Published – Idaho State Journal, 05/20/12

This past week California Governor Jerry Brown announced that his state is facing a “ballooning” budget deficit of more than $16 billion. In an interview on CBS News, Brown said, “We're not some tired country of Europe. We're a buoyant, dynamic society that will both discipline itself on a daily basis but it will on the long-term plant the seeds of future growth.”

What is inscrutably lost on the governor is that the policies that have brought California to the edge of a fiscal cliff are mostly the same ones of those “tired countries of Europe,” which have manifest the same degree of financial discipline that California has practiced.

Many trends, fads, and even governmental policies have originated in the Golden State that has even given rise to a widely accepted aphorism, “As California goes, so goes the nation.” It’s the verity of that truism that makes the state’s financial problems a portent of things to come for the rest of the nation if we fail to learn from their experience.

Joel Kotkin, one of the nation’s premier demographers, has identified the most significant contributing factors to California’s problems. He points out that four million more people have left California in the last two decades than have moved there from other states. This is in sharp contrast with the 1980s when 100,000 more Americans were settling in California each year than were leaving. Most of those leaving are young families.

They’re leaving because they can’t afford to live there. Everything from food, energy and taxes to real estate and housing, are beyond the financial reach of young families. Kotkin points to restrictions and massive regulations on development and housing that have artificially limited housing supply. As he explains, California’s so-called “smart growth” plans literally force middle-class families into less expensive, high-density housing, or out of state.

From his analysis, housing is merely one front of what he refers to as the "progressive war on the middle class." The high cost of energy has had a dramatic impact on everyone, but especially on the middle class. Policies restricting traditional sources of energy, and state financed advantages granted to green energy producers have resulted in skyrocketing energy costs. The price per kilowatt hour of electricity is nearly twice what it is in Idaho, and more than 50% above the national average, according to Electricchoice.com.

Yet state policy makers are doubling down on green energy and on the restriction to traditional producers, which are expected to make the rates rise even more. For California has enthusiastically embraced cap-and-trade, with AB32, “…which will raise the cost of energy and drive out manufacturing jobs without making even a dent in global carbon emissions. Then there are the renewable portfolio standards, which mandate that a third of the state's energy come from renewable sources like wind and the sun by 2020,” according to the Wall Street Journal.

Most of these costs are borne by the middle class since those below the poverty level get state assistance and the wealthy can afford it. But the high energy costs drive manufacturing and other blue-collar energy users either out of business or out of the state.

And not only are energy costs much higher, but with two decades worth of policy and tax-advantaged investment in green energy, the promised windfall of jobs has not occurred. Only 2% of the job force in California is in green energy, roughly the same as Texas, which maintains a vastly different green energy policy. Rather, in part due to the higher operating costs in California created by onerous regulation, companies, and their jobs, have been exiting the state. California currently has the third highest unemployment rate in the nation at 10.9%.

The Golden State has significant gas and oil resources, yet policy and regulation preclude utilizing them. An estimated 25 billion barrels of oil are sitting untapped in the vast Monterey and Bakersfield shale deposits. Over the past decade, Texas has created 200,000 oil and gas jobs, while California has hardly added any. The Wall Street Journal pointed out recently, that, “The state’s remaining energy producers have been slowing down as the regulatory environment becomes ever more hostile even as producers elsewhere, including in rustbelt states like Ohio and Pennsylvania, ramp up. The oil and gas jobs the Golden State political class shuns pay around $100,000 a year on average.”

"You see the great tragedy of California is that we have all this oil and gas, we won't use it," Mr. Kotkin says. "We have the richest farm land in the world, and we're trying to strangle it." The latter point references how water restrictions aimed at protecting the delta smelt fish are endangering Central Valley farmers. Kotkin asserts that is the kind of “anti-human” public policy that is driving agriculture out and is impacting so many of the state’s economic sectors.

Kotkin explains the demographic changes are occurring because of state policy. “Californians are voting much more based on social issues and less on fiscal ones…” Consequently, it’s a much less favorable climate for employers than ever before. “As progressive policies drive out moderate and conservative members of the middle class, California's politics become even more left-wing. It's a classic case of natural selection, and increasingly the only ones fit to survive in California are the very rich and those who rely on government spending. In a nutshell, ‘the state is run for the very rich, the very poor, and the public employees,’” Kotkin explained recently to the Wall Street Journal.

Middle-class families are fleeing California in droves. As a result, California is turning into a two-and-a-half-class society. On top are the "entrenched incumbents" who inherited their wealth or came to California early and made their money, and the self-made technology millionaires. Then there's a shrunken middle class of public employees and, miles below, a permanent welfare class. As it stands today, about 40% of Californians don't pay any income tax and a quarter are on Medicaid. It's "a very scary political dynamic," Kotkin laments.

Meanwhile, taxes are decimating the private sector economy. According to the Tax Foundation, California has the 48th-worst business tax climate. “The wealthy pay a top rate of 10.3%, the third-highest in the country, while middle-class workers—those who earn more than $48,000—pay a top rate of 9.3%, which is higher than what millionaires pay in 47 states. And state leaders want to raise tax rates even more,” according to the Wall Street Journal.

The reason taxes have been increasing to now unsustainable levels, is that Sacramento has been unable to curtail spending. State spending has more than doubled in the past ten years. Costs for state pensions have increased by over 150% in the same time period, as demands from state employee unions have required a greater percentage of the budget. Unable to muster the discipline to reduce spending to match economic realities, the only tool the state seems to know how to use is tax increases.

The lessons from California are many, and this analysis only scratches the surface. The question is, will we as a nation learn them before or after we’re in the same malaise?

 AP award winning columnist Richard Larsen is President of Larsen Financial, a brokerage and financial planning firm in Pocatello, and is a graduate of Idaho State University with a BA in Political Science and History and former member of the Idaho State Journal Editorial Board. He can be reached at rlarsenen@cableone.net.

Published – Idaho State Journal, 05/13/12

The unambiguous imagery of blindfolded Lady Justice holding the scales of impartiality aloft, idyllically characterizes our understanding of how American justice is expected to function. We expect it to be dispensed neutrally; blind to race, creed, socio-economic status, and political associations. Yet clearly this administration’s Department of Justice is blind in ways not represented by Lady Justice.

Ever since the near collapse of the crony-capitalistic system created more by Washington than by Wall Street, we’ve consistently heard from the administration that they were going to get “tough” on Wall Street, prosecute the perpetrators of the “fraud and corruption” that they insisted was endemic there, and hold “accountable those who helped bring about the last financial crisis.”

Yet, as stated in a revelatory article in Newsweek, due out this week, the administration and Attorney General Eric Holder have not “criminally charged or prosecuted a single top executive from any of the elite financial institutions thought responsible for the financial crash.” Is this blind justice, or simply being blind to justice?

Holder was explicit in his intent to prosecute those “responsible” for the mortgage market induced meltdown. Said he, “Mortgage, securities, and corporate fraud schemes have eroded the public’s confidence in the nation’s financial markets and have led to a growing sentiment that Wall Street does not play by the same rules as Main Street.  Unscrupulous executives, Ponzi scheme operators, and common criminals alike have targeted the pocketbooks and retirement accounts of middle class Americans, and in many cases, devastated entire families’ futures.  We will not allow these actions to go unpunished.”

In reality, that’s precisely what they’ve done. With no charges, no “perp walks” (other than Bernie Madoff whose Ponzi scheme collapsed with the mortgage market) and no prosecution of any top Wall Street executives, the administration proves by their actions that they are firmly ensconced in the pockets of the 1%, at the expense of the 99%.

Logically, there are only two possibilities for such recalcitrance in pursuing the instigators of all the “fraud and corruption” on Wall Street. The first is, perhaps all those financial titans were functioning legally under the complex web of crony-capitalistic excess, as allowed by Washington’s bizarre regulatory umbrella. Or those wizards of Wall Street have bought and paid for their financial “indulgences” with massive contributions into the campaign coffers of Holder’s boss. The Newsweek authors conclude it is the latter.

They also raise another aspect of the “hands off” policy of the DOJ.  They point to the fact that most of those Wall Street executives, and their companies, are clients of the influential law firms that Holder and his top lieutenants worked at before joining the DOJ in 2009.

Just two months into the new administration, there was a meeting held at the White House with heads of 13 of the top banks and financial institutions.  As reported by ABC News, “President Obama put it to the Big Finance executives” and told them in no uncertain terms, “My administration is the only thing between you and the pitchforks.” Here we are three years later, with no arrests, no prosecution, no criminal charges filed, but lots of campaign dollars flowing to the campaign war chest. It would appear the DOJ opted for not “making hay” of the bankers, but save them for their most useful purpose; to finance the president’s campaign.

The hypocrisy of the whole situation has outraged even elements of the left. Mike Gecan, an activist with the Industrial Areas Foundation, explained, “I’m from Chicago, I’ve seen this game played my whole life."

The DOJ and the administration have not only rewarded Wall Street executives by saving them from the pitchforks, but they’ve also been rewarded with the lowest prosecution rates of corporate securities and bank fraud in years.

Department of Justice criminal prosecutions are at 20-year lows for corporate securities and bank fraud, based on data from the Transactional Records Access Clearinghouse, a data-gathering organization at Syracuse University. Newsweek reports that financial fraud prosecutions are “down 39 percent since 2003, and are just one third of what they were during the Clinton administration.”

If we are to believe what the administration has been telling us for the past few years, what happened in 2008 was the direct result of excessive greed, avarice, corruption, and fraud. And it led to what’s widely heralded as the most significant financial downturn since the Great Depression. But still, not a single criminal prosecution in sight.

Don’t believe for a second that the administration is looking out for the 99%. All the evidence indicates it is carefully protecting the 1%, in what could be the most heinous “pay to play” political episode ever in American history. Their version of “justice is blind” seems to indicate that they’re blind to the abuses of their contributors. As Newsweek refers to it, it’s “the Chicago Way writ large.”

AP award winning columnist Richard Larsen is President of Larsen Financial, a brokerage and financial planning firm in Pocatello, and is a graduate of Idaho State University with a BA in Political Science and History and former member of the Idaho State Journal Editorial Board. He can be reached at rlarsenen@cableone.net.

By Richard Larsen

Published – Idaho State Journal, 05/06/12

According to Supreme Court precedent, U.S. citizens are presumed to have a “right of privacy.” Whether we concur with how the precedent has been applied or not, it makes sense that in a republic where the rule of law protects citizens, that we not be unduly exposed to prying government or corporate invasions into our privacy. That “right” has all but vanished.

In 2001 when the Patriot Act was passed, the FBI was allowed to expand its use of National Security Letters to search telephone, e-mail, and financial records without a court order. It expanded access of law enforcement agencies to business records, including library and financial records. The underlying theory was to provide law enforcement access to data allowing them to “connect the dots” on future attempted terrorist attacks. The American Civil Liberties Union and hosts of citizens groups protested vehemently.

The Act was renewed in 2005 and again last year for another four years. Not much was changed, other than expanded use of “roving wire taps.”

Although media and civil liberties groups were extremely vocal in their denunciation of the original Act, and the 2005 renewal, hardly a thing has been said regarding last year’s renewal, with its concomitant expansion of authority to impinge on our privacy.

Much more has happened in the past three years to further erode any semblance of privacy. In March, the New York Times reported that, “For more than two years, a handful of senators on the Senate intelligence committee have warned that the government is secretly interpreting its surveillance powers under the Patriot Act in a way that would be alarming if the public knew about it.” The senators averred, “Americans would be ‘stunned’ to know what the government thought the Patriot Act allowed it to do“ through “a top-secret intelligence operation that is based on secret legal theory.”

Also in March, The Huffington Post reported, “The U.S. intelligence community will now be able to store information about Americans with no ties to terrorism for up to five years under new Obama administration guidelines. Until now, the National Counterterrorism Center had to immediately destroy information about Americans that was already stored in other government databases when there were no clear ties to terrorism.”

Last year the New York Times reported, “The government is increasingly monitoring Facebook, Twitter and other social networking sites for [law breakers and] political protesters.” They continued, “Wired magazine reported last month that In-Q-Tel, an investment arm of the Central Intelligence Agency, has put money into Visible Technologies, a software company that crawls across blogs, online forums, and open networks like Twitter and YouTube to monitor what is being said.”

More alarming is the explosion of government requests for information from the search engines. From Google alone, according to their latest online Transparency Report, the government is actively censoring the web, requesting removal of 757 online items. They’ve also issued requests for “disclosure of user data from Google accounts or services” 5,950 times, which Google complied with 93% of the time. They’ve also requested personal user and account information from Google 11,057 times. All of these requests were over just a six-month period.

Last November, The UK Guardian reported on a conference held in D.C. “The annual Intelligence Support Systems (ISS) World Americas conference is a mecca for representatives from intelligence agencies.” In characterizing the technology presented at the conference, which is strictly off limits to the general public or the media, “Gone are the days when mere telephone wiretaps satisfied authorities' intelligence needs. Behind the cloak of secrecy at the ISS World conference, tips are shared about the latest advanced ‘lawful interception’ methods used to spy on citizens – computer hacking, covert bugging and GPS tracking. Smartphones, email, instant message services and free chat services such as Skype have revolutionized communication. This has been matched by the development of increasingly sophisticated surveillance technology.”

After the attacks of 9/11/01, increased surveillance capacity made sense. But clearly, we have far exceeded the original intent of the Patriot Act. What possible reason can there be for gathering, storing, and sharing data on average citizens with no possible ties to terrorism? What possible reason can there be for gathering such data on “political protestors?” And is a “political protestor” someone who disagrees with what Washington is doing? The possibilities are chilling.

Financial organizations are required to abide by strict privacy laws, and state their policy periodically. Maybe it’s time we hold government to the same standard.

It would appear that we have no more right to privacy at all, as far as government is concerned. Clearly, the fox is loose in the chicken coop, and we’re the chickens. All of us, and our electronic communications, are fair game to a government intent on spying on us, and doing Lord knows what, with the data they gather.

AP award winning columnist Richard Larsen is President of Larsen Financial, a brokerage and financial planning firm in Pocatello, and is a graduate of Idaho State University with a BA in Political Science and History and former member of the Idaho State Journal Editorial Board. He can be reached at rlarsenen@cableone.net.