT OF HEALTH INSURANCE EXCHANGE; OUTLINE OF DUTIES; DEFINITIONS.

(a) Establishment- There is established within the Health Choices Administration and under the direction of the Commissioner a Health Insurance Exchange in order to facilitate access of individuals and employers, through a transparent process, to a variety of choices of affordable, quality health insurance coverage, including a public health insurance option.

So, if (or I'd better say when) this monstrocity becomes a law, everyone - individuals, employers, private insurance companies - will have to participate in this merry Health Insurance Exchange controlled by bureaucrats. And with the White House deciding on our Medicare benefit levels, we're all set. Nothing to worry about any more till we die.

Now I know how the administration propose to create jobs. It is by creating bureaucracy that is nightmarish for non-bureaucrats (i.e. private citizens and private businesses) but heavenly for bureaucrats themselves. Endless paper shuffling opportunities for so many people.

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Medicare Czar, Anyone? White House Wants More Power

The White House wants to set up yet another "independent advisory board" not accountable or answerable to anyone but to the President. If its recommendations are approved by the President, Congress can either approve them all or reject all. (Do you still think the United States is a democracy?)

White House wants more power to set Medicare rates
(7/17/09, AP via Breitbart.com)

"The White House is asking Congress to give the executive branch more power to limit Medicare's rising costs.

"A White House letter to top lawmakers on Friday said the move would be "a critical step forward" in controlling health care costs and providing better care.

"The proposal would allow an independent advisory board to recommend changes in Medicare reimbursement rates for doctors, hospitals and other providers. If the president approved the recommendations, Congress could still vote to reject them altogether. But Congress could not approve some recommendations and reject others.

"Currently, Medicare reimbursement rates vary from region to region. Key lawmakers often get involved in setting local rates, a practice the Obama administration plan would end. "

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House Committee Wants Auto Task Force Info

Maybe this is why Mr. Steve Rattner decided to quit the car czar post...

House committee wants GM, Chrysler documents
(7/17/09 AP via Yahoo Finance)

"A House committee asked the Obama administration Friday to release documents on the federal bailouts of General Motors Co. and Chrysler Group LLC, seeking more details on decisions that led to the auto industry bankruptcies.

""They negotiated, they reviewed and they approved every aspect of the Chrysler and General Motors reorganization," Rep. Spencer Bachus, R-Ala., said of the White House. "We don't know how the president's auto task force reached its conclusion."

"The resolution, proposed by House Republican Leader John Boehner, R-Ohio, underscored lingering resentment in Congress over the government's work to push GM and Chrysler into bankruptcy. The House approved legislation Thursday pressing GM and Chrysler to restore closed dealerships. Auto task force head Ron Bloom was scheduled to testify before a House panel next week as part of a two-day hearing.

"Committee chairman Barney Frank, D-Mass., said the resolution "does suffer from a certain selective memory approach," noting that the Bush administration provided the initial funding in late December to the companies. But he supported the request."

The House Committee the article mentions is the House Committee on Financial Services chaired by Barney Frank.

The lawmakers did nothing while Chrysler and GM were being dismantled and sold off, and now that's all done they want information. Better late than never, I suppose, although the resolution doesn't compel the White House to hand over the information. The White House could simply ignore, or tell the Congress it's none of their business just like the White House Press Secretary did a while ago:

"So, look, Congress certainly is involved in auto decisions obviously as it relates to setting fuel mileage standards that the President worked on last week, as well as proposals to create tax incentives to trade in older cars that aren’t doing as well on fuel mileage, to both increase auto sales and reduce our dependence on foreign oil. " (from the White House Press Briefings on 5/27/09)

So for the White House, the job for the Congress is to setting mileage standard that the President works over one weekend and approve cash for clunkers bill and climate bill. For more of Mr. Press Secretary's comment, see my post.

I'll keep an open mind to see if anything comes out of this, but I'm not holding my breath either.

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Patrick Buchanan on Obama Policy

Socialist America Sinking (7/16/09 World Net Daily)

"After half a century of fighting encroachments upon freedom in America, journalist Garet Garrett published "The People's Pottage." A year later, in 1954, he died. "The People's Pottage" opens thus:

"There are those who still think they are holding the pass against a revolution that may be coming up the road. But they are gazing in the wrong direction. The revolution is behind them. It went by in the Night of Depression, singing songs to freedom."

"Garrett wrote of a revolution within the form. While outwardly America appeared the same, a revolution within had taken place that was now irreversible. One need only glance at where we were before the New Deal, where we are and where we are headed to see how far we are off the course the Founding Fathers set for our republic."

With an opening like that, you could expect the rest of the piece to be basically a polemic, probably to go on attacking the policy of the current administration which seems to fashion itself after that of FDR's.

But then, Mr. Buchanan gives his argument in numbers [emphasis is mine]:

"... When "Silent Cal" Coolidge went home in 1929, the U.S. government was spending 3 percent of gross domestic product.

"And today? Obama's first budget will consume 28 percent of the entire GDP; state and local governments another 15 percent. While there is some overlap, in 2009, government will consume 40 percent of GDP, approaching the peak of World War II.

"The deficit for 2009 is $1.8 trillion, 13 percent of the whole economy..."

"Obama plans to repeal the Bush tax cuts and take the income tax rate to near 40 percent. Combined state and local income tax rates can run to 10 percent. For the self-employed, payroll taxes add up to 15.2 percent on the first $106,800 for all wages of all workers. Medicare takes 2.9 percent of all wages above that. Then there are the state sales taxes that can run to 8 percent, property taxes, gas taxes, excise taxes and "sin taxes" on booze, cigarettes and, soon, hot dogs and soft drinks.

"Comes now national health insurance from Nancy Pelosi's House. A surtax that runs to 5.4 percent of all earnings of the top 1 percent of Americans, who already pay 40 percent of all federal income taxes, has been sent to the Senate. Included also is an 8 percent tax on the entire payroll of small businesses that fail to provide health insurance for employees.

"Other ideas on the table include taxing the health benefits that businesses provide their employees.

"The D.C.-based Tax Foundation says New Yorkers could face a combined income tax rate of near 60 percent."

He goes on to mention the impact of legal and illegal immigration mostly from south of the border:

"... One million to 2 million immigrants, legal and illegal, arrive every year. They come with fewer skills and less education than Americans, and consume more tax dollars than they contribute by three to one. "

The second sentence would be hotly contested by the advocates, activists, and the governor of California, but a lot of people in California who pay tax would agree.

"Wise Latina women have more babies north of the border than they do in Mexico and twice as many here as American women."

That I see with my own eyes in my town. Twice would be undercounting. Triple or quadruple would be more like it.

"As almost all immigrants are now Third World people of color, they qualify for ethnic preferences in hiring and promotions and admissions to college over the children of Americans."

So what to do? Mr. Buchanan doesn't offer a solution.

Citizens of the Imperial Rome, suffering under the runaway inflation caused by endless wars, state intervention and misguided economic policies as the emperors kept debasing the currency to pay for those wars and misguided policies, were looking to the barbarians to come take down their empire (excellent article from Ludwig von Mises Institute, here). The barbarians eventually did.

Where are today's barbarians who could deliver us?

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TIC (Treasury International Capital) Data for May 09

The U.S. Treasury department released the TIC data for the month of May. It is now 2 consecutive months that saw the net decrease in purchase by foreign buyers.

Treasury International Capital (TIC) Data for May
(7/16/09, U.S. Treasury Department)

"Net foreign purchases of long-term securities were negative $19.8 billion.

"Net foreign purchases of long-term U.S. securities were $7.9 billion. Of this, net purchases by private foreign investors were $31.3 billion, and net purchases by foreign official institutions were negative $23.4 billion.

(Negative purchase means they sold it, in case you are confused.)

"Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $9.8 billion. Foreign holdings of Treasury bills increased $53.1 billion."

So foreigners are dumping the long-term securities and picking up short-term Treasury bills. That's not an ideal situation for the U.S., as it has to depend on short-term financing for its operation.

In conclusion:

"Monthly net TIC flows were negative $66.6 billion. Of this, net foreign private flows were negative $82.2 billion, and net foreign official flows were $15.6 billion."

Among top 10 foreign holders of U.S. Treasuries (data from Treasury Dept),

• Japan trimmed the holding by $8 billion;
• Caribbean Banking Centers trimmed by $10 billion;
• Russia trimmed by $13 billion; and
• Taiwan trimmed by $3 billion.

One glaring exception in the data is China. It INCREASED the Treasury holding by $38 billion.

Below is the monthly TIC flows since January 2009 (in billion dollars):

• January: -144
• February: -88.2
• March: 27.1
• April: -38.0
• May: -66.6

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Irreconcilable Differences Between Goldman Sachs and CIT

From Minyan Peter at Minyanville.com. He hits the nail right on the head.

Irreconcilable Differences Between Goldman Sachs and CIT
(7/14/09 Minyanville.com) [emphasis is mine]:

"As a teenager, I hated those conversations with my father that began with him saying, “So let me get this straight…” during which my adolescent logic would be picked apart, thought by thought, until even I saw how clearly stupid I'd been. Bread crumb, bread crumb, bread crumb -- bear trap.

"This morning as I saw Goldman Sachs' (GS) cup-runneth-over earnings and the headlines regarding CIT Group (CIT), I couldn’t help but hear my father’s voice once again. Only this time, he'd be saying:

“So let me get this straight. Last year, the government agrees to make Goldman Sachs a bank holding company. They move all of their counter-party derivatives business into a newly formed bank. They receive billions in TARP funds, and tens of billions in FDIC guarantees so they can issue debt.

"And now they report unbelievable earnings, but they don’t have an asset category called “loans” on their balance sheet? And as Todd noted this morning, Goldman executives sold $700,000,000 worth of stock during the period when they received $10 billion in TARP money?

"And then on the other side, you have CIT, whose balance sheet is almost all loans, whom the government won’t step up to support in a liquidity crisis -- even though the government allowed them to become a bank holding company and gave them TARP funds? And they're both 'banks’?”

"To which my only response is: “Yes.""

"... Goldman Sachs receives all of the benefits of being a bank without lending money, while CIT -- which has been a small and midsize company lender for more than 100 years -- can’t make the transition to “bank” fast enough and risks complete failure."

But Goldman Sachs is hardly alone.

"Now, in the interest of full disclosure, Goldman is hardly alone in its arbitrage of government-banking regulations: Look at the balance sheets of State Street (STT) and Bank of New York Mellon (BNY) and they don’t look much like banks either, yet they were quick to take full advantage of the government bank-bailout programs. "

A commercial bank accepts money from one party and lends it to another.

The government must be high on something (I don't know what) and is playing God. They refused assistance to Bear Stearns, Washington Mutual, Lehman Brothers but bend over backward to help AIG, Citigroup, Goldman Sachs and Morgan Stanley (whose applications to become a commercial bank were approved over one weekend - a lightening speed), Bank of America (although you could feel BofA is sort of treated as an "outsider", not a true-blue Wall Street bank which BofA isn't).

And according to CNBC, the government, after denying any federal help to CIT, may be trying to block the private sector help to CIT [emphasis is mine]:

"CIT, the finance company struggling to avoid a Chapter 11 filing as soon as tomorrow, is seeking to line up between $2 to $3 billion in secured financing from private investors over the next day, according to people close to the situation.

"A number of private equity firms and fixed incomve investors have expressed interest in talking to CIT about providing financing that would be secured by some of the company's currently encumbered assets, such as airlines and rail cars.

"If it materializes, that financing would be incumbent on CIT gaining approval from regulators to move assets from the finance company to its bank.

"These approvals are all CIT is currently asking of regulators, who have thus far indicated they would provide no addtional support for the company.

"And so CIT finds itself in the postion of needing the approvals in order to have a chance to secure private capital and having regulators who appear unwilling to ofer those so called "non-objections." "

Goldman Sachs had no problem transferring assets to its so-called bank. But the regulators are unwilling to allow CIT to do the same.

I can understand the logic, however arbitrarily it is applied, that the taxpayers shouldn't foot the bill any more. But why block the transactions between the two willing, private parties? CIT needs money, and private investors may be willing to provide that money and willing to take the risk. What business does the government have?

Irreconsilable differences between Goldman and CIT? The former is favored by the government, the latter isn't. Why? Is it maybe because CIT actually lends to businesses and that is too much risk for the government?. It makes you wonder whether the government really wants to see the economy out of recession (it says so). It probably does (if only for the sake of higher tax revenue), but it wants to see it happen under the government's direction and strong guidance. Good luck with that.

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The Imperial Court: Perspective on Sonia Sotomayor

From Lew Rockwell, from the LRC Blog:

The Imperial Court

"The rise of redistributionist Sonia Sotomayor is just another cost of war and imperialism. If the US had not attacked the declining Spanish empire to conquer and colonize Puerto Rico, the Philippines, Cuba, Guam, etc., she might be a judge in Madrid. On the other hand, maybe she is payback for US oppression of Puerto Rico."

The Spanish-American War was fought between April and August 1898 over the issues of the liberation of Cuba (now that's ironic, isn't it?).

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No Bailout For CIT

Just as I thought, only 2 days ago on Monday.

CIT talks fall apart, bankruptcy may loom
(7/15/09 Reuters via Yahoo Finance)

"WASHINGTON/NEW YORK (Reuters) - CIT Group Inc (NYSE:CIT - News), a major lender to small- and mid-sized U.S. businesses, said on Wednesday that talks with the government to bail out the company had ended, a development that could make bankruptcy likely.

""Discussions with government agencies have ceased," the New York-based company said in a statement. "There is no appreciable likelihood of additional government support being provided over the near term."

"The announcement came after last-ditch talks in which Treasury Department had been concerned about a worsening liquidity crunch at CIT over the last few days, and that government aid would not put the lender on a path to recovery.

"CIT said its management, directors and advisers were evaluating alternatives. It did not elaborate.

"A bankruptcy filing would mark one of the largest for a U.S. company since the global credit crisis accelerated last September."

CIT had received $2.3 billion of TARP money. No more, says the Treasury. I suspect CIT lacked a strong connection to the present administration.

I also find FDIC's attitude very amusing:

"The FDIC has been reluctant to do so [granting CIT access to its government debt guarantee program], however, because the program is designed for healthy institutions, and it believes CIT's participation involves too much risk."

FDIC has granted access to numerous institutions that are not the best examples of health (Citigroup and Bank of America come to mind). FDIC itself is no such example either, with reserve ratio of paltry 0.27% as of March 2009. It would need a massive bailout from the taxpayers more than any private sector financial institution.

But no matter. The government has decided who will be the winner and who will be the loser. CIT is the latter, but won't be the last loser as the government continues to extend its grabby hand into every aspect of our lives.

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How Much Dollar Is Worth If Backed 100% By Gold

You can laugh it off, you can scoff at it, or you can take a mental note of it.

"A Tremendous Secret" (John Rubino, 7/15/09 Goldseek.com)

The article talks about that rumor about bank holidays in fall in which all the major currencies in the world "reset" (get devalued) against either gold or basket of currencies or IMF's SDR.

So, I decided to do some simple calculations to figure out the magnitude of devaluation if it were to occur vis a vis gold, and if the new devalued currency was to be backed 100% by gold.

Step 1. Gold reserve of the United States

I assume that the gold vault at Fort Knox contains what the government says it contains. According to Gold Council, the U.S. has 8,133.5 metric tonnes of gold as of March 2009 (from Wikipedia.org).

• 8,133.5 tonnes = 286.9 million ounces

Physical gold is trading at $939 an ounce today. So the U.S. gold reserve is currently worth:

• 286.9 million oz x $939 per oz = $269.4 billion

Step 2. Total amount of "money" in the U.S.

Here I have a problem. Which "money"?

• M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
• M1: The total of all physical currency part of bank reserves + the amount in demand accounts ("checking" or "current" accounts).
• M2: M1 + most savings accounts, money market accounts, retail money market mutual funds,and small denomination time deposits (certificates of deposit of under $100,000).
• M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.
  (from Wikipedia.org)

The Federal Reserve stopped reporting M3 in 2006, but there are private sites that claim to reconstitute M3. Here's one of them.

Not sure of which money to use, I decided to use all of them. I took the data from St. Louis Fed's FRED (one of my fave sites) for M0, M1, and M2. I eyeballed M3 from the chart at Shadow Government Statistics, and also from St. Louis Fed's discontinued M3 series chart.

• M0: $912 billion (currency in circulation)
• M1: $1,652.9 billion
• M2: $8,349.2 billion
• M3: between $12,000 billion and $14,000 billion. (I'll use $13,000 billion
  for my calculation)

Step 3. Divide the gold reserve amount by "money" in the U.S.

So that we can figure out how much $1 would be worth in gold-terms if the U.S. dollar was to be backed by gold 100%. And here's the result:

• Gold/M0: 0.295
• Gold/M1: 0.163
• Gold/M2: 0.032
• Gold/M3: 0.021

Or the flip side - how much "1 gold dollar" would be worth in current dollars:

• M0/Gold: 3.385
• M1/Gold: 6.135
• M2/Gold: 30.99
• M3/Gold: 48.255

That's why some fanatic gold bugs scream about gold hitting tens of thousands of dollars per ounce, and not so fanatic gold bugs still predict gold at $3,000 and above.

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Paulson Did Threaten Bank Of America CEO Ken Lewis

Paulson says told BofA's Lewis Fed could oust him (7/15/09 Reuters UK)

"WASHINGTON, July 15 (Reuters) - Former Treasury Secretary Henry Paulson says in prepared congressional testimony that he told Bank of America Chief Executive Kenneth Lewis the Federal Reserve could oust the bank's management and board if they walked away from a planned merger with Merrill Lynch.

"Paulson also said in testimony prepared for delivery to the House Oversight and Government Reform panel on Thursday that he was never instructed by Fed Chairman Ben Bernanke to indicate to Lewis any actions the Fed might take. (Reporting by Mark Felsenthal; Editing by Jan Paschal) "

So Secretary Paulson did threaten Bank of America CEO after all not to walk away from Merrill deal. Something doesn't feel right: the US Treasury Secretary threatening a publicly traded national bank with an action to be taken by privately-held institution (the Federal Reserve) which is not answerable to the government and the bank capitulates.

Mr. Lewis should have called Paulson's bluff. Instead, he and his board failed in their fiduciary duty to the shareholders of Bank of America.

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Health Care "Reform" Disaster

The administration wants to fast-track the health care "reform" bill and partisan vote is just dandy, according to David Axelrod and Rahn Emanuel:

Obama Open to Partisan Vote on Health-Care Overhaul, Aides Say (7/14/09 Bloomberg)

This so-called health care reform bill will cost anything from $1 trillion to $1.5 trillion (i.e. no one knows for sure, the number's too big to comprehend anyway for most people in America).

So how are they going to fund the program? Tax the rich and penalize small businesses and individuals, of course!

• 5.4% surtax is proposed for people making $1 million and above on their gross income;
• 1.5% surtax for people making up to $500,000;
• 1% surtax for couple making $350,000 and above and for individual making $280,000 and above;
• 8% of workers' wages taken from businesses who don't offer health insurance;
• 2.5% surtax for individuals who refuse to buy an insurance

But, uh, how are they going to fund when they don't know how much they will cost? They will raise these surtax rates if the government plan doesn't work (i.e. it's almost guaranteed that the surtax rates will be increased).

They also want to tax health benefits, but union workers (usually Democratic supporters) will be exempt:

Union workers would be exempt from Dem health care tax (6/23/09 Washington Examiner)

In addition to union workers, members of the Congress are exempt from their own "reform".

There's a question about the number of uninsured Americans:

Are There Really 47 Million Americans Who Can’t Afford Health Insurance? (7/11/09 Lewrockwell.com)

Heh, who wants to know the fact these days? And don't ask silly question like "Why is this bill being rushed through Congress before August recess?" (Silly answer: Before anyone can read fine print.)

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Rattner Leaves Auto Task Force

So, after bankrupting the two of the three U.S. auto makers, bankrupting part of their dealerships and subcontractors and suppliers, and selling off the best assets of the companies to foreign entities on the cheap, the investment banker leaves the post of the Car Czar. His boss, the President, now says "some" of the auto jobs will never return. (What was the point of using the taxpayers' money on these companies? The last I remember is the babble about "saving jobs". Ha!)

Rattner Departs as Head of U.S. Panel Overseeing GM, Chrysler (7/14/09 Bloomberg)

"Steven Rattner stepped down as head of the U.S. panel that forced General Motors Co. and Chrysler Group LLC into bankruptcy, signaling the government was easing into a new role as a passive investor in the automakers.

"His departure leaves Ron Bloom, a former union adviser and Lazard Ltd. vice president, to oversee remaining Obama administration carmaker decisions, including when to sell stakes in the two companies it bailed out with more than $75 billion in taxpayer money.

"“The administration definitely wants the perception to be out there that they’re not going to have their fingerprints in every decision,” said Clint Currie, an analyst with Concept Capital’s Washington Research Group."

Now, do you see the key word in this statement? It is "perception"; as long as the administration is "perceived" as not making every decision. It's more like some ad campaign for branded goods. Perception to make you feel good.

"“Job one for Ron Bloom is to get the government out of these equity positions in GM and Chrysler, preferably before the next election,” said auto analyst Michael Robinet of CSM Worldwide, a Northville, Michigan, consulting firm that did research for the task force. “The American public does not want to be long term owners of car companies.”"

I hope Mr. Robinet is talking about the mid-term election. The American public didn't want to be short-term owners of car companies either, but did they have a choice?

The article says Mr. Rattner has no plans to go back to his firm Quadrangle, which has been investigated by New York Attorney General for New York public pension bribery scandal.

One banker leaves (Rattner, Quadrangle), another banker steps in, albeit with a labor slant (Bloom, Lazard). Change we can believe in. (As if all we need to do is close our eyes and believe - oh look, I do see some green shoots...)

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California Assembly Bill AB 1506

This bill, if enacted, will make California IOUs legal tender.

State lawmakers back bill to make IOUs legal tender
(7/7/09 SignOnSanDiego.com)

"SACRAMENTO – Republicans and Democrats alike embraced legislation Tuesday that would make California IOUs legal tender for all taxes, fees and other payments owed to the state.

"A unanimous vote in the Assembly Business and Professions Committee and support from the Democratic majority launched the bill on what could be a quick trip to the governor's desk.

“I think we can get this done in the next two or three weeks if the majority wants to push it hard,” Assemblyman Joel Anderson, R-La Mesa, said after the hearing on his measure, AB 1506."

"... Anderson's legislation simply declares the state must accept its IOUs as payment for any taxes, fees or other payments owed to the state. The state already accepts its IOUs for payment of income taxes."

And why not? The Federal Reserve is issuing IOUs called Federal Reserve Notes against the federal government's debt obligations - Treasury bills, notes and bonds. It's all fiat anyway. As the 10th largest economy in the world, California should be entitled to issue its own "legal tender".

If this becomes law, it will present an interesting conundrum for the federal government. So far, the federal government is determined to teach California a lesson by refusing to bail out the state. But by allowing California to have its own legal tender within the state, the union of the states will be threatened, won't it? What if other states decide to follow California?

After the 2nd Central Bank failed in the US in 1836 and before the National Banking Act of 1864, individual banks used to issue their own currencies, and those currencies used to compete on the strength of the issuing institutions. Currencies from less capitalized, risky institutions were quickly discounted by the market force and driven to extinction. It seems to me to have been a very effective system, until the federal government came butting in to spoil the party (as it always does) and wrestle control (as it always does).

Maybe out of this California mess comes regional, competing currencies issued by anyone, from state government to county to local businesses. Many of them will be fiat currencies like the current Federal Reserve notes, but some may be asset-backed real currencies. Let them compete, and allow the free market to work.

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Earnings Date For Financials

This morning before the market, Goldman Sachs (GS) reported a blowout earning ($4.93 a share, vs $3.49 analyst estimate) due to big gains in trading and underwriting. The stock is down 24 cents at the moment (12:13 PM EST, go figure), and I saved the commission by not playing the stock either way (long or short).

And here's the list of major financial firms reporting earnings this week and next:

American Express (AXP): July 23, after market
Bank of America (BAC): July 17, before market
Bank of New York Mellon (BK): July 22, before market
Capital One (COF): July 23, after market
Citigroup (C): July 17, before market
Fifth Third Bancorp (FITB): July 23, before market
J.P. Morgan Chase (JPM): July 16, before market
Morgan Stanley (MS): July 22, before market
Regions Financial (RF): July 21, before market
State Street (STT): July 21, before market
US Bancorp (USB): July 22, before market
Wells Fargo Bank (WFC): July 22, before market

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Minority Broadcasters Seek Federal Aid

according to the article on Wall Street Journal.

"WASHINGTON --A group of minority broadcasters asked Treasury Secretary Timothy Geithner Monday for financial assistance akin to the aid that has been extended to the financial and auto industries.

"Minority-owned broadcasters are close to becoming an extinct species," the letter said. "Even in better economic times, minority broadcasters have historically had difficulties accessing the capital markets.

"The broadcasters told Mr. Geithner they can bounce back if they are given some temporary assistance while the credit markets are slow.

"Research from the Internet advocacy group Free Press says minorities own just 7.7% of full power commercial radio stations and 3.2% of full power commercial TV stations.

"Companies and groups that signed on to the Geithner letter included the National Association of Black Owned Broadcasters, the Inner City Broadcasting Coalition, the Spanish Broadcasting System, Taxi Productions Inc., and Carter Broadcast Group, Inc."

According to the National Telecommunications and Information Administration (NTIA), "minority" means Blacks, Hispanic Americans, Asian Americans, and Native Americans.

In this day and age, that definition seems narrow to me. What about women? What about Gay/lesbian/transgender? Where will it stop making sense?

I have this feeling that they will get the federal money. "Minority" rules, in case you haven't noticed.

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CIT Group's Looming Bankruptcy Threatens Small Businesses

CIT Group Says Its Failure Risks Demise of Customers (7/13/09 Bloomberg)

"CIT Group Inc., the century-old lender that hasn’t been able to persuade the government to back its debt sales, says its demise would put 760 manufacturing clients at risk of failure and “precipitate a crisis” for as many as 300,000 retailers.

"A collapse would ripple across the “small and medium-sized businesses who rely on CIT to operate -- to pay their vendors, ship goods to their customers and make their payroll,” the New York-based lender said in internal documents obtained by Bloomberg News that make the case for its importance to the U.S. economy. CIT spokesman Curt Ritter declined to comment on the documents.

"A failure of CIT, run by Chief Executive Officer Jeffrey Peek, would be the biggest bank collapse since regulators seized Washington Mutual Inc. in September. CIT reported $75.7 billion in assets and $68.2 billion in liabilities, including $3 billion in deposits, at the end of the first quarter. "

The government seems reluctant to assist CIT, despite the dire consequence that its collapse would pose for their clients, mostly small to mid size companies in manufacturing and retail. The officials are saying "a CIT failure would not cause system risk to the financial markets".

Both the Treasury Department and FDIC are saying they only help "credit-worthy" companies. Such as?? AIG? Citigroup? Fannie and Freddie?

(And how "credit-worthy" is FDIC, anyway? FDIC's reserve ratio as of March 31, 2009 was 0.27%.)

"CIT is in “active discussions” with regulators on a “series of measures to improve the company’s near-term liquidity position,” it said in a statement distributed by Business Wire today. The talks include CIT’s application for FDIC funds and measures such as the transfer of assets to CIT Bank, it said.

"CIT’s internal report outlines the potential effects of a failure on customers to which it’s committed $3.9 billion of bank lines.

"A “substantial portion” of clients “would not have easy access to additional revolving credit without CIT,” according to the documents. “This could lead to business failure for those who lack additional liquidity.” "

My take: As long as it is the Main Street (small/mid size manufacturers and retailers) that takes the hit, the government will "tighten the belt", claiming painful but necessary adjustment. GM and Chrysler were essentially taken over by the government for the puny amount of loans compared to what the government has given and will continue to give to the financial institutions.

Large financial institutions like Goldman Sachs and hedge funds are probably stuffed with credit default swaps (CDS) on CIT's debts. They would rather see CIT dead.

Here's Yahoo's Tech Ticker video. Aaron Task and Henry Blodget seem to think if the government bails CIT out it's a slippery slope. Hello, the slope's been slippery for very, very long time now. But do not worry. I have a feeling that the government will show a firm stance of not "wasting tax payers' money" any more. Certainly not on a financial firm that actually lends to small businesses.

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