After taking on Fox and the Chamber, the WH takes on Edmunds.com

CSM
Edmunds.com CEO Jeremy Anwyl is defending his company’s claim that the Cash for Clunkers program was basically a lemon, saying a recent report simply reiterated what’s well known in the car industry: Incentive programs are “eyewateringly expensive.”

After taking on Fox News and the US Chamber of Commerce as part of a new media strategy aimed at perceived political opponents, the White House turned its blog on Edmunds’ critical report of the $3 billion Cash for Clunkers program. In a post titled “Busy covering car sales on Mars, Edmunds.com gets it wrong (again) on Cash for Clunkers,” the White House charged the firm with “trying to grab headlines and get on cable TV” while the analysis doesn’t withstand “basic scrutiny.”

So what did Edmunds do to warrant a snarl from the White House? For one thing, its report did grab headlines, including a well-read Monitor report.

According to Edmunds, only 125,000 of the 690,000 cars sold during the taxpayer-funded promotion were sales inspired by the program as opposed to those that would have happened anyway. Edmunds then divided that number by the total price tag and voilà: Each car purchased cost the American taxpayer $24,000.

Besides the no-nonsense price tag (an Edmunds’ specialty) there’s nothing new about the premise of the report, Anwyl contends. (The White House used dealer reports to highlight the program’s success while Edmunds used comparative historical sales figures to get its numbers.)

“We got real math behind this for the first time,” says Mr. Anwyl in a phone interview, before landing a friendly jab referencing this summer’s “Beer Summit” at the White House. “We need to send an invitation to the President to come out, we’ll have a beer and a photo opportunity, and walk him through the data. He might find it eye-opening.”

More seriously, Anwyl says: “It’s shocking and somewhat troubling that this is something the White House would pick up. This administration more than any other administration is invested heavily in the auto industry, so you would hope that they would had done a little more homework than their response suggests.”

Audit the FED is DEAD

Bob Ivry
Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been “gutted” while moving toward a possible vote in the Democratic-controlled House.

The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today.

“There’s nothing left, it’s been gutted,” he said in a telephone interview. “This is not a partisan issue. People all over the country want to know what the Fed is up to, and this legislation was supposed to help them do that.”

The Fed, led by Chairman Ben S. Bernanke, has come under greater congressional scrutiny while attempting to end the financial crisis by bailing out financial firms and more than doubling its balance sheet to $2.16 trillion in the past year. The central bank is also buying $1.25 trillion of securities tied to home loans.

Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.

Keith Kelly, a spokesman for Watt, declined to comment and said Watt wasn’t immediately available for an interview. Watt’s district includes Charlotte, headquarters of Bank of America Corp., the biggest U.S. lender.

Original Language

Paul said he intends to introduce an amendment to the bill when it comes to the House floor for a vote restoring the legislation’s original language.

Representative Barney Frank, a Democrat from Massachusetts and chairman of the committee, said in interview that he intends to ensure legislation would provide a time lag between FOMC actions and the reporting of them.

Such a provision would “lessen the market impact,” he said on Oct. 20. “The importance is to see that there are no abuses and to judge what they did.”

The legislation will probably be included in a broader Democratic package of financial-regulation changes in the House, Frank said.

I am the leader of a band of 8-to-12 looters, and I Am Your Worst Nightmare

Image by DVIDSHUB via Flickr

Jeff T.

I am the leader of a band of 8-to-12 looters. I have some basic military training. We move from place to place like locusts devouring everything in our path. My group is armed with light weapons and can develop and follow simple plans of attack. We take what we want by force of arms. We prefer none of our victims survive because that could cause problems for us in the future.

It has been six months since the grid went down. You and the other five members of your party have settled into what may be a long grinding existence. The every day tasks of growing and gathering have now become routine. The news from the outside is extremely limited but you don’t really miss it much. Life is simple but physically demanding.

Although things may seem stable you will need to keep your team focused and alert. This is your first and most important layer of defense. You should hold an immediate reaction drill once per week. Keep things simple. Practice a specific response to such threats as injury, fire, attack and evacuation. Despite the challenges you must maintain contact with those around you such as neighbors for vital clues that trouble is brewing. Regular monitoring the radio will be critical in providing an early warning of trouble. You may be able to safely interview refugees with risking your party. Keep in mind the information you get from them may not always be reliable.

While you have been farming I have been learning the best tactics to employ to seize your property and your goods. I have been refining them since we hit the road right after the lights went out. I have conducted eight “hits” so far and have been successful seven times. Here are some of my “lessons learned”.

Intelligence gathering and target selection is critical to my success. Targets include those who have large quantities of fuel, food and other valuable supplies. My posse is constantly questioning anyone and everyone we contact searching for this our next victim. Anyone who has ever had knowledge, even second hand, of your preparations is someone of interest to me. I may approach them directly or indirectly. If anyone knows something I will find out about it. Who seems well-fed? Who still has transportation? Who has lights? Who was prepared? Where are they exactly? Somebody talks, either in person or on the radio. They always do.

We search for victims night and day. During the day we are listening for the sounds of machinery, cars, tractors, gunfire or generators. Day or night without a lot of wind those sounds can carry for miles. At night I look for any sort of light. Even a small flash indicates somebody with electricity and that means a rich target. I always have somebody listing to the scanner for any news, leads or insecure chatter.

Operational Security (OPSEC) is an important concept for your entire group to understand and maintain. If somebody outside your circle doesn’t have a real need to know about your plans, preparations or procedures then they shouldn’t know period. Develop a cover story and live it like was a bulletproof vest. It is no less important to your protection and survival. During an event you need to blend in with the surrounding environment. Carefully observe noise (such as generators and other engines) and light discipline especially at night. If you need to test fire weapons do it in one sequence to avoid a prolonged noise signature.

Once I find and target you reconnaissance of your retreat is my next step. Only a fool would try to rush in and try to overwhelm a group of “survivalists”. We had a bad experience with that during our second hit. Now we spend at least a day or two trying to size up a large opportunity and the best way to take it down. I will observe retreat activity from a nearby-concealed position. I will get an idea of your numbers, weapons, routines and so much more by careful surreptitious observation. If your group seems alert, I will try and trigger a false alarm with a dog or child to watch your reaction to a threat. That helps me know how you respond, where you are strong and how to attack. I may also obtain a topographical map of the area to identify likely avenues of approach and potential escapes routes you will try to use. I may coerce your neighbors into uncovering a weak spot or access point or other important intelligence. I also have a Bearcat handheld scanner. I will be listening for any insecure chatter from your radios.

Regular patrols at irregular intervals focused on likely observation points and avenues of approach could keep me at bay. You could put down sand or other soft soil in key choke points as a way of “recording” if anyone has recently traveled through the land. Dogs, with their advanced sense of hearing and smell are able to detect and alert you to intruders well in advance of any human. Motion sensing IR video cameras as a part of a security plan could play a part in your layered defense as long as you have power. A 24 hour manned observation point equipped with high quality optical tools is a must. It should be fortified and if possible concealed. It should have a weapon capable of reaching to the edges of your vision. Seismic intrusion devices, night vision and thermal imaging are phenomenal force multiplying tools. They can give you critical intelligence and warning. You should use them if you have them. Understand they are not fool proof and I can often neutralize them if I know you have them.

These tools and techniques provide you reaction time. Time to plan your response and time to execute that plan. Recognize that a “defender” is always at a disadvantage. By definition a defender will be reacting to my attack. Modern warfare has emphasized the ability of the attacker to operate faster than opponents can react. This can be explained by the OODA loop. Below are the four steps of the classic OODA loop. These are the steps a defender goes through when under attack.

1. Observing or noticing the attack.

2. Orient to the direction, method and type of attack.

3. Deciding what the appropriate response will be.

4. Acting on that decision.

As an attacker I will try and operate at a pace faster than you as a defender can adjust to. I will change my direction, pace, timing and method to force you to continue to process through the OODA loop. This creates confusion and wastes your precious reaction time. As a defender you will need to disrupt or reset your attackers timing with a counter-attack. When you are successful you become the attacker. Your defensive plans should utilize and exploit this concept. Here are a few scenarios:

1. Snipe & Siege

I will begin the attack when I can engage at least half of your party’s military age personnel in one coordinated effort. I will infiltrate my team into concealed positions around your retreat within 50 to 75 yards. I will target any identified leadership with the first volley. Two thirds of my people will be engaging personnel. The other group will target communications antennas, surveillance cameras and any visible lighting assets. I want your group unable to see, communicate or call for help. The members of my band will each fire two magazines in the initial exchange. Two thirds of my group will change to new concealed positions and wait. One third will fall back into an ambush of the most likely avenue of escape. We will stay concealed and wait until you come out to attend to your wounded and dead. We repeat the attack as necessary until any resistance is crushed.

Ensure you adjust the landscape around your retreat so that I don’t have anyplace offering cover or concealment within 100 yards of your residence. You can create decorative masonry walls that can be used to offer cover for personnel close to your residence. Fighting positions can be built now and used as raised planting beds and then excavated for use in the future. These can be extended or reinforced after any significant event. These structures or other measures such as trenching must be sited carefully to avoid allowing them to be used effectively by an attacker if they are overrun.

2. Trojan Horse

For one hit we used an old UPS truck. We forced a refugee to drive it to the retreat gate. We concealed half our group inside the truck. The truck was hardened on the inside with some sandbags around the edges. The other half of our group formed an ambush concealed inside the tree line along the driveway. We killed the driver to make it look good and had one person run away. Those preppers almost waited us out. After nearly three hours they all walked slowly down the driveway. They were bunched up in a group intent on checking out the truck and driver. It was like shooting fish in a barrel.

They could have worked together as group to sweep the area 360 degrees around the truck and they would have surely found us. A dog would have also alerted the residents to our presence. They could have taken measures to eliminate the vegetation offering us concealment on the road near the gate. They could have used CS gas or something similar to “deny” any suspicious areas. Lastly they could have done a “reconnaissance by fire”. Shooting into likely hiding spots, including the truck, trying to evoke a response. They should have established an over watch position with the majority of their group. This over watch group would have provided visual security and an immediate response if there were an attack. They were not expecting any additional threats. They didn’t consider that there might be additional danger lurking nearby aside from the truck and they died.

3. Kidnap & Surrender

A few weeks ago we surprised and captured a couple of women out tending a garden. It was totally by chance. We were traveling through a very rural area on our way to another town when somebody heard a tractor backfire. We immediately stopped and I sent a small team to recon the noise. They bumped into a small party tending a field at the edge of their retreat. They seized two women and immediately dragged them back to our vehicles. We began negotiations by sending a finger from each one back to the retreat under a white flag. The rest was easy.

This didn’t need to happen. Better noise discipline would have kept us from discovering their retreat. Some simple boundary fencing or tangle foot could have delayed us. The women should have been armed and aware of such a threat. If they has established an over watch for the garden they could have engaged us before we took our hostages or at least alerted the others that there was a problem. They also could have had a quick reaction SOP developed prior to this incident. That Quick Reaction (QR) force could have followed the kidnappers back to our vehicles and set up an ambush of their own. Rural retreat security is a full time job. If you snooze you may lose everything.

4. Fire and Maneuver

I don’t like this option but sometimes the prize is just too tempting. We typically infiltrate quietly at night to prearranged start points. We begin our attack just before dawn when your senses are dulled by a long night watch or from sleep. Based on our reconnaissance we divided your retreat into positions or zones that need specific attention. We prepare for battle by using an air rifle to target any lights or cameras. Our first priority is to engage any LP/OP site and destroy or degrade them as much as possible. I split my forces into two supporting groups. One group keeps the target position under constant fire. The other group also fires and maneuvers, closing on the target and destroying it with gunfire or improvised weapons. Many times these positions only have one occupant and the task is relatively easy. Often these positions are easy to spot and are too far from each other to provide any effective mutual support. We will work from one position to the next. In the darkness and confusion most of the defenders are disoriented and ineffective. They fall like dominos. We have also used motorcycles to negotiate obstacles and speed through cuts in the perimeter fence. Then throw Molotov Cocktails into any defensive position as they roar past. If you fall back into your residence we will set up a siege. If we can maneuver close enough, perhaps by using a distraction, we will pump concentrated insecticide into your building or we may introduce LP gas from a portable tank into the house and ignite it with tracer fire.

If there was enough warning time from your OP you could execute a pre-planned response. Your planned response should be simple, easy to understand and execute. Half your group occupies your fighting positions, two to a position. The rest of your party establishes an over watch and concentrate its fire at the enemies trying to fix your positions. If you had more than enough prepared positions the enemy might not know where to attack. It would also provide more flexibility in your defense based on the direction of attack. I would use Night Vision if available or illumination from flares or lights as a last resort. Rats hate light.

Usually people keep main access points blocked from high-speed approach. Likely avenues of approach should also be blocked or choked and kept under observation. Remember though what keeps me out keeps you in. Typically the common techniques of parking vehicles in roadways will only delay my approach not stop it altogether. An ordinary 12-gauge shotgun, shooting slugs, can stop most types of non-military vehicles at close range.

Don’t forget the threat of fire or other non-traditional weapons in your defensive plans.

You could create the illusion of a “dead end” for your main access road by positioning a burned out trailer home or a couple of burned out cars at the false “end” of the road. Concealing the fact that the road actually continues to your residence.

Lastly, develop a plan to evacuate and evade capture. When faced with a significantly superior force it may be the only viable option. This should include simple, reliable communications or signals such as three blasts on a dog whistle. Your fighting positions and barriers need to be constructed to allow coordinated withdrawal in an emergency. You should establish a rally point and time limit to assemble. I believe this should be a priority in your practice drills. During a real emergency you may be able to rally, rearm and plan your own version of the “snipe and siege” to retake your retreat.

Key messages:

Your rural retreat defense can be visualized as a set of concentric rings:

• Location – Location – Location: High and remote are best
• OPSEC – Think of it as a form of armor or shield: Practice it and protect it.
• Observation Post / Listening Post: Your first best chance to counter attack
• Gates / Fences / other barriers: May slow me down. Might keep you in.
• Fighting positions: Must provide mutual support and allow for evacuation.
• Residence: Last line. Don’t become trapped
• People, Planning and Practice

Remember:

• An aggressive and unexpected counter strike can win the battle.
• Stay alert for multiple threats or diversionary tactics.
• Criminals excel at feigning weakness to lower your guard.

Don’t underestimate me.

Reading for further study:

The Defence of Duffer's Drift, by Major General Sir Ernest Dunlop Swinton (1905)

US Army FM 5-15 Field Fortifications

US Army FM 5-103 Survivability

Online OODA Resources

CIT Bankruptcy Sticks Taxpayers With $2.3 Billion Loss

John Carney
The lifeline extended by Carl Icahn to CIT on Friday may as well be a noose around the neck of taxpayers.

The company said Friday that Icahn to support its prepackaged bankruptcy plan. Icahn, who wanted to push CIT into liquidatio had attempted to persuade other bondholders to derail CIT's restructuring plan. When that attempt failed, Icahn agreed to support the prepack.

The company received $2.3 billion in taxpayer support under TARP. In exchange, the government got preferred securities and warrants for common stock.

Under the bankruptcy plan, which may be filed as early as this weekend, senior bondholders would take a 30 cent haircut on their debt, which will also have its maturity pushed out into the future. The senior bond holders will also get 92.5% of the equity in the company. Junior bondholders will get seriously crunched down the capital structure: the debt will be converted to the remaining 7.5% of the equity.

Current equity holders, including the US taxpayer will be wiped out.

Why did the US taxpayers wind up in a riskier part of the capital structure than billionaire investors like Icahn? Because the US Treasury insisted on "rescuing" financial firms without forcing the existing creditors to accept equity for debt swaps, which would have recapitalized the companies while keeping the taxpayer money in a safer senior position.

CIT was repeated turned down this summer when it sought additional bailout money. This is to the credit of Tim Geithner and the Obama administration, which must have been at least tempted to extend government aid to a company that lends to so many small and medium sized businesses. But this is a cold comfort to taxpayers looking at a $2.3 billion loss: it could have been worse.

With $71 billion in assets, CIT will be the fifth-largest bankruptcy filing in U.S. history, trailing only those of Lehman Brothers, Washington Mutual, Worldcom and General Motors. But apparently the Treasury has decided financial system can survive the CIT bankruptcy. Which raises the question: why did they get any bailout at all?

NINE BANKS FAIL

Bank Closing Information
October 30, 2009

* North Houston Bank, Houston, TX
* Madisonville State Bank, Madisonville, TX
* Citizens National Bank, Teague, TX
* Park National Bank, Chicago, IL
* Pacific National Bank, San Francisco, CA
* California National Bank, Los Angeles, CA
* San Diego National Bank, San Diego, CA
* Community Bank of Lemont, Lemont, IL
* Bank USA, NA, Phoenix, AZ

Celente: They're printing paper money backed by nothing

Director of the Trends Research Institute Gerald Celente believes the unexpected annual US GDP growth of 3.5 percent over the last three months isn't proof of a long-term recovery. The GDP rise is a result of the trillions of dollars between the Bush administrations top program and President Obamas $787 billion stimulus package temporarily juicing the economy, he said. They are printing paper money backed by nothing.

5 Reasons The GDP Jump is Bull$shit

Brian Sullivan

GDP last quarter grew 3.5%, more than the consensus estimate of economists. That's good. Any positive GDP print is better than a continued drop in the economy.

Before we break out the party hats, keep in mind a few key points that may make that 3.5% gain much less than the headlines suggest:

1. Dollar-for-dollar we're losing money. Instead of thinking in percentage terms, think of GDP in dollar terms. The 3.5% growth is from a jump in total seasonally-adjusted output from $12.901 trillion dollars in 2Q to $13,014 trillion last quarter. In other words, the economy added approximately $112 billion dollars in output quarter-over-quarter. Yet we have spent $173 billion worth of the $787 billion dollar stimulus plan so far.

In other words, the stimulus plan is 'returning' just 65-cents for every dollar spent.

Factor in future interest on the stimulus debt or the reduced buying power of a dollar once the money-printing stokes inflation and that 'return' may fall even more.

As FTN Financial economist Chris Low states in a note to clients this morning, "the economy is entirely dependent on federal deficit spending at the moment." Government consumption rose 2.3% with non-defense spending increasing 6.8%. Non-defense spending has risen on average about 3.5% per year over the past decade, so this near doubling of the 10 year average shows that spending from the stimulus plan is a big part of the increase. Financing growth today at the expense of greater debt tomorrow is a slippery slope. If one borrows $100 dollars today at 4% interest and has (like most government bonds) a 10 year loan, we may have 'gained' $100 today for immediate needs but will end up paying $140 over the length of the loan.

There is still much time - and hundreds of billions in stimulus left to spend - for Americans to see a better return on their investment. But let's hope that future spending results in a better 'return' on our stimulus investment than 65-cents on the dollar.

2. The job market remains weak. Unemployment claims came in at 530,000 last week. Worse, as Miller Tabak's Dan Greenhaus points out, revisions to prior data means the total number of people filing for some form of continued unemployment insurance rose above 10,000,000 for the first time ever during the week of October 3rd. While fewer people may be losing their jobs, America isn't adding jobs either. Everything is about jobs. Unless the unemployed can find work and those working feel more secure in their jobs, we are unlikely to see any sustained recovery. 10 million people collecting unemployment insurance is a huge drag on state and local budgets. The President admitted today that job recovery will be slow, but the growth better occur soon or the benefits to those 10 million out of work Americans will soon drain and require the government to print or borrow more money to fill the hole.

3. Consumption is up, but much was driven by temporary incentives. Personal consumption rose 3.4% last quarter, with durables posting a massive 22.3% jump. Durables are the big ticket items (cars, etc) that have largely been driven by artificial incentives to spend. Cash for Clunkers, tax credits for energy efficient appliances and other temporary programs drove consumers into showrooms. More succinctly, of the $112 billion increase in seasonally-adjusted GDP, $36.2 billion of that - or about 1/3rd - was auto sales.Those programs, while helpful to car dealers and appliance stores, are not only temporary but there are many, such as auto sales analysis firm Edmunds.com, who estimate that programs like 'C4C' end up costing taxpayers more than they bring to the economy. The idea being that the credits do not result in 'new' money being created, but are rather a transfer to certain consumers' pockets from a growing American federal debt load that ultimately must be paid back or continually refinanced through more debt sales. What happens to consumption and sales when the incentives end remains a huge unanswered question.

4. Housing helps but can it last? The whopper in the GDP was residential spending activity, which rose 23.4% and adding more than a half-percent to GDP after being a drag for nearly three years. That's good news, but like the example of consumer durables above, one wonders if we are growing now at the expense of an economic drag later. The National Association of Realtors argues that nearly half of the jump in home sales this year was directly attributable to the tax credit. Also recall that the National Association of Home Builders, a group which ostensibly supports any program that helps sell homes, has itself estimated that if the home buyer tax credit is extended through November 2010, would cost about $30 billion in lost tax receipts while generating tax revenues for federal, state and local governments of $11.6 billion. That's a spend of nearly three dollars for every dollar raised. So while the tax credits are great for buyers, realtors and others in and around the housing market, it is money that is coming at the expense of greater long-term federal deficits.

5. The weaker dollar isn't doing what we keep hearing it's supposed to do. We are told over and over by proponents of a weaker U.S. dollar that it's good for America because it will help companies here sell their goods around the world. I have often argued this is a fallacy for two reasons: 1) when the dollar falls, other countries can borrow dollars and more cheaply finance capital projects in their own country, and 2) the Chinese yuan is pegged to our dollar and as we fall, the yuan falls, resulting in a similar net difference in currency valuations and maintaining China's massive labor cost advantage. The GDP report seems to confirm that view, as imports actually grew faster than exports, meaning more non-U.S. goods are flowing into America than the other way around.

More than 30 lawmakers in House investigated: leaked report

Nearly half the members of a House panel in control of Pentagon spending are facing a probe by Congressional ethics investigators, the Washington Post reported.

The revelations came in a cyber-hacked confidential report leaked to the newspaper and reported in its Web site.

Two House ethics offices are probing whether Rep. John Murtha (D-Pa.), chairman of the defense appropriations subcommittee, and six other lawmakers funneled millions in federal funds to clients of an influential lobbying firm in exchange for campaign contributions, the paper reported.

The lobbying outfit, PMA Group, founded by a former Capitol Hill aide, has been under criminal investigation by the Justice Department, the newspaper said.

Details of the House ethics probes were contained in a confidential House report prepared in July that indicated more than 30 lawmakers and several aides are under scrutiny in probes of defense lobbying and corporate influence peddling.

Members of the ethics committee and their staffs sign oaths not to disclose details of past or present investigations. But the 22-page report was accidentally released by a low-level staffer who was working from home via a file-sharing network, committee chairman Rep. Zoe Lofgren (D-Cal.) told The Post.

The staff member was fired, Lofgren said.

"No inference to any misconduct can be made from the fact that a matter is simply before the committee," Lofgren said.

Besides Murtha, two lawmakers previously identified in the inquiry, Reps. Peter Visclosky (D-Ind.) and James Moran (D-Va.), were named in the report.

Also named were: Reps. Norm Dicks (D-Wash.), Marcy Kaptur, (D-Ohio), C.W. (Bill) Young (R-Fla.), and Todd Tiahrt, (R-Kan.). The committee has not issued a formal announcement that they are under investigation.

The committee, which announces when it begins a formal investigation, said it is probing whether Rep. Maxine Waters (D-Cal.) used her influence to help a bank in which her husband owned stock.

Separately, the panel is also investigating whether Rep. Laura Richardson failed to disclose required information on her financial disclosure forms and received special treatment from a lender.

Waters, third highest ranking Democrat on the House Financial Services Committee and chairwoman of its subcommittee on housing, came under scrutiny after former Treasury Department officials said she helped arrange a meeting between regulators and executives at One United Bank last year without mentioning husband Sidney William's financial ties to the institution.

Williams, holds at least $250,000 in the bank's stock and previously had served on its board. Waters' spokesman, Michael Levin, said Williams was no longer on the board when the meeting was arranged.

The committee's probe of Richardson will determine if she violated House rules by failing to disclose property, income and liabilities on her financial disclosure forms.

The committee is also looking into whether she received an impermissible gift or preferential treatment from a lender, "relating to the foreclosure, recession of the foreclosure sale or loan modification agreement" for her property in Sacramento.

Richardson said she has been subjected to "premature judgments, speculation and baseless distractions that will finally be addressed in a fair, unbiased, bipartisan evaluation of the facts."

Read more: http://www.nydailynews.com/news/politics/2009/10/30/2009-10-30_congressional_defense_appropriations_panel_rocked_by_ethics_probe_leaked_by_hack.html#ixzz0VQoJ8PQI

Consumer Spending Plunges

Martin Crutsinger
Consumer spending plunged in September by the largest amount in nine months, reflecting the end of the government’s Cash for Clunkers auto sales program. Incomes, the fuel for future spending, were flat.

While the government reported that the overall economy grew in the July-September period, signaling the end of the worst recession in seven decades, the weakness in spending and incomes as the quarter ended underscores the fragility of the recovery.

The Commerce Department said Friday that spending dropped 0.5 percent in September, matching economists’ expectations. Personal incomes were unchanged as workers contend with rising unemployment and a squeeze on wages.

Economists worry that the recovery could falter in coming months if households cut back on spending to cope with rising unemployment, heavy debt loads and tight credit conditions.

The concern is that much of third-quarter growth stemmed from temporary government programs such as the clunkers sales incentives that ended in August.

The government said Thursday the gross domestic product, the broadest measure of economic health, expanded at an annual rate of 3.5 percent in the third quarter, the first increase after a record four straight declines. A 3.4 percent rise in consumer spending, which accounts for 70 percent of total economic activity, powered the gain.

And consumers appear willing to pay a little more for Colgate toothpaste, Kellogg’s Frosted Flakes and Gillette Fusion shavers, according to earnings released Thursday. Procter & Gamble Co., Colgate-Palmolive Co. and Kellogg Co. all gave upbeat reports and even stronger outlooks for next year.

However, some economists believe that consumer spending will slow sharply in the current quarter, lowering GDP growth to perhaps 1.5 percent. Analysts said the risk of a double-dip recession cannot be ruled out over the next year.

The 0.5 percent drop in consumer spending in September followed a 1.4 percent surge in August which was propelled by the big jump in car sales that month as consumers rushed to take advantage of the clunkers’ incentives.

Last month’s drop in spending resulted in a boost in the savings rate to 3.3 percent of after-tax incomes, up from 2.8 percent in August. Many analysts believe households will keep striving to increase savings in the months ahead to replenish nest eggs that were crushed by last year’s stock market crash. That also would hold back spending in the months ahead, weakening the recovery.

The Obama administration is being encouraged to extend some of the elements of the $787 billion economic stimulus package that Congress passed last February to jump-start the economy, but the White House has been cautious in endorsing various proposals being advanced by Democratic lawmakers for fear of pushing the federal budget deficit even higher. The deficit hit an all-time high of $1.42 trillion for the budget year ending Sept. 30.

But inflation remains in check. An inflation gauge tied to consumer spending edged up just 0.1 percent in September, after a 0.3 percent August rise. Excluding food and energy, the gauge rose 1.3 percent over the past year, well within the Federal Reserve’s comfort zone.

Fed officials meet next week and economists believe they will again keep a key interest rate at a record low in an effort to support the economy given that inflation is not a threat.

Half of U.S. workers who left their jobs last year cashed out 401(k)

Ben Rooney
Nearly half of U.S. workers who left their job last year cashed out their 401(k) accounts, according to a study released Wednesday, despite ongoing efforts to dissuade Americans from doing so.

Hewitt Associates, a global human resources consulting firm, said 46% of employees who left their job last year took a cash distribution from their 401(k) plan.

The "alarmingly high" number, which was based on a study of 170,000 401(k) participants, has remained virtually unchanged since 2005, the group said.

Pamela Hess, Hewitt's director of retirement research, said employers and policymakers need to work together to change employee behaviors and reduce 401(k) cash-out rates.

"Otherwise, millions of Americans who rely on defined contribution plans will find themselves unable to achieve a financially secure retirement," Hess said in a statement.

While cashing in a 401(k) can make sense for some workers, most financial advisers say breaking your nest egg before retirement is a bad idea because of the penalties involved and the loss of potential interest.

"Over the course of 20 or 30 years, modest amounts of savings can turn into surprisingly large sums of money," Hess said.

Among the workers who did not cash out their plans, 29% left their savings in their prior employer's 401(k) plan, while 25% rolled over their money into an IRA account or other retirement plan.

The study also showed that younger workers were more likely to take the money and run. Six out of ten workers in their 20s took a cash distribution from their 401(k) last year, compared with just one-third of employees in their 50s.

Hess said the high cash-out rate among young workers is troublesome because those employees are missing out on "decades-worth of tax-deferred growth on their investments."

Not surprisingly, the study found a correlation between 401(k) plan balances and cash-out rates.

Only 8% of workers with 401(k) balances of $100,000 or more cashed out their plans last year. That compares with 85% of workers with a balance of $1,000 or less who did take a cash distribution.

Top 15 Franchise Failures

Katie Adams

The recession has hit franchise owners particularly hard, with the Small Business Administration (SBA) reporting record loan default rates for 2008-2009. According to the SBA, individuals who took on SBA loans to finance a franchise had a 43% higher failure rate than in 2007. In total, those franchise losses cost the SBA $93.3 million last year - nearly 170% higher than the year before. Since 2004, franchise loan defaults have increased by nearly 10% (from 3.1% to 13.4%), highlighting that franchise owners have had an increasingly difficult time making a successful go of their new ventures. Sorting through the 2009 Franchise Coleman Report we were able to determine the franchises that had the highest SBA loan failure rates in 2008.

1.Noble Roman's Pizza
Billing itself as "The Better Pizza People," this Indianapolis-based franchiser has had a tough time selling that proposition to customers. While the company reported a 30% net income increase in Q1 of 2009, Q2 total revenues were down more than $500,000 from the comparable period in 2008. Maybe that's why 53% of all owners with SBA loans defaulted in 2008.

2.PJ's Coffee and Tea Café
PJ's Coffee and Tea Café started out as a small business in New Orleans 30 years ago and only recently began selling franchise rights across the south, southeast and southwest. It might want to stick to Cajun country - 50% of the franchisees failed on their SBA loans last year.

3.Super Suppers
At the height of the market, working families expanded their spending to include luxuries such as cleaning services, lawn services and even assemble-your-own dinner services. Super Suppers jumped on the concept and its franchise growth was exponential between 2005 (40), to 2006 (152), and 2007 (206). However, the growth stalled with no new franchise owners coming on board in 2008, and existing owners with SBA loans began failing at a quick pace - 42%, to be exact, in 2008.

4.Figaro's Italian Pizza
Figaro's has been in business for 28 years, but most of its franchise owners aren't likely to reach that same anniversary. One-third defaulted on their loans, unable to grab enough of the industry's $32 billion in annual revenues.

5.New York NY Fresh Deli
Perhaps it was the low single-site franchise fee ($17,500) that attracted new business owners, but it was low revenues that led to closed doors. Thirty-one per cent defaulted on SBA loans in '08.

6.Amazon Café
This franchiser offers smoothies, wraps, salads, soups, juices and more, but apparently not enough more to keep all operators in business. Thirty per cent failed in 2008, and more than 52% have defaulted on their SBA loans since 2000.

7.Simple Simon's Pizza
Simple Simon's grew from one store in Tulsa to a network of 220 restaurants nationwide since 1982. However, nearly 30% of store owners who took on an SBA loan to finance the start-up have defaulted. Perhaps selling pizza isn't quite so simple after all.

8.Snip-Its
The Snip-Its children's hair salons ranked 30th on the Franchise Times' 2007 list of 55 fastest growing franchises, but two years later that growth has stalled. Thirty per cent of store owners with SBA financing failed to repay their loans in 2008.

9.U Build It
Seeking to grab a share of the market that made Lowe's and Home Depot household names the U Build It franchise offers owners an opportunity to serve as "construction consultants" for DIYers interested in building or renovating their own homes. But when the housing market collapsed, it shouldn't come as a shock that 27% of their franchisees reneged on their SBA loans.

10.Bellacino's Pizza
If you're a Facebook user, you can become a Bellacino's Pizza "fan." Unfortunately 26% of Bellacino's owners that took on SBA financing couldn't get enough regular fans to stay current on their debt payments. That number closes in on 30% dating back to 2000.

11.Blockbuster Video
While Blockbuster was able to fend off brick and mortar competitors, it has struggled to maintain market share since Netflix and Redbox changed the rules of the game. In 2008, one in four store owners with SBA loans failed to repay their debt; that number jumps to a sobering 38% since 2000.

12.Pizza Factory
If this list proves anything, it should be that entrepreneurs might do well to avoid pizza franchises. Twenty-four per cent of Pizza Factory owners took a pass on repaying their SBA loans in 2008, and that number jumps to 43% if you look back to 2000.

13.Pro Golf
With a rising unemployment rate, workers aren't knocking off early to hit the links. Perhaps that's what led to 24% of Pro Golf franchise owners defaulting on their SBA loans. But the fact that 64% of all owners have failed to repay their loans since 2000 makes you think that perhaps the business model is the real news, not the recession.

14.Conoco Service Station
While ConocoPhillips Company is a Fortune 500 company, its service center franchise owners (more than 3,100 operate under the Conoco, Phillips 66 and Union 76 brands) are struggling. More than one in five (22%) have defaulted on their SBA financing commitment.

15.Keva Juice
Keva's product isn't a "blendsation" everywhere. Twenty-two per cent of these smoothie store owners didn't raise enough revenue to repay their SBA loans last year; more than one in four (26%) have defaulted on their loans since 2000.

Conclusion
The moral of this story? If you're going to take on an SBA loan to finance your franchise, take a close look at which fellow entrepreneurs failed before you face the same fate.

Vigilante Justice Across Mexico

Ioan Grillo - GlobalPost
MEXICO CITY, Mexico — The five teenage boys slump against the wall of a dark house and eye the camcorder nervously. Suddenly, a fist enters the frame smacking one of the boys in the face. Then the barrel of an automatic rifle appears and the teenagers’ expressions turn to terror.

“Why are you here?” shouts a voice.

“For robbing,” one of the boys mumbles.

“You see. You were little rats and now look at you,” replies the interrogator.

The torture video of the five alleged house burglars was posted on the internet last week. It is the latest sign of brutal vigilante justice spreading across Mexico.

As kidnappings, muggings and car jackings spiral out of control, and the authorities appear increasingly impotent, shadowy groups have been advocating justice by the sword.

In other recent cases, alleged kidnappers and car thieves have been abducted and murdered and had their corpses dumped in public places along with threatening notes.

There are also rising cases of mobs lynching alleged thieves and leaving them beaten, naked and tied up.

“The government is failing to provide security and people are turning to some brutal alternatives,” said Rossana Reguillo, who studies crime and violence at the Jesuit University of Guadalajara. “This is not something that has always been around in Mexico. It is a new phenomenon that has been growing since 2000.”

In the latest case, the five teenagers were abducted after they allegedly robbed a house in the town of Tepic in the Pacific state of Nayarit.

The boys — all students of a local high school — were taken to an abandoned building where they had their heads shaved and then were beaten by fists and rifle butts and threatened at gun point, as shown on the video. One of the torturers is heard on the film saying he is the man whose house was robbed.

The teenagers were also forced to perform sexual acts — including kissing each other in front of the camera — as a humiliation. The gunmen are heard threatening to cut their hands off unless they comply.

After being held all night the students were dumped naked on the street and then attended at hospital for injuries including broken ribs.

The torture film was posted on YouTube under the title “Little Rats of Tepic.” YouTube’s monitors quickly removed it from the site, flagging it as unsuitable content.

Following an outcry over the film, police on Monday arrested four building workers for the torture.

However, one of the boys said they had first been arrested by state police and it was the officers themselves who turned them to the vigilantes. The Nayarit police chief denies the charge, saying officers did not question the boys until after they had been tortured.

The incident sparked disgust and condemnation from many.

“Opening the door to justice by your own hand is an enormous step back to a state of barbarism and lack of culture,” said Huicot Rivas, the president of Nayarit’s Human Rights Commission. “In a democratic state, crime can never be used to combat crime.”

However, others cheered on the vigilantes for trying to clean up the streets.

“For me the men who made this video are heroes. I sincerely admire them,” wrote a reader on the website of Mexican newspaper El Universal. “In Mexico, we need death squads to hunt and exterminate rats and kidnappers without further expense to society and the without human rights people getting in the way.”

“I recognize that this is not the correct way to administer justice but I can’t deny that it makes me happy that this type of thing happens,” wrote another reader.

Such feelings reflect desperation among many in Mexico about the lack of security. Amid a drug war that has left thousands dead, rates of anti-social crimes such as kidnapping and carjacking have risen to become among the worst in the world. At the same time, conviction rates for these relatively minor crimes are as low as 5 percent.

Many readers of newspapers have also written in to commend shadowy vigilante groups that have publicly announced their appearance in crime-plagued communities.

One such group called the Popular Anti-Drugs Army materialized among farming towns in the southern state of Guerrero.

Displaying blankets with written messages on bridges and buildings, the group claimed to be made up of family men who had come together to force drug dealers off the street.

“We invite the people to join our struggle and defend our children who are the future of Mexico,” it said on one of the blankets.

The group has been linked to several killings, including the decapitation of an alleged drug dealer in December.

Following stories of that slaying, readers hailed the efforts in some Mexican media outlets.

“My sincerest congratulations to these brave men with their courage and determination,” wrote a reader of Mexican newspaper Milenio. “God help them with their noble cause.”

Investigators suspect that organized-crime groups themselves could be behind many of the vigilantes. While the gangsters traffic drugs to the United States, some are against selling them in their own communities and are opposed to criminals such as muggers and kidnappers.

A similar situation emerged in Colombia in the 1990s, when paramilitary groups both trafficked drugs and enforced the law against petty crooks in the fiefdoms they controlled.

The investigator Reguillo says that while it may not get as bad as Colombia, the vigilantism does pose a real threat to the Mexican state.

“When armed groups administer their own justice, this represents an alternate power,” she said. “This a major problem for democracy in Mexico.”

17% of GMAC assets are financed using Govt loans

By PETER EAVIS

As any parent knows, it rarely pays to play favorites.

The Treasury looks set to plow another $2.8 billion to $5.6 billion of capital into lender GMAC Financial Services to meet stress-test requirements. That raises a question: Why hasn't GMAC already had to raise this money from private investors?

After all, plenty of troubled banks have recently raised capital. Granted, GMAC isn't a public company, which makes selling equity harder. But it has selling points. New loans look profitable. In addition, the lender already has a hefty capital buffer, reducing the risk of future dilution. Its Tier 1 common ratio is 6.1%, substantially above the 4% required for large banks under a stressed scenario.

However, private investors may be unnerved by GMAC's shaky-looking funding. Subsidiary Ally Bank makes heavy use of high-rate CDs, which can be flighty. GMAC is issuing government-guaranteed debt. And 17% of its assets are financed using loans from the government-sponsored Federal Home Loan Bank system. Bank analysis firm Institutional Risk Analytics says regulators don't like that ratio going over 15%. The message here is that private creditors still seem reluctant to lend on an unprotected basis to GMAC.

The Treasury didn't step in to save CIT Group when credit markets became unfriendly. And CIT is arguably more important to the economy than GMAC, because it provides loans to an array of businesses, rather than one dysfunctional sector.

Prior commitments within the Treasury's bank-rescue plan may force it to provide more money to GMAC. But that creates a problem: Now GMAC knows it has favored status, it just has to wait for the next pile of cash to arrive.

Why is GMAC Paying Dividends While It Begs the Taxpayer

Cody Willard

Let me get this straight:

GMAC, which was owned by private equity gambling firm Cerberus (which is run by former Goldman dudes and even Dan Quayle), used to be the lending and banking and gambling arm of GM. The company was founded in 1919 to help finance cars for buyers of the GM brand.

Over the years, the guys at GMAC got ever greedier and by the time the idiots at Cerberus gambled some $7 billion of their investors’ money on buying GMAC, the company was headlong into wasting its investors’ money on horrible businesses like “wholesale financing” and jumbo mortgages. They also gambled their depositors’ and investors’ and lenders’ money in those toxic mortgage assets like CDOs and so on.

Well, Cerberus and GMAC and GM went to their cronies in the Republican/Democrat Regime in power a couple years ago and begged for billions of dollars in loans and cash infusions because they’d made so many stupid investments and loans over the years that the company couldn’t even pay its utility bills without access to taxpayer largesse.

The company was insolvent. So Bush and his cronies gave the guys at Cerberus/GMAC billions of dollars of welfare. Then when that wasn’t enough, Obama and his cronies gave the guys at Cerberus/GMAC billions of dollars of welfare.

Turns out that wasn’t enough either. So after getting a million dollars for free from the government some 12,000 times already (that’s another way of saying $12 billion), Cerberus and GMAC and its other investors are back with hat in hand begging the Republican/Democrat regime to give them another 5,000 million dollars or so ($5 billion…$5,000,000,000).

It’s outrageous that this company hasn’t been forced into bankruptcy and that we’re ignoring 200 years of rule of law in order to prop up a company that obviously has no idea how to allocate capital and maintain a self-sustaining business.

And you really wanna be outraged? How about the fact that just last week, seven days before they came begging for billions of dollars of more welfare money, the company declared its dividend payouts. Yes, GMAC is asking your representatives to give them your money against your will in a time when we can’t even get health care millions of needy children, so that GMAC can send its owners $44 million next month. (GMAC is also going to pay the Treasury a couple hundred million dollars of taxpayer money…Peter pays Paul, see? Running in circles… but that’s not even the real issue this time!)

GMAC Owners Get Free Money…AGAIN!

Think about that. The government is literally taxing you so that they can give your money to people who were rich enough and powerful enough to risk their own money on GMAC.

How can any liberal be okay with that? And how can any conservative be okay with that?

I’m at war with all Republicans and Democrats in power who have created this horrid system of redistributing wealth upwards to corporations and their owners, lenders and other investors.

I’ve got a call and an email into GMAC asking them to clarify who exactly got this $44 million dividend windfall totally paid for with your taxpayer money. Holding my breath for their reply. Any bets on whether they actually will tell us?

GMAC Asks for Third Bailout

American lender GMAC is asking for a third injection of taxpayer cash from the U.S. government, a Treasury Department spokesperson confirmed Wednesday.

GMAC is the former lending arm of General Motors and remains an important provider of financing for GM and Chrysler dealers to pay for vehicles for their lots. It's also a significant player in the U.S. residential mortgage market.

GMAC lends to GM and Chrysler dealers so they can buy cars for their lots. (Canadian Press)

It has received two packages of bailout money totaling $12.5 billion already, and the government holds 35 per cent ownership. While other banks have been able to raise capital from private investors, GMAC has been forced to go back to the government.

If the cash were approved, GMAC would be the only company to receive three bailouts. The move would also represent a further entrenchment for the U.S. government into the auto industry.

The government also owns a majority-stake in GM and a smaller stake in Chrysler. The Treasury spokesperson declined to comment on whether the government's ownership stakes in the two automakers make it more willing to again help GMAC.

California Unemployment at 22 Percent

Image by Getty Images via Daylife

Tom Abate, Chronicle
San Francisco resident Elena Duran represents an unfortunate job trend that isn't reflected in the unemployment rate.

For years, Duran has been a full-time server at a downtown hotel. But the recession has cut so deeply into business that her hours were cut to half time in July.

"It's better than a layoff, but it still requires a lot of sacrifices," said Duran, who, along with her working husband, supports three sons.

Because she works, Duran doesn't count in California's 12.2 percent unemployment rate.

But her situation is captured by a broader measure, the underemployment rate, which, in addition to the jobless, includes people who could get only part-time work as well as those who want jobs but were too discouraged to look.

The state Employment Development Department estimates that this underemployment rate hit 21.9 percent in September.

That figure includes 1.9 million jobless Californians, 1.4 million people who had to work part time, and 865,000 adults loosely described as discouraged.

"Underemployment is at the highest level since we started keeping these records in 1994," said economist Sylvia Allegretto of the Institute for Research on Labor and Employment at UC Berkeley.

The Employment Development Department, which publishes the state's jobless rate, has not typically calculated underemployment.

Dynamics of jobless recoveries

Paul Wessen, an economist with the department, said one reason is that the broader measure tends to rise and fall in concert with the traditional jobless rate, so both indicators provide the same signal.

"All the data tell us that this is the worst economic downturn since World War II," Wessen said.

But Allegretto said the underemployment rate is worth tracking because it helps explain the dynamics of so-called jobless recoveries - times when growing economic output does not bring a strong rebound in hiring.

Recessions since the early 1990s have been followed by relatively sluggish job recoveries.

Economist Amar Mann of the Bureau of Labor Statistics in San Francisco said the agency started to publish a national underemployment rate after the 1990s recession.

"A lot of researchers were asking for this data," he said.

Fuller picture of market

San Francisco labor attorney Michael Bernick, a former head of the state Employment Development Department, said the underemployment rate offers a fuller picture of the modern labor market primarily because it captures how many workers are cut to part time when the economy is in recession.

Bernick said employers who need to cut costs often choose to reduce hours as an alternative to layoffs, which can be better for employees and presumably for the business because it retains trained workers.

But he said the practice may mean that the unemployment rate won't drop quickly as the economy recovers, because employers tend to bring part-timers back to full time before they make new hires.

Wessen said the department is considering putting more emphasis on the underemployment rate. "This measure has hit the radar more of late," he said.

Californians' challenges

Meanwhile, Californians face difficulties that the statistics only begin to describe.

Santa Rosa resident Lori Houston used to put in 40 to 60 hours a week as a self-employed communications specialist. But since January, she has been working half as much because her clients have cut back in the face of their own financial woes.

Houston said she has been seeking contract or full-time work for months, to no avail.

"I've been turning over every stone," she said. "It's a tough market out there."
Adding skills during search

Mark Gutierrez of San Jose, who has been looking for work in sales and distribution for more than a year, has fended off discouragement by adding new skills, such as Web design, while actively job hunting.

Gutierrez said he has a promising lead while he keeps an eye on his dwindling finances.

"Something has to break my way soon," he said.

The end of the newspaper business

The Media Death Spiral

The circulation figures for the top 25 dailies in the US are out, and they're horrifying. The median decline is well into the teens; only the Wall Street Journal gained (very slightly).

I think we're witnessing the end of the newspaper business, full stop, not the end of the newspaper business as we know it. The economics just aren't there. At some point, industries enter a death spiral: too few consumers raises their average costs, meaning they eventually have to pass price increases onto their customers. That drives more customers away. Rinse and repeat . . .

For twenty years, newspapers have been trying to slow the process with increasingly desperate cost cutting, but almost all are at the end of that rope; they can't cut their newsroom or production staff any further and still put out a newspaper. There just aren't enough customers who are willing to pay for their product what it costs to produce it.

The numbers seem to confirm something I've thought for a while: we're eventually going to end up with a few national papers, a la Britain, rather than local dailies. The Wall Street Journal, the Washington Post, and the New York Times (sorry, conservatives!) are weathering the downturn better than most, and it's not surprising: business, politics, and national upper-middlebrow culture. But in 25 years, will any of them still be printing their product on the pulped up remains of dead trees? It doesn't seem all that likely.

I met a freelancer this weekend who is doing all the things that most journalists did to get where they are, writing on the margins of the news business in the hopes of getting up enough of a portfolio to worm her way into the center. I wanted to give her hope . . . but the fact is, at the center there are now more existing journalists than jobs for them, meaning the outsiders have very little chance.

Maybe there will be jobs, online. But if so, more web outfits are going to have to get into the habit of paying salaries that will support an adult middle-class life. Right now, a lot of web outfits tend to churn through twenty-somethings who are also building their resumes . . . but I'm not sure how well this works in a world where a job churning out blog copy for pennies a word is the last stop in a journalistic career, rather than the first.

5 Charged With Torturing Home Loan Agents

KTLA
Five people are charged with torturing and robbing two loan modification agents they thought falsely promised to save their home from foreclosure. Two men were charged Monday with torture, robbery and false imprisonment.

Another man and two women pleaded not guilty to the same charges Friday. Prosecutors say Daniel Weston and Mary Ann Parmelee hired two loan modification agents in hopes of keeping their home but believed the men took their money and did nothing.

Prosecutors claim the victims were lured to Glendale on Oct. 20, held for hours, beaten and robbed before one escaped.Weston, Parmelee, Mario Gonzalez, Marissa Parker and Gustavo Canez remained jailed on about $1 million each. An attorney for Gonzalez and Parker says his clients are innocent and the loan modification agents were frauds.

Thousands of Protesters take on Bankers in Chicago

More protesters gather to give the BIG BANKS a piece of their mind. The Sheraton in Chicago this morning became a mecca for angry citizens voicing their angst, and blaming the BIG BANKS for the current financial crisis in America.



Thousands of Protesters take Chicago on Tuesday...protesting banksters: "taxpayer subsidized casinos." Dylan Ratigan on Morning Meeting. More protests are planned against bankers using bailout money to lobby against financial reform.

Medicare fraud rampant; and they want a public option

Watch CBS News Videos Online

Noel Sheppard
"60 Minutes" did a fabulous exposé Sunday on Medicare fraud that should be required viewing for all people who support a government run healthcare program in this country.

The facts and figures presented by CBS's Steve Kroft were disturbing as were the details concerning how shysters bilk the system for an estimated $60 billion a year.

As Kroft warned viewers in the segment's teaser, "We caution you that this story may raise your blood pressure, along with some troubling questions about our government's ability to manage a medical bureaucracy" (video embedded above; here's partial transcript, h/t Marc Sheppard):

STEVE KROFT, CBS: Of all the problems facing the United States right now, none are more important than healthcare. President Obama says rising costs are driving huge federal budget deficits that imperil our future, and that there is enough waste and fraud in the system to pay for health care reform if it was eliminated.

At the center of both issues is Medicare, the government insurance program that provides health care to 46 million elderly and disabled Americans. But it also provides a rich and steady income stream for criminals who are constantly finding new ways to steal a sizable chunk of the half a trillion dollars that are paid out each year in Medicare benefits.

In fact, Medicare fraud - estimated now to total about $60 billion a year - has become one of, if not the most profitable crimes in America.

We caution you that this story may raise your blood pressure, along with some troubling questions about our government's ability to manage a medical bureaucracy.

Kroft spoke with FBI special agent Brian Waterman and Kirk Ogrosky, a top justice department prosecutor:

BRIAN WATERMAN, FBI: There's a healthcare fraud industry where people do nothing but recruit patients, get patient lists, find doctors, look on the Internet, find different scams. There are entire groups and entire organizations of people that are dedicated to nothing but committing fraud, finding a better way to steal from Medicare

KROFT: Is the Medicare fraud business bigger than the drug business in Miami now?

KIRK OGROSKY, JUSTICE DEPARTMENT: I think it's way bigger.

KROFT: What changed?

OGROSKY: The criminals changed...

WATERMAN: Sophistication.

OGROSKY: They've figured out that rather than stealing $100,000 or $200,000, they can steal $100 million. We have seen cases in the last six, eight months that involve a couple of guys that if they weren't stealing from Medicare might be stealing your car.

WATERMAN: You know, we were the king of the drugs in the '80s. We're king of healthcare fraud in the '90s and the 2000's.

Kroft also spoke to Attorney General Eric Holder:

ERIC HOLDER, ATTORNEY GENERAL: We have to understand this is a major fraud area. [...]

KROFT: Why do you think it's been so attractive for the criminals?

HOLDER: Because I think it's been pretty easy. I think that they have found a way in which they have been able to get pretty substantial amounts of money with not a huge amount of effort and at least until now, without the possibility of great detection.

KROFT: With much fewer risks.

HOLDER: Much fewer risks. You'll see some of these people and they'll say "You know there is not a chance that you are going to have some other drug dealer shooting at you." The chances of being incarcerated were lower, the amount of time that you would spend in jail was smaller. All of which is different now.

Kroft then spoke to a man who claimed to have defrauded Medicare out of $20 million, after which Kroft said, "According to the FBI, all you have to do to get into this business is rent a cheap storefront office, find or create a front man to get an occupational license, bribe a doctor or forge a prescription pad, and obtain the names and ID numbers of legitimate Medicare patients you can bill the phony charges to."

WATERMAN: There's a whole industry of people out there that do nothing but provide patients.

Kroft narrated, "Once the crooked companies get hold of the patient lists, usually stolen from doctors' offices or hospitals, they begin running up all sorts of outlandish charges and submit them to Medicare for payment, knowing full well that the agency is required by law to pay the claims within 15 to 30 days, and that it has only enough auditors to check a tiny fraction of the charges to see if they are legitimate."

Later, Kroft asked Waterman, "There's something I don't understand. I mean, you're saying essentially people just fill out the phony paperwork, they send a bill to Medicare and they pay it."

WATERMAN: That's why you have companies that can run for 60, 90 days, and bill for ridiculous things. Because there are very few checks and balances to even determine whether these things a, were medically necessary, b, were ever given, or c, even physically possible for a patient with the kind of conditions they have.

A bit later in the segment, Kroft spoke with Kim Brandt, Medicare's director of program integrity. After he shared with her some of the scams he'd previously witnessed or been told about, he asked how crooks get away with it:

KIM BRANDT, MEDICARE DIRECTOR: We're as frustrated by that as the law enforcement officials that you went out with. And in fact, our primary focus over the past years has been to tighten our enrollment standards to make it so it's much harder for people like that to be able to get in the program, and to be able to commit that kind of fraud.

KROFT: Look, I'm sure that you're aware of these problems. But it doesn't seem like you're doing a very good job. I don't mean you personally, but I mean, the government. This is still like a huge problem, and getting worse, right?

BRANDT: Well, it really does come down to the size and scope of the Medicare program, and the resources that are dedicated to oversight and anti-fraud work. One of our biggest challenges has been that we have a program that pays out over a billion claims a year, over $430 billion, and our oversight budget has been extremely limited.

Just imagine what the fraud will be like if the government is responsible for everyone's healthcare.

As the segment drew to a close, Holder told Kroft something that should scare the heck out of everyone who wants government run insurance for all Americans: "I think people I don't think necessarily thought that something as well intentioned as Medicare and Medicaid would necessarily attract fraudsters. But I think we have to understand that it certainly has."

Yes we do.

Yet, shortly after this marvelous segment came to a close, "60 Minutes" concluded this installment with Andy Rooney telling viewers:

I'm not much interested in hearing anymore talk about health care.

President Obama wants to overhaul what they call the "health care industry." Well good, but I hate that phrase the "heath care Industry." I just don't like to think of my health as an industry.

The fact is though being sick is often the least of our health problem. Even if you're insured, what hospitals charge now is ridiculous. I had what they call "an outpatient procedure" recently and it cost my insurance company $9,361. I say it cost my insurance company but let's face it. In the end, I'm the one who pays.

The U.S. spends more than any other country on Earth on its health: $2.5 trillion. And what do we get for $2.5 trillion? Well, we're 50th in the world for life expectancy, below the Polynesian French Island Territory of Wallis and Futuna, wherever Wallis and Futuna are.

As Steve Kroft said earlier on 60 Minutes, we are losing billions of dollars on health care fraud. Not on healthcare - on healthcare fraud.

Everyone cheats - companies, hospitals, patients, doctors, drug companies, and government agencies. Cheating goes on everywhere in the get well business.

During my recent outpatient procedure a doctor came into my room, asked how I was doing and said, "By the way I love your work on television." He left without touching me and a couple of weeks later when the bill came, it turned out his visit cost my insurance company $250.00.

I mean who knows what he would have charged if he didn't like my work.

There's just no doubt we need healthcare reform because the way it is now, makes me sick.

Makes you wonder if he even watched Kroft's segment, doesn't it?

U.S. government may block websites during H1N1 Pandemic

Maggie Fox

(Reuters) - Securities exchanges have a sound network back-up if a severe pandemic keeps people home and clogging the Internet, but the Homeland Security Department has done little planning, Congressional investigators said on Monday.

The department does not even have a plan to start work on the issue, the General Accountability Office said.

But the Homeland Security Department accused the GAO of having unrealistic expectations of how the Internet could be managed if millions began to telework from home at the same time as bored or sick schoolchildren were playing online, sucking up valuable bandwidth.

Experts have for years pointed to the potential problem of Internet access during a severe pandemic, which would be a unique kind of emergency. It would be global, affecting many areas at once, and would last for weeks or months, unlike a disaster such as a hurricane or earthquake.

H1N1 swine flu has been declared a pandemic but is considered a moderate one. Health experts say a worse one -- or a worsening of this one -- could result in 40 percent absentee rates at work and school at any given time and closed offices, transportation links and other gathering places.

Many companies and government offices hope to keep operations going as much as possible with teleworking using the Internet. Among the many problems posed by this idea, however, is the issue of bandwidth -- especially the "last mile" between a user's home and central cable systems.

"Such network congestion could prevent staff from broker-dealers and other securities market participants from teleworking during a pandemic," reads the GAO report, available here

"The Department of Homeland Security is responsible for ensuring that critical telecommunications infrastructure is protected."

BLOCKING WEBSITES

Private Internet providers might need government authorization to block popular websites, it said, or to reduce residential transmission speeds to make way for commerce.

The Financial Services Sector Coordinating Council for Critical Infrastructure Protection and Homeland Security, a group of private-sector firms and financial trade associations, has been working to ensure that trading could continue if big exchanges had to close because of the risk of disease transmission.

"Because the key securities exchanges and clearing organizations generally use proprietary networks that bypass the public Internet, their ability to execute and process trades should not be affected by any congestion," the GAO report reads.

However, not all had good plans for critical activities if many of their employees were ill, the report reads.

Homeland Security had done even less, it said.

"DHS has not developed a strategy to address potential Internet congestion," the report said.

It had also not even checked into whether the public or even other federal agencies would cooperate, GAO said.

"The report gives the impression that there is potentially a single solution to Internet congestion that DHS could achieve if it were to develop an appropriate strategy," DHS's Jerald Levine retorted in a letter to the GAO.

"An expectation of unlimited Internet access during a pandemic is not realistic," he added.