Gravity's Rainbow: California Gas Prices Necessarily Skyrocket

California's gas prices have been rising steeply the past few days with the stations in my neighborhood changing the prices every few hours. Pretty soon we'll need to be carrying Weimar-esque barrels full of cash just to keep up at the pump:

Gasoline at the pump gained 8.3 cents to $4.315 a gallon in California yesterday, according to AAA.com, 53.1 cents more than the national average of $3.784. In Los Angeles the price was $4.347. Gasoline futures for November delivery on the Nymex rose 14.34 cents to settle at $2.9429 a gallon, after falling yesterday to a 10-week low. Retail price movements tend to lag behind those of futures. 

“Product supply in California has tightened, especially in Southern California, due to refinery outages,” Bill Day, a Valero spokesman at the company’s headquarters in San Antonio, said by e-mail. 

Exxon’s Torrance refinery is restoring operations after losing power Oct. 1. Phillips 66 (PSX) is scheduled to perform work on gasoline-making units at its two California refineries this month, two people with knowledge of the schedules said. A Chevron Corp. (CVX) pipeline that delivers crude to Northern California refineries was also shut last month due to elevated levels of chloride in the oil.

What's amusing is that now that there are no Republicans in office whom hustling leftists can blame for the law of supply and demand, people are being up front about the cause of CA's first-in-the-nation spike: CA's special gas blend is produced by a relative handful of refineries, so trouble at even a couple of them will cause pain at the pump.

The price increase struck at a time of year drivers usually find themselves paying less for fuel, not more. Gas prices typically peak in the summer and drop after Labor Day, as vacation season draws to a close. That's happening in many states right now. 

But in California, gasoline supplies have been unusually tight in recent months. On Aug. 6, a fire swept through Chevron's Richmond refinery, seriously damaging the plant's main unit for processing crude oil. 

Monday's power outage at the Torrance refinery shut down some of the plant's units and slowed others. At the same time, two other California refineries were cutting production for planned maintenance. 

And all the state's refineries were preparing to switch the type of fuel they make. California requires refineries to sell a special pollution-fighting gasoline blend during summer months. They switch to the winter blend at the start of November. 

Exxon's Torrance refinery makes about 10 percent of the state's gasoline. So when the power outage struck, traders in the wholesale gasoline market started bidding up prices. In the Bay Area, prices on the wholesale spot market rose from $3.64 per gallon Monday to $4.34 Thursday. With the refinery's return on Friday, the spot price for gas fell back to $3.68. 

Sudden changes in the spot market, where people buy large amounts of gas for immediate delivery, usually take several days to filter through to the retail level. So drivers can probably expect a few more days of increases.

I'm sure I don't have to tell you that our "special blend" is not there to make sure our cars have higher performance so we can win our next impromptu drag race. Instead, the blend is there to Save The Environment, only the blend is apparently out of date, so no other eco-Left states are using it. That means (1) we can't bring in supplies from out-of-state (2) we can't use non-"special" gas because it's The Law and (3) CA only has maybe a dozen refinieries with no prospect of any other coming on-line before Hell freezes over because they are bad for the environment. That's the system we've got. I certainly don't support it, but a majority of the state's voters have installed politicians who created this mess. Anyone who complains about gas prices now should probably have his license and voting privileges taken away.

The Shop On The Corner: X-mas Retail Sales Down For The Year

We heard a lot back in late November about how Black Friday had been a great success and that retailers were quietly optimistic about the Christmas shopping season. As it turned out, a lot of big retailers ended up having down years: 

New Christmas-season retail sales reports show that the period was far less robust than many retailers had expected. 

The numbers for some two dozen merchants came in relatively weak, falling below the returns of 2010. 

Target Corp., Gap Inc., Kohl's Corp. and J.C. Penney Co. all fell short of their own sales targets and in some cases slashed their profit forecasts, reflecting slow traffic in the middle of the month and heavy discounting to clear inventories. 

The results show that middle-class consumers remain cautious in the face of a weak jobs market and a still-tepid economic recovery. And while they did show bursts of willingness to spend during the holiday season, the largess wasn't spread around evenly. 

Among companies targeting those consumers, Macy's Inc. was a clear winner, beating expectations for the month's sales, raising its dividend and increasing its earnings forecast for the year. The company was helped as well by its Bloomingdale's division as luxury chains, including Saks Inc. and NordstromInc., posted strong sales gains. 

"Even though consumers are willing to spend, they will only spend when there is huge discounting," said David Bassuk, head of the retail practice at AlixPartners. "A number of retailers couldn't bring in enough dollars in that environment."

It goes without saying that the strong Black Friday numbers were shouted from the rooftops, while the more sobering numbers have received, ahem, more muted coverage. 


This isn't meant to "talk down the economy." (hey, I use the powerful Free Will soapbox judiciously, unlike Ben Bernanke, et al.) I want the US to do well, even if it gives Obama the chance to strut around like he's some kind of captain of industry. Maybe people just bought more stuff on-line this year, although information about, say, Amazon's sales results are oddly difficult to come by. But, the facts are that the US is still in a slump from which it is trying to awake. 

Fall On Me: The Dow Goes Down

Grim news on The Street as the Dow Jones Average loses 512 points, or 3% of its value. I thought the debt ceiling deal was supposed to prevent a market crash.

Stocks spiraled downward Thursday as investors buckled under the strain of the global economic slowdown and the failure of policy makers to stabilize financial markets.

The selling began in Europe and continued in the U.S., where stocks plunged from the opening bell. The Dow Jones Industrial Average posted its worst point drop since the financial crisis in December 2008, falling 512.76 points, or 4.31%, to 11383.68. Oil and other commodities were also hammered. Even gold was a safe haven no more as prices fell. Asian markets slid on Friday morning, with Tokyo, Australia, South Korea and Hong Kong markets all falling more than 3% in early trading.

Just joking about the debt ceiling, of course. I'm sure if DC remained gridlocked, things would have been even worse. As it stands, it was (temporary) good news that a US default was averted, even if the threat of default was only due to the unilateral acts of our destructive Executive Branch. But with the threat of default gone, everyone could focus on the fundamentals: namely, that Europe has a cascading series of debt crises infecting it; that the US has spent an ungodly amount of $$ on useless stimulus; and, worst of all, that US policy leavers are in the hands of ideologues who would rather go down in flames, rather than pursue pro-growth policies such as tax cuts and a true reduction in government spending. If I was still in the market (I got out at the same time QE2 ended), I'd sell, too

Everybody's got their tipping point and mine came with the announcement that 1Q had been revised downward to 0.4%. Like everyone else, I thought things had been picking up in the early part of the year, so to learn that the opposite is what was going on was disappointing to say the least. Economically, we are on the road to nowhere.

UPDATE: if there's one good thing about the latest down-turn, it's that this feels more like a "regular" recession, and not the on-set of a depression as was the case with the Crash of '08. Supposedly, there's a general fear out there that the US government and the Fed are out of policy arrows. If that's the case, things are looking up!

Little Depression Blues

The Little Depression got a little more depressing this week as some high profile companies announced thousands of lay-offs (essentially wiping out the pitiful gains of the last couple months). There are still mainstream economists out there forecasting that the second half of the year will see stronger growth, but...I just don't see how that's possible.

Cisco Systems Inc., Lockheed Martin Corp. and troubled bookstore chain Borders Group Inc. are among those that have recently announced hefty cuts, while recent government numbers underscore how companies have shifted toward cutting jobs.

The increase in layoffs is a key reason why the U.S. recorded an average of only 21,500 new jobs over the past two months, far below the level needed to bring down unemployment, which now stands at 9.2%.

The cuts also reflect the shifting outlook of employers, many of whom had expected the economy to gain speed as the year progressed. Instead, growth has faltered. If the pace continues to disappoint, more companies will feel pressure to pull back. "Layoffs have played a big role [in weak job growth] over the last few months," said Mike Montgomery, an economist at IHS Global Insight. "The soft patch is more layoffs and nothing else to pick up the slack."

Like I say, it's depressing. And it's even more depressing to contemplate the head-long rush among the Big Government branch of the DC political class to reach a debt ceiling deal that will lock in the sort of trillion-dollar-deficit spending that has done so much to kill the economy.

Meanwhile, you know what state, besides Texas, is now seeing job growth? Wisconsin, which has seen 12,900 jobs created in the last month (Gateway Pundit says this is half the jobs created in the United States during that time). You may remember the last time the Dairy State was in the news. That was when leftists rallied to stop a budget-cutting, union-taming Republican governor from destroying the middle class. Scott Walker - an inoffensive midwesterner in the Pawlenty mould - got the full Palin/Bachmann treatment. A typical left-wing attack on a GOP politician, and one that is looking hysterically, not to mention historically, wrong.

The GOP is never going to get favorable press treatment. It is never going to have the songs and the sentiment that the grievance class enjoys. But what the GOP can get is results. But, those results only come when Republican politicians govern according to conservative principles, consistently applied. But, as we've seen this week, such politicians are damn hard to find, even when congressional majorities are handed to them on a silver platter with the simple instruction that they cut spending and shrink the size and scope of government.

The left must know that their plans and plots can never lead to the sort of economic dynamism that the average American sees as their birthright, and which is not that far out of reach. But, for all of their protestations that they are working for the middle class and/or the Little Guy, leftists govern in a manner that hurts everybody's interests except their own. They would rather preside over a "growthless recovery" than go against their ideology in order to truly turn the economy around.

Within The Law: Defending Foreclosures

The Wall Street Journal has a front-page story about attorneys practicing "foreclosure defense," which the WSJ seems to think is a "new" practice area. I don't know. If someone shows up in your office facing a foreclosure, and you take the case, you're a "foreclosure attorney." Still, it's an interesting look into the other side of foreclosures:

The paperwork mess muddying home foreclosures erupted last month. But the legal strategy behind it traces to a lawyer's gambit in 2006 that has helped keep one couple in their home six years beyond their last mortgage payment.

Lillian and Robert Jackson stopped paying on their home in Jacksonville, Fla., in 2004 when business dropped off at their cleaning company. Eviction might have seemed inevitable when they faced a foreclosure hearing two years later.

But their lawyer, James Kowalski, had the idea of taking a deposition from the signer of the mortgage papers. When a document processor for GMAC Mortgage admitted she routinely signed such papers without being familiar with details of the loans, she was tagged as one of a species now known as robo-signers.

It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market. Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner's legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn't.

What these guys did differently is that they actually deposed the people signing documents on behalf of the banks. Depositions - or any sort of intensive litigation activity - don't often happen on the defense side of foreclosures because the defendants lack the cash to fund an aggressive defense. And that's the thing; often foreclosures go through because the homeowners lack the resources to fight, and even if they did have the resources, it would be economically irrational for them to do do.

Still, I would make an exception for homeowners like the Jacksons and, of course, my clients who may have the wherewithal to refinance their loans and make payments at a reduced monthly rate. Banks haven't just been using robo-signers to sign affidavits en masse. They have also been disregarding any and all efforts by the borrowers to refinance. And, having obtained title to properties, they always go for the eviction, rather than allowing the homeowner to negotiate to repurchase. This doesn't strike me as rational either.

If you are defending a renter being evicted for failing to pay his rent, your job usually involves negotiating either an orderly move-out or some sort of payment plan so the tenant can remain in place. I don't see how a foreclosed homeower is all that different in a conceptual sense. But, the banks don't seem to want to do much for them, HAMP notwithstanding. For the Jacksons, they've been able to stay in their home, rent free, for six years. Six years! Does GMAC honestly think this is a good result? The Jacksons also say they're happy to renegotiate, but GMAC is ignoring them and going for the traditional demand for relief from foreclosure: repayment of the entire amount due, an impossible hurdle. Again, how is this a good result?

The fact is that banks have simultaneously rushed to do these foreclosures and then dragged their feet both in responding to homeowners and in moving people out of their homes. In an environment like that, I don't think there's anything wrong with people hiring an attorney and fighting back even if they have defaulted on their payments. People on the right have been pontificating about the sanctity of contracts and following the law; two positions I heartily endorse. But, it's a bit rich for banks to hold borrowers to the letter of the law, and then brush off their own half-assed document handling as "close enough for jazz."

The Great Non-Learning: "Lessons" From Japan's Deflation

The NY Times published the latest in a loooooooong series of news stories, published over the years in every imaginable media outlet, about the effect of the Great Deflation in Japan and the "lessons" Japan's experience has for the West. The lesson, per the Times? American are just going to have to get used to a stunted standard of living:

Like many members of Japan’s middle class, Masato Y. enjoyed a level of affluence two decades ago that was the envy of the world. Masato, a small-business owner, bought a $500,000 condominium, vacationed in Hawaii and drove a late-model Mercedes.

But his living standards slowly crumbled along with Japan’s overall economy. First, he was forced to reduce trips abroad and then eliminate them. Then he traded the Mercedes for a cheaper domestic model. Last year, he sold his condo — for a third of what he paid for it, and for less than what he still owed on the mortgage he took out 17 years ago.

“Japan used to be so flashy and upbeat, but now everyone must live in a dark and subdued way,” said Masato, 49, who asked that his full name not be used because he still cannot repay the $110,000 that he owes on the mortgage.

Few nations in recent history have seen such a striking reversal of economic fortune as Japan. The original Asian success story, Japan rode one of the great speculative stock and property bubbles of all time in the 1980s to become the first Asian country to challenge the long dominance of the West.

The article was written by someone named Martin Fackler who, I assume, traveled to Japan to write this piece. But, he clearly came with the story already written and simply sought out Japanese who could provide him with ready quotes and sob stories. But, that doesn't mean you should confuse his story with reality. Even at the height of Japan's boom times, the vast majority of Japanese lived relatively modest lives. That was the real Japanese miracle: that a country was able to extend a comfortable middle class lifestyle to virtually its entire population. But it was not a grand life. We're talking about small cars, crowded cities, and tiny houses and apartments. Someone like Masato owning a Mercedes and traveling to Hawaii was very much the exception. (I spent the summer of 1986 in Yokohama and Tokyo. I could count the number of Mercedes, or equivalent, that I saw on one hand). And, even after 20 years of deflation and non-growth, Japan's middle class remains largely intact.

What it true is that Japan has had no real economic growth, and has begun to slip behind China according to some measures. But, if you had to choose, I guarantee you would choose life as a Japanese salaryman over that of a Chinese factory drone. Not only that, Japan's economy continues to produce advanced technology that the Chinese can never hope to duplicate, only steal.

But what's really frustrating is Fackler's profession of confusion as to how Japan's deflation has continued unabated for so long. He hints at the reasons indirectly, but the truth is he doesn't want you to know:

But the bubbles popped in the late 1980s and early 1990s, and Japan fell into a slow but relentless decline that neither enormous budget deficits nor a flood of easy money has reversed. For nearly a generation now, the nation has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy.

Now, as the United States and other Western nations struggle to recover from a debt and property bubble of their own, a growing number of economists are pointing to Japan as a dark vision of the future. Even as the Federal Reserve chairman, Ben S. Bernanke, prepares a fresh round of unconventional measures to stimulate the economy, there are growing fears that the United States and many European economies could face a prolonged period of slow growth or even, in the worst case, deflation, something not seen on a sustained basis outside Japan since the Great Depression.

Japan hasn't just had 20 years of deflation. The deflation began with the bursting of a housing bubble exacerbated by (1) a government which propped up its financial sector, rather than allow insolvent banks to fail and (2) engaged in an epic bout of stimulus spending that left Japan with towering debts. Sound familiar? And none of it has worked. At all. In fact, the only things that worked were the Koizumi Reforms, which sought to privatize government entities like Japan Post, among other things. Privatization of government services worked?? Don't want to say that out loud!

The fact is that we know exactly what "happened" in Japan. We know that bank bailouts, excessive stimulus, infrastructure spending, and 0% interest rates did absolutely nothing to pull Japan out of its funk. The Times knows it. Yet they have been at the head of the parade calling for .... bank bailouts, excessive stimulus, infrastructure spending, and 0% interest rates to pull the US out of its deflationary spiral. Those are the preferred policy responses of liberals, and liberals clearly would rather be liberal than correct.

UPDATE 1: the Free Will mother just emailed to remind me that I was in Japan in the summer of 1987, not 1986 as I wrote above. D'oh! Then again, to paraphrase Ronald Reagan, everybody who remembers what they were doing in the summer of 1987, raise their hands.

UPDATE 2: the Free Will mother also remembers that, back when we lived in Tokyo in the go-go Seventies it was known around our apartment building (in the Azabu section of Tokyo) that there were then 12 Rolls Royces in Japan. One was in our parking garage. We never saw any others around Tokyo, but people thought there was one in Hokkaido.

UPDATE 3: also the Free Will mother thinks the reference to Chinese factory drones is inapt since "drones have no task except availability to fertilize the queen." I don't know, would a reference to "Chinese honeybees" make any more sense?

UPDATE 4: the summer of '87. If you remember it, you probably weren't there.

A Failure To Learn: Investigating the Financial Crisis

I've already griped about this earlier in the week, but the way finance regulators have been going about their business of investigating the events leading up to the Crash of '08 does not make me think we're learning anything useful. The SEC and others seem to be looking at cases where people made money shorting the housing market and/or over-leveraged financial firms, rather than the true source of the problem; namely that people were losing money - billions of it - on bad bets involving the housing market. Now Deutche Bank is being investigated for brokering a bet between housing bears and housing bulls over the direction of the markets and then failing to disclose who was on each side of the transaction. Yes, it's the Goldman scenario again. Dual Role in Housing Deal Puts spotlight On Deutche

Federal probes of the collapsed mortgage-bond boom are shedding light on how Wall Street firms sometimes created securities and sold them to one set of investors, while advising others to bet against them.

One firm that was a major player in mortgage securities, Deutsche Bank AG, illustrates a pattern investigators are looking at. While creating and selling mortgage securities to some of its clients, the big German bank was not only advising other clients to bet the other way, but also sometimes doing so itself

A Deutsche trader helped create an index that made it easy to bet against housing, and the bank itself then used the index to do just that

After the collapse of mortgage securities led to a costly bailout of the firm that insured many such securities—American International Group Inc.—some of the federal cash that was sunk into AIG flowed to Deutsche, to cover bearish bets by its hedge-fund clients.

Deutsche's actions are a vivid example of potential conflicts on Wall Street—the way big financial firms play both sides of the fence with investors. The issue became more extreme during the mortgage bubble and subsequent bust because of the size of the bets on Wall Street and subsequent losses on Main Street.

As in the Goldman "fraud," the party taking the short position was John Paulson, who was a lonely voice on Wall Street taking bearish positions on housing, usually through purchases of CDO's and the like. He was looking at the same numbers as everyone else, saw doom, and acted accordingly. Everyone's bitching at Goldman and Deutche now, but at the time everyone thought Paulson was nuts. Even after he decided to short housing, he spent a considerable amount of time trying to figure out how to do so, eventually working with a number of dealers to buy insurance that would pay out in the event of a housing crash. (the "Greatest Trade Ever" was actually a series of transactions). While regulators are complaining that "no one knew" Paulson was on the other side, the fact is that Paulson didn't know either until quite late in the game, finally learning that the banks selling the mortgages and mortgage related products were often the counter-parties. Maybe someone should investigate that instead of the schmoes who brokered the deals.

It's probably gauche to point out that, overall, Deutche lost money just like everyone else, so I won't.

The fact is that these sort of non-disclosure cases are the ones that regulators are going great guns to pursue (along with Ponzi schemes and outright frauds like Madoff, Sanford, and Dreyer). The guys who led their firms into a ditch have largely been left alone, although Lehman's Dick Fuld seems to have attained a sort of infamy. But, it was the masters of the universe who led the financial world to ruin by going long on housing.

A perfect example is Merrill Lynch's Stan O'Neil who, after winning praise for his "historic" ascendency to the top of the Merrill food chain (where he promptly began firing everyone who didn't kiss his a**), decreed that Merrill would go heavily into the mortgage market. And then stayed...and stayed...until O'Neil was fired for over-extending the firm. Receiving the inevitable nine-figure golden parachute, not to mention, years of record setting bonuses, while heading out the door, of course. So, O'Neil screwed up his firm going long on housing. A familiar story and one that regulators missed at the time and continue to blow off in their quest for accountability.

But, O'Neil wasn't done. While reading Paul Ingrassia's Crash Course about the fall of the American auto industry, I learned that one of GM's many problems was overexposure to the subprime mortgage industry by GMAC, which eventually had to be bailed out. Apparently one of GM's board members had been insistent that mortgages and real estate in general were can't-miss investments. This board member held great sway due to his "expertise" in mortgage-related investments, so even though others on GM's board expressed doubt, GMAC went long on mortgages ... and went right off of a cliff into a tax payer bailout. The name of the board member? Stan O'Neil! Imagine that!

The fact is that we are relentlessly focusing on learning the wrong lessons from the Crash of '08, punishing the people who made money, while letting the losers skate away with their millions into a luxurious obscurity. This follows the claims among Bear Sternes and Lehman executives that all of their problems were caused by short sellers driving their stock price down (and making a profit). No, the short sellers' profits were a symptom of the failed firms' own disastrous miscalculations, not a cause. But, better to blame shadowy short sellers like John Paulson, rather than media stars like Stan O'Neil.

The Age of Deform: Arnold Kling & The Financial Reform Bill

Arnold Kling takes a grim look at what the 3,000 pages of financial reform bills, as currently drafted, will do for stabilizing and regulating the financial industry. (Hint: not very much): What Financial Re-Regulation?

As I have said before, there is no coherent narrative that connects an analysis of the causes of the crisis to the financial reform legislation as written. Rather, the bill serves to deflect blame from government's role in pursuing housing policy through dubious mortgage market intervention and from the mutual overconfidence of large financial institutions and their regulators.

The new law is not re-regulation. The regulations it contains are largely irrelevant to financial stability. And potential regulations that would improve financial stability (such as increasing the use of subordinated debt to discipline banks or requiring sizable down payments on mortgages) are not in the bill.

As Kling notes, the bills do nothing to address the problems that led to the Crash of '08. The bills are silent on the issues of Fannie & Freddie. It does not reinstate Glass-Steagall, the liberal's favorite event to point to as causing the crisis. More important, the investment vehicles that supposedly caused the most trouble - SIV's, CDO's, derivatives, etc. - did not come about as a result of some sort of short-sighted "de-regulation," Rather, they were set up to work within the existing regulatory format. And, this is my favorite part:

Perhaps the centerpiece of the new legislation is a consumer protection agency for financial products. But if the core problem was a lack of consumer protection, what we should have seen was banks extracting profits from loans and foreclosures. Instead, banks got wiped out by losses. As Tyler Cowen points out, given where the losses took place we should be talking about predatory borrowing.

"Predatory borrowing." Hee Hee. Good one.

It's hard to believe that this is the best we can do. I keep hearing commentators say that Congress is working to make sure they "get this right" (smirk) because these regulations have to be good for decades. They do?? It seems like we are replacing an opaque system that favored insiders with an even more complex and opaque system that does nothing to address the problems that are left over from the failed regulations of the past. And everyone thinks that, whatever we come up with now, it will be set in stone for decades? We're not allowed to revisit this ever again? Next, we'll be hearing people say "This time is different."

Bottles & Cans, Just Clap Your Hands

The Governator's ambitious plan to "end" welfare in California has drawn a predictable response from Democrats in the legislature. Senate Democrats thought long and hard and came up with a great idea: raise taxes! Wow! that's just the sort of innovative thinking California is known for.

Democrats in the Assembly found this to be too limiting and unsophisticated. Their solution: raise taxes and take on more debt! Assembly Dems: Borrow Cash To Save Welfare

Assembly Democrats on Tuesday unveiled a plan to fully fund education and save welfare and government jobs in California by borrowing billions of dollars, just one day after Senate Democrats proposed raising nearly $5 billion in taxes to stave off cuts to the same social programs.

The proposal by Assembly Speaker John Pérez, D-Los Angeles, calls on the state to borrow $8.7 billion in bonds to be repaid over 20 years, plus interest, with a new tax on oil companies that would raise roughly $1 billion a year.

Pérez said his proposal would help the state's economic recovery by giving more money to cities, counties and school districts in the year starting July 1, investing $1 billion in job creation measures and avoiding the deep cuts to California's social safety net that Gov. Arnold Schwarzenegger has proposed.

You have to love Democrats. While they love to pose as populist defenders of the Little Guy, and go out of their way to demonize "banksters," they are perfectly willing to borrow money from those banksters, for whom cash strapped stated are a major source of revenue, and then stick the put upon Little Guy with the bill.

It's an economically absurd plan, of course. All this will do is "preserve" welfare for one year. That money is going to go into one hole and out the other with no net benefit left over in the end, except that leftists can pat themselves on the back for preserving "the safety net." To underscore the absurdity of all this, here is the collateral that Democrats proposed that we borrow against:

Pérez's plan would borrow $8.7 billion from Wall Street against the California Beverage Recycling Fund, which collects deposits on bottles, cans and other recyclable containers and is underfunded because of past raids by state officials.

The Recycling Fund? You mean those guys pushing shopping carts filled with cans are going to be responsible for helping pay down billions in debt? Wonderful.

California has approximately one-tenth of the nation's population, but it also has one-third of the nation's welfare recipients. While everybody, I'm sure, has a sad story to tell, the numbers say that many of these people come from other states (and countries. yeah, I'm looking at you Mexico) in order to find a more perfect welfare state. Are there any journalists in Sacramento willing to ask Perez and his supporters why in the world California should keep doing this? Doubtful. They would rather enable the Party of Debt's continued deprivations.

Supercuts

The Governator has submitted his "draconian" budget proposal. For once, spending cuts are directed at California's bloated welfare state. CA has approximately one-tenth of the US population, but fully one-third of the nation's welfare recipients live here.I've long called for CA to simply stop paying for everyone else's poverty program (that would Mexico's and the other western states), while also cutting out anything that duplicates something being funded by the feds, and this seems to be a step in that direction. Of course, the MSM reaction is all too predictable: Budget Proposal Deals Blow to California's Poor

State programs that help California's neediest residents would be significantly cut or outright eliminated under Gov. Arnold Schwarzenegger's updated spending plan announced Friday.

Schwarzenegger proposed ending the entire state welfare program along with most state-subsidized child care, cutting mental health services by 60 percent and considerably slashing in-home care services for elderly, sick and disabled people. Those cuts, along with others, would save the state an estimated $12 billion in the year starting July 1.

"California no longer has low-hanging fruits, we don't have any medium-hanging fruits and we also don't have any high-hanging fruits," Schwarzenegger said. "We have to take the ladder from the tree and shake the whole tree."

First of all, if you come to California specifically to obtain the state's generous welfare benefits, and the numbers indicate that a lot of people do, I don't think you should be considered part of "California's poor." You are poor people from another state/country who came here for a better dependency culture. Second, America has developed an odd system where "poor" people own cars and major appliances, have been able to buy homes with subsidized mortgages, and suffer not from hunger pangs but from obesity. Of course, the joke is that these cruel cuts will reduce California's spending levels to those last seen in (dramatic pause) 2008! Oh the humanity!

The Governator's budget doesn't even go anywhere near as far as it could go, as some deficit hawks have noted: Schwarzenegger's Budget Addresses Few Structural Issues

For starters, Schwarzenegger's proposal would not balance the budget. He fell $3+ billion short by borrowing money from the future while calling the result "balanced". He arguably fell another $3 billion short, by counting on handouts from Obama.

Unfortunately, I see no specific pension reform mandates (Schwarzenegger is leaving that up to the legislature). The proposed payroll reductions of 5% primarily comes from not filling vacancies. Ho-hum where is the pain there?

Democrats are upset Schwarzenegger will not raise taxes, and sensible Republicans are unhappy Schwarzenegger did not stick it to the unions as did Governor Chris Christie of New Jersey.

In regards to the prison system, I see no radical changes, only wimpy proposals to move inmates from one jail to another.

(Sssshhh. We're getting ready to do all that after Governor Whitman is sworn in).

The budget actually increases funding to the state's colleges and universities. It also improves funding to the state's many parks. I don't like the idea of paying for the livelihoods of the tenured radicals at UC any more than you do, but I think we can all agree that universities and parks are a public good that the government should be paying for. So, OK, the mean GOP is cutting "welfare." That's what we do, babe. But, the proposed budget also increases funding to the state's community colleges, which are still some of the best educational deals out there (is it still $13/credit hour for SF's City College?), and a surer way out of poverty than subsidizing someone's drug habit.

California, like much of the rest of the developed world, has been experiencing a crisis of Big Government, not just in over-spending, but also in the economic distortions created by an overweening state that insists on doing everything for everybody. A lazy sort of left-liberalism has been the state's default political setting for decades. We are now living with the accumulated results of that orientation. Progressives in Sacramento and in the media may decry "draconian cuts," but the fact is we have never tried to solve California's problems with the sort of cuts and reforms that would make a real difference. The Governator's new budget won't win any popularity contests, but it is certainly a hesitant step in the right direction.

UPDATE: here are some charts courtesy of Chuck DeVore, which graphically represent the outsized extent of California's welfare case load (h/t Book Worm).

MC-0

I'm guessing that the Detroit Tourist Bureau, or whatever they've got, has concluded that Mitt Romney will never be president. Detroit officials are planning to tear down his boyhood home, which will of course mean no future "historical" sight to commemorate the Man From Palmer Woods

Wrecking crews are preparing to tear down a landmark 5,000-square-foot house in the posh neighborhood of Palmer Woods in the coming weeks, a sign that Detroit is finally getting serious about razing thousands of vacant and abandoned structures across the city.

In leveling 1860 Balmoral Drive, the boyhood home of one-time presidential candidate and former Massachusetts Gov. Mitt Romney, Detroit is losing a small piece of its history. But the project is part of a demolition effort that is just now gaining momentum and could help define the city's future.

The house was owned by Mr. Romney's parents, George and Lenore Romney, from 1941 until 1953, when the family moved to the northern suburbs. The elder Mr. Romney would go on to become head of American Motors Corp., then governor of Michigan and U.S. secretary of Housing and Urban Development.

The tear down is part of an overall plan to knock down thousands of vacant buildings left over from Detroit's economic apocalypse.

Mayor Dave Bing has pledged to knock down 10,000 structures in his first term as part of a nascent plan to "right-size" Detroit, or reconfigure the city to reflect its shrinking population.

When it's all over, said Karla Henderson, director of the Detroit Building Department, "There's going to be a lot of empty space."

Mr. Bing hasn't yet fully articulated his ultimate vision for what comes after demolition, but he has said entire areas will have to be rebuilt from the ground up. For now, his plan calls for the tracts to be converted to other uses, such as parks or farms.

Even when the demolitions are complete, Detroit will still have a huge problem on its hands. The city has roughly 90,000 abandoned or vacant homes and residential lots, according to Data Driven Detroit, a nonprofit that tracks demographic data for the city.

Romney, for one, was philosophical, but also willing to place some blame:

The younger Mr. Romney, who is considered a leading GOP presidential candidate for 2012, said "it's sad" that his childhood home is being razed, "but sadder still to consider what has happened to the city of Detroit, which has been left hollow by fleeing jobs and liberal social policies."

No kidding. Detroit has done everything that Democrats think is necessary for a "just" society. It embraced trade unionism (both in industry and in public sector jobs), industrial policy, generous welfare services, etc. The Kerner Commission Report, the definitive example of the liberal "root cause" approach to crime and urban poverty, was drafted specifically to respond to the Detroit Riots of 1967, those riots being the moment Detroit and the Left embraced racial separatism as a political goal. Detroit and national Democrats treated the area's major employers - that would be the Big Three - as little more than ATM's and playthings of social policy, especially in the environment and energy. And, now everyone's standing around, shocked that the Golden Geese have died. Can I hear a "Duh!" from the congregation?

Romney at least understands what happened. But, what about Detroit's (and Michigan's) many "progressive" potentates. Have they lost a single night's sleep over the ruin they have caused? Doubtful. Even now, the tattered Brezhnevian Levin brothers - Senator Carl and Congressman Sander - are planning new assaults on America's private sector. Detroit may have failed economically, but the root of that failure was political. And there is no sign that the politicians or the political philosophy that brought a city to the point where it is tearing down neighborhoods have been discredited.

Pas de déjeuner sans prix

Your "Durrrrrr!" moment of the day, courtesy of Gideon Rachman at The Financial Times: Europe Is Unprepared For Austerity

I used to think Europe had got it right. Let the US be a military superpower; let China be an economic superpower – Europe would be the lifestyle superpower. The days when European empires dominated the globe had gone. But that was just fine. Europe could still be the place with the most beautiful cities, the best food and wine, the richest cultural history, the longest holidays, the best football teams. Life for most ordinary Europeans has never been more comfortable.

It was a great strategy. But there was one big flaw in it. Europe cannot afford its comfortable retirement.

To paraphrase Admiral Yamamoto: "We have awoken a sleeping idiot."

Evita Obama

Some jumpy folks have been examining regulatory proposals, Requests or Information, and comments by Joe Biden and concluded that the Left is planning to "solve" the deficit problem by seizing the billions of savings in the nation's 401(k) plans and replacing them with a government "annuity." Powerline looks at the prospects for such an *Argentinian* turn of events: Are The Feds Preparing To Nationalize Your Retirement Savings?

You can read the Labor and Treasury Departments' Request for Information in the Federal Register. Its main theme is that the private-sector trend is toward defined contribution plans and away from defined benefit plans, and that, for some reason, plan beneficiaries don't choose lifetime annuity products as often as some bureaucrats think they should. So the federal government is looking for ways to promote lifetime annuities.

There are, of course, benefits to such products. There are also drawbacks; most notably, they do not allow the saver to leave money to his children. If you die prematurely, you are just out of luck. In that respect as in others, lifetime annuities look a lot like Social Security. It is not clear why the federal government should be in the business of promoting one form of retirement product over another.

But, while the Request for Information definitely exhibits a paternalistic attitude, it doesn't explicitly say anything about confiscating 401(k) accounts, or about the government taking on the role of annuity issuer.

We have been living through the death throes of the welfare state, as the advocates of Big Government have flailed desperately for two years to keep the whole thing together for a little while longer (at least until the Asian market opens...), but the hits keep coming as nation-states from Greece to Britain to California to the US face mounting deficits and political paralysis.

Sadly for us, the redistributionists are on complete control of the levers of power, which gives them incentive and opportunity to cast about for any nickels or dimes that can keep the money machine whirling. But, seizing 401(k) plans? If that ever comes to pass, we can assume the revolution will begin the following day because seizing people's savings in order to pay off government obligations will be the Rubicon - the moment when the Left's calls for "fairness" and "social justice" will turn to simple theft to benefit the unproductive at the expense of the productive.

It would be an extreme step, and one that could only be justified by World War III. It's hard to believe that even the hardest left American progressive would do such a thing, but we live in interesting times. Powerline concludes:

At this point, I think the best we can say is this: the federal government is desperate for cash, and the biggest untapped source of wealth is the hundreds of billions or trillions of dollars that Americans who are now nearing retirement age have saved over their lifetimes. I don't doubt for an instant that the Obama administration would like to get its hands on this money, which would go a long way toward resolving the current government debt crisis. An obvious way of doing so is to take the money now, in exchange for a promise to pay an "annuity" later. The bottom line is that, given what we know about the Obama administration's rapacious appetite for swallowing up private wealth, anyone who has savings should be vigilant.

Words to live by under any circumstance.