The Greater Depression?

In an October, 2008 online article at the site for a South Carolina news station, USC economist Dr. Bill Hauk states, “There are enough similarities [between the current economic crisis and the Great Depression] to say there’s definitely something wrong here. We definitely do need to be concerned. I think the comparisons to the Great Depression are certainly premature and hopefully unneeded.”

I agree with him to a point. The current situation is exactly that…current. We are living through a huge historical event that others in the future will analyze and judge. It’s too early to look at the situation clearly, yet that is our nature, isn’t it?

As a teacher of history I’m anxious to get my facts NOW, so when little John or Jane asks why did my dad lose his job, how did this all happen, or why does my mom yells at the television and throws things every time Obama’s face shows up on the screen I can give a proper answer.

Yet, we must realize the situation is still fluid, and we certainly don’t know the whole story regarding how all of the dominos have fallen or in some cases been pushed. While I want to agree with Dr. Hauk and state I don’t think today’s situation is greater than the problems our nation experienced in the 1930s especially listening to some of the folks including my parents who lived through the events I honestly have to say I don’t know…because this historical chapter is still in play.

Dr. Krassimir Petrov, a professor of Macroeconomics, International Finance, and Economics at the American University in Bulgaria, wrote a great article at The Market Oracle in November, 2008. He states, “At its core, environment of the 1990s, and the response of the Fed to the tech-telecom bust has created an economic environment that has encouraged the repetition of the very same mistakes that led to the Great Depression.”

Dr. Petrov then lists several obvious parallels to the current crisis that include:

*Asset Bubbles…first in the stock market during the 1990s, then in real estate during the 2000s, pretty much mirroring the stock and real estate market bubbles of the 1920s.

*Securitization…Although not in the very “ultra-modernistic” form and shape of the 2000s, with slicing and dicing of pools and tranches of seniority, it was widely recognized in the 1930s that securitization during the 20s drove the domino effect in the U.S. financial system during the Great Depression.

*Excessive Leverage…It was very clear back then that the root of the problem was not deleveraging per se, but the excessive leverage that took place prior to the deleveraging process. “Investment Pools” were then instrumental in both the securitization and excessive leverage, just like the Hedge Funds of today.

*Corrupt Gatekeepers…accounting firms aided and abetted the Environs and Worldcoms and in the current crisis we are seeing the same thing (see the most recent report from ABC's Brian Ross) and following the Depression the SEC was created due to the corruptness in the 1920s.

*Financial Engineering…We are led to believe that financial engineering is a rather recent phenomenon that flourished during the New Age Finance Era of the last 15 years, yet financial engineering was prevalent in the 1920s with very clear goals: (1) to evade restrictive regulations, (2) to increase leverage, and (3) to remove liabilities from the books, all too familiar to all of us today.

*Lagging Regulations…Understandably, regulations should have forseen today’s financial problems and should have been introduced before the crisis.

*Market Ideology…Laissez-Faire reigns, but we need to remember the money markets are not really free

*Non-Transparency…Originally, lack of transparency was designed to fool the markets; ironically, modern-day financial executives have gotten to the point of fooling themselves.

But then Dr. Petrov takes a turn and states the current mess will be judged greater than the Great Depression. I wonder what moniker history will finally give this time period….the Great, Great Depression? The Greater Depression?

Here are Dr. Petrov’s six reasons why this period will be judged greater:

*Overvalued real estate…The real estate market has been driven by a number of innovations in real estate finance

*Total U.S. credit – Credit makes leverage…the more credit in the market, the more leveraged it is

*Explosion of Derivatives…Warren Buffet has linked derivatives to ‘financial weapons of mass destruction.’ Derivatives, as well as ‘Value at Risk” (VaR), has skyrocketed in recent years with the potential to destabilize the financial system for decades…The unwinding of these derivatives could only be compared with a nuclear explosion in the financial system.

*Dow-Gold ratio…[This] ratio represents the most important ratio between the relative pieces of financial assets and real assets…When leverage in the financial system increases significantly, so does the ratio. When leverage increases, so does the ratio. A high ratio is interpreted as an imbalance between financial and real assets – financial assets are grossly overvalued, while real assets are grossly undervalued. It implies a correction eventually will be necessary – either through deflation, deleveraging and a collapsing stock market, or through inflation, which implies stagnant market for many years and steadily rising prices of real assets, commodities, and gold, usually associated with stagnant economy and typically resulting in stagflation. Deflation occurred during the 1930s while stagflation occurred during the 1970s.

*Global Bubbles…It is impossible to make direct comparison with the 1920s, but today the global economy is rife with bubbles. Back then in the 1920s, the U.S. had its stock and real estate bubbles, while the European communities were struggling to rebuild from the devastations of WWI that ended in 1919.

*Collapsing Bretton Woods II …The global monetary system was on a quasi-gold standard during the 1920s….While the media describes the problem as one of illiquidity and confidence, a more serious analysis indicates that boom-time credit has been employed unproductively and so losses must be incurred. In other words, scare capital has been misallocated, poorly invested, and effectively wasted. No amount of money or fiscal policy can fix the errors of the past, just like no modern treatment can quickly restore to health a drug addict debilitated from a decade-long drug abuse.

If Dr. Petrov is correct even harder times are coming. Harder times regarding life choices and harder times in trying to figure out how to teach this mess because for every economist like Dr. Petrovthat argues we are entering a period worse than the Great Depression there are just as many stating we are just in a slump and no comparison can be made.

For me….for now...the jury is still out.

The Chicken or the Egg

Which came first….the chicken or the egg?

The question goes back to ancient times when philosophers debated the origins of the universe including Aristotle, Plutarch, and Macrobius. More recent discussions have taken place with Steven Hawking and others. Here's an article regarding the question from 2006 that purports the issue has been solved.

In education we have our own chicken or the egg dilemma. Which came first….the student or the teacher?

Think about it. Students can’t exist without a teacher. Even students conducting independent study have some sort of advisor, guide, or text to teach the student. On the other hand teachers can’t exist without a student. If we are going to teach there has to be a student to teach.

So, when it comes to making educational sacrifices how do we decide who is more important…the teacher or the student?

Who should come first in education?

I’m partial to the notion of putting students first…..ALWAYS, but tough economic times really shows the mettle of some folks. They either get it, or they don’t.

It seems like Americans across all socio-economic boundaries are all re-learning economic lessons these day in a very hands-on, real life fashion. Every week I learn of more and more of our friends and family who have been let go from their jobs.

Conduct a Google blog search using the key words “hiring freeze for teachers” and this is what you find: link after link to various articles regarding hiring freezes in public school systems and university systems across the United States. Here’s an article where teachers are contemplating returning their raises to their cash strapped district.

From time to time I join in on some of the education discussions on the Topix page for my hometown of Douglasville, Georgia….a suburb of Atlanta. One particular discussion touched on the subject of a hiring freeze and the general public was debating where cuts should be made. I entered the conversation to add more information regarding why school nurses are needed in today’s schools considering all of the medicines and chronic…often life threatening burdens our students carry around with them every day.

Then I made pushed the evelope….I issued my opinion stating that if employees were given their pink slips then cuts should be made across the board and not just in the classroom. My exact statement was, “As far as [dismissing] teachers…I think we could lay off a few of the paper pushers at the county offices for local school boards.”

A gentleman using the screen name “Coach” stated, “If you think about the implications of such a horrible statement before you post it, you might reconsider it. It is some of those paper pushers, not all mind you, that is fighting for teachers jobs.”

I countered, “Not quite sure what you mean by implications…No…I think I’ll stick by my statement. I’ve been involved with three different school systems as an employee, very involved parent, and observer and can truthfully say in “most “ systems there are too many chiefs and not enough braves.

Note the keywords in my post…”most” and from the original posting…”few.” Not all paper pushers as I described them are essential and yes, I do realize there are several great educators out there who end up riding a desk. Many are my friends. We need them, and they do a great job, but there are several [examples] of dead weight out there as well. In all three systems I’ve been involved with the county office has its fair share of folks who were involved in some sort of situation where I would have lost my job [for some of their antics]…yet they get to ride a desk. Yep, I’ll stick by my statement especially since it was not a blanket statement regarding all board employees.”

Clearly, clearly I rattled this guy’s cage for some reason.

He stated, “I am not as smart as you think you are, but here goes…It seems like it’s easy to say, and it has become the first think that is said. I am not at the central office, but I am an administrator…, and I have over the past month or so been sick to my stomach at the prospect of losing teachers. I have lost sleep. I think about families and mortgages and student loans and marriages and kids…[I] get mad and then I get industrious and try to think of who might need who I am losing and I make phone calls and go see people. I help teachers to have better observations. I talk to teacher eligible for retirement about the situation. I re-evaluate what can be done and change my minds hundreds of times on just my opinion on the matter (I do not have the final decision anyway).

And then I walk down the hall, and hear horrible comments like fire “paper pushers” at the board or ‘They are going to fire teachers? What they really need to do is cut down the number of administrators we have.’ And again I think about families, and relationships, and homes, and it pisses me off that the person for whom I have been fighting to keep and losing sleep over despite the fact he/she has problems calling parents, expects me to do his/her classroom discipline, and can’t figure out why 40% of his/her students are failing. I have been fighting to keep them for several reasons. They show signs of hope, they really do love kids, and they have families…just like people I know at the board of education.

It’s a shame that bad economic times brings this out in people.

So stand by your limited convictions, and go start another blog.

Coach’s response caused me great pause. I don't really understand why someone has to resort to personal attacks when discussing an issue, but I finally responded, ”….thank you for clearing up your obvious frustration in the process of letting staff go. I certainly understand where you are coming from as far as having the responsibility of telling teachers they may not have a contract next year, and I in no way meant to belittle the burden all principals have to shoulder at this time…I understand how you have a heart even for those staff members that ‘piss you off’…the staff members that despite ‘the fact he/she has problems calling parents, expects me to do his/her classroom discipline, and can’t figure out why 40% of his/her students are failing.’

Your comment ‘They show signs of hope, they really love kids, and they have families…just like people I know at the board of education’ tugs at my heart.

I’ve seen those educators as well, but at some point we have to understand that the students come first, and if a staff member isn’t coming around not only could they be out of a job…you could be out as well, and the education profession continues to have egg on its face.

How long do we wait for those educators to “get it”? The educators you describe aren’t just newbies, and you and I know it. I’ve seen quite a few 30 year veterans with complaints against them as long as my arm and yet…someone is still waiting for them to “get it.”

I’m sorry my comments seem to make you think my convictions are so limited. One or two comments on a message board certainly do not clue me into who you are or tell you who I am…However, I would think twice before I would belittle an educator’s efforts at educating the general public about his or her subject matter as I do at my blog History Is Elementary. I began my site with the full knowledge of my last principal. She understood the importance of what I was doing even when I have spoken out on issues in a direct opposite line from hers.

She understood that the only way we are going to ever get out from under many of the misconceptions and perceptions the general public has about what we do and how we do it is by speaking out.

Coach didn’t respond to me again, so I don’t know what he thinks about how long it should take for a teacher to “get it”. One year? Two? Five? Ten?

If students should come first….we can’t keep holding onto staff waiting on them to come around. There are plenty of people out there waiting in the wings that “get it” and want to get on with it.

In the meantime, I’m sticking to my original statement on the messageboard. If cuts are made….if sacrifices are requested it should be across the board and not just classroom teachers.

What do you think?

Eating Up the Bread of Our Children

Most dictionaries define pork as a government project or appropriation that yields jobs or benefits to a specific locale and patronage opportunities to its political representative.

A great article over at Harper's Magazine advises “pork-barreling as a legislative epithet is a pre—Civil War coinage that referred to the custom of handing out salt pork to slaves, who would crowd around the barrels that held it, and indeed, members of Congress have raided the federal treasury for home-district boondoggles ever since the earliest days of the republic.” John Ferejohn’s book, Pork Barrel Politics: Rivers and Harbors Legislation, 1947-1968 confirms this explanation.

To qualify specifically as pork legislation must meet seven criteria per the Citizens Against Government Waste and the Congressional Porkbusters Coalition. They are:

*the legislation must be requested by only one chamber of Congress;
*cannot be specifically authorized;
*cannot be competitively awarded;
*has not been requested by the President
*greatly exceeds the President’s budget request or the previous year’s funding;
*serves only a local or special interest.

The earliest form of pork barrel spending would be the Bonus Bill of 1817. It was introduced by John C. Calhoun and it involved highway construction linking the East and South with the western frontier. Part of the controversy was the source of the funds….an earnings bonus from the Second Bank of the United States. The proposed bill was eventually vetoed by President James Madison.

Calhoun actually justified his pork-barrel spending as many Congressmen do today. He used the Constitution to bolster his argument citing Article 1, Section 9, Clause 7 which Calhoun argued actually gives Congress the power to spend by stating, “No money shall be drawn from the Treasury but by consequence of Appropriations made by Law.”

Years later President Grover Cleveland would also use the Constitution to support his nickname as the “king of the veto” because he rejected hundreds of congressional spending bills during his two terms. He continually stated he could find no support in the Constitution for the appropriations.

Over at the site for Citizens Against Government Waste they have a well-documented discussion regarding the history of pork-barrel spending. I’ve included some of it here:

Washington insiders have espoused this “power of the purse” to validate Congress’s mushrooming appetite for pork. Sen. Larry Craig (R-Idaho) and Rep. Mike Simpson (R-Idaho) have argued eliminating earmarks would equate to an unconstitutional delegation of spending discretion to the executive branch. Sen. Harry Reid (D-Nev.) said that earmarking has been going on “since we were a country.” A spokeswoman for lobbying from Cassidy and Associates said, “Earmarking has been going on since the time of George Washington.”

The First Congress rejected a bill to loan money to a glass manufacturer after several members challenged the constitutionality of the proposal. In a debate during the Second Congress over a bill to pay a bounty to New England cod fishermen, Rep. Hugh Williamson of South Carolina argued that it was unconstitutional to gratify one part of the Union by oppressing the other…destroy this barrier,-and it is not a few fishermen that will enter, but all manner of persons; people of every trade and occupation may enter in at the breach, until they have eaten up the bread of our children.

Thomas Jefferson made a similar prediction in a letter to James Madison dated March 6, 1796, challenging Madison’s proposition for improvements to roads used in a system of national mail delivery. Jefferson wrote:

Have you considered all the consequences of your proposition respecting post roads? I view it as a source of boundless patronage to the executive, jobbing to members of Congress and their friends, and a bottomless abyss of public money. You will begin by only appropriating the surplus of the post office revenues; but the other revenues will soon be called into their aid, and it will be a scene of eternal scramble among the members, who can get the most money wasted in their State; and they will always get most who are meanest.”

Madison, the Father of the Constitution, actually vetoed the public works bill stating the clause “to provide for the common defense and general welfare” did not grant Congress additional powers not enumerated in Article 1, Section 8.

It would be hard to imagine a more convoluted, inaccurate, and self-serving interpretation of the Constitution and U.S. history. The Founding Fathers deemed that Congress could only spend money in pursuant to those powers specifically enumerated in the Constitution. The 10th Amendment leaves all other responsibilities to the states.

…and like many things dealing with the U.S. Constitution the debate regarding what constitutes appropriate appropriations will continue.

The Bailout Bill: 13 Examples of Pork

A three-page bill becomes 450…..ten dollar words, more compound sentences, extra commas, a list of definitions…..What caused the bill to grow, and grow, and grow?????

Specifically....pork.

With enough thrust pigs have no problem flying.

I’ve been hanging on to that statement for awhile now….just looking for the right place for it, I guess.

Well, with the thrust of of a few million here and a few million there the bailout bill has become the largest pig I’ve ever seen, and it has been thrust upon the backs of John and Jane Q. Taxpayer.

Here are 13 examples of pork Congress has thrust down our throats:

1. Let’s start with section 305 of the bill titled “Modifications of Energy Efficient Appliance Credit.” This is the part of the bailout where manufacturers of energy-efficient appliances will qualify up to $250 in federal tax credits for each machine they produce over the next three years. You and I will be paying over $322 million for this serving of pork over the next 10 years.

2. Are you a rum drinker? Thanks to the bailout bill Puerto Rico and the Virgin Islands will receive an extension on tax rebates they already receive on rum duties (taxes).

3. Hollywood has nothing to fear….the bill includes two separate tax breaks for film companies that produce movies in the United States…..$500 million in tax breaks.

4. U.S. Representative Don Young (R-Alaska) voted against the bailout at first. I wonder...what could have changed his mind? Could it be the fact that the bill now signed into law contains six pages of earmarks to benefit Alaskan fishermen who were victims of the 1989 Exxon Valdez disaster for a whopping total of $239 million?

5. Check around the exterior of your workplace tomorrow. Look for all of those bike racks that surely must be there. Our esteemed legislators approved a $10 million credit to help employers defray the cost of storing the bicycles of their employees who commute to work.

6. NASCAR fans have nothing to dread. The bailout bill creates a seven-year cost recovery period for construction of a motorsports racetrack. The IRS wanted to increase the depreciation period from seven to fifteen years cutting the trackowner’s depreciation in half. You and I will pay $100 million to help out the trackowners.

7. Texas, Nevada, Florida, Washington, and Wyoming apparently are very concerned about citizens in their states who do not pay state income taxes. Now they will be able to deduct the amount of sales tax they pay over a year from their federal income tax for two additional years.

Let me get this straight….the citizens aren’t paying state income tax AND they get to deduct sales tax they have paid on their Federal return?

8. This one makes me feel all warm and fuzzy…..$148 million for the extension and modification of duty suspension on wool products, wool research fund and wool duty refunds. Ok, change warm and fuzzy to itchy.

9. American Samoa will benefit from provisions costing you and I $33 million that are meant to help economic development.

10. Around pages 262 and 263 of the bill you can locate the following language….”certain wooden arrows designed for use by children”. Basically the bill exempts arrows from an excise tax of 39 cents. Huh? Are large amounts of American children using arrows?!?!

11. $3.5 billion (yes, billion with a “B”) has been set aside to force health insurance companies to cover mental illness.

12. Section 324 of the bailout bill extends an existing program through December, 2009 regarding the contribution of books to public schools and the tax credit that goes along with it.

13. Finally, Section 201 involves cellulosic biofuel and the tax deduction that goes along with owning a facility that produces it.

Would you like a little sauce with your pork?

You can locate other blogs participating in Thursday 13 here

The Culture of No Fail Failure

This bailout thing has me pissed off…royally. How has the greatest nation on earth….the nation that can do anything….the nation that was forged when a group of so called rabble-rousers stood up to the King of England…the nation that mobilized one of the greatest fighting forces in history and defeated Hitler….the nation that walked on the Moon….the nation with grit, determination, and know how….how have we sunk to the point where we no longer allow failure?

Little Johnny has missed 90 days of school, but since “the test” will catch him next year he moves on ahead to fifth grade unprepared. I mean we wouldn’t want his little psyche hurt, would we?

Little Susie gets a trophy for cheering because…..well, she showed up to one of the three practices each week and well….all the kids should get a trophy so everything is fair.

The end of the school year finds me scrambling for award titles I can give certain students…..the students who don’t deserve one…..the students who have to receive an award because the administrator sends out a directive that “all students must receive an award” mainly so said administrator doesn’t have to deal with the student’s mom or dad (more than likely the reason behind why the kid doesn’t deserve one in the first place). These are the students who scream at me, the students who threaten me, the students who never complete an assignment, the student who I find on a daily basis hanging by one arm from the boy’s restroom ceiling, the student who bullies other students…..yeah, them. They get awards too, because….well, we need to be fair, remember?

What we are doing with this type of mentality is creating a culture where no one takes responsibility, the work ethic is basically left for dead along the highway, and then we all have the audacity to stand around, wring our hands and wonder why in the hell education in the United States isn’t improving.

In our (yes, I participate, but only because I’d lose my job if I didn’t) culture of never failing we are actually doing the opposite….we are failing, and we are doing a magnificent job of it.

So much so it has infiltrated the halls of higher education where students are ill-prepared, but walk about with an air of entitlement. Our no failure culture has crept into the business world because that’s were those entitled college and non-college students eventually end up.

….and now, our no fail culture has reached the hallowed halls of the US Capital. The banking firms that are being bailed out have known for months…several months things were going south. I mean, come on, you’re making money providing mortgages to folks with no….absolutely no qualifications. Why? Well, the non-working, non-asset holding public deserves a nice home in the suburbs. It’s a nice thing to do.

No job or a job barely making $25,000, barely a car, no savings, and bingo! You’ve hit the jackpot. You’re sitting pretty in a nice suburban home with three bedrooms, a front lawn, and a real driveway. Soon your neighbors get upset with you because your grass needs cutting, and they aren’t too happy about the cars lined up along the street because the driveway is for the grill and the parties, right? And suddenly those mortgage payments become due and as the months go by the payments begin to increase because you didn’t read the whole document. The cry goes out, “There ought to be a law….how dare those mean mortgage companies make people sign mortage deals they can’t handle?!?”

Then as the foreclosure signs go up and home after home on your street is abandoned and left derelect there comes the cry, “These people can’t help it. Something should be done to help them keep their home.” They have no responsibility for taking on a debt they couldn’t handle. Why? Well, why should they? I mean what’s government for….it’s there to help people, isn’t it? The government should make sure those people keep their homes.

….and now….

The banks can’t get rid of their foreclosed properties fast enough, the money that was supposed to come in from all of those fantastic sub-prime deals didn’t materialize (why would they think it would?), they’ve borrowed money from other financial institutions to stay afloat creating a house of cards that flew to the floor last week. Once again the cry rings out, “Oh my gosh….we can’t let them fail! Something must be done…..they must not have any responsibility in this. Why? Well, why should they?”

John Q. Public is ready and waiting to foot the bill. We pay taxes and don’t even realize we’re doing it since the government makes it easy on us by taking it from us before we actually get our paycheck and don't forget all of those little embedded taxes.

Funny though….if you really take a minute to notice…..the politicians are busy pointing to the folks on the other side as the culprits in the mess, but the only people taking the responsibility is the tax payer.

Until we understand as a nation that government is not there to wipe our rear ends, hand us a bottle, and burp us….until we understand as a nation that each of us holds the responsibility for our own version of the American dream….until we understand that as parents we, not the state, are responsible for our children’s education….until we understand that owning a home is not a right... it’s something we do when we can afford it… then this mess will continue.

Responsibility…..silly, silly word!