And the Beat Goes On--California's Smoke & Mirror Budget

(Note: You might like scrolling to the bottom and clicking on the YouTube video then reading this post while you listen)

Remember “Cheers”? I’ve always been more Cliff Claven than anyone else, but I’m thinking about Woody. There were times when stuff would happen to Woody, either with a girlfriend or some other personal disaster.

Sam or Diane or Norm would ask him something like, “Aren’t you really mad about that?”

To which Woody would respond, in that flat, monotone, Midwestern way, “I’m a little ticked.”

Well, I’m more than a little ticked and it’s been bugging me all morning. You see, I have the misfortune to live in California. The State of California just announced yesterday that the Legislature and Governor’s office have agreed to a balanced budget for the fiscal year that started 3 weeks ago. And we’re all supposed to rejoice.

Except that it’s a crock. It’s a sham. It’s a subterfuge. It’s fraud.

Our grand-glorious Governor and Legislature have put together a budget which does not contain tax increases and yet manages to close a $26 billion deficit. Sure, and I’m going to wake up tomorrow with a full head of hair.

Granted, as AP reported, “the plan cuts $15 billion from government programs by slashing spending on schools, universities, health care, welfare and in-home support for the disabled and frail.

They just don’t get it. The time for “smoke and mirrors” and sleight of hand are over. But that’s exactly the kind of budget that has been created. The most egregious example of that is a proposal to “save”$1.2 billion by paying state employees on July 1, 2010 rather than on June 30, 2010 (in other words pushing their paycheck one day into the following fiscal year).

The state is also going to take $4 billion worth of payments to local governments and use it to balance the budget—repaying it with interest over 3 years.

But the good news is that legislative Republicans prevailed. There are no new taxes or tax increases. No, that will be left to the municipalities who will have to increase fees and taxes in order to balance their own precarious budgets.

Unfortunately, the Republicans are thinking like so many failed businesses who focus on cost cutting rather than on revenue increase. You’ve got to think on both sides of the ledgerbook in order to make a budget work. That’s basic and fundamental.

And without belaboring it there are ways to increase revenues. California is a major oil producing state yet has no severance tax. Put an increased tax on alcoholic beverage purchases (I smoke but don’t drink so I prefer a booze tax!).

No, what the state wants to do is accelerate the collection of 2010 personal income and corporate taxes to bring in revenue earlier. This would give the state an “interest free loan” until taxpayers claim the money on tax returns. More hocus-pocus.

Public employee unions have far too much influence in California. They forget that their jobs exist to serve the public. It’s that basic. And yet their complaints about schools and prisons are thinly veiled blackmail attempts primarily motivated by a desire to keep their jobs.

This kind of legerdemain will prevail until California fundamentally addresses its system of governance. And this state cannot wait much longer. Proposition 13 and 98 must be revisited. The State’s basic “operating structure” must be scrutinized, streamlined and made to work better. And the State must take a fundamental look at how it ought to be serving its citizens and reflect that in its organizational and fiscal structure. Until that happens, this state and especially its citizens are screwed. And maybe that’s why all morning I have had a song from the late Congressman Sonny Bono going through my head: “The Beat Goes On”. And it does. But it doesn’t get us anywhere.

This rant won’t make any kind of difference but at least I “officially” got it off my chest. I’m still more than a little ticked.

The Excess of Fear

Today, the Associated Press reported an interview with Lawrence Summers, Director of the National Economic Council in which he stated “Fear begets fear” and that Americans are exhibiting an “excess of fear” about the economic crisis that must be broken in order to “reverse the downturn”.

Summers is all too glibly invoking FDR’s observation that “the only thing we have to fear is fear itself”. This is especially true when he says that we have undergone a “transition from an excess of greed to an excess of fear”.

Here’s my point. Summers is pretty close when he talks of an excess of greed leading to an excess of fear. But, to me the issue isn’t about fear. It’s about trust. The excess of greed—perpetrated by major financial institutions and, seemingly, supported by economic experts and government officials at the highest levels (think “Dub” and his minions) have seriously eroded the trust we have in our financial institutions, the trust we have in our economy and the trust we have in our future.

That’s even worse than fear. Fear, like the fear that a child has of monsters lurking under the bed, can be managed and can be overcome. But trust, once lost, is incredibly difficult to restore.

Banks (and by that I include everything from small town thrifts to huge international institutions) have long been a source of stability within both our economy and social fabric. The word trust has long been associated with this industry and many lenders have even incorporated that word into their names. We trust our banks to take care of our hard earned money. We trust banks to lend it out to people who will repay it, to people who are worthy of the bank’s trust. We trust banks to provide us with a reasonable return on the deposits we make.

What happens when that trust is shattered? We had all our funds at Washington Mutual. I trusted them. Then it became apparent that they were going under because they had been deeply engaged in the business of making shaky loans to shaky borrowers and had consolidated those loans into shaky securities that ultimately came back and bit the bank in the butt. We took half of our funds out of WaMu and should have taken all of our funds out. Why? WaMu is still there. Yes it is, but it violated my trust. When reports started coming out about the troubles this bank was having, we felt betrayed. Our trust had been betrayed. Greed led to huge losses which ultimately yielded a loss of trust.

Was the greed motivated by desiring to do well for the depositors of the bank? I don’t think so. I believe it was motivated by a desire to play with the “monopoly money” and to generate the biggest possible bonus the “suits” could generate for themselves.

Not to pick on WaMu—but that’s my personal reaction to this so-called “economic downturn” which in reality is an economic debacle. It’s personal. It touches us all in one way or another.

So, the issue as far as I’m concerned is one of restoring trust not alleviating fear. What has happened economically to millions in this country has been a betrayal of our trust. Unlike the 4 year old who can be soothed and hugged away from the fear of the “under the bed monster”, Americans desperately need to see real efforts to restore our trust in the very institutions we rely on to safeguard our money. That includes banks, stock markets, political leadership and our government.

Only trust will break the “excess of fear”.