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David Brooks says the Paul Ryan Budget proposal is a bold step forward that is badly needed in this debate on health care, even though it has some grave weaknesses which need to be corrected. It is a bold step forward because he says Democrats say they want no middle class tax increases, or are not willing to say what kinds of tax increases they support, and yet they believe the Medicare and Medicaid and Social Security programs are worth preserving. This is'nt based on reality. He cites the weaknesses, beginning with the one discussed in David Leonhardt's column in the New York Times on April 7, 2011. Too many Americans pay too little into Medicare taxes and expect to collect several hundred thousand dollars more in Medicare benefits. The example given in Leonhardt's column is from a study that shows 56 year olds with average earnings pay about $140,000 in dedicated Medicare taxes over a lifetime, and then go on to collect $430,000 in benefits. Middle class and affluent boomers can't get off paying their share like everybody else. Its just the right way for their children and the nation's children. Ryan's plan excludes older people reaching retirement in ten years. The other major weakness is that the cuts are too deep. Things like the Pell grants which Ryan proposes to cut back to 2008 levels need to be preserved, and more money has to go into science, education and research and early childhood education for the U.S. to be competitive with China and India. The Ryan proposal places cuts that would be required so that tax revenues need to be at 18% of GDP. The number where a larger consensus exists is for tax revenues at 20% of GDP (also supported by business and the Wall Street Journal's editorial columns). This would preserve programs that are most productive for the economic future of the U.S. Ryan's proposal lets the hope for reducing costs of medical care rest entirely on future retirees deciding how much medical care (tests, procedures etc) they consume through larger cost sharing. Yet a structure and framework is needed to manage these costs effectively, and some combination of incentives to retirees to control costs and an effective structural framework is needed. ...

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Snowden tells the WP's Gellman he feels vindicated by Judge Leon's describing the NSA security surveillance of phone records as "Orwellian" and the president's own panel calling for changes. He says he brought the same issues up for review by his superiors at the NSA. His goal says Snowden was for the public to have a say in the expanding information collection by the NSA, as the normal processes of review by Congress and the Foreign Intelligence Surveillance Court had failed. For Snowden personally this meant making a decision in unknown territory not knowing how the public would respond, and what impelled him to act was the idea that doing something was better than the alternative of doing nothing.He says he considered the fear that the public would be apathetic- as it turns out the public has been anything but apathetic. After 9/11 defense and security officials operated on the basis that complete knowledge of information about U.S. and foreign citizens was needed, this gives the public an opportunity to test that assumption and see if that is itself a problem in a free society and too high a price to pay. Considering that Al Qaeda and other movements in the Middle East are a result of past U.S. support to dictators and autocratic regimes which have turned some parts of Islamist movements into forces hostile to the U.S., changes in U.S. policies to support freely elected governments are a better solution than hyper extensive policing and surveillance- defeating the problem at the source. That process has already been underway in the U.S.-in the media, and with policies supporting freely elected governments encouraging the people in the Middle East to decide their own future. With the change in policies bringing Arab and Muslim opinion on the side of the U.S. that chapter of hostility to the U.S. may be closed and a new chapter opened, making this an opportune time to close the chapter of hyper surveillance and return to surveillance that does not violate U.S. citizens right to privacy. Technology also played a part making such hyper surveillance possible- such as collecting the entire Library of Congress information in less than 15 seconds- and Congress and the Surveillance Court failing to address the issues raised by techonological advances, similiar to the way the S.E.C. and regulatory agencies failed to keep up with the changes in the financial system till after the 2008 financial crisis....

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The Panic of 1907, the run on the bank for the Knickerbocker Trust Company, and its collapse. The intervention of JP Morgan that year came too late for Charles Barney, the President of Knickerbocker Trust, who shot himself and died after 4 hours. In the preceding years Knickerbocker went through rapid growth in deposits, and in 1903 Barney even had a huge Corinthian columned structure of Vermont marble, and a lavish banking room inside built at Fifth Avenue and 34th Street. See the pictures of that structure. It shows how things end up with rampant expansion. Growth, rampant expansion, flamboyant display, excess, crisis, panic, disaster and rescue. A cycle that repeats itself as new generations have no recollection of what had happened before, and no sense of history. With the expansion a sense of exhilaration and selfcongratulation makes way for abandonment of caution, excess, paving the way for disaster. And this hits those involved in the excess as the AIG's and the Citigroups, but also those who have gone to sleep like the GM's, and those who have some exposure like GE with its GE Capital business. What is different in today's economy, and true of the 1930's, is the global nature of this when the excesses are of a global nature, and the countries are intertwined. In this sense the current period involves Asian economies also, in addition to the European and American economies that was true in 1930's. The contrast with today is that a year later by October 1908 the panic had ended, and depositors of the Knickerbocker and other banks had received their money in full. A recovery was on the way. This was isolated to the US economy and to the banks. The global crisis of the 1930's was 23 years away. In 1997 the Asian economies like S. Korea, Thailand and Indonesia suffered a banking crisis, before this there was a finacial crisis in Mexico, and around this time a financial crisis in Russia. There were smaller crises like the LTCM crisis in the US but most were localized like the 1907 Panic. Now 11 years after the 1997 crisis in Asia, we have a global crisis and it is multifaceted, affecting banks, but also consumers and export driven economies in Europe and Asia with spillover effects. ...

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How ArvinMeritor navigated the treacherous waters of the automotive parts buzsiness since 2000 when the company was formed taking in the automotive business of Rockwell International in Troy, Michigan. The combination was designed to bring the automotive parts business for roof and door systems, chassis and wheel products with the comercial truck business which makes drivetrain systems and components like axles, drivelines and braking systems. The business is in turmoil and ArvinMeritor last recorded a profit in 2005. Here is how they did it. First, the combination provided some linited diversification for the cyclicality of the automotive business passenger cars and trucking together. By 2004 the foreign makers especially the Japanese were taking market share from the Detroit Big Three car makers which only accelerated after that when the Big Three overconcentrated on SUV's and had no competitive car lineup to match the Japanese in 2007 and 2008. The Big three closed plants and companies like ArvinMeritor closed plants also. In the last couple of years first GM and then Ford began to emphasize emerging market countries like China, Russia, Brazil and India. Wagoner GM's CEO in citing improved results in 2008 specifically referred to the $500 million profit in Brazil as making this possible. He also said that when investors see the improved results so early they are forgetting that the model that GM has setup has changed completely from the model that investors were used to in previous years which was a large and growing US focussed market base. Now its a global focussed market base with particular focus on emerging markets. ArvinMeritor has followed this pattern and set up parts plants in new countries like Russia to supply the Big Three's plants there. But it appears from Phil Martens, Arvin Innovation's CEO's statement that only 20% of global automotive sales for ArvinInnovation, the automobile part of the busines that is being setup as a separate company, are coming from the Big Three of Detroit. And 65% of the sales are coming from outside North America. Which suggests that 15% of sales are coming from the foreign carmakers in North America. ArvinMeritor closed 11 plants in North America and the new company Arvin Innovation has 42 facilities in 16 countries with sales of $2.2 billion in fiscal 2007. ...

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Interesting when 53 economists were surveyed by the WSJ 51% attributed the rising fuel prices to demand from China and India, only 15% attribute it to supply constraints, and 15% attribute it to foreign exchange issues and 11% attribte it to speculation. That is that 3 times as many economists think demand from China and India is the culprit compared to supply constraints, and twice as many economists think foreign exchange speculation and central bank issues are the cause than supply constraints. Why? Once you remove this outsize demand from China and moderate the growth there then the supply constraint does not become so critical. In previous years declining prices made exploration less attractive or the fact that price was not stable going up and then coming down making it difficult to invest based on a stable return. Now the basic component of additional energy for countries like India and China's people increasing demands could be accomodated within existing and new supplies coming onstream, without the red hot demand component of growth rates at above 10% and close to 10% in India and China exacerbating prices upto some current estimates of $200 per barrel. In effect the price spikes would reverse the demand growth, and the essential needs of more people needing everything from electricity and fuel and gasoline to improve living standards in China and India at a moderate pace would prevent oil prices from falling to levels that make aggressive search for new oil finds and increased production from more difficult locations unattractive. This would correct the previous imbalance where exploration at low prices near $30 or $40 a barrel and uncertain price levels made for little new exploration while consumers were on a consumption binge in the use of gasoline which created this present situation. And in future oil at sustainable price levels would make it easier to meet the needs of poorer people in countries like China and India as more aggressive growth resumes at some future date after this expected worldwide slowdown. So correcting the previous and current imbalances helps to create a better situation in the future to better meet the hopes and expectations of millions of people in the developing countries for better nutrition, better electricity supplies and other needs of modern living....

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Amazing! Just fresh from the foreclosure crisis and as the worst of the foreclosures are taking place between now and 2009 for subprime and other loans homebuilders and home sellers are financing the 3% downpayment required by FHA for loans from the is government agency. What do they hope to accomplish sell homes and have the government foot the bill when these homes also go into foreclosure in a downturn? Already above average default rates for seller assisted down payment programs will make this government agency the Federal Housing Administration ask for a government subsidy for the firtst time in its 74 year history. The FHA will need $1.4 billion next year. FHA estimates that down payments provided by nonprofit groups account for 34% of all 200,000 loans backed by the FHA so far this year, up from 18% in all of 2003, and less than 2% in 2000. And FHA says that borrowers are 2 to 3 times as likely to default on their payments when they receive a down payment from a nonprofit. The reckless manner in which homebuilders are selling these homes is unbelievable, more so in today's difficult economy. See the ads for these homes in this WSJ article and its is shocking. D.R. Horton is advertising 100% financing for 2 and 3 bedroom homes near the beach in Maui, costint $498,000, and a Seattle area builder Quadrant corporation is advertising townhomes for $500 downpayment. Use your coffee budget says a online promotion in the St Louis area! And though the risks are known to housing officials in the government they face a battle from well funded and coaltition of homebuilders, lowincome housing and minority groups. though its hard to understand how a home that ends in foreclosure for a low income group or minortiy group can benefit a minority group. Yet the Black and Hispanic caucus, people in Congress like Maxine Waters and Barney Frank still think it does as they continue to support the lobbying that keeps these kinds of loans going. Two examples given here of a Dick Whitmore and a Gloria Harris one saying it was impossible for him to come up with the $5000 downpayment and the other saying she was living from week to week suggest that they are likely to end up having difficulty making payments. ...

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House Speaker Pelosi and Majority leader Reid prempt the Bond-Levin proposal to use the $25 billion of funds from the energy efficiency retooling for operating expenses. They said there were just not enough votes to pass the change. And the general feeling was that the automakers had hurt their case more than they had helped it after 2 days of hearings in the Senate and the House on November 18-19, 2008. Pelosi put it this way, "until they show us the plan, we cannot show them the money." The automakers were asked to come up with a plan that shows accountability and viability. Pelosi is from California, a state that has seen its mandate for controlling auto emissions held up by the automakers lobbying and the Bush administration EPA, and which favors higher fuel efficiency, higher than the numbers passed in recent legislation, also held up by the automakers lobbying efforts. So there is a three way battle going on with the states in the midwest and the Bush administration pitted against Pelosi-Reid-Waxman and the younger Obama supporters in Congress for the $25 billion in energy efficiency retooling to be used for salaries and so on. And the other battle pitting the midwestern states against all those who call for strict conditions including firing management, and serious restructuring within or outside prepackaged bankruptcy. Reid and Pelosi called for Congress to reconvene on December 2. Reid said that what happened this week has not been good for the auto industry,, which is ominous, because the hearings showed an unrepentant automaker management which did not accept any of the errors made by management long before the credit crisis in October, which riled Congressmen. Another thing was the reference to corporate jets which came up in the hearings, and Reid emphasized as did others that these guys flying in in their corporate jets did not send a good message to people in Searchlight or Reno, Nevada. The reason this is important is that executive compensation and golden parachutes are moving right to the top as they do in such times, as evidenced by the story in the Wall Street Journal frontpage on November 20 about 120 executives making $21 billion in compensation in the last 5 years including failed companies, see the link. . ...

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Health insurance premiums for family plans increased by 9% in 2011 according to a survey by Kaiser Family Foundation. A similiar survey by Mercer showed premium increases around 6%. Another change is that health insurance plans are becoming less comprehensive and deductibles are higher, with higher copays and employees contributing more to premiums.

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Christina Romer, former chairwoman of Obama's Council of Economic Advisors, puts forward a strategy to get deficit reduction and avoid the "fiscal cliff" of automatic cuts based on the Simpson-Bowles commission recommendations to reduce tax expenditures, deductions and loopholes. She says let Republicans in Congress determine where spending on infrastructure improvements should go as the needs are so diverse and widespread and this will get constructive input to improve the focus on vital areas. Earlier efforts on road building for stimuls spending were criticized for generating temporary work but not creating long term benefits and synergies.

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India's Supreme Court ruled that Vodafone PLC does not owe $2.2 billion in taxes on the acquisition of a majority stake in Hutchison Essar Ltd. The Indian tax authorites were directed to return 25 billion rupees ($500 million) which Vodafone had deposited. With declining foreign investment in India and a lower growth rate of about 7%, this tax case had assumed larger significance. The Supreme Court decision emphasized that taxing Vodafone "would amount to imposing capital punishment for capital investment." Vodafone had difficulties in its Indian operations- a $3.4 billion impairment charge in May 2010 because of strong competition. Vodafone is estimated to have invested $26 billion in India since 2007, and in the fiscal year ending March 2011 showed only $115 million in profit on sales of $3.86 billion.