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Carlos Lam

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  • Fixing Social Security and Medicare Via Self-Imposed Means Testing [View article]
    "Now, he has no retirement. No IRA's. No social security. Does the government bail him out, or let him starve?"

    My vote would be for the government to not bail him out & for him to rely on the charity of friends, family & church to provide for his means of survival. The citizenry should not be forced to support such persons.
    Dec 28, 2010. 04:22 PM | Likes Like |Link to Comment
  • Gasoline Prices: The Holiday Present We Didn't Want [View article]
    There IS increasing demand from China & India for gasoline; China is now the world's largest automobile market. A chunk of the increase, however, must be due to the dollar debasement policy of our current Fed Chairman.
    Dec 28, 2010. 11:09 AM | 2 Likes Like |Link to Comment
  • TARP: Was it a Success? [View article]
    In a word: NO. The TARP allowed firms that made poor decisions to continue in existence instead of allowing those firms' capital to be re-deployed to more efficient sectors of the economy. What's more, the TARP has created even more moral hazard: the next time an industry is in trouble, you can bet that it will appeal to those in power--of whatever party--for a bailout. Finally, the TARP has eliminated benefits that we will never see (H/T to Henry Hazlitt): who knows what sort of products, processes or innovation (and jobs) would be born out of the creative destruction of the marketplace? Thanks to TARP, we will never know.
    Dec 28, 2010. 11:07 AM | 4 Likes Like |Link to Comment
  • Fixing Social Security and Medicare Via Self-Imposed Means Testing [View article]
    The proposal put forth by the author is decent inasmuch as it allows individuals more freedom with respect to their retirement. It's less economically sound than my solution--to kill SS & Medicare--but certainly more politically viable.

    That being said, here's where my 17 years in politics will point out that any meaningful reduction in the number of SS & Medicare RECIPIENTS is going to be opposed by those who would protect the two programs. SS/Medicare defenders WANT more people to receive those benefits because it creates a larger and more powerful constituency. To be sure, if SS was means-tested, fewer people would receive payments; this would translate into lowered political support for the program.
    Dec 28, 2010. 06:46 AM | Likes Like |Link to Comment
  • Why I See the Dow and Disposable Income Going Lower in 2011 [View article]
    The article's mention of higher oil prices and higher interest rates is key. Both raise the cost of living for the consumer, and--as the article also points out--wages will not keep pace with the increase. This means that the consumer will have less money left over to purchase discretionary items.
    Dec 28, 2010. 06:25 AM | 1 Like Like |Link to Comment
  • Municipal Bonds: Apocalypse Now or Buying Opportunity? [View article]
    Depends on where you live, Gnatman. If your cousins work in a municipality that's wracked with debt and unfunded pension liabilities, there's no way that they're going to retire without a haircut. I've been trying to tell my fellow public employees this for a year now: there's no way the voters are going to put up with us getting everything that we've been promised by the politicians, so we need to save for our own retirement.
    Dec 27, 2010. 08:42 AM | 3 Likes Like |Link to Comment
  • What Are the Chances of a Muni Doomsday? [View article]
    It's possible but unlikely that the feds will step in directly to bail out a state. I think it's more likely that the Fed will begin monetizing municipal or state debt. Dr. Bernanke has been more than willing to spend his newly-minted paper on all kinds of assets in order to "help" us.
    Dec 26, 2010. 06:27 AM | 1 Like Like |Link to Comment
  • What Are the Chances of a Muni Doomsday? [View article]
    "Stiffing bondholders won't get you re-elected either"

    Maybe, maybe not. Defaulting on bonds will hurt the bondholders a little; their investment may or may not evaporate. Defaulting on retirement pension payments and/or retiree healthcare benefits could cut out a group of retired employees' entire income. The effects on the former group are mild compared with the effects on the latter, which could make the difference.
    Dec 26, 2010. 06:21 AM | 1 Like Like |Link to Comment
  • Municipal Bonds: Apocalypse Now or Buying Opportunity? [View article]
    Gratian, if the last few years have proven anything, it's that -- unfortunately -- one cannot separate the political environment from that of investing. To be sure, GM and Chrysler bondholders found out as much at their peril. Muni defaults will be similar: bondholders will get haircuts because they don't vote but employees and retirees do. In the end, though, employees and retirees won't get what they've been promised.
    Dec 24, 2010. 07:03 AM | 7 Likes Like |Link to Comment
  • Municipal Bonds: Apocalypse Now or Buying Opportunity? [View article]
    Amen to that! Some municipalities are healthy; others--like Detroit or Chicago--have very real problems. One must especially pay attention to the unfunded liabilities that a city may have: pension & healthcare benefits for retirees. If push comes to shove, who are the mayor & city councilmen/aldermen going to pay: retired employees who vote OR bondholders who don't?
    Dec 23, 2010. 06:52 PM | 3 Likes Like |Link to Comment
  • What Are the Chances of a Muni Doomsday? [View article]
    No. Indiana's in the minority. Many states and localities only have defined benefit plans.
    Dec 23, 2010. 11:33 AM | 1 Like Like |Link to Comment
  • What Are the Chances of a Muni Doomsday? [View article]
    Michael, I'm a public employee. I have a hybrid pension system: part is a defined benefit plan, the other a defined contribution plan. Like it or not, the taxpayers bear the market risk on the defined benefit side. Such a situation is--to put it mildly--unjust. Why should the taxpayers be on the hook for the vagaries of the market when I can just as easily take on the market risk and manage it?

    More importantly--at least in my mind--is counterparty risk. No matter who the governor or my state legislator may be, he or she cannot promise me with 100% truthfulness that the promised defined benefit portion of my pension will be paid. This is counterparty risk, and it is the risk that I fear the most. When taxpayers--again, rightfully, IMHO--get really angry that they have to shell out money for my defined benefit pension, legislators are essentially given the green light to renege on their promise to pay me a pension. Thus, I favor defined contribution plans for public employees in my state. Market risk would be transferred to the public employee, but counterparty risk would be eliminated.
    Dec 23, 2010. 09:57 AM | 18 Likes Like |Link to Comment
  • What Are the Chances of a Muni Doomsday? [View article]
    Defaulting on debt would help municipalities in one very big area: pension and benefit liabilities for retirees. In Indiana, the state is responsible for retiree pensions, but this is not the case in many states, where cities, towns and counties are often on the hook for them. Just like Social Security and Medicare are huge albatrosses around the feds' neck, retiree pensions and benefits are great drags on local government in some states. Heading into Chapter 9 would be an attractive way of dealing with these problems. Even if they are not completely jettisoned, pensioners will be forced to take a haircut.

    Bond Girl is correct that bondholders could seek a writ to force tax raises or asset sales, but Chapter 9 would probably stall such a tactic. Moreover, such a writ is questionable inasmuch as taxation rates are set by legislative body; a court's intrusion into that realm raises separation of powers questions. The question that politicians will ask themselves--and I speak with 17 years of experience in local politics--is the following: what can I do to minimize vote share loss? The answer will be to stiff bondholders and do everything possible to keep commitments to employees and retirees, most of whom live in the affected municipality AND who vote.
    Dec 23, 2010. 05:49 AM | 8 Likes Like |Link to Comment
  • What Are the Chances of a Muni Doomsday? [View article]
    Michael, I respectfully disagree. You may indeed argue that the state has to honor its obligations, in your case a pension. A court will have to make that determination. If I represented the state, my argument would be that the legislature realized the horrific position it was in and had the right and duty to make certain decisions. To be sure, if the state ALSO defaulted on G/O bonds, it would be extremely difficult for a judge to disagree. Theoretically, a judge could also order the state to increase taxes, but I'd argue that such a move would be contrary to the separation of powers doctrine, since the legislature is the fiscal body of the state.
    Dec 23, 2010. 05:41 AM | 14 Likes Like |Link to Comment
  • How the Government Rebuilt Household Balance Sheets [View article]
    Not only did we miss the chance to liquidate inefficient firms, but liabilities have been taken on by the taxpayer. To be sure, the TARP avoided liquidation of banks at the expense of the public fisc. We still have no idea what the total bill will be for Fannie and Freddie. We placed costs for GM and Chrysler on the back of the taxpayer.
    Dec 23, 2010. 05:32 AM | 6 Likes Like |Link to Comment